<PAGE>
File No. 33-51294
File No. 811-7140
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 17 /X/
and
REGISTRATION STATEMENT UNDER THE / /
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 19
--------------
MORGAN STANLEY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 548-7786
Harold J. Schaaff, Esquire
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas, New York, New York 10020
(Name and Address of Agent for Service)
--------------
COPIES TO:
Warren J. Olsen Richard W. Grant, Esquire
Morgan Stanley Asset Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 2000 One Logan Square
New York, NY 10020 Philadelphia, PA 19103
--------------
-------------------------------------------------------------------------
IT IS PROPOSED THAT THIS FILING BE EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
/X/ ON NOVEMBER 1, 1996 PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 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) OF RULE 485
------------------------------------------------------------------------
REGISTRANT HAS PREVIOUSLY ELECTED TO AND HEREBY CONTINUES ITS ELECTION TO
REGISTER AN INDEFINITE NUMBER OF SHARES OF ITS COMMON STOCK, PAR VALUE
$.001 PER SHARE, PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR ITS FISCAL YEAR
ENDED JUNE 30, 1996 ON AUGUST 23, 1996.
<PAGE>
MORGAN STANLEY FUND, INC.
CROSS REFERENCE SHEET
PART A - INFORMATION REQUIRED IN A PROSPECTUS
Form N-1A
ITEM NUMBER LOCATION IN PROSPECTUS FOR MORGAN STANLEY GLOBAL 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, 1996
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, 1996
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, 1996
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 -- *
- ----------------
* Omitted since the answer is negative or the Item is not applicable.
ii
<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 TAX-FREE MONEY MARKET AND MORGAN
STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUNDS.
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History --
Item 13. Investment Objectives and Policies -- Investment Objectives and
Policies; Investment Limitations; Determining Maturities of Certain
Instruments; Description of Securities and Ratings
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund;
General Information
Item 17. Brokerage Allocation and Other Practices -- Portfolio Transactions
Item 18. Capital Stock and Other Securities -- General Information
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares; Shareholder Services;
Money Market Fund Net Asset Value; General Information
Item 20. Tax Status -- Investment Objectives and Policies; Federal Income
Tax; Federal Tax Treatment of Forward Currency Contracts and
Exchange Rate Changes; Taxes and Foreign Shareholders; General
Information
Item 21. Underwriters -- Management of the Fund
Item 22. Calculation of Performance Data -- Performance Information
Item 23. Financial Statements -- Financial Statements
PART C - OTHER INFORMATION
iii
<PAGE>
Part C contains the information required by the Items of the Form N-1A under
such Items as set forth in the Form N-1A.
iv
<PAGE>
The Prospectus for the Value, Equity Growth and Mid Cap Growth Funds,
included as part of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No. 033-51294)
filed with the Securities and Exchange Commission via EDGAR on October 18,
1996, is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Global Equity Fund, included as part of
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A of
Morgan Stanley Fund, Inc. (File No. 033-51294) filed with the Securities and
Exchange Commission via EDGAR on October 18, 1996, is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the Emerging Markets Debt Fund, included as part of
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A of
Morgan Stanley Fund, Inc. (File No. 033-51294) filed with the Securities and
Exchange Commission via EDGAR on October 18, 1996, is hereby incorporated by
reference as if set forth in full herein.
The Prospectus for the Growth and Income and European Equity Funds,
included as part of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No. 033-51294)
filed with the Securities and Exchange Commission via EDGAR on October 18,
1996, is hereby incorporated by reference as if set forth in full herein.
The Statement of Additional Information with respect to the foregoing
Funds, included as part of Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A of Morgan Stanley Fund, Inc. (File No. 033-51294)
filed with the Securities and Exchange Commission via EDGAR on October 18,
1996, is hereby incorporated by reference as if set forth in full herein.
The Prospectus for the Money Market, Tax-Free Money Market and
Government Obligations Money Market Funds, included as part of Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A of Morgan Stanley
Fund, Inc. (File No. 033-51294) filed with the Securities and Exchange
Commission via EDGAR on September 23, 1996, is hereby incorporated by reference
as if set forth in full herein.
v
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
MORGAN STANLEY HIGH YIELD 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 "Company") is an open-end management
investment company, or mutual fund, which consists of seventeen diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the three Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator"). Shares are available through Morgan Stanley & Co. Incorporated
("Morgan Stanley" or the "Distributor"), through and investment dealers, banks
and financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers").
THE MORGAN STANLEY WORLDWIDE HIGH INCOME FUND AND MORGAN STANLEY HIGH YIELD
FUND NORMALLY INVEST BETWEEN 80% AND 100% OF THEIR RESPECTIVE TOTAL ASSETS IN
LOWER RATED AND UNRATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF
THIS TYPE ARE SUBJECT TO GREATER RISKS THAN THOSE INVOLVED IN HIGHER RATED
BONDS, INCLUDING THE RISK OF DEFAULT. INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. SEE "ADDITIONAL INVESTMENT
INFORMATION -- LOWER RATED AND UNRATED DEBT SECURITIES."
The Morgan Stanley Worldwide High Income Fund may invest in equity
securities of Russian companies. Russia's system of share registration and
custody involves certain risks of loss that are not normally associated with
investments in other securities markets. See "Additional Investment Information
- -- Russian Securities Transactions."
This Prospectus is designed to set forth concisely the information about the
Funds listed above that a prospective investor should know before investing and
it should be retained for future reference. The Company offers other Funds which
are described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY - Morgan Stanley Global Equity Allocation, Morgan Stanley Asian Growth,
Morgan Stanley Emerging Markets, Morgan Stanley Latin American and Morgan
Stanley International Magnum Funds; (ii) U.S. EQUITY- Morgan Stanley American
Value, Morgan Stanley Aggressive Equity and Morgan Stanley U.S. Real Estate
Funds; (iii) GLOBAL FIXED INCOME - Morgan Stanley Global Fixed Income, Morgan
Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and (iv)
MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley Government
Obligations Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated November 1, 1996,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the Funds are available upon
request and without charge by writing or calling the Company at the address and
telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INCLUDE INVESTMENT RISKS INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESEN TATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
FIXED HIGH
INCOME INCOME HIGH YIELD
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 4.75%(1) 4.75%(1) 4.75%(1)
Class B.................................. None None None
Class C.................................. None None None
Maximum Deferred Sales Load (as a percentage
of the lesser of initial purchase price or
current market value)
For Purchases up to $999,999
Class A.................................. None None None
Class B.................................. 5.00%(2) 5.00%(2) 5.00%(2)
Class C.................................. 1.00%(3) 1.00%(3) 1.00%(3)
For Purchases of $1,000,000 or more
Class A.................................. 1.00%(1) 1.00%(1) 1.00%(1)
Class B.................................. 5.00%(2) 5.00%(2) 5.00%(2)
Class C.................................. 1.00%(3) 1.00%(3) 1.00%(3)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
Redemption Fees (4)
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
Exchange Fees
Class A.................................. None None None
Class B.................................. None None None
Class C.................................. None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Funds
listed above which, when combined with the net asset value of the
purchaser's existing investments in Class A shares of the Funds, aggregate
$1 million or more are not subject to a sales load (an "initial sales
charge"). A contingent deferred sales charge ("CDSC") of 1.00% will be
imposed, however, on shares from any such purchase that are redeemed within
one year following such purchase. Any such CDSC will be paid to the
Distributor. Certain other purchases are not subject to an initial sales
charge. See "Purchase of Shares."
(2) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
will be paid to the Distributor.
(3) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE GLOBAL FIXED WORLDWIDE HIGH HIGH YIELD
NET ASSETS) INCOME FUND INCOME FUND FUND
--------------- ------------------ -------------
<S> <C> <C> <C>
Investment Advisory Fee (after
expense reimbursement and/or
fee waiver) (5)
Class A................... 0.04% 0.61% 0.42%
Class B................... 0.04% 0.61% 0.42%
Class C................... 0.04% 0.61% 0.42%
12b-1/Service Fees
Class A................... 0.25% 0.25% 0.25%
Class B (6)............... 1.00% 1.00% 1.00%
Class C (6)............... 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee
waiver) (5)
Class A................... 1.16% 0.69% 0.58%
Class B................... 1.16% 0.69% 0.58%
Class C................... 1.16% 0.69% 0.58%
Total Operating Expenses
(after expense reimbursement
and/or fee waiver) (5)
Class A................... 1.45% 1.55% 1.25%
Class B................... 2.20% 2.30% 2.00%
Class C................... 2.20% 2.30% 2.00%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, (i) investment advisory fees
absent advisory fee waivers and (ii) expected total operating expenses
absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
GLOBAL FIXED WORLDWIDE HIGH HIGH YIELD
INCOME FUND INCOME FUND FUND
----------------- ----------------- -------------
<S> <C> <C> <C>
Investment Advisory Fees (All
Classes).......................... 0.75% 0.75% 0.75%
Total Operating Expenses
Class A.......................... 2.16% 1.69% 1.58%
Class B.......................... 3.57% 2.47% 2.33%
Class C.......................... 2.87% 2.44% 2.33%
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company." The
Adviser reserves the right to terminate any of its fee waivers at any time in
its sole discretion. For further information on Fund expenses, see
"Management of the Company."
(6) Of the 12b-1/Service fees for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The Class A, Class B and Class C expenses and fees for
the Global Fixed Income and Worldwide High Income Funds are based on actual
figures for the period ended June 30, 1996. The Class A, Class B and Class C
expenses and fees for the High Yield Fund are based on estimates. For purposes
of calculating the estimated expenses and fees set forth above, the table
assumes that the Fund's average daily net assets will be $50,000,000. Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders may pay more than
the equivalent of the maximum front-end sales charges otherwise permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each listed Fund,
including the maximum 4.75% sales charge, (ii) Class B shares of each such Fund,
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
such Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
FIXED HIGH HIGH
INCOME INCOME YIELD
FUND FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses
are the same.)
1 Year.................................................. $ 62(1) $ 63(1) $ 60(1)
3 Years................................................. 91 94 85
5 Years................................................. 123 128 *
10 Years................................................ 213 223 *
Class B shares
(Assuming complete redemption at end of period)
1 Year.................................................. 72 73 70
3 Years................................................. 99 102 93
5 Years................................................. 138 143 *
10 Years (2)............................................ 253 264 *
(Assuming no redemption)
1 Year.................................................. 22 23 20
3 Years................................................. 69 72 63
5 Years................................................. 118 123 *
10 Years (2)............................................ 253 264 *
Class C shares
(Assuming complete redemption immediately prior to the end
of period)
1 Year.................................................. 32 33 30
3 Years................................................. 69 72 63
5 Years................................................. 118 123 *
10 Years................................................ 253 264 *
Class C shares
(Assuming no redemption)
1 Year.................................................. 22 23 20
3 Years................................................. 69 72 63
5 Years................................................. 118 123 *
10 Years................................................ 253 264 *
</TABLE>
- --------------
* Because the High Yield Fund had just recently become operational as of the
date of this Prospectus, the Fund has not projected expenses beyond the
three-year period shown.
4
<PAGE>
(1) Certain large purchases may be subject to a reduced sales load. Purchases
of Class A shares of the Funds listed above which, when combined with the
net asset value of the purchaser's existing investments in Class A shares
of the Funds, aggregate $1 million or more are not subject to an initial
sales charge. A CDSC of 1.00% will be imposed, however, on shares from any
such purchase that are redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after seven years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Fixed Income, Worldwide High Income and High
Yield Funds for each of the respective periods presented. The audited financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1996 Annual Report to Shareholders. The financial statements
are included in the Funds' Statement of Additional Information. The foregoing
Funds' financial highlights for each of the years presented have been audited by
Price Waterhouse LLP, whose report thereon (which was unqualified) is also
included in the Statement of Additional Information. Additional performance
information about the Company is contained in the Company's Annual Report. The
Annual Report and the financial statements contained therein, along with the
Statement of Additional Information, are available at no cost from the Company
at the address and telephone number noted on the cover page of this Prospectus.
The following information should be read in conjunction with the financial
statements and notes thereto.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A ----------------
------------------------------------------------------------------------ AUGUST 1, 1995*
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED TO
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1996
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.55 $ 9.53 $ 10.23 $ 10.24
------ -------------- -------------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.25 0.52 0.56 0.53 0.64
Net Realized and Unrealized
Gain (Loss) 0.55 (0.42) 0.50 (0.01) (0.26)
------ -------------- -------------- -------- -------
Total From Investment
Operations 0.80 0.10 1.06 0.52 0.38
------ -------------- -------------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.36) (0.79) (0.69)
In Excess of Net Investment
Income -- (0.12) -- (0.02) (0.02)
Net Realized Gain -- (0.47) -- -- --
In Excess of Realized Gain -- (0.03) -- -- --
------ -------------- -------------- -------- -------
Total Distributions (0.25) (1.12) (0.36) (0.81) (0.71)
------ -------------- -------------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.23 $ 9.94 $ 9.91
------ -------------- -------------- -------- -------
------ -------------- -------------- -------- -------
TOTAL RETURN(1) 8.02% 0.41% 11.41% 5.20% 3.76%
------ -------------- -------------- -------- -------
------ -------------- -------------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s) $ 6,633 $ 10,369 $ 11,092 $ 7,432 $ 1,440
Ratio of Expenses to Average
Net Assets (2) 1.45%** 1.45% 1.45% 1.45% 2.20%**
Ratio of Net Investment Income
to Average Net Assets (2) 5.00%** 4.70% 5.84% 5.02% 3.38%**
Portfolio Turnover Rate 55% 168% 169% 223% 223%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88%** 2.48% 2.22% 2.16% 3.57%**
Net Investment Income to
Average Net Assets 3.57%** 3.67% 5.07% 4.31% 2.01%**
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.56 $ 9.54 $ 10.20
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.21 0.43 0.49 0.37
Net Realized and Unrealized
Gain (Loss) 0.55 (0.40) 0.47 0.08
------ ------ ------ ------
Total From Investment
Operations 0.76 0.03 0.96 0.45
------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.20) (0.44) (0.30) (0.73)
In Excess of Net Investment
Income -- (0.11) -- (0.02)
Net Realized Gain -- (0.47) -- --
In Excess of Realized Gain -- (0.03) -- --
------ ------ ------ ------
Total Distributions (0.20) (1.05) (0.30) (0.75)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.56 $ 9.54 $ 10.20 $ 9.90
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN(1) 7.61% (0.25)% 10.24% 4.47%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s) $ 6,120 $ 5,407 $ 5,965 $ 2,844
Ratio of Expenses to Average
Net Assets (2) 2.20%** 2.20% 2.20% 2.20%
Ratio of Net Investment Income
to Average Net Assets (2) 4.25%** 3.95% 5.09% 4.35%
Portfolio Turnover Rate 55% 168% 169% 223%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.12 $ 0.08 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.63%** 3.29% 2.97% 2.87%
Net Investment Income to
Average Net Assets 2.82%** 2.86% 4.32% 3.68%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Global Fixed Income Fund began offering the current Class B shares on
August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.75%
of the average daily net assets of the Global Fixed Income Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Global Fixed Income Fund to the extent that the total operating expenses of
the Fund exceed 1.45% of the average daily net assets relating to the Class
A shares and 2.20% of the average daily net assets relating to the Class B
and Class C shares. For the fiscal periods ended June 30, 1994, June 30,
1995 and June 30, 1996, the Adviser waived advisory fees and/or reimbursed
expenses totaling approximately $150,000, $121,000 and $112,000,
respectively, for the Global Fixed Income Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A --------------- CLASS C
----------------------------------------------------- AUGUST 1, 1995* ----------------
SELECTED PER SHARE DATA AND APRIL 21, 1994* YEAR ENDED YEAR ENDED TO APRIL 21, 1994*
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1996 TO JUNE 30, 1994
- -------------------------------- ---------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 12.17 $ 11.57 $ 11.63 $ 12.00
------- -------------- --------------- --------------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.18 1.26 1.36 1.18 0.17
Net Realized and Unrealized
Gain (Loss).................. 0.16 (0.52) 0.80 0.72 0.15
------- -------------- --------------- --------------- --------
Total From Investment
Operations................... 0.34 0.74 2.16 1.90 0.32
------- -------------- --------------- --------------- --------
DISTRIBUTIONS
Net Investment Income......... (0.17) (1.22) (1.26) (1.09) (0.16)
Net Realized Gain............. -- (0.12) -- -- --
------- -------------- --------------- --------------- --------
Total Distributions........... (0.17) (1.34) (1.26) (1.09) (0.16)
------- -------------- --------------- --------------- --------
NET ASSET VALUE, END OF
PERIOD......................... $ 12.17 $ 11.57 $ 12.47 $ 12.44 $ 12.16
------- -------------- --------------- --------------- --------
------- -------------- --------------- --------------- --------
TOTAL RETURN (1)................ 2.86% 6.87% 19.61% 17.07% 2.62%
------- -------------- --------------- --------------- --------
------- -------------- --------------- --------------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 6,857 $ 14,819 $ 41,493 26,174 $ 6,081
Ratio of Expenses to Average Net
Assets (2)..................... 1.55%** 1.55% 1.55% 2.30%** 2.30%**
Ratio of Net Investment Income
to Average Net Assets (2)...... 8.29%** 11.53% 11.95% 12.06%** 7.54%**
Portfolio Turnover Rate......... 19% 178% 220% 220% 19%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.02 $ 0.05 $ 0.02 $ 0.02 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 3.23%** 1.97% 1.69% 2.47%** 4.00%**
Net Investment Income to
Average Net Assets........... 6.61%** 11.11% 11.81% 11.89%** 5.84%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED YEAR ENDED
RATIOS JUNE 30, 1995 JUNE 30, 1996
- -------------------------------- ---------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.16 $ 11.58
-------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 1.17 1.30
Net Realized and Unrealized
Gain (Loss).................. (0.50) 0.77
-------- --------
Total From Investment
Operations................... 0.67 2.07
-------- --------
DISTRIBUTIONS
Net Investment Income......... (1.13) (1.20)
Net Realized Gain............. (0.12) --
-------- --------
Total Distributions........... (1.25) (1.20)
-------- --------
NET ASSET VALUE, END OF
PERIOD......................... $ 11.58 $ 12.45
-------- --------
-------- --------
TOTAL RETURN (1)................ 6.20% 18.71%
-------- --------
-------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 11,880 $ 28,094
Ratio of Expenses to Average Net
Assets (2)..................... 2.30% 2.30%
Ratio of Net Investment Income
to Average Net Assets (2)...... 10.72% 11.40%
Portfolio Turnover Rate......... 178% 220%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 2.74% 2.44%
Net Investment Income to
Average Net Assets........... 10.28% 11.26%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Worldwide High Income Fund began offering the current Class B shares on
August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 0.75% of the average daily net assets of the Worldwide High Income Fund.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Worldwide High Income Fund to the extent that the total
operating expenses of the Fund exceed 1.55% of the average daily net assets
relating to the Class A shares and 2.30% of the average daily net assets
relating to the Class B and Class C shares. For the fiscal periods ended
June 30, 1994, June 30, 1995 and June 30, 1996, the Adviser waived advisory
fees and/or reimbursed expenses totaling approximately $39,000, $88,000 and
$97,000, respectively, for the Worldwide High Income Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 12.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.13 0.12 0.12
Net Realized and Unrealized
Loss (0.09) (0.09) (0.09)
------- ------- -------
Total From Investment
Operations 0.04 0.03 0.03
------- ------- -------
DISTRIBUTION:
Net Investment Income (0.12) (0.10) (0.10)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 11.93 $ 11.93
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 0.29% 0.21% 0.21%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 3,907 $ 3,421 $ 3,316
Ratio of Expenses to Average
Net Assets 1.25%** 2.00%** 2.00%**
Ratio of Net Investment Income
to Average Net Assets 6.85%** 6.08%** 6.07%**
Portfolio Turnover Rate 10% 10% 10%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.04 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.51%** 4.25%** 4.25%**
Net Investment Income to
Average Net Assets 4.59%** 3.83%** 3.82%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual
rate of 0.75% of the average daily net assets of the High Yield Fund.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the High Yield Fund to the extent that the total operating
expenses of the Fund exceed 1.25% of the average daily net assets
relating to the Class A shares and 2.00% of the average daily net
assets relating to the Class B and Class C shares. For the fiscal
period ended June 30, 1996, the Adviser waived advisory fees and/or
reimbursed expenses totaling approximately $38,000 for the High Yield
Fund.
9
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company 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. providing services as Distributor. Each Fund has its own
investment objective and policies designed to meet its specific goals. For ease
of reference, the words "Morgan Stanley," which begin the name of each Fund,
have not been included in the Funds named below. The investment objective of
each Fund described in this Prospectus is as follows:
- 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 located 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 located 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 four
highest rating categories of the nationally recognized statistical rating
organizations.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The objectives of these other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and by investing
from time to time in debt securities issued or guaranteed by Latin
American governments or governmental entities.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
10
<PAGE>
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
U.S. EQUITY FUNDS:
- The AMERICAN VALUE FUND seeks high 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.
MONEY MARKET FUNDS:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining the 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 GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. (the "Adviser" and the
"Administrator"), a wholly owned subsidiary of Morgan Stanley Group Inc., which,
together with its affiliated asset management companies, had approximately
$103.5 billion in assets under management as an investment manager or as a
fiduciary adviser at September 30, 1996, acts as investment adviser to the
Company and each of its Investment Funds. See "Management of the Company --
Investment Adviser" and "-- Administrator." Morgan Stanley Group Inc. has
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 approximately
$58.7 billion in assets under management as of September 30, 1996. The
acquisition is expected to have closed by October 31, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers. Securities of foreign issuers are
11
<PAGE>
subject to certain risks not typically associated with domestic securities,
including, among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Worldwide High Income Fund invests in securities of issuers
located in developing countries and emerging markets, which may impose greater
liquidity risks and other risks not typically associated with investing in the
more established markets of developed countries. The Worldwide High Income
Fund's investments in emerging markets may be in small- to medium-sized
companies. The Fund may also invest in sovereign debt that is considered to be
speculative in nature and involves a high degree of risk. The Funds may invest
in forward foreign currency exchange contracts, and the Worldwide High Income
Fund may invest in foreign currency exchange futures and options, to hedge the
currency risks associated with investment in non-U.S. dollar denominated
securities. The Worldwide High Income and High Yield Funds may invest in lower
rated and unrated debt securities which are considered speculative with regard
to the payment of interest and return of principal. The Worldwide High Income
Fund may invest in options, futures, structured investments and reverse
repurchase agreements, engage in short selling and borrow money for purposes of
leverage. The Global Fixed Income Fund is a non-diversified portfolio which may
invest a greater portion of its assets in the securities of a smaller number of
issuers and, as a result, will be subject to a greater risk resulting from such
concentration of its portfolio securities. In addition, each Fund may invest in
repurchase agreements, borrow money, lend its portfolio securities, and purchase
securities on a when-issued or delayed delivery basis. Each Fund may invest in
securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. Such securities may be
less liquid than publicly traded securities. Each of these investment strategies
involves specific risks which are described under "Investment Objectives and
Policies" and "Additional Investment Information" herein and under "Investment
Objectives and Policies" in the Statement of Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds described herein are
designed to provide investors a choice of three ways to pay distribution costs.
Class A shares of the Funds are offered at net asset value plus an initial sales
charge of up to 4.75% in graduated percentages based on the investor's aggregate
investments in the Funds. Shares of the Class B shares and Class C shares of the
Funds are offered at net asset value. Class B shares are subject to a contingent
deferred sales charge ("CDSC") for redemptions within six years of purchase and
are subject to higher annual distribution-related expenses than the Class A
shares. Class C shares subject to a CDSC for redemptions within one year of
purchase and are subject to higher annual distribution-related expenses than the
Class A shares. See "Purchase of Shares" for a discussion of reductions or
waiver of sales charges, which are available for certain investors. Share
purchases may be made through Morgan Stanley, through Participating Dealers or
by sending payments directly to the Company. The minimum initial investment is
$1,000 for each class of a Fund, except that the minimum initial investment
amount for individual retirement accounts ("IRAs")
12
<PAGE>
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 Fund may be redeemed at any time at the net asset value per
share of the Fund next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price. A Class A
shareholder of a Fund who did not pay an initial sales charge due to the size of
the purchase and redeems shares within one year of purchase will be subject to a
CDSC of 1.00%. Certain Class B shares that are redeemed within six years of
purchase are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. Certain Class C shares that are redeemed within one year of
purchase are subject to a CDSC of 1.00%. The CDSC for each class is applicable
to the lesser of the current market value of the shares redeemed or the total
cost of such shares. In determining whether a CDSC is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to such charge are
the first redeemed followed by other shares held for the longest period of time.
If a shareholder reduces his/her total investment in shares of a Fund to less
than $1,000, the entire investment may be subject to involuntary redemption. See
"Redemption of Shares."
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve the objectives. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. There is no assurance that a
Fund will attain its investment objective. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE GLOBAL FIXED INCOME FUND
The investment objective of the Global Fixed Income Fund is to produce an
attractive real rate of return while preserving capital by investing in fixed
income securities of issuers throughout the world, including U.S. issuers. The
Fund will, under normal market conditions, invest at least 65% of the value of
its total assets in fixed income securities of issuers in at least three
different countries. The Fund seeks to achieve its objective by investing in
United States government securities, foreign government securities, securities
of supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics, with varying maturities denominated in
various currencies. In selecting portfolio securities, the Adviser evaluates the
currency, market, and individual features of the securities being considered for
investment. For a description of special considerations and certain risks
associated with investments in foreign issuers, see "Additional Investment
Information" below and "Investment Objectives and Policies" in the Statement of
Additional Information.
The Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO") or, if unrated, will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors. U.S.
Government securities in which the Global Fixed Income Fund may invest include
obligations issued or guaranteed by the U.S. Government, such as U.S. Treasury
securities, as well as those backed by the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association and
The Export-Import Bank. The Fund may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Fund must
look principally to the issuing or guaranteeing agency for ultimate repayment.
The Fund may invest in obligations issued or guaranteed by foreign governments
and their political subdivisions, authorities, agencies or instrumentalities,
and by supranational entities (such as the World Bank, The European Economic
Community, The Asian Development Bank and the European Coal and Steel
Community). Investment in foreign government securities will be limited to those
of developed nations which the Adviser believes to pose limited credit risk.
These countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland and The United Kingdom.
Corporate and supranational obligations in which the Fund will invest will be
limited to those rated "A" or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("Standard & Poor's") or IBCA Ltd.,
or if unrated, of comparable quality as determined by the Adviser under the
supervision of the Company's Board of Directors.
14
<PAGE>
The Adviser's approach to multi-currency, fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.
Under normal circumstances, the Global Fixed Income Fund will have a neutral
investment position in medium-term securities (i.e., those with a remaining
maturity of between three and seven years) and will respond to changing interest
rate levels by shortening or lengthening portfolio maturity through investment
in longer- or shorter-term instruments. For example, the Fund will respond to
high levels of real interest rates through a lengthening in portfolio maturity.
Current and historical yield spreads among the three main market segments -- the
Government, Foreign and Euro markets -- guide the Adviser's selection of markets
and particular securities within those markets. The analysis of currencies is
made independent of the analysis of markets. Value in foreign exchange is
determined by relative purchasing power parity of a given currency. The Fund
seeks to invest in currencies currently undervalued based on purchasing power
parity. The Adviser analyzes current account and capital account performance and
real interest rates to adjust for shorter-term currency flows.
For temporary defensive purposes, the Global Fixed Income Fund may invest in
money market instruments and medium-term debt securities that the Adviser
believes be of high quality, or hold cash. See "Additional Investment
Information -- Temporary Investments."
The Global Fixed Income Fund may invest in non-publicly traded securities,
private placements and restricted securities. See "Additional Investment
Information -- Non-Publicly Traded Securities, Private Placements and Restricted
Securities."
The Global Fixed Income Fund will occasionally enter into forward foreign
currency exchange contracts. These are used to hedge foreign currency exchange
exposures when required. See "Additional Investment Information -- Forward
Foreign Currency Exchange Contracts and Futures Contracts."
For further information about the foregoing and certain additional
investment practices of the Global Fixed Income Fund, see "Additional Investment
Information" below.
THE WORLDWIDE HIGH INCOME FUND
The investment objective of the Worldwide High Income Fund is high current
income consistent with relative stability of principal and, secondarily, capital
appreciation, by investing primarily in a portfolio of high yielding fixed
income securities of issuers located throughout the world. The Fund seeks to
achieve its investment objective by allocating its assets among any or all of
three investment sectors: U.S. corporate lower rated and unrated debt
securities, emerging country debt securities and global fixed income securities
offering high real yields. The types of securities in each of these investment
sectors in which the Fund may invest are described below. In selecting U.S.
corporate lower rated and unrated debt securities for the Fund's portfolio, the
Adviser will consider, among other things, the price of the security, and the
financial history, condition, prospects and management of an issuer. The Adviser
intends to invest a portion of the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for
15
<PAGE>
capital appreciation if the perceived creditworthiness of the issuer improves
due to improving economic, financial, political, social or other conditions in
the country in which the issuer is located. In addition, the Adviser will
attempt to invest a portion of the Fund's assets in fixed income securities of
issuers in global fixed income markets displaying high real (inflation adjusted)
yields. Under normal conditions, the Fund invests between 80% and 100% of its
total assets in some or all of three categories of higher yielding securities,
some of which may entail increased credit and market risk. Some or all of such
higher yielding securities will be lower rated or unrated debt securities,
commonly referred to as "junk bonds." See "Additional Investment Information --
Risk Factors Relating to Investing in Lower Rated and Unrated Debt Securities"
and "-- Foreign Investment Risk Factors."
The Adviser's approach to multi-currency fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.
From time to time, a portion of the Worldwide High Income Fund's
investments, which may be up to 100% of the Fund's investments, may be
considered to have credit quality below investment grade as determined by
internationally recognized credit rating agency organizations, such as Moody's
and Standard & Poor's, or be unrated but determined to be of comparable quality
by the Adviser. Such lower rated bonds are commonly referred to as "junk bonds."
Securities in such lower rating categories may have predominantly speculative
characteristics or may be in default. Appendix A to this Prospectus sets forth a
description of Moody's and Standard & Poor's corporate bond ratings. Ratings
represent the opinions of rating agencies as to the quality of bonds and other
debt securities they undertake to rate at the time of issuance. However, ratings
are not absolute standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, while the Adviser will consider ratings, it will
perform its own analysis and will not rely principally on ratings. Emerging
country debt securities in which the Fund may invest will be subject to high
risk and will not be required to meet a minimum rating standard and may not be
rated for creditworthiness by any internationally recognized credit rating
organization. The Fund's investments in U.S. corporate lower rated and unrated
debt securities and emerging country debt securities are expected to be rated in
the lower and lowest rating categories of internationally recognized credit
rating organizations or to be unrated securities of comparable quality. Ratings
of a non-U.S. debt instrument, to the extent that those ratings are undertaken,
are related to evaluations of the country in which the issuer of the instrument
is located. Ratings generally take into account the currency in which a non-U.S.
debt instrument is denominated; instruments issued by a foreign government in
other than the local currency, for example, typically have a lower rating than
local currency instruments due to the existence of an additional risk that the
government will be unable to obtain the required foreign currency to service its
foreign currency-denominated debt. In general, the ratings of debt securities or
obligations issued by a non-U.S. public or private entity will not be higher
than the rating of the currency or the foreign currency debt of the central
government of the country in which the issuer is located, regardless of the
intrinsic creditworthiness of the issuer. To mitigate the risks associated with
investments in such lower rated securities, the Fund will
16
<PAGE>
diversify its holdings by market, issuer, industry and credit quality. Investors
should carefully review the section below entitled "Additional Investment
Information -- Risk Factors Relating to Investing in Lower Rated Debt
Securities."
The chart below indicates the Worldwide High Income Fund's weighted average
composition of debt securities graded by Standard & Poor's for the fiscal year
ended June 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
A........................................................... 8.93%
BBB......................................................... 2.54%
BB.......................................................... 24.17%
B........................................................... 16.08%
CCC......................................................... 0.17%
Unrated..................................................... 48.10%
</TABLE>
The weighted average indicated above was calculated on a dollar weighted
basis and was computed as at the end of each month through June 30, 1996. The
chart does not necessarily indicate what the composition of the Fund's portfolio
will be in the current and subsequent fiscal years. For a description of
Standard & Poor's ratings of fixed income securities, see Appendix A to this
Prospectus.
The Worldwide High Income Fund may invest in or own securities of companies
in various stages of financial restructuring, bankruptcy or reorganization which
are not currently paying interest or dividends, provided that the total value,
at the time of purchase, of all such securities will not exceed 10% of the value
of the Fund's total assets. The Fund may have limited recourse in the event of
default on such debt instruments. The Fund may invest in loans, assignments of
loans and participation in loans. See "Additional Investment Information -- Loan
Participation and Assignments." The Fund may also invest in depositary receipts
issued by U.S. or foreign financial institutions. See "Additional Investment
Information -- Depositary Receipts."
The Worldwide High Income Fund is not restricted in the portion of its
assets which may be invested in securities denominated in a particular currency
and a substantial portion of the Fund's assets may be invested in non-U.S.
Dollar-denominated securities. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. Dollar will vary
depending on market conditions. The analysis of currencies is made independent
of the analysis of markets. Value in foreign exchange is determined by relative
purchasing power parity of a given currency. The Fund seeks to invest in
currencies currently undervalued based on purchasing power parity. The Adviser
analyzes current account and capital account performance and real interest rates
to adjust for shorter-term currency flows. Although the Fund is permitted to
engage in a wide variety of investment practices designed to hedge against
currency exchange rate risks with respect to its holdings of non-U.S.
Dollar-denominated debt securities, the Fund may be limited in its ability to
hedge against these risks. See "Additional Investment Information -- Foreign
Currency Hedging Transactions" and "-- Short Sales." The Fund may also buy and
sell options and may enter into futures contracts and options on futures,
including indexed financial futures contracts. See "Additional Investment
Information -- Options Transactions" and "-- Futures and Options on Futures."
17
<PAGE>
The Worldwide High Income Fund may invest in zero coupon, pay-in-kind or
deferred payment securities, and in securities that may be collateralized by
zero coupon securities (such as Brady Bonds). Zero coupon securities are sold at
a discount to par value and are not entitled to interest payments during the
life of the security. Upon maturity, the holder is entitled to receive the par
value of the security. While interest payments are not made on such securities,
holders of such securities are deemed to receive "phantom income," which the
Fund will accrue prior to the receipt of any cash payments. Because the Fund
will distribute its "phantom income" to shareholders annually, and to the extent
that shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional shares, the Fund will have fewer assets with which
to purchase income producing securities. In addition, in order to pay these cash
distributions, the Fund may be required to sell portfolio securities when it
might not otherwise choose to do so, and the Fund may incur capital losses on
such sales. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
The Worldwide High Income Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage."
The average time to maturity of the Worldwide High Income Fund's securities
will vary depending upon the Adviser's perception of market conditions. The
Adviser invests primarily in medium-term securities (i.e., those with a
remaining maturity of approximately five years) in a market neutral environment.
When the Adviser believes that real yields are high, the Adviser lengthens the
remaining maturities of securities held by the Fund and, conversely, when the
Adviser believes real yields are low, it shortens the remaining maturities.
Thus, the Fund is not subject to any restrictions on the maturities of the debt
securities it holds, and the Adviser may vary the average maturity of the
securities held in the Fund's portfolio without limit.
The Worldwide High Income Fund may invest in non-publicly traded securities,
private placements and restricted securities. See "Additional Investment
Information -- Non-Publicly Traded Securities, Private Placements and Restricted
Securities."
For temporary defensive purposes, the Worldwide High Income Fund may invest
in money market instruments and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Additional Investment
Information -- Temporary Investments."
U.S. CORPORATE HIGH YIELD FIXED INCOME SECURITIES. A portion of the
Worldwide High Income Fund's assets will be invested in U.S. corporate high
yield fixed income securities, which offer a yield above that generally
available on U.S. corporate debt securities in the four highest rating
categories of the recognized rating
18
<PAGE>
services and are commonly referred to as "junk bonds." The Fund may buy unrated
securities that the Adviser believes are comparable to rated securities that are
consistent with the Fund's objective and policies. The Fund may acquire fixed
income securities of U.S. issuers, including debt obligations (e.g., bonds,
debentures, notes, equipment lease certificates, equipment trust certificates,
conditional sales contracts, commercial paper and obligations issued or
guaranteed by the U.S. Government or any of its political subdivisions, agencies
or instrumentalities) and preferred stock. These fixed income securities may
have equity features, such as conversion rights or warrants and the Fund may
invest up to 10% of its total assets in equity securities other than preferred
stock (e.g., common stocks, warrants and rights and limited partnership
interests). The Fund may not invest more than 5% of its total assets at the time
of acquisition in either of (1) equipment lease certificates, equipment trust
certificates and conditional sales contracts or (2) limited partnership
interests.
EMERGING COUNTRY FIXED INCOME SECURITIES. A portion of the Worldwide High
Income Fund's assets will be invested in emerging country fixed income
securities, which are debt securities of government and government-related
issuers located in emerging countries (including participation in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers and debt securities of corporate
issuers located in or organized under the laws of emerging countries. As used in
this Prospectus, an emerging country is any country that the International Bank
for Reconstruction and Development (more commonly known as the World Bank) has
determined to have a low or middle income economy. There are currently over 130
countries which are considered to be emerging countries, approximately 40 of
which currently have established securities markets. These countries generally
include every nation in the world except the United States, Canada, Japan,
Australia, New Zealand and most nations located in Western Europe.
In selecting emerging country debt securities for investment by the Fund,
the Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. Initially, the Fund expects that its investments
in emerging country debt securities will be made primarily in some or all of the
following emerging countries:
Algeria
Argentina
Brazil
Bulgaria
Chile
Colombia
Costa Rica
Czech Republic
Dominican Republic
Ecuador
Egypt
Greece
Hungary
India
Indonesia
Ivory Coast
Jamaica
Jordan
Malaysia
Mexico
Morocco
Nicaragua
Nigeria
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Russia
Slovakia
South Africa
Thailand
Tobago
Trinidad
Tunisia
Turkey
Uruguay
Venezuela
Zaire
19
<PAGE>
As opportunities to invest in debt securities in other emerging countries
develop, the Fund expects to expand and further diversify the emerging countries
in which it invests. While the Fund generally is not restricted in the portion
of its assets which may be invested in a single country or region, it is
anticipated that, under normal circumstances, the Fund's assets will be invested
in at least three countries.
The Fund's investments in government and government-related and restructured
debt securities will consist of (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or instrumentalities and
political subdivisions located in emerging countries (including participation in
loans between governments and financial institutions), (ii) debt securities or
obligations issued by government owned, controlled or sponsored entities located
in emerging countries, and (iii) interests in issuers organized and operated for
the purpose of restructuring the investment characteristics of instruments
issued by any of the entities described above. Such type of restructuring
involves the deposit with or purchase by an entity of specific instruments and
the issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. Certain issuers of such
structured securities may be deemed to be "investment companies" as defined in
the Investment Company Act of 1940 (the "1940 Act"). As a result, the Fund's
investment in such securities may be limited by certain investment restrictions
contained in the 1940 Act. See "Additional Investment Information -- Structured
Investments."
The Fund's investments in debt securities of corporate issuers in emerging
countries may include debt securities or obligations issued (i) by banks located
in emerging countries or by branches of emerging country banks located outside
the country or (ii) by companies organized under the laws of an emerging
country. Determinations as to eligibility will be made by the Adviser based on
publicly available information and inquiries made to the issuer. See "Additional
Investment Information -- Foreign Investment Risk Factors" for a discussion of
the nature of information publicly available for non-U.S. issuers. The Fund may
also invest in certain debt obligations customarily referred to as "Brady
Bonds," which are created through the exchange of existing commercial bank loans
to foreign entities for new obligations in connection with debt restructuring
under a plan introduced by former U.S. Secretary of the Treasury Nicholas F.
Brady. See "Description of Securities and Ratings -- Emerging Country Debt
Securities" in the Statement of Additional Information for further information
about Brady Bonds. The Fund's investments in government and government-related
and restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional
loan amounts.
Emerging country debt securities held by the Fund will take the form of
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage- and other asset-backed securities, loan
participation, loan assignments and interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging country issuers. The Fund may buy unrated
securities that the Adviser believes are comparable to rated securities that are
consistent with the Fund's objective and policies. U.S. Dollar-denominated
emerging country debt securities held by the Fund will generally be listed but
not traded on a securities exchange, and non-U.S. Dollar-denominated securities
held by the Fund may or may not be listed or traded on a securities exchange.
The Fund may invest in mortgage-backed securities and in other asset-backed
securities issued by non-governmental entities such as banks and other financial
institutions. Mortgage-backed securities include mortgage pass through
securities and collateralized mortgage obligations. Asset-backed securities are
collateralized by such assets as automobile or
20
<PAGE>
credit card receivables and are securitized either in a pass-through structure
or in a pay-through structure similar to a CMO. Investments in emerging country
debt securities entail special investment risks. See "Additional Investment
Information -- Foreign Investment Risk Factors."
GLOBAL FIXED INCOME SECURITIES. The global fixed income securities in which
a portion of the Worldwide High Income Fund's assets may be invested are debt
securities denominated in currencies of countries displaying high real yields.
Such securities include government obligations issued or guaranteed by U.S. or
foreign governments and their political subdivisions, authorities, agencies or
instrumentalities, and by supranational entities (such as the World Bank, The
European Economic Community, The Asian Development Bank and the European Coal
and Steel Community), Eurobonds, and corporate bonds with varying maturities
denominated in various currencies. In this portion of the Fund's portfolio, the
Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by an NRSRO or, if unrated, will be of comparable
quality, as determined by the Adviser under the supervision of the Board of
Directors. U.S. Government securities in which the Fund may invest include
obligations issued or guaranteed by the U.S. Government, such as U.S. Treasury
securities, as well as those backed by the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association and
The Export-Import Bank. The Fund may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Fund must
look principally to the issuing or guaranteeing agency for ultimate repayment.
The Fund may invest in obligations issued or guaranteed by foreign governments
and their political subdivisions, authorities, agencies or instrumentalities,
and by supranational entities (such as the World Bank, The European Economic
Community, The Asian Development Bank and the European Coal and Steel
Community). Investment in foreign government securities for this portion of the
Fund's portfolio will be limited to those of developed nations which the Adviser
believes to pose limited credit risk. These countries currently include
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain,
Sweden, Switzerland and The United Kingdom. Corporate and supranational
obligations in which the Fund will invest for this portion of its portfolio will
be limited to those rated "A" or better by Moody's, Standard & Poor's or IBCA
Ltd. or, if unrated by such organizations, determined to be of comparable
quality by the Adviser under the supervision of the Company's Board of
Directors.
In selecting securities for this portion of the Fund's portfolio, the
Adviser evaluates the currency, market and individual features of the securities
being considered for investment. The Adviser believes that countries displaying
the highest real yields will over time generate a high total return, and
accordingly, the Adviser's focus for this portion of the Fund's portfolio will
be to analyze the relative rates of real yield of twenty global fixed income
markets. In selecting securities, the Adviser will first identify the global
markets in which the Fund's assets will be invested by ranking such countries in
order of highest real yield. In this portion of its portfolio, the Fund will
invest its assets primarily in fixed income securities denominated in the
currencies of countries within the top quartile of the Adviser's ranking.
The Adviser's assessment of the global fixed income markets is based on an
analysis of real interest rates. The Adviser calculates real yield for each
global market by adjusting current nominal yields of securities in each such
market for inflation prevailing in each country using an analysis of past and
projected (one-year) inflation rates for that country. The Adviser expects to
review and update on a regular basis its real yield ranking of
21
<PAGE>
countries and market sectors and to alter the allocation of this portion of the
Fund's investments among markets as necessary when changes to real yields and
inflation estimates significantly alter the relative rankings of the countries
and market sectors.
For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.
THE HIGH YIELD FUND
The Fund seeks to maximize total return by investing in a diversified
portfolio of high yield fixed income securities that offer a yield above that
generally available on debt securities in the four highest rating categories of
the nationally recognized statistical rating organizations. The Fund normally
invests between 80% and 100% of its total assets in these higher yielding
securities, (commonly referred to as high yield bonds or junk bonds) which
generally entails increased credit and market risk. To mitigate these risks the
Fund will diversify its holdings by issuer, industry and credit quality, but
investors should carefully review the section below entitled "Additional
Investment Information -- Lower Rated and Unrated Debt Securities."
Appendix A to this Prospectus sets forth a description of the corporate bond
rating categories of Moody's and Standard & Poor's. Corporate bonds rated below
Baa by Moody's or BBB by Standard & Poor's are considered speculative.
Securities in the lowest rating categories may have predominantly speculative
characteristics or may be in default. Ratings of Standard & Poor's and Moody's
represent their opinions of the quality of bonds and other debt securities they
undertake to rate at the time of issuance. However, ratings are not absolute
standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, although the Adviser will consider ratings, it
will perform its own analysis and will not rely principally on ratings. The
Adviser will consider, among other things, the price of the security, and the
financial history and condition, the prospects and the management of an issuer
in selecting securities for the Fund. The Fund may buy unrated securities that
the Adviser believes are comparable to rated securities and are consistent with
the Fund's objective and policies. The Adviser may vary the average maturity of
the securities in the Fund without limit and there is no restriction on the
maturity of any individual security.
The table below provides a summary of ratings assigned by S&P to debt
obligations in the High Yield Fund. These figures are dollar-weighted averages
of month-end portfolio holdings during the period ended June 30, 1996, and are
presented as a percentage of total investments. These percentages are historical
and are not necessarily indicative of the quality of current or future portfolio
holdings, which may vary.
<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ---------------------------------------------------------------------------------- ------------
<S> <C>
BBB............................................................................... 2.28%
BB................................................................................ 45.11%
B................................................................................. 41.09%
Unrated........................................................................... 11.52%
</TABLE>
The High Yield Fund may acquire fixed income securities of both U.S. and
foreign issuers, including debt obligations (e.g., bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sales
contracts, commercial paper and obligations issued or guaranteed by the U.S.
Government, any foreign government with which the United States maintains
relations or any of their respective political
22
<PAGE>
subdivisions, agencies or instrumentalities) and preferred stock. The Fund may
not invest more than 5% of its total assets at time of acquisition in either (1)
equipment lease certificates, equipment trust certificates and conditional sales
contracts or (2) limited partnership interests. The Fund may neither invest more
than 20% of its total assets in foreign securities nor invest more than 5% of
its total assets in foreign governmental issuers in any one country. The Fund's
fixed income securities may have equity features, such as conversion rights or
warrants, and the Fund may invest up to 10% of its total assets in equity
securities other than preferred stock (common stocks, warrants and rights and
limited partnership interests). The Fund may invest up to 20% of its total
assets in fixed income securities that are investment grade (i.e., rated in one
of the top four categories by a NRSRO or determined to be of comparable quality)
and have maturities of one year or less. For temporary defensive purposes, the
Fund may invest in money market instruments and medium-term debt securities that
the Adviser believes to be of high quality. See "Additional Investment
Information -- Temporary Investments." The Fund may invest in or own securities
of companies in various stages of financial restructuring, bankruptcy or
reorganization which are not currently paying interest or dividends. Such
securities may be rated C by Moody's or D by Standard & Poor's or may be unrated
but determined to be of comparable quality by the Adviser. The total value, at
time of purchase, of the sum of all such securities will not exceed 10% of the
value of the Fund's total assets. Securities that are rated above C by Moody's
or above D by Standard & Poor's (or are unrated but determined to be of
comparable quality by the Adviser) when purchased by the Fund that are later
downgraded may continue to be held by the Fund at the discretion of the Adviser.
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and securities on which interest payments are not made during the life
of the security. Upon maturity, the holder is entitled to receive the par value
of the security. While interest payments are not made on such securities,
holders of such securities are deemed to have received "phantom income"
annually. Because the Fund will distribute its "phantom income" to shareholders,
to the extent that shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares of the Fund, it will have fewer
assets with which to purchase income producing securities. The Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Worldwide High Income Fund is authorized to borrow money from banks and
other entities in an amount equal to up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, and may use the proceeds of the borrowing for investment
purposes or to pay dividends. Borrowing creates leverage which is a speculative
characteristic. Although the Fund is
23
<PAGE>
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations. Leveraging resulting from borrowing will magnify declines as
well as increases in the Fund's net asset value per share and net yield.
The Worldwide High Income Fund expects that any borrowing, for other than
temporary purposes, will be made on a secured basis. The Fund's Custodian will
either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets.
The Worldwide High Income Fund may also enter into reverse repurchase
agreements. See "Additional Investment Information -- Reverse Repurchase
Agreements" below.
DEPOSITARY RECEIPTS
The Worldwide High Income Fund may on occasion invest in American Depositary
Receipts ("ADRs"). The Worldwide High Income Fund may also invest in other
depositary receipts, including Global Depositary Receipts ("GDRs"), European
Depositary Receipts ("EDRs") and other depositary receipts (which, together with
ADRs, GDRs and EDRs, are hereinafter collectively referred to as "Depositary
Receipts"), to the extent that such Depositary Receipts become available. ADRs
are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts are typically issued by
foreign depositories, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation.
Holders of unsponsored Depositary Receipts generally bear all the costs
associated with establishing the unsponsored Depositary Receipt. The depositary
of an unsponsored Depositary Receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored Depositary Receipt voting rights with
respect to the deposited securities or pool of securities. Depositary Receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. The Worldwide High Income Fund may invest in
sponsored and unsponsored Depositary Receipts. For purposes of the Worldwide
High Income investment policies, the Fund's investments in Depositary Receipts
will be deemed to be investments in the underlying securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS
Each Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S.
24
<PAGE>
Dollar value of dividends declared on securities held by the Fund and generally
protecting the U.S. Dollar value of securities held by the Fund against exchange
rate fluctuations. While such forward contracts may limit losses to a Fund as a
result of exchange rate fluctuations, they will also limit any exchange rate
gains that might otherwise have been realized.
The Worldwide High Income Fund may also enter into foreign currency futures
contracts. A foreign currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Foreign currency futures contracts
traded in the U.S. are traded on regulated exchanges. Parties to a futures
contract must make initial "margin" deposits to secure performance of the
contract, which generally range from 2% to 5% of the contract price. There also
are requirements to make "variation" margin deposits as the value of the futures
contract fluctuates. The Worldwide High Income Fund may not enter into foreign
currency futures contracts if the aggregate amount of initial margin deposits on
the Fund's futures positions, including stock index futures contracts (which are
discussed below), would exceed 5% of the value of the Fund's total assets. The
Fund also will be required to segregate assets to cover its futures contracts
obligations.
At the maturity of a forward or futures contract, the Worldwide High Income
Fund may either accept or make delivery of the currency specified in the
contract or, prior to maturity, enter into a closing purchase transaction
involving the purchase or sale of an offsetting contract. Closing purchase
transactions with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract. Closing
purchase transactions with respect to futures contracts are effected on an
exchange. The Fund will only enter into such a forward or futures contract if it
is expected that there will be a liquid market in which to close out such
contract. There can, however, be no assurance that such a liquid market will
exist in which to close a forward or futures contract, in which case the Fund
may suffer a loss.
The Worldwide High Income Fund may attempt to accomplish objectives similar
to those described above with respect to forward and futures contracts for
currency by means of purchasing put or call options on foreign currencies on
exchanges. A put option gives the Fund the right to sell a currency at the
exercise price until the expiration of the option. A call option gives the Fund
the right to purchase a currency at the exercise price until the expiration of
the option.
The Custodian of each Fund will place cash or other liquid assets into a
segregated account of a Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of
25
<PAGE>
foreign securities exchanges, brokers and listed companies than in the United
States. Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environments than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are generally denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of an Fund's assets
measured in U.S. Dollars may be affected favorably or unfavorably by changes in
currency exchange rates and exchange control regulations. Each Fund will also
incur certain costs in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Worldwide High Income Fund may utilize appropriate futures contracts and options
on futures contracts, including securities index futures contracts and options
on securities index futures contracts, to a limited extent. Because transaction
costs associated with futures and options may be lower than the costs of
investing in securities directly, it is expected that the use of futures and
options to facilitate cash flows may reduce the Fund's overall transaction
costs. The Fund may sell indexed financial futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result. When the Fund is not
fully invested and the Adviser anticipates a significant market advance, it may
purchase stock index futures in order to gain rapid market exposure that may in
part or entirely offset increases in the cost of securities that it intends to
purchase. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of securities. The Fund will engage in futures and
options on futures transactions only for hedging purposes.
The Worldwide High Income Fund will engage only in transactions in
securities index futures contracts, interest rate futures contracts and options
thereon which are traded on a recognized securities or futures exchange. There
currently are limited securities index futures, interest rate futures and
options on such futures markets in many countries, particularly emerging
countries such as Latin American countries, and the nature of the strategies
adopted by the Adviser, and the extent to which those strategies are used, will
depend on the development of such markets.
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The Worldwide High Income Fund may enter into futures contracts and options
thereon provided that not more than 5% of the Fund's total assets at the time of
entering the transaction are required as deposits to secure obligations under
such contracts. Furthermore, no more than 20% of the Fund's total assets, in the
aggregate, may be invested in futures contracts and options on futures
contracts.
Gains and losses on futures and options depend on the Adviser's ability to
predict correctly the direction of stock prices, interest rates and other
economic factors. Other risks associated with the use of futures and options are
(i) imperfect correlation between the change in market value of the securities
held by the Fund and the prices of futures and options relating to the stocks
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a futures
position which could have an adverse impact on the Fund's ability to hedge. The
risk of loss in trading on futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. In the opinion of the Directors,
the risk that the Fund will be unable to close out a futures position or options
contract will be minimized by only entering into futures contracts or options
transactions for which there appears to be a liquid secondary market.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its securities to brokers, dealers, domestic and foreign
banks or other financial institutions for the purpose of increasing its net
investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Funds will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Worldwide High Income Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
or corporate debt obligations and one or more financial institutions
("Lenders"). Such Fund's investments in Loans are expected in most instances to
be in the form of participations in Loans ("Participations") and assignments of
all or a portion of Loans ("Assignments") from third parties. In the case of
Participations, the Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participations and only upon receipt by the Lender of the payments from the
borrower. In the event of the insolvency of the Lender selling a Participation,
the Fund may be treated as a general creditor of the Lender and may not benefit
from any set-off between the Lender and the borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
borrower is determined by the Adviser to be creditworthy. When the Fund
purchases Assignments from Lenders it will acquire direct rights against the
borrower on the Loan. Because Assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by the Fund as the purchaser of an Assignment
may differ from, and be more limited than, those held by the assigning Lender.
Because there is no liquid market for such securities, the Fund anticipates that
such securities could be sold only to a limited number of institutional
investors. The lack of a liquid secondary market may have an adverse impact on
the value of such securities and the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a
27
<PAGE>
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for Assignments and
Participations also may make it more difficult for the Fund to assign a value to
these securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
LOWER RATED AND UNRATED DEBT SECURITIES
The Worldwide High Income and High Yield Funds may invest in lower rated or
unrated debt securities, commonly referred to as "junk bonds." In addition, the
emerging country debt securities in which such Funds may invest are subject to
risk and will not be required to meet a minimum rating standard and may not be
rated. Fixed income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The market values of fixed income securities tend to vary
inversely with the level of interest rates. Yields and market values of lower
rated and unrated debt securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Fluctuations in the value of a Fund's investments will be reflected in the
Fund's net asset value per share. The Adviser considers both credit risk and
market risk in making investment decisions for the Funds. Investors should
carefully consider the relative risks of investing in lower rated and unrated
debt securities and understand that such securities are not generally meant for
short-term investing.
The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for emerging country debt securities. Such
disruptions may severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for lower rated and
unrated debt securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities.
As a result, the Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. In addition, there may be limited trading markets
for debt securities of issuers located in emerging countries. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Fund's net
asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect the
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
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<PAGE>
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of lower rated and unrated debt
securities.
MONEY MARKET INSTRUMENTS
The Funds are permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties and
other debt securities, including high grade commercial paper, repurchase
agreements and bank obligations, such as bankers' acceptances and certificates
of deposit (including Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than what may be considered the fair
value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. A Fund may not invest more
than 15% of its net assets in illiquid securities nor more than 10% of its total
assets in securities subject to legal or contractual restrictions on resale.
Securities that are restricted from sale to the public without registration
("Restricted Securities") under the Securities Act of 1933, as amended, (the
"1933 Act"), which can be offered and sold to qualified institutional buyers
under Rule 144A under the 1933 Act ("144A Securities") may be determined to be
liquid under guidelines adopted by, and subject to the supervision of, the Board
of Directors. The High Yield Fund may not invest more than 10% of its total
assets in Restricted Securities, except that it may invest up to 20% of its
total assets in 144A Securities that are determined to be liquid. Rule 144A
securities may become illiquid if qualified institutional buyers are not
interested in acquiring the securities.
OPTIONS TRANSACTIONS
The Worldwide High Income Fund may seek to increase its return or may hedge
a portion of its portfolio investments through options with respect to
securities in which the Fund may invest. The Fund will engage in transactions in
options only if they are traded on a recognized securities exchange. There
currently are limited options markets in many countries, particularly emerging
countries such as Latin American countries, and the nature of the strategies
adopted by the Adviser and the extent to which those strategies are used will
depend on the development of such option markets.
29
<PAGE>
The Fund may write (i.e., sell) covered call options which give the
purchaser the right to buy the underlying security covered by the option from
the Fund at the stated exercise price. A "covered" call option means that so
long as the 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 Fund.
The Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods the Fund
will receive less total return and in other periods greater total return from
writing covered call options than it would have received from its underlying
securities had it not written call options.
The Fund may also write (i.e., sell) covered put options. By selling a
covered put option, the Fund incurs an obligation to buy the security underlying
the option from the purchaser of the put at the option's exercise price at any
time during the option period, at the purchaser's election (certain options
written by the Fund will be exercisable by the purchaser only on a specific
date). Generally, a put option is "covered" if the Fund maintains cash or liquid
securities equal to the exercise price of the option or if the Fund holds a put
option on the same underlying security with a similar or higher exercise price.
The Fund may sell put options to receive the premiums paid by purchasers and to
close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, the Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
The Fund may also purchase put or call options on individual securities or
baskets of securities, including index options. When the Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when the Fund purchases a put option it acquires the
right to sell a designated security at the exercise price, in each case on or
before a specified date (the "termination date"), usually not more than nine
months from the date the option is issued. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing. The Fund may purchase put options on
securities which it holds in its portfolio to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call option closing purchase transactions. The Fund may not purchase
call and put options to the extent that the value of its aggregate investment in
such derivative securities exceeds 5% of its total assets.
Gains and losses on options depend on the Adviser's ability to predict
correctly the direction of securities prices, interest rates and other economic
factors. Other risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by the
Fund and the prices of options relating to the securities purchased or sold by
the Fund; and (ii) possible lack of a liquid secondary market for an option. In
the opinion of the Adviser, the risk that the Fund will be unable to close out
an options contract will be minimized by only entering into options transactions
for which there appears to be a liquid secondary market.
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REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The 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 a Fund to the
seller. The Funds always receive securities as collateral with a market value at
least equal to the purchase price, including accrued interest, and this value is
maintained during the term of the agreement. If the seller defaults and the
collateral value declines, a Fund might incur a loss. If bankruptcy proceedings
are commenced with respect to the seller, the Fund's realization upon the
collateral may be delayed or limited. Repurchase agreements with durations (or
maturities) over seven days in length are considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Worldwide High Income Fund may enter into reverse repurchase agreements
with brokers, dealers, domestic and foreign banks or other financial
institutions that have been determined by the Adviser to be creditworthy. In a
reverse repurchase agreement, the Fund sell a security and agrees to repurchase
it at a mutually agreed upon date and price, reflecting the interest rate
effective for the term of the agreement. It may also be viewed as the borrowing
of money by the Fund. The Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The Fund will
enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. The Fund will maintain with the Custodian a separate
account with a segregated portfolio of cash or liquid assets in an amount at
least equal to its purchase obligations under these agreements (including
accrued interest). If interest rates rise during a reverse repurchase agreement,
it may adversely affect the Fund's ability to maintain a stable net asset value.
In the event that the buyer of securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the Fund's
repurchase obligation, and the Fund's use of proceeds of the 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."
RUSSIAN SECURITIES TRANSACTIONS
The Worldwide High Income Fund may invest in securities of Russian
companies. The registration, clearing and settlement of securities transactions
in Russia are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of shares in Russian companies is evidenced by entries in a company's
share register (except where shares are held through depositories that meet the
requirements of the 1940 Act) and the issuance of extracts from the register or,
in certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Fund could possibly lose its
registration through oversight, negligence or fraud. Moreover, Russia lacks a
centralized registry to record securities transactions and registrars located
throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for the Fund to enforce any
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rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by law to employ an independent company to
maintain share registers, in practice, such companies have not always followed
this law. Because of this lack of independence of registrars, management of a
Russian company may be able to exert considerable influence over who can
purchase and sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent the Fund from investing in the securities of certain
Russian companies deemed suitable by the Adviser and could cause a delay in the
sale of Russian securities by the Fund if the company deems a purchaser
unsuitable, which may expose the Fund to potential loss on its investment.
SHORT SALES
The Worldwide High Income Fund may from time to time sell securities short
without limitation, although it does not intend to sell securities short on a
regular basis. A short sale is a transaction in which the Fund sells securities
it either owns or has the right to acquire at no added cost (i.e., "against the
box") or it does not own (but has borrowed) in anticipation of a decline in the
market price of the securities. When the Fund makes a short sale of borrowed
securities, the proceeds it receives from the sale will be held on behalf of a
broker until the Fund replaces the borrowed securities. To deliver the
securities to the buyer, the Fund will need to arrange through a broker to
borrow the securities and, in so doing, the Fund will become obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Fund may have to pay a premium to
borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash, or U.S. Government securities or other liquid assets. In
addition, if the short sale is not "against the box," the Fund will place in a
segregated account with its Custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold
at the time they were sold short and (2) any cash, U.S. Government securities or
other liquid high grade debt obligations deposited as collateral with the broker
in connection with the short sale (not including the proceeds of the short
sale). Short sales by the Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
STRUCTURED INVESTMENTS
The Worldwide High Income Fund may invest a portion of its assets in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Fund is permitted to invest in a class of
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Structured Securities that is either subordinated or unsubordinated to the right
of payment of another class. Subordinated Structured Securities typically have
higher yields and present greater risks than unsubordinated Structured
Securities. Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities.
TEMPORARY INVESTMENTS
For temporary defensive purposes the Funds intend to invest only in money
market instruments and medium-term debt securities that the Adviser believes to
be of high-quality, i.e., subject to relatively low risk of loss of interest or
principal.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment but will take place no more than 120 days after the
trade date. Each Fund will maintain with the appropriate Custodian a separate
account with a segregated portfolio of cash or liquid assets 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 a Fund enters into the
commitment, and no interest accrues to the 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 of the Funds not to enter into
when-issued commitments or delayed delivery securities exceeding, in the
aggregate, 15% of the Fund's net assets other than the obligations created by
these commitments.
INVESTMENT LIMITATIONS
Each Fund, except the Global Fixed Income Fund is a diversified investment
company under the 1940 Act, and is subject to the following limitations: (a) the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer, except obligations of the U.S. Government, its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Global Fixed Income Fund is a
non-diversified investment company under the 1940 Act, which means that such
Fund is not limited by the 1940 Act in the proportion of its total assets that
may be invested in the obligations of a single issuer. Thus, the Global Fixed
Income Fund may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk resulting from such concentration of its portfolio securities. The
Global Fixed Income Fund, however, intends to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended, for
qualification as a regulated investment company.
The Funds also operate under certain investment restrictions that are deemed
fundamental policies and may be changed by a Fund only with the approval of the
holders of a majority of the Fund's outstanding shares. In addition to other
restrictions listed in the Statement of Additional Information, a Fund may not
(i) invest more than 15% of the Fund's total assets in illiquid securities; (ii)
borrow money except from banks for extraordinary or emergency purposes and then
only in amounts up to 10% of the value of the Fund's total assets, taken at
market value at the time of borrowing, or purchase securities while borrowings
exceed 5% of its total assets, or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing in amounts up to 10%
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of the value of the Fund's total assets at the time of borrowing; except that
the Worldwide High Income Fund may borrow, and mortgage, pledge or hypothecate
its assets to secure such borrowings, in amounts equal to up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing; and except that the Worldwide High Income
Fund may enter into reverse repurchase agreements in accordance with their
investment objectives and policies; (iii) invest in fixed time deposits with a
duration of over seven calendar days; or (iv) invest more than 25% of the Fund's
total assets in securities of companies in any one industry.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (an "Investment Advisory
Agreement") and, subject to the supervision of the Company's Board of Directors,
makes each of the Fund's investment decisions, arranges for the execution of
portfolio transactions and generally manages each of the Fund's investments. The
Adviser is entitled to receive an advisory fee computed daily and paid monthly
at the following annual rates for each of the following Funds:
<TABLE>
<S> <C>
Global Fixed Income Fund 0.75 %
Worldwide High Income Fund 0.75 %
High Yield Fund 0.75 %
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause the total annual operating expenses of the Fund to exceed
the maximums set forth in "Fund Expenses."
The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.5 billion under active management and $17
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
Morgan Stanley Group Inc. has 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 approximately $58.7 billion in assets under
management as of September 30, 1996. The acquisition is expected to have closed
by October 31, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
GLOBAL FIXED INCOME FUND -- ROBERT M. SMITH AND MICHAEL B. KUSHMA. Robert
Smith joined the Adviser as Vice President in June 1994 and has been primarily
responsibility for managing the Fund's assets since July 1994. Prior to joining
the Adviser he spent eight years as Senior Portfolio Manager -- Fixed Income at
the State of Florida Pension Fund. Mr. Smith's responsibilities included active
total-rate-of-return management of long
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term portfolios and supervision of other fixed income managers. A graduate of
Florida State University with a B.S. in Business, Mr. Smith also received an
M.B.A. -- Finance from Florida State and holds a Chartered Financial Analyst
(CFA) designation. Michael B. Kushma, a Principal at Morgan Stanley, shares
primary responsibility for managing the Fund's assets. He joined the firm in
1987. He was a member of Morgan Stanley's global fixed income strategy group in
the fixed income division from 1987-1995 where he became the division's senior
government bond strategist. He joined the Adviser in 1995 where he took
responsibility for the global fixed income portfolios. In 1996, he became a
portfolio manager for the Fund. Mr. Kushma received an A.B. in economics from
Princeton University in 1979, an M. Sc. in economics from the London School of
Economics in 1981 and an M.Phil. in economics from Columbia University in 1983.
WORLDWIDE HIGH INCOME FUND -- ROBERT ANGEVINE AND PAUL GHAFFARI. Robert
Angevine is a Principal of the Adviser and the portfolio manager for high yield
investments. He has shared primary management responsibility for the Fund since
it commenced operations. Prior to joining the Adviser in October 1988, he spent
over eight years at Prudential Insurance, where he was responsible for the
largest open-end high yield mutual fund in the country. Mr. Angevine also
manages high yield assets for one of the largest corporate pension funds in the
country. His other experience includes international treasury operations at a
major pharmaceutical company and commercial banking. Mr. Angevine received an
M.B.A. from Fairleigh Dickinson University and a B.A. in Economics from
Lafayette College. Paul Ghaffari is a Principal of the Adviser and Morgan
Stanley and portfolio manager for the Morgan Stanley Emerging Markets Debt Fund,
Inc. (a closed-end investment company listed on the New York Stock Exchange
("NYSE")). He has shared primary management responsibility for the Fund since it
commenced operations. Prior to joining the Adviser, he was a Vice President in
the Fixed Income Division of the Emerging Markets Sales and Trading Department
at Morgan Stanley. From 1983 to 1992, Mr. Ghaffari worked in the LDC Sales and
Trading Department and the Mortgage-Backed Securities Department at J.P. Morgan
& Co., Inc. and worked in the Treasury Department at the Morgan Guaranty Trust
Co. He holds a B.A. in International Relations from Pomona College and a M.S. in
Foreign Service from Georgetown University.
HIGH YIELD FUND -- ROBERT ANGEVINE. Information about Robert Angevine is
included under Worldwide High Income Fund above. Mr. Angevine has had primary
management responsibility for the Fund since it commenced operations.
ADMINISTRATOR. Morgan Stanley Asset Management Inc. (the "Administrator")
also provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Fund dividend disbursing and transfer agent services. For its
services under the Administration Agreement, the Company pays the Administrator
a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC" or the
"Transfer Agent"), a corporate affiliate of Chase, provides certain
administrative services to the Company. The Administrator supervises and
monitors
35
<PAGE>
such administrative services provided by CGFSC. The services provided under the
sub-administration agreement are subject to the supervision of the Board of
Directors of the Company. The Board of Directors of the Company has approved the
provision of services described above pursuant to the sub-administration
agreement as being in the best interests of the Company. CGFSC's business
address is 73 Tremont Street, Boston, Massachusetts 02108-3913. For additional
information on the sub-administration agreement, see "Management of the Company"
in the Statement of Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Morgan Stanley & Co. Incorporated ("Morgan Stanley" or the
"Distributor") serves as the distributor of the shares of the Company. Under its
distribution agreement (the "Distribution Agreement") with the Company, Morgan
Stanley sells shares of the Company 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 Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have different CDSCs
or initial sales charges or other distribution charges or a combination thereof
than the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under the applicable Plan, the Distributor is entitled to receive from
the Funds a distribution fee, which is accrued daily and paid quarterly, at a
maximum rate of 0.25% for the Class A shares of each Fund, and 0.75% of the
Class B shares and Class C shares of each Fund, on an annualized basis of the
average daily net assets of such Fund or classes. The actual amount of such
compensation is agreed upon by the Company's Board of Directors and by the
Distributor. The Distributor expects to pay a portion of its fee to investment
dealers, banks or financial services firms that provide distribution,
administrative or shareholder services (each, a "Participating Dealer"). The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
Under the Plans, the Class B shares and Class C shares are subject to a
shareholder servicing fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser may use its advisory fees or other resources to pay
expenses associated with activities which might be construed to be financing the
sale of the Funds' shares. Each Plan provides that the Adviser may make payments
from these sources to third parties, such as consultants that provide assistance
in the distribution effort (in addition to selling shares and providing
shareholder services).
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse Morgan Stanley for the actual expenses Morgan Stanley may incur in
fulfilling its obligations under the Plan. Thus, under each Plan, even if Morgan
Stanley's
36
<PAGE>
actual expenses exceed the fee payable to it thereunder at any given time, the
Funds will not be obligated to pay more than that fee. If Morgan Stanley's
actual expenses are less than the fee it receives, Morgan Stanley will retain
the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of a Fund. The fee set
forth above will be paid by the appropriate class to Morgan Stanley unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
In addition to the distribution and shareholder servicing fees described
above, Morgan Stanley also receives a sales charge of up to 4.75% of the sales
price of Class A shares of each Fund. Morgan Stanley may reallow up to the full
applicable sales charge, as shown in the table in "Purchase of Shares" below, to
certain Participating Dealers during periods and for transactions specified in
"Purchase of Shares" and such reallowances may be based upon attainment of
minimum sales levels. During periods when 90% or more of the sales charge is
reallowed, certain Participating Dealers may be deemed to be underwriters as
that term is defined in the Securities Act of 1933, as amended. Morgan Stanley
may receive a CDSC of up to 1.00% of the sales price of the Class A shares and
Class C shares of the Funds, as described below under "Purchase of Shares."
Morgan Stanley may also receive a CDSC of up to 5.00% of the lower of sales
price or market value of shares of the Class B shares of the Funds, as described
below under "Purchase of Shares." In addition to the sales charges described
above, Morgan Stanley may from time to time and from its own resources pay or
allow additional discounts or promotional incentives, in the form of cash or
other compensation, to Participating Dealers. In some instances, such discounts
or other incentives may be offered only to certain Participating Dealers that
sell or are expected to sell during specified time periods certain minimum
amounts of shares of the Company, or other funds underwritten by Morgan Stanley.
In some instances, these incentives may be offered only to certain Participating
Dealers that have sold or may sell significant amounts of shares. In addition,
Morgan Stanley pays ongoing trail commissions to Participating Dealers. At the
option of the Participating Dealer, such bonuses or other incentives may take
the form of payment for travel expenses, including lodging incurred in
connection with trips taken by persons associated with the Participating Dealer
and members of their families to places within or outside of the United States.
The Distributor or Participating Dealers and their investment representatives
may receive different levels of compensation depending on which class of shares
they sell.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The 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.
37
<PAGE>
PURCHASE OF SHARES
Shares of the Funds may be purchased through Morgan Stanley, Participating
Dealers or directly from the Company. Class A shares of the Funds may be
purchased at the net asset value per share plus the applicable sales charge, if
any, next determined after receipt of the purchase order and payment. Class B
shares and Class C shares of the Funds may be purchased at the net asset value
per share next determined after receipt of the purchase order and payment.
Participating Dealers are responsible for forwarding orders they receive to the
Company by the applicable times described below on the same day as their receipt
of the orders to permit purchase of shares as described above and the failure to
do so will result in the investors being unable to obtain that day's net asset
value. See "Valuation of Shares."
The Class A, Class B and Class C alternatives permit an investor to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investments in the Company, the combination of sales charge, distribution
fee and CDSC on Class A shares is more favorable than the combination of
distribution/service fees and CDSC on Class B shares or Class C shares. In some
cases, investors planning to purchase $100,000 or more of Fund shares may pay
lower aggregate charges and expenses by purchasing Class A shares. (See "Fund
Expenses" above.)
OFFERING PRICE OF CLASS A SHARES
Class A shares of the Funds may be purchased at the net asset value per
share plus a sales charge (the "Offering Price") which is a percentage of the
Offering Price that decreases as the amount of the purchase increases as shown
below:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS PERCENTAGE AS PERCENTAGE OF DEALER RETENTION
CLASS A SHARES OF NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE+ OFFERING PRICE INVESTED OFFERING PRICE**
- --------------------------- --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.25%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.50%
$1,000,000 and over None* None* None*
</TABLE>
- --------------
* Purchases of $1 million or more may be subject to a CDSC. (See below.) Morgan
Stanley may make payments to Participating Dealers in amounts up to 1.00% of
the Offering Price.
** The Distributor may, in its discretion, permit Participating Dealers to
retain the full amount of the sales charge in connection with certain sales.
+ The amount of purchase includes net asset value of the purchase plus the
sales charge.
Morgan Stanley may in its discretion compensate Participating Dealers in
connection with the sale of Class A shares of the Funds in an aggregate amount
of $1 million or more up to the following amounts: 1.00% of the net asset value
of shares sold on amounts up to $3 million, .50% on the next $2 million and .25%
on amounts over $5 million. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedule, Morgan Stanley will consider the cumulative amount invested by the
purchaser in Class A shares of the Funds.
38
<PAGE>
REDUCTION OR WAIVER OF SALES CHARGES. A shareholder who purchases
additional Class A shares of a Fund may obtain reduced sales charges through a
right of accumulation of current purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of other Funds and with existing Class A
share investments in all Funds. The applicable sales charge will be determined
based on the total of (a) the shareholder's current purchases of Class A shares
of Funds plus (b) an amount equal to the greater of the then current net asset
value, or the total purchase price of the investor's prior purchases of all
Class A shares of Funds held by the shareholder. To obtain the reduced sales
charge through a right of accumulation, the shareholder must provide Morgan
Stanley at the time of purchase, either directly or through a Participating
Dealer or shareholder servicing agent, as applicable, with sufficient
information to verify that the shareholder has such a right. The Company may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
For purposes of reduced sales charges based on amount of purchase, the term
"purchase" refers to purchases made at one time by any "purchaser," which
includes an individual; a group composed of an individual and his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account; an organization exempt from federal income
tax under Section 501(c)(3) or (13) of the Code; a pension, profit-sharing or
other employee benefit plan, whether or not qualified under Section 401 of the
Code; or other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order to qualify for a lower sales charge
on purchases of the Class A shares, all orders from an organized group will have
to be placed through a single Participating Dealer and identified as originating
from a qualifying purchaser.
An investor may also obtain reduced sales charges shown above on purchases
of the Class A shares by executing a written letter of intent which states the
investor's intention to invest not less than $100,000 within a 13-month period
in Class A shares of a Fund ("Letter"). Each purchase of Class A shares of a
Fund under a Letter will be made at the Offering Price applicable at the time of
such purchase to single purchases of the full amount indicated on the Letter. To
obtain the terms and conditions included in the form of Letter, contact the
Transfer Agent at 1-800-282-4404. An investor who wishes to enter into a Letter
in connection with an investment in Class A shares of the Funds should use the
form in the New Account Application attached to this Prospectus. The Letter,
which imposes no obligation to purchase or sell additional Class A shares,
provides for a price adjustment depending upon the actual amount purchased
within such period. The Letter provides that the first purchase following
execution of the Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended purchase normally will be
held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed Class A shares will be redeemed and the
proceeds used toward satisfaction of the obligation to pay the increased sales
charge. A shareholder may include the value of all Class A shares of the Funds
held of record as of the initial purchase date under the Letter as an
"accumulation credit" toward the completion of the terms of the Letter, but no
price adjustment will be made on such shares.
Class A shares of the Funds may be purchased at net asset value without a
sales charge by employee benefit plans, retirement plans and deferred
compensation plans and trusts used to fund such plans, including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"rabbi trusts." Morgan Stanley may, in
39
<PAGE>
its discretion, compensate Participating Dealers up to 1.00% in connection with
the sale of Class A shares of the Funds to 401(k), 403(b) or 457
participant-directed qualified retirement plans. Such shareholders are not
subject to a CDSC upon liquidation.
As disclosed above, no sales charge will be payable at the time of purchase
of Class A shares on investments of $1 million or more. However, except as
described above, a CDSC will be imposed on such investments in the event of a
redemption of such Class A shares of the Funds within 12 months following the
purchase, at the rate of 1.00% of the lesser of the current market value of the
shares redeemed or the total cost of such shares. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed. The Company may
also sell Class A shares of the Funds at net asset value (without a sales
charge) to Directors of the Company, directors and employees of Morgan Stanley,
Participating Dealers, their respective affiliates and their immediate families
and employees of agents of the Company. In addition, Class A shares may be sold
without a sales charge when purchased (i) through bank trust departments; (ii)
for investors whose accounts are managed by certain investment advisers
registered under the Investment Advisers Act of 1940, as amended; (iii) for
investors through certain broker/dealers and other financial services firms that
have entered into certain agreements with the Company which may include a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker/dealer or other firm; (iv) with redemption proceeds from other investment
companies on which the investor had paid a front-end sales charge or, provided
the investment company is unaffiliated with the Company, a contingent deferred
sales charge; or (v) through a broker that maintains an omnibus account with the
Company and such purchases are made by the following: (1) investment advisers or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services, (2) clients of such investment advisers or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of the broker or agent, or (3) retirement and deferred compensation plans and
trusts used to fund such plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Code and "rabbi trusts." Investors who
purchase or redeem shares through a trust department, broker, dealer, agent,
financial planner, financial services firm, or investment adviser may be charged
an additional service or transaction fee by that institution.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
40
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 5.0%
Second...................................................... 4.0%
Third....................................................... 3.0%
Fourth...................................................... 3.0%
Fifth....................................................... 2.0%
Sixth....................................................... 1.0%
Thereafter.................................................. None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from the CDSC are paid to Morgan Stanley and are used by Morgan
Stanley to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares.
Morgan Stanley will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay a portion of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. The combination of the CDSC and the distribution service fee
facilitates the ability of the Company to sell the Class B shares without a
sales charge being deducted at the time of purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; or (iii) to the extent that
shares redeemed have been withdrawn from a Systematic Withdrawal Plan (as
described below), up to a maximum amount of 12% per year from a shareholder
account based on the value of the account at the time the Systematic Withdrawal
Plan is established, provided however that all dividends and distributions are
reinvested in Class B Shares. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the name
of an individual person, (b) as a joint tenancy with rights of survivorship, (c)
as community property or (d) in the name of a minor child under the Uniform
Gifts or Uniform Transfers to Minors Act. A shareholder, or his or her
representative, must notify the Company's Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for this
waiver. The shareholder is responsible for providing sufficient documentation to
the Transfer Agent to verify the existence of such circumstances. For
information on the imposition and waiver of the CDSC, contact the Transfer Agent
at 1-800-282-4404.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
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<PAGE>
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. Morgan Stanley
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay most of its distribution fee, with respect
to such shares, under the Plan for such class of shares, as described under
"Management of the Company -- Distributor" above. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of a Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINVESTMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of a Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinvestment privilege are
subject to the minimum applicable investment requirements. The reinvestment
privilege as to any specific Class A, Class B or Class C shares must be
exercised within 180 days of the redemption. The Transfer Agent must receive
from the shareholder or the shareholder's Participating Dealer both a written
request for reinvestment and a check or wire which does not exceed the
redemption proceeds. The written request must state that the reinvestment is
made pursuant to this reinvestment privilege. If a loss is realized on the
redemption of Class A shares, the reinvestment may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
RETIREMENT PLANS
Qualified retirement plans, IRAs, banks, bank trust departments and
registered investment advisory companies, acting in a fiduciary or advisory
capacity for individual, institutional or trust accounts, may purchase Class A
shares of one or more of the Funds at net asset value (without a sales charge)
provided that the initial order for such purchases is in an amount of $1 million
or more or is part of a series of orders covered by a Letter to invest $1
million or more in Class A shares of the Funds. Certain employee benefit plans,
retirement plans and deferred compensation plans and trusts used to fund such
plans may purchase Class A shares of the Funds at net asset value without
imposition of a sales charge. See "Offering Price of Class A Shares."
Morgan Stanley provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Chase. This includes Simplified
Employee Pension Plan ("SEP") IRA accounts and prototype
42
<PAGE>
documents. Brochures describing such plans and materials for establishing them
are available from Morgan Stanley upon request. The brochures for plans trusteed
by Chase describe the current fees payable to Chase for its services as trustee.
Investors should consult with their own tax advisers before establishing a
retirement plan.
INITIAL PURCHASES DIRECTLY FROM THE COMPANY
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
class of a Fund, except for IRAs, for which the initial minimum is $250) made
payable to "Morgan Stanley Fund, Inc. -- [Fund name]," to:
Morgan Stanley Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
Payment must be by check payable in U.S. Dollars, unless prior approval for
payment by other currencies is given by the Company. The Fund and the
class(es) to be purchased should be designated on the New Account Application.
Your purchase of shares by check is ordinarily credited to your account at the
net asset value per share of the Investment Fund next determined on the day of
receipt of the order and the check.
2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Company's bank account ($1,000 minimum for each class of
a 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 Company (toll free: 1-800-282-4404) and provide your name,
address, telephone number, Social Security or Tax Identification Number,
the Fund and the class(es) selected, the amount being wired, and by which
bank. The Company will then provide you with a bank wire control number.
(Investors with existing accounts must also notify the Company prior to
wiring funds.)
B. Instruct your bank to wire the specified amount to the Company's Wire
Concentration Bank Account (be sure to have your bank include the name of
the Fund selected and the bank wire control number assigned to you):
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA# 021000021
DDA# 910-2-732907
Attn: Morgan Stanley Fund, Inc.
Ref: (Fund name, class name, your account number, your account name)
Please call the Company 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 a Fund which are received prior to the
regular close of the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
Eastern Time) will be executed at the price computed on the date of
receipt as long as the Transfer Agent receives payment in Federal Funds
prior to the regular close of the NYSE on such day. Payment in Federal
Funds is not possible on days when the Federal Reserve
43
<PAGE>
Banks are not open (including NYSE holidays, Martin Luther King Day,
Columbus Day and Veterans' Day), or the Company is not open. Orders for
shares received on such days are ordinarily credited to your account at
the net asset value per share next determined on the day following receipt
of the order when both the Company and Federal Reserve Banks are open.
Your bank may charge a service fee for wiring Federal 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 sent by the bank handling the
wire and Federal Funds are received. The timing of effectiveness of purchase
of shares and receipt of dividends is subject to the same timing
considerations as described above with respect to purchase by Federal Funds
wire and depends on when payment in Federal Funds is received. Your bank may
charge a service fee for wiring funds.
ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment $100,
except for IRAs, for which the minimum additional investment is $50, and
automatic reinvestment of dividends and capital gains distributions, for which
there is no minimum and no sales charge) by purchasing shares through your
Participating Dealer, by mailing a check to the Company (payable to "Morgan
Stanley Fund, Inc. -- [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 Company's
representatives (toll-free 1-800-282-4404) prior to the wire.
AUTOMATIC INVESTMENT PLAN
After establishing an account with the Company, investors may purchase
shares of the Funds 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 Company. Investors who are
participants in the Company'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 Company representative. Shares to be held in broker
street name may not be purchased through the Automatic Investment Plan.
OTHER PURCHASE INFORMATION
The purchase price for the Class A shares of a Fund is based upon the net
asset value per share plus the applicable sales charge, if any, next determined
after the order is received by the Company and for the Class B shares and Class
C shares of the Funds is based on the net asset value per share next determined
after the order is received by the Company. Participating Dealers are
responsible for forwarding orders they receive to the Company by the applicable
times described below on the same day as their receipt of the orders to permit
purchase of shares as described above and the failure to do so will result in
the investors being unable to obtain that day's net asset value. See "Valuation
of Shares." An order received prior to the regular close of the NYSE, which is
currently 4:00 p.m. (Eastern Time), will be executed at the price computed on
the date of receipt as long as the Transfer Agent receives payment by check or
in Federal Funds prior to the regular close of the NYSE on
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such day. An order received after the regular close of the NYSE will be executed
at the price computed on the next day the NYSE is open as long as the Transfer
Agent receives payment by check or in Federal Funds prior to the regular close
of the NYSE on such day. If you purchase shares of a 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 a 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 Company, certificates representing shares of the Funds will
normally not be issued. All shares purchased are confirmed to you and 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 Company, withdrawals of
investments made by check are not presently permitted until the Company'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 Company and/or its
agents incur. If you are already a shareholder, the Company may redeem shares
from your account(s) to reimburse the Company and/or its agents for any loss. In
addition, you may be prohibited or restricted from making future purchases in
the Company.
Investors who purchase Class A shares of the Funds directly rather than
through a Participating Dealer will pay the public offering price including the
sales charge, and the sales charge will be payable, as described under "Purchase
of Shares -- Offering Price of Class A Shares" above, to Morgan Stanley unless a
Participating Dealer is designated on the account application. Investors may
also invest in the Funds by purchasing shares through Participating Dealers.
REDEMPTION OF SHARES
You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until the Fund's depository bank has made fully
available for withdrawal the check amount used to purchase Company shares, which
generally will be within 15 days. The Company will redeem shares of a Fund at
its next determined net asset value. A CDSC of 1.00% will be imposed on certain
Class A shares of a Fund that were purchased without payment of the initial
sales charge due to the size of the purchase and are redeemed within one year of
purchase. A maximum CDSC of 5.00% which decreases in steps to 0% after six
years, will be imposed on certain Class B shares of the Funds that are redeemed
within six years of purchase. A CDSC of 1.00% will be imposed on certain Class C
shares of the Funds that are redeemed within one year of purchase. See "Purchase
of Shares." The CDSC will be imposed on the lesser of the current market value
or the total cost of the shares being redeemed. In determining whether a CDSC is
payable, and, if so, the amount of the charge, it is assumed that shares not
subject to such charge are the first redeemed followed by other shares held for
the longest period of time. On days when the NYSE is open for business, the net
asset value per share of each Fund is determined at the regular close of trading
of the NYSE (currently 4:00 p.m. Eastern Time). Shares of the Funds may be
redeemed by mail or telephone. The amount you receive upon redemption may be
more or less than the purchase price of your shares depending on the market
value of the investment securities held by the Fund at the time of purchase and
of redemption, among other factors.
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The CDSC may be waived on redemptions of shares in connection with certain
post-retirement withdrawals from IRA or other retirement plans or following the
death or disability (as defined in the Code) of a shareholder of the Company.
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
Each Fund will redeem its shares at the net asset value next determined
after your request is received, if your request is received in "good order" by
the Transfer Agent. If applicable, a CDSC will be deducted. Your request should
be addressed to Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798, except that deliveries by overnight courier should be
addressed to Morgan Stanley Fund, Inc. c/o Chase Global Funds Services Company,
73 Tremont Street, Boston, Massachusetts 02108-3913.
"Good order" means that the request to redeem shares must include the
following documentation:
(a) A letter of instruction or a stock assignment with stock
certificate, if any, 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 Company 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 Company and requesting the redemption proceeds be
mailed to you or wired to your bank. Please contact one of the Company's
representatives for further details. In times of drastic market conditions, the
telephone redemption option may be difficult to implement. If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier, and it will be implemented at the net asset value next
determined after it is received minus the CDSC, if any. The Company and the
Company'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 Company or the Transfer Agent may
be responsible for losses, liabilities, costs or expenses for acting upon
telephone transactions if procedures are not followed to confirm that such
transactions are genuine.
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FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER. A fee of $8.00 may be imposed on wire
redemptions of shares of a Fund that will be deducted from the redemption
proceeds.
To change the name of the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent at the
address above. Requests to change the bank or account must be signed by each
shareholder and each signature must be guaranteed.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder of $5,000 or more of the Company's shares at the Offering
Price (net asset value plus the sales charge, if any) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The minimum periodic payment is $100. Shares are redeemed so that the payee will
receive payment on approximately the first of the month. Any income and capital
gain dividends will be automatically reinvested at net asset value on the
reinvestment date. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may result in a gain or loss
for tax purposes and may reduce or even exhaust the shareholder's Company
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 "Further
Redemption Information" below.
The purchase of Class A shares of the Funds while participating in a
systematic withdrawal plan ordinarily will be disadvantageous to the investor
because the investor will be paying a sales charge on the purchase of shares at
the same time that the investor is redeeming shares upon which a sales charge
may already have been paid. The purchase of certain Class B shares or Class C
shares of the Funds while participating in the Systematic Withdrawal Plan may be
disadvantageous because the new shares will be subject to a CDSC for up to six
years after purchase, or a CDSC for the first year after purchase, respectively.
Therefore, the Company will not knowingly permit additional investments of less
than $2,000 in a Fund if the investor is at the same time making systematic
withdrawals. The Company reserves the right to amend the Systematic Withdrawal
Plan on thirty days' notice. The plan may be terminated at any time by the
investor or the Company.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of a Fund at the time the Systematic Withdrawal
Plan commences, provided that the shareholder elects to have all dividends and
distributions on the shareholder's Class B shares automatically reinvested in
additional Class B shares. Under this CDSC waiver policy, amounts withdrawn each
month will be paid by redeeming first Class B shares not subject to a CDSC
because the shares were purchased by the reinvestment of dividends or capital
gains distributions, the CDSC period has elapsed or some other waiver of the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
enough such shares are available, Class B shares having a CDSC will be redeemed
next, beginning with such shares held for the longest period of time (having the
lowest CDSC payable upon redemption) and continuing
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with shares held the next longest period of time until shares held the shortest
period of time are redeemed. Under this policy, the least amount of CDSC will be
waived by withdrawals under the Systematic Withdrawal Plan.
See "Purchase of Shares" for a description of the circumstances under which
a CDSC on Class A shares, Class B shares and Class C shares, respectively, may
be assessed on redemptions of such shares made through the Systematic Withdrawal
Plan as described above.
FURTHER REDEMPTION INFORMATION
The Company will ordinarily pay for shares redeemed through broker-dealers
using electronic purchase and redemption systems within three business days
after receipt of a redemption request through such system. In other situations,
the Company will ordinarily make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but except as
described below payment will be made no more than seven days after receipt of a
redemption request in good order. Payment for redeemed shares will ordinarily be
sent to the shareholder within three business days after receipt of the request
in proper form, except that the Company may delay the mailing of the redemption
check, or a portion thereof, until the Company'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 Company may suspend the right of
redemption or postpone the date of redemption at times when the NYSE is closed,
or under any emergency circumstances as determined by the SEC.
Due to the relatively high cost of maintaining smaller accounts, the Company
reserves the right to redeem shares in any account invested in a Fund having a
value of less than $1,000. The Company, however, will not redeem shares based
solely upon market reductions in net asset value. If at any time your total
investment does not equal or exceed the stated minimum value, you may be
notified of this fact and you will be allowed at least 60 days to make an
additional investment before the redemption is processed.
To protect your account, the Company 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. Signature guarantees
enable the Company to verify the identity of the person who has authorized a
redemption from your account. Signature guarantees are required in connection
with: (1) all redemptions, regardless of the amount involved, when the proceeds
are to be paid to someone other than the registered owner(s) and/or registered
address; and (2) share transfer requests. A guarantor must be a bank, a trust
company, a member firm of a domestic stock exchange, or a foreign branch of any
of the foregoing. Notaries public are not acceptable guarantors. Please contact
the Transfer Agent at 1-800-282-4404 for further information. See "Redemption of
Shares" in the Statement of Additional Information.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange shares that you own in the Funds for shares of the same
class other Funds. Shares of the Funds may be exchanged by mail or telephone,
except that no shares may be exchanged by telephone if you have elected on the
New Account Application or on a separate form supplied by the Transfer Agent not
to accept the telephone redemption and exchange privilege. Before you make an
exchange, you should read the Prospectus of the new Funds in which you seek to
invest. Because an exchange transaction is treated as a redemption followed by a
purchase, an exchange would be considered a taxable event for shareholders
subject to tax. The exchange
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privilege is only available with respect to Funds that are registered for sale
in a shareholder's state of residence. The exchange privilege may be modified or
terminated by the Company at any time upon 60 days' notice to shareholders.
No CDSC, if one is otherwise applicable, will be assessed at the time of the
exchange if the shareholder exchanges from one class of a Fund into the same
class of another Fund. For purposes of determining whether a shareholder's
redemption after an exchange will be subject to a CDSC, the shareholder's
holding period of shares acquired through an exchange will be related back to
the time the shareholder purchased the Company shares that were initially
exchanged so long as the shares are held in the same class of the Funds. As an
example, Class A share purchases of $1,000,000 or more, purchased at net asset
value, will not be assessed the 1.00% CDSC if exchanged into Class A shares of
another Fund during the first year after purchase. Class B shares of a Fund will
not be assessed the Class B CDSC if exchanged into Class B shares of another
Fund during the first six years after purchase. Class C shares of a Fund will
not be assessed the Class C CDSC if exchanged into Class C shares of another
Fund during the first year after purchase. If the initial shares of a Fund
purchased by the investor were not subject to any sales load or CDSC on such
shares, then no sales load or CDSC for shares of the same class will be imposed
on any subsequent exchanges involving such shares.
Morgan Stanley will tender the shares offered for exchange for redemption by
the Company and will use the proceeds to purchase shares of the designated
purchased Fund(s) on the shareholder's behalf. Under normal circumstances,
Morgan Stanley will use the proceeds from shares redeemed on any day to purchase
shares on the same Business Day.
Exchanges may also be subject to limitations as to amounts or frequency, and
to other restrictions established by the Board of Directors to assure that such
exchanges do not disadvantage the Company and its shareholders.
Exchange of Fund shares held in broker street name may not be accomplished
by mail or telephone as described below. For shares that are held in broker
street name, you cannot request exchange by telephone or by mail; such shares
may be exchanged only by contacting your Participating Dealer.
BY MAIL
In order to exchange shares by mail, you should include in the exchange
request the name and account number of your current Fund(s) and the class of
such Fund(s), if applicable, the name of the Fund(s) and the class of such
Fund(s), if applicable, from which and into which you intend to exchange shares,
and the signatures of all registered account holders. Send the exchange request
to the Transfer Agent, Chase Global Funds Services Company, P.O. Box 2798,
Boston, Massachusetts 02208-2798.
BY TELEPHONE
When exchanging shares by telephone, have ready your account number, the
names of the Fund(s) and class of such Fund(s), if applicable, from which and
into which you intend to exchange shares, your Social Security number or Tax
I.D. number, and your account address. Requests for telephone exchanges received
prior to 4:00 p.m. (Eastern Time) are processed at the close of business that
same day based on the net asset value of the applicable Fund(s) at such time.
Requests received after 4:00 p.m. (Eastern Time) are processed the next
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Business Day based on the net asset value determined at the close of business on
such day. For additional information regarding responsibility for the
authenticity of telephoned instructions, see "Redemption of Shares -- By
Telephone" above.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the Transfer Agent, P.O. Box 2798, Boston, Massachusetts
02208-2798. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE on each day that the NYSE is open for business. Securities
listed on a securities exchange for which market quotations are available are
valued at their closing price. If no closing price is available, such securities
will be valued at the last quoted sale price on the day the valuation is made.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted securities and listed securities not
traded on the valuation date for which market quotations are readily available
are valued at the average of the mean between the current bid and asked prices
obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of
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Directors. For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. Dollars at the mean of the bid price and asked price of such currencies
against the U.S. Dollar as quoted by a major bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Funds. The Adviser may place
portfolio orders with qualified broker-dealers who recommend the Funds to their
client's or who act as agents in the purchase of shares of the Funds for their
clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley, affiliates of the Adviser or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The High Yield Fund anticipates that its annual
portfolio turnover rate will not exceed 100% under normal circumstances. Market
conditions could result in portfolio activity at a greater or lesser rate than
anticipated. For the annual portfolio turnover rates for the Funds, see
"Financial Highlights" above. High portfolio turnover involves correspondingly
greater transaction costs which will be borne directly by the Fund. In addition,
high portfolio turnover may result in more capital gains which would be taxable
to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income tax consequences to shareholders subject to
tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and/or Morgan Stanley Capital
International.
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From time to time the Funds may advertise "yield." Yield figures are based
on historical performance and are not intended to indicate future performance.
The "yield" of such Funds refers to the income generated by an investment in the
Fund over a 30-day period (which period will be stated in the advertisement).
The 30-day yield is further described under "Performance Information" in the
Statement of Additional Information. The Company may also use comparative
performance information from time to time in marketing Fund shares, including
data from Lipper Analytical Services, Inc. and/or Donoghue's Money Fund Report.
The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge for Funds, except that, upon written notice to the Company
or by checking off the appropriate box in the Distribution Option Section on the
New Account Application, a shareholder may elect to receive dividends and/or
distributions in cash. Shares received through reinvestment of dividends and/or
distributions will not be subject to any CDSC upon their redemption.
Each of the Global Fixed Income, Worldwide High Income and High Yield Funds
expects to distribute net investment income monthly and will distribute any net
realized gains at least annually. Confirmations of the purchase of shares of a
Fund through the automatic reinvestment of income dividends and capital gains
distributions will be provided, pursuant to Rule 10b-10(b) under the Securities
Exchange Act of 1934, as amended, on the next quarterly client statement
following such purchase of shares. Consequently, confirmations of such purchases
will not be provided at the time of completion of such purchases, as might
otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Fund the net income attributable to and the dividends payable
on Class B shares and Class C shares of a Fund will be lower than the net income
attributable to and the dividends payable on Class A shares of the Funds. As a
result, the net asset value per share of the classes of a Fund will differ at
times. Expenses of the Company allocated to a particular class of shares of a
Fund will be borne on a pro rata basis by each outstanding share of that class.
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TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds and their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code, generally will be
applied to each Fund separately, rather than to the Company as a whole. Net
long-term and short-term capital gains, net income, and operating expenses
therefore will be determined separately for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) which is distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Such dividends paid by
a 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 a Fund's shares. Capital
gains distributions are not eligible for the corporate dividends-received
deduction. Each Fund will make annual reports to shareholders of the federal
income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less that the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
a Fund.
53
<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 A FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 21.75
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund. As of September 30, 1996, Morgan Stanley Group Inc., 1585 Broadway,
New York, NY 10036, was presumed to "control" the High Yield Fund based solely
on its ownership of 25% or more of the outstanding voting shares of such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semiannual reports; the
financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.
54
<PAGE>
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
55
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
GLOBAL FIXED INCOME, WORLDWIDE HIGH INCOME AND HIGH YIELD FUNDS
P.O. BOX 2798, BOSTON, MA 02208-2798 (800-282-4404) NEW ACCOUNT
APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
/ / Individual / / Joint Tenants / / Trust / / Gift/Transfer to
Minor / / Other____________________
NOTE: Joint tenant registration will be as "joint tenants with right of
survivorship" and not as "tenants in common" unless specified. Trust
registrations should specify name of the trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship is created (using the minor's Social Security Number
("SSN")). For an Individual Retirement Account ("IRA") a different application
is required. Please call Chase Global Funds Services Company ("CGFSC") at
800-282-4404 or your investment dealer to obtain the IRA application.
<TABLE>
<S> <C>
- --------------------------------------------- --------------------------------------------------------------------------
Name(s) (PLEASE PRINT) Social Security Number(s) or Taxpayer Identification Number(s) ("TIN(s)")
- --------------------------------------------- --------------------------------------------------------------------------
Name Telephone Number
- ---------------------------------------------
Address
- ---------------------------------------------
City/State/Zip
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED MAILINGS: If you or your family members own multiple accounts in
the Morgan Stanley Fund, Inc., you can prevent duplicate mailings to your
address by completing this section.
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FUND SELECTION
- --------------------------------------------------------------------------------
The minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the minimum amounts are $250 and $50, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C>
Morgan Stanley Global Fixed Income Fund Class A(601) $ ------ Class B(626) $ ------ Class C(651) $ ------
Morgan Stanley Worldwide High Income Fund Class A(604) $ ------ Class B(629) $ ------ Class C(654) $ ------
Morgan Stanley High Yield Fund Class A(607) $ ------ Class B(631) $ ------ Class C(657) $ ------
Total Initial Investment: $ ------
</TABLE>
<TABLE>
<S> <C>
NOTE: IF INVESTING BY WIRE, YOU MUST OBTAIN A A. By Mail: Enclosed is a check in the amount of $
BANK WIRE CONTROL NUMBER. TO DO SO, PLEASE ----------------------- payable to Morgan Stanley Fund, Inc.
CALL 800-282-4404. B. By Wire: A bank wire in the amount of $
----------------------- has been sent to Morgan Stanley Fund,
Inc.from -------------------------------------------
-------------------------------------------
Control Number Name of Bank Wire
</TABLE>
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate boxes
below are checked:
<TABLE>
<S> <C> <C>
All Dividends are to be / / reinvested / / paid in cash
All Capital Gains are to be / / reinvested / / paid in cash
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT PRIVILEGES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
CGFSC to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account. I/ We understand that CGFSC
charges an $8.00 fee for each wire redemption, which will be
deducted from the proceeds of the redemption.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges Name of Bank
/ / telephone redemption privileges -------------------------------------------------------
Bank A.B.A. Number ----------------- Account Number
-----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip
------------------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Fund into which I/we exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The Company and the Company's Transfer Agent will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures include requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide additional telecopying written instructions of
transaction requests. Neither the Company nor the Transfer Agent will be responsible for any loss, liability, cost or expenses
for following instructions received by telephone that it reasonably believes to be genuine.
</TABLE>
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION (OPTIONAL)
- --------------------------------------------------------------------------------
Fund shareholders together with members of their families, may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan Stanley Fund, Inc. sold with an initial sales load ("Funds"). You may
also receive a reduced sales charge by completing the Letter of Intent as set
forth below as provided in the Prospectus of the Morgan Stanley Fund, Inc. (the
"Prospectus"). See the Prospectus for details.
To qualify, you must complete this section, listing all of your accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.
I/We qualify for the Rights of Accumulation initial sales charge discount
described in the Prospectus and Statement of Additional Information of Morgan
Stanley Fund, Inc.
/ / I/We own Class A shares of more than one Fund of Morgan Stanley Fund, Inc.
/ / The registration of some of my/our Class A shares differs from that shown
on this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER ACCOUNTS
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF INTENT (OPTIONAL)
- --------------------------------------------------------------------------------
I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to invest, within a 13-month period beginning on the date hereof
(initial purchase date) in Class A shares of the Fund purchased hereunder and
the other Fund, an aggregate amount which, together with the value of Class A
shares of any of the Funds then owned by me/us, will equal or exceed the amount
indicated below:
/ / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) / / Yes / / No Not Available for
IRAs
- --------------------------------------------------------------------------------
Available to shareholders with account balances of $5,000 or more.
I/We hereby authorize CGFSC to redeem the necessary number of shares from
my/our Morgan Stanley Fund, Inc. Account on the designated dates in order to
make the following periodic payments:
/ / Monthly / / Quarterly / / Semiannually / / Annually
(This request for participation in the Systematic Withdrawal Plan must be
received by the 18th day of the month in which you wish withdrawals to begin.
Redemptions of shares to make the payments elected above will occur on the 25th
day of the month prior to payment, or if such day is not a business day, then
the next preceding business day.)
Withdrawal ($100 minimum) from:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C>
- ---------------------------------------------------------- Class : -------------- Code : --------------
- ---------------------------------------------------------- Class : -------------- Code : --------------
- ---------------------------------------------------------- Class : -------------- Code : --------------
Please make check payable to:
(to be completed only if redemption proceeds to be paid
to other than account holder of record or mailed to
address other than address of record)
Recipient -------------------------------------------
Street Address ------------------------------------
City, State, Zip Code -----------------------------
*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts without
being subject to a CDSC.
<CAPTION>
Amount of
<S> <C> <C> <C>
- ---------------------------------------------------------- $ ------------------ ----------%
- ---------------------------------------------------------- $ ------------------ ----------%
- ---------------------------------------------------------- $ ------------------ ----------%
Please make check payable to:
(to be completed only if redemption proceeds to be paid
to other than account holder of record or mailed to
address other than address of record)
*With the systematic withdrawal plan, a maximum of 12% per
being subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on the
designated dates in order to purchase shares in the Funds indicated below at the
applicable public offering price determined on that day.
/ / Monthly on the 5th day / / Monthly on the 20th day
Amount of each debit (minimum $100) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ------------ Code : ------------ $ ------------------------------------
- ---------------------------------------- Class : ------------ Code : ------------ $ ------------------------------------
- ---------------------------------------- Class : ------------ Code : ------------ $ ------------------------------------
</TABLE>
NOTE: A completed Bank Authorization Form (see below) and a voided personal
check MUST accompany this Automatic Investment Plan application.
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN--BANK AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ------------------------------------------------ ------------------------------------------------
Bank Name Bank Address
<CAPTION>
- ------------------------------------------------ ------------------------------------------------
<S> <C>
Bank Name Bank Account Number
</TABLE>
I/We authorize you, the above named bank, to debit my/our account for amounts
drawn by Chase Global Funds Services Company, acting as my/our agent for the
purchase of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a check drawn upon
you and signed by me/us. This authority shall remain in effect until revoked in
writing and received by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against insufficient funds.
I/We further agree that you will incur no liability to me if you dishonor any
such withdrawal. This will be so even though such dishonor results in the
cancellation of that purchase.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------- --------------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X ------------------------------------------------ ---------------- X
------------------------------------------------
----------------
Signature Date Signature Date
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT
THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT AND THAT AS REQUIRED
BY FEDERAL LAW:
U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM IS/ARE THE
CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT SUBJECT TO ANY BACKUP
WITHHOLDING EITHER BECAUSE (A) I/WE ARE EXEMPT FROM BACKUP WITHHOLDING, OR
(B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME/US THAT I
AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR
INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN
OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO
CGFSC WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I/WE FAIL TO
FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A
31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU MAY REQUEST SUCH FORM BY
CALLING CGFSC AT 800-282-4404.
NON-U.S. CITIZEN(S)/TAXPAYER(S):
INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES:
- ------------------------
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS OR
RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE INTERNAL REVENUE
SERVICE.
I/We represent that I am/we are of legal age and capacity to purchase shares of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this application, my/our investment dealer and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund, Inc.
and CGFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense incurred for acting upon instructions believed
to be authentic and in accordance with the procedures set forth in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we acknowledge
that neither the Company nor the Distributor is a bank and that Fund shares are
not backed or guaranteed by any bank or insured by the FDIC.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C>
X --------------------------------------------------------------------------------- DATE ---------------------
OWNER SIGNATURE
X --------------------------------------------------------------------------------- DATE ---------------------
OWNER SIGNATURE
</TABLE>
Sign exactly as name(s) of registered owner(s) appear(s) above (including legal
title if signing for a corporation, trust custodial account, etc.)
NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
MORGAN STANLEY FUND, INC. THROUGH A PARTICIPATING DEALER (AN INVESTMENT
DEALER).
FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance with
the terms of our selling agreement with Morgan Stanley & Co. Incorporated and
with the Prospectus and Statement of Additional Information of the Company. We
agree to notify CGFSC of any purchases made under the Letter of Intent or Rights
of Accumulation.
<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Representative's Name
- ------------------------------------------------------- -------------------------------------------------------
Branch Number Representative's Telephone Number
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City/State/Zip Code
- ------------------------------------------------------- -------------------------------------------------------
Branch Telephone Number Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
-----
Fund Expenses......................................................... 2
Financial Highlights.................................................. 6
Prospectus Summary.................................................... 10
Investment Objectives and Policies.................................... 14
Additional Investment Information..................................... 24
Investment Limitations................................................ 33
Management of the Company............................................. 34
Purchase of Shares.................................................... 38
Redemption of Shares.................................................. 45
Shareholder Services.................................................. 48
Valuation of Shares................................................... 50
Portfolio Transactions................................................ 51
Performance Information............................................... 51
Dividends and Distributions........................................... 52
Taxes................................................................. 53
General Information................................................... 54
Appendix A............................................................ A-1
New Account Application
</TABLE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
MORGAN STANLEY
HIGH YIELD FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO.
INCORPORATED
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY U.S. REAL ESTATE 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 "Company") is an open-end management
investment company, or mutual fund, which consists of seventeen diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the three Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator"). Shares are available through Morgan Stanley & Co. Incorporated
("Morgan Stanley" or the "Distributor"), and through investment dealers, banks
and financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Funds listed above that a prospective investor should know before investing and
it should be retained for future reference. The Company offers other Funds which
are described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Global Equity Allocation, Morgan Stanley Asian Growth,
Morgan Stanley Emerging Markets, Morgan Stanley Latin American and Morgan
Stanley International Magnum Funds; (ii) U.S. EQUITY -- Morgan Stanley American
Value, Morgan Stanley Aggressive Equity and Morgan Stanley U.S. Real Estate
Funds; (iii) GLOBAL FIXED INCOME -- Morgan Stanley Global Fixed Income, Morgan
Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and (iv)
MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley Government
Obligations Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated November 1, 1996,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds are available
upon request and without charge by writing or calling the Company at the address
and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
U.S.
AGGRESSIVE REAL
AMERICAN EQUITY ESTATE
SHAREHOLDER TRANSACTION EXPENSES VALUE FUND FUND FUND
- -------------------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A....................................... 4.75%(1) 4.75%(1) 4.75%(1)
Class B....................................... None None None
Class C....................................... None None None
Maximum Deferred Sales Load (as a percentage of
the lesser of initial purchase price or current
market value)
For Purchases up to $999,999
Class A....................................... None None None
Class B....................................... 5.00%(2) 5.00%(2) 5.00%(2)
Class C....................................... 1.00%(3) 1.00%(3) 1.00%(3)
For Purchases of $1,000,000 or more
Class A....................................... 1.00%(1) 1.00%(1) 1.00%(1)
Class B....................................... 5.00%(2) 5.00%(2) 5.00%(2)
Class C....................................... 1.00%(3) 1.00%(3) 1.00%(3)
Maximum Sales Load Imposed on Reinvested Dividends
Class A....................................... None None None
Class B....................................... None None None
Class C....................................... None None None
Redemption Fees (4)
Class A....................................... None None None
Class B....................................... None None None
Class C....................................... None None None
Exchange Fees
Class A....................................... None None None
Class B....................................... None None None
Class C....................................... None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Funds
listed above which, when combined with the net asset value of the
purchaser's existing investments in Class A shares of the Funds, aggregate
$1 million or more are not subject to a sales load (an "initial sales
charge"). A contingent deferred sales charge ("CDSC") of 1.00% will be
imposed, however, on shares from any such purchase that are redeemed within
one year following such purchase. Any such CDSC will be paid to the
Distributor. Certain other purchases are not subject to an initial sales
charge. See "Purchase of Shares."
(2) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
will be paid to the Distributor.
(3) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
U.S.
AMERICAN AGGRESSIVE REAL
ANNUAL FUND OPERATING EXPENSES VALUE EQUITY ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND FUND FUND
--------- --------- -------
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
<S> <C> <C> <C>
Class A.................................. 0.54% 0.50% 0.70%
Class B.................................. 0.54% 0.50% 0.70%
Class C.................................. 0.54% 0.50% 0.70%
12b-1/Service Fees
Class A.................................. 0.25% 0.25% 0.25%
Class B (6).............................. 1.00% 1.00% 1.00%
Class C (6).............................. 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursement
and/or fee waiver) (5)
Class A.................................. 0.71% 0.75% 0.60%
Class B.................................. 0.71% 0.75% 0.60%
Class C.................................. 0.71% 0.75% 0.60%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.50% 1.50%(7) 1.55%
Class B.................................. 2.25% 2.25%(7) 2.30%
Class C.................................. 2.25% 2.25%(7) 2.30%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, (i) investment advisory fees
absent advisory fee waivers and (ii) expected total operating expenses
absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
AGGRESSIVE U.S. REAL
AMERICAN EQUITY ESTATE
VALUE FUND FUND FUND
------------- ------- ----------
<S> <C> <C> <C>
Investment Advisory Fees
(All Classes)..................... 0.85% 0.90% 1.00%
Total Operating Expenses...........
Class A.......................... 1.81% 1.90% 1.85%
Class B.......................... 2.61% 2.65% 2.60%
Class C.......................... 2.58% 2.65% 2.60%
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company." The
Adviser reserves the right to terminate any of its fee waivers at any time in
its sole discretion. For further information on Company expenses, see
"Management of the Company."
(6) Of the 12b-1/Service fees for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
(7) The ratios of total operating expenses to average net assets exclude the
effect of dividend expense on short sales.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The Class A, Class B and Class C expenses and fees for
the American Value Fund are based on actual figures for the period ended June
30, 1996. The Class A, Class B and Class C expenses and fees for the Aggressive
Equity and U.S. Real Estate Funds are based on estimates. For purposes of
calculating the estimated expenses and fees set forth above, the table assumes
that each Fund's average daily net assets will be $50,000,000. Due to the
continuous nature of Rule 12b-1 fees, long-term shareholders may pay more than
the equivalent of the maximum front-end sales charges otherwise permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each listed Fund,
including the maximum 4.75% sales charge, (ii) Class B shares of each such Fund,
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
such Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
U.S.
AGGRESSIVE REAL
AMERICAN EQUITY ESTATE
VALUE FUND FUND FUND
---------- -------- -------
<S> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the
same.)
1 Year............................................................... $ 62(1) $ 62(1) $ 63(1)
3 Years.............................................................. 93 93 94
5 Years.............................................................. 125 * *
10 Years............................................................. 218 * *
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................................... 73 73 73
3 Years.............................................................. 100 100 102
5 Years.............................................................. 140 * *
10 Years (2)......................................................... 258 * *
(Assuming no redemption)
1 Year............................................................... 23 23 23
3 Years.............................................................. 70 70 72
5 Years.............................................................. 120 * *
10 Years (2)......................................................... 258 * *
Class C shares
(Assuming complete redemption immediately prior to the end of
period)
1 Year............................................................... 33 33 33
3 Years.............................................................. 70 70 72
5 Years.............................................................. 120 * *
10 Years............................................................. 258 * *
(Assuming no redemption)
1 Year............................................................... 23 23 23
3 Years.............................................................. 70 70 72
5 Years.............................................................. 120 * *
10 Years............................................................. 258 * *
</TABLE>
- --------------
* Because the Aggressive Equity and U.S. Real Estate Funds had just recently
become operational as of the date of this Prospectus, the Company has not
projected expenses beyond the three-year period shown.
(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds listed above which, when combined with the net
asset value of the purchaser's existing investment in Class A shares of the
Funds, aggregate $1 million or more are not subject to a sales load (an
"initial sales charge"). A contingent deferred sales charge ("CDSC") of
1.00% will be imposed, however, on shares from any such purchase that are
redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after seven years.
4
<PAGE>
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of each Fund for each of the respective periods presented.
The audited financial highlights are part of the Company's financial statements,
which appear in the Company's June 30, 1996 Annual Report to Shareholders. The
financial statements are included in the Company's Statement of Additional
Information. The Funds' financial highlights for each of the years presented
have been audited by Price Waterhouse LLP, whose report thereon (which was
unqualified) is also included in the Statement of Additional Information.
Additional performance information is contained in the Annual Report. The Annual
Report and the financial statements contained therein, along with the Statement
of Additional Information, are available at no cost from the Company at the
address and telephone number noted on the cover page of this Prospectus. The
following information should be read in conjunction with the financial
statements and notes thereto.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------- CLASS B+
OCTOBER 18, ----------------
SELECTED PER SHARE DATA AND 1993* YEAR ENDED YEAR ENDED AUGUST 1, 1995*
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 TO JUNE 30, 1996
- -------------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 11.70 $ 12.89 $ 13.37
------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.17 0.27 0.27 0.15
Net Realized and Unrealized
Gain (Loss).................. (0.30) 1.44 1.94 1.46
------- ------- ------- ------
Total from Investment
Operations................... (0.13) 1.71 2.21 1.61
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income......... (0.17) (0.28) (0.27) (0.15)
In Excess of Net Investment
Income....................... -- -- (0.01) (0.01)
Net Realized Gain............. -- (0.24) (0.19) (0.19)
------- ------- ------- ------
Total Distributions........... (0.17) (0.52) (0.47) (0.35)
------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD......................... $ 11.70 $ 12.89 $ 14.63 $ 14.63
------- ------- ------- ------
------- ------- ------- ------
TOTAL RETURN (1)................ (1.12)% 15.01% 17.41% 12.29%
------- ------- ------- ------
------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 10,717 $ 20,675 $ 19,674 $ 2,485
Ratio of Expenses to Average Net
Assets (2)..................... 1.50%** 1.50% 1.50% 2.25%**
Ratio of Net Investment Income
to Average Net Assets (2)...... 2.14%** 2.29% 1.90% 1.18%**
Portfolio Turnover Rate......... 17% 23% 41% 41%
- ---------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.08 $ 0.05 $ 0.04 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 2.48%** 1.96% 1.81% 2.61%**
Net Investment Income to
Average Net Assets........... 1.16%** 1.83% 1.59% 0.82%**
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
OCTOBER 18,
SELECTED PER SHARE DATA AND 1993* YEAR ENDED YEAR ENDED
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- -------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
- -------------------------------- --------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 11.69 $ 12.89
------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.11 0.17 0.16
Net Realized and Unrealized
Gain (Loss).................. (0.31) 1.44 1.94
------ ------- -------
Total from Investment
Operations................... (0.20) 1.61 2.10
------ ------- -------
DISTRIBUTIONS
Net Investment Income......... (0.11) (0.17) (0.15)
In Excess of Net Investment
Income....................... -- -- (0.01)
Net Realized Gain............. -- (0.24) (0.19)
------ ------- -------
Total Distributions........... (0.11) (0.41) (0.35)
------ ------- -------
NET ASSET VALUE, END OF
PERIOD......................... $ 11.69 $ 12.89 $ 14.64
------ ------- -------
------ ------- -------
TOTAL RETURN (1)................ (1.70)% 14.13% 16.50%
------ ------- -------
------ ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 7,237 $ 13,867 $ 21,193
Ratio of Expenses to Average Net
Assets (2)..................... 2.25%** 2.25% 2.25%
Ratio of Net Investment Income
to Average Net Assets (2)...... 1.39%** 1.54% 1.17%
Portfolio Turnover Rate......... 17% 23% 41%
- -------------------------------- --------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.08 $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 3.28%** 2.71% 2.58%
Net Investment Income to
Average Net Assets........... 0.36%** 1.08% 0.84%
- -------------------------------- --------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The American Value Fund began offering the current Class B shares on August
1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 0.85% of the average daily net assets of the American Value Fund. The
Adviser has agreed to waive a portion of this fee and/or reimburse expenses
of the American Value Fund to the extent that the total operating expenses
of the Fund exceed 1.50% of the average daily net assets relating to the
Class A shares and 2.25% of the average daily net assets relating to the
Class B and Class C shares. For the fiscal periods ended June 30, 1994,
June 30, 1995 and June 30, 1996, the Adviser waived advisory fees and/or
reimbursed expenses totaling approximately $102,000, $110,000 and $134,000,
respectively, for the American Value Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
JANUARY 2, JANUARY 2, JANUARY 2,
1996* 1996* 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00 $ 12.00 $ 12.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income....... 0.06 0.03 0.03
Net Realized and Unrealized
Gain....................... 2.40 2.39 2.38
------- ------- -------
Total From Investment
Operations................. 2.46 2.42 2.41
------- ------- -------
DISTRIBUTIONS
Net Investment Income....... (0.06) (0.04) (0.04)
------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 14.40 $ 14.38 $ 14.37
------- ------- -------
------- ------- -------
TOTAL RETURN (1).............. 20.52% 20.18% 20.10%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 5,382 $ 2,426 $ 2,582
Ratio of Expenses to Average
Net Assets (2)............... 2.03%** 2.67%** 2.67%**
Ratio of Net Investment Income
to Average Net Assets (2).... 1.22%** 0.43%** 0.44%**
Portfolio Turnover Rate....... 204% 204% 204%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income.......... $ 0.06 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets..................... 3.26%** 3.79%** 3.80%**
Net Investment Income to
Average Net Assets......... (0.01)%** (0.69)%** (0.69)%**
Ratio of Expenses to Average
Net Assets Excluding
Dividend Expense on
Securities Sold. Short 1.50%** 2.25%** 2.25%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of .90% of the average daily net assets of Aggressive Equity Fund. The
Adviser has agreed to wave a portion of this fee and/or reimburse expenses
of the Aggressive Equity Fund to the extent that total operating expenses
of the Fund, excluding dividend expense of securities sold short, exceed
1.50% of the average daily net assets relating to the Class A shares and
2.25% of the average daily net assets relating to the Class B and Class C
shares. For the fiscal period ended June 30, 1996, the Adviser waived
advisory fees and/or reimbursed expenses totaling approximately $41,000 for
the Aggressive Equity Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00 $ 12.00 $ 12.00
------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income....... 0.08 0.07 0.07
Net Realized and Unrealized
Gain....................... 0.48 0.48 0.48
------- ------ ------
Total From Investment
Operations................. 0.56 0.55 0.55
------- ------ ------
DISTRIBUTIONS
Net Investment Income....... (0.04) (0.03) (0.03)
------- ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.52 $ 12.52 $ 12.52
------- ------ ------
------- ------ ------
TOTAL RETURN (1).............. 4.63% 4.54% 4.54%
------- ------ ------
------- ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 1,829 $ 2,197 $ 1,782
Ratio of Expenses to Average
Net Assets (2)............... 1.55%** 2.30%** 2.30%**
Ratio of Net Investment Income
to Average Net Assets (2).... 4.11%** 3.35%** 3.39%**
Portfolio Turnover Rate....... 0% 0% 0%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income.......... $ 0.08 $ 0.07 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets..................... 5.58%** 6.34%** 6.32%**
Net Investment Income to
Average Net Assets......... 0.08%** (0.69)%** (0.63)%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 1.00% of the average daily net assets of the U.S. Real Estate Fund. The
Adviser has agreed to waive a portion of this fee and/or reimburse expenses
of the U.S. Real Estate Fund to the extent that the total operating
expenses of the Fund exceed 1.55% of the average daily net assets relating
to the Class A shares and 2.30% of the average daily net assets relating to
the Class B and Class C shares. For the fiscal period ended June 30, 1996,
the Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $35,000 for the U.S. Real Estate Fund.
9
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company 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 Fund has its
own investment objective and policies designed to meet its specific goals. For
ease of reference, the words "Morgan Stanley," which begin the name of each
Fund, have not been included in the Funds named below. The investment objective
of each Fund described in this Prospectus is as follows:
- The AMERICAN VALUE FUND seeks high 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 U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The objectives of these other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and by investing
from time to time in debt securities issued or guaranteed by Latin
American governments or governmental entities.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
10
<PAGE>
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
U.S. EQUITY FUNDS:
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
GLOBAL FIXED INCOME FUNDS:
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers located throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the nationally recognized statistical rating
organizations.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
MONEY MARKET FUNDS:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining the 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 GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. (the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc., which,
together with its affiliated asset management companies, had approximately
$103.5 billion in assets under management as an investment manager or as a
fiduciary adviser at September 30, 1996, acts as investment adviser to the
Company and each of its Funds. See "Management of the Fund -- Investment
Adviser" and "-- Administrator." Morgan Stanley Group Inc. has 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 approximately
$58.7 billion in assets under management as of September 30, 1996. The
acquisition is expected to have closed by October 31, 1996.
11
<PAGE>
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The American Value and Aggressive Equity
Funds invest in small- to medium-sized corporations, which are more vulnerable
to financial risks and other risks than larger corporations, and therefore may
involve a higher degree of risk and price volatility than investments in the
securities of larger corporations. Each of such Funds may invest in futures
contracts. Each Fund described herein may invest in securities that are neither
listed on a stock exchange nor traded over-the-counter, including private
placement securities. Such securities may be less liquid than publicly traded
securities. The Aggressive Equity Fund may invest in PERCS, ELKS, LYONs and
similar securities which are convertible upon various terms and conditions into
equity securities, may borrow for purposes of leverage, invest in reverse
repurchase agreements and engage in short selling. Because the U.S. Real Estate
Fund invests primarily in the securities of companies principally engaged in the
real estate industry, its investments may be subject to the risks associated
with the direct ownership of real estate. Because it is expected that the U.S.
Real Estate Fund will invest a substantial portion of its assets in real estate
investment trusts ("REITs"), the U.S. Real Estate Fund may also be subject to
certain risks and costs associated with the direct investments of REITs. The
American Value, U.S. Real Estate and Aggressive Equity Funds may invest in
securities of foreign issuers. Securities of foreign issuers are subject to
certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The American Value and Aggressive Equity Funds may also invest in
forward foreign currency exchange contracts, and the American Value Fund may
invest in foreign currency exchange options, to hedge the currency risks
associated with investment in non-U.S. dollar denominated securities. The U.S.
Real Estate and Aggressive Equity Funds may buy and sell options. Because the
U.S. Real Estate Fund and Aggressive Equity Fund are non-diversified portfolios,
each of these Funds may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject to a
greater risk resulting from such concentration of its portfolio securities. In
addition, each Fund may invest in repurchase agreements, borrow money, lend its
portfolio securities, and purchase securities on a when-issued or delayed
delivery basis. Each Fund's share price and investment return fluctuate, and a
shareholder's investment when redeemed may be worth more or less than his
original cost. Each of these investment strategies involves specific risks which
are described under "Investment Objectives and Policies" and "Additional
Investment Information" herein and under "Investment Objectives and Policies" in
the Statement of Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds described herein are
designed to provide investors a choice of three ways to pay distribution costs.
Class A shares of the Funds are offered at net asset value plus an initial sales
charge of up to 4.75% in graduated percentages based on the investor's aggregate
investments in the Funds. Shares of the Class B shares and Class C shares of the
Funds are offered at net asset value. Class B shares
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are subject to a contingent deferred sales charge ("CDSC") for redemptions
within six years of purchase and are subject to higher annual
distribution-related expenses than the Class A shares. Class C shares are
subject to a CDSC for redemptions within one year of purchase and are subject to
higher annual distribution-related expenses than the Class A shares. See
"Purchase of Shares" for a discussion of reduction or waiver of sales charges,
which are available for certain investors. Share purchases may be made through
Morgan Stanley, through Participating Dealers or by sending payments directly to
the Company. The minimum initial investment is $1,000 for each class of a 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 Fund may be redeemed at any time at the net asset value per
share of the Fund next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price. A Class A
shareholder of a Fund who did not pay an initial sales charge due to the size of
the purchase and redeems shares within one year of purchase will be subject to a
CDSC of 1.00%. Certain Class B shares that are redeemed within six years of
purchase are subject to a maximum CDSC of 5.00% which decreases in steps to 0%
after six years. Certain Class C shares that are redeemed within one year of
purchase are subject to a CDSC of 1.00%. The CDSC for each class is applicable
to the lesser of the current market value of the shares redeemed or the total
cost of such shares. In determining whether a CDSC is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to such charge are
the first redeemed followed by other shares held for the longest period of time.
If a shareholder reduces his/her total investment in shares of a Fund to less
than $1,000, the entire investment may be subject to involuntary redemption. See
"Redemption of Shares."
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objectives. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There is no assurance that a Fund will attain its objective. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE AMERICAN VALUE FUND
The American Value Fund's investment objective is to provide high total
return by investing in equity securities of small- to medium-sized corporations
that the Adviser believes to be undervalued relative to the stock market in
general at the time of purchase. The Fund invests primarily in corporations
domiciled in the United States with equity market capitalizations which range
generally from $70 million up to $1 billion, but may from time to time invest in
similar size foreign corporations. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity securities of
corporations whose equity market capitalization is up to $1 billion. The Fund
may also invest in equity securities of other corporations but will generally
not invest in the 500 largest corporations in the United States. With respect to
the Fund, equity securities include common and preferred stocks, convertible
securities, and rights and warrants to purchase common stocks, and similar
equity interests, such as trusts or partnership interests. Debt securities
convertible into common stocks will be investment grade (rated in one of the
four highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO")) or, if unrated, will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors. These
investments may or may not carry voting rights.
The Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run. Companies considered attractive will have the following
characteristics:
1. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations.
2. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies.
3. Stock prices will be low relative to the intrinsic value of the
companies' assets.
4. Stocks will be of high quality, in the Adviser's judgment, as evaluated
by the companies' balance sheets, income statements, franchises and product
competitiveness.
The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features which, according to the Adviser's
assessment, will allow the stocks to achieve a higher valuation. Value is
achieved and exposure is reduced for the American Value Fund when the investment
community's perceptions improve and the stocks approach what the Adviser
believes is fair valuation. The Fund will invest in equity securities of smaller
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capitalized companies, which are more vulnerable to financial and other risks
than larger companies. Investment in securities of smaller companies may involve
a higher degree of risk and price volatility than in securities of larger
companies.
The Adviser takes a long-term approach by placing a strong emphasis on its
ability to identify attractive values. The Adviser does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading. The Adviser may take advantage of short-term opportunities,
however, that are consistent with its objective of high total return. The Fund
will maintain diversity among industries and will not invest more than 25% of
its total assets in the stocks of issuers in any one industry.
The American Value Fund invests primarily in small- to medium-sized
companies domiciled in the United States. The Fund may, to a limited extent,
invest in non-publicly traded securities, private placements and restricted
securities. See "Additional Investment Information -- Non-Publicly Traded
Securities, Private Placements and Restricted Securities." The Fund may on
occasion invest in equity securities of foreign issuers that trade on a United
States exchange or over-the-counter either directly or in the form of American
Depositary Receipts. See "Additional Investment Information -- Depositary
Receipts."
For temporary defensive purposes, the American Value Fund may invest in many
market instruments and medium-term debt securities that the Adviser believes to
be of high-quality, or hold cash. See "Additional Investment Information --
Temporary Investments."
For further information about the foregoing and certain additional
investment practices of the American Value Fund, see "Additional Investment
Information" below.
THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to the Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities, rights and warrants to purchase common stock, equity related options
and futures, and specialty securities, such as ELKS, LYONs and PERCS of U.S.,
including, to a limited extent, securities of foreign issuers. As a
non-diversified portfolio, the Fund can be more heavily weighted in fewer stocks
than a diversified portfolio. See "Investment Limitations." Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in equity and equity-linked securities. Equity-linked securities, such as
ELKS, LYONs and PERCS, are derivatives, which are financial instruments that
derive their value from the value of an underlying asset, reference rate or
index. See "Additional Investment Information -- Convertible Securities,
Warrants and Equity-Linked Securities" and "Derivatives" below.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Aggressive Equity Fund's investment objective. In selecting securities for
the Fund, the Adviser concentrates on a universe of rapidly growing, high
quality companies and on companies in lower, but accelerating, earnings growth
situations. The Adviser's universe of potential investments generally comprises
companies with market capitalizations of $500 million or more but smaller market
capitalization securities may be purchased from time to time. The Fund is not
restricted to investments in specific markets sectors. The Adviser uses its
research capabilities, analytical resources and judgment to assess economic,
industry and market trends, as well as individual company
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developments, to select promising investments for the Fund. The Adviser
concentrates on companies with strong, communicative managements and clearly
defined strategies for growth. In addition, the Adviser rigorously assesses
earnings results. The Adviser seeks companies which will deliver surprisingly
strong earnings growth. Valuation is of secondary importance to the Adviser and
is viewed in the context of prospects for sustainable earnings growth and the
potential for positive earnings surprises in relation to consensus expectations.
The Fund is free to invest in any equity or equity-linked security that, in the
Adviser's judgment, provides above-average potential for capital appreciation.
In selecting investments for the Aggressive Equity Fund, the Adviser
emphasizes individual security selection. Overweighted sector positions and
issuer positions may result from the investment process. The Fund has a
long-term investment perspective; however, the Adviser may take advantage of
short-term opportunities that are consistent with the Fund's objective by
selling recently purchased securities which have increased in value.
The Aggressive Equity Fund may invest in equity and equity-linked securities
of domestic and foreign corporations. However, the Fund does not expect to
invest more than 25% of its total assets at the time of purchase in securities
of foreign companies. The Fund may invest in securities of foreign issuers
directly or in the form of depositary receipts. Investors should recognize that
investing in foreign companies involves certain special considerations which are
not typically associated with investing in U.S. companies. The Fund may from
time to time and consistent with applicable legal requirements sell securities
short that it owns (i.e., "against the box") or borrows. The Fund may, to a
limited extent, invest in non-publicly traded securities, private placements and
restricted securities. See "Additional Investment Information."
The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage."
For temporary defensive purposes, the Aggressive Equity Fund may invest in
money market instruments and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash.
For further information about the foregoing and certain additional
investment practices of the Aggressive Equity Fund, see "Additional Investment
Information" below.
THE U.S. REAL ESTATE FUND
The investment objective of the U.S. Real Estate Fund is 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 ("REITs"). With respect to this Fund,
equity securities include common stocks, shares or units of beneficial interest
of REITs, limited partnership interests in master limited partnerships, rights
or warrants to purchase common stocks, securities convertible into common
stocks, and preferred stock.
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Under normal circumstances, at least 65% of the U.S. Real Estate Fund's
total assets will be invested in income producing equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. For
purposes of the Fund's investment policies, a company is "principally engaged"
in the real estate industry if, as determined by the Adviser, (i) it derives at
least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies in the
real estate industry may include among others: REITs, master limited
partnerships that invest in interests in real estate, real estate operating
companies, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Fund seeks to
invest in equity securities of companies that provide a dividend yield that
exceeds the composite dividend yield of securities comprising the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500").
A substantial portion of the U.S. Real Estate Fund's total assets will be
invested in securities of REITs. REITs pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. A REIT is not taxed on income distributed to its shareholders or
unitholders if it complies with regulatory requirements relating to its
organization, ownership, assets and income, and with a regulatory requirement
that it distribute to its shareholders or unitholders at least 95% of its
taxable income for each taxable year. Generally, REITs can be classified as
Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest the majority
of their assets directly in real property and derive their income primarily from
rents and capital gains from appreciation realized through property sales.
Equity REITs are further categorized according to the types of real estate
securities they own, e.g., apartment properties, retail shopping centers, office
and industrial properties, hotels, health-care facilities, manufactured housing
and mixed-property types. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity and Mortgage REITs. The
Fund will invest primarily in Equity REITs. A shareholder in the Fund should
realize that by investing in REITs indirectly through the Fund, he will bear not
only his proportionate share of the expenses of the Fund, but also indirectly,
the management expenses of underlying REITs.
The U.S. Real Estate Fund will concentrate in the U.S. real estate industry,
but may not invest more than 25% of its total assets in securities of companies
in any one other industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry). Under normal
circumstances, the Fund may invest up to 35% of its total assets in debt
securities issued or guaranteed by real estate companies or secured by real
estate assets and rated, at time of purchase, in one of the four highest rating
categories by an NRSRO or determined by the Adviser to be of comparable quality
at the time of purchase; high quality money market instruments; or debt
securities rated in one of the two highest ratings categories by an NRSRO,
consisting of corporate debt securities and U.S. Government securities.
Securities rated in the lowest category of investment grade securities have
speculative characteristics. Investment grade securities are securities that are
rated in one of the four highest rating categories by an NRSRO. The Fund may
also, to a limited extent, invest in non-publicly traded securities, private
placements and restricted securities.
For temporary defensive purposes, the Fund may invest in money market
instruments and medium-term debt securities that the Adviser believes to be of
high-quality, or hold cash. See "Additional Investment Information -- Temporary
Investments."
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For further information about the foregoing and certain additional
investment practices of the U.S. Real Estate Fund, see "Additional Investment
Information" below.
RISK FACTORS RELATING TO U.S. REAL ESTATE PORTFOLIO. The investment policies
of the U.S. Real Estate Fund entail certain risks and considerations of which an
investor should be aware. Because the Fund invests primarily in the securities
of companies principally engaged in the real estate industry, its investments
may be subject to the risks associated with the direct ownership of real estate.
These risks include: the cyclical nature of real estate values, risks related to
general and local economic conditions, overbuilding and increased competition,
increases in property taxes and operating expenses, demographic trends and
variations in rental income, changes in zoning laws, casualty or condemnation
losses, environmental risks, regulatory limitations on rents, changes in
neighborhood values, related party risks, changes in the appeal of properties to
tenants, increases in interest rates and other real estate capital market
influences. Generally, increases in interest rates will increase the costs of
obtaining financing, which could directly and indirectly decrease the value of
the Fund's investments. The Fund's share price and investment return fluctuate,
and a shareholder's investment when redeemed may be worth more or less than his
original cost.
Because the U.S. Real Estate Fund may invest a substantial portion of its
assets in REITs, the Fund may also be subject to certain risks associated with
the direct investments of REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in investments in a limited
number of properties, in a narrow geographic area, or in a single property type.
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be subject to defaults by
borrowers and to self-liquidations. In addition, the performance of a REIT may
be affected by its failure to qualify for tax-free pass-through of income under
the Internal Revenue Code of 1986, as amended (the "Code"), or its failure to
maintain exemption from registration under the Investment Company Act of 1940,
as amended (the "1940 Act"). Changes in prevailing interest rates may inversely
affect the value of the debt securities in which the Fund will invest. Changes
in the value of portfolio securities will not necessarily affect cash income
derived from these securities but will affect the Fund's net asset value.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Aggressive Equity Fund is authorized to borrow money from banks and
other entities in an amount equal to up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, and may use the proceeds of the borrowing for investment
purposes or to pay dividends. Borrowing creates leverage which is a speculative
characteristic. Although the Fund is authorized to borrow, it will do so only
when the Adviser believes that borrowing will benefit the Fund after taking into
account considerations such as the costs of borrowing and the likely investment
returns on securities purchased with borrowed monies. Borrowing by the Fund will
create the opportunity for increased net income but, at the same time, will
involve special risk considerations. Leveraging resulting from borrowing will
magnify declines as well as increases in the Fund's net asset value per share
and net yield.
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The Aggressive Equity Fund expects that any borrowing, for other than
temporary purposes, will be made on a secured basis. The Fund's Custodian will
either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets.
The Aggressive Equity Fund may also enter into reverse repurchase
agreements. See "Additional Investment Information -- Reverse Repurchase
Agreements" below.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Aggressive Equity Fund may invest in equity-linked securities,
including, among others, PERCS, ELKS or LYONs, which are securities that are
convertible into, or the value of which is based upon the value of, equity
securities upon certain terms and conditions. The amount received by an investor
at maturity of such securities is not fixed but is based on the price of the
underlying common stock. It is impossible to predict whether the price of the
underlying common stock will rise or fall. Trading prices of the underlying
common stock will be influenced by the issuer's operational results, by complex,
interrelated political, economic, financial or other factors affecting the
capital markets, the stock exchanges on which the underlying common stock is
traded and the market segment of which the issuer is a part. In addition, it is
not possible to predict how equity-linked securities will trade in the secondary
market which is fairly developed and liquid. The market for such securities may
be shallow, however, and high volume trades may be possible only with
discounting. In addition to the foregoing risks, the return on such securities
depends on the creditworthiness of the issuer of the securities, which may be
the issuer of the underlying securities or a third party investment banker or
other lender. The creditworthiness of such third party issuer of equity-linked
securities may, and often does, exceed the creditworthiness of the issuer of the
underlying securities. The advantage of using equity-linked securities over
traditional equity and debt securities is that the former are income producing
vehicles that may provide a higher income than the dividend income on the
underlying equity securities while allowing some participation in the capital
appreciation of the underlying equity securities. Another advantage of using
equity-linked securities is that they may be used for hedging to reduce the risk
of investing in the generally more volatile underlying equity securities.
The following are three examples of equity-linked securities. The Fund may
invest in the securities described below or other similar equity-linked
securities.
PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
is preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the
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common stock over the duration of the PERCS and declines to the cap price
shortly before maturity of the PERCS. In exchange for having the cap on capital
gains and giving the issuer the option to redeem the PERCS at any time or at the
specified common stock price level, the Fund may be compensated with a
substantially higher dividend yield than that on the underlying common stock.
ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt
securities, in that the principal amount received at maturity is not fixed but
is based on the price of the issuer's common stock. ELKS are debt securities
commonly issued in fully registered form for a term of three years under an
indenture trust. At maturity, the holder of ELKS will be entitled to receive a
principal amount equal to the lesser of a cap amount, commonly in the range of
30% to 55% greater than the current price of the issuer's common stock, or the
average closing price per share of the issuer's common stock, subject to
adjustment as a result of certain dilution events, for the 10 trading days
immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to
redemption prior to maturity. ELKS usually bear interest during the three-year
term at a substantially higher rate than the dividend yield on the underlying
common stock. In exchange for having the cap on the return that might have been
received as capital gains on the underlying common stock, the Fund may be
compensated with the higher yield, contingent on how well the underlying common
stock does.
LYONS. Liquid Yield Option Notes ("LYONs") differ from ordinary debt
securities, in that the amount received prior to maturity is not fixed but is
based on the price of the issuer's common stock. LYONs are zero-coupon notes
that sell at a large discount from face value. For an investment in LYONs, the
Fund will not receive any interest payments until the notes mature, typically in
15 to 20 years, when the notes are redeemed at face, or par, value. The yield on
LYONs, typically, is lower-than-market rate for debt securities of the same
maturity, due in part to the fact that the LYONs are convertible into common
stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by the issuer at any time after an initial
period or if the issuer's common stock is trading at a specified price level or
better, or, at the option of the holder, upon certain fixed dates. The
redemption price typically is the purchase price of the LYONs plus accrued
original issue discount to the date of redemption, which amounts to the
lower-than-market yield. The Fund will receive only the lower-than-market yield
unless the underlying common stock increases in value at a substantial rate.
LYONs are attractive to investors, like the Fund, when it appears that they will
increase in value due to the rise in value of the underlying common stock.
DEPOSITARY RECEIPTS
The American Value and Aggressive Equity Funds may on occasion invest in
American Depositary Receipts ("ADRs"). The Aggressive Equity Fund may also
invest in other depositary receipts, including Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") and other depositary receipts
(which, together with ADRs, GDRs and EDRs, are hereinafter collectively referred
to as "Depositary Receipts"), to the extent that such Depositary Receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a
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depositary without participation by the underlying issuer. GDRs, EDRs and other
types of Depositary Receipts are typically issued by foreign depositaries,
although they may also be issued by U.S. depositaries, and evidence ownership
interests in a security or pool of securities issued by either a foreign or a
U.S. corporation.
Holders of unsponsored Depositary Receipts generally bear all the costs
associated with establishing the unsponsored Depositary Receipt. The depositary
of an unsponsored Depositary Receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored Depositary Receipt voting rights with
respect to the deposited securities or pool of securities. Depositary Receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. The Funds may invest in sponsored and unsponsored
Depositary Receipts. For purposes of the Funds' investment policies, a Fund's
investments in Depositary Receipts will be deemed to be investments in the
underlying securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The American Value and Aggressive Equity Funds may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a decline in a foreign currency against the U.S. Dollar between the
trade date and settlement date when such Funds purchase or sell securities,
locking in the U.S. Dollar value of dividends declared on securities held by the
Funds and generally protecting the U.S. Dollar value of securities held by the
Funds against exchange rate fluctuations. While such forward contracts may limit
losses to a Fund as a result of exchange rate fluctuations, they will also limit
any exchange rate gains that might otherwise have been realized.
The American Value Fund may attempt to accomplish objectives similar to
those described above with respect to forward contracts for currency by means of
purchasing put or call options on foreign currencies on exchanges. A put option
gives such Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
The Custodian of the American Value and Aggressive Equity Funds will place
cash or other liquid assets into a segregated account of a Fund in an amount
equal to the value of such Fund's total assets committed to the consummation of
forward foreign currency exchange contracts. If the value of the securities
placed in the segregated account declines, additional cash or liquid assets will
be placed in the account on a daily basis so that the value of the account will
be at least equal to the amount of such Fund's commitments with respect to such
contracts.
FOREIGN INVESTMENT
The American Value, U.S. Real Estate and Aggressive Equity Funds may invest
in securities of foreign issuers. Investment in securities of foreign issuers,
especially in securities of issuers in emerging countries, involves somewhat
different investment risks from those affecting securities of U.S. issuers.
There may be limited publicly available information with respect to foreign
issuers, and foreign issuers are not generally
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subject to uniform accounting, auditing, and financial and other reporting
standards and requirements comparable to those applicable to domestic companies.
Therefore, disclosure of certain material information may not be made and less
information may be available to investors investing in foreign countries than in
the United States. There may also be less government supervision and regulation
of foreign securities exchanges, brokers and listed companies than in the United
States. Many foreign securities markets have substantially less volume than
United States national securities exchanges, and securities of some foreign
issuers are less liquid and subject to greater price volatility than securities
of comparable domestic issuers. Brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the United
States. Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Funds by
domestic companies. Additional risks include future adverse political and
economic developments, the possibility that a foreign jurisdiction might impose
or change withholding taxes on income payable with respect to foreign
securities, possible seizure, nationalization or expropriation of the foreign
issuer or foreign deposits, and the possible adoption of foreign governmental
restrictions such as exchange controls. Emerging countries may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
American Value and Aggressive Equity Funds may utilize appropriate futures
contracts and options on futures contracts, including securities index futures
contracts and options on securities index futures, to a limited extent. Because
transaction costs associated with futures and options may be lower than the
costs of investing in securities directly, it is expected that the use of
futures and options to facilitate cash flows may reduce each Fund's overall
transaction costs. The Funds may sell indexed financial futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of securities in its portfolio that might otherwise result. When a
Fund is not fully invested and the Adviser anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of securities
that it intends to purchase. In a substantial majority of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, under unusual market conditions, a futures position may be terminated
without the corresponding purchase of securities. The Funds will engage in
futures and options on futures transactions only for hedging purposes.
The American Value Fund will engage only in transactions in securities index
futures contracts, interest rate futures contracts and options thereon which are
traded on a recognized securities or futures exchange. There currently are
limited securities index futures, interest rate futures and options on such
futures markets in many
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<PAGE>
countries, particularly emerging countries such as Latin American countries, and
the nature of the strategies adopted by the Adviser, and the extent to which
those strategies are used, will depend on the development of such markets.
The Funds, other than the U.S. Real Estate Fund, may enter into futures
contracts and options thereon provided that not more than 5% of each such Fund's
total assets at the time of entering the transaction are required as deposits to
secure obligations under such contracts. Further, no more than 20% of each such
Fund's total assets, in the aggregate, are invested in futures contracts and
options on futures contracts.
Gains and losses on futures and options depend on the Adviser's ability to
predict correctly the direction of securities prices, interest rates and other
economic factors. Other risks associated with the use of futures and options are
(i) imperfect correlation between the change in market value of the securities
held by a Fund and the prices of futures and options relating to the stocks
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a futures
position which could have an adverse impact on the Fund's ability to hedge. The
risk of loss in trading on futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. In the opinion of the Directors,
the risk that a Fund will be unable to close out a futures position or options
contract will be minimized by only entering into futures contracts or options
transactions for which there appears to be a liquid secondary market.
LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend their securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Funds will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties, other
debt securities, including high-grade commercial paper, repurchase agreements
and bank obligations, such as bankers' acceptances and certificates of deposit
(including Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Funds may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
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<PAGE>
realized from these sales could be less than those originally paid by the Funds
or less than what may be considered the fair value of such securities.
Furthermore, companies whose securities are not publicly traded may not be
subject to the disclosure and other investor protection requirements which might
be applicable if their securities were publicly traded. If such securities are
required to be registered under the securities laws of one or more jurisdictions
before being resold, a Fund may be required to bear the expenses of
registration. A Fund may not invest more than 15% of its net assets in illiquid
securities nor more than 10% of its total assets in securities subject to legal
or contractual restrictions on resale. Securities that are restricted from sale
to the public without registration ("Restricted Securities") under the
Securities Act of 1933, as amended (the "1933 Act"), which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") may be determined to be liquid under guidelines adopted by, and
subject to the supervision of, the Board of Directors. 144A Securities may
become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
OPTIONS TRANSACTIONS
The Aggressive Equity and U.S. Real Estate Funds may seek to increase their
return or may hedge all or a portion of their portfolio investments through
options with respect to securities in which such Funds may invest. The Funds
will engage in transactions in options only if they are traded on a recognized
securities exchange. There currently are limited options markets in many
countries, particularly emerging countries such as Latin American countries, and
the nature of the strategies adopted by the Adviser and the extent to which
those strategies are used will depend on the development of such option markets.
A Fund may write (i.e., sell) covered call options which give the purchaser
the right to buy the underlying security covered by the option from the Fund at
the stated exercise price. A "covered" call option means that so long as the
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 Fund.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call option, a Fund will
limit its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. Thus, in some periods the
Fund will receive less total return and in other periods greater total return
from writing covered call options than it would have received from its
underlying securities had it not written call options.
A Fund may also write (i.e., sell) covered put options. By selling a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put at the option's exercise price at any time
during the option period, at the purchaser's election (certain options written
by the Fund will be exercisable by the purchaser only on a specific date).
Generally, a put option is "covered" if a Fund maintains cash or liquid
securities equal to the exercise price of the option or if the Fund holds a put
option on the same underlying security with a similar or higher exercise price.
A Fund may sell put options to receive the premiums paid by purchasers and to
close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
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A Fund may also purchase put or call options on individual securities or
baskets of securities, including index options. When a Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when the Fund purchases a put option it acquires the
right to sell a designated security at the exercise price, in each case on or
before a specified date (the "termination date"), usually not more than nine
months from the date the option is issued. A Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing. A Fund may purchase put options on
securities which it holds in its portfolio to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. A Fund may
also purchase put options to close out written put positions in a manner similar
to call option closing purchase transactions. No Fund may purchase call and put
options to the extent the value of its aggregate investment in such derivative
securities exceeds 5% of its total assets.
Gains and losses on options depend on the Adviser's ability to predict
correctly the direction of securities prices, interest rates and other economic
factors. Other risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option. In the
opinion of the Adviser, the risk that a Fund will be unable to close out an
options contract will be minimized by only entering into options transactions
for which there appears to be a liquid secondary market.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The 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 a Fund to the
seller. The Funds always receive securities as collateral with a market value at
least equal to the purchase price, including accrued interest, and this value is
maintained during the term of the agreement. If the seller defaults and the
collateral value declines, a Fund might incur a loss. If bankruptcy proceedings
are commenced with respect to the seller, the Fund's realization upon the
collateral may be delayed or limited. Repurchase agreements with durations (or
maturities) over seven days in length are considered to be illiquid securities.
SHORT SALES
The Aggressive Equity Fund may from time to time sell securities short
without limitation, although the Fund does not intend to sell securities short
on a regular basis. A short sale is a transaction in which the Fund sells
securities it either owns or has the right to acquire at no added cost (i.e.,
"against the box") or it does not own (but has borrowed) in anticipation of a
decline in the market price of the securities. When the Fund makes a short sale
of borrowed securities, the proceeds it receives from the sale will be held on
behalf of a broker until the Fund replaces the borrowed securities. To deliver
the securities to the buyer, the Fund will need to arrange through a broker to
borrow the securities and, in so doing, the Fund will become obligated to
replace the
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<PAGE>
securities borrowed at their market price at the time of replacement, whatever
that price may be. The Fund may have to pay a premium to borrow the securities
and must pay any dividends or interest payable on the securities until they are
replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or liquid assets. In addition if the short sale is not "against
the box", the Fund will place in a segregated account with its Custodian an
amount of cash or liquid assets equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by the Fund involve
certain risks and special considerations. Possible losses from short sales
differ from losses that could be incurred from a purchase of a security, because
losses from short sales may be unlimited, whereas losses from purchases can
equal only the total amount invested.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each of the Funds may invest up to 100% of its assets in
money market instruments and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment but will take place no more than 120 days after the
trade date. Each Fund will maintain with the appropriate Custodian a separate
account with a segregated portfolio of cash or liquid securities in an amount at
least equal to these commitments. The payment obligation and the interest rates
that will be received are each fixed at the time a Fund enters into the
commitment, and no interest accrues to the Fund until settlement. 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 of the Funds not to enter into
when-issued commitments or delayed delivery securities exceeding, in the
aggregate, 15% of the Fund's net assets other than the obligations created by
these commitments.
INVESTMENT LIMITATIONS
The American Value Fund is a diversified investment company under the 1940
Act, and therefore, with respect to 75% of its total assets, it 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, or (b)
own more than 10% of the outstanding voting securities of any one issuer. The
Aggressive Equity and U.S. Real Estate Funds are non-diversified investment
companies under the 1940 Act, which means that each such Fund is not limited by
the 1940 Act in the proportion of its total assets that may be invested in the
obligations of a single issuer. Thus, each such Fund may invest a greater
proportion of its total assets in the securities of a smaller number of issuers
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<PAGE>
and, as a result, will be subject to greater risk resulting from such
concentration of its portfolio securities. Each such Fund, however, intends to
comply with the diversification requirements imposed by the Internal Revenue
Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company.
The Funds also operate under certain investment restrictions that are deemed
fundamental policies and may be changed by a Fund only with the approval of the
holders of a majority of the Fund's outstanding shares. In addition to other
restrictions listed in the Statement of Additional Information, a Fund may not
(i) invest more than 15 % of the Fund's total assets in illiquid securities;
(ii) borrow money except from banks for extraordinary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's total assets, taken at
market value at the time of borrowing, or purchase securities while borrowings
exceed 5% of its total assets; (iii) mortgage, pledge or hypothecate any assets
except in connection with any such borrowing in amounts up to 10% of the value
of the Fund's total assets at the time of borrowing; except that the Aggressive
Equity Fund may borrow, and mortgage, pledge or hypothecate its assets to secure
such borrowings, in amounts equal to up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing; (iv) invest in fixed time deposits with a duration of over
seven calendar days; or (v) invest more than 25% of the Fund's total assets in
securities of companies in any one industry, except for the U.S. Real Estate
Fund.
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MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") and, subject to the supervision of the Fund's Board of Directors,
makes each of the Fund's investment decisions, arranges for the execution of
portfolio transactions and generally manages each of the Fund's investments. The
Adviser is entitled to receive an advisory fee computed daily and paid monthly
at the following annual rates for each of the following Funds:
<TABLE>
<S> <C>
American Value Fund 0.85%
Aggressive Equity Fund 0.90%
U.S. Real Estate Fund 1.00%
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause total annual operating expenses of the Fund to exceed the
maximums set forth in "Fund Expenses." The Adviser, with principal offices at
1221 Avenue of the Americas, New York, NY 10020, conducts a worldwide portfolio
management business. It provides a broad range of portfolio management services
to customers in the United States and abroad. At September 30, 1996, the Adviser
together with its affiliated asset management companies managed investments
totaling approximately $103.5 billion, including approximately $86.5 billion
under active management and $17 billion as Named Fiduciary or Fiduciary Adviser.
See "Management of the Company -- Investment Advisory and Administrative
Agreements" in the Statement of Additional Information.
Morgan Stanley Group Inc. has 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 approximately $58.7 billion in assets under
management as of September 30, 1996. The acquisition is expected to have closed
by October 31, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
AMERICAN VALUE FUND -- GARY D. HAUBOLD AND WILLIAM B. GERLACH. Messrs.
Haubold and Gerlach share primary responsibility for managing the American Value
Fund. Mr. Haubold joined the Adviser in July, 1996 and has served as a portfolio
manager with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP for the
past three years. Prior thereto, Mr. Haubold held several positions at Wood,
Struthers & Winthrop including Vice President and Director of Equity Research,
Portfolio Manager and Senior Vice President. Mr. Haubold has a B.S. degree
(Magna Cum Laude) in Civil Engineering from Rice University and an M.B.A. from
the University of Pennsylvania -- The Wharton School. In addition, Mr. Haubold
is a member of the New York Society of Security Analysts and is a Certified
Financial Analyst. Mr. Gerlach joined the Adviser in July, 1996 and has worked
with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP for the past five
years. Previously, he was with Alphametrics Corporation and Wharton Econometric
Forecasting Associates. Mr. Gerlach received a B.A. in Economics from Haverford
College.
AGGRESSIVE EQUITY FUND -- KURT A. FEUERMAN. Kurt Feuerman is a Managing
Director of the Adviser and has had primary management responsibility for the
Aggressive Equity Fund since it commenced operations.
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Prior to joining the Adviser in July 1993, he spent over three years in Morgan
Stanley's research department where he was responsible for restaurant, gaming
and emerging growth stocks. Before joining Morgan Stanley, Mr. Feuerman was a
Managing Director at Drexel Burnham Lambert, where he had been an equity analyst
since 1984. From 1982 to 1984, Mr. Feuerman was at the Bank of New York,
following the auto and auto parts industries. Mr. Feuerman earned a B.A. degree
from McGill University, an M.A. from Syracuse University, and an M.B.A. from
Columbia University.
U.S. REAL ESTATE FUND -- RUSSELL PLATT AND THEODORE R. BIGMAN. Mr. Platt
joined the Adviser and Morgan Stanley in 1982 and currently is a Principal of
the Firm. He has primary responsibility for managing the real estate securities
investment business for the Adviser and serves as a member of the Investment
Committee of The Morgan Stanley Real Estate Fund ("MSREF"). Previously, Mr.
Platt served as a Director of MSREF, where he was involved in capital raising,
acquisitions, oversight of investments and investor relations. MSREF is a
privately held limited partnership engaged in the acquisition of real estate
assets, portfolios and real estate operating companies. From 1991 to 1993, Mr.
Platt was head of Morgan Stanley's Transaction Development Group, which was
responsible for identifying and structuring real estate investment opportunities
for the Firm and its clients worldwide. As part of those responsibilities, Mr.
Platt directed Morgan Stanley Realty's activities in Latin America and served as
U.S. liasion for Morgan Stanley Realty's Japanese real estate clients. From 1990
to 1991, Mr. Platt was based in Morgan Stanley Realty's London office, where he
was responsible for European transaction development. Prior to this, he had
extensive transaction responsibilities involving portfolio, retail, office,
hotel and apartment sales and financings. Mr. Platt graduated from Williams
College in 1982 with a B.A. in Economics and received his M.B.A. from Harvard
Business School in 1986. Mr. Platt is a member of the Board of Trustees of The
National Multi Housing Council and The Wharton Real Estate Center, and a member
of The Urban Land Institute (International Council), the National Association of
Real Estate Investment Trusts and the Pension Real Estate Association. Mr.
Bigman joined the Adviser in 1995 as a Vice President. Together with Mr. Platt,
he is responsible for the Adviser's real estate securities research. Prior to
joining the Adviser, he was a Director at CS First Boston, where he worked for
eight years in the Real Estate Group. Since 1992, Mr. Bigman established and
managed the REIT effort at CS First Boston including primary responsibility for
$2.5 billion of initial public offerings by real estate investment trusts.
Previously, Mr. Bigman had extensive real estate experience in a wide variety of
transactions involving the financing and sale of both individual assets and
portfolios of real estate assets as well as the acquisition and sale of several
real estate companies. Mr. Bigman graduated from Brandeis University in 1983
with a B.A. in Economics and received his M.B.A. from Harvard University in
1987. He is a member of the National Association of Real Estate Investment
Trusts and International Council of Shopping Centers.
ADMINISTRATOR. Morgan Stanley Asset Management Inc. (the "Administrator")
also provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Company dividend disbursing and transfer agent services. For
its services under the Administration Agreement, the Company pays the
Administrator a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of each Fund.
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Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC" or the
"Transfer Agent"), a corporate affiliate of Chase, provides certain
administrative services to the Company. The Administrator supervises and
monitors such administrative services provided by CGFSC. The services provided
under the sub-administration agreement are subject to the supervision of the
Board of Directors of the Company. The Board of Directors of the Company has
approved the provision of services described above pursuant to the
sub-administration agreement as being in the best interests of the Company.
CGFSC's business address is 73 Tremont Street, Boston, Massachusetts 02108-3913.
For additional information on the administration agreement, see "Management of
the Company" in the Statement of Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Morgan Stanley & Co. Incorporated ("Morgan Stanley" or the
"Distributor") serves as the distributor of the shares of the Company. Under its
distribution agreement (the "Distribution Agreement") with the Company, Morgan
Stanley sells shares of the Company 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 Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from these
Funds a distribution fee, which is accrued daily and paid quarterly, at a
maximum rate of 0.25% for the Class A shares of each Fund, and 0.75% of the
Class B shares and Class C shares of each Fund, on an annualized basis of the
average daily net assets of such classes. The actual amount of such compensation
is agreed upon by the Company's Board of Directors and by the Distributor. The
Distributor expects to pay a portion of its fee to investment dealers, banks or
financial services firms that provide distribution, administrative or
shareholder services (each, a "Participating Dealer"). The Distributor may, in
its discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares. Under the Plans, the Class B
shares and Class C shares are subject to a shareholder servicing fee at an
annual rate of 0.25% on an annualized basis of the average daily net assets of
such class of shares of a Fund. In addition to such payments, the Adviser may
use its advisory fees or other resources to pay expenses associated with
activities which might be construed to be financing the sale of the Funds'
shares. Each Plan provides that the Adviser may make payments from these sources
to third parties, such as consultants that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services).
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse Morgan Stanley for the actual expenses Morgan Stanley may incur in
fulfilling its obligations under the Plan. Thus, under each Plan, even if Morgan
Stanley's
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<PAGE>
actual expenses exceed the fee payable to it thereunder at any given time, the
Funds will not be obligated to pay more than that fee. If Morgan Stanley's
actual expenses are less than the fee it receives, Morgan Stanley will retain
the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of a Fund. The fee set
forth above will be paid by the appropriate class to Morgan Stanley unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
In addition to the distribution and shareholder servicing fees described
above, Morgan Stanley also receives a sales charge of up to 4.75% of the sales
price of Class A shares of each Fund. Morgan Stanley may reallow up to the full
applicable sales charge, as shown in the table in "Purchase of Shares" below, to
certain Participating Dealers during periods and for transactions specified in
"Purchase of Shares" and such reallowances may be based upon attainment of
minimum sales levels. During periods when 90% or more of the sales charge is
reallowed, certain Participating Dealers may be deemed to be underwriters as
that term is defined in the Securities Act of 1933, as amended. Morgan Stanley
may receive a CDSC of up to 1.00% of the sales price of the Class A shares and
Class C shares of the Funds, as described below under "Purchase of Shares."
Morgan Stanley may also receive a CDSC of up to 5.00% of the lower of sales
price or market value of shares of the Class B shares of the Funds, as described
below under "Purchase of Shares." In addition to the sales charges described
above, Morgan Stanley may from time to time and from its own resources pay or
allow additional discounts or promotional incentives, in the form of cash or
other compensation, to Participating Dealers. In some instances, such discounts
or other incentives may be offered only to certain Participating Dealers that
sell or are expected to sell during specified time periods certain minimum
amounts of shares of the Company, or other funds underwritten by Morgan Stanley.
In some instances, these incentives may be offered only to certain Participating
Dealers that have sold or may sell significant amounts of shares. In addition,
Morgan Stanley pays ongoing trail commissions to Participating Dealers. At the
option of the Participating Dealer, such bonuses or other incentives may take
the form of payment for travel expenses, including lodging incurred in
connection with trips taken by persons associated with the Participating Dealer
and members of their families to places within or outside of the United States.
The Distributor or Participating Dealers and their investment representatives
may receive different levels of compensation depending on which class of shares
they sell.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The 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.
31
<PAGE>
PURCHASE OF SHARES
Shares of the Funds may be purchased through Morgan Stanley, Participating
Dealers or directly from the Company. Class A shares of the Funds may be
purchased at the net asset value per share plus the applicable sales charge, if
any, next determined after receipt of the purchase order and payment. Class B
shares and Class C shares of the Funds may be purchased at the net asset value
per share next determined after receipt of the purchase order and payment.
Participating Dealers are responsible for forwarding orders they receive to the
Company by the applicable times described below on the same day as their receipt
of the orders to permit purchase of shares as described above and the failure to
do so will result in the investors being unable to obtain that day's net asset
value. See "Valuation of Shares."
The Class A, Class B and Class C alternatives permit an investor to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investments in the Company, the combination of sales charge, distribution
fee and CDSC on Class A shares is more favorable than the combination of
distribution/service fees and CDSC on Class B shares or Class C shares. In some
cases, investors planning to purchase $100,000 or more of Company shares may pay
lower aggregate charges and expenses by purchasing Class A shares. (See "Fund
Expenses" above.)
OFFERING PRICE OF CLASS A SHARES
Class A shares of the Funds may be purchased at the net asset value per
share plus a sales charge (the "Offering Price") which is a percentage of the
Offering Price that decreases as the amount of the purchase increases as shown
below:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER RETENTION
CLASS A SHARES PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF
AMOUNT OF PURCHASE+ OFFERING PRICE AMOUNT INVESTED OFFERING PRICE**
- --------------------------- --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.25%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.50%
$1,000,000 and over None* None* None*
</TABLE>
- ------------------
* Purchases of $1 million or more may be subject to a CDSC. (See below.) Morgan
Stanley may make payments to Participating Dealers in amounts up to 1.00% of
the Offering Price.
** The Distributor may, in its discretion, permit Participating Dealers to
retain the full amount of the sales charge in connection with certain sales.
+ The amount of purchase includes net asset value of the purchase plus the
sales charge.
Morgan Stanley may in its discretion compensate Participating Dealers in
connection with the sale of Class A shares of the Funds in an aggregate amount
of $1 million or more up to the following amounts: 1.00% of the net asset value
of shares sold on amounts up to $3 million, .50% on the next $2 million and .25%
on amounts over $5 million. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedule, Morgan Stanley will consider the cumulative amount invested by the
purchaser in Class A shares of the Funds.
32
<PAGE>
REDUCTION OR WAIVER OF SALES CHARGES. A shareholder who purchases
additional Class A shares of a Fund may obtain reduced sales charges through a
right of accumulation of current purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of Funds and with existing Class A share
investments in all Funds. The applicable sales charge will be determined based
on the total of (a) the shareholder's current purchases of Class A shares of the
Funds plus (b) an amount equal to the greater of the then current net asset
value, or the total purchase price of the investor's prior purchases of all
Class A shares of Funds held by the shareholder. To obtain the reduced sales
charge through a right of accumulation, the shareholder must provide Morgan
Stanley at the time of purchase, either directly or through a Participating
Dealer or shareholder servicing agent, as applicable, with sufficient
information to verify that the shareholder has such a right. The Company may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
For purposes of reduced sales charges based on amount of purchase, the term
"purchase" refers to purchases made at one time by any "purchaser," which
includes an individual; a group composed of an individual and his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account; an organization exempt from federal income
tax under Section 501(c)(3) or (13) of the Code; a pension, profit-sharing or
other employee benefit plan, whether or not qualified under Section 401 of the
Code; or other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order to qualify for a lower sales charge
on purchases of the Class A shares, all orders from an organized group will have
to be placed through a single Participating Dealer and identified as originating
from a qualifying purchaser.
An investor may also obtain reduced sales charges shown above on purchases
of the Class A shares by executing a written letter of intent which states the
investor's intention to invest not less than $100,000 within a 13-month period
in Class A shares of the Funds ("Letter"). Each purchase of Class A shares of a
Fund under a Letter will be made at the Offering Price applicable at the time of
such purchase to single purchases of the full amount indicated on the Letter. To
obtain the terms and conditions included in the form of the Letter, contact the
Transfer Agent at 1-800-282-4404. An investor who wishes to enter into a Letter
in connection with an investment in Class A shares of the Funds should use the
form in the New Account Application attached to this Prospectus. The Letter,
which imposes no obligation to purchase or sell additional Class A shares,
provides for a price adjustment depending upon the actual amount purchased
within such period. The Letter provides that the first purchase following
execution of the Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended purchase normally will be
held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed Class A shares will be redeemed and the
proceeds used toward satisfaction of the obligation to pay the increased sales
charge. A shareholder may include the value of all Class A shares of the Funds
held of record as of the initial purchase date under the Letter as an
"accumulation credit" toward the completion of the terms of the Letter, but no
price adjustment will be made on such shares.
Class A shares of the Funds may be purchased at net asset value without a
sales charge by employee benefit plans, retirement plans and deferred
compensation plans and trusts used to fund such plans, including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"rabbi trusts." Morgan Stanley may, in
33
<PAGE>
its discretion, compensate Participating Dealers up to 1.00% in connection with
the sale of Class A shares of the Funds to 401(k), 403(b) or 457
participant-directed qualified retirement plans. Such shareholders are not
subject to a CDSC upon liquidation.
As disclosed above, no sales charge will be payable at the time of purchase
of Class A shares on investments of $1 million or more. However, except as
described above, a CDSC will be imposed on such investments in the event of a
redemption of such Class A shares of the Funds within 12 months following the
purchase, at the rate of 1.00% of the lesser of the current market value of the
shares redeemed or the total cost of such shares. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed. The Company may
also sell Class A shares of the Funds at net asset value (without a sales
charge) to Directors of the Company, directors and employees of the Adviser and
Morgan Stanley, Participating Dealers, their respective affiliates and their
immediate families and employees of agents of the Company. In addition, Class A
shares may be sold without a sales charge when purchased (i) through bank trust
departments; (ii) for investors whose accounts are managed by certain investment
advisers registered under the Investment Advisers Act of 1940, as amended; (iii)
for investors through certain broker/ dealers and other financial services firms
that have entered into certain agreements with the Company which may include a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker/dealer or other firm; (iv) with redemption proceeds from other investment
companies on which the investor had paid a front-end sales charge or, provided
the investment company is unaffiliated with the Company, a contingent deferred
sales charge; or (v) through a broker that maintains an omnibus account with the
Company and such purchases are made by the following: (1) investment advisers or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services, (2) clients of such investment advisers or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of the broker or agent, or (3) retirement and deferred compensation plans and
trusts used to fund such plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Code and "rabbi trusts." Investors who
purchase or redeem shares through a trust department, broker, dealer, agent,
financial planner, financial services firm, or investment adviser may be charged
an additional service or transaction fee by that institution.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year
34
<PAGE>
period after purchase. The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of purchase of
Class B shares until the redemption of such shares (the "holding period"). The
following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- --------------------------------------------- ----------------
<S> <C>
First........................................ 5.0%
Second....................................... 4.0%
Third........................................ 3.0%
Fourth....................................... 3.0%
Fifth........................................ 2.0%
Sixth........................................ 1.0%
Thereafter................................... None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from the CDSC are paid to Morgan Stanley and are used by Morgan
Stanley to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares.
Morgan Stanley will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay a portion of its
distribution fee, with respect to such shares, under the Plan for such class of
shares, as described under "Management of the Company -- Distributor" above. The
combination of the CDSC and the distribution/service fee facilitates the ability
of the Company to sell the Class B shares without a sales charge being deducted
at the time of purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; or (iii) to the extent that
shares redeemed have been withdrawn from a Systematic Withdrawal Plan (as
described below), up to a maximum amount of 12% per year from a shareholder
account based on the value of the account at the time the Systematic Withdrawal
Plan is established, provided however that all dividends and distributions are
reinvested in Class B Shares. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the name
of an individual person, (b) as a joint tenancy with rights of survivorship, (c)
as community property or (d) in the name of a minor child under the Uniform
Gifts or Fund's Transfers to Minors Act. A shareholder, or his or her
representative, must notify the Company's Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for this
waiver. The shareholder is responsible for providing sufficient documentation to
the Transfer Agent to verify the existence of such circumstances. For
information on the imposition and waiver of the CDSC, contact the Transfer Agent
at 1-800-282-4404.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees.
35
<PAGE>
Such conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. Morgan Stanley
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay most of its distribution fee, with respect
to such shares, under the Plan for such class of shares, as described under
"Management of the Company -- Distributor" above. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of a Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINVESTMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of a Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinvestment privilege are
subject to the minimum applicable investment requirements. The reinvestment
privilege as to any specific Class A, Class B or Class C shares must be
exercised within 180 days of the redemption. The Transfer Agent must receive
from the shareholder or the shareholder's Participating Dealer both a written
request for reinvestment and a check or wire which does not exceed the
redemption proceeds. The written request must state that the reinvestment is
made pursuant to this reinvestment privilege. If a loss is realized on the
redemption of Class A shares, the reinvestment may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
RETIREMENT PLANS
Qualified retirement plans, IRAs, banks, bank trust departments and
registered investment advisory companies, acting in a fiduciary or advisory
capacity for individual, institutional or trust accounts, may purchase Class A
shares of one or more of the Funds at net asset value (without a sales charge)
provided that the initial order for such purchases is in an amount of $1 million
or more or is part of a series of orders covered by a Letter
36
<PAGE>
to invest $1 million or more in Class A shares of the Funds. Certain employee
benefit plans, retirement plans and deferred compensation plans and trusts used
to fund such plans may purchase Class A shares of the Funds at net asset value
without imposition of a sales charge. See "Offering Price of Class A Shares."
Morgan Stanley provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Chase. This includes Simplified
Employee Pension Plan ("SEP"), IRA accounts and prototype documents. Brochures
describing such plans and materials for establishing them are available from
Morgan Stanley upon request. The brochures for plans trusteed by Chase describe
the current fees payable to Chase for its services as trustee. Investors should
consult with their own tax advisers before establishing a retirement plan.
INITIAL PURCHASES DIRECTLY FROM THE COMPANY
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
class of a Fund, except for IRAs, for which the initial minimum is $250) made
payable to "Morgan Stanley Fund, Inc. -- [Fund name]," to:
Morgan Stanley Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
Payment must be by check payable in U.S. Dollars, unless prior approval for
payment by other currencies is given by the Company. The Fund and the
class(es) to be purchased should be designated on the New Account Application.
Your purchase of shares by check is ordinarily credited to your account at the
net asset value per share of the Fund next determined on the day of receipt of
the order and the check.
2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Company's bank account ($1,000 minimum for each class of
a 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 Company (toll free: 1-800-282-4404) and provide your name,
address, telephone number, Social Security or Tax Identification Number,
the Fund and the class(es) selected, the amount being wired, and by which
bank. The Company will then provide you with a bank wire control number.
(Investors with existing accounts must also notify the Company prior to
wiring funds.)
B. Instruct your bank to wire the specified amount to the Company's Wire
Concentration Bank Account (be sure to have your bank include the name of
the Fund selected and the bank wire control number assigned to you):
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA# 021000021
DDA# 910-2-732907
Attn: Morgan Stanley Fund, Inc.
Ref: (Fund name, class name, your account number, your account name)
Please call the Company 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.
37
<PAGE>
Purchase orders for shares of a Fund which are received prior to the
regular close of the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
Eastern Time) will be executed at the price computed on the date of
receipt as long as the Transfer Agent receives payment in Federal Funds
prior to the regular close of the NYSE on such day. Payment in Federal
Funds is not possible on days when the Federal Reserve Banks are not open
(including NYSE holidays, Martin Luther King Day, Columbus Day and
Veteran's Day), or the Company is not open. Orders for shares received on
such days are ordinarily credited to your account at the net asset value
per share next determined on the day following receipt of the order when
both the Company and Federal Reserve Banks are open. Your bank may charge
a service fee for wiring Federal 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 sent by the bank handling the
wire and Federal Funds are received. The timing of effectiveness of purchase
of shares and receipt of dividends is subject to the same timing
considerations as described above with respect to purchase by Federal Funds
wire and depends on when payment in Federal Funds is received. Your bank may
charge a service fee for wiring funds.
ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment $100,
except for IRAs, for which the minimum additional investment is $50, and
automatic reinvestment of dividends and capital gains distributions, for which
there is no minimum and no sales charge) by purchasing shares through your
Participating Dealer, by mailing a check to the Company (payable to "Morgan
Stanley Fund, Inc. -- [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 Company's
representatives (toll-free 1-800-282-4404) prior to the wire.
AUTOMATIC INVESTMENT PLAN
After establishing an account with the Company, investors may purchase
shares of the Funds 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 Company. Investors who are participants in
the Company'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 Company representative. Shares to be held in broker street name may
not be purchased through the Automatic Investment Plan.
OTHER PURCHASE INFORMATION
The purchase price for the Class A shares of a Fund is based upon the net
asset value per share plus the applicable sales charge, if any, next determined
after the order is received by the Company and for the Class B shares and Class
C shares of the Funds is based on the net asset value per share next determined
after the order is received by the Company. Participating Dealers are
responsible for forwarding orders they receive to the Company by the applicable
times described below on the same day as their receipt of the orders to permit
38
<PAGE>
purchase of shares as described above and the failure to do so will result in
the investors being unable to obtain that day's net asset value. See "Valuation
of Shares." An order received prior to the regular close of the NYSE, which is
currently 4:00 p.m. (Eastern Time), will be executed at the price computed on
the date of receipt as long as the Transfer Agent receives payment by check or
in Federal Funds prior to the regular close of the NYSE on such day. An order
received after the regular close of the NYSE will be executed at the price
computed on the next day the NYSE is open as long as the Transfer Agent receives
payment by check or in Federal Funds prior to the regular close of the NYSE on
such day. If you purchase shares of a 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 a 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 Company, certificates representing shares of the Funds will
normally not be issued. All shares purchased are confirmed to you and 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 Company, withdrawals of
investments made by check are not presently permitted until the Company's
depository bank has made fully available for withdrawal the check amount used to
purchase Company 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 Company and/or
its agents incur. If you are already a shareholder, the Company may redeem
shares from your account(s) to reimburse the Company and/or its agents for any
loss. In addition, you may be prohibited or restricted from making future
purchases in the Company.
Investors who purchase Class A shares of the Funds directly rather than
through a Participating Dealer will pay the public offering price including the
sales charge, and the sales charge will be payable, as described under "Purchase
of Shares -- Offering Price of Class A Shares" above, to Morgan Stanley unless a
Participating Dealer is designated on the account application. Investors may
also invest in the Funds by purchasing shares through Participating Dealers.
39
<PAGE>
REDEMPTION OF SHARES
You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until the Company's depository bank has made fully
available for withdrawal the check amount used to purchase Company shares, which
generally will be within 15 days. The Company will redeem shares of a Fund at
its next determined net asset value. A CDSC of 1.00% will be imposed on certain
Class A shares of a Fund that were purchased without payment of the initial
sales charge due to the size of the purchase and are redeemed within one year of
purchase. A maximum CDSC of 5.00% which decreases in steps to 0% after six
years, will be imposed on certain Class B shares of a Fund that are redeemed
within six years of purchase. A CDSC of 1.00% will be imposed on certain Class C
shares of a Fund that are redeemed within one year of purchase. See "Purchase of
Shares." The CDSC will be imposed on the lesser of the current market value or
the total cost of the shares being redeemed. In determining whether a CDSC is
payable, and, if so, the amount of the charge, it is assumed that shares not
subject to such charge are the first redeemed followed by other shares held for
the longest period of time. On days when the NYSE is open for business, the net
asset value per share of each Fund is determined at the regular close of trading
of the NYSE (currently 4:00 p.m. Eastern Time). Shares of the Funds may be
redeemed by mail or telephone. The amount you receive upon redemption may be
more or less than the purchase price of your shares depending on the market
value of the investment securities held by the Fund at the time of purchase and
of redemption, among other factors.
The CDSC may be waived on redemptions of shares in connection with certain
post-retirement withdrawals from IRA or other retirement plans or following the
death or disability (as defined in the Code) of a shareholder of the Company.
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
Each Fund will redeem its shares at the net asset value next determined
after your request is received, if your request is received in "good order" by
the Transfer Agent. If applicable, a CDSC will be deducted. Your request should
be addressed to Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798, except that deliveries by overnight courier should be
addressed to Morgan Stanley Fund, Inc. c/o Chase Global Funds Services Company,
73 Tremont Street, Boston, Massachusetts 02108-3913.
"Good order" means that the request to redeem shares must include the
following documentation:
(a) A letter of instruction or a stock assignment with stock certificate, if
any, 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.
40
<PAGE>
Shareholders who are uncertain of requirements for redemption should consult
with their Participating Dealers or with a Company 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 Company and requesting the redemption proceeds be
mailed to you or wired to your bank. Please contact one of the Company's
representatives for further details. In times of drastic market conditions, the
telephone redemption option may be difficult to implement. If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier, and it will be implemented at the net asset value next
determined after it is received minus the CDSC, if any. The Company and the
Company'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 Company or the Transfer Agent may
be responsible for losses, liabilities, costs or expenses for acting upon
telephone transactions if procedures are not followed to confirm that such
transactions are genuine.
FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER. A fee of $8.00 may be imposed on wire
redemptions of shares of a Fund that will be deducted from the redemption
proceeds.
To change the name of the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent at the
address above. Requests to change the bank or account must be signed by each
shareholder and each signature must be guaranteed.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder of $5,000 or more of the Company's shares at the Offering
Price (net asset value plus the sales charge, if any) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The minimum periodic payment is $100. Shares are redeemed so that the payee will
receive payment on approximately the first of the month. Any income and capital
gain dividends will be automatically reinvested at net asset value on the
reinvestment date. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may result in a gain or loss
for tax purposes and may reduce or even exhaust the shareholder's Fund account.
To protect shareholders and the Funds, if the Systematic Withdrawal Plan is not
established when an account is opened, a signature guarantee is required to
establish a Systematic Withdrawal Plan subsequently if withdrawal payments are
directed to an address other than the address of record, or if a change of
address request has been submitted in the last 30 days. See "Further Redemption
Information" below.
The purchase of Class A shares of the Funds while participating in a
systematic withdrawal plan ordinarily will be disadvantageous to the investor
because the investor will be paying a sales charge on the purchase of shares at
the same time that the investor is redeeming shares upon which a sales charge
may already have been
41
<PAGE>
paid. The purchase of certain Class B shares or Class C shares of the Funds
while participating in the Systematic Withdrawal Plan may be disadvantageous
because the new shares will be subject to a CDSC for up to six years after
purchase, or a CDSC for the first year after purchase, respectively. Therefore,
the Company will not knowingly permit additional investments of less than $2,000
in a Fund if the investor is at the same time making systematic withdrawals. The
Company reserves the right to amend the Systematic Withdrawal Plan on thirty
days' notice. The plan may be terminated at any time by the investor or the
Company.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of a Fund at the time the Systematic Withdrawal
Plan commences, provided that the shareholder elects to have all dividends and
distributions on the shareholder's Class B shares automatically reinvested in
additional Class B shares. Under this CDSC waiver policy, amounts withdrawn each
month will be paid by redeeming first Class B shares not subject to a CDSC
because the shares were purchased by the reinvestment of dividends or capital
gains distributions, the CDSC period has elapsed or some other waiver of the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
enough such shares are available, Class B shares having a CDSC will be redeemed
next, beginning with such shares held for the longest period of time (having the
lowest CDSC payable upon redemption) and continuing with shares held the next
longest period of time until shares held the shortest period of time are
redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
See "Purchase of Shares" for a description of the circumstances under which
a CDSC on Class A shares, Class B shares and Class C shares, respectively, may
be assessed on redemptions of such shares made through the Systematic Withdrawal
Plan as described above.
FURTHER REDEMPTION INFORMATION
The Company will ordinarily pay for shares redeemed through broker-dealers
using electronic purchase and redemption systems within three business days
after receipt of a redemption request through such system. In other situations,
the Company will ordinarily make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but except as
described below payment will be made no more than three business days after
receipt of a redemption request in good order. Payment for redeemed shares will
ordinarily be sent to the shareholder within seven days after receipt of the
request in proper form, except that the Company may delay the mailing of the
redemption check, or a portion thereof, until the Company'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 Company may suspend the
right of redemption or postpone the date of redemption at times when the NYSE is
closed, or under any emergency circumstances as determined by the SEC.
Due to the relatively high cost of maintaining smaller accounts, the Company
reserves the right to redeem shares in any account invested in a Fund having a
value of less than $1,000. The Company, however, will not redeem shares based
solely upon market reductions in net asset value. If at any time your total
investment does not equal or exceed the stated minimum value, you may be
notified of this fact and you will be allowed at least 60 days to make an
additional investment before the redemption is processed.
42
<PAGE>
To protect your account, the Company 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. Signature guarantees
enable the Company to verify the identity of the person who has authorized a
redemption from your account. Signature guarantees are required in connection
with: (1) all redemptions, regardless of the amount involved, when the proceeds
are to be paid to someone other than the registered owner(s) and/or registered
address; and (2) share transfer requests. A guarantor must be a bank, a trust
company, a member firm of a domestic stock exchange, or a foreign branch of any
of the foregoing. Notaries public are not acceptable guarantors. Please contact
the Transfer Agent at 1-800-282-4404 for further information. See "Redemption of
Shares" in the Statement of Additional Information.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange shares that you own in the Funds for shares of the same
class of other Funds. Shares of the Funds may be exchanged by mail or telephone,
except that no shares may be exchanged by telephone if you have elected on the
New Account Application or on a separate form supplied by the Transfer Agent not
to accept the telephone redemption and exchange privilege. Before you make an
exchange, you should read the Prospectus of the new Funds in which you seek to
invest. Because an exchange transaction is treated as a redemption followed by a
purchase, an exchange would be considered a taxable event for shareholders
subject to tax. The exchange privilege is only available with respect to Funds
that are registered for sale in a shareholder's state of residence. The exchange
privilege may be modified or terminated by the Company at any time upon 60 days'
notice to shareholders.
No CDSC, if one is otherwise applicable, will be assessed at the time of the
exchange if the shareholder exchanges from one class of a Fund into the same
class of another Fund. For purposes of determining whether a shareholder's
redemption after an exchange will be subject to a CDSC, the shareholder's
holding period of shares acquired through an exchange will be related back to
the time the shareholder purchased the Fund shares that were initially exchanged
so long as the shares are held in the same class of the Funds. As an example,
Class A share purchases of $1,000,000 or more, purchased at net asset value,
will not be assessed the 1.00% CDSC if exchanged into Class A shares of another
Fund during the first year after purchase. Class B shares of a Fund will not be
assessed the Class B CDSC if exchanged into Class B shares of another Fund
during the first six years after purchase. Class C shares of a Fund will not be
assessed the Class C CDSC if exchanged into Class C shares of another Fund
during the first year after purchase. If the initial shares of a Fund purchased
by the investor were not subject to any sales load or CDSC on such shares, then
no sales load or CDSC for shares of the same class will be imposed on any
subsequent exchanges involving such shares.
Morgan Stanley will tender the shares offered for exchange for redemption by
the Company and will use the proceeds to purchase shares of the designated
purchased Fund(s) on the shareholder's behalf. Under normal circumstances,
Morgan Stanley will use the proceeds from shares redeemed on any day to purchase
shares on the same Business Day.
Exchanges may also be subject to limitations as to amounts or frequency, and
to other restrictions established by the Board of Directors to assure that such
exchanges do not disadvantage the Company and its shareholders.
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<PAGE>
Exchange of Fund shares held in broker street name may not be accomplished
by mail or telephone as described below. For shares that are held in broker
street name, you cannot request exchange by telephone or by mail; such shares
may be exchanged only by contacting your Participating Dealer.
BY MAIL
In order to exchange shares by mail, you should include in the exchange
request the name and account number of your current Fund(s) and class of such
Fund(s), if applicable the name of the Fund(s) and class of such Fund(s), if
applicable, from which and into which you intend to exchange shares, and the
signatures of all registered account holders. Send the exchange request to the
Transfer Agent, Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798.
BY TELEPHONE
When exchanging shares by telephone, have ready your account number, the
names of the Fund(s) and class of such Fund(s), if applicable, from which and
into which you intend to exchange shares, your Social Security number or Tax
I.D. number, and your account address. Requests for telephone exchanges received
prior to 4:00 p.m. (Eastern Time) are processed at the close of business that
same day based on the net asset value of the applicable Fund(s) at such time.
Requests received after 4:00 p.m. (Eastern Time) are processed the next Business
Day based on the net asset value determined at the close of business on such
day. For additional information regarding responsibility for the authenticity of
telephoned instructions, see "Redemption of Shares -- By Telephone" above.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the Transfer Agent, P.O. Box 2798, Boston, Massachusetts
02208-2798. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.
44
<PAGE>
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such classes of shares, by the total number of outstanding shares of such
classes of shares. Net asset value per share of a Fund is determined as of the
regular close of the NYSE on each day that the NYSE is open for business.
Securities listed on a securities exchange for which market quotations are
available are valued at their closing price. If no closing price is available,
such securities will be valued at the last quoted sale price on the day the
valuation is made. Price information on listed securities is taken from the
exchange where the security is primarily traded. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued at the average of the mean between the current bid
and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
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<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the Funds. The Adviser may, consistent
with NASD rules, place portfolio orders with qualified broker-dealers who
recommend the Funds to their clients or who act as agents in the purchase of
shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley, affiliates of the Adviser or broker affiliates
of Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objectives of each of each Fund is not to invest for short-term
trading, each Fund will seek to take advantage of trading opportunities as they
arise to the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. It is expected that the annual turnover rate of the
Aggressive Equity Fund may exceed 100%, which will accordingly result in higher
brokerage commissions. For the portfolio turnover rates for the Funds, see
"Financial Highlights" above. High portfolio turnover involves correspondingly
greater transaction costs which will be borne directly by a Fund. In addition,
high portfolio turnover may result in more capital gains which would be taxable
to the shareholders of the Funds.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income tax consequences to shareholders subject to
tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
The respective performance figures for Class B shares and Class C shares of
each Fund will generally be lower than those for Class A shares of the Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.
PERFORMANCE OF INVESTMENT ADVISER
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Aggressive Equity Fund. The portfolio
of MSIF (the "MSIF Portfolio") has substantially the same investment objective
and policies as the Aggressive Equity Fund. In addition, the Aggressive Equity
Fund and the corresponding MSIF Portfolio are managed by the same personnel and
the Adviser intends that the Aggressive Equity Fund and corresponding MSIF
Portfolio will continue to have closely similar investment
46
<PAGE>
strategies, techniques and characteristics. Past investment performance of the
MSIF Portfolio, as shown in the table below, may be relevant to your
consideration of investment in the Aggressive Equity Fund. The investment
performance of the MSIF Portfolio is not necessarily indicative of future
performance of the Aggressive Equity Fund. Also, the operating expenses of the
Aggressive Equity Fund will be different from, and may be higher than, the
operating expenses of the MSIF Portfolio. The investment performance of the MSIF
Portfolio is provided merely to indicate the experience of the Adviser in
managing similar investment portfolios.
The date set forth below under the heading "Return With Sales Charge" is
adjusted , (i) with respect to the Class A share, to take into account a 4.75%
sales charge applicable to purchases of Class A shares of the Aggressive Equity
Fund; (ii) with respect to Class B shares, to take into account the applicable
CDSC that is imposed if Class B shares of the Aggressive Equity Fund are
redeemed within the year of their purchase indicated; and (iii) with respect to
Class C shares, to take into account a 1.00% CDSC that is imposed if Class C
shares of the Aggressive Equity Fund are redeemed within one year of their
purchase. The date set forth below under the heading "Return Without Sales
Charge" is not adjusted to take into account such sales charges.
TOTAL RETURN FOR THE MSIF AGGRESSIVE EQUITY PORTFOLIO'S CLASS A SHARES
FROM INCEPTION ON 3/18/95 THROUGH 6/30/96
(ADJUSTED TO REFLECT STATED SALES LOAD FOR EACH CLASS OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR INCEPTION
- ------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Class A (of 4.75%)....................................................... 41.64% 47.10%
Class B (of 5.00%)....................................................... 41.00% 46.85%
Class C (of 1.00%)....................................................... 45.39% 50.85%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- -------------------------------------------------------------------------
<S> <C> <C>
Class A.................................................................. 46.39% 51.85%
Class B.................................................................. 46.39% 51.85%
Class C.................................................................. 46.39% 51.85%
</TABLE>
The past performance of the Portfolio is no guarantee of the future
performance of the Aggressive Equity Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
Each Fund described herein expects to distribute substantially all of its
taxable net investment income in the form of quarterly dividends. Net realized
gains, if any, will be distributed annually. Confirmations of the purchase of
shares of each Fund through the automatic reinvestment of income dividends and
capital gains distributions will be provided, pursuant to Rule 10b-10(b) under
the Securities Exchange Act of 1934, as
47
<PAGE>
amended, on the next quarterly client statement following such purchase of
shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Fund, the net income attributable to and the dividends payable
on Class B shares and Class C shares of a Fund will be lower than the net income
attributable to and the dividends payable on Class A shares of the Fund. As a
result, the net asset value per share of the classes of a Fund will differ at
times. Expenses of each Fund allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code, generally will be
applied to each Fund separately, rather than to the Company as a whole. Net
long-term and short-term capital gains, net income and operating expenses
therefore will be determined separately for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) which is distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax.
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,
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<PAGE>
regardless of how long the shareholder has held a Fund's shares. Capital gains
distributions are not eligible for the corporate dividends-received deduction.
Each Fund will make annual reports to shareholders of the federal income tax
status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less than the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
the Fund.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN A FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 21.750
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Fund is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund. As of September 30, 1996, Morgan Stanley Group Inc., 1585 Broadway,
New York, NY 10036, was presumed to "control" the Aggressive Equity Fund and
U.S. Real Estate Fund based solely on its ownership of 25% or more of the
outstanding voting shares of such Funds.
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REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
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STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
AMERICAN VALUE, AGGRESSIVE EQUITY AND U.S. REAL ESTATE FUNDS
P.O. BOX 2798, BOSTON, MA 02208-2798 (800-282-4404) NEW ACCOUNT
APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
/ / Individual / / Joint Tenants / / Trust
/ / Gift/Transfer to Minor / / Other____________________
NOTE: Joint tenant registration will be as "joint tenants with right of
survivorship" and not as "tenants in common" unless specified. Trust
registrations should specify name of the trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship is created (using the minor's Social Security Number
("SSN")). For an Individual Retirement Account ("IRA") a different application
is required. Please call Chase Global Funds Services Company ("CGFSC") at
800-282-4404 or your investment dealer to obtain the IRA application.
<TABLE>
<S> <C>
- --------------------------------------------- --------------------------------------------------------------------------
Name(s) (PLEASE PRINT) Social Security Number(s) or Taxpayer Identification Number(s) ("TIN(s)")
- --------------------------------------------- --------------------------------------------------------------------------
Name Telephone Number
- ---------------------------------------------
Address
- ---------------------------------------------
City/State/Zip
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED MAILINGS: If you or your family members own multiple accounts in
the Morgan Stanley Fund, Inc., you can prevent duplicate mailings to your
address by completing this section.
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FUND SELECTION
- --------------------------------------------------------------------------------
The minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the minimum amounts are $250 and $50, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley American Value Fund Class A (603) $ Class B (628) $ Class C (653) $
---------- ---------- ----------
Morgan Stanley Aggressive Equity Fund Class A (610) $ Class B (634) $ Class C (660)
---------- ----------
Morgan Stanley U.S. Real Estate Fund Class A (608) $ Class B (632) $ Class C (658) $
---------- ---------- ----------
Total Initial Investment:
<CAPTION>
</TABLE>
<TABLE>
<S> <C>
NOTE: IF INVESTING BY WIRE, YOU MUST A. By Mail: Enclosed is a check in the amount of $
OBTAIN A BANK WIRE CONTROL NUMBER. TO DO ---------------------- payable to Morgan Stanley Fund, Inc.
SO, PLEASE CALL 800-282-4404. B. By Wire: A bank wire in the amount of $ ----------------------- has been
sent to Morgan Stanley Fund, Inc.
from ----------------------------- -----------------------------
Name of Bank Wire Control Number
</TABLE>
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares of the same class unless
appropriate boxes below are checked:
<TABLE>
<S> <C> <C>
All Dividends are to be / / reinvested / / paid in cash
All Capital Gains are to be / / reinvested / / paid in cash
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT PRIVILEGES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
CGFSC to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account.
I/We understand that CGFSC charges an $8.00 fee for each wire
redemption, which will be deducted from the proceeds of the
redemption.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges Name of Bank
/ / telephone redemption privileges -------------------------------------------------------
Bank A.B.A. Number ----------------- Account Number
-----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip
------------------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Fund into which I/we exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The Company and the Company's Transfer Agent will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures include requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide additional telecopying written instructions of
transaction requests. Neither the Company nor the Transfer Agent will be responsible for any loss, liability, cost or expenses
for following instructions received by telephone that it reasonably believes to be genuine.
</TABLE>
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION (OPTIONAL)
- --------------------------------------------------------------------------------
Fund shareholders together with members of their families, may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan Stanley Fund, Inc. sold with an initial sales load ("Funds"). You may
also receive a reduced sales charge by completing the Letter of Intent as set
forth below as provided in the Prospectus of the Morgan Stanley Fund, Inc. (the
"Prospectus"). See the Prospectus for details.
To qualify, you must complete this section, listing all of your accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.
I/We qualify for the Rights of Accumulation initial sales charge discount
described in the Prospectus and Statement of Additional Information of Morgan
Stanley Fund, Inc.
/ / I/We own Class A shares of more than one Fund of Morgan Stanley Fund, Inc.
/ / The registration of some of my/our Class A shares differs from that shown
on this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER ACCOUNTS
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF INTENT (OPTIONAL)
- --------------------------------------------------------------------------------
I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to invest, within a 13-month period beginning on the date hereof
(initial purchase date) in Class A shares of the Fund purchased hereunder and
the other Fund, an aggregate amount which, together with the value of Class A
shares of any of the Funds then owned by me/us, will equal or exceed the amount
indicated below:
/ / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) / / Yes / / No Not Available for
IRAs
- --------------------------------------------------------------------------------
Available to shareholders with account balances of $5,000 or more.
I/We hereby authorize CGFSC to redeem the necessary number of shares from
my/our Morgan Stanley Fund, Inc. Account on the designated dates in order to
make the following periodic payments:
/ / Monthly / / Quarterly / / Semiannually / / Annually
(This request for participation in the Systematic Withdrawal Plan must be
received by the 18th day of the month in which you wish withdrawals to begin.
Redemptions of shares to make the payments elected above will occur on the 25th
day of the month prior to payment, or if such day is not a business day, then
the next preceding business day.)
Withdrawal ($100 minimum) from:
<TABLE>
<CAPTION>
Amount of
Fund Name Each Check Or
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
Recipient
Please make check payable to: ---------------------------------------------------------
(to be completed only if redemption proceeds to be Street Address ---------------------------------------------------
paid to other than account holder of record or City, State, Zip Code
mailed to address other than address of record)
---------------------------------------------
*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts without being
subject to a CDSC.
<CAPTION>
Fund Name
<S> <C>
- --------------------------------------------------- --------%
- --------------------------------------------------- --------%
- --------------------------------------------------- --------%
Please make check payable to:
(to be completed only if redemption proceeds to be
paid to other than account holder of record or
mailed to address other than address of record)
*With the systematic withdrawal plan, a maximum of 1
subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on the
designated dates in order to purchase shares in the Funds indicated below at
the applicable public offering price determined on that day.
/ / Monthly on the 5th day / / Monthly on the 20th day
Amount of each debit (minimum $100) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
</TABLE>
NOTE: A completed Bank Authorization Form (see below) and a voided personal
check MUST accompany this Automatic Investment Plan application.
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN -- BANK AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- -----------------------------------------
Bank Name Bank Address Bank Account Number
</TABLE>
I/We authorize you, the above named bank, to debit my/our account for amounts
drawn by Chase Global Funds Services Company, acting as my/our agent for the
purchase of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a check drawn upon
you and signed by me/us. This authority shall remain in effect until revoked in
writing and received by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against insufficient
funds. I/We further agree that you will incur no liability to me if you
dishonor any such withdrawal. This will be so even though such dishonor results
in the cancellation of that purchase.
<TABLE>
<S> <C>
- --------------------------------------------------------------- ---------------------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X ----------------------------------------- ------------- X ----------------------------------------- -------------
Signature Date Signature Date
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT
THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT AND THAT AS REQUIRED
BY FEDERAL LAW:
U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM IS/ARE THE
CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT SUBJECT TO ANY BACKUP
WITHHOLDING EITHER BECAUSE (A) I/WE ARE EXEMPT FROM BACKUP WITHHOLDING, OR
(B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME/US THAT I
AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR
INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN
OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO
CGFSC WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I/WE FAIL TO
FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A
31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU MAY REQUEST SUCH FORM BY
CALLING CGFSC AT 800-282-4404.
NON-U.S. CITIZEN(S)/TAXPAYER(S):
INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES:
- ------------------------
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS OR
RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE INTERNAL REVENUE
SERVICE.
I/We represent that I am/we are of legal age and capacity to purchase shares of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this application, my/our investment dealer and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund, Inc.
and CGFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense incurred for acting upon instructions believed
to be authentic and in accordance with the procedures set forth in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we acknowledge
that neither the Company nor the Distributor is a bank and that Fund shares are
not backed or guaranteed by any bank or insured by the FDIC.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C>
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
</TABLE>
Sign exactly as name(s) of registered owner(s) appear(s) above (including legal
title if signing for a corporation, trust custodial account, etc.)
NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
MORGAN STANLEY FUND, INC. THROUGH A PARTICIPATING DEALER (AN INVESTMENT
DEALER).
FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance with
the terms of our selling agreement with Morgan Stanley & Co. Incorporated and
with the Prospectus and Statement of Additional Information of the Company. We
agree to notify CGFSC of any purchases made under the Letter of Intent or Rights
of Accumulation.
<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Representative's Name
- ------------------------------------------------------- -------------------------------------------------------
Branch Number Representative's Telephone Number
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City/State/Zip Code
- ------------------------------------------------------- -------------------------------------------------------
Branch Telephone Number Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Fund Expenses........................... 2
Financial Highlights.................... 6
Prospectus Summary...................... 10
Investment Objectives and Policies...... 14
Additional Investment Information....... 19
Investment Limitations.................. 28
Management of the Company............... 29
Purchase of Shares...................... 33
Redemption of Shares.................... 41
Shareholder Services.................... 44
Valuation of Shares..................... 46
Portfolio Transactions.................. 47
Performance Information................. 47
Dividends and Distributions............. 48
Taxes................................... 48
General Information..................... 49
Appendix A.............................. A-1
New Account Application
</TABLE>
MORGAN STANLEY
AMERICAN VALUE FUND
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
MORGAN STANLEY
U.S. REAL ESTATE FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
--------------
PROSPECTUS
--------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO.
INCORPORATED
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
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
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 "Company") is an open-end management
investment company, or mutual fund, which consists of seventeen diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the six Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator"). Shares are available through Morgan Stanley & Co. Incorporated
("Morgan Stanley" or the "Distributor"), and through investment dealers, banks
and financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers").
The Morgan Stanley Emerging Markets Fund may invest in equity securities of
Russian companies. Russia's system of share registration and custody involves
certain risks of loss that are not normally associated with investments in other
securities markets. See "Additional Investment Information -- Russian Securities
Transactions."
This Prospectus is designed to set forth concisely the information about the
Funds listed above that a prospective investor should know before investing and
it should be retained for future reference. The Company offers other Funds which
are described in other prospectuses and under "Prospectus Summary" below. The
Fund currently offers the following portfolios: (I) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Global Equity Allocation, Morgan Stanley Asian Growth,
Morgan Stanley Emerging Markets, Morgan Stanley Latin American and Morgan
Stanley International Magnum Funds; (II) U.S. EQUITY -- Morgan Stanley American
Value, Morgan Stanley Aggressive Equity and Morgan Stanley U.S. Real Estate
Funds; (III) GLOBAL FIXED INCOME -- Morgan Stanley Global Fixed Income, Morgan
Stanley Worldwide High Income and Morgan Stanley High Yield Funds; and (IV)
MONEY MARKET -- Morgan Stanley Money Market and Morgan Stanley Government
Obligations Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated November 1, 1996,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds are available
upon request and without charge by writing or calling the Company at the address
and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1996.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL
EQUITY ASIAN EMERGING LATIN INTERNATIONAL
SHAREHOLDER TRANSACTION ALLOCATION GROWTH MARKETS AMERICAN MAGNUM JAPANESE
EXPENSES FUND FUND FUND FUND FUND EQUITY FUND
- ------------------------------ ---------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A................... 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1)
Class B................... None None None None None None
Class C................... None None None None None None
Maximum Deferred Sales Load
(as a percentage of the
lesser of initial purchase
price or current market
value)
For Purchases up to $999,999
Class A................... None None None None None None
Class B................... 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2)
Class C................... 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3)
For Purchases of $1,000,000
or more
Class A................... 1.00%(1) 1.00%(1) 1.00%(1) 1.00%(1) 1.00%(1) 1.00%(1)
Class B................... 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2) 5.00%(2)
Class C................... 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A................... None None None None None None
Class B................... None None None None None None
Class C................... None None None None None None
Redemption Fees (4)
Class A................... None None None None None None
Class B................... None None None None None None
Class C................... None None None None None None
Exchange Fees
Class A................... None None None None None None
Class B................... None None None None None None
Class C................... None None None None None None
</TABLE>
- ------------------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load. Purchases of Class A shares of the Funds
listed above which, when combined with the net asset value of the
purchaser's existing investments in Class A shares of the Funds, aggregate
$1 million or more are not subject to a sales load (an "initial sales
charge"). A contingent deferred sales charge ("CDSC") of 1.00% will be
imposed, however, on shares from any such purchase that are redeemed within
one year following such purchase. Any such CDSC will be paid to the
Distributor. Certain other purchases are not subject to an initial sales
charge. See "Purchase of Shares."
(2) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after six years. See "Purchase of Class B Shares." Any such CDSC
will be paid to the Distributor.
(3) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.
(4) Shareholders will be charged an $8.00 fee for redemptions by wire.
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
ANNUAL FUND OPERATING EXPENSES EQUITY ASIAN EMERGING LATIN JAPANESE
(AS A PERCENTAGE OF AVERAGE ALLOCATION GROWTH MARKETS AMERICAN INTERNATIONAL EQUITY
NET ASSETS) FUND FUND FUND FUND MAGNUM FUND FUND
---------- ------ -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after
expense reimbursement and/or
fee waiver) (5)
Class A................... 0.64% 1.00% 0.84% 0.07% 0.80% 0.80%
Class B................... 0.64% 1.00% 0.84% 0.07% 0.80% 0.80%
Class C................... 0.64% 1.00% 0.84% 0.07% 0.80% 0.80%
12b-1/Service Fees
Class A................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6)............... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6)............... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee
waiver) (5)
Class A................... 0.81% 0.63% 1.06% 1.78% 0.60% 0.65%
Class B................... 0.81% 0.63% 1.06% 1.78% 0.60% 0.65%
Class C................... 0.81% 0.63% 1.06% 1.78% 0.60% 0.65%
Total Operating Expenses
(after expense reimbursement
and/or fee waiver) (5)
Class A................... 1.70% 1.88% 2.15%(7) 2.10%(7) 1.65% 1.70%
Class B................... 2.45% 2.63% 2.90%(7) 2.85%(7) 2.40% 2.45%
Class C................... 2.45% 2.63% 2.90%(7) 2.85%(7) 2.40% 2.45%
</TABLE>
- ------------------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, (i) investment advisory fees
absent advisory fee waivers and (ii) expected total operating expenses
absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
GLOBAL
EQUITY ASIAN EMERGING LATIN INTERNATIONAL JAPANESE
ALLOCATION GROWTH MARKETS AMERICAN MAGNUM EQUITY
FUND FUND FUND FUND FUND FUND
----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(All Classes)............... 1.00% 1.00% 1.25% 1.25% 1.00% 1.00%
Total Operating Expenses
Class A.................... 2.06% 1.88% 2.56% 3.28% 1.90% 1.90%
Class B.................... 2.81% 2.61% 3.31% 3.89% 2.65% 2.65%
Class C.................... 2.81% 2.63% 3.34% 4.06% 2.65% 2.65%
</TABLE>
As a result of these reductions, the Investment Advisory Fees stated above
are lower than contractual fees stated under "Management of the Company." The
Adviser reserves the right to terminate any of its fee waivers at any time in
its sole discretion. For further information on Company expenses, see
"Management of the Fund."
(6) Of the 12b-1/Service fees for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
(7) The ratios of total operating expenses to average net assets exclude the
effect of foreign country tax expense.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The Class A, Class B and Class C expenses and fees for
each such Fund are based on actual figures for the period ended June 30, 1996,
except that the Class A, Class B and Class C expenses and fees for the
International Magnum and Japanese Equity Funds are based on estimates. For
purposes of calculating the estimated expenses and fees set forth above, the
table assumes that each Fund's average daily net assets will be $50,000,000. Due
to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay more
than the equivalent of the maximum front-end sales charges otherwise permitted
by the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each listed Fund,
including the maximum 4.75% sales charge, (ii) Class B shares of each such Fund,
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
such Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
GLOBAL
EQUITY ASIAN EMERGING LATIN INTERNATIONAL JAPANESE
ALLOCATION GROWTH MARKETS AMERICAN MAGNUM EQUITY
FUND FUND FUND FUND FUND FUND
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the expenses are the
same)
1 Year............................................................... $ 64(1) $ 66(1) $ 68(1) $ 68(1) $ 63(1) $ 64(1)
3 Years.............................................................. 99 104 112 110 97 99
5 Years.............................................................. 135 145 157 155 * *
10 Years............................................................. 239 259 284 279 * *
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................................... 75 77 79 79 74 75
3 Years.............................................................. 106 112 120 118 105 106
5 Years.............................................................. 151 161 173 170 * *
10 Years (2)......................................................... 279 298 322 318 * *
(Assuming no redemption)
1 Year............................................................... 25 27 29 29 24 25
3 Years.............................................................. 76 82 90 88 75 76
5 Years.............................................................. 131 141 153 150 * *
10 Years (2)......................................................... 279 298 322 318 * *
Class C shares
(Assuming complete redemption immediately prior to the end of
period)
1 Year............................................................... 35 37 39 39 34 35
3 Years.............................................................. 76 82 90 88 75 76
5 Years.............................................................. 131 141 153 150 * *
10 Years............................................................. 279 298 322 318 * *
Class C shares
(Assuming no redemption)
1 Year............................................................... 25 27 29 29 24 25
3 Years.............................................................. 76 82 90 88 75 76
5 Years.............................................................. 131 141 153 150 * *
10 Years............................................................. 279 298 322 318 * *
</TABLE>
- ------------------------
* Because the International Magnum and Japanese Equity Funds were either not
operational or had recently become operational as of the date of this
Prospectus, the Fund has not projected expenses beyond the three-year
period shown.
(1) Certain large purchases may be subject to a reduced sales load. Purchases
of Class A shares of the Funds listed above which, when combined with the
net asset value of the purchaser's existing investments in Class A shares
of these Funds, aggregate $1 million or more are not subject to an initial
sales charge. A CDSC of 1.00% will be imposed, however, on shares from any
such purchase that are redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after seven years.
4
<PAGE>
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Equity Allocation, Asian Growth, Emerging
Markets and Latin American Funds for each of the respective periods presented.
The audited financial highlights are part of the Company's financial statements,
which appear in the Company's June 30, 1996 Annual Report to Shareholders. The
financial statements are included in the Company's Statement of Additional
Information. The foregoing Funds' financial highlights for the periods presented
have been audited by Price Waterhouse LLP, whose report thereon (which was
unqualified) is also included in the Statement of Additional Information.
Additional performance information about the Company is contained in the
Company's Annual Report. The Annual Report and the financial statements
contained therein, along with the Statement of Additional Information, are
available at no cost from the Company at the address and telephone number noted
on the cover page of this Prospectus. The International Magnum and Japanese
Equity Funds were not operational as of the date of the Annual Report. The
following information should be read in conjunction with the financial
statements and notes thereto.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
------------------------------------------------------------------------ -----------------
SELECTED PER SHARE DATA JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, 1995*
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 TO JUNE 30, 1996
- ------------------------- ----------------- ------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 10.00 $ 11.09 $ 11.99 $ 12.60 $ 13.01
----------------- ------------- ------------- -------------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)................ 0.04 0.10 0.12 0.19 0.30
Net Realized and
Unrealized Gain....... 1.05 0.90 0.67 2.82 1.98
----------------- ------------- ------------- -------------- --------
Total From Investment
Operations............ 1.09 1.00 0.79 3.01 2.28
----------------- ------------- ------------- -------------- --------
DISTRIBUTIONS
Net Investment
Income................ -- (0.03) -- (0.39) (0.35)
In Excess of Net
Investment Income..... -- -- (0.05) -- --
Net Realized Gain...... -- (0.07) (0.13) (0.47) (0.48)
----------------- ------------- ------------- -------------- --------
Total Distributions.... -- (0.10) (0.18) (0.86) (0.83)
----------------- ------------- ------------- -------------- --------
NET ASSET VALUE, END OF
PERIOD.................. $ 11.09 $ 11.99 $ 12.60 $ 14.75 $ 14.46
----------------- ------------- ------------- -------------- --------
----------------- ------------- ------------- -------------- --------
TOTAL RETURN (1)......... 10.90% 9.02% 6.69% 24.62% 18.08%
----------------- ------------- ------------- -------------- --------
----------------- ------------- ------------- -------------- --------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000s).................. $ 10,434 $ 33,425 $ 42,586 $ 63,706 $ 14,786
Ratio of Expenses to
Average Net
Assets (2).............. 1.70%** 1.70% 1.70% 1.70% 2.45%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... 1.04%** 0.98% 1.01% 0.71% 0.45%**
Portfolio Turnover
Rate.................... 14% 30% 39% 44% 44%
- -----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income
(Loss)................ $ 0.08 $ 0.09 $ 0.04 $ 0.10 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................ 3.65%** 2.58% 2.03% 2.06% 2.81%**
Net Investment Income
(Loss) to Average Net
Assets................ (0.91)%** 0.10% 0.68% 0.35% 0.09%**
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------------------------------------------------------------
SELECTED PER SHARE DATA JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- ------------------------- ----------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 10.00 $ 11.05 $ 11.90 $ 12.43
-------- ------------- ------------- --------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)................ 0.01 0.06 0.04 0.12
Net Realized and
Unrealized Gain....... 1.04 0.86 0.65 2.75
-------- ------------- ------------- --------------
Total From Investment
Operations............ 1.05 0.92 0.69 2.87
-------- ------------- ------------- --------------
DISTRIBUTIONS
Net Investment
Income................ -- -- -- (0.33)
In Excess of Net
Investment Income..... -- -- (0.03) --
Net Realized Gain...... -- (0.07) (0.13) (0.48)
-------- ------------- ------------- --------------
Total Distributions.... -- (0.07) (0.16) (0.81)
-------- ------------- ------------- --------------
NET ASSET VALUE, END OF
PERIOD.................. $ 11.05 $ 11.90 $ 12.43 $ 14.49
-------- ------------- ------------- --------------
-------- ------------- ------------- --------------
TOTAL RETURN (1)......... 10.50% 8.34% 5.84% 23.65%
-------- ------------- ------------- --------------
-------- ------------- ------------- --------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000s).................. $ 6,995 $ 29,892 $ 40,460 $ 63,025
Ratio of Expenses to
Average Net
Assets (2).............. 2.45%** 2.45% 2.45% 2.45%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... 0.29%** 0.23% 0.25% (0.04)%
Portfolio Turnover
Rate.................... 14% 30% 39% 44%
- --------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expen
Limitation During the Pe
Per Share Benefit to
Net Investment Income
(Loss)................ $ 0.07 $ 0.12 $ 0.05 $ 1.16
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................ 4.40%** 3.34% 2.78% 2.81%
Net Investment Income
(Loss) to Average Net
Assets................ (1.66)%** (0.66)% (0.08)% (0.40)%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Global Equity Allocation Fund began offering the current Class B shares
on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual
rate of 1.00% of the average daily net assets of the Global Equity
Allocation Fund. The Adviser has agreed to waive a portion of this fee
and/or reimburse expenses of the Global Equity Allocation Fund to the
extent that the total operating expenses of the Fund exceed 1.70% of the
average daily net assets relating to the Class A shares and 2.45% of the
average daily net assets relating to the Class B and Class C shares. For
the fiscal periods ended June 30, 1994, June 30, 1995 and June 30, 1996,
the Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $353,000, $247,000 and $371,000, respectively, for the
Global Equity Allocation Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
------------------------------------------------------------------------- -----------------
SELECTED PER SHARE DATA JUNE 23, 1993* YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, 1995*
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 TO JUNE 30, 1996
- ------------------------- ---------------- -------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 12.00 $ 12.00 $ 15.50 $ 16.42 $ 16.51
---------------- -------------- -------------- ---------------- -----------------
INCOME FROM INVESTMENT
OPERATIONS..............
Net Investment Loss.... -- (0.03) -- (0.04) (0.03)
Net Realized and
Unrealized Gain
(Loss)................ -- 3.53 1.43 0.77 0.33
---------------- -------------- -------------- ---------------- -----------------
Total From Investment
Operations............ -- 3.50 1.43 0.73 0.30
---------------- -------------- -------------- ---------------- -----------------
DISTRIBUTIONS............
Net Realized Gain...... -- -- (0.49) -- --
In Excess of Net
Realized Gain......... -- -- (0.02) -- --
---------------- -------------- -------------- ---------------- -----------------
-- -- (0.51) -- --
---------------- -------------- -------------- ---------------- -----------------
NET ASSET VALUE, END OF
PERIOD.................. $ 12.00 $ 15.50 $ 16.42 $ 17.15 $ 16.81
---------------- -------------- -------------- ---------------- -----------------
---------------- -------------- -------------- ---------------- -----------------
TOTAL RETURN (1)......... 0.00% 29.17% 9.50% 4.45% 1.82%
---------------- -------------- -------------- ---------------- -----------------
---------------- -------------- -------------- ---------------- -----------------
RATIOS AND SUPPLEMENTAL
DATA....................
Net Assets, End of Period
(000s) $ 11,770 $ 138,212 $ 178,667 $ 248,009 $ 52,853
Ratio of Expenses to
Average Net
Assets (2).............. 1.90%** 1.90% 1.90% 1.88% 2.61%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... (0.81)%** (0.24)% 0.04% (0.16)% (0.52)%**
Portfolio Turnover
Rate.................... 0% 34% 34% 38% 38%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Loss... $ 0.01 $ 0.03 -- -- --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................ 11.83%** 2.17% 1.90% 1.88% 2.61%**
Net Investment Income
(Loss) to Average Net
Assets................ (10.74)%** (0.51)% 0.04% (0.16)% (0.52)%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
-------------------------------------------------------------------------------
SELECTED PER SHARE DATA JUNE 23, 1993* TO YEAR ENDED YEAR ENDED YEAR ENDED
AND RATIOS JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
- ------------------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 12.00 $ 12.00 $ 15.40 $ 16.19
-------- ---------------- ---------------- ----------------
INCOME FROM INVESTMENT
OPERATIONS..............
Net Investment Loss.... -- (0.10) (0.12) (0.13)
Net Realized and
Unrealized Gain
(Loss)................ -- 3.50 1.42 0.72
-------- ---------------- ---------------- ----------------
Total From Investment
Operations............ -- 3.40 1.30 0.59
-------- ---------------- ---------------- ----------------
DISTRIBUTIONS............
Net Realized Gain...... -- -- (0.49) --
In Excess of Net
Realized Gain......... -- -- (0.02) --
-------- ---------------- ---------------- ----------------
-- -- (0.51) --
-------- ---------------- ---------------- ----------------
NET ASSET VALUE, END OF
PERIOD.................. $ 12.00 $ 15.40 $ 16.19 $ 16.78
-------- ---------------- ---------------- ----------------
-------- ---------------- ---------------- ----------------
TOTAL RETURN (1)......... 0.00% 28.33% 8.71% 3.64%
-------- ---------------- ---------------- ----------------
-------- ---------------- ---------------- ----------------
RATIOS AND SUPPLEMENTAL
DATA....................
Net Assets, End of Period
(000s) $ 8,491 $ 116,889 $ 139,497 $ 168,070
Ratio of Expenses to
Average Net
Assets (2).............. 2.65%** 2.65% 2.63% 2.63%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... (1.56)%** (0.99)% (0.77)% (0.94)%
Portfolio Turnover
Rate.................... %0 34% 34% 38%
- ------------------------- -------------------------------------------------------------------------------
Effect of Voluntary Expen
Limitation During the Pe
Per Share Benefit to
Net Investment Loss... $ 0.02 $ 0.03 -- --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................ 12.64%** 2.92% 2.63% 2.63%
Net Investment Income
(Loss) to Average Net
Assets................ (11.55)%** (1.26)% (0.77)% (0.94)%
- ------------------------- -------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Asian Growth Fund began offering the current Class B shares on August
1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual
rate of 1.00% of the average daily net assets of the Asian Growth Fund.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Asian Growth Fund to the extent that the total operating
expenses of the Fund exceed 1.88% of the average daily net assets relating
to the Class A shares and 2.63% of the average daily net assets relating
to the Class B and Class C shares. For the fiscal periods ended June 30,
1994, June 30, 1995 and June 30, 1996, the Adviser waived advisory fees
and/or reimbursed expenses totaling approximately $464,000, $0 and $0,
respectively, for the Asian Growth Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
------------------------------- --------------- ---------------------------------
JULY 6, 1994* AUGUST 1, 1995* JULY 6, 1994*
SELECTED PER SHARE DATA TO JUNE 30, YEAR ENDED TO JUNE 30, TO JUNE 30, YEAR ENDED
AND RATIOS 1995 JUNE 30, 1996 1996 1995 JUNE 30, 1996
- ------------------------- ------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 12.00 $ 10.61 $ 10.91 $ 12.00 $ 10.53
------------- ------------- ------- -------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)................ 0.05 0.05 0.01 -- (0.01)
Net Realized and
Unrealized Loss....... (1.44) 1.44 1.02 (1.47) 1.41
------------- ------------- ------- -------------- -------------
Total From Investment
Operations............ (1.39) 1.49 1.03 (1.47) 1.40
------------- ------------- ------- -------------- -------------
DISTRIBUTIONS............
Net Investment
Income................ -- (0.04) -- -- --
In Excess of Net
Realized Gain......... -- --# --# -- --#
------------- ------------- ------- -------------- -------------
Total Distributions.... -- (0.04) -- -- --
------------- ------------- ------- -------------- -------------
NET ASSET VALUE, END OF
PERIOD.................. $ 10.61 $ 12.06 $ 11.94 $ 10.53 $ 11.93
------------- ------------- ------- -------------- -------------
------------- ------------- ------- -------------- -------------
TOTAL RETURN (1)......... (11.58)% 14.16% 9.45% (12.25)% 13.30%
------------- ------------- ------- -------------- -------------
------------- ------------- ------- -------------- -------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000s).................. $ 26,091 $ 114,850 $ 10,416 $ 22,245 $ 43,601
Ratio of Expenses to
Average Net
Assets (2).............. 2.33%** 2.16% 2.91%** 3.08%** 2.91%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... 0.81%** 0.93% 0.30%** 0.06%** (0.11)%
Portfolio Turnover
Rate.................... 32% 42% 42% 32% 42%
- ----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to Net
Investment Income
(Loss).................. $ 0.04 $ 0.02 $ 0.02 $ 0.04 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets................ 3.10%** 2.56% 3.31%** 3.90%** 3.34%
Net Investment Income
(Loss) to Average Net
Assets................ 0.04%** 0.53% (0.10)%** (0.76)%** (0.54)%
Ratio of Expenses to
Average Net Assets
Excluding Country Tax
Expense................. 2.15%** 2.15% 2.90%** 2.90%** 2.90%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
# Amount less than $0.01 per share.
* Commencement of operations
** Annualized
+ The Emerging Markets Fund began offering the current Class B shares on August
1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 1.25%
of the average daily net assets of the Emerging Markets Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Emerging Markets Fund to the extent that the total operating expenses of the
Fund exceed 2.15% of the average daily net assets relating to the Class A
shares and 2.90% of the average daily net assets relating to the Class B and
Class C shares. For the fiscal periods ended June 30, 1995 and June 30,
1996, the Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $197,000 and $355,000, respectively for the Emerging Markets
Fund.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
----------------------------------- --------------- ----------------------------------
JULY 6, 1994* AUGUST 1, 1995* JULY 6, 1994*
SELECTED PER SHARE DATA TO JUNE 30, YEAR ENDED TO JUNE 30, TO JUNE 30, YEAR ENDED
AND RATIOS 1995 JUNE 30, 1996 1996 1995 JUNE 30, 1996
- ------------------------- -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 12.00 $ 9.08 $ 9.58 $ 12.00 $ 8.99
------- -------------- ------- ------- --------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)................ (0.02) 0.10 0.03 (0.08) 0.04
Net Realized and
Unrealized Gain
(Loss)................ (2.70) 3.47 2.84 (2.73) 3.40
------- -------------- ------- ------- --------------
Total From Investment
Operations............ (2.72) 3.57 2.87 (2.81) 3.44
------- -------------- ------- ------- --------------
DISTRIBUTIONS
Net Investment
Income................ -- (0.02) -- -- --
Paid in Capital........ (0.20) -- -- (0.20) --
------- -------------- ------- ------- --------------
Total Distributions.... (0.20) (0.02) -- (0.20) --
------- -------------- ------- ------- --------------
NET ASSET VALUE, END OF
PERIOD.................. $ 9.08 $ 12.63 $ 12.45 $ 8.99 $ 12.43
------- -------------- ------- ------- --------------
------- -------------- ------- ------- --------------
TOTAL RETURN (1)......... (23.07)% 39.35% 29.26% (23.83)% 38.26%
------- -------------- ------- ------- --------------
------- -------------- ------- ------- --------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000s).................. $ 7,658 $ 18,701 $ 2,041 $ 4,085 $ 6,780
Ratio of Expenses to
Average Net
Assets (2).............. 2.46%** 2.11% 2.87%** 3.20%** 2.86%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (2).......... (0.44)%** 1.18% 0.88%** (1.16)%** 0.42%
Portfolio Turnover
Rate.................... 107% 131% 131% 107% 131%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income
(Loss)................ $ 0.13 $ 0.09 $ 0.04 $ 0.12 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets (Including
Brazilian Tax
Expense).............. 4.30%** 3.28% 3.89% 5.20%** 4.06%
Net Investment Loss to
Average Net Assets.... (2.26)%** 0.01% (0.14)%** (3.16)%** (0.78)%
Ratio of Expenses to
Average Net Assets
Excluding Country Tax
Expense................. 2.10%** 2.10% 2.85%** 2.85%** 2.85%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Latin American Fund began offering the current Class B shares on August
1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an Investment Advisory Agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 1.25%
of the average daily net assets of the Latin American Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the Latin
American Fund to the extent that the total operating expenses of the Fund
exceed 2.10% of the average daily net assets relating to the Class A shares
and 2.85% of the average daily net assets relating to the Class B and Class
C shares. For the fiscal periods ended June 30, 1995 and June 30, 1996, the
Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $165,000 and $206,000, respectively, for the Latin American
Fund.
10
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company 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 Fund has its
own investment objective and policies designed to meet its specific goals. For
ease of reference, the words "Morgan Stanley," which begin the name of each
Fund, have not been included in the Funds named below. The investment objective
of each Fund described in this Prospectus is as follows:
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and by investing
from time to time in debt securities issued or guaranteed by Latin
American governments or governmental entities.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The objectives of these other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
U.S. EQUITY FUNDS:
- The AMERICAN VALUE FUND seeks high 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.
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<PAGE>
GLOBAL FIXED INCOME FUNDS:
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers located throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the nationally recognized statistical rating
organizations.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
MONEY MARKET FUNDS:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining the 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 GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. (the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc., which,
together with its affiliated asset management companies, had approximately
$103.5 billion in assets under management as an investment manager or as a
fiduciary adviser at September 30, 1996, acts as investment adviser to the
Company and each of its Investment Funds. See "Management of the Company --
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
approximately $58.7 billion in assets under management as of September 30, 1996.
The acquisition is expected to have closed by October 31, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers. Securities of foreign issuers are subject to
certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Asian Growth, Emerging Markets, Latin American and
International Magnum Funds invest in securities of
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<PAGE>
issuers located in developing or emerging market countries, which may impose
greater liquidity risks and other risks not typically associated with investing
in the more established markets of developed countries. Investments in such
emerging markets may be in small- to medium-sized companies, which are more
vulnerable to risks than larger corporations, including a higher degree of
liquidity, financial, price volatility and other risks than investments in the
securities of larger corporations. The Emerging Markets and Latin American Funds
may invest in lower rated and unrated debt securities (including in the case of
the Latin American Fund, sovereign debt) which are considered speculative in
nature and involve a high degree of risk. The Emerging Markets Fund may invest
in equity securities of Russian companies. The registration, clearing and
settlement of securities transactions in Russia are subject to significant risks
not normally associated with securities transactions in the United States and
other more developed markets. See "Additional Investment Information -- Russian
Securities Transactions." The Funds may invest in forward foreign currency
exchange contracts, and the Emerging Markets, Latin American and International
Magnum Funds may invest in foreign currency exchange futures and options. The
Emerging Markets, Latin American and International Magnum Funds may invest in
options. The Emerging Markets and Latin American Funds may engage in short
selling. The Latin American Fund may borrow money for leverage purposes and
invest in reverse repurchase agreements. In addition, each Fund may invest in
repurchase agreements, borrow money, lend its portfolio securities, and purchase
securities on a when-issued or delayed delivery basis. Each Fund may invest in
securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. Such securities may be
less liquid than publicly traded securities. There are also risks associated
with the non-diversified status of the Emerging Markets, International Magnum
and Latin American Funds. Each of these investment strategies involves specific
risks which are described under "Investment Objectives and Policies,"
"Additional Investment Information" and "Investment Limitations" herein and
under "Investment Objectives and Policies" in the Statement of Additional
Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds described herein are
designed to provide investors a choice of three ways to pay distribution costs.
Class A shares of the Funds are offered at net asset value plus an initial sales
charge of up to 4.75% in graduated percentages based on the investor's aggregate
investments in the Funds. Shares of the Class B shares and Class C shares of the
Funds are offered at net asset value. Class B shares are subject to a contingent
deferred sales charge ("CDSC") for redemptions within six years of purchase and
are subject to higher annual distribution-related expenses than the Class A
shares. Class C shares are subject to a CDSC for redemptions within one year of
purchase and are subject to higher annual distribution-related expenses than the
Class A shares. See "Purchase of Shares" for a discussion of reduction or waiver
of sales charges, which are available for certain investors. Share purchases may
be made through Morgan Stanley, through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $1,000 for
each class of a 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 Fund may be redeemed at any time at the net asset value per
share of the Fund next determined after receipt of the redemption request. The
redemption price may be more or less than the purchase price. A Class A
shareholder of a Fund who did not pay an initial sales charge due to the size of
the purchase and redeems shares
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<PAGE>
within one year of purchase will be subject to a CDSC of 1.00%. Certain Class B
shares that are redeemed within six years of purchase are subject to a maximum
CDSC of 5.00% which decreases in steps to 0% after six years. Certain Class C
shares that are redeemed within one year of purchase are subject to a CDSC of
1.00%. The CDSC for each class is applicable to the lesser of the current market
value of the shares redeemed or the total cost of such shares. In determining
whether a CDSC is payable, and, if so, the amount of the charge, it is assumed
that shares not subject to such charge are the first redeemed followed by other
shares held for the longest period of time. If a shareholder reduces his/her
total investment in shares of a Fund to less than $1,000, the entire investment
may be subject to involuntary redemption. See "Redemption of Shares."
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There is no assurance that a Fund will attain its objective. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE GLOBAL EQUITY ALLOCATION FUND
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in equity securities of U.S. and
non-U.S. issuers in accordance with country weightings determined by the Adviser
and with stock selection within each country designed to replicate a broad
market index. The Fund will, under normal market conditions, invest at least 65%
of the value of its total assets in equity securities of issuers in at least
three different countries. The Adviser utilizes a "top-down" approach in
selecting investments for the Fund that emphasizes country selection and
weighting rather than individual stock selection. This approach reflects the
Adviser's philosophy that a diversified selection of securities representing
exposure to world markets based upon the economic outlook and current valuation
levels for each country is an effective way to maximize the return and minimize
the risk associated with global investment.
The Adviser determines country allocations for the Global Equity Allocation
Fund on an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
other industrialized countries throughout the world that comprise the Morgan
Stanley Capital International World Index. These countries currently are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore/ Malaysia,
Spain, Sweden, Switzerland, the United Kingdom and the United States. In
addition, the Fund may invest a portion of its assets in emerging country equity
securities, which are described in detail in the discussion of the Emerging
Markets Fund, below. The Adviser intends to use the same criteria as used for
the Emerging Markets Fund in selecting emerging market securities for
investment. The Fund currently intends to invest in some or all of the following
countries: Argentina, Indonesia, Portugal, South Africa, Brazil, Malaysia,
Philippines, Thailand, India, Mexico, South Korea and Turkey.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what the Adviser believes to be a fair value for the stock
market of each country. Discrepancies between actual value and fair value, as
determined by the Adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
Adviser's purchasing-power parity exchange rate model to arrive at an expected
total return in U.S. Dollars. The final country allocation decision is then
reached by considering the expected total return in light of various country
specific considerations such as market size, volatility, liquidity and country
risk.
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<PAGE>
Within a particular country, investments are made through the purchase of
common stocks which, in the aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International ("MSCI") Index for
the given country. The MSCI Indices measure the performance of stock markets
worldwide. The various MSCI Indices are based on the share prices of companies
listed on the local stock exchange of the specified country or countries within
a specified region. The combined market capitalization of companies in these
indices represent approximately 60 percent of the aggregate market value of the
covered stock exchanges. Companies included in the MSCI country index replicate
the industry composition of the local market and are a representative sampling
of large, medium and small companies, subject to liquidity. Non-domiciled
companies traded on the local exchange and companies with restricted float due
to dominant shareholders or cross-ownership are avoided. The Adviser may
overweight or underweight an industry segment of a particular index if it
concludes this would be advantageous to the Fund. With respect to the Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stocks. Debt securities convertible
into common stocks will be investment grade (rated in one of the four highest
rating categories by a nationally recognized statistical rating organization (an
"NRSRO")) or, if unrated, will be of comparable quality as determined by the
Adviser under the supervision of the Board of Directors. Indexation of the
Fund's stock selection reduces stock-specific risk through diversification and
minimizes transaction costs, which can be substantial in foreign markets.
The Global Equity Allocation Fund may invest in non-publicly traded
securities, private placements and restricted securities. See "Additional
Investment Information -- Non-Publicly Traded Securities, Private Placements and
Restricted Securities."
The Global Equity Allocation Fund will normally purchase common stocks
listed on a major stock exchange in the subject country. For a description of
special considerations and certain risks associated with investments in foreign
issuers, see "Additional Investment Information." For temporary defensive
purposes, the Fund may invest in money market instruments and medium-term debt
securities that the Adviser believes to be of high quality, or hold cash. See
"Additional Investment Information -- Temporary Investments".
For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.
THE ASIAN GROWTH FUND
The investment objective of the Asian Growth Fund is long-term capital
appreciation through investment primarily in equity securities of Asian issuers,
excluding Japan. The production of any current income is incidental to this
objective. The Fund seeks to achieve its objective by investing, under normal
market conditions, at least 65% of the value of its total assets in equity
securities which are traded on recognized stock exchanges of the countries in
Asia described below and in equity securities of companies organized under the
laws of an Asian country whose business is conducted principally in Asia. The
Fund does not intend to invest in securities which are primarily traded in
markets in Japan or in companies organized under the laws of Japan. The Fund may
also invest in sponsored or unsponsored Depositary Receipts, including American
Depositary Receipts ("ADRs") of Asian issuers that are traded on stock exchanges
in the United States. See "Additional Investment Information -- Depositary
Receipts."
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<PAGE>
The Asian Growth Fund will invest in countries having more established
markets in the Asian region. The Asian countries to be represented in the Fund
will consist of three or more of the following countries: Hong Kong, Singapore,
Malaysia, Thailand, the Philippines and Indonesia. The Fund may also invest in
common stocks traded on markets in China, Taiwan, South Korea, India, Pakistan,
Sri Lanka and other developing markets that are open to foreign investment.
There is no requirement that the Fund, at any given time, invest in any one
particular country or in all of the countries listed above or in any other Asian
countries. The Fund has no set policy for allocating investments among the
several Asian countries. Allocation of investments among the various countries
will depend on the relative attractiveness of the stocks of issuers in the
respective countries. Government regulation and restrictions in many of the
countries of interest may limit the amount, mode and extent of investment in
companies in such countries.
Under normal circumstances, at least 65% of the total assets of the Asian
Growth Fund will be invested in equity securities of issuers in Asian countries,
excluding Japan. Any remaining assets of the Fund will be kept in any
combination of debt instruments, bills and bonds of governmental entities in
Asia and the U.S., in notes, debentures, and bonds of companies in Asia and in
money market instruments in the U.S. With respect to the Fund, equity securities
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Debt securities convertible into common
stocks will be investment grade (rated in one of the four highest rating
categories by an NRSRO) or, if unrated will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors.
The Adviser's approach in selecting investments for the Asian Growth Fund is
oriented to individual stock selection and is value driven. In selecting stocks
for the Fund, the Adviser initially identifies those stocks which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues, and then evaluates the future value of such stocks by running the
results of an in-depth study of the issuer through a dividend discount model.
The Adviser utilizes the research of a number of sources, including its
affiliate in Geneva, Morgan Stanley Capital International, in identifying
attractive securities, and applies a number of proprietary screening criteria to
identify those securities it believes to be undervalued. Fund holdings are
regularly reviewed and subjected to fundamental analysis to determine whether
they continue to conform to the Adviser's value criteria. Those which no longer
conform are sold. The Adviser will analyze assets, revenues and earnings of an
issuer. In selecting industries and particular issuers, the Adviser will
evaluate costs of labor and raw materials, access to technology, export of
products and government regulation. Although the Fund seeks to invest in larger
companies, it may invest in small- and medium-sized companies that, in the
Adviser's view, have potential for growth. The Fund may invest in equity
securities of smaller capitalized companies, which are more vulnerable to
financial and other risks than larger companies. Investment in securities of
smaller companies may involve a higher degree of risk and price volatility than
in securities of larger companies. The Fund's investments will include
securities of issuers located in developing countries and traded in emerging
markets. These securities pose greater liquidity risks and other risks than
securities of companies located in developed countries and traded in more
established markets. For a description of special considerations and certain
risks associated with investment in foreign issuers, see "Additional Investment
Information."
Although the Asian Growth Fund intends to invest primarily in securities
listed on stock exchanges, it may also invest in securities traded in
over-the-counter markets and, to a limited extent, in non-publicly traded
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<PAGE>
securities. Securities traded in over-the-counter markets and non-publicly
traded securities pose liquidity risks. See "Additional Investment Information
- -- Non-Publicly Traded Securities, Private Placements and Restricted
Securities."
Pending investment or settlement, and for liquidity purposes, the Fund may
invest in domestic, Eurodollar and foreign short-term money market instruments.
For temporary defensive purposes, the Fund may invest in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash. See "Additional Investment Information -- Temporary
Investments."
Because of the lack of hedging facilities in the currency markets of Asia,
no active currency hedging strategy is anticipated currently. Instead, each
investment will be considered on a total currency adjusted basis with the U.S.
Dollar as a base currency. The Fund may engage in foreign currency exchange
contracts. See "Additional Investment Information -- Foreign Currency Hedging
Transactions."
For further information about the foregoing and certain additional
investment practices of the Asian Growth Fund, including investment in
derivative securities, see "Additional Investment Information" below.
THE EMERGING MARKETS FUND
The investment objective of the Emerging Markets Fund is to provide
long-term capital appreciation by investing primarily in equity securities of
emerging country issuers. Under normal conditions, at least 65% of the Fund's
total assets will be invested in emerging country equity securities. With
respect to the Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. As
used in this Prospectus, the term "emerging country" applies to any country
which, in the opinion of the Adviser, is generally considered to be an emerging
or developing country by the international financial community, including the
International Bank for Reconstruction and Development (more commonly known as
The World Bank) and the International Finance Corporation. There are currently
over 130 countries which, in the opinion of the Adviser, are generally
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most nations located in Western
Europe. Currently, investing in many emerging countries is not feasible or may
involve unacceptable political risks. The Fund will focus its investments on
those emerging market countries in which it believes the economics are
developing strongly and in which the markets are becoming more sophisticated.
The Fund intends to invest primarily in some or all of the following countries:
<TABLE>
<S> <C> <C> <C>
Argentina Hungary Morocco South Korea
Botswana India Nigeria Sri Lanka
Brazil Indonesia Pakistan Taiwan
Chile Israel Peru Thailand
China Jamaica Philippines Turkey
Colombia Jordan Poland Venezuela
Ghana Kenya Portugal Zimbabwe
Greece Malaysia Russia
South
Hong Kong Mexico Africa
</TABLE>
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<PAGE>
As markets in other countries develop, the Emerging Markets Fund expects to
expand and further diversify the emerging countries in which it invests. The
Fund does not intend to invest in any security in a country where the currency
is not freely convertible to U.S. Dollars, unless the Fund has obtained the
necessary governmental licensing to convert such currency or other appropriately
licensed or sanctioned contractual guarantee to protect such investment against
loss of that currency's external value, or the Fund has a reasonable expectation
at the time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
An emerging country security is one issued by a company that, in the opinion
of the Adviser, has one or more of the following characteristics: (i) its
principal securities trading market is in an emerging country; (ii) alone or on
a consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging countries; or (iii)
it is organized under the laws of, and has a principal office in, an emerging
country. The Adviser will base determinations as to eligibility on publicly
available information and inquiries made to the companies. (See "Additional
Investment Information -- Foreign Investment" for a discussion of the nature of
information publicly available for non-U.S. companies).
To the extent that the Emerging Markets Fund's assets are not invested in
emerging country equity securities, the remainder of the assets may be invested
in (i) debt securities denominated in the currency of an emerging country or
issued or guaranteed by an emerging country company or the government of an
emerging country; (ii) equity or debt securities of corporate or governmental
issuers located in industrialized countries; and (iii) short-term and
medium-term debt securities of the type described below under "Additional
Investment Information -- Temporary Investments." The Fund's assets may be
invested in debt securities when the Investment Fund believes that, based upon
factors such as relative interest rate levels and foreign exchange rates, such
debt securities offer opportunities for long-term capital appreciation. It is
likely that many of the debt securities in which the Fund will invest will be
unrated, and whether or not rated, such securities may have speculative
characteristics. When deemed appropriate by the Adviser, the Fund may invest up
to 10% of its total assets (measured at the time of the investment) in lower
quality debt securities. Lower quality debt securities, also known as "junk
bonds," are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than those of higher
quality securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates. Securities in the
lowest quality category may present the risk of default, or may be in default.
For temporary defensive purposes, the Fund may invest in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash. See "Additional Investment Information -- Temporary
Investments" below.
The Emerging Markets Fund may invest indirectly in securities of emerging
country issuers through sponsored or unsponsored Depositary Receipts, including
ADRs. ADRs may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the issuers
of the stock of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the ADR. See
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<PAGE>
"Additional Investment Information -- Depositary Receipts." The Fund may, to a
limited extent, invest in non-publicly traded securities, private placements and
restricted securities. See "Additional Investment Information -- Non-Publicly
Traded Securities, Private Placements and Restricted Securities."
For further information about the foregoing and certain additional
investment practices of the Emerging Markets Fund, including investment in
derivative securities, see "Additional Investment Information" below.
THE LATIN AMERICAN FUND
The investment objective of the Latin American Fund is long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily in
equity securities (i) of companies organized in or for which the principal
securities trading market is in Latin America, (ii) denominated in a Latin
American currency issued by companies to finance operations in Latin America, or
(iii) of companies that alone or on a consolidated basis derive 50% or more of
their annual revenues from either goods produced, sales made or services
performed in Latin America (collectively, "Latin American issuers") and by
investing, from time to time, in debt securities issued or guaranteed by a Latin
American government or governmental entity ("Sovereign Debt"). Income is not an
investment objective or a consideration in selecting investments.
The securities markets of Latin American countries are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Latin American issuers
may be held by a limited number of persons, which may limit the number of shares
available for investment by the Fund. A limited number of issuers in most, if
not all, Latin American securities markets may represent a disproportionately
large percentage of market capitalization and trading value. The limited
liquidity of Latin American securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. In addition, certain Latin American securities markets, including those
of Argentina, Brazil, Chile and Mexico, are susceptible to being influenced by
large investors trading significant blocks of securities or by large
dispositions of securities resulting from the failure to meet margin calls when
due.
In addition to their smaller size, lesser liquidity and greater volatility,
Latin American securities markets are less developed than U.S. securities
markets. Disclosure and regulatory standards are in many respects less stringent
than U.S. standards. Furthermore, there is a low level of monitoring and
regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited. Consequently,
the prices at which the Fund may acquire investments may be affected by other
market participants' anticipation of the Fund's investing, by trading by persons
with material non-public information and by securities transactions by brokers
in anticipation of transactions by the Fund in particular securities.
Commissions and other transaction costs on most, if not all, Latin American
securities exchanges are generally higher than in the United States, although
the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions.
The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Governments of many Latin
American countries have exercised and continue to exercise substantial influence
over many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
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<PAGE>
Accordingly, government actions in the future could have a significant effect on
economic conditions in a Latin American country, which could affect private
sector companies and the Fund, and on market conditions, prices and yields of
securities in the Fund's portfolio. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other developments
could adversely affect the assets of the Fund held in particular Latin American
countries.
Beginning in 1982, certain Latin American countries experienced difficulty
in servicing their sovereign debt. Over the last few years, the major Latin
American countries, including Brazil, Mexico and Argentina, have successfully
restructured and are now servicing their external debt. Obligations arising from
past restructuring agreements have affected, and those arising from future
restructuring agreements may affect, the economic performance and political
stability of certain Latin American countries.
Under normal conditions, substantially all, but not less than 80%, of the
Latin American Fund's total assets are invested in equity securities of Latin
American issuers and in Sovereign Debt. With respect to the Fund, unless
otherwise indicated, Latin America consists of Argentina, Bolivia, Brazil,
Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and
Venezuela. See "Additional Investment Information -- Foreign Investment" for a
discussion of the nature of information publicly available for non-U.S.
companies. With respect to the Fund, equity securities include common or
preferred stocks (including convertible preferred stock), bonds, notes or
debentures convertible into common or preferred stock, stock purchase warrants
or rights, equity interests in trusts or partnerships or American, Global or
other types of Depositary Receipts. See "Additional Investment Information --
Depositary Receipts."
The Latin American Fund focuses its investments in listed equity securities
in Argentina, Brazil, Chile and Mexico, the most developed capital markets in
Latin America. The Fund expects, under normal market conditions, to have at
least 55% of its total assets invested in listed equity securities of issuers in
these four countries. In addition, the Fund actively invests in markets in other
Latin American countries such as Colombia, Peru and Venezuela. The Fund is not
limited in the extent to which it may invest in any Latin American country and
intends to invest opportunistically as markets develop. The portion of the
Fund's holdings in any Latin American country will vary from time to time,
although the portion of the Fund's assets invested in Chile may tend to vary
less than the portions invested in other Latin American countries because, with
limited exceptions, capital invested in Chile currently cannot be repatriated
for one year.
The governments of some Latin American countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatization"). The Adviser believes that
privatization may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Fund in privatization in
appropriate circumstances. In certain Latin American countries, the ability of
foreign entities, such as the Fund, to participate in privatization may be
limited by local law, or the terms on which the Fund may be permitted to
participate may be less advantageous than those for local investors. There can
be no assurance that Latin American governments will continue to sell companies
currently owned or controlled by them or that any privatization programs in
which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use Sovereign Debt of a country, directly or
indirectly, to make investments in local companies. The terms
21
<PAGE>
of the various programs vary from country to country although each program
includes significant restrictions on the application of the proceeds received in
the conversion and on the remittance of profits on the investment and of the
invested capital. The Fund may participate in Latin American debt conversion
programs. The Adviser will evaluate opportunities to enter into debt conversion
transactions as they arise.
Securities in which the Latin American Fund may invest include those that
are neither listed on a stock exchange nor traded over-the-counter. As a result
of the absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. See "Additional Investment Information
- --Non-Publicly Traded Securities, Private Placements and Restricted Securities."
To the extent that the Latin American Fund's assets are not invested in
equity securities of Latin American issuers or in Sovereign Debt, the remainder
of the assets may be invested in (i) debt securities of Latin American corporate
issuers, (ii) equity or debt securities of corporate or governmental issuers
located in countries outside Latin America, and (iii) short-term and medium-term
debt securities of the type described below under "Temporary Investments." The
Fund's assets may be invested in debt securities when the Fund believes that,
based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer opportunities for long-term capital
appreciation. It is likely that many of the debt securities in which the Fund
will invest will be unrated. The Fund may invest up to 20% of its total assets
in securities that are determined by the Adviser to be comparable to securities
rated below investment grade by Standard & Poor's Ratings Group ("S&P") or
Moody's Investor's Service, Inc. ("Moody's"). Such lower-quality securities are
regarded as being predominantly speculative and involve significant risks. See
"Additional Investment Information -- Lower Rated and Unrated Debt Securities."
The Latin American Fund's holdings of lower-quality debt securities will
consist predominantly of Sovereign Debt, much of which trades at substantial
discounts from face value and which may include Sovereign Debt comparable to
securities rated as low as D by S&P or C by Moody's. The Fund may invest in
Sovereign Debt to hold and trade in appropriate circumstances, as well as to use
to participate in debt for equity conversion programs. The Fund will invest in
Sovereign Debt only when the Fund believes such investments offer opportunities
for long-term capital appreciation. Investment in Sovereign Debt involves a high
degree of risk and such securities are generally considered to be speculative in
nature.
For temporary defensive purposes, the Latin American Fund may invest less
than 80% of its total assets in Latin American equity securities and Sovereign
Debt, in which case the Fund may invest in other equity or debt securities or
may invest in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities or hold
cash. See "Additional Investment Information -- Temporary Investments." The Fund
may enter into forward foreign currency exchange contracts and foreign currency
futures contracts, may purchase and write (sell) put and call options on
securities, foreign currency and on foreign currency futures contracts, and may
enter into stock index and interest rate futures contracts and options thereon.
See "Additional Investment Information." There currently are limited options and
futures markets for Latin American currencies, securities and indexes, and the
nature of the strategies adopted by the Adviser and the extent to which those
strategies are used depends on the development of those markets. The
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Fund may also from time to time lend securities (but not in excess of 20% of its
total assets) from its portfolio to brokers, dealers and financial institutions.
See "Additional Investment Information -- Loans of Portfolio Securities."
The Latin American Fund will not invest more than 25% of its total assets in
one industry except and to the extent, and only for such period of time as, the
Board of Directors determines in view of the considerations discussed below that
it is appropriate and in the best interest of the Fund and its shareholders to
invest more than 25% of the Fund's total assets in companies involved in the
telecommunications industry. Since the securities markets of Latin American
countries are emerging markets characterized by a relatively small number of
issues, it is possible that one or more markets may on occasion be dominated by
issues of companies engaged in the telecommunications industry. In addition, it
is possible that government privatization in certain Latin American countries,
which currently represent a primary source of new issues in many Latin American
markets and often represent attractive investment opportunities, will occur in
that industry. As a result, the Fund has adopted a policy under which it may
invest more than 25% of its total assets in securities of issuers in the
telecommunications industry. The Fund would only take this action if the Board
of Directors determines that the Latin American markets are dominated by
securities of issuers in such industry and that, in light of the anticipated
return, investment quality, availability and liquidity of the issues in the
industry, the Fund's ability to achieve its investment objective would, in light
of its investment policies and limitations, be materially adversely affected if
the Fund were not able to invest greater than 25% of its total assets in the
telecommunications industry. In the event that the Board of Directors permits
greater than 25% of the Fund's total assets to be invested in the
telecommunications industry, the Fund may be exposed to increased investment
risks peculiar to that industry. The Fund will notify its shareholders of any
decision by the Board of Directors to permit (or cease) investments of more than
25% of the Fund's total assets in the telecommunications industry. Such notice
will, to the extent applicable, include a discussion of any increased investment
risks peculiar to such industry to which the Fund may be exposed.
The Latin American Fund is authorized to borrow up to 33 1/3% of its total
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing, for investment purposes to increase the opportunity
for greater return and for payment of dividends. Such borrowings would
constitute leverage, which is a speculative characteristic. Leveraging will
magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage."
For further information about the foregoing and certain additional
investment practices of the Latin American Fund, including investments in
derivative securities, see "Additional Investment Information" below.
THE INTERNATIONAL MAGNUM FUND
The investment objective of the International Magnum Fund is to provide
long-term capital appreciation. The production of any current income is
incidental to this objective. The 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. With
respect to the Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. The
equity securities in which the Fund may invest may be denominated in any
currency.
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The countries in which the International Magnum Fund will invest are those
comprising the Morgan Stanley Capital International EAFE Index (the "Index"),
which includes Australia, Japan, New Zealand, most nations located in Western
Europe and certain developed countries in Asia, such as Hong Kong and Singapore
(each an "EAFE country," and collectively the "EAFE countries"). At least 65% of
the total assets of the Fund will be invested in equity securities of issuers in
at least three different EAFE countries under normal circumstances.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on comparative interest rates, currencies,
corporate profits and economic growth among the various regions represented in
the Index. These projections will be used to establish regional allocation
strategies. Within these regional allocations, the Adviser then selects equity
securities among issuers of a region.
The Adviser's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented to individual stock selection and is
value driven. The Adviser identifies those equity securities which it believes
to be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. In selecting investments, the Adviser utilizes the research of a
number of sources, including Morgan Stanley Capital International, an affiliate
of the Adviser located in Geneva, Switzerland. Fund holdings are regularly
reviewed and subjected to fundamental analysis to determine whether they
continue to conform to the Adviser's investment criteria. Equity securities
which no longer conform to such investment criteria will be sold.
Although the International Magnum Fund intends to invest primarily in equity
securities listed on a stock exchange in an EAFE country, the Fund may invest in
equity securities that are traded over the counter or that are not admitted to
listing on a stock exchange or dealt in on a regulated market. As a result of
the absence of a public trading market, such securities may pose liquidity
risks. The Fund may also invest in private placements or initial public
offerings in the form of oversubscriptions. Such investments generally entail
short-term liquidity risks. See "Additional Investment Information --
Non-Publicly Traded Securities, Private Placements and Restricted Securities."
The International Magnum Fund may invest up to 10% of its total assets in
(i) investment funds with investment objectives similar to that of the Fund and
(ii) for temporary purposes, money market funds and pooled investment vehicles.
If the Fund invests in other investment funds, stockholders will bear not only
their proportionate share of the expenses of the Fund (including operating
expenses and fees of the Investment Adviser), but also will indirectly bear
similar expenses of the underlying investment fund.
Although the International Magnum Fund anticipates being fully invested in
equity securities of EAFE countries, the Fund may invest, under normal
circumstances for cash management purposes, up to 35% of its total assets in
certain short-term (less than twelve months to maturity) and medium-term (not
greater than five years to maturity) debt securities or hold cash. For temporary
defensive purposes, the Fund may invest in money market instruments and
medium-term debt securities that the Adviser believes to be high-quality, or
hold cash. See "Additional Investment Information -- Temporary Investments."
For further information about the foregoing and certain additional
investment practices of the International Magnum Fund, including investments in
derivative securities, see "Additional Investment Information" below.
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THE JAPANESE EQUITY FUND
The investment objective of the Japanese Equity Fund is to provide long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of Japanese issuers. With respect to the Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stocks.
Under normal conditions, the Japanese Equity Fund will invest at least 80%
of its total assets in securities issued by entities that are organized under
the laws of Japan, entities for which the principal securities trading market is
in Japan, and entities not organized under the laws of Japan but deriving 50% or
more of their revenues or profits from goods produced or sold, investments made,
or services performed in Japan or which have at least 50% of their assets
situated in Japan. These securities may include debt securities (issued by the
Japanese government or by Japanese companies) when the Adviser believes that the
potential for capital appreciation from investment in debt securities equals or
exceeds that available from investment in equity securities. In making
investment decisions, the Adviser will consider, among other factors, the size
of the company, its financial condition, its marketing and technical strengths
and its competitiveness in its industry. All debt securities in which the Fund
may invest will be rated no lower than BBB by S&P, Baa by Moody's or BBB by
Mikuni Inc. ("Mikuni") (a Japanese rating agency) or, if unrated, of comparable
quality as determined by the Adviser. Securities rated BBB by S&P, Baa by
Moody's or BBB by Mikuni have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments on such securities than would
be the case with higher rated securities. The convertible securities in which
the Fund may invest include bonds, notes, debentures, preferred stocks and other
securities convertible into common stocks and may be fixed-income or zero coupon
debt securities. Prior to their conversion, convertible securities may have
characteristics similar to nonconvertible debt securities.
The Japanese Equity Fund currently intends to focus its investments in
Japanese companies that have an active market for their shares and that the
Adviser believes show a potential for better than average growth. The Fund
anticipates that most equity securities of Japanese companies in which it
invests, either directly or indirectly by means of ADRs or convertible
debentures, will be listed on securities exchanges in Japan. The Fund may also
invest in equity securities of Japanese companies that are traded in an
over-the-counter market.
The Japanese Equity Fund may also invest up to 20% of its total assets in
cash or short-term government or other short-term prime obligations or
repurchase agreements so that funds may be readily available for general
corporate purposes, including the payment of dividends, redemptions and
operating expenses, for investment in securities through exercise of rights or
otherwise. For temporary defensive purposes, the Fund may invest in money market
instruments and medium-term debt securities that the Adviser believes to be
high-quality, or hold cash. See "Additional Investment Information -- Temporary
Investments" below.
For further information about the foregoing and certain additional
investment practices of the Japanese Equity Fund, including investments in
derivative securities, see "Additional Investment Information" below.
Investors should consider the following factors inherent in investment in
Japan.
TRADE ISSUES. Because of the concentration of Japanese exports in highly
visible products such as automobiles, machine tools and semiconductors, and the
large trade surpluses ensuing therefrom, Japan is in a difficult
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phase in its relation with its trading partners, particularly the U.S., where
the trade imbalance is the greatest. Retaliatory action taken by such trading
partners could affect the ability of Japanese companies to export goods to these
countries, which could negatively impact the value of securities in the Fund.
CURRENCY FACTORS. Over a long period of years, the yen has generally
appreciated in relation to the dollar. The yen's appreciation would add to the
returns of dollars invested through the Fund in Japan. A decline in the value of
the yen would have the opposite effect, adversely affecting the value of the
Fund in dollar terms.
THE JAPANESE STOCK MARKET. Like other stock markets, the Japanese stock
market can be volatile. A decline in the market may have an adverse effect on
the availability of credit and on the value of the substantial stock holdings of
Japanese companies in particular, Japanese banks, insurance companies and other
financial institutions. A decline in the market may contribute to weakness in
Japan's economy. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios even after the recent market decline. Differences
in accounting methods make it difficult to compare the earnings of Japanese
companies with those of companies in other countries, especially the United
States In general, however, reported net income in Japan is understated relative
to U.S. accounting standards. In addition, Japanese companies have tended
historically to have higher growth rates than U.S. companies, and Japanese
interest rates have generally been lower than in the U.S., both of which factors
tend to result in lower discount rates and higher price-earnings ratios in Japan
than in the United States.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Latin American Fund is authorized to borrow money from banks and other
entities in an amount equal to up to 33 1/3% of its total assets (including the
amount borrowed), less all liabilities and indebtedness other than the
borrowing, and may use the proceeds of the borrowing for investment purposes or
to pay dividends. Borrowing creates leverage which is a speculative
characteristic. Although the Fund is authorized to borrow, it will do so only
when the Adviser believes that borrowing will benefit the Fund after taking into
account considerations such as the costs of borrowing and the likely investment
returns on securities purchased with borrowed monies. Borrowing by the Fund will
create the opportunity for increased net income but, at the same time, will
involve special risk considerations. Leveraging resulting from borrowing will
magnify declines as well as increases in the Fund's net asset value per share
and net yield.
The Latin American Fund expects that any borrowing, for other than temporary
purposes, will be made on a secured basis. The Fund's Custodian will either
segregate the assets securing the borrowing for the benefit of the lenders or
arrangements will be made with a suitable sub-custodian. If assets used to
secure the borrowing decrease in value, the Fund may be required to pledge
additional collateral to the lender in the form of cash or securities to avoid
liquidation of those assets.
The Latin American Fund may also enter into reverse repurchase agreements.
See "Additional Investment Information --Reverse Repurchase Agreements" below.
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DEPOSITARY RECEIPTS
The Asian Growth, Emerging Markets, Latin American and Japanese Equity Funds
may on occasion invest in ADRs. The Asian Growth, Emerging Markets and Latin
American Funds may also invest in other depositary receipts, including Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts (which, together with ADRs, GDRs and EDRs, are hereinafter
collectively referred to as "Depositary Receipts"), to the extent that such
Depositary Receipts become available. ADRs are securities, typically issued by a
U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer (the
"underlying issuer") and deposited with the depositary. ADRs include American
Depositary Shares and New York Shares and may be "sponsored" or "unsponsored."
Sponsored ADRs are established jointly by a depositary and the underlying
issuer, whereas unsponsored ADRs may be established by a depositary without
participation by the underlying issuer. GDRs, EDRs and other types of Depositary
Receipts are typically issued by foreign depositaries, although they may also be
issued by U.S. depositaries, and evidence ownership interests in a security or
pool of securities issued by either a foreign or a U.S. corporation.
Holders of unsponsored Depositary Receipts generally bear all the costs
associated with establishing the unsponsored Depositary Receipt. The depositary
of an unsponsored Depositary Receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored Depositary Receipt voting rights with
respect to the deposited securities or pool of securities. Depositary Receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. The Funds may invest in sponsored and unsponsored
Depositary Receipts. For purposes of the Funds' investment policies, a Fund's
investments in Depositary Receipts will be deemed to be investments in the
underlying securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Funds may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to a Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
The Emerging Markets, Latin American and International Magnum Funds may also
enter into foreign currency futures contracts. A foreign currency futures
contract is a standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at the time of the
contract. Foreign currency futures contracts traded in the U.S. are traded on
regulated exchanges. Parties to a futures contract must make initial "margin"
deposits to secure performance of the contract, which generally range from 2% to
5% of the contract price. There also are requirements to make "variation" margin
deposits as the value of the futures
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<PAGE>
contract fluctuates. Such Funds may not enter into foreign currency futures
contracts if the aggregate amount of initial margin deposits on a Fund's futures
positions, including stock index futures contracts and, in the case of the Latin
American Fund, interest rate futures contracts (which are discussed below),
would exceed 5% of the value of the Fund's total assets. The Funds also will be
required to segregate assets to cover their futures contracts obligations.
At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Funds will only enter into
such a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case a Fund may suffer a loss.
The Emerging Markets, Latin American and International Magnum Funds may
attempt to accomplish objectives similar to those described above with respect
to forward and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges. A put option gives such Funds the
right to sell a currency at the exercise price until the expiration of the
option. A call option gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
Each Fund's Custodian will place cash or other liquid assets into a
segregated account of the Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts.
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FOREIGN INVESTMENT
Each of the Funds may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the U.S.
There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the U.S. Many foreign
securities markets have substantially less volume than U.S. national securities
exchanges, and securities of some foreign issuers are less liquid and subject to
greater price volatility than securities of comparable domestic issuers.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes, which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Funds by domestic companies. Additional risks include
future adverse political and economic developments, the possibility that a
foreign jurisdiction might impose or change withholding taxes on income payable
with respect to foreign securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, and the possible
adoption of foreign governmental restrictions such as exchange controls.
Emerging countries may have less stable political environments than more
developed countries. Also, it may be more difficult to obtain a judgment in a
court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Emerging Markets, Latin American and International Magnum Funds may utilize
appropriate securities index futures contracts and options on futures contracts,
including securities index futures contracts and options on securities index
futures contracts, to a limited extent and the Latin American Fund may utilize
appropriate interest rate futures contracts and options on interest rate futures
contracts to a limited extent. Because transaction costs associated with futures
and options may be lower than the costs of investing in securities directly, it
is expected that the use of index futures and options to facilitate cash flows
may reduce each Fund's overall transaction costs. The Funds may sell indexed
financial futures contracts in anticipation of or during a market decline to
attempt to offset the decrease in market value of securities in its portfolio
that might otherwise result. When a Fund is not fully invested and the Adviser
anticipates a significant market advance, it may purchase stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of securities. The Funds will engage in futures and options on futures
transactions only for hedging purposes.
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The International Magnum Fund will engage only in transactions in securities
index futures contracts, interest rate futures contracts and options thereon
which are traded on a recognized securities or futures exchange. There currently
are limited securities index futures, interest rate futures and options on such
futures markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser, and
the extent to which those strategies are used, will depend on the development of
such markets.
The Emerging Markets, Latin American and International Magnum Funds may
enter into futures contracts and options thereon provided that not more than 5%
of such Funds' total assets at the time of entering the transaction are required
as deposits to secure obligations under such contracts. Furthermore, no more
than 20% of each such Fund's total assets, in the aggregate, may be invested in
futures contracts and options on futures contracts.
Gains and losses on futures and options depend on the Adviser's ability to
predict correctly the direction of securities prices, interest rates and other
economic factors. Other risks associated with the use of futures and options are
(i) imperfect correlation between the change in market value of the securities
held by a Fund and the prices of futures and options relating to the stocks
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a futures
position which could have an adverse impact on the Fund's ability to hedge. The
risk of loss in trading on futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. In the opinion of the Directors,
the risk that a Fund will be unable to close out a futures position or options
contract will be minimized by only entering into futures contracts or options
transactions for which there appears to be a liquid secondary market.
INVESTMENT COMPANIES
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. Certain of the Funds may invest in these investment companies,
subject to the provisions of the Investment Company Act of 1940, as amended,
(the "1940 Act") and other applicable laws. If a Fund invests in such investment
companies, the Fund's shareholders will bear not only their proportionate share
of the expenses of the Fund (including operating expenses and the fees of the
Adviser), but also will indirectly bear similar expenses of the underlying
investment funds.
Certain of the investment companies referred to in the preceding paragraph
are advised by the Adviser. A Fund may, to the extent permitted under the 1940
Act and other applicable law, invest in these investment companies. If the Fund
does elect to make an investment in such an investment company, it will only
purchase the securities of such investment company in the secondary market.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increasing
its net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Funds will not enter
into securities loan transactions exceeding in
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the aggregate 33 1/3% of the market value of a Fund's total assets (exceeding in
the aggregate 20% of such value with respect to the Latin American Fund). As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in collateral should the borrower of the portfolio securities
fail financially.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets and Latin American Funds may invest in lower rated or
unrated debt securities, commonly referred to as "junk bonds." In addition, the
emerging country debt securities in which such Funds may invest are subject to
risk and will not be required to meet a minimum rating standard and may not be
rated. Fixed income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The market values of fixed-income securities tend to vary
inversely with the level of interest rates. Yields and market values of lower
rated and unrated debt securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Fluctuations in the value of a Fund's investments will be reflected in the
Fund's net asset value per share. The Adviser considers both credit risk and
market risk in making investment decisions for a Fund. Investors should
carefully consider the relative risks of investing in lower rated and unrated
debt securities and understand that such securities are not generally meant for
short-term investing.
The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for emerging country debt securities. Such
disruptions may severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for lower rated and
unrated debt securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities.
As a result, the Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. In addition, there may be limited trading markets
for debt securities of issuers located in emerging countries. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating a Fund's net
asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect a
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
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Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, a Fund may have
to replace the security with a lower yielding security, resulting in a decreased
return for investors. If a Fund experiences unexpected net redemptions, it may
be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of lower rated and unrated debt securities.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties and
other debt securities, including high-grade commercial paper, repurchase
agreements and bank obligations, such as bankers' acceptances and certificates
of deposit (including Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund, except the Japanese Equity Fund, may invest in securities that
are neither listed on a stock exchange nor traded over the counter. Such
unlisted securities may involve a higher degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Funds or less than what may be considered the fair
value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, a Fund may be
required to bear the expenses of registration. A Fund may not invest more than
15% of its net assets in illiquid securities nor more than 10% of its total
assets in securities subject to legal or contractual restrictions on resale.
Securities that are restricted from sale to the public without registration
("Restricted Securities") under the Securities Act of 1933, as amended (the
"1933 Act"), which can be offered and sold to qualified institutional buyers
under Rule 144A under the 1933 Act ("144A Securities") may be determined to be
liquid under guidelines adopted by, and subject to the supervision of, the Board
of Directors. Rule 144A securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
OPTIONS TRANSACTIONS
Each of the Emerging Markets, Latin American and International Magnum Funds
may seek to increase its return or may hedge all or a portion of its portfolio
investments through options with respect to securities in which such Funds may
invest. The Funds will engage in transactions in options only if they are traded
on a recognized securities exchange. There currently are limited options markets
in many countries, particularly emerging countries such as Latin American
countries, and the nature of the strategies adopted by the Adviser and the
extent to which those strategies are used will depend on the development of such
option markets.
The 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 Funds at the stated exercise price. A "covered" call option means that so
long as the Funds are obligated as the writer of the option, it will own (i) the
underlying securities
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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 Funds.
The Funds will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call option, a Fund will
limit its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. Thus, in some periods a
Fund will receive less total return and in other periods greater total return
from writing covered call options than it would have received from its
underlying securities had it not written call options.
The Funds may also write (i.e., sell) covered put options. By selling a
covered put option, the Fund incurs an obligation to buy the security underlying
the option from the purchaser of the put at the option's exercise price at any
time during the option period, at the purchaser's election (certain options
written by a Fund will be exercisable by the purchaser only on a specific date).
Generally, a put option is "covered" if the Fund maintains cash or liquid
securities equal to the exercise price of the option or if the Fund holds a put
option on the same underlying security with a similar or higher exercise price.
A Fund may sell put options to receive the premium paid by the purchaser and to
close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
The Funds may also purchase put or call options on individual securities or
baskets of securities, including index options. When a Fund purchases a call
option it acquires the right to buy a designated security at a designated price
(the "exercise price"), and when a Fund purchases a put option it acquires the
right to sell a designated security at the exercise price, in each case on or
before a specified date (the "termination date"), usually not more than nine
months from the date the option is issued. A Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing. A Fund may purchase put options on
securities which it holds in its portfolio to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. A Fund may
also purchase put options to close out written put positions in a manner similar
to call option closing purchase transactions. No Fund may purchase call and put
options to the extent that the value of its aggregate investment in such
derivative securities exceeds 5% of its total assets.
Gains and losses on options depend on the Adviser's ability to predict
correctly the direction of securities prices, interest rates and other economic
factors. Other risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by the
Funds and the prices of options relating to the securities purchased or sold by
the Funds; and (ii) possible lack of a liquid secondary market for an option. In
the opinion of the Adviser, the risk that the Funds will be unable to close out
an options contract will be minimized by only entering into options transactions
for which there appears to be a liquid secondary market.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for
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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 a Fund to the seller. The
Funds always receive securities as collateral with a market value at least equal
to the purchase price, including accrued interest, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, a Fund might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Fund's realization upon the collateral
may be delayed or limited. Repurchase agreements with durations (or maturities)
over seven days in length are considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Latin American Fund may enter into reverse repurchase agreements with
brokers, dealers, domestic and foreign banks or other financial institutions
that have been determined by the Adviser to be creditworthy. In a reverse
repurchase agreement, the Fund sells a security and agrees to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. It may also be viewed as the borrowing of money by
the Fund. The Fund's investment of the proceeds of a reverse repurchase
agreement is the speculative factor known as leverage. The Fund will enter into
a reverse repurchase agreement only if the interest income from investment of
the proceeds is expected to be greater than the interest expense of the
transaction and the proceeds are invested for a period no longer than the term
of the agreement. The Fund will maintain with the appropriate Custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect the Fund's ability to maintain a stable net
asset value. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the buyer or its
trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's repurchase obligation, and the Fund's use of proceeds of the
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."
RUSSIAN SECURITIES TRANSACTIONS
The Emerging Markets Fund may invest in equity securities of Russian
companies. The registration, clearing and settlement of securities transactions
in Russia are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of shares in Russian companies is evidenced by entries in a company's
share register (except where shares are held through depositories that meet the
requirements of the 1940 Act) and the issuance of extracts from the register or,
in certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Fund could possibly lose its
registration through oversight, negligence or fraud. Moreover, Russia lacks a
centralized registry to record securities transactions and registrars located
throughout Russia or the companies themselves maintain share registers.
Registrars are under no obligation to provide extracts to potential purchasers
in a timely manner or at all and are not necessarily subject to effective state
supervision. In addition, while registrars are liable under law for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Although Russian companies with more than
1,000 shareholders are required by law to employ an independent company to
maintain share registers, in practice, such companies have not always followed
this law. Because of this lack of independence of registrars, management of a
Russian company may be able to exert considerable
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influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions on the share
register. Furthermore, these practices may prevent the Fund from investing in
the securities of certain Russian companies deemed suitable by the Adviser and
could cause a delay in the sale of Russian securities by the Fund if the company
deems a purchaser unsuitable, which may expose the Fund to potential loss on its
investment.
In light of the risks described above, the Board of Directors of the
Emerging Markets Fund has approved certain procedures concerning the Fund's
investments in Russian securities. Among these procedures is a requirement that
the Fund will not invest in the securities of a Russian company unless that
issuer's registrar has entered into a contract with the Fund's sub-custodian
containing certain protective conditions, including, among other things, the
sub-custodian's right to conduct regular share confirmations on behalf of the
Fund. This requirement will likely have the effect of precluding investments in
certain Russian companies that the Fund would otherwise make.
SHORT SALES
The Emerging Markets and Latin American Funds may from time to time sell
securities short without limitation, although neither of such Funds intends to
sell securities short on a regular basis. A short sale is a transaction in which
a Fund sells securities it either owns or has the right to acquire at no added
cost (i.e., "against the box") or it does not own (but has borrowed) in
anticipation of a decline in the market price of the securities. When a Fund
makes a short sale of borrowed securities, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, a Fund will need to arrange
through a broker to borrow the securities and, in so doing, the Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. A Fund may have to pay a premium to
borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition, the Fund will place in a segregated
account with the appropriate Custodian an amount of cash or liquid assets equal
to the difference, if any, between (1) the market value of the securities sold
at the time they were sold short and (2) any cash, U.S. Government securities or
other liquid high grade debt obligations deposited as collateral with the broker
in connection with the short sale (not including the proceeds of the short
sale). Short sales by a Fund involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
TEMPORARY INVESTMENTS
For temporary defensive purposes, each Fund may invest in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality or hold cash. In addition, during periods in which the Adviser
believes changes in economic, financial or political conditions make it
advisable, for temporary defensive purposes each of the Emerging Markets Fund
and Latin American Fund may reduce its holdings in equity and other securities
and may invest in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities or may
hold cash. The short-term and medium-term debt securities in which such Funds
may invest consist of (a) obligations of the U.S. or emerging
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country governments (Latin American governments with respect to the Latin
American Fund), their respective agencies or instrumentalities; (b) bank
deposits and bank obligations (including certificates of deposit, time deposits
and bankers' acceptances) of U.S. or emerging country banks (Latin American
banks with respect to the Latin American Fund) denominated in any currency; (c)
floating rate securities and other instruments denominated in any currency
issued by international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of U.S. and
emerging country corporations (Latin American corporations with respect to the
Latin American Fund) meeting such Fund's credit quality standards; and (e)
repurchase agreements with banks and broker-dealers with respect to such
securities. See "Additional Investment Information -- Repurchase Agreements."
For temporary defensive purposes, the Funds intend to invest only in short-term
and medium-term debt securities that the Adviser believes to be of high quality,
i.e., subject to relatively low risk of loss of interest or principal (there is
currently no rating system for debt securities in most emerging countries,
including most Latin American countries.)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment but will take place no more than 120 days after the
trade date. Each Fund will maintain with the appropriate Custodian a separate
account with a segregated portfolio of cash or liquid securities in an amount at
least equal to these commitments. The payment obligation and the interest rates
that will be received are each fixed at the time a Fund enters into the
commitment, and no interest accrues to the 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 of the Funds not to enter into
when-issued commitments or delayed delivery securities exceeding, in the
aggregate, 15% of a Fund's net assets other than the obligations created by
these commitments.
INVESTMENT LIMITATIONS
Each Fund, except the Emerging Markets, Latin American and International
Magnum Funds, is a diversified investment company under the 1940 Act, and is
subject to the following limitations: (a) as to 75% of its total assets, the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer, except obligations of the U.S. Government, and its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Emerging Markets, Latin American and
International Magnum Funds are non-diversified investment companies under the
1940 Act, which means that each of such Funds is not limited by the 1940 Act in
the proportion of its total assets that may be invested in the obligations of a
single issuer. Thus, each of such Funds may invest a greater proportion of its
total assets in the securities of a smaller number of issuers and, as a result,
will be subject to greater risk resulting from such concentration of its
portfolio securities. Each of such Funds, however, intends to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
The Funds also operate under certain investment restrictions that are deemed
fundamental policies and may be changed by a Fund only with the approval of the
holders of a majority of the Fund's outstanding shares.
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In addition to other restrictions listed in the Statement of Additional
Information, a Fund may not (i) invest more than 15% of the Fund's total assets
in illiquid securities; (ii) borrow money except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
total assets, taken at market value at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; (iii) mortgage,
pledge or hypothecate any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Fund's total assets at the time of
borrowing; except that the Latin American Fund may borrow, and mortgage, pledge
or hypothecate its assets to secure such borrowings, in amounts equal to up to
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than the borrowing; and except that the Latin
American Fund may enter into reverse repurchase agreements in accordance with
their investment objectives and policies; (iv) invest in fixed time deposits
with a duration of over seven calendar days; or (v) invest more than 25% of the
Fund's total assets in securities of companies in any one industry, except for
the Latin American Fund.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") and, subject to the supervision of the Company's Board of Directors,
makes each of the Fund's investment decisions, arranges for the execution of
portfolio transactions and generally manages each of the Fund's investments. The
Adviser is contractually entitled to receive an advisory fee computed daily and
paid monthly at the following annual rates for each of the following Funds.
<TABLE>
<S> <C>
Global Equity Allocation Fund 1.00 %
Asian Growth Fund 1.00 %
Emerging Markets Fund 1.25 %
Latin American Fund 1.25 %
International Magnum Fund 1.00 %
Japanese Equity Fund 1.00 %
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause total annual operating expenses of the Fund to exceed the
maximum set forth in "Fund Expenses."
The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.5 billion under active management and $17
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information. 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 approximately
$58.7 billion in assets under management as of September 30, 1996. The
acquisition is expected to have closed by October 31, 1996.
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PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
GLOBAL EQUITY ALLOCATION FUND -- BARTON M. BIGGS, MADHAV DHAR, FRANCINE J.
BOVICH AND ANN D. THIVIERGE. Barton Biggs has been Chairman and a director of
the Adviser since 1980 and a Managing Director of Morgan Stanley & Co.
Incorporated ("Morgan Stanley") since 1975. He is also a director of Morgan
Stanley Group Inc. and a director and chairman of various registered investment
companies to which the Adviser and certain of its affiliates provide investment
advisory services. Mr. Biggs holds a B.A. from Yale University and an M.B.A.
from New York University. Madhav Dhar is a Managing Director of the Adviser and
Morgan Stanley. He joined the Adviser in 1984 to focus on global asset
allocation and investment strategy and now is a co-head of the Adviser's
emerging markets group. Mr. Dhar has been involved in the launching of the
Adviser's country funds. He is a portfolio manager of the Emerging Markets Fund
of the Company, the Emerging Markets and Active Country Allocation Portfolios of
Morgan Stanley Institutional Fund, Inc., and Morgan Stanley Emerging Markets
Fund, Inc. (a closed-end investment company listed on the New York Stock
Exchange). He holds a B.S. (honors) from St. Stephens College, Delhi University
(India), and an M.B.A. from Carnegie - Mellon University. Francine Bovich joined
the Adviser as a Principal in 1993. She is responsible for portfolio management
and communication of the Adviser's asset allocation strategy to institutional
investor clients. Previously, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp. ("Westwood"), a registered investment
adviser. Before joining Westwood, she was a Managing Director of Citicorp
Investment Management, Inc. (now Chancellor Capital Management), where she was
responsible for the Institutional Investment Management group. Ms. Bovich began
her investment career with Banker's Trust Company. She holds a B.A. in Economics
from Connecticut College and an M.B.A. in Finance from New York University. Ann
Thivierge is a Principal of the Adviser. She is a member of the Adviser's asset
allocation committee, primarily representing the Total Fund Management team
since its inception in 1991. Prior to joining the Adviser in 1986, she spent two
years at Edgewood Management Company, a privately held investment management
firm. Ms. Thivierge holds a B.A. in International Relations from James Madison
College, Michigan State University, and an M.B.A. in Finance from New York
University. Mr. Biggs, Mr. Dhar, Ms. Bovich and Ms. Thivierge have had primary
responsibility for managing the Fund since it commenced operations.
ASIAN GROWTH FUND -- EAN WAH CHIN AND SEAH KIAT SENG. Ean Wah Chin is a
Managing Director of the Adviser and Morgan Stanley and is responsible for the
Adviser's regional Asia ex-Japan operations based in Singapore. She has shared
primary management responsibility for the Fund since it commenced operations.
Prior to joining Morgan Stanley in 1986, Ms. Chin spent eight years with the
Monetary Authority of Singapore and the Government of Singapore Investment
Corporation, where she was a portfolio manager on one of the largest portfolios
in Asia. Ms. Chin was an ASEAN scholar educated at the University of Singapore.
Seah Kiat Seng joined the Adviser's Singapore office in 1990 as a portfolio
manager/analyst specializing in the Southeast Asian markets. He is currently a
Vice President, responsible for investments in Thailand. He has shared primary
management responsibility for the Fund since it commenced operations.
Previously, Kiat Seng worked at Barclays de Zoete Wedd (BZW), where he was a
senior investment analyst who helped pioneer BZW's research effort in Singapore.
Kiat Seng is a Chartered Financial Analyst and a qualified real estate valuer
who has worked for the Singapore Ministry of Finance. He was a Colombo Plan
Scholar educated in New Zealand.
EMERGING MARKETS FUND -- MADHAV DHAR AND MARIANNE L. HAY. Information about
Madhav Dhar is included under the Global Equity Allocation Fund above. Mr. Dhar
has shared primary responsibility for
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managing the Fund's assets since it commenced operations. Marianne L. Hay, a
Managing Director of Morgan Stanley, is a co-head of the Adviser's emerging
markets group and joined the Adviser in June 1993 to work with the Adviser's
senior management covering all emerging markets asset allocation, product
development and client services. Ms. Hay has 17 years of investment experience.
Prior to joining the Adviser, she was a director of Martin Currie Investment
Mangement, Ltd. ("Martin Currie") where her responsibilities included geographic
asset allocation and portfolio management for global and emerging markets funds,
as well as being director in charge of the company's North American clients.
Prior to her tenure at Martin Currie, she worked for the Bank of Scotland and
the investment management firm of Ivory and Sime plc. She graduated with an
honors degree in genetics from Edinburgh University and holds a Diploma in
Education and the qualification of the Association of the Institute of Bankers
in Scotland. Ms. Hay has shared primary responsibility for managing the Fund
since it commenced operations.
LATIN AMERICAN FUND -- ROBERT L. MEYER. Robert Meyer joined the Adviser in
1989 and is now a Principal of the Adviser and Morgan Stanley. He is responsible
for all of the Adviser's equity investments in Latin America and has had primary
responsibility for managing the Fund since it commenced operations.
INTERNATIONAL MAGNUM FUND -- FRANCINE J. BOVICH. Information about Francine
Bovich is included under the Global Equity Allocation Fund above. Ms. Bovich has
had primary responsibility for managing the Fund since it commenced operations.
JAPANESE EQUITY FUND -- DOMINIC CALDECOTT AND KUNIHIKO SUGIO. Mr. Caldecott
is responsible for research and stock selection in the Pacific Basin and has
been primarily responsible for managing the Fund's assets since it commenced
operations. He has ten years professional experience, primarily in Tokyo, Hong
Kong and Seoul. Prior to joining the Adviser and Morgan Stanley, he worked with
GT Management Group in Tokyo and Hong Kong, specializing in Pacific Basin
investment management. He became a Vice President of the Adviser and Morgan
Stanley in 1987, a principal in 1989, and a Managing Director in 1991. He is
responsible for a number of Pacific Basin investment programs for clients of
Morgan Stanley. Mr. Caldecott is a graduate of New College, Oxford, England.
Kunihiko Sugio joined the Adviser in December 1993 as a Vice President and
manages dedicated Japanese equity portfolios. He has been primarily responsible
for managing the Fund's assets since it commenced operations. Prior to joining
Morgan Stanley, he worked with Baring International Investment Management,
Tokyo, where he was a Director and fund manager. He graduated from Wakayama
Kokuritsu University.
ADMINISTRATOR. Morgan Stanley Asset Management Inc. (the "Administrator")
also provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Company dividend disbursing and transfer agent services. For
its services under the Administration Agreement, the Company pays the
Administrator a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank, ("Chase"), Chase Global Funds Services Company ("CGFSC" or the
"Transfer Agent"), a corporate affiliate of
39
<PAGE>
Chase, provides certain administrative services to the Company. The
Administrator supervises and monitors such administrative services provided by
CGFSC. The services provided under the sub-administration agreement are subject
to the supervision of the Board of Directors of the Company. The Board of
Directors of the Company has approved the provision of services described above
pursuant to the sub-administration agreement as being in the best interests of
the Fund. CGFSC's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913. For additional information on the sub-administration agreement, see
"Management of the Company" in the Statement of Additional Information.
ADMINISTRATORS FOR THE LATIN AMERICAN FUND. The Latin American Fund has
entered into an administration agreement (the "Chilean Administration
Agreement") with Bice Chileconsult Agente de Valores S.A. (the "Chilean
Administrator"), a Chilean corporation, pursuant to which the Chilean
Administrator acts as the Fund's legal representative in Chile. Under the
Chilean Administration Agreement, the Chilean Administrator performs various
services for the Fund, including making and obtaining all exchange control
filings and approvals required for the Fund to effect investment and other
transactions in Chile and to remit moneys and other assets outside of Chile,
obtaining from the relevant authorities in Chile all confirmations or consents
relating to the tax status of the Fund and all tax rebates and other payments
which may be due to the Fund, and performing all other administrative duties in
Chile required by Chilean law or Chilean authorities through instructions or
regulations to be performed. For its services, the Chilean Administrator is paid
an annual fee by the Fund equal to the greater of 0.125% of the Fund's average
weekly net assets invested in Chile or $20,000, paid monthly. Unless terminated
by the Company's Board of Directors upon 60 days' prior written notice, or by
the Chilean Administration upon 90 days' prior written notice, the Chilean
Administration Agreement will continue automatically from year to year.
The Latin American Fund is required under Brazilian law to have a local
administrator in Brazil. Unibanco-Uniao (the "Brazilian Administrator"), a
Brazilian corporation, acts as the Fund's Brazilian administrator pursuant to an
agreement with the Fund (the "Brazilian Administration Agreement"). Under the
Brazilian Administration Agreement, the Brazilian Administrator performs various
services for the Fund, including effecting the registration of the Fund's
foreign capital with the Central Bank of Brazil, effecting all foreign exchange
transactions related to the Fund's investments in Brazil and obtaining all
approvals required for the Fund to make remittances of income and capital gains
and for the repatriation of the Company's investments pursuant to Brazilian law.
For its services, the Brazilian Administrator is paid an annual fee equal to
.125% of the Fund's average weekly net assets invested in Brazil, paid monthly.
The principal office of the Brazilian Administrator is located at Avenida
Eusebio Matoso, 891, Sao Paulo, S.P., Brazil. The Brazilian Administration
Agreement is terminable upon six months' notice by either party. The Brazilian
Administrator may be replaced only by an entity authorized to act as a joint
manager of a managed portfolio of bonds and securities under Brazilian law.
The Latin American Fund is required under Colombian law to have a local
administrator in Colombia. CitiTrust S.A. (the "Colombian Administrator"), a
Colombian Trust Company, acts as the Fund's Colombian administrator pursuant to
an agreement with the Fund (the "Colombian Agreement"). Under the Colombian
Agreement, the Colombian Administrator performs various services for the Fund,
including effecting the registration of the Fund's foreign capital with the
Central Bank of Colombia, effecting all foreign exchange transactions related to
the Fund's investments in Colombia and obtaining all approvals required for the
Fund to make remittances of income and capital gains and for the repatriation of
the Fund's investments pursuant to
40
<PAGE>
Colombian law. For its services, the Colombian Administrator is paid an annual
fee of $1,000 plus .20% per transaction. The principal office of the Colombian
Administrator is located at Sociedad Fiduciaria International S.A., 8-89, Piso
2, Santa Fe de Bogota, Colombia. The Colombian Agreement is terminable upon 30
days' notice by either party. The Colombian Administrator may be replaced only
by an entity authorized to act as a joint manager of a managed portfolio of
bonds and securities under Colombian law.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrators and Distributor.
The Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Morgan Stanley & Co. Incorporated ("Morgan Stanley" or the
"Distributor") serves as the distributor of the shares of the Company. Under its
distribution agreement (the "Distribution Agreement") with the Company, Morgan
Stanley sells shares of the Company 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 Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from these
Funds a distribution fee, which is accrued daily and paid quarterly, at a
minimum rate of 0.25% for the Class A shares of each Fund, and 0.75% of the
Class B shares and Class C shares of each Fund, on an annualized basis of the
average daily net assets of such classes. The actual amount of such compensation
is agreed upon by the Company's Board of Directors and by the Distributor. The
Distributor expects to pay a portion of its fee to investment dealers, banks or
financial services firms that provide distribution services (each, a
"Participating Dealers"). 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. Under the Plans the Class B shares and Class C shares
are subject to a shareholder servicing fee at an annual rate of 0.25% on an
annualized basis of the average daily net assets of such class of shares of a
Fund. In addition to such payments, the Adviser may use its advisory fees or
other resources to pay expenses associated with activities which might be
construed to be financing the sale of the Funds' shares. Each Plan provides that
the Adviser may make payments from these sources to third parties, such as
consultants that provide assistance in the distribution effort (in addition to
selling shares and providing shareholder services).
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse Morgan Stanley for the actual expenses Morgan Stanley may incur in
fulfilling its obligations under the Plan. Thus, under each Plan, even if Morgan
Stanley's actual expenses exceed the fee payable to it thereunder at any given
time, the 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.
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<PAGE>
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of a Fund. The fee set
forth above will be paid by the appropriate class to Morgan Stanley unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
In addition to the distribution and shareholder servicing fees described
above, Morgan Stanley also receives a sales charge of up to 4.75% of the sales
price of Class A shares of each Fund. Morgan Stanley may reallow up to the full
applicable sales charge, as shown in the table in "Purchase of Shares" below, to
certain Participating Dealers during periods and for transactions specified in
"Purchase of Shares" and such reallowances may be based upon attainment of
minimum sales levels. During periods when 90% or more of the sales charge is
reallowed, certain Participating Dealers may be deemed to be underwriters as
that term is defined in the Securities Act of 1933, as amended. Morgan Stanley
may receive a CDSC of up to 1.00% of the sales price of the Class A shares and
Class C shares of the Funds, as described below under "Purchase of Shares."
Morgan Stanley may also receive a CDSC of up to 5.00% of the lower of sales
price or market value of shares of the Class B shares of the Funds, as described
below under "Purchase of Shares." In addition to the sales charges described
above, Morgan Stanley may from time to time and from its own resources pay or
allow additional discounts or promotional incentives, in the form of cash or
other compensation, to Participating Dealers. In some instances, such discounts
or other incentives may be offered only to certain Participating Dealers that
sell or are expected to sell during specified time periods certain minimum
amounts of shares of the Company, or other funds underwritten by Morgan Stanley.
In some instances, these incentives may be offered only to certain Participating
Dealers that have sold or may sell significant amounts of shares. In addition,
Morgan Stanley pays ongoing trail commissions to Participating Dealers. At the
option of the Participating Dealer, such bonuses or other incentives may take
the form of payment for travel expenses, including lodging incurred in
connection with trips taken by persons associated with the Participating Dealer
and members of their families to places within or outside of the United States.
The Distributor or Participating Dealers and their investment representatives
may receive different levels of compensation depending on which class of shares
they sell.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The 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.
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<PAGE>
PURCHASE OF SHARES
Shares of the Funds may be purchased through Morgan Stanley, Participating
Dealers or directly from the Company. Class A shares of the Funds may be
purchased at the net asset value per share plus the applicable sales charge, if
any, next determined after receipt of the purchase order and payment. Class B
shares and Class C shares of the Funds may be purchased at the net asset value
per share next determined after receipt of the purchase order and payment.
Participating Dealers are responsible for forwarding orders they receive to the
Company by the applicable times described below on the same day as their receipt
of the orders to permit purchase of shares as described above and the failure to
do so will result in the investors being unable to obtain that day's net asset
value. See "Valuation of Shares."
The Class A, Class B and Class C alternatives permit an investor to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investments in the Company, the combination of sales charge, distribution
fee and CDSC on Class A shares is more favorable than the combination of
distribution/service fees and CDSC on Class B shares or Class C shares. In some
cases, investors planning to purchase $100,000 or more of Company shares may pay
lower aggregate charges and expenses by purchasing Class A shares. (See "Fund
Expenses" above.)
OFFERING PRICE OF CLASS A SHARES
Class A shares of the Funds may be purchased at the net asset value per
share plus a sales charge (the "Offering Price") which is a percentage of the
Offering Price that decreases as the amount of the purchase increases as shown
below:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER RETENTION
CLASS A SHARES PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF
AMOUNT OF PURCHASE+ OFFERING PRICE AMOUNT INVESTED OFFERING PRICE**
- --------------------------- --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.25%
$100,000 - $249,999 3.50% 3.63% 3.00%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.50%
$1,000,000 and over None* None* None*
</TABLE>
- ------------------------------
* Purchases of $1 million or more may be subject to a CDSC. (See below.) Morgan
Stanley may make payments to Participating Dealers in amounts up to 1.00% of
the Offering Price.
** The Distributor may, in its discretion, permit Participating Dealers to
retain the full amount of the sales charge in connection with certain sales.
+ The amount of purchase includes net asset value of the purchase plus the
sales charge.
Morgan Stanley may in its discretion compensate Participating Dealers in
connection with the sale of Class A shares of the Funds in an aggregate amount
of $1 million or more up to the following amounts: 1.00% of the net asset value
of shares sold on amounts up to $3 million, .50% on the next $2 million and .25%
on amounts over $5 million. For purposes of determining the appropriate
commission percentage to be applied to a particular sale under the foregoing
schedule, Morgan Stanley will consider the cumulative amount invested by the
purchaser in Class A shares of the Funds.
43
<PAGE>
REDUCTION OR WAIVER OF SALES CHARGES. A shareholder who purchases
additional Class A shares of a Fund may obtain reduced sales charges through a
right of accumulation of current purchases of Class A shares of the Fund with
concurrent purchases of Class A shares of Funds and with existing Class A share
investments in all Funds. The applicable sales charge will be determined based
on the total of (a) the shareholder's current purchases of Class A shares of
Funds plus (b) an amount equal to the greater of the then current net asset
value, or the total purchase price of the investor's prior purchases of all
Class A shares of Funds held by the shareholder. To obtain the reduced sales
charge through a right of accumulation, the shareholder must provide Morgan
Stanley at the time of purchase, either directly or through a Participating
Dealer or shareholder servicing agent, as applicable, with sufficient
information to verify that the shareholder has such a right. The Company may
amend or terminate this right of accumulation at any time as to subsequent
purchases.
For purposes of reduced sales charges based on amount of purchase, the term
"purchase" refers to purchases made at one time by any "purchaser," which
includes an individual; a group composed of an individual and his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account; an organization exempt from federal income
tax under Section 501(c)(3) or (13) of the Code; a pension, profit-sharing or
other employee benefit plan, whether or not qualified under Section 401 of the
Code; or other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order to qualify for a lower sales charge
on purchases of the Class A shares, all orders from an organized group will have
to be placed through a single Participating Dealer and identified as originating
from a qualifying purchaser.
An investor may also obtain reduced sales charges shown above on purchases
of the Class A shares by executing a written letter of intent which states the
investor's intention to invest not less than $100,000 within a 13-month period
in Class A shares of the Funds ("Letter"). Each purchase of Class A shares of a
Fund under a Letter will be made at the Offering Price applicable at the time of
such purchase to single purchases of the full amount indicated on the Letter. To
obtain the terms and conditions included in the form of Letter, contact the
Transfer Agent at 1-800-282-4404. An investor who wishes to enter into a Letter
in connection with an investment in Class A shares of the Funds should use the
form in the New Account Application attached to this Prospectus. The Letter,
which imposes no obligation to purchase or sell additional Class A shares,
provides for a price adjustment depending upon the actual amount purchased
within such period. The Letter provides that the first purchase following
execution of the Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended purchase normally will be
held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed Class A shares will be redeemed and the
proceeds used toward satisfaction of the obligation to pay the increased sales
charge. A shareholder may include the value of all Class A shares of the Funds
held of record as of the initial purchase date under the Letter as an
"accumulation credit" toward the completion of the terms of the Letter, but no
price adjustment will be made on such shares.
Class A shares of the Funds may be purchased at net asset value without a
sales charge by employee benefit plans, retirement plans and deferred
compensation plans and trusts used to fund such plans, including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"rabbi trusts." Morgan Stanley may, in
44
<PAGE>
its discretion, compensate Participating Dealers up to 1.00% in connection with
the sale of Class A shares of the Funds to 401(k), 403(b) or 457
participant-directed qualified retirement plans. Such shareholders are not
subject to a CDSC upon liquidation.
As disclosed above, no sales charge will be payable at the time of purchase
of Class A shares on investments of $1 million or more. However, except as
described above, a CDSC will be imposed on such investments in the event of a
redemption of such Class A shares of the Funds within 12 months following the
purchase, at the rate of 1.00% of the lesser of the current market value of the
shares redeemed or the total cost of such shares. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed. The Company may
also sell Class A shares of the Funds at net asset value (without a sales
charge) to Directors of the Company, directors and employees of the Adviser and
Morgan Stanley, Participating Dealers, their respective affiliates and their
immediate families and employees of agents of the Company. In addition, Class A
shares may be sold without a sales charge when purchased (i) through bank trust
departments; (ii) for investors whose accounts are managed by certain investment
advisers registered under the Investment Advisers Act of 1940, as amended; (iii)
for investors through certain broker/ dealers and other financial services firms
that have entered into certain agreements with the Company which may include a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker/dealer or other firm; (iv) with redemption proceeds from other investment
companies on which the investor had paid a front-end sales charge or, provided
the investment company is unaffiliated with the Company, a contingent deferred
sales charge; or (v) through a broker that maintains an omnibus account with the
Company and such purchases are made by the following: (1) investment advisers or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services, (2) clients of such investment advisers or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of the broker or agent, or (3) retirement and deferred compensation plans and
trusts used to fund such plans, including, but not limited to, those defined in
Section 401(a), 403(b) or 457 of the Code and "rabbi trusts." Investors who
purchase or redeem shares through a trust department, broker, dealer, agent,
financial planner, financial services firm, or investment adviser may be charged
an additional service or transaction fee by that institution.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within six years of purchase. The charge is assessed on an amount equal
to the lesser of the then-current market value of the Class B shares redeemed or
the total cost of such shares. Accordingly, the CDSC will not be applied to
dollar amounts representing an increase in the net asset values above the
initial purchase price of the shares being redeemed. In addition, no charge is
assessed on redemptions of Class B shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than six years after
purchase, and next of Class B shares held the longest during the initial
six-year
45
<PAGE>
period after purchase. The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of purchase of
Class B shares until the redemption of such shares (the "holding period"). The
following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE
AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ----------------------------------------------------------
<S> <C>
First........................................ 5.0%
Second....................................... 4.0%
Third........................................ 3.0%
Fourth....................................... 3.0%
Fifth........................................ 2.0%
Sixth........................................ 1.0%
Thereafter................................... None*
</TABLE>
- ------------------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the seventh year following purchase.
Proceeds from the CDSC are paid to Morgan Stanley and are used by Morgan
Stanley to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares.
Morgan Stanley will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay a portion of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. The combination of the CDSC and the distribution/service fee
facilitates the ability of the Company to sell the Class B shares without a
sales charge being deducted at the time of purchase.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B shares
(i) following the death or initial determination of disability (as defined in
the Code) of a shareholder; (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or other retirement plan to a
shareholder who has attained the age of 70 1/2; or (iii) to the extent that
shares redeemed have been withdrawn from a Systematic Withdrawal Plan (as
described below), up to a maximum amount of 12% per year from a shareholder
account based on the value of the account at the time the Systematic Withdrawal
Plan is established, provided however that all dividends and distributions are
reinvested in Class B Shares. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the name
of an individual person, (b) as a joint tenancy with rights of survivorship, (c)
as community property or (d) in the name of a minor child under the Uniform
Gifts or Uniform Transfers to Minors Act. A shareholder, or his or her
representative, must notify the Company's Transfer Agent prior to the time of
redemption if such circumstances exist and the shareholder is eligible for this
waiver. The shareholder is responsible for providing sufficient documentation to
the Transfer Agent to verify the existence of such circumstances. For
information on the imposition and waiver of the CDSC, contact the Transfer Agent
at 1-800-282-4404.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the seventh year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees.
46
<PAGE>
Such conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. Morgan Stanley
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay most of its distribution fee, with respect
to such shares, under the Plan for such class of shares, as described under
"Management of the Company -- Distributor" above. In determining whether a CDSC
is payable, and, if so, the amount of the fee or charge, it is assumed that
shares not subject to such fee or charge are the first redeemed.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of a Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.
REINVESTMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of a Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. Purchases through the reinvestment privilege are
subject to the minimum applicable investment requirements. The reinvestment
privilege as to any specific Class A, Class B or Class C shares must be
exercised within 180 days of the redemption. The Transfer Agent must receive
from the shareholder or the shareholder's Participating Dealer both a written
request for reinvestment and a check or wire which does not exceed the
redemption proceeds. The written request must state that the reinvestment is
made pursuant to this reinvestment privilege. If a loss is realized on the
redemption of Class A shares, the reinvestment may be subject to the "wash sale"
rules if made within 30 days of the redemption, resulting in a postponement of
the recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
RETIREMENT PLANS
Qualified retirement plans, IRAs, banks, bank trust departments and
registered investment advisory companies, acting in a fiduciary or advisory
capacity for individual, institutional or trust accounts, may purchase Class A
shares of one or more of the Funds at net asset value (without a sales charge)
provided that the initial order for such purchases is in an amount of $1 million
or more or is part of a series of orders covered by a Letter
47
<PAGE>
to invest $1 million or more in Class A shares of the Funds. Certain employee
benefit plans, retirement plans and deferred compensation plans and trusts used
to fund such plans may purchase Class A shares of the Funds at net asset value
without imposition of a sales charge. See "Offering Price of Class A Shares."
Morgan Stanley provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Chase. This includes Simplified
Employee Pension Plan ("SEP") IRA accounts and prototype documents. Brochures
describing such plans and materials for establishing them are available from
Morgan Stanley upon request. The brochures for plans trusteed by Chase describe
the current fees payable to Chase for its services as trustee. Investors should
consult with their own tax advisers before establishing a retirement plan.
INITIAL PURCHASES DIRECTLY FROM THE COMPANY
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
class of a Fund, except for IRAs, for which the initial minimum is $250) made
payable to "Morgan Stanley Fund, Inc. -- [Fund name]," to:
Morgan Stanley Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
Payment must be by check payable in U.S. Dollars, unless prior approval for
payment by other currencies is given by the Company. The Fund(s) and the
class(es) to be purchased should be designated on the New Account Application.
Your purchase of shares by check is ordinarily credited to your account at the
net asset value per share of the Fund next determined on the day of receipt of
the order and the check.
2) BY FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire
Federal Funds to the Company's bank account ($1,000 minimum for each class of
a 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 Company (toll free: 1-800-282-4404) and provide your name,
address, telephone number, Social Security or Tax Identification Number, the
Fund(s) and the class(es) selected, the amount being wired, and by which
bank. The Company will then provide you with a bank wire control number.
(Investors with existing accounts must also notify the Company prior to
wiring funds.)
B. Instruct your bank to wire the specified amount to the Company's Wire
Concentration Bank Account (be sure to have your bank include the name of
the Fund(s) selected and the bank wire control number assigned to you):
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, NY 10081-1000
ABA# 021000021
DDA# 910-2-732907
Attn: Morgan Stanley Fund, Inc.
Ref: (Fund name, class name, your account number, your account name)
Please call the Company at 1-800-282-4404 prior to wiring funds.
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<PAGE>
C. Complete and sign the New Account Application and mail it to the address
shown thereon.
Purchase orders for shares of a Fund which are received prior to the
regular close of the New York Stock Exchange ("NYSE") (currently 4:00 p.m.
Eastern Time) will be executed at the price computed on the date of receipt
as long as the Transfer Agent receives payment by check or in Federal Funds
prior to the regular close of the NYSE on such day. Payment in Federal Funds
is not possible on days when the Federal Reserve Banks are not open
(including NYSE holidays, Martin Luther King Day, Columbus Day and Veterans
Day) or the Company is not open. Orders for shares received on such days are
ordinarily credited to your account at the net asset value per share next
determined on the day following receipt of the order when both the Company
and Federal Reserve Banks are open. Your bank may charge a service fee for
wiring Federal 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 sent by the bank handling the
wire and Federal Funds are received. The timing of effectiveness of purchase
of shares and receipt of dividends is subject to the same timing
considerations as described above with respect to purchase by Federal Funds
wire and depends on when payment in Federal Funds is received. Your bank may
charge a service fee for wiring funds.
ADDITIONAL INVESTMENTS
You may add to your account at any time (minimum additional investment $100,
except for IRAs, for which the minimum additional investment is $50, and
automatic reinvestment of dividends and capital gains distributions, for which
there is no minimum and no sales charge) by purchasing shares through your
Participating Dealer, by mailing a check to the Company (payable to "Morgan
Stanley Fund, Inc. -- [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 Company's
representatives (toll-free 1-800-282-4404) prior to the wire.
AUTOMATIC INVESTMENT PLAN
After establishing an account with the Company, investors may purchase
shares of the Funds 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 Company. Investors who are participants in
the Company'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 Company representative. Shares to be held in broker street name may
not be purchased through the Automatic Investment Plan.
OTHER PURCHASE INFORMATION
The purchase price for the Class A shares of a Fund is based upon the net
asset value per share plus the applicable sales charge, if any, next determined
after the order is received by the Company and for the Class B shares and Class
C shares of the Funds is based on the net asset value per share next determined
after the order is received by the Company. Participating Dealers are
responsible for forwarding orders they receive to the
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Company by the applicable times described below on the same day as their receipt
of the orders to permit purchase of shares as described above and the failure to
do so will result in the investors being unable to obtain that day's net asset
value. See "Valuation of Shares." An order received prior to the regular close
of the NYSE, which is currently 4:00 p.m. (Eastern Time), will be executed at
the price computed on the date of receipt as long as the Transfer Agent receives
payment by check or in Federal Funds prior to the regular close of the NYSE on
such day. An order received after the regular close of the NYSE will be executed
at the price computed on the next day the NYSE is open as long as the Transfer
Agent receives payment by check or in Federal Funds prior to the regular close
of the NYSE on such day. If you purchase shares of a 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 a 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 Funds will
normally not be issued. All shares purchased are confirmed to you and 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 Company, withdrawals of
investments made by check are not presently permitted until the Company's
depository bank has made fully available for withdrawal the check amount used to
purchase Company 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 Company and/or
its agents incur. If you are already a shareholder, the Company may redeem
shares from your account(s) to reimburse the Company and/or its agents for any
loss. In addition, you may be prohibited or restricted from making future
purchases in the Funds.
Investors who purchase Class A shares of the Funds directly rather than
through a Participating Dealer will pay the public offering price including the
sales charge, and the sales charge will be payable, as described under "Purchase
of Shares -- Offering Price of Class A Shares" above, to Morgan Stanley unless a
Participating Dealer is designated on the account application. Investors may
also invest in the Funds by purchasing shares through Participating Dealers.
REDEMPTION OF SHARES
You may withdraw all or any portion of the amount in your account by
redeeming shares at any time. Please note that purchases made by check are not
permitted to be redeemed until the Company'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 Company will redeem shares of a Fund at
its next determined net asset value. A CDSC of 1.00% will be imposed on certain
Class A shares of a Fund that were purchased without payment of the initial
sales charge due to the size of the purchase and are redeemed within one year of
purchase. A maximum CDSC of 5.00% which decreases in steps to 0% after six
years, will be imposed on certain Class B shares of a Fund that are redeemed
within six years of purchase. A CDSC of 1.00% will be imposed on certain Class C
shares of a Fund that are redeemed within one year of purchase. See "Purchase of
Shares." The CDSC will be imposed on the lesser of the current market value or
the total cost of the shares being redeemed. In determining whether a CDSC is
payable, and, if so, the amount of the charge, it is assumed that shares not
subject to such charge are the first redeemed followed by other shares held for
the longest period of time. On days when the NYSE is open for
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business, the net asset value per share of each Fund is determined at the
regular close of trading of the NYSE (currently 4:00 p.m. Eastern Time). Shares
of Funds may be redeemed by mail or telephone. The amount you receive upon
redemption may be more or less than the purchase price of your shares depending
on the market value of the investment securities held by the Fund at the time of
purchase and of redemption, among other factors.
The CDSC may be waived on redemptions of shares in connection with certain
post-retirement withdrawals from IRA or other retirement plans or following the
death or disability (as defined in the Code) of a shareholder of the Company.
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
Each Fund will redeem its shares at the net asset value next determined
after your request is received, if your request is received in "good order" by
the Transfer Agent. If applicable, a CDSC will be deducted. Your request should
be addressed to Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798, except that deliveries by overnight courier should be
addressed to Morgan Stanley Fund, Inc. c/o Chase Global Funds Services Company,
73 Tremont Street, Boston, Massachusetts 02108-3913.
"Good order" means that the request to redeem shares must include the
following documentation:
(a) A letter of instruction or a stock assignment with stock
certificate, if any, 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 Company 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 Company and requesting the redemption proceeds be
mailed to you or wired to your bank. Please contact one of the Company's
representatives for further details. In times of drastic market conditions, the
telephone redemption option may be difficult to implement. If you experience
difficulty in making a telephone redemption, your request may be made by mail or
overnight courier, and it will be implemented at the net asset value next
determined after it is received minus the CDSC, if any. The Company and the
Company'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
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required to provide additional telecopied written instructions of such
transaction requests. The Company or the Transfer Agent may be responsible for
losses, liabilities, costs or expenses for acting upon telephone transactions if
procedures are not followed to confirm that such transactions are genuine.
FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER. A fee of $8.00 may be imposed on wire
redemptions that will be deducted from the redemption proceeds.
To change the name of the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent at the
address above. Requests to change the bank or account must be signed by each
shareholder and each signature must be guaranteed.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder of $5,000 or more of the Company's shares at the Offering
Price (net asset value plus the sales charge, if any) may provide for the
payment from the owner's account of any requested dollar amount to be paid to
the owner or a designated payee monthly, quarterly, semiannually or annually.
The minimum periodic payment is $100. Shares are redeemed so that the payee will
receive payment on approximately the first of the month. Any income and capital
gain dividends will be automatically reinvested at net asset value on the
reinvestment date. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may result in a gain or loss
for tax purposes and may reduce or even exhaust the shareholder's Company
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 "Further
Redemption Information" below.
The purchase of Class A shares of the Funds while participating in a
systematic withdrawal plan ordinarily will be disadvantageous to the investor
because the investor will be paying a sales charge on the purchase of shares at
the same time that the investor is redeeming shares upon which a sales charge
may already have been paid. The purchase of certain Class B shares or Class C
shares of the Funds while participating in the Systematic Withdrawal Plan may be
disadvantageous because the new shares will be subject to a CDSC for up to six
years after purchase, or a 1.00% CDSC for the first year after purchase,
respectively. Therefore, the Company will not knowingly permit additional
investments of less than $2,000 in a Fund if the investor is at the same time
making systematic withdrawals. The Company reserves the right to amend the
Systematic Withdrawal Plan on thirty days' notice. The plan may be terminated at
any time by the investor or the Company.
The CDSC on Class B shares is waived for withdrawals under the Systematic
Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6% semiannually or
12% annually, of a shareholder's investment in, and any dividends or
distributions on, Class B shares of a Fund at the time the Systematic Withdrawal
Plan commences, provided that the shareholder elects to have all dividends and
distributions on the shareholder's Class B shares automatically reinvested in
additional Class B shares. Under this CDSC waiver policy, amounts withdrawn each
month will be paid by redeeming first Class B shares not subject to a CDSC
because the shares were purchased by the reinvestment of dividends or capital
gains distributions, the CDSC period has elapsed or some other waiver of the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
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enough such shares are available, Class B shares having a CDSC will be redeemed
next, beginning with such shares held for the longest period of time (having the
lowest CDSC payable upon redemption) and continuing with shares held the next
longest period of time until shares held the shortest period of time are
redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
See "Purchase of Shares" for a description of the circumstances under which
a CDSC on Class A shares, Class B shares and Class C shares, respectively, may
be assessed on redemptions of such shares made through the Systematic Withdrawal
Plan as described above.
FURTHER REDEMPTION INFORMATION
The Company will ordinarily pay for shares redeemed through broker-dealers
using electronic purchase and redemption systems within three business days
after receipt of a redemption request through such system. In other situations,
the Company will ordinarily make payment for all shares redeemed under this
procedure within one business day of receipt of the request, but except as
described below payment will be made no more than seven days after receipt of a
redemption request in good order. Payment for redeemed shares will ordinarily be
sent to the shareholder within three business days after receipt of the request
in proper form, except that the Company may delay the mailing of the redemption
check, or a portion thereof, until the Company'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 Company may suspend the right of
redemption or postpone the date of redemption at times when the NYSE is closed,
or under any emergency circumstances as determined by the SEC.
Due to the relatively high cost of maintaining smaller accounts, the Company
reserves the right to redeem shares in any account invested in a Fund having a
value of less than $1,000. The Company, however, will not redeem shares based
solely upon market reductions in net asset value. If at any time your total
investment does not equal or exceed the stated minimum value, you may be
notified of this fact and you will be allowed at least 60 days to make an
additional investment before the redemption is processed.
To protect your account, the Company 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. Signature guarantees
enable the Company to verify the identity of the person who has authorized a
redemption from your account. Signature guarantees are required in connection
with: (1) all redemptions, regardless of the amount involved, when the proceeds
are to be paid to someone other than the registered owner(s) and/or registered
address; and (2) share transfer requests. A guarantor must be a bank, a trust
company, a member firm of a domestic stock exchange, or a foreign branch of any
of the foregoing. Notaries public are not acceptable guarantors. Please contact
the Transfer Agent at 1-800-282-4404 for further information. See "Redemption of
Shares" in the Statement of Additional Information.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange shares that you own in the Funds for shares of the same
class of other Funds. Shares of the Funds may be exchanged by mail or telephone,
except that no shares may be exchanged by telephone if you have elected on the
New Account Application or on a separate form supplied by the Transfer Agent not
to accept
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the telephone redemption and exchange privilege. Before you make an exchange,
you should read the Prospectus of the new Funds in which you seek to invest.
Because an exchange transaction is treated as a redemption followed by a
purchase, an exchange would be considered a taxable event for shareholders
subject to tax. The exchange privilege is only available with respect to Funds
that are registered for sale in a shareholder's state of residence. The exchange
privilege may be modified or terminated by the Company at any time upon 60 days'
notice to shareholders.
No CDSC, if one is otherwise applicable, will be assessed at the time of the
exchange if the shareholder exchanges from one class of a Fund into the same
class of another Fund. For purposes of determining whether a shareholder's
redemption after an exchange will be subject to a CDSC, the shareholder's
holding period of shares acquired through an exchange will be related back to
the time the shareholder purchased the Fund shares that were initially exchanged
so long as the shares are held in the same class of the Funds. As an example,
Class A share purchases of $1,000,000 or more, purchased at net asset value,
will not be assessed the 1.00% CDSC if exchanged into Class A shares of another
Fund during the first year after purchase. Class B shares of a Fund will not be
assessed the Class B CDSC if exchanged into Class B shares of another Fund
during the first six years after purchase. Class C shares of a Fund will not be
assessed the Class C CDSC if exchanged into Class C shares of another Fund
during the first year of purchase. If the initial shares of a Fund purchased by
the investor were not subject to any sales load or CDSC on such shares, then no
sales load or CDSC for shares of the same class will be imposed on any
subsequent exchanges involving such shares.
Morgan Stanley will tender the shares offered for exchange for redemption by
the Company and will use the proceeds to purchase shares of the designated
purchased Funds on the shareholder's behalf. Under normal circumstances, Morgan
Stanley will use the proceeds from shares redeemed on any day to purchase shares
on the same Business Day.
Exchanges may also be subject to limitations as to amounts or frequency, and
to other restrictions established by the Board of Directors to assure that such
exchanges do not disadvantage the Company and its shareholders.
Exchange of Fund shares held in broker street name may not be accomplished
by mail or telephone as described below. For shares that are held in broker
street name, you cannot request exchange by telephone or by mail; such shares
may be exchanged only by contacting your Participating Dealer.
BY MAIL
In order to exchange shares by mail, you should include in the exchange
request the name and account number of your current Fund(s) and class of such
Fund(s), if applicable, the name of the Fund(s) and class of such Fund(s), if
applicable, from which and into which you intend to exchange shares, and the
signatures of all registered account holders. Send the exchange request to the
Transfer Agent, Chase Global Funds Services Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798.
BY TELEPHONE
When exchanging shares by telephone, have ready your account number, the
names of the Funds and class of such Fund(s), if applicable, from which and into
which you intend to exchange shares, your Social Security number or Tax I.D.
number, and your account address. Requests for telephone exchanges received
prior to 4:00 p.m. (Eastern Time) are processed at the close of business that
same day based on the net asset value of the
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applicable Fund(s) at such time. Requests received after 4:00 p.m. (Eastern
Time) are processed the next Business Day based on the net asset value
determined at the close of business on such day. For additional information
regarding responsibility for the authenticity of telephoned instructions, see
"Redemption of Shares -- By Telephone" above.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Fund shares to another
person by writing to the Transfer Agent, P.O. Box 2798, Boston, Massachusetts
02208-2798. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such classes of shares, by the total number of outstanding shares of such
classes of shares. Net asset value per share of a Fund is determined as of the
regular close of the NYSE on each day that the NYSE is open for business.
Securities listed on a securities exchange for which market quotations are
available are valued at their closing price. If no closing price is available,
such securities will be valued at the last quoted sale price on the day the
valuation is made. Price information on listed securities is taken from the
exchange where the security is primarily traded. Unlisted securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued at the average of the mean between the current bid
and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of
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Directors. For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. Dollars at the mean of the bid price and asked price of such currencies
against the U.S. Dollar as quoted by a major bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Funds. The Adviser may,
consisent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the Funds to their clients or who act as agents in the purchase of
shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley, affiliate of the adviser or broker affiliates of
Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objectives of each of the Funds is not to invest for short-term
trading, each Fund will seek to take advantage of trading opportunities as they
arise to the extent they are consistent with the Fund's objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. Each Fund anticipates that its annual portfolio
turnover rate will not exceed 100% under normal circumstances, except the Latin
American Fund anticipates that its annual portfolio turnover rate will not
exceed 150% and the Emerging Markets Fund anticipates that its annual portfolio
turnover rate will not exceed 50% under normal circumstances. Market conditions
could result in portfolio activity at a greater or lesser rate than anticipated.
For the portfolio turnover rates for the Funds, see "Financial Highlights"
above. High portfolio turnover involves correspondingly greater transaction
costs which will be borne directly by a Fund. In addition, high portfolio
turnover may result in more capital gains which would be taxable to the
shareholders of the Funds.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders
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subject to tax. The Company may also include comparative performance information
in advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
The respective performance figures for Class B shares and Class C shares of
Funds will generally be lower than those for Class A shares of such Equity Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
Each Fund described herein, except the International Magnum and Japanese
Equity Funds, expects to distribute substantially all of its net investment
income in the form of annual dividends. Each of the International Magnum and
Japanese Equity Funds expects to distribute substantially all of its net
investment income in the form of quarterly dividends. Net realized gains, if
any, after reduction for any available tax loss carryforward, may also be
distributed annually. Confirmations of the purchase of shares of a Fund through
the automatic reinvestment of income dividends and capital gains distributions
will be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act
of 1934, as amended, on the next quarterly client statement following such
purchase of shares. Consequently, confirmations of such purchases will not be
provided at the time of completion of such purchases, as might otherwise be
required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Fund, the net income attributable to and the dividends payable
on Class B shares and Class C shares of a Fund will be lower than the net income
attributable to and the dividends payable on Class A shares of the Fund. As a
result, the net asset value per share of the classes of a Fund will differ at
times. Expenses of the Company allocated to a particular class of shares of a
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
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No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Code generally will be
applied to each Fund separately, rather than to the Company as a whole. Net
long-term and short-term capital gains, net income and operating expenses
therefore will be determined separately for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) which is distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax.
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 a Fund's shares. Capital
gains distributions are not eligible for the corporate dividends-received
deduction. Each Fund will make annual reports to shareholders of the federal
income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less than the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
a Fund.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN A FUND.
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GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 21.750
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Fund is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund. As of September 30, 1996, Morgan Stanley Group Inc., 1585 Broadway,
New York, NY 10036, was presumed to "control" the International Magnum Fund
based solely on its ownership of 25% or more of the outstanding voting shares of
such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
59
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
GLOBAL EQUITY ALLOCATION, ASIAN GROWTH, EMERGING MARKETS, LATIN
AMERICAN, INTERNATIONAL MAGNUM AND JAPANESE EQUITY FUNDS
P.O. BOX 2798, BOSTON, MA 02208-2798 (800-282-4404) NEW ACCOUNT
APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
/ / Individual / / Joint Tenants / / Trust
/ / Gift/Transfer to Minor / / Other____________________
NOTE: Joint tenant registration will be as "joint tenants with right of
survivorship" and not as "tenants in common" unless specified. Trust
registrations should specify name of the trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship is created (using the minor's Social Security Number
("SSN")). For an Individual Retirement Account ("IRA") a different application
is required. Please call Chase Global Funds Services Company ("CGFSC") at
800-282-4404 or your investment dealer to obtain the IRA application.
<TABLE>
<S> <C>
- --------------------------------------------------------------
Name(s) (PLEASE PRINT)
- --------------------------------------------------------------
Name
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
City/State/Zip
<CAPTION>
--------------------------------------------------------------------
- ------
<S> <C>
Name(s) (PLEASE PRINT) Social Security Number(s) or Taxpayer Identification Number(s) ("TIN
(s)")
- -------------------------------------------------------------- --------------------------------------------------------------------
- ------
Name Telephone Number
- --------------------------------------------------------------
Address
- --------------------------------------------------------------
City/State/Zip
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED MAILINGS: If you or your family members own multiple accounts in
the Morgan Stanley Fund, Inc., you can prevent duplicate mailings to your
address by completing this section.
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FUND SELECTION
- --------------------------------------------------------------------------------
The minimum initial and subsequent investment is $1,000 and $100, respectively,
except for IRAs, for which the minimum amounts are $250 and $50, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC.--Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Global Equity Class A (600) $ Class B (625) $ Class C (650) $
Allocation Fund ---------- ---------- ----------
Morgan Stanley Asian Growth Class A (602) $ Class B (627) $ Class C (652) $
Fund ---------- ---------- ----------
Morgan Stanley Emerging Class A (605) $ Class B (630) $ Class C (655) $
Markets Fund ---------- ---------- ----------
Morgan Stanley Latin American Class A (609) $ Class B (633) $ Class C (659) $
Fund ---------- ---------- ----------
Morgan Stanley International Class A (612) $ Class B (636) $ Class C (662) $
Magnum Fund ---------- ---------- ----------
Morgan Stanley Japanese Class A (611) $ Class B (635) $ Class C (661) $
Equity Fund ---------- ---------- ----------
Total Initial Investment: $ ----------------------
</TABLE>
<TABLE>
<S> <C>
NOTE: IF INVESTING BY WIRE, YOU MUST OBTAIN A A. By Mail: Enclosed is a check
BANK WIRE CONTROL NUMBER. TO DO SO, PLEASE payable to Morgan Stanley Fund, Inc.
CALL 800-282-4404. B. By Wire: A bank wire in the amount of $ ------------------------ has been
sent to Morgan Stanley Fund, Inc.
from
----------------------------- -----------------------------
Name of Bank Wire Control Number
</TABLE>
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares of the same class unless
appropriate boxes below are checked:
<TABLE>
<S> <C> <C>
All Dividends are to be / / reinvested / / paid in cash
All Capital Gains are to be / / reinvested / / paid in cash
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT PRIVILEGES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
CGFSC to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account. I/ We understand that CGFSC
charges an $8.00 fee for each wire redemption, which will be
deducted from the proceeds of the redemption.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges Name of Bank
/ / telephone redemption privileges -------------------------------------------------------
Bank A.B.A. Number ----------------- Account Number
-----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip
------------------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Fund into which I/we exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The Company and the Company's Transfer Agent will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures include requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide additional telecopying written instructions of
transaction requests. Neither the Company nor the Transfer Agent will be responsible for any loss, liability, cost or expenses
for following instructions received by telephone that it reasonably believes to be genuine.
</TABLE>
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION (OPTIONAL)
- --------------------------------------------------------------------------------
Fund shareholders together with members of their families, may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan Stanley Fund, Inc. ("Funds") sold with an initial sales load. You may
also receive a reduced sales charge by completing the Letter of Intent as set
forth below as provided in the Prospectus of the Morgan Stanley Fund, Inc. (the
"Prospectus"). See the Prospectus for details.
To qualify, you must complete this section, listing all of your accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.
I/We qualify for the Rights of Accumulation initial sales charge discount
described in the Prospectus and Statement of Additional Information of Morgan
Stanley Fund, Inc.
/ / I/We own Class A shares of more than one Fund of Morgan Stanley Fund, Inc.
/ / The registration of some of my/our Class A shares differs from that shown
on this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER ACCOUNTS
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF INTENT (OPTIONAL)
- --------------------------------------------------------------------------------
I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to invest, within a 13-month period beginning on the date hereof
(initial purchase date) in Class A shares of the Fund purchased hereunder and
the other Fund, an aggregate amount which, together with the value of Class A
shares of any of the Funds then owned by me/us, will equal or exceed the amount
indicated below:
/ / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) / / Yes / / No Not Available for
IRAs
- --------------------------------------------------------------------------------
Available to shareholders with account balances of $5,000 or more.
I/We hereby authorize CGFSC to redeem the necessary number of shares from
my/our Morgan Stanley Fund, Inc. Account on the designated dates in order to
make the following periodic payments:
/ / Monthly / / Quarterly / / Semiannually / / Annually
(This request for participation in the Systematic Withdrawal Plan must be
received by the 18th day of the month in which you wish withdrawals to begin.
Redemptions of shares to make the payments elected above will occur on the 25th
day of the month prior to payment, or if such day is not a business day, then
the next preceding business day.)
Withdrawal ($100 minimum) from:
<TABLE>
<CAPTION>
Amount of
Fund Name Each Check Or %*
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
Please make check payable to: Recipient ---------------------------------------------------------
(to be completed only if redemption Street Address ---------------------------------------------------
proceeds to be paid to other than City, State, Zip Code ---------------------------------------------
account holder of record or mailed to
address other than address of record)
*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts
without being subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on the
designated dates in order to purchase shares in the Funds indicated below at the
applicable public offering price determined on that day.
/ / Monthly on the 5th day / / Monthly on the 20th day
Amount of each debit (minimum $100) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
</TABLE>
NOTE: A completed Bank Authorization Form (see below) and a voided personal
check MUST accompany this Automatic Investment Plan application.
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN--BANK AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- -----------------------------------------
Bank Name Bank Address Bank Account Number
</TABLE>
I/We authorize you, the above named bank, to debit my/our account for amounts
drawn by Chase Global Funds Services Company, acting as my/our agent for the
purchase of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a check drawn upon
you and signed by me/us. This authority shall remain in effect until revoked in
writing and received by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against insufficient funds.
I/We further agree that you will incur no liability to me if you dishonor any
such withdrawal. This will be so even though such dishonor results in the
cancellation of that purchase.
<TABLE>
<S> <C>
- --------------------------------------------------------------- ---------------------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X ----------------------------------------- ------------- X ----------------------------------------- -------------
Signature Date Signature Date
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
By signing this application, I/we hereby certify under penalties of perjury that
the information on this application is complete and correct and that as required
by federal law:
U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM IS/ARE THE
CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT SUBJECT TO ANY BACKUP
WITHHOLDING EITHER BECAUSE (A) I/WE ARE EXEMPT FROM BACKUP WITHHOLDING, OR
(B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME/US THAT I
AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR
INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN
OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO
CGFSC WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I/WE FAIL TO
FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A
31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU MAY REQUEST SUCH FORM BY
CALLING CGFSC AT 800-282-4404.
NON-U.S. CITIZEN(S)/TAXPAYER(S):
INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES:
- ------------------------
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS OR
RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE INTERNAL REVENUE
SERVICE.
I/We represent that I am/we are of legal age and capacity to purchase shares of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this application, my/our investment dealer and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund, Inc.
and CGFSC and their directors, officers and employees will not be liable for any
loss, liability, cost or expense incurred for acting upon instructions believed
to be authentic and in accordance with the procedures set forth in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we acknowledge
that neither the Company nor the Distributor is a bank and that Company shares
are not backed or guaranteed by any bank or insured by the FDIC.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C>
X --------------------------------------------------------------------------------- DATE ---------------------
OWNER SIGNATURE
X --------------------------------------------------------------------------------- DATE ---------------------
OWNER SIGNATURE
</TABLE>
SIGN EXACTLY AS NAME(S) OF REGISTERED OWNER(S) APPEAR(S) ABOVE (INCLUDING LEGAL
TITLE IF SIGNING FOR A CORPORATION, TRUST CUSTODIAL ACCOUNT, ETC.)
NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
MORGAN STANLEY FUND, INC. THROUGH A PARTICIPATING DEALER (AN INVESTMENT
DEALER).
FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance with
the terms of our selling agreement with Morgan Stanley & Co. Incorporated and
with the Prospectus and Statement of Additional Information of the Company. We
agree to notify CGFSC of any purchases made under the Letter of Intent or Rights
of Accumulation.
<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Representative's Name
- ------------------------------------------------------- -------------------------------------------------------
Branch Number Representative's Telephone Number
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City/State/Zip Code
- ------------------------------------------------------- -------------------------------------------------------
Branch Telephone Number Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
Fund Expenses........................... 2
Financial Highlights.................... 6
Prospectus Summary...................... 11
Investment Objectives and Policies...... 15
Additional Investment Information....... 27
Investment Limitations.................. 37
Management of the Company............... 38
Portfolio Transactions.................. 43
Purchase of Shares...................... 44
Redemption of Shares.................... 51
Shareholder Services.................... 55
Valuation of Shares..................... 56
Performance Information................. 57
Dividends and Distributions............. 57
Taxes................................... 58
General Information..................... 59
Appendix A.............................. A-1
New Account Application
</TABLE>
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
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO.
INCORPORATED
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
<PAGE>
MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of seventeen diversified
and non-diversified investment portfolios designed to offer a range of
investment choices. The Company is designed to provide clients with
attractive alternatives for meeting their investment needs. This Statement of
Additional Information ("SAI") addresses information of the Company
applicable to the investment portfolios listed below (each, a "Fund"
and collectively, the "Funds"). The Morgan Stanley Growth and Income, Morgan
Stanley Japanese Equity, Morgan Stanley European Equity and Morgan Stanley
Tax-Free Money Market Funds are not currently offering shares.
This Statement is not a prospectus but should be read in conjunction
with the Company's prospectuses (each, a "Prospectus," and together, the
"Prospectuses"). To obtain the Prospectus, please call the Morgan Stanley
Fund, Inc. Services Group:
1-800-282-4404
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . .
FEDERAL INCOME TAX. . . . . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL TAX TREATMENT OF FORWARD. . . . . . . . . . . . . . . . . . . .
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES. . . . . . . . . . . . . .
TAXES AND FOREIGN SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . .
PURCHASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . .
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS . . . . . . . . . . . . .
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF SECURITIES AND RATINGS . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of Additional Information dated November 1, 1996, relating to:
The Prospectuses for the Morgan Stanley Global Fixed Income Fund, Morgan
Stanley Worldwide High Income Fund and Morgan Stanley High Yield Fund,
dated November 1, 1996 (Class A shares, Class B shares and Class C shares)
The Prospectuses for the Morgan Stanley American Value Fund, Morgan
Stanley Aggressive Equity Fund and Morgan Stanley U.S. Real Estate Fund,
dated November 1, 1996 (Class A shares, Class B shares and Class C shares)
The Prospectuses for the Morgan Stanley Global Equity Allocation Fund,
Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley International Magnum
Fund and Morgan Stanley Japanese Equity Fund, dated November 1, 1996
(Class A shares, Class B shares and Class C shares).
The Prospectuses for the Morgan Stanley Money Market Fund, Morgan Stanley
Tax-Free Money Market Fund and Morgan Stanley Government Obligations
Money Market Fund, dated November 1, 1996.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Company's Prospectus with respect to the Company's seventeen
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 Funds may invest in the securities
described below or other similar equity-linked securities.
There are certain risks of loss of principal in connection with
investing in equity-linked securities, as described in the following examples
of certain equity-linked securities. Preferred Equity Redemption Cumulative
Stock ("PERCS") as described in "Additional Investment Information" in the
Prospectus will convert into common stock within three years regardless of
the price at which the common stock trades. If the common stock is trading at
a price that is at or below the cap, the Fund receives one share of common
stock for each PERCS share. If the common stock is trading at a price that
is above the cap, the Fund receives less than one share, with the conversion
ratio adjusted so that the market value of the common stock received by the
Fund equals the cap. Accordingly, the Fund is subject to the risk that if
the price of the common stock is above the cap price at the maturity of the
PERCS, the Fund will lose the amount of the difference between the price of
the common stock and the cap. Such a loss could substantially reduce the
Fund's initial investment in the PERCS and any dividends that were paid on
the PERCS. PERCS also present risks based on payment expectations. If a
PERCS issuer redeems the PERCS, the Fund may have to replace the PERCS with a
lower yielding security, resulting in a decreased return for investors.
The principal amount that Equity-Linked Securities ("ELKS") holders
receive at maturity, as described in "Additional Investment Information" in
the Prospectus, is based on the price of underlying common stock. If the
common stock is trading at a price that is at or below the cap, the Fund
receives for each ELKS share an amount equal to the average price of the
common stock. If the common stock is trading at a price that is above the
cap, the Fund receives the cap amount. Accordingly, the
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Fund is subject to the risk that if the price of the common stock is above
the cap price at the maturity of the ELKS, the Fund will lose the amount of
the difference between the price of the common stock and the cap. Such a
loss could substantially reduce the Fund's initial investment in the ELKS and
any dividends that were paid on the ELKS. An additional risk is that the
issuer may "reopen" the issue of ELKS and issue additional ELKS at a later
time or issue additional debt securities or other securities with terms
similar to those of the ELKS, and such issuances may affect the trading value
of the ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-market yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based
on the price of underlying common stock. If the common stock is trading at a
price that is at or below the purchase price of the LYONs plus accrued
original issue discount, the Fund receives only the lower-than-market yield,
assuming the LYONs are not in default. If the common stock is trading at a
price that is above the purchase price of the LYON's plus accrued original
issue discount, the Fund will receive an amount above the lower-than-market
yield on the LYONs, based on how well the underlying common stock performs.
LYONs also present risks based on payment expectations. If a LYON's issuer
redeems the LYONs, the Fund may have to replace the LYONs with a lower
yielding security, resulting in a decreased return for investors.
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 Funds may incur costs in connection
with conversions between various currencies. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract (a "forward contract") involves an
obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for such trades.
The Funds may enter into forward contracts in several circumstances.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when a Fund anticipates the receipt in
a foreign currency of dividends or interest payments on a security which it
holds, the Fund may desire to "lock-in" the U.S. Dollar price of the security
or the U.S. Dollar equivalent of such dividend or interest payment, as the
case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency involved
in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. Dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when any of these Funds anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars,
to sell the amount of foreign currency approximating the value of some or all
of such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value
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of securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the
forward contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. A
Fund will not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate such
Fund to deliver an amount of foreign currency in excess of the value of such
Fund's securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made
with regard to overall diversification strategies. However, the management of
the Company believes that it is important to have the flexibility to enter
into such forward contracts when it determines that the best interests of the
performance of each Fund will thereby be served. Except in circumstances
where segregated accounts are not required by the 1940 Act and the rules
adopted thereunder, the Custodian will place cash or liquid assets into a
segregated account of a Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward contracts. If the value
of the securities placed in the segregated account declines, additional cash
or assets will be placed in the account on a daily basis so that the value of
the account will be at least equal to the amount of such Fund's commitments
with respect to such contracts.
The Funds generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, a Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date,
the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
a particular portfolio security at the expiration of the contract.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency that
such Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Fund entering into a
forward contract for the sale of a foreign currency and the date it enters
into an offsetting contract for the purchase of the foreign currency, such
Fund will realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, such Fund would suffer a loss to the extent
that the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The Funds are not required to enter into such transactions with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although
such contracts tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
FUTURES CONTRACTS
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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 Fund will enter into futures
contracts or options thereon for speculative purposes. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security or a specific currency at a specified
future time and at a specified price. Futures contracts, which are
standardized as to maturity date and underlying financial instrument, index
or currency, traded in the United States are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
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 a Fund's assets should be invested in emerging country securities
but such investments have not been fully made and the Adviser anticipates a
significant market advance, the Fund may purchase index futures in order to
gain rapid market exposure that may in part or entirely offset increases in
the cost of securities that it intends to purchase. In a substantial
majority of these transactions, the Fund will purchase such securities upon
termination of the futures position but, under unusual market conditions, a
futures position may be terminated without the corresponding purchase of such
securities.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
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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. Each 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 that they
trade, and use futures contracts with the expectation of realizing profits
from market fluctuations. The Funds intend to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Fund require generally that
all futures transactions constitute bona fide hedging transactions. A Fund
may engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5%
of the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds will only sell futures contracts to protect securities owned
against declines in price or purchase contracts to protect against an
increase in the price of securities intended for purchase. As evidence of
this hedging interest, the Funds expect that approximately 75% of their
respective futures contracts will be "completed"; that is, equivalent amounts
of related securities will have been purchased or are being purchased by the
Fund upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control a Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Funds will incur commission expenses in both opening and
closing out futures positions, these costs are lower than transaction costs
incurred in the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. In addition to the limits
imposed under CFTC regulations, described above, the Emerging Markets, Latin
American, European Equity, American Value, Aggressive Equity, Growth and
Income and Worldwide High Income Funds will not enter into futures contract
transactions to the extent that the Fund's outstanding obligations to
purchase securities under futures contracts and options would exceed 20% of
its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market
will exist for any particular futures contract at any specific time. Thus, it
may not be possible to close a futures position. In the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet its daily
margin requirement at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.
Each Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures for which there appears to be
a liquid secondary market.
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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 Funds engage in futures strategies only for hedging
purposes, the Adviser does not believe that the Funds are subject to the
risks of loss frequently associated with futures transactions. A Fund would
presumably have sustained comparable losses if, instead of the futures
contract, the Fund had invested in the underlying security or currency and
sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
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 Fund's investments in Loans are expected in most instances
to be in the form of participations in Loans ("Participations") and
assignments of all or a portion of Loans ("Assignments") from third parties.
The Fund's investments in Participations typically will result in the Fund
having a contractual relationship only with the lender and not with the
borrower. The Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling
the Participations 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 Fund may be treated as
a general creditor of the Lender and may not benefit from any set-off between
the Lender and the borrower. Certain Participations may be structured in a
manner designed to avoid purchasers of the Participations being subject to
the credit risk of the Lender with respect to the Participations, but even
under such a structure, in the event of the Lender's insolvency, the Lender's
servicing of the Participations may be delayed and the assignability of the
Participations impaired. The Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is determined by the
Adviser to be creditworthy.
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender. Because there is no liquid market for such
securities, the Fund anticipates that such securities could be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the
Fund's ability to dispose of particular Assignments or Participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for Assignments and
Participations also may make it more difficult for the Fund to assign a value
to these securities for purposes of valuing the Fund's portfolio and
calculating its net asset value.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
The International Magnum Fund seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers in accordance
with the EAFE country (defined below) weightings determined by the Adviser.
After establishing regional allocation strategies, the Adviser then selects
equity securities among issuers of a region. The Fund invests in countries
(each an "EAFE country") comprising the Morgan Stanley Capital International
EAFE (Europe, Australia and the Far East) Index (the "EAFE Index.")
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy, The Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom. "Far East" includes Japan,
Hong Kong and Singapore/Malaysia.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to
provide long-term capital appreciation by investing in equity securities of
U.S. and non-U.S. issuers in accordance with country weightings determined by
the Adviser and with stock selection within each country designed to
replicate a broad market index. The Adviser determines country allocations
for the Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Fund will invest in the
United States and industrialized countries throughout the world that comprise
the Morgan Stanley Capital International World Index (the "World Index"). The
World Index is one of seven International Indices, twenty National Indices
and thirty-eight International Industry Indices making up the Morgan Stanley
Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
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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 a Fund the right to sell a currency at the
exercise price until the expiration of the option. A call option gives the
Fund the right to purchase a currency at the exercise price until the
expiration of the option.
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 Fund at the stated exercise price. A "covered" call option means that so
long as a Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, or (ii) securities convertible
or exchangeable without the payment of any consideration into the securities
subject to the option. 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 a Fund.
A Fund will receive a premium from writing call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will
limit its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. Thus, in some periods a
Fund will receive less total return and in other periods greater total return
from writing covered call options than it would have received from its
underlying securities had it not written call options.
PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rate for each of
the Funds, except the Growth and Income, Global Fixed Income, Worldwide High
Income, Latin American and Aggressive Equity Funds, will not exceed 100%,
although in any particular year, market conditions could result in portfolio
activity at a greater or lesser rate than anticipated. High rates of
portfolio turnover necessarily result in correspondingly heavier brokerage
and portfolio trading costs which are paid by the Funds. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. See "Taxes" in the Prospectus for more
information on taxation. The portfolio turnover rate for a year is the lesser
of the value of the purchases or sales for the year divided by the average
monthly market value of the Fund for the year, excluding securities with
maturities of one year or less. The rate of portfolio turnover will not be a
limiting factor when a Fund deems it appropriate to purchase or sell
securities for the portfolio. However, the U.S. federal tax requirement that
a Fund derive less than 30% of its gross income from the sale or disposition
of securities held less than three months may limit the Fund's ability to
dispose of its securities. See "Federal Income Tax." The tables set forth in
the Prospectus under "Financial Highlights" present each of the Non-Money
Market Funds historical portfolio turnover ratios.
SECURITIES LENDING
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures
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to deliver securities or completing arbitrage operations. By lending its
investment securities, a Fund attempts to increase its net investment income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. Each Fund may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act, or the Rules and
Regulations or interpretations of the SEC thereunder, which currently require
that (a) the borrower pledge and maintain with the Fund collateral consisting
of cash, an irrevocable letter of credit issued by a domestic U.S. bank, or
securities issued or guaranteed by the U.S. Government having a value at all
times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price
of the securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis), (c) the loan be made subject to termination by the Fund at any
time, and (d) the Fund receive reasonable interest on the loan (which may
include the Fund investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase in
their market value. There may be risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will only be made to borrowers
deemed by the Adviser to be of good standing and when, in the judgment of the
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk. All relevant facts and circumstances,
including the creditworthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement involves
the sale of securities held by a Fund pursuant to the Fund's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the 1940 Act. While
reverse repurchase transactions are outstanding, the Funds will maintain in a
segregated account cash or liquid securities of an amount at least equal to
the market value of the securities, plus accrued interest, subject to the
agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments held
by each Money Market Fund may have maturities of more than 397 days,
provided: (i) the Fund is entitled to the payment of principal at any time,
or during specified intervals not exceeding 397 days, upon giving the
prescribed notice (which may not exceed 30 days), and (ii) the rate of
interest on such instruments is adjusted at periodic intervals which may
extend up to 397 days. In determining the weighted average maturity of a Fund
and whether a variable rate demand instrument has a remaining maturity of 397
days or less, each instrument will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be
recovered through demand. In determining whether an unrated variable rate
demand instrument is of comparable quality at the time of purchase to
instruments rated "high quality," the Adviser will follow guidelines adopted
by the Company's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when-issued"
and delayed delivery securities purchased for delivery beyond the normal
settlement date at a stated price and yield. While a Fund has firm
commitments outstanding, the Fund will maintain in a segregated
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account cash or liquid assets of an amount at least equal to the purchase
price of the securities to be purchased. Normally, the custodian for a Fund
will set aside portfolio securities to satisfy a purchase commitment and, in
such a case, a Fund may be required subsequently to place additional assets
in the separate account in order to ensure that the value of the account
remains equal to the amount of such Fund's commitment. It may be expected
that a non-money market Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments
than when it sets aside cash. Because a Fund's liquidity and ability to
manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of a Money Market Fund's total assets absent unusual market conditions.
When a Fund engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in a Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
STAND-BY COMMITMENTS. A Fund may enter into stand-by commitments with
respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a
stand-by commitment, a dealer would agree to purchase, at a Fund's option, a
specified Municipal Obligation at its amortized cost value to the Fund plus
accrued interest, if any. Stand-by commitments may be exercisable by a Fund
at any time before the maturity of the underlying Municipal Obligations and
may be sold, transferred or assigned only with the instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by a Fund will not
exceed 1/2 of 1% of the value of that Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's opinion, present minimal
credit risks and otherwise satisfy applicable quality standards. The Funds'
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject
to the commitment.
The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their right thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect
the valuation or assumed maturity of the underlying Municipal Obligation
which will continue to be valued in accordance with the amortized cost
method. The actual stand-by commitment will be valued at zero in determining
net asset value. Accordingly, where a Fund pays directly or indirectly for a
stand-by commitment, its cost will be reflected as an unrealized loss for the
period during which the commitment is held by that Fund and will be reflected
in realized gain or loss when the commitment is exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF
U.S. BANKS. For purposes of the Funds' investment policies with respect to
bank obligations, the assets of a bank or savings institution will be deemed
to include the assets of its domestic and foreign branches. Investments in
bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve
risks that are different from investments in securities of domestic branches
of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure
or nationalization of foreign deposits, currency
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controls, interest limitations, or other governmental restrictions which
might affect the payment of principal or interest on the securities held by a
Fund. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
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 Adviser 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 a
Fund plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements will be held by the
Company's Custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. The terms of a repurchase agreement
is usually from overnight to one week, and never exceeds one year.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
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 Company and its shareholders that are
not described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the
Company or its shareholders, and the discussion here and in the Company's
prospectuses are not intended as a substitute for careful tax planning.
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Each Fund is generally treated as a separate corporation for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund
separately, rather than to the Company as a whole. Each Fund intends to
qualify and elect to be treated for each taxable year as a regulated
investment company ("RIC") under subchapter M of the Code.
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of
this Statement of Additional Information. Legislation and administrative
changes or court decisions may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
In order to qualify for the special tax treatment afforded to RICs under
Subchapter M of the Code, each Fund must, among other things, (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test"); (b) derive less than 30% of its
gross income each taxable year from the sale or other disposition of (i)
stocks or securities, (ii) options, futures or forward contracts (other than
options, futures or forward contracts on foreign currencies) and (iii)
foreign currencies (or options, futures or forward contracts on foreign
currencies), but only if not directly related to the Fund's principal
business of investing in stocks or securities (or options and futures with
respect to stocks or securities) held less than three months (the
"Short-Short Gain Test"), and (c) diversify its holdings so that, at the end
of each fiscal quarter of the Company's taxable year, (i) at least 50% of the
market value of the Fund's total assets is represented by cash, United States
Government securities, securities of other RICs, and other securities and
cash items, with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's total assets or
10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities of
any one issuer or two or more issuers which the Fund controls and which are
engaged in the same, similar, or related trades or businesses (other than
U.S. Government securities or the securities of other RICs). For purposes of
the 90% gross income requirement described above, foreign currency gains may
be excluded by regulation from income that qualifies under the 90%
requirement.
In addition to the requirements described above, in order to qualify as
a RIC, a Fund must distribute at least 90% of its net investment income
(which generally includes dividends, taxable interest, and net short-term
capital gains less operating expenses) to shareholders. If a Fund meets all
of the RIC requirements, it will not be subject to federal income tax on any
of its net investment income or capital gains that it distributes to
shareholders.
If a Fund fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such case, distributions (including
capital gain distributions) will be taxable as ordinary dividends to the
extent of the Fund's current and accumulated earnings and profits and such
distributions generally will be eligible for the corporate dividends received
deductions.
Each Fund will decide whether to distribute or to retain all or part of
any net capital gains (the excess of net long-term capital gains over net
short-term capital losses) in any year for reinvestment. If any such gains
are retained, the Fund will pay federal income tax thereon, and, if the Fund
makes an election, the shareholders will include such undistributed gains in
their income and shareholders subject to tax will be able to claim their
share of the tax paid by the Fund as a credit against their federal income
tax liability.
A gain or loss realized by a shareholder on the sale or exchange of
shares of a Fund held as a capital asset will be capital gain or loss, and
such gain or loss will be long-term if the holding period
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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 Fund will generally be subject to a nondeductible 4% federal excise
tax to the extent it fails to distribute by the end of any calendar year at
least 98% of its ordinary income and 98% of its capital gain net income (the
excess of short and long-term capital gains over short and long-term capital
losses) for the one-year period ending on October 31 of that year, plus
certain other amounts.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Fund, that the Social
Security or Taxpayer Identification Number provided is correct and that the
shareholder is exempt from backup withholding or is not currently subject to
backup withholding.
ADDITIONAL CONSIDERATIONS FOR THE TAX-FREE MONEY MARKET FUND
In order for the Tax-Free Money Market Fund to pay exempt interest
dividends during any taxable year, at the close of each quarter of its
taxable year at least 50% of the value of the Fund's assets must consist of
certain tax-exempt obligations. Exempt-interest dividends distributed to
shareholders are not included in the shareholder's gross income for regular
federal income tax purposes. Exempt-interest dividends may, however, be
subject to the alternative minimum tax (the "AMT") imposed by Section 55 and,
in the case of corporate taxpayers, the Code or the environmental tax (the
"Environmental Tax") imposed by Section 59A of the Code. The AMT and the
Environmental Tax may be imposed in two circumstances. First,
exempt-interest dividends derived from certain private activity bonds issued
after August 7, 1986, will generally be an item of tax preference (and
therefore potentially subject to the AMT and the Environmental Tax) for both
corporate and non-corporate taxpayers. Second, in the case of
exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined
in Section 56(g) of the Code, in calculating the corporation's alternative
minimum taxable income for purposes of determining the AMT and the
Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter
S corporations may also be subject to taxes on their "passive investment
income," which could include exempt-interest dividends. Up to 85% (depending on
the taxpayer's income) of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual depending upon the individual's "modified
adjusted gross income" (which includes exempt-interest dividends).
The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users) of facilities financed
by industrial development or private activity bonds. A "substantial user" is
defined generally to include certain persons who regularly use such a
facility in their trade or business. Such entities or persons should consult
their tax advisors before purchasing Shares of this Fund.
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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 Fund will be taxable to shareholders as ordinary income
and will not be eligible for the dividends received deduction for corporate
shareholders. Although the Tax-Free Money Market Fund generally does not
expect to receive net investment income other than Tax-Exempt Interest, up to
20% of the net assets of the Fund may be invested in Municipal Obligations
that do not bear Tax-Exempt Interest, and any taxable income recognized by
the Fund will be distributed and taxed to its shareholders.
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FOREIGN INCOME TAX
It is expected that each Fund will be subject to foreign withholding
taxes with respect to its dividend and interest income from foreign
countries, if any, and a Fund may be subject to foreign income or other taxes
with respect to other income. So long as more than 50% in value of a Fund's
total assets at the close of the taxable year consists of stock or securities
of foreign corporations, the Fund may elect to treat certain foreign income
taxes imposed on it under U.S. federal income tax law as paid directly by its
shareholders. A Fund will make such an election only if it deems it to be in
the best interest of its shareholders and will notify shareholders in writing
each year if it makes an election and of the amount of foreign income taxes,
if any, to be treated as paid by the shareholders. If a Fund makes the
election, shareholders will be required to include in income their
proportionate shares of the amount of foreign income taxes treated as imposed
on the Fund and will be entitled to claim either a credit (subject to the
limitations discussed below) or, if they itemize deductions, a deduction for
their shares of the foreign income taxes in computing their federal income
tax liability. (No deductions will be allowed in computing alternative
minimum tax liability.)
Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the
availability of the credit) attributable to foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund
from its foreign source income will be treated as foreign source income. A
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will
be treated as derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source "passive income," such as the
portion of dividends received from a Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of
the alternative minimum tax imposed on corporations as individuals. Because
of these limitations, shareholders may be unable to claim a credit for the
full amount of their proportionate shares of the foreign income taxes paid by
a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES
Except for certain hedging transactions, each Fund is required for
federal income tax purposes to recognize as gain or loss for each taxable
year its net unrealized gains and losses on certain forward currency and
futures contracts as of the end of each taxable year, as well as those
actually realized during the year. In most cases, any such gain or loss
recognized with respect to a regulated futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Gain or loss
attributable to a foreign currency forward contract is treated as 100%
ordinary income. Furthermore, forward currency futures contracts which are
intended to hedge against a change in the value of securities held by a Fund
may affect the holding period of such securities and, consequently, the
nature of the gain or loss on such securities upon disposition.
Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, a Fund will have to
avoid realizing gains on futures contracts and certain forward contracts held
less than three months and may be required to defer the closing out of
futures contracts beyond the time
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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 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 a Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects
such receivables or pays such liabilities are treated as ordinary income or
ordinary loss. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value
of the foreign currency between the date of acquisition of the security and
the date of disposition also are treated as ordinary gain or loss. These
gains or losses increase or decrease the amount of a Fund's net investment
income, if any, available to be distributed to its shareholders as ordinary
income.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, foreign corporation, or foreign
partnership ("Foreign Shareholder") depends on whether the income from the
Company is "effectively connected" with a U.S. trade or business carried on
by such shareholder.
If the income from the Company is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of
ordinary income will be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Furthermore,
Foreign Shareholders will generally be exempt from United States federal
income tax on gains realized on the sale of shares of the Company,
distributions of net long-term capital gains, and amounts retained by the
Company which are designated as undistributed capital gains.
If the income from the Company is effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, then distributions of
net investment income and net long-term capital gains, and any gains realized
upon the sale of shares of the Company, will be subject to U.S. federal
income tax at the rates applicable to United States citizens and residents or
domestic corporations.
The Company may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Company.
PURCHASE OF SHARES
For Class A shares of the Non-Money Market 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 Market Funds may be purchased at
the net asset value per share next determined after the purchase order is
received. For all classes of such Funds an order received prior to the
regular close of the New York Stock Exchange (the "NYSE")(currently, 4:00
p.m., Eastern Time) will be executed at the price computed on the date of
receipt; and an order received after the regular close of the NYSE will be
executed at the price computed on the next day the NYSE is open. The purchase
price of shares of the Non-Money Market Funds is based on such price as
further described in the Prospectus under "Purchase of Shares." Class A
shares of the Non-Money Market 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
Market 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 Market Funds
that are redeemed within one year of purchase are subject to a 1.00% CDSC, as
described in the Prospectus under "Purchase of Shares." The initial sales
charge and CDSC are not applicable to shares of any class of any Non-Money
Market Fund purchased through the automatic reinvestment of dividends or
distributions paid by any Fund. The price of shares of the Money Market
Funds is the net asset value per share next determined after Federal Funds
are available to such Fund. A purchase of a Money Market Fund's shares by
check is credited to the shareholder's account at the price next determined
after receipt of Federal Funds on the day of receipt and will begin receiving
dividends the following day. Shares of the Company may be purchased on any
day the NYSE is open, except that shares of the Market Fund may be purchased
on any day when both the NYSE and and the Federal Reserve Banks are open. The
NYSE is closed when the following holidays are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Federal Reserve Banks are closed when the
following additional holidays are observed: Martin Luther King Day, Columbus
Day and Veterans' Day.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment
of management such rejection is in the best interest of the Company, and
(iii) to reduce or waive the minimum for initial and subsequent investments
for certain fiduciary accounts such as employee benefit plans or under
circumstances where certain economies can be achieved in sales of a Fund's
shares.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE
is restricted as determined by the SEC, (ii) during any period when an
emergency exists as defined by the rules of the SEC as a result of which it
is not reasonably practicable for a Fund to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit. Additionally, if the Board of Directors
determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to payment wholly or partly in cash, the
Company may pay the redemption proceeds in whole or in part by a distribution
in-kind of readily marketable securities held by the Funds in lieu of cash in
conformity with applicable rules of the SEC. Shareholders may incur
brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the Fund.
Class A shares of the Non-Money Market 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 Market 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 Market Funds that are redeemed within
one year of purchase are subject to a 1.00% CDSC as described in the
Prospectus under "Purchase of Shares." Such initial sales charge and CDSC are
not applicable to shares of any class of any Fund purchased through the
automatic reinvestment of dividends or distributions paid by any Fund.
To protect your account and the Company from fraud, signature guarantees
are required for certain redemptions. Signature guarantees enable the Company
to verify the identity of the person who has authorized a redemption from
your account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be
paid to someone other than the registered owner(s) and/or registered address;
and (2) share transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Company
are also being redeemed, on the letter or stock power.
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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 Fund of the Company has adopted the certain investment
policies which are either fundamental investment limitations or
non-fundamental investment limitations. Fundamental investment limitations
may not be changed without the approval of the lesser of: (1) at least 67% of
the voting securities of the Fund present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting
securities of the Fund. Each 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 on futures contracts 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 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 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.
In addition, the following are fundamental investment limitations with
respect to the Non-Money Market Funds. No Non-Money Market 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 Company 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 Fund's total assets valued at the lower of market or cost and a Fund
may not purchase additional securities when borrowings exceed 5% of total
assets, except that the Worldwide High Income Fund, Latin 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
Fund, determined at the time of investment, in illiquid assets, including
repurchase agreements having maturities of more than seven days; provided,
however, that no Fund shall invest more than 10% of its total assets in
securities subject to legal or contractual restrictions on resale, invest in
fixed time deposits with a duration of from two business days to seven
calendar days if more than 10% of the Fund's total assets would be invested
in these deposits or invest in fixed time deposits with a duration of over
seven calendar days;
(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 Funds except the Global Fixed Income
Fund, Emerging Markets Fund, Latin American Fund, Aggressive Equity Fund,
International Magnum 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 Funds except the Global Fixed Income Fund,
Emerging Markets Fund, Latin American Fund, Aggressive Equity Fund,
International Magnum Fund and U.S. Real Estate Fund purchase securities of
an issuer (except obligations of the U.S. Government and its
instrumentalities) if as the result, with respect to 75% of its total assets,
more than 5% of the 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 Fund's total assets at
the time of such borrowing, and only if after such borrowing there is asset
coverage
20
<PAGE>
of at least 300 percent for all borrowings of the Fund; or mortgage, pledge,
hypothecate or in any manner transfer as security for indebtedness any
securities owned or held by the Fund, any assets except as may be necessary
in connection with permitted borrowings and then, in amounts not in excess of
10% of the value of the Fund's total assets at the time of the borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the Fund's
net assets are outstanding. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Fund's securities by
enabling the Fund to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(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
Fund may invest only in investment companies that are unaffiliated with the
Company; and with respect to the Tax-Free Money Market Fund and Government
Obligations Money Market Fund, invest more than 10% of the value of the
Fund's assets in other investment companies that are unaffiliated with the
Company and then no more than 5% of the 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 Fund may make interest-bearing savings
deposits in amounts not in excess of 5% of the value of the Fund's assets and
may make time deposits;
(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 Fund's assets which may be invested in
the securities of any one issuer of obligations that the 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 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 net assets would be
invested in these agreements and other investments for which market
quotations are not readily available or which are otherwise illiquid; and
(10) make loans, except that a Fund may purchase or hold
debt obligations in accordance with its investment objectives, policies and
limitations and, with respect to the Money Market and Government Obligations
Money Market Funds, may enter into repurchase agreements for securities, and
may lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Fund's permitted
investments, which is equal at all times to at least 100% of the value of the
securities loaned. There is no investment restriction on the amount of
securities that may be loaned.
In addition, the Company has adopted the following limitations which are
not fundamental policies and may be changed without shareholder approval:
21
<PAGE>
(1) no 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 each of 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 in accordance
with its investment objective and policies;
(2) no Fund may purchase warrants if, by reason of such purchase, more
than 5% of the value of the Fund's net assets would be invested in warrants
valued at the lower of cost or market. Included in this amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on a nationally recognized stock exchange;
(3) no Fund will invest in oil, gas or other mineral leases;
Each of the Global Fixed Income, Emerging Markets, Latin American,
Aggressive Equity, International Magnum and U.S. Real Estate Funds will
diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash (including cash items and receivables), U.S. Government
securities, and other securities, with such other securities limited, in
respect of any one issuer, for purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities); 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 Funds of the Company 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: (a)
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
shorter 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 Company's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Company. The Directors set broad
policies for the Company and choose its officers. Three Directors and all of
the officers of the Company are directors, officers or employees of Morgan
Stanley Asset Management Inc. ("MSAM"); or the Fund's distributor or
administrative services provider. The other Directors have no affiliation with
the Company's adviser, distributor or administrative services provider. The
Directors are also Directors of other registered open-end management
investment companies registered with the SEC and advised by MSAM (collectively
with the Fund, the "Open-End Fund Complex"). Officers of the Company 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 Company 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 Company 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; Member of Investment Advisory Counsel of the
New York, NY 10020 Thailand Fund; Member of the Yale Development Board; Director of the
(11/26/32) Rand McNally Company; Director and Chairman 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>
Name, Address and Date of Birth Position with Company 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., Morgan Stanley
(8/21/35) Universal Funds, Inc. and PCS Cash Fund, Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm); Director of the Morgan
43 Arch Street Stanley Institutional Fund, Inc., Morgan Stanley Universal Funds, Inc.,
Greenwich, CT 06830 Morgan Stanley India Investment Fund, Inc. and PCS Cash Fund, Inc.
(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 Institutional Fund, Inc., Morgan Stanley Universal
(11/11/39) Funds, 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., Morgan Stanley
(7/28/34) Universal Funds, Inc. and PCS Cash 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., Morgan
(8/12/32) Stanley Universal Funds, Inc., Morgan Stanley India Investment Fund,
Inc. and PCS Cash Fund, Inc.
25
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Company Past Five Years
- ------------------------------- --------------------- ---------------------------
<S> <C> <C>
Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin & Boehm, P.C. and Rake,
2025 North Third Street Copple, Downey & Black, P.C. (law firms); Director of the
Suite 300 Morgan Stanley Institutional Fund, Inc., Morgan Stanley Universal Funds,
Phoenix, AZ 85004 Inc. and PCS Cash Fund, Inc.
(1/24/34)
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 Company 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 Company 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, Director of Fund Administration and Compliance Services,
73 Tremont Street Chase Global Funds Services Company; Officer of various
Boston, MA 02108-3913 investment companies managed by Morgan Stanley Asset
(10/21/58) Management Inc. Previously with Scudder, Stevens &
Clark, Inc. (investment) and Ernst & Young LLP (accounting).
28
<PAGE>
<CAPTION>
Principal Occupation During
Name, Address and Date of Birth Position with Company Past Five Years
- ------------------------------- --------------------- ---------------------------
<S> <C> <C>
Joanna Haigney Assistant Treasurer Manager of Fund Administration and Compliance Services, Chase Global
73 Tremont Street Funds Services Company; Officer of various investment companies managed
Boston, MA 02108-3913 by Morgan Stanley Asset Management Inc. Previously with Coopers &
(10/10/66) Lybrand 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 $65,000, plus out-of-pocket
expenses. The Open-End Fund Complex will pay each of the members of the
Company's Audit Committee, which consists of three of the Company's Directors
who are not "interested persons," an additional annual aggregate fee of
$10,000 for serving on such a committee. The allocation of such fees will be
among the three funds in the Open-End Fund Complex in direct proportion to
their respective average net assets. For the fiscal period ended June 30,
1996, the Company paid approximately $77,000 in Directors' fees and expenses.
Directors who are also officers or affiliated persons receive no remuneration
for their services as Directors. The Company's Officers and employees are paid
by the Adviser or its agents. As of September 30, 1996, to Company
management's knowledge, the Directors and Officers of the Company, as a group,
owned less than 1% of the outstanding common stock of each Fund of the
Company. The following table shows aggregate compensation paid to each of the
Company's Directors by the Company and total compensation paid to each such
Director by the Company, the Open-End Fund Complex and other registered
investment companies advised by MSAM (the foregoing together, 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 and Compensation Retirement Annual Compensation
Position From Benefits Benefits From the Company
the Accrued Upon and Fund Complex
Company 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. Barrett, II, $5,879 $0 $0 $65,000
Director
Gerard E. Jones, $5,879 $0 $0 $72,100
Director
Warren J. Olsen, $0 $0 $0 $0
Director and President
Andrew McNally, IV, $4,975+ $0 $0 $55,000
Director
Samuel T. Reeves, $4,975+ $0 $0 $55,000
Director
Fergus Reid, $5,880+ $0 $0 $72,100
Director
Frederick O. Robertshaw, $4,975 $0 $0 $55,000
Director
Frederick B. Whittemore, $0 $0 $0 $13,750
Director
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
+ The total amount of deferred compensation for Andrew McNally IV, Fergus
Reid and Samuel T. Reeves $2,638, $3,118 and $2,637, respectively.
30
<PAGE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
The Adviser is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020.
As one of the world's premier global investment managers affiliated
with one of the leading global financial services firms and with offices in
the United States, Europe and Asia, MSAM brings a truly global perspective to
the investment of its clients' assets. This global perspective, coupled with
Morgan Stanley's long-standing tradition of integrity and prudence, puts MSAM
in a unique position to offer investment management services. As compensation
for advisory services to the Company for the fiscal years ended June 30,
1994, June 30, 1995 and June 30, 1996 the Adviser earned fees of
approximately $2,322,000 (and voluntarily waived a portion of such fees equal
to approximately $1,026,000), $4,571,000 (and voluntarily waived a portion of
such fees equal to approximately $868,000), $7,177,000 (and voluntarily waived
a portion of such fees equal to approximately $1,328,000) respectively.
Further, for the fiscal years ended June 30, 1994, June 30, 1995 and June 30,
1996, MSAM, as adviser for the PCS Money Market Portfolio (the "Predecessor
Money Market Portfolio") the predecessor to the Money Market Fund received
$686,138, $611,754 and $759,398, respectively (net of voluntary fee waivers
of $109,879, $87,105 and $153,797 respectively) and as adviser for the PCS
Government Obligations Money Market Portfolio (the "Predecessor Government
Obligations Money Market Portfolio") the predecessor to the Government
Obligations Money Market Fund received $412,757, $897,867 and $395,312
respectively (net of voluntary fee waivers of $25,448, $0 and $45,251,
respectively).
Pursuant to the Administration Agreement between the Adviser and the
Company, the Adviser provides administrative services. For its services under
the Administration Agreement, the Company 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
$1,801,654 respectively. For the fiscal years ended June 30, 1994, June 30,
1995 and June 30, 1996, PFPC Inc., which served as administrator to the
Predecessor Money Market Portfolio and Predecessor Government Obligations
Money Market Portfolio (the "Predecessor Portfolios"), was paid aggregate
administrative fees of $283,085, $346,829 and $273,252 respectively.
Under an Agreement between the Adviser and The Chase Manhattan Bank
("Chase," successor in interest to United States Trust Company of New
York), Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds
Service Company, a corporate affiliate of Chase) provides certain
administrative services to the Company. CGFSC provides operational and
administrative services to investment companies with
31
<PAGE>
approximately $66 billion in assets and having approximately 200,000
shareholder accounts as of September 30, 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 the Group, serves as the Distributor of the Company's shares
pursuant to a Distribution Agreement for the Company and a Plan of
Distribution for the Money Market Funds and each class of the Non-Money
Market 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 Funds a distribution fee, which is accrued daily and paid
quarterly, of up to 0.25% for Class A shares of each of the Non-Money Market
Funds, up to 0.50% for each of the Money Market Funds and up to 0.75% of the
Class B shares and Class C shares of each of the Non-Money Market 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 (a "Participating
Dealer"). The actual amount of such compensation is agreed upon by the
Company's Board of Directors and by the Distributor. The Distributor may, in
its discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out
of its own assets to promote the sale of Company shares.
The Plans obligate the Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do
not obligate the Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the
Plan. Thus, under each Plan, even if the Distributor's actual expenses exceed
the fee payable to it thereunder at any given time, the Funds will
not be obligated to pay more than that fee. If the Distributor's actual
expenses are less than the fee it receives, the Distributor will retain the
full amount of the fee. The Plans for the Class A, Class B and Class C shares
of the Non-Money Market Funds were most recently approved by the Company's Board
of Directors, including those directors who are not "interested persons" of
the Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto, on April 22, 1996 and the Plan for the Money Market
Funds was most recently approved on July 16, 1996.
As compensation for providing distribution services to the Company for the
fiscal year ended June 30, 1996, the Distributor received aggregate fees of
approximately $4,267,000 which were attributable approximately as follows:
Fiscal Year
Ended
June 30, 1996
(000)
-------------
Global Equity Allocation Fund-Class A. . . . . . . . . $ 126
Global Equity Allocation Fund-Class B+ . . . . . . . . 47
Global Equity Allocation Fund-Class C+ . . . . . . . . 496
Global Fixed Income Fund-Class A . . . . . . . . . . . 26
Global Fixed Income Fund-Class B+. . . . . . . . . . . 3
Global Fixed Income Fund-Class C+. . . . . . . . . . . 56
Asian Growth Fund-Class A. . . . . . . . . . . . . . . 516
Asian Growth Fund-Class B+ . . . . . . . . . . . . . . 194
Asian Growth Fund-Class C+ . . . . . . . . . . . . . . 1,505
Emerging Markets Fund-Class A . . . . . . . . . . . . 131
Emerging Markets Fund-Class B+ . . . . . . . . . . . . 35
Emerging Markets Fund-Class C+ . . . . . . . . . . . . 309
Latin American Fund-Class A . . . . . . . . . . . . . 28
Latin American Fund-Class B+ . . . . . . . . . . . . . 6
32
<PAGE>
Latin American Fund-Class C+ . . . . . . . . . . . . . 55
American Value Fund-Class A. . . . . . . . . . . . . . 57
American Value Fund-Class B+ . . . . . . . . . . . . . 14
American Value Fund-Class C+ . . . . . . . . . . . . . 187
Worldwide High Income Fund-Class A . . . . . . . . . . 90
Worldwide High Income Fund-Class B+. . . . . . . . . . 112
Worldwide High Income Fund-Class C+. . . . . . . . . . 231
Aggressive Equity Fund-Class A . . . . . . . . . . . . 4
Aggressive Equity Fund-Class B . . . . . . . . . . . . 10
Aggressive Equity Fund-Class C . . . . . . . . . . . . 10
High Yield Fund-Class A. . . . . . . . . . . . . . . . 2
High Yield Fund-Class B. . . . . . . . . . . . . . . . 5
High Yield Fund-Class C. . . . . . . . . . . . . . . . 5
U.S. Real Estate Fund-Class A. . . . . . . . . . . . . 1
U.S. Real Estate Fund-Class B. . . . . . . . . . . . . 3
U.S. Real Estate Fund-Class C. . . . . . . . . . . . . 3
International Magnum Fund-Class A**. . . . . . . . . . N/A
International Magnum Fund-Class B**. . . . . . . . . . N/A
International Magnum Fund-Class C**. . . . . . . . . . N/A
Japanese Equity Fund-Class A** . . . . . . . . . . . . N/A
Japanese Equity Fund-Class B** . . . . . . . . . . . . N/A
Japanese Equity Fund-Class C** . . . . . . . . . . . . N/A
Growth and Income Fund-Class A** . . . . . . . . . . . N/A
Growth and Income Fund-Class B** . . . . . . . . . . . N/A
Growth and Income Fund-Class C** . . . . . . . . . . . N/A
European Equity Fund-Class A** . . . . . . . . . . . . N/A
European Equity Fund Class B** . . . . . . . . . . . . N/A
European Equity Fund Class C** . . . . . . . . . . . . N/A
Money Market Fund**++. . . . . . . . . . . . . . . . . N/A
Tax-Free Money Market Fund **. . . . . . . . . . . . . N/A
Government Obligations Money Market Fund**++ . . . . . N/A
________________________
** Not operational as of June 30, 1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995. Therefore,
no fees were incurred for the fiscal year ended June 30, 1995.
++ As compensation for providing distribution services to the Predecessor
Portfolios for the fiscal years ended June 30, 1996, the Distributor
received fees from the Predecessor Money Market Portfolio in the amount of
$843,776 and from the Predecessor Government Obligations Money Market
Portfolio in the amount of $439,236.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the
Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Adviser and, as
described below, impose additional, more onerous, restrictions on the
Company's investment personnel.
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 Company within periods of trading by the
Company in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of September 30, 1996 and the
percentage of outstanding shares of such classes owned beneficially or of
record by such shareholders as of such date are, to management's knowledge,
as follows:
GLOBAL EQUITY ALLOCATION FUND: Scott & Stringfellow PSP, C/O David
Plageman, P.O. Box 1575, Richmond, VA 23213, owned 5% of the total outstanding
Class A shares of such Fund.
GLOBAL FIXED INCOME FUND: The Private Bank & Trust Co., 10 Dearborn
Street, Chicago, IL 60602, owned 12% of the total outstanding Class A shares
of such Fund; Oppenheimer Company, Inc., P.O. Box 3484, Church Street
Station, New York, NY 10008, owned 13% of the total outstanding Class B
shares of such Fund and Painewebber, FBO Robert P. Buhrman, P.O. Box 3321,
Weehawken, NJ 07087, owned 9% of total outstanding Class C shares of such
Fund.
AMERICAN VALUE FUND: Smith Barney Inc., 388 Greenwich Street, New York,
N.Y. 10013, owned 7% of the total outstanding Class A shares of such Fund;
James G. McMurray, M.D. Profit Sharing Plan, 303 Williams Avenue, Suite 411,
Huntsville, AL 35801, owned 7% of the total outstanding Class B shares of
such Fund and Morgan Stanley Group Inc., 1585 Broadway, New York, NY 10036,
owned 13% of the total outstanding Class C shares of such Fund.
WORLDWIDE HIGH INCOME FUND: FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO 80217, owned 14% of the total outstanding Class A shares of
such Fund.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 33% of the
total outstanding Class A shares of such Fund.
HIGH YIELD FUND: Morgan Stanley Group, Inc., 1585 Broadway, New York,
NY 10036, owned 80% of the total outstanding Class A shares of such Fund, 85%
of the total outstanding Class B shares of such Fund and 93% of the total
outstanding Class C shares of such Fund.
LATIN AMERICAN FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 25% of
the total outstanding Class A shares of such Fund and Smith Barney Inc., 388
Greenwich Street, New York, NY 10013, owned 6% of the total outstanding Class
B shares of such Fund.
U.S. REAL ESTATE FUND: Morgan Stanley Group, Inc., 1585 Broadway, New
York, NY 10036, owned 62% of the total outstanding Class A shares of such
Fund, 62% of the total outstanding Class B shares of such Fund and 82% of the
total outstanding Class C shares of such Fund.
34
<PAGE>
AGGRESSIVE EQUITY FUND: Morgan Stanley Group Inc., 1585 Broadway, New
York, NY 10036, owned 31% of the total outstanding Class A shares of such
Fund, 51% of the total outstanding Class B shares of such Fund and 57% of the
total outstanding Class C shares of such Fund.
INTERNATIONAL MAGNUM FUND: Morgan Stanley Group Inc., 1585 Broadway,
New York, NY 10036, owned 80% of the total outstanding Class A shares of such
Fund; 86% of the total outstanding Class B shares of such Fund and 67% of the
total outstanding Class C shares of such Fund.
MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway, 2nd Floor,
Wilmington, DE 19809, owned 1.11% of the total outstanding shares of the Fund.
GOVERNMENT OBLIGATIONS MONEY MARKET FUND: PFPC, Inc., 400 Bellevue
Parkway, 2nd Floor, Wilmington, DE 19809, owned 1.02% of the total
outstanding shares of the Fund.
TAX-FREE MONEY MARKET FUND: N/A
JAPANESE EQUITY FUND: N/A
GROWTH AND INCOME FUND: N/A
EUROPEAN EQUITY FUND: N/A
The Group may be deemed a "controlling person" of the Company by virtue
of its power to control the voting or disposition of the shares it owns. As a
result of its ownership position, the Group may be able to control the
outcome of matters voted on by shareholders of the Funds.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset
value per share of $1.00. Each Fund uses the amortized cost method of valuing
its securities, which does not take into account unrealized gains or losses.
The use of amortized cost and the maintenance of a Fund's per share net
asset value at $1.00 is based on the Fund's election to operate under the
provisions of Rule 2a-7 under the 1940 Act. As a condition of operating under
that Rule, each of the Money Market Funds must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments
having remaining maturities of 397 days or less, and invest only in
securities which are of "eligible quality" as determined in accordance with
regulations of the SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Funds' investment objectives, to stabilize the net asset value per
share as computed for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield available for such securities or for
securities of comparable maturity, quality and type as obtained from one or more
of the major market makers for the securities to be valued. Other investments
and assets are valued at fair value, as determined in good faith by, or under
procedures adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between a Fund's net asset
value based upon available market quotations or market equivalents and $1.00
per share based on amortized cost, the Directors will promptly consider what
action, if any, should be taken. The Directors will also take such action as
they deem appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results which might arise
from differences between the two. Such action may include redemption in kind,
selling instruments prior to maturity to realize capital gains or losses or
to shorten the average maturity, withholding dividends, paying distributions
from capital or capital gains or utilizing a net asset value per share as
determined by using available market quotations.
There are various methods of valuing the assets and of paying dividends
and distributions from a money market fund. Each of the Money Market Funds
values its assets at amortized cost while also monitoring the available
market bid price, or yield equivalents. Since dividends from net investment
income will be declared daily and paid monthly, the net asset value per share
of such Funds will ordinarily remain at $1.00, but the Funds' daily dividends
will vary in amount. Net realized short-term capital gains, if any, less any
capital loss carryforwards, will be distributed whenever the Directors
determine that such distributions would be in the best interest of
shareholders, but in any event, at least once a year. The Money Market Funds
do not expect to realize any long-term capital gains. Should any such gains
be realized, they will be distributed annually, less any capital loss
carryforwards.
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 Funds and directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to
all transactions for the Funds. The Company has authorized the Adviser to pay
higher commissions in recognition of brokerage services which, in the opinion
of the Adviser, are necessary for the achievement of better execution,
provided the Adviser believes this to be in the best interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices,
through responsible broker-dealers. In selecting broker-dealers to execute
the securities transactions for the Funds, consideration will be given to
such factors as the price of the security, the rate of the commission, the
size and difficulty of the order, the reliability, integrity, financial
condition, general execution and operational capabilities of competing
broker-dealers, and the brokerage and research services which they provide to
the Company. Some securities considered for investment by a Fund may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of a Fund and one or more
of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Fund
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations,
are subject to periodic review by the Company's Directors.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley or broker affiliates of
Morgan Stanley under procedures adopted by the Board. For the three fiscal
years ended June 30, 1994, June 30, 1995 and June 30, 1996, the Company paid
brokerage commissions of approximately $618,000, $115,622 and $180,458,
respectively, to the Distributor, an affiliated broker-dealer. For the
fiscal years ended June 30, 1994, June 30, 1995 and June 30, 1996,
commissions paid to the Distributor represented approximately 30%, 7% and 6%,
respectively, of the total amount of brokerage commissions paid in such
period and which were paid on transactions that represented 21%, 3%, and 2%,
respectively, of the aggregate dollar amount of transactions that incurred
commissions paid by the Fund during such period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser or Morgan Stanley or any "affiliated persons," as
defined in the 1940 Act, of Morgan Stanley when such entities are acting as
principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized
36
<PAGE>
performance quotations may be furnished by the Company but must be
accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by the Company are based on the standardized methods of
computing performance mandated by the SEC. An explanation of those and other
methods used by the Company to compute or express performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total
return figures are based on historical earnings and are not intended to indicate
future performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assumes that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1-, 5-, and 10- year
period (or over the life of the Fund) and the deduction of all
applicable Company expenses on an annual basis.
Total return figures are calculated according to the following formula:
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
Funds that commenced operations prior to June 30, 1996 for the one-year
period ended June 30, 1996 and for the period from the inception of
each Fund through June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
<S> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares 01/04/93 24.62% 14.58%
Class B Shares+ 08/01/95 18.08 N/A
Class C Shares+ 01/04/93 23.65% 13.74%
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
<S> <C> <C> <C>
Global Fixed Income Fund
Class A Shares 01/04/93 5.20% 7.12%
Class B Shares+ 08/01/95 3.76% N/A
Class C Shares+ 01/04/93 4.47% 6.27%
Asian Growth Fund
Class A Shares 06/23/93 4.45% 13.78%
Class B Shares+ 08/01/95 1.82% N/A
Class C Shares+ 06/23/93 3.64% 12.98%
American Value Fund
Class A Shares 10/18/93 17.40% 11.29%
Class B Shares+ 08/01/95 12.29% N/A
Class C Shares+ 10/18/93 16.50% 10.42%
Worldwide High Income Fund
Class A Shares 04/21/94 19.61% 13.28%
Class B Shares+ 08/01/95 17.07% N/A
Class C Shares+ 04/21/94 18.71% 12.45%
Emerging Markets Fund
Class A Shares 07/06/94 14.16% 0.47%
Class B Shares+ 08/01/95 9.45% N/A
Class C Shares+ 07/06/94 13.30% -0.29%
Latin American Fund
Class A Shares 07/06/94 39.35% 3.56%
Class B Shares+ 08/01/95 29.96% N/A
Class C Shares+ 07/06/94 38.26% 2.64%
Aggressive Equity Fund
Class A Shares 01/02/96 20.52% N/A
Class B Shares 01/02/96 20.18% N/A
Class C Shares 01/02/96 20.10% N/A
U.S. Real Estate Fund
Class A Shares 05/01/96 4.63% N/A
Class B Shares 05/01/96 4.54% N/A
Class C Shares 05/01/96 4.54% N/A
High Yield Fund
Class A Shares 05/01/96 0.29% N/A
Class B Shares 05/01/96 0.21% N/A
Class C Shares 05/01/96 0.21% N/A
International Magnum Fund
Class A Shares N/A N/A N/A
Class B Shares N/A N/A N/A
Class C Shares N/A N/A N/A
Japanese Equity Fund
Class A Shares N/A N/A N/A
Class B Shares N/A N/A N/A
Class C Shares N/A N/A N/A
Growth and Income Fund
Class A Shares N/A N/A N/A
Class B Shares N/A N/A N/A
Class C Shares N/A N/A N/A
European Equity Fund
Class A Shares N/A N/A N/A
Class B Shares N/A N/A N/A
Class C Shares N/A N/A N/A
Money Market Fund 03/12/92 N/A N/A
Tax-Free Money Market Fund N/A N/A N/A
<CAPTION>
Since
Inception
One-Year Period through
Inception Ended June 30,
Date June 30, 1996 1996
--------- --------------- ---------
Government Obligations Money Market
Fund 03/12/92 N/A N/A
</TABLE>
38
<PAGE>
The International Magnum, Japanese Equity, Growth and Income, European
Equity, Tax-Free Money Market and Government Obligations Money Market
Funds had not commenced operations in the fiscal year ended June 30,
1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995.
* Not Annualized.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's
investments.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
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 4.63% for Class A shares; 4.69% for Class B shares and 3.94% for
Class C shares. The 30-day yield for the Worldwide High Income Fund as
of June 30, 1996 was 12.56% for Class A shares; 12.42% for Class B
shares and 12.40% for Class C shares.
CALCULATION OF YIELD FOR MONEY MARKET FUNDS
The current yield of the Money Market, Tax-Free Money Market and
Government Obligations Money Market Funds are calculated daily on a base
period return for a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes in
such account) by its average net asset value for the period, and then
multiplying it by 365/7 to determine the annualized current yield. The
calculation of net change reflects the value of additional shares purchased
with the dividends by the Fund, including dividends on both the original
share and on such additional shares. The yields of the Predecessor Money
Market Portfolio and Predecessor Government Obligations Money Market Portfolio
for the 7-day period ended June 30, 1996 were 4.40% and 4.42% respectively. An
effective yield, which reflects the effects of compounding and represents an
annualization of the current yield with all dividends reinvested, may also be
calculated for each Portfolio by dividing the base period return by 7,
adding 1 to the quotient, raising the sum to the 365th power, and subtracting
1 from the result. The effective yields of the Predecessor Money Market
Portfolio and Predecessor Government Obligations Money Market Portfolio for the
7-day period ended June 30, 1996 were 4.50% and 4.52% respectively.
The yield of a Fund will fluctuate. The annualization of a week's
dividend is not a representation by the Fund to what an investment in the
Fund will actually yield in the future. Actual yields will depend on such
variables as investment quality, average maturity, the type of instruments
the Fund invests in, changes in interest rates on instruments, changes in the
expenses of the Fund and other factors. Yields are one basis investors may
use to analyze the Funds, and other investment vehicles; however, yields of
other investment vehicles may not be comparable because of the factors set
forth in the preceding sentence, differences in the time periods compared,
and differences in the methods used in valuing fund instruments, computing net
asset value and calculating yield.
TAXABLE EQUIVALENT YIELD
It is easy to calculate your own taxable equivalent yield if you know
your tax bracket. The formula is:
Tax Free Yield
--------------------
1 - Your Tax Bracket = Your Taxable Equivalent Yield
For example, if you are in the 28% tax bracket and can earn a tax-free
yield of 7.5%, the taxable equivalent yield would be 10.42%.
The table below indicates the advantages of investments in Municipal
Bonds for certain investors. Tax-exempt rates of interest payable on a
Municipal Bond (shown at the top of each column) are equivalent to the
taxable yields set forth opposite the respective income tax levels, based on
income tax rates effective for the tax year 1996 under the Internal Revenue
Code. There can, of course, be no guarantee that the Tax-Free Money Market or
the Government Obligations Money Market will achieve a specific yield. Also,
it is possible that some portion of the Fund's dividends may be subject to
federal income taxes. A substantial portion, if not all, of such dividends
may be subject to state and local taxes.
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<CAPTION>
SAMPLE LEVEL OF TAXABLE EQUIVALENT RATES
TAXABLE INCOME BASED ON TAX-EXEMPT YIELD OF:
FEDERAL
INCOME
JOINT SINGLE TAX
RETURN RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
__________
* Net amount subject to 1996 Federal Income Tax after deductions and
exemptions, not indexed for 1996 income tax rates.
The taxable equivalent yield for the Predecessor Government Obligations Money
Market Portfolio for the seven days ended June 30, 1996, assuming a federal
income tax rate of 39.6% (maximum rate), was 7.32%. The taxable equivalent
effective yield for the Predecessor Government Obligations Money Market
Portfolio for the seven days ended June 30 1996, assuming the same tax rate,
was 7.48%.
COMPARISONS
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
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 Capital Appreciation Index - a composite of mutual funds
managed for maximum capital gains.
(f) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index - currently includes 67 bonds
and 33 preferred. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(i) Salomon Brothers GNMA Index - includes pools of mortgages originated
by private lenders and guaranteed by the mortgage pools of the Government
National Association.
(j) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(k) Salomon Brothers Broad Investment Grade Bond - is a market-weighted
index that contains approximately 4700 individually priced investment grade
corporate bonds rated BBB or better, United States Treasury/agency issues and
mortgage pass-through securities.
(l) Salomon Brothers World Bond Index - measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
(m) J.P. Morgan Traded Global Bond Index - is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
40
<PAGE>
(n) Lehman LONG-TERM Treasury Bond - is composed of all bonds covered by
the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) Lehman Aggregate Bond Index - is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the Asset-
Backed Securities Index.
(p) NASDAQ Industrial Index - is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and does
not include income.
(q) Composite Indices - 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(r) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- - analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
(s) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,
Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal and
Weisenberger Investment Companies Service - publications that rate fund
performance over specified time periods.
(u) Consumer Price Index (or cost of Living Index), published by the
United States Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.
(v) Stocks, Bonds, Bills and Inflation, published by Hobson Associates -
historical measure of yield, price and total return for common and small company
stock, long-term government bonds, Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.
(x) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index, a
market-capitalization weighted index comprising stocks in Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is
included in the MSCI Combined Far East Free ex-Japan Index at 20% of its
market capitalization.
(z) 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.
(aa) Russell 2500 Small Company Index - is comprised of the bottom 500
stocks in the Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the stocks in the
Russell 2000 Index. The largest security in the index has a market
capitalization of approximately $1.3 billion.
41
<PAGE>
(bb) Morgan Stanley Capital International World Index - An arithmetic,
market value-weighted average of the performance of over 1,470 securities
listed on the stock exchanges of countries in Europe, Australia, New Zealand,
the Far East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment of
dividends.)
(dd) IFC Global Total Return Composite Index - An unmanaged index of
common stocks and includes developing countries in Latin America, East and
South Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ - Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ff) The MSCI Latin America Global Index - is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends).
(gg) Morgan Stanley Capital International Japan Index - An unmanaged index
of common stocks (assumes dividends reinvested).
(hh) NAREIT Index - An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Company's
Funds, that the averages are generally unmanaged, and that the items included
in the calculations of such averages may not be identical to the formula used
by the Company to calculate its performance. In addition, there can be no
assurance that a Fund will continue its 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).
[THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Small Cap Value Has Provided A Favorable Risk/Return Profile"
indicates returns from 14.3% to 19.5% on the vertical axis and risk (standard
deviation) from 14.9% to 24.3% on the horizontal axis. The following points are
indicated on the graph:
For Small Cap Value Portfolio:
Return of 19.5% at risk (standard deviation) of 15.9%
For Small Cap Mean Between Value and Growth:
Return of 15.9% at risk (standard deviation) of 20.6%
Small Cap Growth Portfolio:
Return of 15.6% at risk (standard deviation) of 24.3%
For S&P 500: Return of 14.3% at risk (standard deviation) of 14.9%
Source: Wilshire Associates style performance data 1978-1994
[END OF NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. The S&P 500 and the Style
Portfolio Data are unmanaged indices of securities. The risk factor is an
annualized standard deviation of the annual returns. The Small Cap Value Index
is a straightforward composite benchmark. It is the average of three separate
indices: Low Price/Book Index ("Low P/B"), High Yield Index, and Low
Price/Earnings Index ("Low P/E"). Each index is computed by sorting the
companies of stocks ranked 501-2000 by market capitalization by the fundamental
measure. The universe is then split into equally weighted deciles based on the
sorted fundamental measure. The Low P/B and the Low P/E indices are simply the
unweighted returns from the 8th and 9th decile. The High Yield Index is the
unweighted return from the 2nd and 3rd decile. The process is a repetitive,
rigid algorithm which is not subject to manager selectivity. The Small Cap
Index is the Decile 6-8 index of the Center for Research in Security Prices of
the University of Chicago ("CRSP"). The CRSP
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:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Growth of a $10,000 investment on January 1, 1971 through
September 30, 1995" indicates returns of $10,000 to $710,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1995 on the horizontal axis. Every sixth quarter is presented instead of
lines covering each quarter.
<TABLE>
<CAPTION>
In Thousands (except last column)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70Q4 72Q2 73Q4 75Q2 76Q4 78Q2 79Q4 81Q2 82Q4 84Q2 85Q4 87Q2 88Q4 90Q2 91Q4 93Q2 94Q4 9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $539 $657
Value
$10
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $237 $304
10
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130 $169
10
- -----------------------------------------------------------------------------------------------------------------------------------
10 Year 10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $ 74 $ 85
Govt Bond
10
- -----------------------------------------------------------------------------------------------------------------------------------
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $ 60 $ 62
10
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[END OF TABULAR REPRESENTATION THAT REPLACES GRAPHIC
MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. Small cap securities are
generally more volatile than T-Bills, 10-year government bonds or the S&P 500.
The returns shown assume the reinvestment of all distributions of income and
capital gains and do not reflect the deduction of sales charges or management
fees and expenses that would be applicable to a managed basket of equity
securities. The deduction of such sales charges and management fees and
expenses would reduce the returns shown. It is not possible to invest directly
in an index of equity securities, including any of the MSCI indices. An
investment strategy may be designed to replicate an index of equity securities
and may be more or less successful in achieving such a replication.
THE AMERICAN VALUE FUND'S PORTFOLIO. The portfolio universe consists of
the next 2,000 companies that rank in size following the 500 largest U.S.
corporations. The portfolio consists of approximately 100 companies, many of
which have been in business for over one hundred years and meet the stringent
criteria set forth by Morgan Stanley's portfolio management team. Companies in
the portfolio must be bargain-priced, with quality products and a dominant
market niche. They must demonstrate a sustainable growth rate, a healthy
financial position and have a history of paying dividends.
Careful analysis, using this criteria, helps Morgan Stanley portfolio
managers distinguish an underpriced stock that is in a position to recover, from
one that will continue to decline.
THE MORGAN STANLEY DISTINCTION. The portfolio managers' goal is to
capitalize on the market's tendency to overreact to bad news. Often a single
negative event that has been exaggerated in the stock market can cause a stock's
price to decline much more than is justified by the company's actual prospects.
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>
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentage returns on the vertical axis and countries on the horizontal
axis:
SUPERIOR HISTORIC MARKET RETURNS
1990-1994 ANNUALIZED RETURNS* (US DOLLARS)
Hong Kong 27.18%
Philippines 21.44
CFEFxJ 20.14
Thailand 17.47
Singapore 16.02
Malaysia 13.86
USA 9.16
World 4.24
EAFE 1.82
Korea 0.26
Indonesia -2.15
Taiwan -2.98
Japan -3.43
Past performance of Asian markets is not a guarantee of their future performance
and is not indicative of the Fund's future performance.
* Gross Dividends
Sources: MSCI Indices
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past Performance is no guarantee of future results. The MSCI indices represent
an unmanaged basket of equity securities. The returns shown assume the
reinvestment of all distributions of income and capital gains and do not reflect
the deduction of sales charges or management fees and expenses that would be
applicable to a managed basket of equity securities. The deduction of such
sales charges and management fees and expenses would reduce the returns shown.
It is not possible to invest directly in an index of equity securities,
including any of the MSCI indices. An investment strategy may be designed to
replicate an index of equity securities and may be more or less successful in
achieving such a replication.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentages from 0-100% on the vertical axis and countries on the horizontal
axis:
PRICE EARNINGS/RATIO* AS OF DECEMBER, 1994
Japan 97.3%
Taiwan (E) 36.0
Philippines 28.0
Malaysia 24.2
World 23.2
Korea (E) 22.0
Indonesia 20.9
Thailand 20.1
Singapore 19.5
CFEFxJ(E) 19.4
USA 16.9
Hong Kong 13.3
*Trailing 12 Months
Source: MSCI
(E) Estimate, not from MSCI, 12/31/94
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
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:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates percentage of growth from
0-50% on the vertical axis and countries on the horizontal axis:
GROWTH - HIGH SAVINGS RATE (1991)
Singapore 45%
China 43
Korea 37
Indonesia 37
Thailand 34
Japan 34
Hong Kong 33
Malaysia 33
Taiwan 30
EEC(1) 22
India(1) 20
Mexico 20
Chile 18
Philippines 16
Brazil 16
Argentina 16
USA 15
Source: World Bank
Note: (1) 1989 data.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Morgan Stanley believes that population growth projected by the World Bank for
the 1990s, particularly among the middle class, will create buying power and
fuel demand for products, leading to economic growth and industrial
sophistication:
Total Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will greatly increase consumption of
goods and services.
48
<PAGE>
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates the percentages of population
under the age of 15 ranging from 0-50% on the horizontal axis and countries on
the vertical axis.
YOUNG POPULATION (1991)
Source: The Economist
Note:(1) 1990 data.
USA 22%
Argentina(1) 30
Brazil(1) 35
Chile(1) 31
Mexico(1) 37
Venezuela(1) 38
Indonesia 37
S. Korea 27
Malaysia 37
Philippines 39
Taiwan 27
Thailand 35
India 36
Turkey(1) 35
Jordan(1) 44
Nigeria(1) 47
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will have a tremendous impact on
consumption of goods and services.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
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 September 30, 1996, MSAM, together with its affiliated asset management
companies, had approximately $103.5 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>
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bell curve line graph that indicates development
increasing upward in the vertical axis and time of maturity increasing to the
right in the horizontal axis:
EMERGING MARKET LIFE CYCLE
- ------------------------------------------------------------------------------
COUNTRIES BEHIND-THE- EMERGING ESTABLISHED MATURE
SCENES MARKETS GROWTH ECONOMIES
- ------------------------------------------------------------------------------
Germany X
- ------------------------------------------------------------------------------
U.S. X
- ------------------------------------------------------------------------------
Japan X
- ------------------------------------------------------------------------------
U.K. X
- ------------------------------------------------------------------------------
Spain X
- ------------------------------------------------------------------------------
Hong Kong X
- ------------------------------------------------------------------------------
Singapore X
- ------------------------------------------------------------------------------
Portugal X
- ------------------------------------------------------------------------------
Taiwan X
- ------------------------------------------------------------------------------
Greece X
- ------------------------------------------------------------------------------
Korea X
- ------------------------------------------------------------------------------
Malaysia X
- ------------------------------------------------------------------------------
Turkey X
- ------------------------------------------------------------------------------
Thailand X
- ------------------------------------------------------------------------------
Mexico X
- ------------------------------------------------------------------------------
Chile X
- ------------------------------------------------------------------------------
Argentina X
- ------------------------------------------------------------------------------
Venezuela X
- ------------------------------------------------------------------------------
Indonesia X
- ------------------------------------------------------------------------------
Philippines X
- ------------------------------------------------------------------------------
India X
- ------------------------------------------------------------------------------
Brazil X
- ------------------------------------------------------------------------------
Pakistan X
- ------------------------------------------------------------------------------
Sri Lanka X
- ------------------------------------------------------------------------------
Peru X
- ------------------------------------------------------------------------------
Egypt X
- ------------------------------------------------------------------------------
Sub-Saharan
Africa X
- ------------------------------------------------------------------------------
Eastern Europe X
- ------------------------------------------------------------------------------
Cuba X
- ------------------------------------------------------------------------------
Vietnam X
- ------------------------------------------------------------------------------
Iran X
- ------------------------------------------------------------------------------
Source: Morgan Stanley Research
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, this region's economy has grown faster than the industrial
countries, as measured by Gross Domestic Product, and the World Bank projects it
to grow twice as fast as the industrial countries by the year 2000.
Real GDP Growth
1965-93 1993-2000
Forecast
Latin America 4.3% 5.0%
Industrial Countries 3.1% 2.5%
SOURCE: WORLD BANK
PAST PERFORMANCE OF LATIN AMERICAN MARKETS, HOWEVER, IS NO GUARANTEE OF THE
LATIN AMERICAN FUND'S FUTURE PERFORMANCE.
Morgan Stanley believes that the population growth projected by the World
Bank for the 1990s in these developing countries, particularly among the middle
class, will create buying power and fuel demand for products, leading to
economic growth and industrial sophistication:
Growth of
Total Growth of
Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
52
<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 Company's Articles of Incorporation permit the Directors to issue 21.75
billion shares of common stock, par value $.001 per share, from an unlimited
number of Funds. Currently the Company is
53
<PAGE>
authorized to offer shares of seventeen Funds, fourteen of which have Class A,
Class B and Class C shares.
The shares of each Fund of the Company are fully paid and
non-assessable, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Fund of the Company
have no pre-emptive rights. The shares of the Company have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so. A shareholder is entitled to one vote for each full share owned (and a
fractional vote for each fractional share owned), then standing in his name on
the books of the Company.
DIVIDENDS AND DISTRIBUTIONS
The Company's policy is to distribute substantially all of each
Fund's net investment income, if any. Each Fund may choose to make
sufficient distributions of net capital gains to avoid liability for
federal excise tax. A Fund will not be subject to federal income tax on
capital gains or ordinary income distributed to shareholders so long as it
qualifies as a RIC (see discussion under "Dividends and Distributions" and
"Taxes" in the Prospectus). However, the Company may also choose to retain
net realized capital gains and pay taxes on such gains. The amounts of any
income dividends or distributions cannot be predicted.
Any dividend or distribution paid shortly after an investor purchases
shares of a Non-Money Market Fund will reduce the per share net asset value
of that Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes to shareholders subject to taxes as set
forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise
in writing, all dividends and distributions of a Fund are automatically
reinvested in additional shares of that Fund at net asset value as of the
business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at
least three days prior to a record date that the shareholder has elected
either the Income Option (income dividends in cash and distributions in
additional shares at net asset value) or the Cash Option (both income
dividends and distributions in cash). No initial sales charge or CDSC is
imposed on shares of any of the Funds, including the Non-Money Market Funds,
that are purchased through the automatic reinvestment of dividends and
distributions of a Fund.
Each Fund generally will be treated as a separate corporation (and hence
as a separate "regulated investment company") for federal tax purposes. Any
net capital gains of any Fund, whether or not distributed to investors,
cannot be offset against net capital losses of any other Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Company's domestic custodian except with respect to
the Money Market Funds. Chase is not affiliated with Morgan Stanley &
Co. Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as the
Company's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Company in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan
Stanley Trust Company is an affiliate of Morgan Stanley & Co. Incorporated.
In the selection of foreign subcustodians, the Directors consider a number of
factors, including, but not limited to, the reliability and financial
stability of the institution, the ability of the institution to provide
efficiently the custodial services required for the Company, and the
reputation of the institution in the particular country or region. PNC Bank,
N.A. serves as the Company's custodian for each of the Money Market Funds.
54
<PAGE>
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS: AAA - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-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 RATINGS GROUP ("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.
55
<PAGE>
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.
56
<PAGE>
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
III. FOREIGN INVESTMENTS
The Funds may invest in securities of foreign issuers. Investors should
recognize that investing in such foreign securities involves certain special
considerations which are not typically associated with investing in United
States issuers. For a description of the effect on the 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 a Fund's net asset value
at the time of purchase.
Although the Funds will endeavor to achieve the most favorable execution
costs in their portfolio transactions, fixed commissions on many foreign
stock exchanges are generally higher than negotiated commissions on United
States exchanges.
Certain foreign governments levy withholding or other taxes on dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will
reduce the income received from investments in such countries. Except in the
case of the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund
and Worldwide High Income Fund, it is not expected that a Fund or its
shareholders would be able to claim a credit for U.S. tax purposes with
respect to any such foreign taxes. However, these foreign withholding taxes
may not have a significant impact on any such Fund because its investment
objective is to seek long-term capital appreciation and any dividend or
interest income should be considered incidental.
IV. EMERGING COUNTRY EQUITY AND DEBT SECURITIES
The definition of emerging country equity or debt securities of each of
the Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging
Markets, Latin American, European Equity and Worldwide High Income Funds
includes securities of companies that may have characteristics and business
relationships common to companies in a country or countries other than an
emerging country. As a result, the value of the securities of such companies
may reflect economic and market forces applicable to other countries, as well
as to an emerging country. The Adviser believes, however, that investment in
such companies will be appropriate because the Fund will invest only in those
companies which, in its view, have sufficiently strong exposure to economic
and market forces in an emerging country such that their value will tend to
reflect developments in such emerging country to a greater extent than
developments in another country or countries. The Fund may invest in
companies organized and located in countries other than an emerging country,
including companies having their entire production facilities
57
<PAGE>
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 Fund generally will vary
inversely to changes in prevailing interest rates. The Fund's investments in
fixed-rated debt securities with longer terms to maturity are subject to
greater volatility than the Fund's investments in shorter-term obligations.
Debt obligations acquired at a discount are subject to greater fluctuations
of market value in response to changing interest rates than debt obligations
of comparable maturities which are not subject to such discount.
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, the Fund may
have limited legal recourse against the issuer and/or guarantor. Remedies must,
in some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country. In addition,
no assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign government debt obligations in
the event of default under their commercial bank loan agreements.
The Fund may invest in certain debt obligations customarily referred to
as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various
currencies (although most are U.S. Dollar-denominated) and they are actively
traded in the over-the-counter secondary market. The Fund may purchase Brady
Bonds either in the primary or secondary markets. The price and yield of
Brady Bonds purchased in the secondary market will reflect the market
conditions at the time of purchase, regardless of the stated face amount and
the stated interest rate. With respect to Brady Bonds with no or limited
collateralization, the Fund will 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
58
<PAGE>
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 Company's audited financial statements and notes thereto for the
fiscal year ended June 30, 1996, and the report thereon of Price Waterhouse
LLP, independent accountants, which appear in the June 30, 1996 Annual Report
to Shareholders follow. The International Magnum Fund, Japanese Equity Fund,
European Equity Fund, Growth and Income Fund, Money Market Fund, Tax-Free
Money Market Fund and Government Obligations Money Market Fund were not
operational as of the date of the Annual Report.
The PCS Cash Fund, Inc.'s audited financial statements and notes thereon
for the fiscal year ended June 30, 1996, and the report thereon of Coopers &
Lybrand, L.L.P., which appear in the PCS Cash Fund, Inc.'s Annual Report to
Shareholders also follow. These financial statements and notes thereon relate
to the PCS Money Market Portfolio and PCS Government Obligations Money Market
Portfolio which were the predecessors of the Morgan Stanley Money Market Fund
and Morgan Stanley Government Obligations Money Market Fund, respectively.
59
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (86.5%)
AUSTRALIA (2.4%)
17,000 Amcor Ltd. ....................................... $ 116
21,500 Australian National Industries Ltd. .............. 17
27,200 Boral Ltd. ....................................... 71
6,700 Brambles Industries Ltd. ......................... 93
47,800 Broken Hill Proprietary Ltd. ..................... 660
14,900 Burns, Philip & Co., Ltd. ........................ 28
12,700 Coca-Cola Amatil Ltd. ............................ 141
34,300 Coles Myer Ltd. .................................. 125
8,000 CRA Ltd. ......................................... 123
27,400 CSR Ltd. ......................................... 97
61,600 Fosters Brewing Corp. ............................ 106
21,751 General Property Trust............................ 37
12,300 Gio Australia Holdings Ltd. ...................... 30
32,400 Gold Mines of Kalgoorlie Ltd. .................... 35
34,100 Goodman Fielder Ltd. ............................. 34
(a)5,488 Highlands Gold Ltd. (New)......................... 3
8,700 ICI Australia Ltd. ............................... 76
7,212 Lend Lease Corp., Ltd. ........................... 111
42,400 MIM Holdings Ltd. ................................ 55
35,100 National Australia Bank Ltd. ..................... 324
8,200 Newcrest Mining Ltd. ............................. 33
48,800 News Corp., Ltd. ................................. 277
(a)18,600 Normandy Mining Ltd. ............................. 29
19,256 North Broken Hill Peko Ltd. ...................... 55
27,900 Pacific Dunlop Ltd. .............................. 63
26,400 Pioneer International Ltd. ....................... 77
6,041 Renison Goldfields Consolidated Ltd. ............. 29
16,800 Santos Ltd. ...................................... 58
3,600 Sons of Gwalia Ltd. .............................. 25
20,100 Southcorp Holdings Ltd. .......................... 50
11,000 Tabcorp Holdings Ltd. ............................ 50
(a)9,000 TNT Ltd. ......................................... 10
26,800 Western Mining Corp. ............................. 192
48,000 Westpac Banking Corp., Ltd. ...................... 212
-------
3,442
-------
AUSTRIA (0.3%)
50 Austria Mikro Systems International AG............ 5
(a)60 Austrian Airlines AG.............................. 9
790 Bank of Austria AG................................ 64
(a)147 Bank of Austria AG (New).......................... 12
200 Bank of Austria AG-Partial Certificate............ 7
150 Bau Holdings AG................................... 9
210 Boehler-Udderholm AG.............................. 16
60 BWT AG............................................ 8
660 Creditanstalt-Bankverein.......................... 44
270 EA-Generali AG.................................... 80
240 Flughafen Wein AG................................. 17
80 Lenzing AG........................................ 5
(a)300 Mayr-Melnhof Karton AG............................ 13
780 Oesterreichische Elektrizitaets 'A'............... 60
300 OMV AG............................................ 30
510 Radex-Heraklith Industriebet AG................... 16
(a)80 Universale-Bau AG................................. 3
440 VA Technologie AG................................. 54
120 Wienerberger Baustoffindustrie AG................. 24
-------
476
-------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
BRAZIL (0.2%)
(a)243,000 Cia Paulista De Forca e Luz....................... $ 22
850,000 Cia Siderurgica Nacional.......................... 22
800,000 Eletrobras........................................ 215
184,000 Light............................................. 49
(a)(d)184,000 Light (New)....................................... 13
(a)17,828 Telesp ........................................... 3
-------
324
-------
FRANCE (4.3%)
575 Accor S.A. ....................................... 81
2,650 Alcatel Alsthom................................... 232
1,225 Air Liquide....................................... 217
2,956 AXA S.A. ......................................... 162
2,650 Banque Nationale de Paris......................... 93
2,027 Banque Paribas.................................... 120
500 BIC............................................... 71
582 Bouygues.......................................... 65
425 Canal Plus........................................ 104
635 Carrefour S.A. ................................... 356
1,600 Casino Guichard................................... 66
(a)125 Chargeurs International S.A. ..................... 6
343 Cie Bancaire S.A. ................................ 39
1,670 Cie de Saint-Gobain............................... 224
2,890 Cie de Suez S.A. ................................. 106
2,173 Cie Generale des Eaux............................. 243
5,540 Compagnie UAP..................................... 113
4,850 Elf Acquitaine.................................... 357
650 Eridania Beghin-Say S.A. ......................... 102
1,368 Groupe Danone RFD................................. 207
1,090 Havas S.A. ....................................... 89
1,927 Lafarge Coppee S.A. .............................. 117
510 Legrand S.A. ..................................... 91
1,220 L'Oreal........................................... 406
1,655 LVMH Moet Hennessy Louis Vuitton.................. 393
1,323 Lyonnaise des Eaux S.A. .......................... 126
2,310 Michelin (C.G.D.E.) 'B'........................... 113
(a)125 Pathe S.A. ....................................... 29
1,100 Pernod-Ricard..................................... 71
380 Pinault S.A. ..................................... 133
340 Promodes.......................................... 98
1,005 PSA Peugeot Citroen S.A. ......................... 135
5,862 Rhone-Poulenc S.A. 'A'............................ 154
85 Sagem............................................. 51
220 Saint Louis....................................... 59
1,755 Sanofi S.A. ...................................... 132
(a)2,550 Schneider S.A. ................................... 134
(a)600 Simco S.A. ....................................... 55
(a)29 Simco S.A. (New).................................. 2
90 Societe Eurafrance S.A. .......................... 35
1,589 Societe Generale.................................. 175
150 Sodexho S.A. ..................................... 67
2,750 Thomson CSF S.A. ................................. 77
4,000 Total S.A. 'B'.................................... 297
(a)5,040 Usinor Sacilor.................................... 73
-------
6,076
-------
GERMANY (5.8%)
(a)100 Aachener & Muenchener Beteiligungs AG............. 72
(a)900 Agiv AG........................................... 17
500 Allianz AG........................................ 870
100 Asko Deutsche Kaufhaus AG......................... 74
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
GERMANY (CONT.)
1,400 BASF AG........................................... $ 399
16,000 Bayer AG.......................................... 564
5,400 Bayer Hypotheken Bank AG.......................... 131
5,850 Bayer Vereinsbank AG.............................. 164
(a)100 Beiersdorf AG..................................... 99
100 Bilfinger & Berger Bau AG......................... 42
150 Brau und Brunnen AG............................... 16
(a)400 Bremer Vulkan Verbund AG.......................... 1
50 CKAG Colonia Konz AG.............................. 40
2,400 Continental AG.................................... 39
(a)1,150 Daimler-Benz AG................................... 618
250 Degussa AG........................................ 85
10,500 Deutsche Bank AG.................................. 498
800 Deutsche Lufthansa AG............................. 113
11,000 Dresdner Bank AG.................................. 276
100 Heidelberger Zement AG............................ 69
200 Hochtief AG....................................... 89
300 Karstadt AG....................................... 120
200 Kaufhof Holding AG................................ 76
(a)1,350 Kloeckner-Humboldt-Deutz AG....................... 5
250 Linde AG.......................................... 162
(a)50 Linotype-Hell AG.................................. 2
250 MAN AG............................................ 63
850 Mannesmann AG..................................... 293
3,773 Merck KGAA........................................ 143
153 Muenchener Rueck (Registered)..................... 313
500 Preussag AG....................................... 126
7,600 RWE AG............................................ 296
1,410 SAP AG............................................ 208
1,550 Schering AG....................................... 113
13,150 Siemens AG........................................ 706
(a)50 Starbag AG........................................ 4
900 Thyssen AG........................................ 165
11,250 Veba AG........................................... 599
550 Viag AG........................................... 219
(a)128 Viag AG RFD....................................... 51
600 Volkswagen AG..................................... 224
-------
8,164
-------
HONG KONG (4.6%)
(a)28,000 Applied International Holdings Ltd. .............. 2
29,135 Bank of East Asia Ltd............................. 107
110,000 Cathay Pacific Airways Ltd. ...................... 202
82,000 Cheung Kong Holdings Ltd. ........................ 591
74,000 China Light and Power Co., Ltd. .................. 336
61,289 China Estate Holdings Ltd. ....................... 55
29,000 Dickson Concepts International Ltd. .............. 37
24,000 Giordano Holdings Ltd. ........................... 23
47,000 Hang Lung Development Corp. ...................... 88
71,600 Hang Seng Bank Ltd. .............................. 721
7,200 Hong Kong Aircraft Engineering Co., Ltd. ......... 22
72,480 Hong Kong & China Gas Co. ........................ 116
48,000 Hong Kong Shanghai Hotels......................... 82
404,516 Hong Kong Telecommunications Ltd. ................ 726
156,869 Hopewell Holdings Ltd. ........................... 85
131,000 Hutchison Whampoa Ltd. ........................... 824
38,000 Hysan Development Co. ............................ 116
15,000 Johnson Electric Holdings Ltd. ................... 34
2,400 Melco International Development Ltd. ............. 1
22,000 Miramar Hotel Investment Ltd. .................... 49
57,135 New World Development Co., Ltd. .................. 265
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
53,000 Oriental Press Goup............................... $ 28
14,300 Peregrine Investment Holdings..................... 21
40,905 Shangri-La Asia Ltd. ............................. 57
62,000 Shun Tak Holdings Ltd. ........................... 38
70,000 South China Morning Post.......................... 48
39,000 Stelux Holdings Ltd. ............................. 9
85,000 Sun Hung Kai Properties Ltd. ..................... 859
58,500 Swire Pacific Ltd. 'A'............................ 501
16,000 Television Broadcasting Ltd. ..................... 60
81,000 Wharf Holdings Ltd. .............................. 290
13,000 Winsor Industrial................................. 11
5,716 Wing Lung Bank.................................... 33
-------
6,437
-------
INDONESIA (0.3%)
(d)17,465 Bank Dagang Nasional (Foreign).................... 15
(d)31,294 Barito Pacific Timber (Foreign)................... 21
(d)26,949 Gadjah Tungal (Foreign)........................... 13
(d)80,000 Gudang Garam (Foreign)............................ 343
(d)8,966 Jakarta International Hotel (Foreign)............. 8
(d)9,500 Jaya Real Property (Foreign)...................... 31
11,500 Lippo Bank (Foreign).............................. 20
-------
451
-------
ITALY (6.6%)
44,475 Assicurazioni Generali S.p.A. .................... 1,027
90,300 Banca Commerciale Italiana........................ 182
29,900 Banco Ambrosiano Veneto........................... 80
13,000 Benetton Group S.p.A. ............................ 168
8,700 Cartiere Burgo S.p.A. ............................ 48
108,500 Credito Italiano S.p.A. .......................... 127
41,000 Edison S.p.A. .................................... 248
451,000 Ente Nazionale Idrocarburi S.p.A. ................ 2,252
(a)5,000 Falck Acciaierie & Ferriere Lombarde.............. 19
189,500 Fiat S.p.A. ...................................... 636
46,700 Fiat S.p.A. Di Risp NCS........................... 80
(a)31,000 Fidis Finanziaria di Sviluppo S.p.A. ............. 85
(a)16,000 Impreglio S.p.A. ................................. 17
47,600 Istituto Bancario San Paolo di Torina S.p.A. ..... 308
34,700 Istituto Mobiliare Italiano S.p.A. ............... 290
234,200 Istituto Nazionale delle Assicurazioni (INA)...... 350
15,800 Italcementi S.p.A. ............................... 127
8,650 Italcementi S.p.A. NCS............................ 27
38,400 Italgas........................................... 144
15,565 La Rinascente S.p.A. ............................. 112
26,500 Magneti Marelli S.p.A. ........................... 38
29,050 Mediobanca S.p.A. ................................ 185
(a)254,200 Montedison S.p.A. ................................ 148
(a)58,900 Montedison S.p.A. Di Risp NCS..................... 35
(a)210,750 Olivetti Group.................................... 114
(a)49,700 Parmalat Finanziaria S.p.A. ...................... 67
105,000 Pirelli S.p.A. ................................... 176
17,051 R.A.S. ........................................... 176
(a)1,800 Saffa S.p.A. 'A'.................................. 4
7,100 S.A.I. ........................................... 68
8,300 Sasib S.p.A. ..................................... 34
16,500 Sirti S.p.A. ..................................... 106
36,000 Snia BPD S.p.A. .................................. 40
371,700 Telecom Italia S.p.A. ............................ 800
97,500 Telecom Italia Di Risp S.p.A. .................... 168
375,300 Telecom Italia Mobile S.p.A....................... 840
-------
9,326
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
JAPAN (23.5%)
2,200 Advantest Corp. .................................. $ 88
24,000 Ajinomoto Co., Inc. .............................. 288
(a)12,000 Aoki Corp. ....................................... 45
1,000 Aoyama Trading Co., Ltd. ......................... 26
39,000 Asahi Bank Ltd. .................................. 453
12,000 Asahi Breweries Ltd. ............................. 140
36,000 Asahi Chemical Industry Co., Ltd. ................ 258
34,000 Asahi Glass Co. .................................. 407
(a)71,000 Bank of Tokyo-Mitsubishi.......................... 1,650
12,000 Bridgestone Corp. ................................ 229
18,000 Canon, Inc. ...................................... 375
7,000 Casio Computer Co., Ltd. ......................... 67
19,000 Chiba Bank........................................ 168
5,000 Chiyoda Corp. .................................... 59
12,000 Chugai Pharmaceutical Ltd. ....................... 117
24,000 Dai Nippon Printing Co., Ltd. .................... 465
16,000 Daiei Inc. ....................................... 193
12,000 Daikin Industries Ltd. ........................... 132
12,000 Daiwa House Industry.............................. 186
24,000 Daiwa Securities Co., Ltd. ....................... 309
8,000 Ebara Corp. ...................................... 128
5,100 Fanuc Co. ........................................ 203
45,000 Fuji Bank......................................... 971
12,000 Fuji Photo Film Ltd. ............................. 380
39,000 Fujitsu Ltd. ..................................... 357
19,000 Furukawa Electric................................. 114
(a)24,000 Hankyu Corp. ..................................... 141
12,000 Hazama-Gumi....................................... 53
60,000 Hitachi Ltd. ..................................... 560
19,000 Honda Motor Co. .................................. 494
38,000 Industrial Bank of Japan.......................... 945
8,000 Ito-Yokado Co., Ltd. ............................. 484
(a)48,000 Japan Airlines.................................... 389
30,000 Japan Energy Corp. ............................... 112
13,000 Joyo Bank......................................... 99
9,000 Jusco Co. ........................................ 295
24,000 Kajima Corp. ..................................... 248
12,800 Kansai Electric Power Co. ........................ 294
22,000 KAO Corp. ........................................ 298
61,000 Kawasaki Steel Corp. ............................. 220
36,050 Kinki Nippon Railway.............................. 260
24,000 Kirin Brewery Co. Ltd. ........................... 294
24,000 Komatsu Ltd. ..................................... 237
36,000 Kubota Corp. ..................................... 238
24,000 Kumagai Gumi Co., Ltd. ........................... 97
12,000 Kyowa Hakko Kogyo................................. 115
36,000 Marubeni Corp. ................................... 198
7,000 Marui Co. ........................................ 156
36,000 Matsushita Electric Industries Ltd. .............. 672
36,000 Mitsubishi Chemical Corp. ........................ 167
33,000 Mitsubishi Corp. ................................. 435
42,000 Mitsubishi Electric Corp. ........................ 294
26,000 Mitsubishi Estate Co., Ltd. ...................... 359
65,000 Mitsubishi Heavy Industries Ltd. ................. 567
24,000 Mitsubishi Materials Corp. ....................... 131
21,000 Mitsubishi Trust and Banking Corp. ............... 355
36,000 Mitsui & Co. ..................................... 327
(a)24,000 Mitsui Engineering & Shipbuilding Co., Ltd. ...... 73
19,000 Mitsui Fudosan Co., Ltd. ......................... 257
13,000 Mitsukoshi........................................ 139
5,000 Murata Manufacturing.............................. 190
29,000 NEC Corp. ........................................ 316
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
24,000 New OJI Paper Co., Ltd. .......................... $ 208
12,000 NGK Insulators Ltd. .............................. 135
12,000 Nippon Denko Co., Ltd. ........................... 261
23,000 Nippon Express Co., Ltd. ......................... 225
12,000 Nippon Fire & Marine Insurance Co. ............... 78
12,000 Nippon Light Metal Co. ........................... 68
12,000 Nippon Meat Packers............................... 171
36,000 Nippon Oil Co. ................................... 245
132,000 Nippon Steel Corp. ............................... 454
36,000 Nippon Yusen Kabushiki Kaisha..................... 209
45,000 Nissan Motor Co., Ltd. ........................... 401
(a)70,000 NKK Corp. ........................................ 213
36,000 Nomura Securities Co., Ltd. ...................... 705
23,690 Odakyu Electric Railway Co. ...................... 160
53,000 Osaka Gas Co. .................................... 194
12,000 Penta-Ocean Construction.......................... 81
4,000 Pioneer Electronic Corp. ......................... 95
2,000 Rohm Co. ......................................... 132
59,000 Sakura Bank....................................... 658
12,000 Sankyo Co., Ltd. ................................. 312
36,000 Sanyo Electric Co., Ltd. ......................... 220
3,000 Secom Co. ........................................ 199
1,800 Sega Enterprises.................................. 84
12,000 Sekisui House Ltd. ............................... 137
24,000 Sharp Corp. ...................................... 421
3,000 Shimano Inc. ..................................... 54
5,250 Shin-Etsu Chemical Co. ........................... 101
17,000 Shinizu Corp. .................................... 188
5,000 Shiseido Co., Ltd. ............................... 64
16,000 Shizuoka Bank..................................... 206
(a)24,000 Showa Denko K.K. ................................. 74
6,000 Sony Corp. ....................................... 396
52,000 Sumitomo Bank..................................... 1,008
48,000 Sumitomo Chemical Co. ............................ 230
24,000 Sumitomo Corp. ................................... 214
16,000 Sumitomo Electric Industries...................... 230
5,000 Sumitomo Forestry................................. 75
84,000 Sumitomo Metal Industries......................... 258
11,000 Sumitomo Metal Mining Co. ........................ 95
12,000 Sumitomo Osaka Cement Co., Ltd. .................. 59
24,000 Taisei Corp., Ltd. ............................... 171
24,000 Takeda Chemical Industries........................ 426
24,000 Teijin Ltd. ...................................... 131
24,000 Tobu Railway Co. ................................. 158
8,600 Tohoku Electric Power............................. 193
37,000 Tokai Bank........................................ 481
36,000 Tokio Marine & Fire Insurance Co. ................ 481
5,000 Tokyo Dome Corp. ................................. 101
22,200 Tokyo Electric Power Co. ......................... 565
3,000 Tokyo Electron Ltd. .............................. 88
35,000 Tokyo Gas Co. .................................... 128
24,000 Tokyu Corp. ...................................... 183
16,000 Toppan Printing Co., Ltd. ........................ 234
36,000 Toray Industries, Inc. ........................... 249
12,000 Toto Ltd. ........................................ 181
24,000 Toyobo Ltd. ...................................... 90
55,000 Toyota Motor Corp. ............................... 1,378
24,000 Ube Industries Ltd. .............................. 92
24,000 Yamaichi Securities............................... 165
24,000 Yasuda Trust & Banking............................ 152
-------
33,282
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
MALAYSIA (0.1%)
2,000 Commerce Asset Holdings Bhd. ..................... $ 12
1,000 Hong Leong Industries Bhd. ....................... 5
4,000 Land & General Bhd. .............................. 10
4,000 Leader Universal Holdings Bhd. ................... 11
2,000 Malaysian Mining Corp. Bhd. ...................... 2
1,000 Malaysian Oxygen Bhd. ............................ 5
9,000 Metroplex Bhd. ................................... 10
5,000 United Engineers Bhd. ............................ 35
-------
90
-------
NETHERLANDS (1.5%)
2,822 ABN-Amro Holdings N.V. ........................... 152
700 Akzo Nobel N.V. .................................. 84
5,800 Elsevier N.V. .................................... 88
350 Heineken N.V. .................................... 78
6,905 ING Groep N.V. ................................... 206
785 KLM Royal Dutch Airlines N.V. .................... 25
1,239 Koninklijke Ahold N.V. ........................... 67
278 Koninklijke Hoogovens............................. 10
900 Koninklijke KNP BT................................ 22
9,067 Koninklijke PTT Nederland N.V. ................... 344
200 Nedlloyd Groep N.V. .............................. 5
2,900 Phillips Electronics N.V. ........................ 94
4,700 Royal Dutch Petroleum N.V. ....................... 727
289 Stork N.V. ....................................... 8
1,400 Unilever N.V. .................................... 203
640 Wolters Kluwer N.V. .............................. 73
-------
2,186
-------
SINGAPORE (2.1%)
11,000 Amcol Holdings Ltd. .............................. 24
(a)29,000 City Developments Ltd. ........................... 226
7,000 Cycle & Carriage Ltd. ............................ 75
34,000 DBS Land Ltd. .................................... 117
20,000 Development Bank of Singapore..................... 249
9,000 First Capital Corp. .............................. 22
11,200 Fraser & Neave Ltd. .............................. 116
12,000 Hai Sun Hup Group Ltd. ........................... 9
12,000 Hotel Properties Ltd. ............................ 21
5,000 Inchcape Bhd. .................................... 16
5,000 Jurong Shipyard Ltd. ............................. 25
19,000 Keppel Corp. ..................................... 159
15,000 Natsteel Ltd. .................................... 30
21,000 Neptune Orient Lines Ltd. ........................ 22
28,000 Oversea-Chinese Banking Corp. .................... 327
5,000 Overseas Union Enterprise Ltd. ................... 27
11,000 Parkway Holdings Ltd. ............................ 33
2,000 Robinson & Co., Ltd. ............................. 8
5,000 Shangri-La Hotel Ltd. ............................ 18
27,000 Singapore Airlines Ltd. (Foreign)................. 285
10,600 Singapore Press Holdings (Foreign)................ 208
21,000 Singapore Technologies Industrial Corp. .......... 56
222,000 Singapore Telecommunications Ltd. ................ 592
10,000 Straits Trading Co., Ltd. ........................ 26
51,000 United Industrial Corp. Ltd. ..................... 52
21,000 United Overseas Bank Ltd. ........................ 201
-------
2,944
-------
SPAIN (3.4%)
540 Acerinox S.A. .................................... 56
2,000 Aguas De Barcelona S.A. .......................... 74
5,800 Argentaria S.A. .................................. 253
9,353 Autopistas Concesionaria Espanola S.A. ........... 109
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
10,300 Banco Bilbao Vizcaya (Registered)................. $ 418
7,500 Banco Central Hispanoamericano S.A. .............. 153
7,300 Banco Santander S.A. ............................. 341
700 Corporacion Financiera Alba S.A. ................. 58
99 Corporacion Mapfre S.A. .......................... 4
1,250 Corporacion Mapfre ADR S.A. ...................... 64
2,650 Dragados & Construcciones S.A. ................... 35
2,200 Ebro Agricolas, Compania de Alimentacion S.A. .... 25
950 Empresa Nacional de Cellulosas S.A. .............. 14
11,700 Empresa Nacional de Electricidad S.A. ............ 731
317 Energia y Indsutrias Aragonesas................... 2
(a)11,300 Ercros S.A. ...................................... 7
700 Fomento de Construcciones y Contratas S.A. ....... 58
1,700 Gas Natural SDG 'E'............................... 358
200 Gines Navarro Construction Co. ................... 2
42,700 Iberdrola S.A. ................................... 439
1,025 Inmobiliaria Metropolitana Vasco Central S.A. .... 35
400 Portland Vaderrivas S.A. ......................... 26
13,800 Repsol S.A. ...................................... 481
1,700 Tabacalera S.A. 'A'............................... 86
43,000 Telefonica de Espana.............................. 793
13,400 Union Electrica Fenosa S.A. ...................... 86
2,400 Uralita S.A. ..................................... 23
1,950 Vallehermoso S.A. ................................ 39
1,050 Viscofan Industria Navarra De Envolturas
Celulosicas S.A. ............................... 17
380 Zardoya-Otis S.A. ................................ 36
-------
4,823
-------
SWITZERLAND (1.5%)
60 ABB AG (Bearer)................................... 74
25 Adia S.A. (Bearer)................................ 6
25 Alusuisse-Lonza Holding AG (Bearer)............... 21
50 Alusuisse-Lonza Holding AG (Registered)........... 41
30 Ciba-Geigy AG (Bearer)............................ 36
160 Ciba-Geigy AG (Registered)........................ 195
800 CS Holding AG (Registered)........................ 76
10 Georg Fischer AG (Bearer)......................... 12
45 Holderbank Financiere Glaris AG, 'B' (Bearer)..... 36
30 Merkur Holding AG (Registered).................... 6
250 Nestle S.A. (Registered).......................... 286
10 Roche Holding AG (Bearer)......................... 124
45 Roche Holding AG-Genusshein....................... 344
225 Sandoz AG (Registered)............................ 258
(a)25 SMH AG (Bearer)................................... 17
(a)100 SMH AG (Registered)............................... 16
10 Societe Generale de Surveillance Holding S.A.
(Bearer)........................................ 24
25 Sulzer AG (Registered)............................ 16
563 Swiss Bank Corp. (Registered)..................... 111
100 Swiss Reinsurance Co. (Registered)................ 103
(a)25 SwissAir AG (Registered).......................... 24
140 Union Bank of Switzerland (Bearer)................ 137
150 Union Bank of Switzerland (Registered)............ 32
250 Zuerich Versicherungs-Gesellschaft (Registered)... 68
-------
2,063
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (4.6%)
12,500 Abbey National plc................................ $ 105
11,200 Argyll Group plc.................................. 60
8,300 Arjo Wiggins Appleton plc......................... 23
3,800 Associated British Foods plc...................... 23
12,926 Barclays plc...................................... 155
8,100 Bass plc.......................................... 102
26,300 BAT Industries plc................................ 205
5,100 BICC plc.......................................... 25
9,684 Blue Circle Industries plc........................ 54
4,600 BOC Group plc..................................... 66
9,500 Boots Co. plc..................................... 85
6,400 BPB Industries plc................................ 32
3,814 British Aerospace plc............................. 58
8,958 British Airways plc............................... 77
35,600 British Gas plc................................... 100
43,286 British Petroleum Co. plc......................... 380
11,800 British Sky Broadcasting Group plc................ 81
16,500 British Steel plc................................. 42
41,400 British Telecommunications plc.................... 223
32,506 BTR plc........................................... 128
2,219 Burmah Castrol plc................................ 35
19,196 Cable & Wireless plc.............................. 127
9,100 Cadbury Schweppes plc............................. 72
5,900 Caradon plc....................................... 20
6,671 Coats Viyella plc................................. 18
3,865 Commercial Union plc.............................. 35
3,800 Courtaulds plc.................................... 25
2,100 De La Rue plc..................................... 19
3,800 General Accident plc.............................. 39
29,000 General Electric plc.............................. 156
4,129 GKN plc........................................... 63
26,600 Glaxo Wellcome plc................................ 358
5,200 Granada Group plc................................. 70
20,800 Grand Metropolitan plc............................ 138
9,200 Great Universal Stores plc........................ 93
12,600 Guardian Royal Exchange plc....................... 48
15,700 Guinness plc...................................... 114
46,447 Hanson plc........................................ 130
9,200 Harrisons & Crosfield plc......................... 19
14,382 HSBC Holdings plc................................. 220
6,500 Imperial Chemical Industries plc.................. 79
12,808 Ladbroke Group plc................................ 36
5,700 Land Securities plc............................... 55
5,900 Lasmo plc......................................... 16
39,700 Lloyds TSB Group plc.............................. 194
6,700 Lonrho plc........................................ 19
26,300 Marks & Spencer plc............................... 192
4,300 MEPC plc.......................................... 27
10,800 National Power plc................................ 87
7,300 Peninsular & Oriental Steam Navigation Co. ....... 55
10,800 Pilkington plc.................................... 30
19,308 Prudential Corp. plc.............................. 122
7,000 Rank Organisation plc............................. 54
6,062 Redland plc....................................... 38
5,100 Reed International plc............................ 85
14,200 Reuters Holdings plc.............................. 172
4,300 Rexam plc......................................... 23
2,400 RMC Group plc..................................... 38
3,838 Royal Bank of Scotland plc........................ 29
6,400 Royal Insurance Holdings plc...................... 40
11,100 RTZ Corp. plc (Registered)........................ 164
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
11,047 Sainsbury (J) plc................................. $ 65
1,900 Schroders plc..................................... 40
6,800 Scottish Power plc................................ 32
14,100 Sears plc......................................... 22
2,200 Sedwick Group plc................................. 5
3,200 Slough Estates plc................................ 11
20,569 Smithkline Beecham plc............................ 220
2,700 Southern Electric plc............................. 30
10,162 Tarmac plc........................................ 18
5,400 Taylor Woodrow plc................................ 13
14,631 Tesco plc......................................... 67
5,100 Thames Water plc.................................. 45
4,600 Thorne EMI plc.................................... 128
3,831 TI Group plc...................................... 32
5,800 Unilever plc...................................... 115
4,900 United Utilities plc.............................. 41
27,200 Vodafone Group plc................................ 101
6,600 Zeneca Group plc.................................. 146
-------
6,509
-------
UNITED STATES (25.3%)
9,400 Abbott Laboratories............................... 409
(a)6,600 Airtouch Communications, Inc. .................... 186
3,000 Aluminum Co. of America........................... 172
6,100 American Express Co. ............................. 272
8,400 American Home Products Corp. ..................... 505
4,600 American International Group, Inc. ............... 454
14,900 American Telephone & Telegraph Co. ............... 924
6,400 Amoco Corp. ...................................... 463
(a)3,000 AMR Corp. ........................................ 273
2,200 Atlantic Richfield Co. ........................... 261
3,000 Automatic Data Processing, Inc. .................. 116
6,010 Banc One Corp. ................................... 204
6,000 BankAmerica Corp. ................................ 454
1,000 Bankers Trust New York Corp. ..................... 74
5,500 Bell Atlantic Corp. .............................. 351
6,400 BellSouth Corp. .................................. 271
6,000 Boeing Co. ....................................... 523
5,900 Bristol-Myers Squibb Co. ......................... 531
5,100 Campbell Soup Co. ................................ 360
3,000 Caterpillar, Inc. ................................ 203
4,000 Chevron Corp. .................................... 236
4,900 Chrysler Corp. ................................... 304
6,000 Chubb Corp. ...................................... 299
(a)4,000 Cisco Systems, Inc. .............................. 226
4,900 Citicorp.......................................... 405
25,400 Coca-Cola Co. .................................... 1,241
5,400 Columbia HCA/Healthcare Corp. .................... 288
3,000 Computer Associates International, Inc. .......... 214
6,000 Consolidated Edison Co. of New York, Inc. ........ 176
3,000 Cooper Industries, Inc. .......................... 124
3,000 Corning, Inc. .................................... 115
2,100 CSX Corp. ........................................ 101
1,500 Deere & Co. ...................................... 60
4,400 Dow Chemical Co. ................................. 334
8,800 Du Pont (EI) de Nemours Co. ...................... 696
6,000 Duke Power Co. ................................... 307
3,000 Dun & Bradstreet Corp. ........................... 188
6,000 Eastman Kodak Co. ................................ 466
3,000 Edison International.............................. 53
3,000 Electronic Data Systems Corp. .................... 161
3,648 Eli Lilly & Co. .................................. 237
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
4,000 Enron Corp. ...................................... $ 164
900 Entergy Corp. .................................... 26
14,700 Exxon Corp. ...................................... 1,277
10,800 Federal National Mortgage Association............. 362
2,800 Fleet Financial Group, Inc. ...................... 122
6,000 FPL Group, Inc. .................................. 276
2,300 Gannett Co., Inc. ................................ 163
17,400 General Electric Co. ............................. 1,505
9,600 General Motors Corp. ............................. 503
1,800 General RE Corp. ................................. 274
3,000 Goodyear Tire & Rubber Co. ....................... 145
1,200 H&R Block, Inc. .................................. 39
(a)1,500 Harrah's Entertainment, Inc. ..................... 42
6,000 Hewlett-Packard Co. .............................. 598
5,550 H.J. Heinz Co. ................................... 169
5,900 Home Depot, Inc. ................................. 319
8,800 Intel Corp. ...................................... 646
6,800 International Business Machines Corp. ............ 673
2,000 International Game Technology..................... 34
3,000 International Paper Co. .......................... 111
3,500 J.C. Penney Co., Inc. ............................ 184
13,400 Johnson & Johnson................................. 663
8,900 Kmart Corp. ...................................... 110
3,000 May Department Stores Co. ........................ 131
7,400 McDonald's Corp. ................................. 346
3,000 Melville Corp. ................................... 121
11,800 Merck & Co., Inc. ................................ 763
(a)5,900 Microsoft Corp. .................................. 709
6,000 Minnesota Mining & Manufacturing Co. ............. 414
5,100 Mobil Corp. ...................................... 572
9,000 Monsanto.......................................... 292
3,000 Morgan (J.P.) & Co., Inc. ........................ 254
7,200 Motorola, Inc. ................................... 453
6,000 NationsBank Corp. ................................ 496
2,400 Norfolk Southern Corp. ........................... 203
6,400 Norwest Corp. .................................... 223
(a)4,600 Novell, Inc. ..................................... 64
1,300 Nucor Corp. ...................................... 66
(a)4,500 Oracle System Corp. .............................. 177
8,700 Pacific Gas & Electric Co. ....................... 202
(a)480 Payless ShoeSource, Inc. ......................... 15
20,000 PepsiCo, Inc. .................................... 707
3,100 Pfizer, Inc. ..................................... 221
7,800 Philip Morris Cos., Inc. ......................... 811
1,900 PPG Industries, Inc. ............................. 93
8,800 Procter & Gamble Co. ............................. 797
8,900 Public Service Enterprise Group, Inc. ............ 244
6,000 Rockwell International Corp. ..................... 344
1,900 Salomon, Inc. .................................... 84
6,700 SBC Communications, Inc. ......................... 330
5,800 Schering-Plough Corp. ............................ 364
6,000 Sears, Roebuck & Co. ............................. 292
8,900 Southern Co. ..................................... 219
5,900 Sprint Corp. ..................................... 248
6,000 Suntrust Banks, Inc. ............................. 222
(a)9,200 Tele-Communications, Inc., 'A'.................... 166
2,700 Texas Instruments, Inc. .......................... 135
6,000 Texas Utilities Co. .............................. 256
5,974 The Limited, Inc. ................................ 128
6,000 Time Warner, Inc. ................................ 236
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
(a)6,000 Toys 'R' Us, Inc. ................................ $ 171
6,900 Travelers, Inc. .................................. 315
1,500 U.S. Healthcare, Inc. ............................ 82
2,900 Union Pacific Corp. .............................. 203
(a)3,400 Viacom, Inc. 'B'.................................. 132
17,900 Wal-Mart Stores, Inc. ............................ 454
6,409 Walt Disney Co. .................................. 403
3,400 Warner-Lambert Co. ............................... 187
900 Wells Fargo & Co. ................................ 215
8,900 Westinghouse Electric Corp. ...................... 167
6,000 Weyerhaeuser Co. ................................. 255
5,400 WMX Technologies, Inc. ........................... 177
-------
35,801
-------
TOTAL COMMON STOCKS (COST $108,650)..............................
122,394
-------
PREFERRED STOCKS (0.9%)
AUSTRALIA (0.1%)
24,000 News Corp., Ltd. ................................. 117
-------
BRAZIL (0.5%)
10,000 Aracruz Cellelose 'B'............................. 19
7,773,000 Banco Bradesco.................................... 64
(a)598,000 Banco do Brasil................................... 5
(a)331,000 Banespa........................................... 1
80,000 Brahma............................................ 48
405,000 Cevel Alimentos S.A. ............................. 4
363,000 Cia Brazil Petro Ipiranga......................... 5
1,293,000 Cia Energetica de Minas Gerais.................... 34
(a)27,000 Cia Energetica de Sao Paulo....................... 1
520,000 Cia Sider Tubarao 'B'............................. 8
150,000 Eletrobras 'B'.................................... 43
10,000 Industrias Klabin Papel e Cellulose............... 13
37,000 Investimentos Itausa S.A. ........................ 28
85,000 Itaubanco......................................... 35
799,000 Petrobras......................................... 98
8,000 Sadia-Concordia S.A. ............................. 6
3,311,000 Telebras.......................................... 231
416,000 Telesp............................................ 89
19,733,000 Usiminas.......................................... 21
2,448 Vale do Rio Doce.................................. 47
-------
800
-------
GERMANY (0.2%)
4,650 RWE AG............................................ 143
926 SAP AG............................................ 138
-------
281
-------
ITALY (0.1%)
60,500 Fiat S.p.A. ...................................... 106
-------
TOTAL PREFERRED STOCKS (COST $1,166).............................
1,304
-------
INVESTMENT COMPANIES (6.1%)
UNITED STATES
(g)95,900 Latin American Discovery Fund, Inc. .............. 1,211
(g)70,000 Morgan Stanley Africa Investment Fund, Inc. ...... 884
(g)224,333 Morgan Stanley Asia-Pacific Fund, Inc. ........... 2,692
20,109 The Korea Fund, Inc. ............................. 425
(g)96,105 The Thai Fund, Inc. .............................. 2,270
(a)(g)100,000 The Morgan Stanley India Investment Fund, Inc. ... 1,125
-------
TOTAL INVESTMENT COMPANIES (COST $8,799).........................
8,607
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- ----------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.0%)
GERMANY (0.0%)
(a)(d)1,150 Daimler Benz, expiring 7/5/96..................... $ --
-------
INDONESIA (0.0%)
(a)(d)24,000 Jakarta International Hotel, expiring 7/22/96..... 5
(a)(d)46,000 Polysindo (Foreign), expiring 7/10/96............. 12
(a)(d)5,750 Lippo Bank, expiring 7/18/96...................... 4
-------
21
-------
MALAYSIA (0.0%)
(a)(d)3,000 Malaysian Mining Corp. Bhd., expiring 7/8/96...... 1
-------
SINGAPORE (0.0%)
(a)(d)1,600 Oversea-Chinese Banking Corp., expiring 7/12/96... 13
-------
SPAIN (0.0%)
(a)(d)380 Zardoya Otis S.A., expiring 7/28/96............... --
-------
TOTAL RIGHTS (COST $16)..........................................
35
-------
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
WARRANTS (0.0%)
FRANCE (0.0%)
(a)(d)5 Sodexho S.A., expiring 6/7/04..................... --
HONG KONG (0.0%)
(a)(d)2,000 Applied International Holdings Ltd., expiring
12/30/99........................................ --
(a)(d)8,540 Hong Kong & China Gas Co., Ltd., expiring
9/30/97......................................... --
(a)(d)1,400 Hysan Development Co., expiring 4/30/98........... --
(a)(d)1,230 Peregrine Investment Holdings Ltd., expiring
5/15/98......................................... --
-------
--
-------
INDONESIA (0.0%)
(a)(d)4,800 Indah Kiat Pulp & Paper (Foreign), expiring
4/13/01......................................... --
-------
ITALY (0.0%)
(a)(d)578 La Rinascente S.p.A., expiring 12/31/99........... --
(a)880 R.A.S. S.p.A., expiring 12/31/97.................. 3
(a)420 R.A.S. S.p.A. (Savings Shares), expiring
12/31/97........................................ 1
-------
4
-------
MALAYSIA (0.0%)
(a)(d)1,500 Metroplex Bhd., expiring 7/8/96................... --
-------
SINGAPORE (0.0%)
(a)(d)6,750 Straits Steamship, expiring 12/12/00.............. 9
-------
SWITZERLAND (0.0%)
(a)(d)55 Roche Holdings, expiring 5/5/98................... --
(a)(d)65 Swiss Bank Corp., expiring 6/30/00................ --
-------
--
-------
UNITED KINGDOM (0.0%)
(a)(d)119 British Aerospace plc, expiring 11/15/00.......... 1
-------
TOTAL WARRANTS (COST $4).........................................
14
-------
<CAPTION>
NO. OF VALUE
UNITS (000)
<C> <S> <C>
- ----------------------------------------------------------------
UNITS (0.1%)
AUSTRALIA (0.1%)
25,986 Westfield Trust (COST $46)........................ $ 47
-------
<CAPTION>
FACE
AMOUNT
(000)
- -------------
<C> <S> <C>
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
FRF 5 Sodexho S.A. 6.00%, 6/7/04........................ 4
287 Sanofi S.A. 4.00%, 1/1/00......................... 25
-------
29
-------
ITALY (0.0%)
ITL 2,125 Mediobanca S.p.A. 6.00%, 12/31/02................. 1
-------
TOTAL COVERTIBLE DEBENTURES (COST $25)...........................
30
-------
TOTAL FOREIGN & U.S. SECURITIES (93.6%) (COST $118,706)..........
132,431
-------
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT (3.4%)
UNITED STATES
$ 4,813 Chase Securities, Inc., 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $4,815,
collateralized by $4,730 U.S. Treasury Notes,
7.125%, due 9/30/99, valued at $4,836 (COST
$4,813)......................................... 4,813
-------
TOTAL INVESTMENT IN SECURITIES (97.0%) (COST $123,519)...........
137,244
-------
FOREIGN CURRENCY (0.3%)
ATS 127 Austrian Schilling................................ 12
BEF 450 Belgian Franc..................................... 14
BRC 12 Brazilian Real.................................... 12
GBP 16 British Pound..................................... 24
CAD 47 Canadian Dollar................................... 35
DEM 9 Deutsche Mark..................................... 6
FRF 133 French Franc...................................... 26
HKD 1,044 Hong Kong Dollar.................................. 135
IDR 2,983 Indonesian Rupiah................................. 1
ITL 4,467 Italian Lira...................................... 3
JPY 4,208 Japanese Yen...................................... 38
MYR 7 Malaysian Ringgit................................. 3
NLG 63 Netherlands Guilder............................... 37
SGD 4 Singapore Dollar.................................. 3
ESP 3,611 Spanish Peseta.................................... 28
CHF 28 Swiss Franc....................................... 22
-------
TOTAL FOREIGN CURRENCY (COST $399)............................... 399
-------
TOTAL INVESTMENTS (97.3%) (COST $123,918)........................ 137,643
OTHER ASSETS IN EXCESS OF LIABILITIES (2.7%)..................... 3,874
-------
NET ASSETS (100%)................................................ $141,517
-------
-------
</TABLE>
<TABLE>
<S> <C>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1
to financial statements.
(g) -- The Fund is advised by an affiliate.
NCS -- Non Convertible Shares.
RFD -- Ranked for Dividend.
FRF -- French Franc
ITL -- Italian Lira
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency exchange contracts open at June 30,
1996, the Fund is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- -------------- --------- ----------- ------------ --------- ---------------
<C> <C> <C> <S> <C> <C>
MYR 2,353 $ 943 7/2/96 $ 943 $ 943 $ --
MYR 55 22 7/3/96 $ 22 22 --
$ 2 2 7/3/96 MYR 6 2 --
$ 10 10 7/10/96 IDR 23,000 10 --
DEM 11,929 7,856 7/15/96 $ 7,821 7,821 (35)
JPY 884,769 8,113 7/15/96 $ 8,383 8,383 270
$ 5 5 7/19/96 IDR 12,075 5 --
ATS 10,197 955 7/31/96 $ 951 951 (4)
JPY 1,243,446 11,429 7/31/96 $ 11,700 11,700 271
NLG 5,139 3,022 7/31/96 $ 3,331 3,331 309
CHF 2,476 1,987 7/31/96 $ 2,017 2,017 30
$ 1,030 1,030 7/31/96 NLG 1,685 991 (39)
$ 70 70 7/31/96 CHF 87 70 --
FRF 28,883 5,633 8/14/96 $ 5,619 5,619 (14)
JPY 1,428,001 13,153 8/14/96 $ 14,149 14,149 996
$ 3,325 3,325 8/30/96 JPY 292,833 2,703 (622)
--------- --------- -------
$ 57,555 $ 58,717 $ 1,162
--------- --------- ------
--------- --------- ------
</TABLE>
- ---------------
ATS -- Austrian Shilling
DEM -- Deutsche Mark
FRF -- French Franc
IDR -- Indonesian Rupiah
JPY -- Japanese Yen
MYR -- Malaysian Ringgit
NLG -- Netherlands Guilder
CHF -- Swiss Franc
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Consumer Goods................................................................... $ 25,971 18.4%
Finance.......................................................................... 19,712 13.9
Capital Equipment................................................................ 16,858 11.9
Energy........................................................................... 15,404 10.9
Services......................................................................... 14,990 10.6
Materials........................................................................ 10,313 7.3
Investment Companies............................................................. 8,607 6.1
Telecommunications............................................................... 6,748 4.8
Insurance........................................................................ 5,730 4.0
Multi-Industry................................................................... 4,245 3.0
Real Estate...................................................................... 3,636 2.6
Gold Mines....................................................................... 217 0.1
--------- ---
$ 132,431 93.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (81.4%)
AUSTRALIAN DOLLAR (2.4%)
GOVERNMENT BONDS
AUD 240 Government of Australia 9.75%,
3/15/02..................... $ 197
100 Government of Australia 9.00%,
9/15/04..................... 80
---------
TOTAL AUSTRALIAN DOLLAR................... 277
---------
BRITISH POUND STERLING (5.7%)
GOVERNMENT BONDS
GBP 320 United Kingdom 9.75%,
8/27/02..................... 550
80 United Kingdom 7.75%,
9/8/06...................... 123
---------
TOTAL BRITISH POUND STERLING.............. 673
---------
CANADIAN DOLLAR (3.3%)
GOVERNMENT BOND
CAD 530 Government of Canada 7.50%,
12/1/03..................... 390
---------
DANISH KRONE (6.1%)
GOVERNMENT BONDS
DKK 2,500 Kingdom of Denmark 8.00%,
11/15/01.................... 456
1,500 Kingdom of Denmark 7.00%,
12/15/04.................... 254
---------
TOTAL DANISH KRONE........................ 710
---------
DEUTSCHE MARK (17.0%)
GOVERNMENT BONDS
DEM 1,150 German Unity Fund 8.00%,
1/21/02..................... 832
400 Deutschland Republic 7.13%,
12/20/02.................... 277
850 Treuhandanstalt 6.875%,
6/11/03..................... 579
450 Treuhandanstalt 6.75%,
5/13/04..................... 302
---------
TOTAL DEUTSCHE MARK....................... 1,990
---------
FRENCH FRANC (3.1%)
GOVERNMENT BOND
FRF 1,700 French Treasury Bill 7.75%,
4/12/00..................... 358
---------
ITALIAN LIRA (5.9%)
GOVERNMENT BOND
ITL 1,000,000 Republic of Italy 10.50%,
11/1/00..................... 695
---------
JAPANESE YEN (8.0%)
EUROBONDS
JPY 15,000 European Investment Bank
6.63%, 3/15/00.............. 159
30,000 World Bank 5.25%, 3/20/02..... 313
45,000 World Bank 4.75%, 12/20/04.... 462
---------
TOTAL JAPANESE YEN........................ 934
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------
<C> <S> <C>
NETHERLANDS GUILDER (3.7%)
GOVERNMENT BONDS
NLG 390 Government of the Netherlands
9.00%, 1/15/01.............. $ 261
300 Government of the Netherlands
5.75%, 1/15/04.............. 172
---------
TOTAL NETHERLANDS GUILDER................. 433
---------
SPANISH PESETA (0.9%)
GOVERNMENT BOND
ESP 12,500 Government of Spain 11.30%,
1/15/02..................... 110
---------
SWEDISH KRONA (6.1%)
GOVERNMENT BONDS
SEK 600 Government of Sweden 10.25%,
5/5/00...................... 100
3,300 Government of Sweden 13.00%,
6/15/01..................... 610
---------
TOTAL SWEDISH KRONA....................... 710
---------
UNITED STATES DOLLAR (19.2%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(19.2%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
$ 2,019 Pool # 336411 6.50%, 2/1/26... 1,888
---------
U.S. TREASURY NOTES
375 5.13%, 11/30/98............... 366
---------
TOTAL UNITED STATES DOLLAR................ 2,254
---------
TOTAL FIXED INCOME SECURITIES (COST
$9,569)..................................... 9,534
---------
SHORT-TERM INVESTMENTS (13.5%)
TIME DEPOSIT (3.4%)
JAPANESE YEN
JPY 44,512 UBS Time Deposit 0.25%,
7/3/96...................... 407
---------
REPURCHASE AGREEMENT (10.1%)
UNITED STATES DOLLAR
$ 1,179 Chase Securities, Inc., 5.15%,
dated 6/28/96, due 7/1/96,
to be repurchased at $1,180,
collateralized by $1,160
U.S. Treasury Notes, 7.125%,
due 9/30/99, valued at
$1,186...................... 1,179
---------
TOTAL SHORT-TERM INVESTMENTS (COST
$1,586)..................................... 1,586
---------
TOTAL INVESTMENTS (94.9%) (COST $11,155).... 11,120
OTHER ASSETS IN EXCESS OF LIABILITIES
(5.1%)...................................... 596
---------
NET ASSETS (100%)........................... $ 11,716
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency exchange contracts open at June 30,
1996, the Fund is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars or foreign currency as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
NLG 1,100 $ 648 8/13/96 $654 $ 654 $ 6
$ 234 234 8/13/96 NLG 400 236 2
$ 184 184 8/14/96 CAD 250 183 (1)
CAD 400 293 8/14/96 $293 293 -
DEM 2,250 1,485 8/20/96 $ 1,475 1,475 (10)
$ 917 917 8/20/96 DEM 1,400 924 7
ITL 286,000 186 8/30/96 JPY 20,000 185 (1)
JPY 50,000 462 8/30/96 ITL 730,075 474 12
SEK 1,700 257 8/30/96 ESP 32,105 250 (7)
DEM 1,200 793 9/9/96 $ 790 790 (3)
SEK 1,200 181 9/17/96 $ 179 179 (2)
--------- --------- ---
$5,640 $ 5,643 $ 3
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
CAD -- Canadian Dollar
DEM -- Deutsche Mark
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherland Guilder
ESP -- Spanish Peseta
SEK -- Swedish Krona
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.5%)
CHINA (0.5%)
412,060 China Merchants Shokou Port Services 'B'.......... $ 181
2,661,000 Harbin Power Equipment Co. ....................... 399
14,800 Jilin Chemical Industrial Co. ADR................. 272
831,800 Jinqiao Export Processing Zone Development Co.
Ltd. 'B'........................................ 324
(a)763,000 Shenzhen North Jianshe Motorcycle Co. Ltd......... 266
4,538,000 Yizheng Chemical Fibre Co. 'H'.................... 1,003
--------
2,445
--------
HONG KONG (27.1%)
(a)247,000 Asia Satellite Telecommunications Holdings Ltd.... 732
3,736,000 Charoen Pokphand Co............................... 1,484
2,600,000 Cheung Kong Holdings Ltd.......................... 18,726
753,000 China Light and Power Co. Ltd..................... 3,414
1,635,000 Citic Pacific Ltd................................. 6,611
4,924,000 Guangdong Investments Ltd......................... 3,117
(a)25,000 Guangshen Railway Co. Ltd. ADR.................... 478
860,600 Hang Seng Bank Ltd................................ 8,672
935,424 Hong Kong & Shanghai Bank......................... 14,139
703,000 Hong Kong Electric Holdings....................... 2,143
7,081,200 Hong Kong Telecommunications Ltd.................. 12,716
2,353,000 Hopewell Holdings Ltd............................. 1,277
2,575,000 Hutchison Whampoa Ltd............................. 16,200
1,990,000 New World Development Co. Ltd..................... 9,229
1,106,100 Sun Hung Kai Properties Ltd....................... 11,181
1,248,300 Swire Pacific Ltd. 'A'............................ 10,684
1,122,000 Varitronix International Ltd...................... 2,341
1,153,000 Wharf Holdings Ltd................................ 4,126
--------
127,270
--------
INDIA (0.5%)
38,000 Grasim Industries Ltd. GDR........................ 703
(a)(e)49,000 Hindalco Industries Ltd........................... 1,850
--------
2,553
--------
INDONESIA (7.7%)
1,442,000 Astra International (Foreign)..................... 2,091
(d)509,000 Bank International Indonesia (Foreign)............ 2,515
(d)1,333,000 Barito Pacific Timber (Foreign)................... 873
(d)816,000 Bimantara Citra (Foreign)......................... 1,026
(d)1,671,000 Gudang Garam (Foreign)............................ 7,161
(d)390,600 Hanjaya Mandala Sampoerna (Foreign)............... 4,447
(d)3,253,000 Indah Kiat Pulp & Paper (Foreign)................. 3,180
(d)472,000 Indocement Tunggal (Foreign)...................... 1,622
(d)393,000 Kalbe Farma (Foreign)............................. 878
(d)375,500 Semen Gresik (Foreign)............................ 1,093
(d)311,000 Sorini Corp. (Foreign)............................ 1,710
(a)(d)41,000 Suba Indah (Foreign).............................. 32
(a)(d)6,241,500 Telekomunikasi (Foreign).......................... 9,453
--------
36,081
--------
KOREA (4.2%)
(a)(d)17,892 Cho Sun Brewery Co., Ltd. (Foreign)............... 611
(d)37,632 Hyundai Engineering & Construction Co.
(Foreign)....................................... 1,720
(d)55,220 Korea Electric Power (Foreign).................... 2,230
(a)(d)44,520 Korea Housing Bank (Foreign)...................... 1,224
(a)(d)1,829 Korea Mobile Telecommunications Corp. (Foreign)... 2,164
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
61,000 Korea Mobile Telecommunications Corp. ADR......... $ 1,045
69,600 Pohang Iron & Steel Ltd. ADR...................... 1,697
(a)47,011 Samsung Electronics Co. (Foreign)................. 3,947
(e)3,534 Samsung Electronics Co. ADS....................... 183
(a)(e)18,989 Samsung Electronics Co. GDR (New)................. 983
(a)1,607 Samsung Fire & Marine Insurance (Foreign)......... 1,159
(d)107,957 Shinhan Bank Co. Ltd. (Foreign)................... 2,521
--------
19,484
--------
MALAYSIA (21.0%)
247,000 AMMB Holdings Bhd................................. 3,466
514,000 Edaran Otomobil Nasional Bhd...................... 4,925
1,569,400 Genting Bhd....................................... 12,268
1,585,000 IOI Corp. Bhd..................................... 2,199
(a)79,000 Konsortium Perkapalan Bhd......................... 475
194,000 Land & General Bhd................................ 478
813,000 Leader Universal Holdings Bhd..................... 2,298
677,500 Magnum Corp. Bhd.................................. 1,146
1,205,500 Malayan Banking Bhd............................... 11,598
1,397,000 Malaysian International Shipping (Foreign)........ 4,340
2,126,000 Petronas Gas Bhd.................................. 9,119
786,000 Public Bank Bhd. (Foreign)........................ 2,174
3,328,000 Renong Bhd........................................ 5,310
1,547,000 Resorts World Bhd................................. 8,868
872,000 Sime Darby Bhd.................................... 2,412
1,477,000 TA Enterprise Bhd................................. 2,309
214,000 Tan Chong Motor Holdings Bhd...................... 312
1,344,000 Telekom Malaysia Bhd.............................. 11,961
1,992,000 Tenaga Nasional Bhd............................... 8,385
655,000 United Engineers Bhd.............................. 4,543
--------
98,586
--------
PHILIPPINES (5.3%)
749,872 Ayala Corp. 'B'................................... 1,417
896,225 Ayala Land, Inc. 'B'.............................. 1,608
2,902,200 C&P Homes, Inc.................................... 2,520
(a)1,975,200 DMCI Holdings, Inc................................ 1,414
13,836,900 JG Summit Holding 'B'............................. 5,176
358,465 Manila Electric 'B'............................... 3,763
6,603,125 Petron Corp....................................... 3,024
51,500 Philippine Long Distance Telephone................ 3,066
9,800 Philippine Long Distance Telephone ADR............ 570
8,289,480 SM Prime Holdings, Inc............................ 2,151
84,100 San Miguel Corp. 'B'.............................. 290
--------
24,999
--------
SINGAPORE (12.9%)
88,800 City Developments Ltd............................. 692
2,283,000 Comfort Group Ltd................................. 2,265
980,000 CSA Holdings Ltd.................................. 965
266,000 DBS Land Ltd...................................... 913
580,500 Development Bank of Singapore (Foreign)........... 7,241
189,600 Fraser & Neave Ltd................................ 1,962
2,327,000 Kay Hian James Capel Holdings Ltd. (Foreign)...... 2,457
845,000 Keppel Corp....................................... 7,067
673,666 Oversea-Chinese Banking Corp. (Foreign)........... 7,878
281,000 Sembawang Corp. Ltd............................... 1,394
456,000 Singapore Airlines Ltd. (Foreign)................. 4,815
126,400 Singapore Press Holdings (Foreign)................ 2,482
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (CONT.)
1,620,000 Singapore Technologies Industrial Corp............ $ 4,294
905,000 Straits Steamship Land Ltd........................ 3,027
561,000 Straits Trading Co., Ltd.......................... 1,471
1,309,000 Sunright Ltd...................................... 1,345
802,000 United Overseas Bank Ltd. (Foreign)............... 7,673
(a)980,000 Want Want Holdings................................ 2,636
--------
60,577
--------
TAIWAN (5.0%)
984,000 Cathway Life Insurance Co., Ltd................... 6,937
4,166,000 China Steel Corp.................................. 4,360
481,000 Hua Nan Commercial Bank........................... 2,534
(a)1,670,000 Taiwan Semiconductor Co........................... 3,489
967,275 United Micro Electronics Corp. Ltd................ 1,434
3,060,000 Yang Ming Marine Transport........................ 4,515
--------
23,269
--------
THAILAND (11.3%)
101,500 Advanced Information Services Co., Ltd.
(Foreign)....................................... 1,504
696,300 Bangkok Bank Co., Ltd. (Foreign).................. 9,436
939,144 Finance One Co., Ltd. (Foreign)................... 6,067
41,500 Land & House Co., Ltd. (Foreign).................. 523
977,800 National Finance & Securities Co., Ltd.
(Foreign)....................................... 4,353
258,600 Phatra Thanakit Co., Ltd. (Foreign)............... 1,803
96,000 Shinawatra Computer Co., Ltd. (Foreign)........... 2,080
43,400 Siam Cement Co., Ltd. (Foreign)................... 2,130
653,400 Siam Commercial Bank Co., Ltd. (Foreign).......... 9,472
(d)2,053,000 Telecomasia Co., Ltd. (Foreign)................... 4,367
809,400 Thai Farmer's Bank Public Co. (Foreign)........... 8,864
159,100 United Communication Industry (Foreign)........... 2,131
--------
52,730
--------
TOTAL COMMON STOCKS (COST $410,642).............................. 447,994
--------
FACE
AMOUNT
(000)
- -------------
CONVERTIBLE BOND (0.1%)
MALAYSIA (0.1%)
MYR 683 Renong Bhd. 4.00%, 5/21/01 (COST $274 )........... 257
--------
NO. OF VALUE
RIGHTS (000)
<CAPTION>
- ---------------------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.1%)
SINGAPORE (0.1%)
(a)(d)67,366 Oversea-Chinese Banking Corp, expiring 7/12/96
(COST $0)....................................... $ 541
--------
NO. OF
WARRANTS
- -------------
WARRANTS (0.2%)
MALAYSIA (0.0%)
(a)(d)426,875 Renong Bhd., expiring 3/31/01..................... 193
--------
SINGAPORE (0.2%)
(a)(d)663,000 Straits Steamship, expiring 12/12/00.............. 832
--------
TOTAL WARRANTS (COST $1,000)..................................... 1,025
--------
TOTAL FOREIGN SECURITIES (95.9%) (COST $411,916)................. 449,817
--------
FACE
AMOUNT
(000)
- -------------
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEEMENT (3.0%)
UNITED STATES
$ 13,904 Chase Securities, Inc., 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $13,910,
collateralized by $13,660 U.S. Treasury Notes,
7.125%, 9/30/99, valued at $13,965 (COST
$13,904)........................................ 13,904
--------
TOTAL INVESTMENTS IN SECURITIES (98.9%) (COST $425,820).......... 463,721
--------
FOREIGN CURRENCY (0.7%)
HKD 7,499 Hong Kong Dollar ................................. 969
IDR 3,551 Indonesian Rupiah ................................ 2
KRW 36,625 Korean Won........................................ 45
MYR 3,148 Malaysian Ringgit................................. 1,262
SGD 92 Singapore Dollar.................................. 65
TWD 21,996 Taiwan Dollar..................................... 799
--------
TOTAL FOREIGN CURRENCY (COST $3,139)............................. 3,142
--------
TOTAL INVESTMENTS (99.6%) (COST $428,959)........................ 466,863
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)..................... 2,069
--------
NET ASSETS (100%)................................................ $468,932
--------
--------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to
financial statements.
(e) -- 144A Security -- certain conditions for public
sale may exist.
ADR -- American Depositary Receipt.
ADS -- American Depositary Share.
GDR -- Global Depositary Receipt.
MYR -- Malaysian Ringgit.
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ----------------------------------- -------- --------
<S> <C> <C>
Finance............................ $114,628 24.5%
Multi-Industry..................... 66,822 14.2
Services........................... 57,262 12.2
Real Estate........................ 49,623 10.6
Telecommunications................. 48,664 10.4
Energy............................. 31,751 6.8
Capital Equipment.................. 25,806 5.5
Materials.......................... 24,473 5.2
Consumer Goods..................... 22,692 4.8
Insurance.......................... 8,096 1.7
-------- --------
$449,817 95.9%
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.5%)
AEROSPACE (1.9%)
20,400 AAR Corp.......................................... $ 415
10,300 Thiokol Corp...................................... 407
-------
822
-------
BANKING (11.1%)
13,600 Astoria Financial Corp............................ 369
18,250 First Security Corp............................... 438
18,500 Greenpoint Financial Corp......................... 523
15,100 Onbankcorp., Inc.................................. 495
28,000 Peoples Heritage Financial Group, Inc............. 570
12,200 Standard Federal Bank............................. 470
18,000 Susquehanna Bancshares, Inc....................... 482
22,500 Trustmark Corp.................................... 472
14,800 Union Planters Corp............................... 450
18,000 Washington Mutual, Inc............................ 538
-------
4,807
-------
BUILDING (3.2%)
13,200 Ameron, Inc....................................... 521
34,000 Gilbert Associates, Inc. 'A'...................... 433
30,000 Ryland Group, Inc................................. 450
-------
1,404
-------
CAPITAL GOODS (4.0%)
13,600 Binks Manufacturing Corp.......................... 371
34,400 Cascade Corp...................................... 460
18,900 Starret (L.S.) Co. 'A'............................ 491
7,900 Tecumseh Products 'A'............................. 425
-------
1,747
-------
CHEMICALS (4.0%)
25,440 Aceto Corp........................................ 401
16,500 Dexter Corp....................................... 491
8,300 LeaRonal, Inc..................................... 208
17,400 Quaker Chemical Corp.............................. 222
12,000 Witco Corp........................................ 412
-------
1,734
-------
COMMUNICATIONS (0.6%)
9,500 Comsat Corp....................................... 247
-------
CONSUMER--DURABLES (5.3%)
22,700 A.O. Smith Corp................................... 568
19,900 Arvin Industries, Inc............................. 443
17,420 Knape & Vogt Manufacturing Co..................... 274
26,000 Oneida Ltd........................................ 488
19,000 Stanhome, Inc..................................... 503
-------
2,276
-------
CONSUMER--RETAIL (4.3%)
26,200 CPI Corp.......................................... 432
17,800 Guilford Mills, Inc............................... 445
35,000 Lillian Vernon Corp............................... 446
11,100 Springs Industries, Inc. 'A'...................... 561
-------
1,884
-------
CONSUMER--STAPLES (4.2%)
14,121 Block Drug Co. 'A'................................ 593
21,000 Coors (Adolph) 'B'................................ 375
21,300 International Multifoods Corp..................... 389
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
30,400 Nash Finch Co..................................... $ 486
-------
1,843
-------
ENERGY (3.3%)
20,300 Ashland Coal, Inc................................. 528
14,500 Diamond Shamrock, Inc............................. 419
16,100 Ultramar Corp..................................... 467
-------
1,414
-------
FINANCIAL--DIVERSIFIED (5.4%)
6,900 FINOVA Group, Inc................................. 336
11,600 GATX Corp......................................... 560
27,400 Manufactured Home Communities, Inc. REIT.......... 527
33,000 South West Property Trust REIT.................... 441
21,000 Wellsford Residential Property Trust REIT......... 473
-------
2,337
-------
HEALTH CARE (6.2%)
22,000 Analogic Corp..................................... 588
9,200 Beckman Instruments, Inc.......................... 350
14,000 Bergen Brunswig Corp. 'A'......................... 389
30,000 Bindley Western Industries, Inc................... 502
21,600 Kinetic Concepts, Inc............................. 335
20,500 United Wisconsin Services, Inc.................... 533
-------
2,697
-------
INDUSTRIAL (4.1%)
12,200 American Filtrona Corp............................ 390
8,700 Barnes Group, Inc................................. 445
4,400 Commercial Intertech Corp......................... 113
28,100 Gencorp, Inc...................................... 425
41,100 Kaman Corp. 'A'................................... 416
-------
1,789
-------
INSURANCE (6.0%)
14,600 Argonaut Group, Inc............................... 456
17,000 Enhance Financial Services Group.................. 476
13,600 Provident Companies, Inc.......................... 503
17,600 Selective Insurance Group, Inc.................... 572
17,250 US Life Corp...................................... 567
-------
2,574
-------
METALS (2.1%)
31,500 Birmingham Steel Corp............................. 516
10,300 Cleveland-Cliffs Iron Co.......................... 403
-------
919
-------
PAPER & PACKAGING (2.1%)
16,500 Ball Corp......................................... 474
10,900 Potlatch Corp..................................... 427
-------
901
-------
SERVICES (10.6%)
18,200 Angelica Corp..................................... 430
23,600 Bowne & Co........................................ 487
26,200 Cross A.T. Co. 'A'................................ 465
41,500 Jackpot Enterprises, Inc.......................... 529
22,100 New England Business Services, Inc................ 431
26,800 Ogden Corp........................................ 486
46,500 Piccadilly Cafeterias, Inc........................ 488
28,500 Russ Berrie & Co., Inc............................ 524
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
SERVICES (CONT.)
17,000 Sbarro, Inc....................................... $ 427
14,300 True North Communications, Inc.................... 318
-------
4,585
-------
TECHNOLOGY (8.3%)
24,500 Augat, Inc........................................ 469
32,000 Core Industries, Inc.............................. 460
8,900 Cubic Corp........................................ 290
23,000 Dallas Semiconductor Corp......................... 417
29,000 Gerber Scientific, Inc............................ 468
25,200 MTS Systems Corp.................................. 529
21,900 National Computer Systems, Inc.................... 468
5,000 Park Electrochemical Corp......................... 100
23,500 Scitex Corp....................................... 405
-------
3,606
-------
TRANSPORTATION (2.0%)
14,000 Airborne Freight Corp............................. 364
4,000 Overseas Shipholding Group, Inc................... 72
22,000 SkyWest, Inc...................................... 410
-------
846
-------
UTILITIES (6.8%)
19,100 Central Hudson Gas & Electric Corp................ 597
19,000 Commonwealth Energy Systems....................... 489
10,500 Eastern Entreprises............................... 349
17,300 Oneok, Inc........................................ 433
13,900 Orange & Rockland Utilities, Inc.................. 511
6,500 SJW Corp.......................................... 216
19,600 Washington Water Power Co......................... 365
-------
2,960
-------
TOTAL COMMON STOCKS (COST $36,234).......................... 41,392
-------
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.1%)
REPURCHASE AGREEMENT (3.1%)
$ 1,363 Chase Securities, Inc., 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $1,364,
collateralized by $1,340 U.S. Treasury Notes,
7.125%, due 9/30/99, valued at $1,370
(COST $1,363)................................... $ 1,363
-------
TOTAL INVESTMENTS (98.6%) (COST $37,597).................... 42,755
OTHER ASSETS IN EXCESS OF LIABILITIES (1.4%)................ 597
-------
NET ASSETS (100%)........................................... $43,352
-------
-------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
REIT -- Real Estate Investment Trust.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (95.7%)
CORPORATE BONDS AND NOTES (35.6%)
BRAZIL (3.1%)
$3,000 Lojas Americanas S.A. 11.00%, 6/4/04.............. $ 2,955
--------
COLOMBIA (0.4%)
(n)750 Occidente Y Caribe 0.00%, 3/15/04................. 383
--------
MEXICO (5.8%)
(e)2,000 Empresas ICA Sociedad 11.875%, 5/30/01............ 2,002
(e)1,500 Empresas La Moderna 11.375%, 1/25/99.............. 1,554
2,000 Grupo Elektra S.A. 12.75%, 5/15/01................ 2,017
--------
5,573
--------
PHILIPPINES (0.0%)
20 Philippine Long Distance Telephone 9.25%,
6/30/06......................................... 20
--------
UNITED KINGDOM (0.5%)
(n)825 Telewest plc. 0.00%, 10/1/07...................... 489
--------
UNITED STATES (25.8%)
100 Big V Supermarkets, Inc. 11.00%, 2/15/04.......... 93
(e)(n)1,000 Brooks Fiber Properties 0.00%, 3/1/06............. 530
550 Cablevision Systems Corp. 9.875%, 5/15/06......... 529
240 Collins & Aikman Products 11.50%, 4/15/06......... 244
265 Comcast Cellular Corp. Series A, Zero Coupon,
3/5/00.......................................... 182
440 Comcast Cellular Corp. Series B, Zero Coupon,
3/5/00.......................................... 302
500 Comcast Corp. 9.50%, 1/15/08...................... 484
610 Continental Cablevision, Inc. 9.50%, 8/1/13....... 660
640 Courtyard By Marriott 10.75%, 2/1/08.............. 626
320 Crown Paper Co. 11.00%, 9/1/05.................... 304
991 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07.............................. 833
208 DR Securitized Lease Trust, Series 1993-K1, Class
A1, 6.66%, 8/15/10.............................. 157
(e)(n)920 Echostar Satellite Broadcast 0.00%, 3/15/04....... 570
100 Exide Corp 2.90%, 12/15/05........................ 54
200 Gaylord Container Corp. 11.50%, 5/15/01........... 204
200 Gaylord Container Corp. 12.75%, 5/15/05........... 211
275 G-l Holdings, Inc. Series B, Zero Coupon,
10/1/98......................................... 221
70 Grand Casinos, Inc. 10.125%, 12/1/03.............. 72
285 Harris Chemical 10.25%, 7/15/01................... 286
525 HMC Acquisition Properties 9.00%, 12/15/07........ 480
835 Home Holdings, Inc. 8.625%, 12/15/03.............. 543
100 Homeside, Inc. 11.25%, 5/15/03.................... 103
675 Host Marriott Travel Plaza, Series B, 9.50%,
5/15/05......................................... 647
(e)200 Jet Equipment Trust 11.79%, 6/15/13............... 225
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14......................................... 329
135 La Quinta Inns, Inc. 9.25%, 5/15/03............... 138
1,165 Lenfest Communications 8.375%, 11/1/05............ 1,066
130 Lenfest Communications 10.50%, 6/15/06............ 131
(n)400 Marcus Cable Co. 0.00%, 8/1/04.................... 247
(n)665 Marcus Cable Co. 0.00%, 12/15/05.................. 411
20 MDC Holdings, Series B, 11.125%, 12/15/03......... 19
(n)1,525 MFS Communications 0.00%, 1/15/06................. 928
295 Midland Cogeneration Ventures, Series C-91,
10.33%, 7/23/02................................. 309
305 Midland Funding II, Series A 11.75%, 7/23/05...... 319
(n)2,160 Nextel Communications 0.00%, 8/15/04.............. 1,269
(n)450 Norcal Waste Systems 12.75%, 11/15/05............. 474
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
$395 Nuevo Energy 9.50%, 4/15/06....................... $ 390
575 Owens-Illinois, Inc. 11.00%, 12/1/03.............. 618
545 Reliance Group Holdings, Inc. 9.00%, 11/15/00..... 540
800 Revlon Worldwide Series B, Zero Coupon, 3/15/98... 666
100 RJR Nabisco 8.75%, 8/15/05........................ 100
625 Rogers Cablesystems Series B 10.00%, 3/15/05...... 619
230 SD Warren Co., Series B, 12.00%, 12/15/04......... 243
100 Sheffield Steel Corp. 12.00%, 11/1/01............. 88
(n)1,000 Six Flags Theme Parks, Inc., Series A, 0.00%,
6/15/05......................................... 851
445 Smith's Food & Drug 11.25%, 5/15/07............... 451
965 Southland Corp. 5.00% 12/15/03.................... 753
900 Stone Container Corp. 10.75%, 10/1/02............. 909
740 TCI Communications, Inc. 7.875%, 2/15/26.......... 647
360 TLC Beatrice International Holdings 11.50%,
10/1/05......................................... 365
550 Trump Atlantic 11.25%, 5/1/06..................... 551
(e)520 Unisys Corp. 12.00%, 4/15/03...................... 528
(e)250 United Savings Texas 8.55%, 5/15/98............... 251
1,000 Viacom, Inc. 8.00%, 7/7/06........................ 915
1,000 Westpoint Stevens, Inc. 9.375%, 12/15/05.......... 972
--------
24,657
--------
TOTAL CORPORATE BONDS AND NOTES (COST $34,454)................ 34,077
--------
COLLATERALIZED MORTGAGE OBLIGATION (0.6%)
UNITED STATES (0.6%)
500 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D, 12.75%, 6/15/06......... 500
105 PNC Mortgage Securities Corp. Series 1995-2, Class
B4, REMIC, 7.50%, 9/25/25....................... 79
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $583)......... 579
--------
EUROBONDS (36.8%)
ARGENTINA (4.4%)
1,500 Industrias Pescarmana S.A. 11.75%, 3/27/98........ 1,515
(h)3,465 Republic of Argentina Series L, 6.313%, 3/31/05... 2,707
--------
4,222
--------
BRAZIL (8.9%)
1,350 Comp Brazil De Projertos 12.50%, 12/22/97......... 1,389
(h)2,000 Federated Republic of Brazil Debt Conversion Bond,
Series Z-L, 6.563%, 4/15/12..................... 1,370
(h)1,000 Federative Republic of Brazil Par Bond, Series
Z-L, 6.50%, 4/15/24............................. 711
(b)(h)(u)5,033 Federative Republic of Brazil Series C, PIK,
8.00%, 4/15/14.................................. 3,114
2,000 Iochpe-Maxion S.A. 12.375%, 11/8/02............... 1,890
--------
8,474
--------
ECUADOR (3.4%)
(b)(h)3,124 Republic of Equador Past Due Interest Bond, PIK
6.0625%, 2/27/15................................ 1,423
5,000 Ecuador Par Bond-U.S. Definitive 3.25%, 2/28/25... 1,794
--------
3,217
--------
MEXICO (3.1%)
MXP 32,143 Banamex Pagare Zero Coupon, 10/9/97............... 2,927
--------
NIGERIA (1.1%)
$2,000 Central Bank of Nigeria 6.25%, 11/15/20........... 1,065
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
POLAND (2.3%)
$2,471 Republic of Poland Note Zero Coupon, 1/8/97....... $ 2,225
--------
RUSSIA (7.2%)
(b)(e)16,200 Ministry of Finance Tranche IV 3.00%, 5/14/03..... 6,925
--------
VENEZUELA (6.4%)
(h)8,500 Republic of Venezuela Front Loaded Interest
Reduction Bond, Series A 6.375%, 3/31/07........ 6,152
--------
TOTAL EUROBONDS (COST $34,565)................................ 35,207
--------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (8.9%)
CAYMAN ISLANDS (1.9%)
ZAR 8,000 Nacional Financiera 17.00%, 2/26/99............... 1,800
--------
SOUTH AFRICA (3.6%)
1,750 Republic of South Africa Series 147, 11.50%,
5/30/00......................................... 372
4,060 Republic of South Africa Series 162, 12.50%,
1/15/02......................................... 867
1,400 Republic of South Africa Series 175, 9.00%,
10/15/02........................................ 246
2,090 Republic of South Africa Series 150, 12.00%,
2/28/05......................................... 419
1,050 Republic of South Africa Series 177, 9.50%,
5/15/07......................................... 171
7,080 Republic of South Africa Series 153, 13.00%,
8/31/10......................................... 1,442
--------
3,517
--------
TURKEY (3.4%)
TRL84,000,000 Turkish Treasury Bill Zero Coupon, 7/10/96........ 994
210,000,000 Turkish Treasury Bill Zero Coupon, 9/4/96......... 2,237
--------
3,231
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
(COST $10,394)............................................... 8,548
--------
LOAN AGREEMENTS (6.2%)
MOROCCO (2.9%)
$ (l)3,800 Kingdom of Morocco Restructuring and Consolidation
Agreement `A' 1990 1/1/09 (Participation: The
Chase Manhattan Bank, N.A., J.P. Morgan, Lehman
Brothers, Salomon Brothers)..................... 2,741
--------
RUSSIA (3.3%)
(b)6,500 Bank for Foreign Economic Affairs................. 3,161
--------
TOTAL LOAN AGREEMENTS (COST $5,304)........................... 5,902
--------
YANKEE BONDS (7.6%)
ARGENTINA (4.2%)
1,850 Bridas Corp. 12.50%, 11/15/99..................... 1,924
1,000 Metrogas S.A. Series A, 12.00%, 8/15/00........... 1,069
1,000 Metrogas S.A. Series B, 10.875%, 5/15/01.......... 1,018
--------
4,011
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
CANADA (1.0%)
$1,000 Algoma Steel, Inc. 12.375%, 7/15/05............... $ 975
--------
MEXICO (2.1%)
2,000 Grupo Industrial Durango 12.00%, 7/15/01.......... 2,013
--------
NETHERLANDS (0.3%)
290 APP International Finance Co. 11.75%, 10/1/05..... 299
--------
TOTAL YANKEE BONDS (COST $6,929).............................. 7,298
--------
TOTAL FIXED INCOME SECURITIES (COST $92,229) ................... 91,611
--------
<CAPTION>
SHARES
- ------------
<C> <S> <C>
EQUITY SECURITIES (0.7%)
PREFERRED STOCKS (0.7%)
UNITED STATES
(e)705 Time Warner, Inc. `K'............................. 691
--------
WARRANTS (0.0%)
NIGERIA (0.0%)
(a)(d)2,000 Central Bank of Nigeria, expiring 11/15/20........ --
--------
UNITED STATES (0.0%)
(a)500 Sheffield Steel Corp., expiring 2001.............. 2
--------
TOTAL EQUITY SECURITIES (COST $711)............................. 693
--------
TOTAL INVESTMENTS (96.4%) (COST $92,940)........................ 92,304
OTHER ASSETS IN EXCESS OF LIABILITIES (3.6%).................... 3,457
--------
NET ASSETS (100%)............................................... $ 95,761
--------
--------
- ---------------
(a) -- Non-income producing.
(b) -- Non-income producing -- in default.
(d) -- Security is valued at fair value -- see
note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for
public sale may exist.
(h) -- Variable/floating rate security -- rate
disclosed is as of June 30, 1996.
(l) -- Participation interests were acquired
through the financial institutions
listed parenthetically.
(n) -- Step Bond-coupon rate increases in
increments to maturity. Rate disclosed
is as of 6/30/96. Maturity date
disclosed is the ultimate maturity date.
(u) -- 4.00% of 8.00% represents amount paid in
cash. Cash payment rate is low for an
initial period and then increases in
increments to maturity. The remainder is
Payment in Kind.
DCB -- Debt Conversion Bond
PIK -- Paid-in-Kind. Income may be received in
additional securities or cash at the
discretion of the issuer.
REMIC -- Real Estate Mortgage Investment Conduit
MXP -- Mexican Peso
TRL -- Turkish Lira
ZAR -- South African Rand
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Foreign Government Bonds ............... $ 36,064 37.7%
Consumer Goods ......................... 11,029 11.5
Services ............................... 10,544 11.0
Materials .............................. 8,560 9.0
Loan Agreements ........................ 5,902 6.2
Capital Equipment ...................... 5,854 6.1
Finance ................................ 5,369 5.6
Energy ................................. 4,729 4.9
Multi-Industry ......................... 1,898 2.0
Insurance .............................. 1,083 1.1
Collateralized Mortgage Obligations .... 579 0.6
-------- ---
$ 91,611 95.7%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (61.5%)
ARGENTINA (8.8%)
(a)21,541 Banco del Sud S.A. 'B' ........................... $ 252
72,701 Banco del Suquia S.A. 'B' ........................ 138
(a)17,365 Disco S.A. ADR.................................... 384
9,955 Quilmes Industrial................................ 102
(a)47,615 Siderar S.A. 'A' ................................. 122
(a)(e)6,570 Siderar S.A. ADR.................................. 135
5,556 Telecom Argentina S.A. ADR........................ 261
25,665 Telefonica de Argentina S.A. ADR.................. 760
11,458 YPF S.A. ADR...................................... 258
--------
2,412
--------
BRAZIL (13.2%)
(e)683 Cia Energetica de Minas Gerais GDR................ 18
3,789,000 Eletrobras........................................ 1,019
10,515 Eletrobras ADR.................................... 141
(a)(d)530,000 Light (New)....................................... 37
(e)15,324 Pao de Acucar GDR................................. 254
(e)1,900 Pao de Acucar GDS................................. 31
10,650,000 Telebras PN....................................... 626
19,080 Telebras PN ADR................................... 1,329
(a)970,041 Telesp............................................ 171
--------
3,626
--------
CHILE (7.5%)
20,198 Embotelladora Adina S.A. ADR...................... 742
6,454 Empresa Nacional de Electricidad S.A. ADR......... 139
2,905 Enersis S.A. ADR.................................. 90
39,108 Santa Isabel S.A. ADR............................. 1,085
--------
2,056
--------
COLOMBIA (4.1%)
2,438,971 Banco de Colombia................................. 926
(e)20,300 Banco de Colombia GDR............................. 178
1,575 Banco Ganadero S.A. ADR........................... 38
--------
1,142
--------
MEXICO (27.0%)
65,187 ALFA S.A. de C.V. 'A' ............................ 293
68,645 Apasco S.A. de C.V. .............................. 379
(a)109,210 Banacci 'B' ...................................... 227
(a)166,310 Banacci 'L' ...................................... 316
232,284 Cemex 'CPO' ...................................... 824
7,880 Cemex S.A. de C.V. ADR............................ 55
(a)276,110 Cifra S.A. 'B' ................................... 398
(a)54,075 Cifra S.A. de C.V. 'C' ........................... 77
(a)106,090 Controladora Comercial Mexicana S.A. 'B' ......... 99
(a)15,951 Empresas ICA Sociedad Controladora S.A. de
C.V. ........................................... 221
321,420 Formento Economico Mexicano S.A. 'B' ............. 911
92,460 Farmacias Benavides S.A. 'B' ..................... 179
(a)25,550 Gruma S.A. 'B' ................................... 118
(a)(e)6,165 Grupo Carso S.A. ADR.............................. 87
41,380 Grupo Cementos Chihuahua 'B' ..................... 42
(a)435,280 Grupo Financiero Bancomer 'B' .................... 190
(a)(e)75,902 Grupo Financiero Bancomer 'B' ADR................. 655
(a)16,367 Grupo Televisa S.A. GDR........................... 503
13,040 Kimberly-Clark de Mexico S.A. 'A' ................ 237
7,351 Pan American Beverages, Inc. 'A' ................. 327
(a)72,270 Sears Roebuck de Mexico 'B1' ..................... 190
32,867 Telefonos de Mexico 'L' ADR....................... 1,101
--------
7,429
--------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
PERU (0.9%)
127,885 Telefonica del Peru 'B' .......................... $ 258
--------
TOTAL COMMON STOCKS (COST $15,324).............................. 16,923
--------
PREFERRED STOCKS (31.6%)
BRAZIL (NON-VOTING STOCKS) (31.1%)
138,397,107 Banco Bradesco.................................... 1,130
(d)8,115,000 Banco Nacional.................................... 1
2,339,819 Brahma............................................ 1,396
2,644,000 Casa Anglo Brasileri S.A. ........................ 145
7,266,000 Cia Energetica de Minas Gerais.................... 193
6,269 Cia Energetica de Minas Gerais ADR................ 178
(a)9,395,000 Cia Paulista de Forca e Luz....................... 618
507,000 Coteminas......................................... 200
143,293 Dixie Toga S.A. .................................. 138
(a)732,000 Electricidade de Sao Paulo S.A. .................. 77
705,000 Eletrobras 'B' ................................... 202
174,000 Investimentos Itausa S.A. ........................ 133
1,625,100 Itaubanco......................................... 660
21,035,000 Lojas Renner...................................... 1,110
4,440,000 Petrobras......................................... 546
23,233,383 Telebras PN....................................... 1,622
11,645 Vale do Rio Doce.................................. 226
--------
8,575
--------
COLOMBIA (0.5%)
268,716 Banco Ganadero Series L........................... 53
4,370 Banco Ganadero S.A. ADR........................... 85
--------
138
--------
TOTAL PREFERRED STOCKS (COST $6,758)............................ 8,713
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- ------------
<C> <S> <C>
CONVERTIBLE DEBENTURE (0.6%)
COLOMBIA (0.6%)
$ (e)180 Banco de Colombia 5.20%, 2/1/99 (COST $159)....... 161
--------
</TABLE>
<TABLE>
<C> <S> <C>
FOREIGN GOVERNMENT BOND (2.6%)
VENEZUELA (2.6%)
(h)1,000 Republic of Venezuela Series L, 6.625%, 12/18/07
(COST $596)..................................... 708
--------
TOTAL FOREIGN SECURITIES (96.3%) (COST $22,837)................. 26,505
--------
FOREIGN CURRENCY (0.2%)
ARP 2 Argentine Peso.................................... 2
BRC 9 Brazilian Real.................................... 9
PSS 116 Peruvian Sol...................................... 47
--------
TOTAL FOREIGN CURRENCY (COST $58)............................... 58
--------
TOTAL INVESTMENTS (96.5%) (COST $22,895)........................ 26,563
OTHER ASSETS IN EXCESS OF LIABILITIES (3.5%).................... 959
--------
NET ASSETS (100%)............................................... $ 27,522
--------
--------
- ---------------
</TABLE>
<TABLE>
<S> <C><C>
(a) -- Non-income producing securities.
(d) -- Security valued at fair value -- see note A-1 to
financial statements.
(e) -- 144A Security -- Certain conditions for public
sale may exist.
(h) -- Variable or floating rate securities -- rate
disclosed is as of June 30, 1996.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
GDS -- Global Depositary Share
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
Telecommunications ........................................................ $ 6,127 22.3%
Finance ................................................................... 5,008 18.2
Consumer Goods ............................................................ 4,260 15.5
Energy .................................................................... 3,515 12.8
Services .................................................................. 2,737 9.9
Materials ................................................................. 2,020 7.3
Multi-Industry ............................................................ 1,624 5.9
Foreign Government Bond ................................................... 707 2.6
Capital Equipment ......................................................... 507 1.8
--------- -----
$ 26,505 96.3%
--------- -----
--------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (77.9%)
ARGENTINA (1.5%)
18,082 Telecom Argentina S.A. ADR........................ $ 847
42,430 Telefonica de Argentina S.A. ADR.................. 1,252
36,212 Quilmes Industrial................................ 371
----------
2,470
----------
BRAZIL (5.9%)
(e)4,302 Cia Energetica de Minas Gerais GDR................ 115
5,020 Cia Vale Do Rio Doce ADR.......................... 98
6,627,000 Eletrobras........................................ 1,782
(d)667,000 Light............................................. 47
(e)29,701 Pao de Acucar GDR................................. 492
(e)1,960 Pao de Acucar GDS................................. 32
15,499,000 Telebras.......................................... 911
89,685 Telebras ADR...................................... 6,244
(a)948,397 Telesp............................................ 167
----------
9,888
----------
CHILE (0.2%)
12,125 Santa Isabel S.A. ADR............................. 332
----------
CHINA (0.7%)
531,700 China International Marine Containers Ltd......... 460
(a)234,000 Shenzhen North Jianshe Motorcycle Co., Ltd........ 82
2,056,000 Yizheng Chemical Fibre Co. 'H'.................... 454
756,000 Zhenhai Refining and Chemical Co.................. 215
----------
1,211
----------
EGYPT (0.3%)
4,548 Ameriyah Cement Co................................ 62
1,572 Commercial International Bank..................... 180
5,750 Eastern Tobacco................................... 63
5,775 Egyptian Finance & Industrial..................... 61
10,275 Helwan Portland Cement............................ 97
1,500 Madinet Housing & Development..................... 40
1,950 North Cairo Flour Mills........................... 46
2,385 Tora H. Portland Cement........................... 31
----------
580
----------
GREECE (1.0%)
16,500 Aegek............................................. 110
2,103 Alpha Credit Bank................................. 111
19,500 Delta Dairy S.A................................... 238
7,000 Ergo Bank S.A..................................... 386
16,700 Hellenic Bottling Co. S.A......................... 555
4,370 Titan Cement Co. S.A.............................. 216
----------
1,616
----------
HONG KONG (5.0%)
934,000 Charoen Pokphand Co............................... 371
173,000 Cheung Kong Holdings Ltd.......................... 1,246
285,000 Citic Pacific Ltd................................. 1,152
684,000 Guangdong Investments Ltd......................... 433
(a)6,000 Guangshen Railway Co. Ltd. ADR.................... 115
434,400 Hong Kong Telecommunications Ltd.................. 780
17,000 Hopewell Holdings Ltd............................. 9
187,000 Hutchison Whampoa Ltd............................. 1,177
154,000 New World Development Co., Ltd.................... 714
63,000 Sun Hung Kai Properties Ltd....................... 637
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
134,000 Swire Pacific Ltd. 'A'............................ $ 1,147
(a)1,438,000 Tingyi Holdings Co................................ 395
167,000 Varitronix International Ltd...................... 348
----------
8,524
----------
HUNGARY (0.1%)
(a)2,000 Cofinec GDR....................................... 96
----------
INDIA (11.7%)
(a)12,369 Century Textiles & Industries GDR................. 1,973
(e)157,950 E.I.D. Parry GDR.................................. 450
198,800 Great Eastern Shipping GDR........................ 1,715
100,000 Gujarat Ambuja Cement GDR......................... 1,275
214,816 Gujarat Narmada Valley Fertilizers Co., Ltd....... 1,423
504,000 Hindustan Development Corp. Ltd................... 315
(a)60,000 ITC Ltd. GDS...................................... 622
75,000 India Cements Ltd. GDR............................ 412
71,000 Indian Petrochemical Corp., Ltd. GDR.............. 1,189
22,000 Indian Rayon & Industries GDR..................... 325
(a)83,750 Indo Rama Synthetics Ltd. GDR..................... 1,078
(a)(e)25,000 Indo Rama Synthetics Ltd. GDR..................... 322
(a)4,320 JCT Ltd. GDR...................................... 17
(e)160 JCT Ltd. GDR...................................... 1
(a)230,750 JK Corp. GDR...................................... 721
50,000 Mahindra & Mahindra Ltd. GDR...................... 550
(a)(g)186,045 Morgan Stanley India Investment Fund, Inc......... 2,070
83,500 Raymond Ltd. GDR.................................. 1,744
317,000 SIV Industries GDR................................ 951
(a)280,000 Sanghi Polyester Ltd. GDR......................... 812
310,300 Tube Investments of India......................... 968
60,550 United Phosphorus Ltd. GDR........................ 734
----------
19,667
----------
INDONESIA (5.5%)
(d)143,000 Bank International Indonesia (Foreign)............ 706
(d)436,000 Barito Pacific Timber (Foreign)................... 286
(d)459,000 Bimantara Citra (Foreign)......................... 577
(d)38,500 Charoen Pokphand Co., Ltd. (Foreign).............. 74
(a)(d)347,000 Gudang Garam (Foreign)............................ 1,487
(d)93,500 Hanjaya Mandala Sampoerna (Foreign)............... 1,065
(d)833,500 Indah Kiat Pulp & Paper (Foreign)................. 815
(d)91,000 Indocement Tunggal (Foreign)...................... 313
(d)110,500 Indosat (Foreign)................................. 371
(d)104,000 Kalbe Farma (Foreign)............................. 232
(a)(d)96,500 Semen Gresik (Foreign)............................ 281
(d)52,666 Sorini Corp. (Foreign)............................ 290
(d)1,790,000 Telekomunikasi (Foreign).......................... 2,711
(d)40,500 United Tractors (Foreign)......................... 64
----------
9,272
----------
ISRAEL (2.7%)
18,250 Elbit Ltd......................................... 1,087
680 First International Bank of Israel Ltd. '1'....... 71
4,465 First International Bank of Israel Ltd. '5'....... 498
(a)94,327 Israel Land Development Co., Ltd.................. 232
5,100 Koor Industries Ltd............................... 432
16,500 Koor Industries Ltd. ADR.......................... 283
89,000 Osem Investment Ltd............................... 524
55,000 Super Sol Ltd..................................... 1,170
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
ISRAEL (CONT.)
7,000 Teva Pharmaceutical Industries Ltd. ADR........... $ 265
----------
4,562
----------
KOREA (2.3%)
(a)(d)1,960 Chosun Brewery (Foreign).......................... 67
(d)17,380 Korea Electric Power (Foreign).................... 702
(d)29,250 Korea Housing Bank................................ 804
(a)(d)537 Korea Mobile Telecommunications Corp. (Foreign)... 636
5,000 Korea Mobile Telecommunications Corp. ADR......... 86
(d)2,800 Pohang Iron & Steel Ltd. (Foreign)................ 228
5,220 Samsung Electronics Co. GDS....................... 270
(a)5,680 Samsung Electronics Co. (Foreign)................. 476
(d)25,345 Shinhan Bank Co., Ltd. (Foreign).................. 592
3,000 Yukong Ltd. (Foreign)............................. 88
----------
3,949
----------
MEXICO (9.6%)
137,011 ALFA S.A. de C.V.................................. 615
87,770 Apasco S.A. de C.V................................ 485
(a)659,310 Banacci 'B'....................................... 1,370
(a)193,888 Banacci 'L'....................................... 368
480,112 Cemex 'CPO'....................................... 1,703
(e)65,099 Cemex S.A. de C.V. ADR............................ 450
(a)193,050 Cifra S.A. 'B'.................................... 279
(a)404,375 Cifra S.A. 'C'.................................... 577
(a)27,385 Empresas ICA Sociedad Controladora S.A. de C.V.... 380
828,920 Formento Economico Mexicano S.A. 'B'.............. 2,350
(a)(e)32,410 Grupo Carso S.A. ADR.............................. 459
(a)2,484,875 Grupo Financiero Bancomer 'B'..................... 1,082
(a)(e)154,870 Grupo Financiero Bancomer 'B' ADR................. 1,336
(a)35,745 Grupo Televisa S.A. GDR........................... 1,099
20,628 Pan American Beverages, Inc. 'A'.................. 918
83,985 Telefonos de Mexico 'L' ADR....................... 2,814
----------
16,285
----------
MOROCCO (0.3%)
2,700 Banque Morocaine.................................. 121
3,500 Banque Morocaine GDR.............................. 50
3,200 Omnium Nord Africain S.A.......................... 147
2,500 Sni Maroc......................................... 157
(a)2,000 Wafabank.......................................... 93
----------
568
----------
PAKISTAN (3.0%)
98,600 Dewan Salman Fibre................................ 118
157,300 D.G. Khan Cement Ltd.............................. 62
569,700 Fauji Fertilizer Co., Ltd......................... 1,465
(a)181,500 Karachi Electric.................................. 191
(a)150,000 Nishat Mills Ltd.................................. 60
35,100 Pakistan State Oil Co. Ltd........................ 414
(a)19,825 Pakistan Telecommunication Co..................... 2,265
(a)399,000 Sui Northern Gas Pipelines........................ 456
----------
5,031
----------
PHILIPPINES (3.0%)
252,425 Ayala Land, Inc. 'B'.............................. 453
734,200 C&P Homes, Inc.................................... 638
(a)519,000 DMCI Holdings, Inc................................ 371
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
2,433,800 JG Summit Holding 'B'............................. $ 910
74,900 Manila Electric 'B'............................... 786
1,288,350 Petron Corp....................................... 590
13,200 Philippine Long Distance Telephone ADR............ 786
1,867,080 SM Prime Holdings, Inc............................ 485
2,200 San Miguel Corp. 'B'.............................. 8
----------
5,027
----------
POLAND (1.5%)
12,500 Bank Rozwoju Eksportu S.A......................... 327
75,000 Big Bank Inicjatyw................................ 94
(a)15,750 Debica S.A........................................ 383
1,800 E. Wedel S.A...................................... 81
31,300 Elektrim.......................................... 257
(a)8,000 Fabryka Kotlow Rafako S.A......................... 47
48,000 Mostostal-Export.................................. 164
(a)69,000 Polifarb Wroclaw S.A.............................. 348
32,000 Wielkopolski Bank Kredytowy....................... 173
7,700 Zywiec............................................ 595
----------
2,469
----------
PORTUGAL (0.0%)
(a)6,000 Filmes Lusomundo.................................. 37
----------
RUSSIA (5.2%)
(a)15,372,000 Irkutskenergo..................................... 1,783
(a)110,000 Lukoil Holdings................................... 1,210
(e)14,635 Lukoil Holdings ADR............................... 626
2,200,000 Moscow Energy (Mosenergo)......................... 1,958
(a)459,000 Rostelekom........................................ 1,102
(a)22,130,000 Unified Energy System............................. 2,080
----------
8,759
----------
SOUTH AFRICA (3.6%)
100,000 Amalgamated Banks of South Africa................. 554
12,500 Anglo American Industrial Corp. Ltd............... 502
49,500 Barlow Ltd........................................ 517
119,473 Bidvest Group Ltd................................. 714
15,400 Drifontein Consolidation Ltd...................... 206
43,500 Gencor Ltd........................................ 161
101,500 JD Group Ltd...................................... 550
(g)34,265 Morgan Stanley Africa Investment Fund, Inc........ 428
37,850 Rembrant Group Ltd................................ 356
308,175 SA Iron & Steel Corp. Ltd......................... 241
60,000 Sage Group Ltd.................................... 288
142,865 Sasol Ltd......................................... 1,550
72,300 Spescom Electronics Ltd........................... 67
----------
6,134
----------
SINGAPORE (0.3%)
(a)186,000 Want Want Holdings................................ 500
----------
TAIWAN (4.7%)
277,000 Cathay Life Insurance Co., Ltd.................... 1,953
1,568,000 China Steel Corp.................................. 1,641
318,000 Hua Nan Commercial Bank........................... 1,676
(a)238,068 Mosel Vitelic Ltd................................. 335
(a)377,640 Taiwan Semiconductor Co........................... 789
235,460 United Micro Electronics Corp., Ltd............... 349
857,000 Yang Ming Marine Transport........................ 1,264
----------
8,007
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
THAILAND (4.2%)
35,300 Advanced Information Services Co., Ltd.
(Foreign)....................................... $ 523
94,100 Bangkok Bank Co., Ltd. (Foreign).................. 1,275
237,300 Finance One Co., Ltd. (Foreign)................... 1,533
61,000 National Finance & Securities Co., Ltd.
(Foreign)....................................... 272
25,800 Shinawatra Computer Co., Ltd. (Foreign)........... 559
113,000 Siam Commercial Bank Co., Ltd. (Foreign).......... 1,638
115,900 Thai Farmer's Bank Public Co. (Foreign)........... 1,269
----------
7,069
----------
TURKEY (5.6%)
1,762,554 Aksa Akrilik Kimya Sanayii A.S.................... 370
2,820,500 Arcelik A.S....................................... 261
355,000 Bagfas Bandirma Gubre Fabrikalari A.S............. 96
1,660,000 Borusan Birmesik.................................. 137
4,185,000 Bossa Ticaret ve Sanayii Isletmeleri T.A.S........ 423
5,500,000 Demirbank Tas..................................... 188
2,070,000 Ege Biracilik Ve Malt Sanayii..................... 945
2,820,000 Ege Seramik Co., Inc.............................. 113
900,000 Erciyas Biracilik Ve Malt Sanayii................. 510
17,000,000 Eregli Demir Ve Celik Fabrikalari T.A.S........... 1,884
2,508,000 Guney Biraculik Ve Malt Sana...................... 580
387,000 Migros Turk....................................... 339
7,776,000 Sabah............................................. 215
835,979 Tat Konserve...................................... 196
4,340,000 Tofas Turk Otomobil Fabrikasi..................... 209
11,735,058 Trakya Cam Sanayii A.S............................ 643
11,115,000 Turkiye Garanti Bankasi........................... 758
13,893,750 Turkiye Garanti Banksai RFD....................... 879
17,539,000 Yapi Ve Kredi Bankasi A.S......................... 497
8,799,000 Yapi Ve Kredi Bankasi A.S. RFD.................... 228
----------
9,471
----------
TOTAL COMMON STOCKS (COST $121,237)................................. 131,524
----------
PREFERRED STOCKS (8.6%)
BRAZIL (NON-VOTING STOCKS) (8.1%)
341,907,584 Banco Bradesco.................................... 2,793
(d)11,156,000 Banco Nacional.................................... 1
5,793,099 Brahma............................................ 3,456
16,664,000 Cia Energetica de Minas Gerais.................... 443
2,747 Cia Energetica de Minas Gerais ADR................ 78
2,080,000 Eletrobras 'B'.................................... 595
166,000 Investimentos Itausa S.A.......................... 127
4,061,200 Itaubanco......................................... 1,650
10,145,000 Petrobras......................................... 1,248
4,660,000 Pao de Acucar..................................... 77
45,436,390 Telebras.......................................... 3,172
789,000 Telesp............................................ 169
----------
13,809
----------
PORTUGAL (0.1%)
11,780 Filmes Lusomundo.................................. 94
----------
RUSSIA (0.4%)
(a)450,000 Rostelecom........................................ 664
----------
TOTAL PREFERRED STOCKS (COST $11,903)............................... 14,567
----------
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.1%)
POLAND (0.0%)
(a)48,000 Mostostal-Export, expiring 8/14/96................ $ 3
----------
TURKEY (0.1%)
(a)627,000 Tat Konserve A.S., expiring 7/24/96............... 93
----------
TOTAL RIGHTS (COST $128)............................................ 96
----------
<CAPTION>
FACE
AMOUNT
(000)
- ----------------
<C> <S> <C>
CONVERTIBLE DEBENTURES (0.1%)
COLOMBIA (0.1%)
$ (e)170 Banco de Colombia 5.20%, 2/1/99................... 152
----------
INDIA (0.0)
120 Tata Iron & Steel Co. 2.25%, 4/1/99............... 115
----------
TOTAL CONVERTIBLE DEBENTURES (COST $300)............................ 267
----------
TOTAL FOREIGN SECURITIES (86.7%) (COST $133,568).................... 146,454
----------
SHORT TERM INVESTMENT (10.4%)
REPURCHASE AGREEMENT (10.4%)
17,521 Chase Securities, Inc., 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $17,529,
collateralized by $17,215 U.S. Treasury Notes,
7.125%, due 9/30/99, valued at $17,600
(COST $17,521).................................. 17,521
----------
TOTAL INVESTMENT IN SECURITIES (COST $151,089)...................... 163,975
----------
FOREIGN CURRENCY (1.3%)
ARP 14 Argentine Peso.................................... 14
BRC 800 Brazilian Real.................................... 797
EGP 33 Egyptian Pound.................................... 10
HKD 120 Hong Kong Dollar.................................. 15
IDR 461,247 Indonesian Rupiah................................. 198
ISS 4 Israeli Shekel.................................... 1
KRW 7,198 Korean Won........................................ 9
MEP 5 Mexican Pesos..................................... 1
PKR 15,164 Pakistani Rupee................................... 433
PLZ 10 Polish Zloty...................................... 4
ZAR 3 South African Rand................................ 1
TWD 17,599 Taiwan Dollar..................................... 640
TRL 4,801,341 Turkish Lira...................................... 58
----------
TOTAL FOREIGN CURRENCY (COST $2,181)................................ 2,181
----------
TOTAL INVESTMENTS (98.4%) (COST $153,270)........................... 166,156
OTHER ASSETS IN EXCESS OF LIABILITIES (1.6%)........................ 2,711
----------
NET ASSETS (100%)................................................... $ 168,867
----------
----------
</TABLE>
<TABLE>
<S> <C> <C>
- ------------
(a) -- Non-income producing.
(d) -- Security is valued at fair value -- see note A-1
to financial statements.
(e) -- 144A Security -- certain conditions for public
sale may exist.
(g) -- The Fund is advised by an affiliate.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
GDS -- Global Depositary Share.
RFD -- Ranked for Dividend.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- ------------- --------
<S> <C> <C>
Consumer Goods.......................... $ 29,434 17.4%
Telecommunications...................... 24,864 14.7
Finance................................. 24,783 14.7
Materials............................... 17,809 10.6
Energy.................................. 13,983 8.3
Multi-Industry.......................... 13,244 7.8
Capital Equipment....................... 10,845 6.4
Services................................ 4,819 2.9
Real Estate............................. 4,226 2.5
Insurance............................... 2,241 1.3
Gold Mines.............................. 206 0.1
------------- ---
$ 146,454 86.7%
------------- ---
------------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.8%)
CAPITAL GOODS / CONSTRUCTION (9.3%)
AEROSPACE & DEFENSE (9.1%)
800 General Dynamics Corp............................. $ 50
3,800 McDonnell Douglas Corp............................ 184
6,200 United Technologies Corp.......................... 713
-------
947
-------
BUILDING & CONSTRUCTION (0.2%)
(a)1,100 AMRE, Inc......................................... 24
-------
TOTAL CAPITAL GOODS / CONSTRUCTION........................... 971
-------
CONSUMER--CYCLICAL (23.7%)
BROADCASTING--RADIO & TELEVISION (1.0%)
(a)3,500 Heftel Broadcasting Corp. `A'..................... 104
-------
ENTERTAINMENT & LEISURE (3.3%)
(a)11,600 Gtech Holdings Corp............................... 344
-------
FOOD SERVICE & LODGING (15.5%)
(a)13,600 Boston Chicken, Inc............................... 442
(a)1,700 Foodmaker, Inc.................................... 15
(a)8,100 HFS, Inc.......................................... 567
5,400 ITT Corp. (New)................................... 358
6,700 La Quinta Inns, Inc............................... 225
-------
1,607
-------
LEISURE RELATED (0.5%)
3,300 International Game Technology..................... 56
-------
PHOTOGRAPHY & OPTICAL (0.9%)
5,800 PCA International, Inc............................ 97
-------
PUBLISHING (1.8%)
12,000 K-III Communications Corp......................... 150
1,000 New York Times Co. `A'............................ 33
-------
183
-------
RETAIL--GENERAL (0.7%)
(a)1,600 Petsmart, Inc..................................... 76
-------
TOTAL CONSUMER--CYCLICAL..................................... 2,467
-------
CONSUMER--STAPLES (31.8%)
BEVERAGES (2.3%)
6,950 Coca-Cola Enterprises, Inc........................ 241
-------
FOOD (2.8%)
4,000 Kellogg Co........................................ 293
-------
TOBACCO (26.7%)
12,900 Philip Morris Cos., Inc........................... 1,342
42,000 RJR Nabisco Holdings Corp......................... 1,302
3,700 UST, Inc.......................................... 127
-------
2,771
-------
TOTAL CONSUMER--STAPLES...................................... 3,305
-------
DIVERSIFIED (5.5%)
DIVERSIFIED (5.5%)
1,700 Allied Signal, Inc................................ 97
6,000 Loews Corp........................................ 473
-------
TOTAL DIVERSIFIED............................................ 570
-------
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
FINANCE (21.7%)
BANKING (5.4%)
1,700 Citicorp.......................................... $ 140
1,783 Wells Fargo Co.................................... 426
-------
566
-------
FINANCIAL SERVICES (7.4%)
10,000 American Express Co............................... 446
1,400 CIGNA Corp........................................ 165
2,100 Student Loan Marketing Association................ 155
-------
766
-------
INSURANCE (8.5%)
1,800 ACE Ltd........................................... 84
11,600 CMAC Investment Corp.............................. 667
2,100 PMI Group, Inc.................................... 89
1,400 PartnerRe Holdings Ltd............................ 42
-------
882
-------
REAL ESTATE (0.4%)
(a)1,600 Insignia Financial Group, Inc. `A'................ 43
-------
TOTAL FINANCE................................................ 2,257
-------
MATERIALS (1.4%)
CHEMICALS (1.4%)
1,000 Olin Corp......................................... 89
800 Potash Corp. of Saskatchewan, Inc................. 53
-------
142
-------
TECHNOLOGY (1.4%)
ELECTRONICS (0.9%)
1,300 Intel Corp........................................ 95
-------
SOFTWARE SERVICES (0.5%)
1,200 IMC Global, Inc................................... 45
-------
TOTAL TECHNOLOGY............................................. 140
-------
TOTAL COMMON STOCKS (COST $9,506).............................. 9,852
-------
NO. OF
CONTRACTS
- -----------
CALL OPTIONS (0.3%)
FINANCE
(a)500 Wells Fargo Co., expiring 1/17/98 (COST $24)...... 29
-------
FACE
AMOUNT
(000)
- -----------
SHORT-TERM INVESTMENT (11.9%)
U.S. GOVERNMENT OBLIGATIONS (11.9%)
$1,250 U.S. Treasury Bill, 8/29/96 (COST $1,239)......... 1,239
-------
TOTAL INVESTMENTS (107.0%) (COST $10,769)...................... 11,120
LIABILITIES IN EXCESS OF OTHER ASSETS (-7.0%).................. (730)
-------
NET ASSETS (100%).............................................. $10,390
-------
-------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
(a) -- Non-income producing.
</TABLE>
<TABLE>
<CAPTION>
SECURITIES SOLD SHORT (NOTE A-6) VALUE
SHARES (000)
------------------------------------------------------ ------
<C> <S> <C>
1,100 Coca-Cola Enterprises, Inc......... $ 38
3,900 HFS, Inc........................... 273
800 McDonnell Douglas Corp............. 39
1,600 Philip Morris Cos., Inc............ 166
11,000 RJR Nabisco Holdings Corp.......... 341
3,700 UST, Inc........................... 127
------
(TOTAL PROCEEDS $907).............. $ 984
------
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
U.S. REAL ESTATE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (93.7%)
APARTMENT (22.0%)
7,900 Amli Residential Properties Trust REIT............ $ 163
15,500 Avalon Properties, Inc. REIT...................... 337
2,000 Bay Apartment Communities, Inc. REIT.............. 52
1,000 Columbus Realty Trust REIT........................ 19
5,000 Essex Property Trust, Inc. REIT................... 107
1,200 Evans Withycombe Residential, Inc. REIT........... 25
10,600 Irvine Apartment Communities, Inc. REIT........... 213
4,600 Oasis Residential, Inc. REIT...................... 101
7,500 Paragon Group, Inc. REIT.......................... 123
10,300 South West Property Trust REIT.................... 138
------
1,278
------
LAND (0.7%)
(a)4,500 Catellus Development Corp. ....................... 41
------
LODGING/LEISURE (12.0%)
7,500 Felcor Suite Hotels, Inc. REIT.................... 229
(a)6,400 Host Marriott Corp. .............................. 84
(a)1,000 Interstate Hotels Co. ............................ 22
(a)14,000 John Q Hammons Hotels, Inc. ...................... 152
600 National Golf Properties, Inc. ................... 14
(a)5,600 Servico, Inc. .................................... 85
3,000 Starwood Lodging Trust REIT....................... 109
------
695
------
MANUFACTURED HOME (7.6%)
18,600 ROC Communities, Inc. REIT........................ 444
------
OFFICE & INDUSTRIAL (31.6%)
INDUSTRIAL (16.6%)
7,800 Eastgroup Properties REIT......................... 170
23,500 Meridian Industrial Trust REIT.................... 432
16,000 Pacific Gulf Properties, Inc. REIT................ 268
5,200 Security Capital Industrial Trust REIT............ 92
------
962
------
OFFICE (4.1%)
14,000 Parkway Co. ...................................... 213
(a)3,100 Trizec Corp. ..................................... 24
------
237
------
OFFICE & INDUSTRIAL (10.9%)
17,900 Bedford Property Investors, Inc. REIT............. 242
1,700 Brandywine Realty Trust REIT...................... 10
7,000 Duke Realty Investment, Inc. REIT................. 212
8,600 Liberty Property Trust REIT....................... 171
------
635
------
TOTAL OFFICE & INDUSTRIAL................................. 1,834
------
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------
<C> <S> <C>
RETAIL (14.9%)
FACTORY OUTLET CENTER (0.4%)
500 Factory Stores of America, Inc. REIT.............. $ 4
800 Horizon Group, Inc. REIT.......................... 16
------
20
------
REGIONAL MALL (8.7%)
12,500 DeBartolo Realty Corp. REIT....................... 202
1,400 Glimcher Realty Trust REIT........................ 24
10,000 Taubman Center, Inc. REIT......................... 111
7,100 Urban Shopping Centers, Inc. REIT................. 169
------
506
------
SHOPPING CENTER (5.8%)
13,400 Alexander Haagen Properties, Inc. REIT............ 171
11,300 Burnham Pacific Property Trust REIT............... 131
1,100 Price, Inc. REIT.................................. 36
------
338
------
TOTAL RETAIL.............................................. 864
------
SELF STORAGE (4.9%)
100 Public Storage, Inc. REIT......................... 2
9,300 Shurgard Storage Centers, Inc. 'A' REIT........... 235
2,500 Storage Trust Realty REIT......................... 51
------
288
------
TOTAL COMMON STOCKS (COST $5,234)........................... 5,444
------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- --------
<C> <S> <C>
SHORT-TERM INVESTMENT (5.0%)
REPURCHASE AGREEMENT (5.0%)
$ 289 Chase Securities, Inc., 5.15%, dated 6/28/96, due
7/1/96, to be repurchased at $289,
collateralized by $285 U.S. Treasury Notes,
7.125%, due 9/30/99, valued at $291 (COST
$289)........................................... 289
-------
TOTAL INVESTMENTS (98.7%) (COST $5,523)..................... 5,733
OTHER ASSETS IN EXCESS OF LIABILITIES (1.3%)................ 75
-------
NET ASSETS (100%)........................................... $ 5,808
-------
-------
- ---------------
</TABLE>
<TABLE>
<S> <C><C>
(a) -- Non-income producing.
REIT -- Real Estate Investment Trust.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
HIGH YIELD FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (67.8%)
BROADCAST--RADIO & TELEVISION (8.5%)
$130 Cablevision Systems Corp., 9.875%, 5/15/06........ $ 125
150 Continental Cablevision, Inc., 9.50%, 8/1/13...... 163
(n)300 Marcus Cable Co., Series B, 0.00%, 12/15/05....... 185
200 Rogers Cablesystems Ltd., 10.00%, 3/15/05......... 198
250 Viacom, Inc., 8.00%, 7/7/06....................... 229
------
900
------
BUILDING MATERIALS & COMPONENTS (0.9%)
125 G-I Holdings, Inc., Series B, Zero Coupon,
10/1/98......................................... 100
------
CAPITAL GOODS & CONSTRUCTION (0.4%)
40 MDC Holdings, Series B, 11.125%, 12/15/03......... 39
------
CHEMICALS (0.7%)
80 Harris Chemical, 10.25%, 7/15/01.................. 80
------
COMPUTERS (1.9%)
(e)200 Unisys Corp., 12.00%, 4/15/03..................... 203
------
CONSUMER--CYCLICAL (0.3%)
65 Exide Corp., 2.90%, 12/15/05...................... 36
------
DIVERSIFIED (1.2%)
125 TLC Beatrice International Holdings, 11.50%,
10/1/05......................................... 127
------
ENERGY (1.1%)
120 Nuevo Energy, 9.50%, 4/15/06...................... 119
------
ENTERTAINMENT & LEISURE (2.0%)
250 Six Flags Theme Park, Inc., Series A, 12.25%,
6/15/05......................................... 213
------
ENVIRONMENTAL CONTROLS (3.8%)
116 Midland Cogeneration Ventures, Series C-91,
10.33%, 7/23/02................................. 120
125 Midland Funding II, Series A, 11.75%, 7/23/05..... 131
150 Norcal Waste Systems, 12.75%, 11/15/05............ 158
------
409
------
FOOD (1.4%)
150 Smith's Food & Drug, 11.25%, 5/15/07.............. 152
------
FOOD SERVICE & LODGING (1.4%)
150 Host Marriott Travel Plaza, Series B, 9.50%,
5/15/05......................................... 144
------
FOREST PRODUCTS & PAPER (2.6%)
180 Crown Paper Co., 11.00%, 9/1/05................... 171
100 SD Warren Co., Series B, 12.00%, 12/15/04......... 106
------
277
------
GAMING & LODGING (4.7%)
(e)200 Courtyard By Marriott, 10.75%, 2/1/08............. 196
20 Grand Casinos, Inc., 10.125%, 12/1/03............. 21
(e)150 HMC Acquisition Properties, Series B, 9.00%,
12/15/07........................................ 137
150 Trump Atlantic, 11.25%, 5/1/06.................... 150
------
504
------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE SUPPLIES & SERVICES (0.5%)
$(e)50 Homeside, Inc., 11.25%, 5/15/03................... $ 52
------
INSURANCE (3.5%)
275 Home Holdings, Inc., 8.625%, 12/15/03............. 179
200 Reliance Group Holdings, Inc., 9.00%, 11/15/00.... 198
------
377
------
METALS ( 1.4%)
150 Algoma Steel, Inc. (Yankee Bond), 12.375%,
7/15/05......................................... 146
------
PACKAGING & CONTAINER (5.4%)
150 Owens-Illinois, Inc., 11.00%, 12/1/03............. 161
50 Gaylord Container Corp., 11.50%, 5/15/01.......... 51
45 Gaylord Container Corp., 12.75%, 5/15/05.......... 47
310 Stone Container Corp., 10.75%, 10/1/02............ 313
------
572
------
RETAIL--GENERAL (2.1%)
280 Southland Corp., 5.00%, 12/15/03.................. 218
------
SOAP & TOILETRIES (2.0%)
250 Revlon Worldwide, Series B, Zero Coupon,
3/15/98......................................... 208
------
TELECOMMUNICATIONS (19.9%)
(e)(n)300 Brooks Fiber Properties, 0.00%, 3/1/06............ 159
215 Comcast Cellular Corp., Series B, Zero Coupon,
3/5/00.......................................... 148
110 Comcast Corp., Series A, 9.375%, 5/15/05.......... 106
(e)(n)250 Echostar Satellite Broadcast, 0.00%, 3/15/04...... 155
325 Lenfest Communications, 8.375%, 11/1/05........... 297
(e)35 Lenfest Communications, 10.50%, 6/15/06........... 35
(n)510 MFS Communications, 0.00%, 1/15/06................ 311
(n)700 Nextel Communications, 0.00%, 8/15/04............. 411
(n)275 Occidente Y Caribe, 0.00%, 3/15/04................ 140
40 Philippines Long Distance Telephone, 9.25%,
6/30/06......................................... 40
250 TCI Communications, Inc., 7.875%, 2/15/26......... 218
(n)170 Telewest plc., 0.00%, 10/1/07..................... 101
------
2,121
------
TEXTILES & APPAREL (2.1%)
60 Collins & Aikman Products, 11.50%, 4/15/06........ 61
165 Westpoint Stevens, Inc., 9.375%, 12/15/05......... 160
------
221
------
TOTAL CORPORATE BONDS AND NOTES (COST $7,320)............... 7,218
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
HIGH YIELD FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES (3.7%)
FINANCE (2.1%)
$ 263 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07.............................. $ 221
------
TRANSPORTATION (1.6%)
175 Aircraft Lease Portfolio Securization Ltd., Series
1996-1, Class D, 12.75%, 6/15/06 175
------
TOTAL ASSET BACKED SECURITIES (COST $395)................... 396
------
FOREIGN GOVERNMENT BONDS (10.7%)
(n)800 Republic of Argentina Series L, 5.25%, 3/31/23.... 439
(h)650 Federal Republic of Brazil Par Bond, Series Z-L,
5.00%, 4/15/24.................................. 361
250 United Mexican States, Series B, 6.25%,
12/31/19........................................ 160
(h)250 Government of Venezuela Front Loaded Interest
Reduction Bond, Series A, 6.375%, 3/31/07....... 181
------
TOTAL FOREIGN GOVERNMENT BONDS (COST $1,122)................ 1,141
------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ------------
<C> <S> <C>
PREFERRED STOCKS (2.0%)
(a)(e)215 Time Warner, Inc., Series K (COST $215).... 211
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
- ------------
<C> <S> <C>
RIGHTS (0.0%)
(a)(d)250,000 United Mexican States, expiring 12/31/96
(COST $0)................................ --
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (16.5%)
COMMERCIAL PAPER (14.1%)
$ 300 AT&T Corp., 5.34%, 7/24/96................. $ 299
300 Dun & Bradstreet, 5.36%, 7/25/96........... 299
300 Gannett, 5.33%, 7/19/96.................... 299
300 IBM, 5.36%, 7/8/96......................... 300
300 Motorola, 5.33%, 7/16/96................... 299
--------
1,496
--------
REPURCHASE AGREEMENT (2.4%)
253 Chase Securities, Inc., 5.15%, dated
6/28/96, due 7/1/96, to be repurchased at
$253, collateralized by $250 U.S Treasury
Notes, 7.125%, due 9/30/99, valued at
$258..................................... 253
--------
TOTAL SHORT-TERM INVESTMENTS (COST $1,749)............... 1,749
--------
TOTAL INVESTMENTS (100.7%) (COST $10,801)................ 10,715
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%)............ (71)
--------
NET ASSETS (100%)........................................ $ 10,644
--------
--------
- ---------------
</TABLE>
<TABLE>
<S> <C><C>
(a) -- Non-income producing.
(d) -- Security is valued at fair value -- see note A-1
to financial statements.
(e) -- 144A Security -- certain conditions for public
sale may exist.
(h) -- Variable or floating rate securities -- rate
disclosed is as of June 30, 1996.
(n) -- Step Bond -- coupon rate increases in increments
to maturity. Rate disclosed is as of June 30,
1996. Maturity date disclosed is the ultimate
maturity date.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------
JUNE 30, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL WORLDWIDE
EQUITY FIXED ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
Securities, at Value
(Note 1) -- See
accompanying
portfolios $ 137,244 $ 11,120 $ 463,721 $ 42,755 $ 92,304 $ 26,505 $ 163,975
Foreign Currency at
Value 399 -- 3,142 -- -- 58 2,181
Cash 1 723 -- -- 232 -- 685
Receivable for:
Investments Sold 2,238 -- 4,348 428 1,448 792 3,510
Fund Shares Sold 1,832 11 1,821 369 1,708 1,258 2,142
Dividends 399 -- 757 95 -- 130 596
Interest 2 155 6 1 1,684 6 12
Foreign Withholding
Tax Reclaim 73 6 25 -- -- -- 3
Unrealized Gain on
Forward Foreign
Currency Contracts 1,162 3 -- -- -- -- --
Deferred Organization
Costs 43 43 35 52 59 58 57
Receivable from
Investment Adviser -- 17 -- 60 -- -- --
Securities, at Value,
Held as Collateral for
Securities Loaned 23,165 -- -- -- -- -- --
Other 5 -- 18 -- -- -- 1
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 166,563 12,078 473,873 43,760 97,435 28,807 173,162
------------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments Purchased 1,086 288 984 111 662 802 3,430
Fund Shares Redeemed 153 4 710 31 287 24 65
Bank Overdraft -- -- 662 -- -- 335 --
Dividends Declared -- 1 -- 23 309 -- --
Investment Advisory
Fees 219 -- 1,153 95 115 15 320
Administrative Fees 40 4 114 11 23 8 39
Custody Fees 73 4 204 5 17 28 108
Professional Fees 38 34 72 26 48 34 51
Distribution Fees 211 21 682 72 154 29 173
Shareholder Reporting
Expenses 41 6 150 32 37 7 39
Directors' Fees and
Expenses 2 -- 7 1 -- -- 1
Securities Sold Short -- -- -- -- -- -- --
Filing and
Registration Fees 14 -- 46 1 21 3 34
Deferred Country Tax 1 -- 157 -- -- -- 35
Dividend Payable on
Securities Sold Short -- -- -- -- -- -- --
Collateral on
Securities Loaned 23,165 -- -- -- -- -- --
Other 3 -- -- -- 1 -- --
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 25,046 362 4,941 408 1,674 1,285 4,295
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 141,517 $ 11,716 $ 468,932 $ 43,352 $ 95,761 $ 27,522 $ 168,867
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 10 $ 1 $ 28 $ 3 $ 8 $ 2 $ 14
Paid in Capital in
Excess of Par 119,218 11,909 426,860 35,893 91,713 25,263 157,148
Undistributed
(Distribution in
excess of) Net
Investment Income 2,710 (36) (160) (23) 1,157 132 306
Accumulated
(Distribution in
excess of) Net
Realized Gain (Loss) 4,743 (124) 4,456 2,321 3,553 (1,541) (1,451)
Unrealized Appreciation
(Depreciation) on
Investments and
Foreign Currency
Translations* 14,836 (34) 37,748 5,158 (670) 3,666 12,850
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 141,517 $ 11,716 $ 468,932 $ 43,352 $ 95,761 $ 27,522 $ 168,867
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS A SHARES:
Net Assets $ 63,706 $ 7,432 $ 248,009 $ 19,674 $ 41,493 $ 18,701 $ 114,850
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 4,318 748 14,464 1,345 3,326 1,481 9,521
Net Asset Value and
Redemption Price Per
Share $ 14.75 $ 9.94 $ 17.15 $ 14.63 $ 12.47 $ 12.63 $ 12.06
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Maximum Sales Charge 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
Maximum Offering Price
Per Share (Net Asset
Value Per Share x
100/95.25) $ 15.49 $ 10.44 $ 18.01 $ 15.36 $ 13.09 $ 13.26 $ 12.66
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS B SHARES:
Net Assets $ 14,786 $ 1,440 $ 52,853 $ 2,485 $ 26,174 $ 2,041 $ 10,416
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 1,022 145 3,144 170 2,104 164 873
Net Asset Value and
Offering Price Per
Share $ 14.46 $ 9.91 $ 16.81 $ 14.63 $ 12.44 $ 12.45 $ 11.94
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS C SHARES:
Net Assets $ 63,025 $ 2,844 $ 168,070 $ 21,193 $ 28,094 $ 6,780 $ 43,601
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 4,349 287 10,015 1,448 2,257 546 3,654
Net Asset Value and
Offering Price Per
Share $ 14.49 $ 9.90 $ 16.78 $ 14.64 $ 12.45 $ 12.43 $ 11.93
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Investments at Cost,
Including Foreign
Currency $ 123,918 $ 11,155 $ 428,959 $ 37,597 $ 92,940 $ 22,895 $ 153,270
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
AGGRESSIVE U.S. HIGH
EQUITY REAL ESTATE YIELD
FUND FUND FUND
(000) (000) (000)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
ASSETS:
Investments in
Securities, at Value
(Note 1) -- See
accompanying
portfolios $ 11,120 $ 5,733 $ 10,715
Foreign Currency at
Value -- -- --
Cash -- -- 40
Receivable for:
Investments Sold 1,017 -- 87
Fund Shares Sold 141 182 10
Dividends 32 39 --
Interest -- -- 143
Foreign Withholding
Tax Reclaim -- -- --
Unrealized Gain on
Forward Foreign
Currency Contracts -- -- --
Deferred Organization
Costs 100 39 39
Receivable from
Investment Adviser 12 26 25
Securities, at Value,
Held as Collateral for
Securities Loaned -- -- --
Other -- -- --
------------- ------------- -------------
Total Assets 12,422 6,019 11,059
------------- ------------- -------------
LIABILITIES:
Payable for:
Investments Purchased 432 118 240
Fund Shares Redeemed -- -- --
Bank Overdraft 552 1 --
Dividends Declared 10 12 86
Investment Advisory
Fees -- -- --
Administrative Fees 3 1 2
Custody Fees 4 1 1
Professional Fees 20 26 26
Distribution Fees 13 6 12
Shareholder Reporting
Expenses 4 5 6
Directors' Fees and
Expenses -- -- --
Securities Sold Short 984 -- --
Filing and
Registration Fees 3 2 4
Deferred Country Tax -- -- --
Dividend Payable on
Securities Sold Short 7 -- --
Collateral on
Securities Loaned -- -- --
Other -- 39 38
------------- ------------- -------------
Total Liabilities 2,032 211 415
------------- ------------- -------------
NET ASSETS $ 10,390 $ 5,808 $ 10,644
------------- ------------- -------------
------------- ------------- -------------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 1 $ -- $ 9
Paid in Capital in
Excess of Par 9,175 5,579 10,706
Undistributed
(Distribution in
excess of) Net
Investment Income -- 19 18
Accumulated
(Distribution in
excess of) Net
Realized Gain (Loss) 940 -- (3)
Unrealized Appreciation
(Depreciation) on
Investments and
Foreign Currency
Translations* 274 210 (86)
------------- ------------- -------------
NET ASSETS $ 10,390 $ 5,808 $ 10,644
------------- ------------- -------------
------------- ------------- -------------
CLASS A SHARES:
Net Assets $ 5,382 $ 1,829 $ 3,907
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 374 146 328
Net Asset Value and
Redemption Price Per
Share $ 14.40 $ 12.52 $ 11.92
------------- ------------- -------------
------------- ------------- -------------
Maximum Sales Charge 4.75% 4.75% 4.75%
Maximum Offering Price
Per Share (Net Asset
Value Per Share x
100/95.25) $ 15.12 $ 13.14 $ 12.51
------------- ------------- -------------
------------- ------------- -------------
CLASS B SHARES:
Net Assets $ 2,426 $ 2,197 $ 3,421
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 169 175 287
Net Asset Value and
Offering Price Per
Share $ 14.38 $ 12.52 $ 11.93
------------- ------------- -------------
------------- ------------- -------------
CLASS C SHARES:
Net Assets $ 2,582 $ 1,782 $ 3,316
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 180 142 278
Net Asset Value and
Offering Price Per
Share $ 14.37 $ 12.52 $ 11.93
------------- ------------- -------------
------------- ------------- -------------
Investments at Cost,
Including Foreign
Currency $ 10,769 $ 5,523 $ 10,801
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------
* Net of accrual for Country tax of U.S. $1,000 for Global Equity Allocation
Fund, $157,000 for Asian Growth Fund and $34,000 for Emerging Markets Fund.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL ASIAN AMERICAN WORLDWIDE LATIN
GLOBAL EQUITY FIXED GROWTH VALUE HIGH AMERICAN
ALLOCATION INCOME FUND FUND FUND INCOME FUND FUND
FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
JUNE 30, 1996 1996 1996 1996 1996 1996
(000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,529 $ -- $ 6,265 $ 1,339 $ -- $ 484
Interest 201 1,058 798 122 9,661 125
Less Foreign Taxes Withheld (165) (3) (570) -- -- (29)
------------- ----------- ----------- ----------- ----------- -----------
Total Income 2,565 1,055 6,493 1,461 9,661 580
------------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Investment Advisory Fees
Basic Fee 1,048 122 3,762 364 527 219
Less: Fees Waived (371) (112) -- (134) (97) (206)
------------- ----------- ----------- ----------- ----------- -----------
Investment Advisory Fees -- Net 677 10 3,762 230 430 13
Administrative Fees 390 57 1,115 135 213 70
Custodian Fees 217 20 631 20 58 120
Filing and Registration Fees 15 2 48 3 23 5
Directors' Fees and Expenses 6 2 19 3 4 2
Professional Fees 72 42 136 35 70 46
Shareholder Reports 80 15 308 53 60 18
Dividend Expense on Securities Sold
Short -- -- -- -- -- --
Distribution Fees
Class A 126 26 516 57 90 28
Class B 47 3 194 14 112 6
Class C 496 56 1,505 187 231 55
Amortization of Organizational Costs 23 22 14 20 19 18
Blue Sky Fees
Class A 11 12 14 14 14 11
Class B 1 -- 2 1 4 1
Class C 11 6 10 12 9 5
Country Tax Expense -- -- -- -- -- 8
Other 29 10 63 11 20 11
Expenses Reimbursed by Adviser -- -- -- -- -- --
------------- ----------- ----------- ----------- ----------- -----------
Net Expenses 2,201 283 8,337 795 1,357 417
------------- ----------- ----------- ----------- ----------- -----------
Net Investment Income (Loss) 364 772 (1,844) 666 8,304 163
------------- ----------- ----------- ----------- ----------- -----------
NET REALIZED GAIN (LOSS) ON:
Investments 5,761 400 5,503 2,783 3,822 765
Securities Sold Short -- -- -- -- -- --
Foreign Currency Translations 5,888 89 (139) -- 238 (13)
------------- ----------- ----------- ----------- ----------- -----------
Net Realized Gain (Loss) 11,649 489 5,364 2,783 4,060 752
------------- ----------- ----------- ----------- ----------- -----------
CHANGE IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments 8,929 (481) 9,619 3,203 (627) 5,112
Foreign Currency Translations 849 (32) (154) -- (10) --
------------- ----------- ----------- ----------- ----------- -----------
Change in Unrealized
Appreciation/Depreciation 9,778 (513) 9,465 3,203 (637) 5,112
------------- ----------- ----------- ----------- ----------- -----------
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation 21,427 (24) 14,829 5,986 3,423 5,864
------------- ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 21,791 $ 748 $ 12,985 $ 6,652 $ 11,727 $ 6,027
------------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
EMERGING AGGRESSIVE U.S. REAL HIGH YIELD
MARKETS EQUITY FUND ESTATE FUND FUND
FUND JANUARY 2, MAY 1, MAY 1,
YEAR ENDED 1996* 1996* TO 1996* TO
JUNE 30, TO JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996 1996
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,100 $ 87 $ 39 $ --
Interest 632 24 12 141
Less Foreign Taxes Withheld (132) -- -- --
----------- ----------- ----- -----
Total Income 2,600 111 51 141
----------- ----------- ----- -----
EXPENSES:
Investment Advisory Fees
Basic Fee 1,082 31 9 13
Less: Fees Waived (355) (31) (9) (13)
----------- ----------- ----- -----
Investment Advisory Fees -- Net 727 -- -- --
Administrative Fees 274 11 3 5
Custodian Fees 359 7 1 1
Filing and Registration Fees 37 3 2 4
Directors' Fees and Expenses 41 -- -- --
Professional Fees 79 21 26 27
Shareholder Reports 69 5 5 6
Dividend Expense on Securities Sold
Short -- 11 -- --
Distribution Fees
Class A 131 4 1 2
Class B 35 10 3 5
Class C 309 10 3 5
Amortization of Organizational Costs 18 -- 1 1
Blue Sky Fees
Class A 13 3 -- --
Class B 1 1 -- --
Class C 7 2 -- --
Country Tax Expense 14 -- -- --
Other 21 6 -- --
Expenses Reimbursed by Adviser -- (10) (26) (25)
----------- ----------- ----- -----
Net Expenses 2,135 84 19 31
----------- ----------- ----- -----
Net Investment Income (Loss) 465 27 32 110
----------- ----------- ----- -----
NET REALIZED GAIN (LOSS) ON:
Investments (427) 876 -- (3)
Securities Sold Short -- 67 -- --
Foreign Currency Translations (91) -- -- --
----------- ----------- ----- -----
Net Realized Gain (Loss) (518) 943 -- (3)
----------- ----------- ----- -----
CHANGE IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments 14,569 274 210 (86)
Foreign Currency Translations (37) -- -- --
----------- ----------- ----- -----
Change in Unrealized
Appreciation/Depreciation 14,532 274 210 (86)
----------- ----------- ----- -----
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation 14,014 1,217 210 (89)
----------- ----------- ----- -----
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 14,479 $ 1,244 $ 242 $ 21
----------- ----------- ----- -----
----------- ----------- ----- -----
</TABLE>
- -----------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 364 $ 487
Net Realized Gain 11,649 137
Change in Unrealized Appreciation/Depreciation 9,778 3,795
------------- --------
Net Increase in Net Assets from Operations 21,791 4,419
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (1,295) --
Class B (69)
Class C (1,106) --
In Excess of Net Investment Income:
Class A -- (168)
Class C -- (82)
------------- --------
(2,470) (250)
------------- --------
Net Realized Gains:
Class A (1,591) (427)
Class B (96) --
Class C (1,624) (407)
------------- --------
(3,311) (834)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (5,781) (1,084)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 58,409 32,645
Distributions Reinvested 5,268 996
Redeemed (21,216) (17,247)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 42,461 16,394
------------- --------
Total Increase in Net Assets 58,471 19,729
NET ASSETS -- Beginning of Year 83,046 63,317
------------- --------
NET ASSETS -- End of Year (Including distributions in excess of net investment income of
$2,710 and $990, respectively) $ 141,517 $ 83,046
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 1,702 1,341
Distributions Reinvested 197 45
Redeemed (960) (794)
------------- --------
Net Increase in Class A Shares Outstanding 939 592
------------- --------
------------- --------
Dollars:
Subscribed $ 23,872 $ 16,461
Distributions Reinvested 2,639 546
Redeemed (13,331) (9,697)
------------- --------
Net Increase $ 13,180 $ 7,310
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 1,017 --
Distributions Reinvested 12 --
Redeemed (7) --
------------- --------
Net Increase in Class B Shares Outstanding 1,022 --
------------- --------
------------- --------
Dollars:
Subscribed $ 14,112 $ --
Distributions Reinvested 158 --
Redeemed (100) --
------------- --------
Net Increase $ 14,170 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 1,482 1,329
Distributions Reinvested 186 38
Redeemed (575) (623)
------------- --------
Net Increase in Class C Shares Outstanding 1,093 744
------------- --------
------------- --------
Dollars:
Subscribed $ 20,425 $ 16,184
Distributions Reinvested 2,471 450
Redeemed (7,785) (7,550)
------------- --------
Net Increase $ 15,111 $ 9,084
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 772 $ 869
Net Realized Gain (Loss) 489 (435)
Change in Unrealized Appreciation /Depreciation (513) 1,228
------------- --------
Net Increase in Net Assets Resulting from Operations 748 1,662
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (771) (369)
Class B (21) --
Class C (399) (173)
In Excess of Net Investment Income:
Class A (23) --
Class B (1) --
Class C (12) --
------------- --------
Net Decrease in Net Assets Resulting from Distributions (1,227) (542)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 8,720 8,903
Distributions Reinvested 676 328
Redeemed (14,258) (9,070)
------------- --------
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (4,862) 161
------------- --------
Total Increase (Decrease) in Net Assets (5,341) 1,281
NET ASSETS -- Beginning of Year 17,057 15,776
------------- --------
NET ASSETS -- End of Year (Including undistributed (distributions in excess of) net
investment income of $(36) and $330, respectively) $ 11,716 $ 17,057
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 589 682
Distributions Reinvested 50 27
Redeemed (975) (712)
------------- --------
Net Decrease in Class A Shares Outstanding (336) (3)
------------- --------
------------- --------
Dollars:
Subscribed $ 5,929 $ 6,628
Distributions Reinvested 507 258
Redeemed (9,791) (6,878)
------------- --------
Net Increase (Decrease) $ (3,355) $ 8
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 150 --
Distributions Reinvested 1 --
Redeemed (6) --
------------- --------
Net Increase in Class B Shares Outstanding 145 --
------------- --------
------------- --------
Dollars:
Subscribed $ 1,496 $ --
Distributions Reinvested 14 --
Redeemed (63) --
------------- --------
Net Increase $ 1,447 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 130 239
Distributions Reinvested 15 7
Redeemed (443) (228)
------------- --------
Net Increase (Decrease) in Class C Shares Outstanding (298) 18
------------- --------
------------- --------
Dollars:
Subscribed $ 1,295 $ 2,275
Distributions Reinvested 155 70
Redeemed (4,404) (2,192)
------------- --------
Net Increase (Decrease) $ (2,954) $ 153
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (1,844) $ (944)
Net Realized Gain 5,364 5,252
Change in Unrealized Appreciation/Depreciation 9,465 19,182
------------- -----------------
Net Increase in Net Assets Resulting from Operations 12,985 23,490
------------- -----------------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (4,935)
Class C -- (4,055)
In Excess of Net Realized Gain
Class A -- (241)
Class C -- (198)
------------- -----------------
Net Decrease in Net Assets Resulting From Distributions -- (9,429)
------------- -----------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 241,482 109,249
Distributions Reinvested -- 8,260
Redeemed (103,699) (68,507)
------------- -----------------
Net Increase in Net Assets Resulting from Capital Share Transactions 137,783 49,002
------------- -----------------
Total Increase in Net Assets 150,768 63,063
NET ASSETS -- Beginning of Year 318,164 255,101
------------- -----------------
NET ASSETS -- End of Year $ 468,932 $ 318,164
------------- -----------------
------------- -----------------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 7,522 3,855
Distributions Reinvested -- 299
Redeemed (3,936) (2,192)
------------- -----------------
Net Increase in Class A Shares Outstanding 3,586 1,962
------------- -----------------
------------- -----------------
Dollars:
Subscribed $ 127,388 $ 62,609
Distributions Reinvested -- 4,563
Redeemed (65,894) (35,024)
------------- -----------------
Net Increase $ 61,494 $ 32,148
------------- -----------------
------------- -----------------
Class B+:
--------
Shares:
Subscribed 3,225 --
Redeemed (81) --
------------- -----------------
Net Increase in Class B Shares Outstanding 3,144 --
------------- -----------------
------------- -----------------
Dollars:
Subscribed $ 54,005 $ --
Redeemed (1,375) --
------------- -----------------
Net Increase $ 52,630 $ --
------------- -----------------
------------- -----------------
Class C:
--------
Shares:
Subscribed 3,629 2,904
Distributions Reinvested -- 245
Redeemed (2,229) (2,123)
------------- -----------------
Net Increase in Class C Shares Outstanding 1,400 1,026
------------- -----------------
------------- -----------------
Dollars:
Subscribed $ 60,089 $ 46,640
Distributions Reinvested -- 3,697
Redeemed (36,430) (33,483)
------------- -----------------
Net Increase $ 23,659 $ 16,854
------------- -----------------
------------- -----------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 666 $ 474
Net Realized Gain 2,783 362
Change in Unrealized Appreciation /Depreciation 3,203 2,637
------------- --------
Net Increase in Net Assets Resulting from Operations 6,652 3,473
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (443) (350)
Class B (17) --
Class C (209) (143)
In Excess of Net Investment Income:
Class A (12) --
Class B (1) --
Class C (10) --
------------- --------
(692) (493)
------------- --------
Net Realized Gain:
Class A (331) (260)
Class B (20) --
Class C (252) (167)
------------- --------
(603) (427)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (1,295) (920)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 18,813 15,936
Distributions Reinvested 900 472
Redeemed (16,260) (2,373)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 3,453 14,035
------------- --------
Total Increase in Net Assets 8,810 16,588
NET ASSETS -- Beginning of Year 34,542 17,954
------------- --------
NET ASSETS -- End of Year (Including undistributed (distributions in excess of) net
investment income of $(23) and $13, respectively) $ 43,352 $ 34,542
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 515 794
Distributions Reinvested 42 29
Redeemed (816) (135)
------------- --------
Net Increase (Decrease) in Class A Shares Outstanding (259) 688
------------- --------
------------- --------
Dollars:
Subscribed $ 7,053 $ 9,738
Distributions Reinvested 573 351
Redeemed (11,471) (1,647)
------------- --------
Net Increase (Decrease) $ (3,845) $ 8,442
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 174 --
Distributions Reinvested 3 --
Redeemed (7) --
------------- --------
Net Increase in Class B Shares Outstanding 170 --
------------- --------
------------- --------
Dollars:
Subscribed $ 2,376 $ --
Distributions Reinvested 36 --
Redeemed (93) --
------------- --------
Net Increase $ 2,319 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 685 506
Distributions Reinvested 21 11
Redeemed (334) (60)
------------- --------
Net Increase in Class C Shares Outstanding 372 457
------------- --------
------------- --------
Dollars:
Subscribed $ 9,384 $ 6,198
Distributions Reinvested 291 121
Redeemed (4,696) (726)
------------- --------
Net Increase $ 4,979 $ 5,593
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,304 $ 2,264
Net Realized Gain (Loss) 4,060 (470)
Change in Unrealized Appreciation /Depreciation (637) 82
------------- --------
Net Increase in Net Assets Resulting from Operations 11,727 1,876
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (3,806) (1,262)
Class B (1,176) --
Class C (2,325) (906)
------------- --------
(7,307) (2,168)
------------- --------
Net Realized Gain:
Class A -- (104)
Class C -- (97)
------------- --------
-- (201)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (7,307) (2,369)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 103,978 21,132
Distributions Reinvested 3,981 918
Redeemed (43,317) (7,796)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 64,642 14,254
------------- --------
Total Increase in Net Assets 69,062 13,761
NET ASSETS -- Beginning of Year 26,699 12,938
------------- --------
NET ASSETS -- End of Year (Including undistributed net investment income of $1,157 and
$165, respectively) $ 95,761 $ 26,699
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 4,713 1,277
Distributions Reinvested 190 51
Redeemed (2,858) (611)
------------- --------
Net Increase in Class A Shares Outstanding 2,045 717
------------- --------
------------- --------
Dollars:
Subscribed $ 56,635 $ 14,466
Distributions Reinvested 2,294 542
Redeemed (34,479) (6,987)
------------- --------
Net Increase $ 24,450 $ 8,021
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 2,125 --
Distributions Reinvested 44 --
Redeemed (65) --
------------- --------
Net Increase in Class B Shares Outstanding 2,104 --
------------- --------
------------- --------
Dollars:
Subscribed $ 25,745 $ --
Distributions Reinvested 538 --
Redeemed (797) --
------------- --------
Net Increase $ 25,486 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 1,792 564
Distributions Reinvested 95 35
Redeemed (656) (73)
------------- --------
Net Increase in Class C Shares Outstanding 1,231 526
------------- --------
------------- --------
Dollars:
Subscribed $ 21,598 $ 6,666
Distributions Reinvested 1,149 376
Redeemed (8,041) (809)
------------- --------
Net Increase $ 14,706 $ 6,233
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 6, 1994* TO
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 163 $ (58)
Net Realized Gain (Loss) 752 (2,340)
Change in Unrealized Appreciation/Depreciation 5,112 (1,446)
------------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations 6,027 (3,844)
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (18) --
Paid in Capital:
Class A -- (124)
Class C -- (50)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (18) (174)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 19,885 21,076
Distributions Reinvested 15 135
Redeemed (10,130) (5,450)
------------- --------
Net Increase in Net Assets Resulitng from Capital Share Transactions 9,770 15,761
------------- --------
Total Increase in Net Assets 15,779 11,743
NET ASSETS-- Beginning of Period 11,743 --
------------- --------
NET ASSETS -- End of Period (Including undistributed net investment income of $132 and $0,
respectively) $ 27,522 $ 11,743
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 1,373 1,235
Distributions Reinvested 1 9
Redeemed (737) (400)
------------- --------
Net Increase in Class A Shares Outstanding 637 844
------------- --------
------------- --------
Dollars:
Subscribed $ 14,772 $ 14,271
Distributions Reinvested 15 103
Redeemed (7,673) (3,781)
------------- --------
Net Increase $ 7,114 $ 10,593
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 169 --
Redeemed (5) --
------------- --------
Net Increase in Class B Shares Outstanding 164 --
------------- --------
------------- --------
Dollars:
Subscribed $ 1,858 $ --
Redeemed (52) --
------------- --------
Net Increase $ 1,806 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 316 613
Distributions Reinvested -- 3
Redeemed (224) (162)
------------- --------
Net Increase in Class C Shares Outstanding 92 454
------------- --------
------------- --------
Dollars:
Subscribed $ 3,255 $ 6,805
Distributions Reinvested -- 32
Redeemed (2,405) (1,669)
------------- --------
Net Increase $ 850 $ 5,168
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 6, 1994* TO
JUNE 30, 1996 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 465 $ 119
Net Realized Loss (518) (1,064)
Change in Unrealized Appreciation/Depreciation 14,532 (1,682)
------------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations 14,479 (2,627)
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (142) --
------------- --------
In Excess of Net Realized Gain:
Class A (3) --
Class C (2) --
------------- --------
Net Decrease in Net Assets Resulting from Distributions (5) --
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 141,283 57,700
Distributions Reinvested 133 --
Redeemed (35,217) (6,737)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 106,199 50,963
------------- --------
Total Increase in Net Assets 120,531 48,336
NET ASSETS -- Beginning of Period 48,336 --
------------- --------
NET ASSETS -- End of Period (Including undistributed net investment income of $306 and $94,
respectively.) $ 168,867 $ 48,336
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 9,551 2,800
Distributions Reinvested 13 --
Redeemed (2,502) (341)
------------- --------
Net Increase in Class A Shares Outstanding 7,062 2,459
------------- --------
------------- --------
Dollars:
Subscribed $ 106,764 $ 31,244
Distributions Reinvested 131 --
Redeemed (27,528) (3,679)
------------- --------
Net Increase $ 79,367 $ 27,565
------------- --------
------------- --------
Class B+:
--------
Shares:
Subscribed 883 --
Redeemed (10) --
------------- --------
Net Increase in Class B Shares Outstanding 873 --
------------- --------
------------- --------
Dollars:
Subscribed $ 9,848 $ --
Redeemed (116) --
------------- --------
Net Increase $ 9,732 $ --
------------- --------
------------- --------
Class C:
--------
Shares:
Subscribed 2,245 2,392
Distributions Reinvested -- --
Redeemed (703) (280)
------------- --------
Net Increase in Class C Shares Outstanding 1,542 2,112
------------- --------
------------- --------
Dollars:
Subscribed $ 24,671 $ 26,456
Distributions Reinvested 2 --
Redeemed (7,573) (3,058)
------------- --------
Net Increase $ 17,100 $ 23,398
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
+ The Fund began offering Class B shares on August 1, 1995.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
JANUARY 2,
1996* TO
JUNE 30, 1996
(000)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 27
Net Realized Gain 943
Change in Unrealized Appreciation/Depreciation 274
-------------
Net Increase in Net Assets from Operations 1,244
-------------
DISTRIBUTIONS:
Net Investment Income:
Class A (17)
Class B (6)
Class C (7)
-------------
Net Decrease in Net Assets Resulting from Distributions (30)
-------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 9,793
Distributions Reinvested 10
Redeemed (627)
-------------
Net Increase in Net Assets Resulting from Capital Share Transactions 9,176
-------------
Total Increase in Net Assets 10,390
NET ASSETS -- Beginning of Period --
-------------
NET ASSETS -- End of Period $ 10,390
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 410
Distributions Reinvested 1
Redeemed (37)
-------------
Net Increase in Class A Shares Outstanding 374
-------------
-------------
Dollars:
Subscribed $ 5,351
Distributions Reinvested 9
Redeemed (479)
-------------
Net Increase $ 4,881
-------------
-------------
Class B:
--------
Shares:
Subscribed 170
Redeemed (1)
-------------
Net Increase in Class B Shares Outstanding 169
-------------
-------------
Dollars:
Subscribed $ 2,086
Redeemed (11)
-------------
Net Increase $ 2,075
-------------
-------------
Class C:
--------
Shares:
Subscribed 190
Distributions Reinvested --
Redeemed (10)
-------------
Net Increase in Class C Shares Outstanding 180
-------------
-------------
Dollars:
Subscribed $ 2,356
Distributions Reinvested 1
Redeemed (137)
-------------
Net Increase $ 2,220
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
MAY 1, 1996*
TO
JUNE 30, 1996
(000)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 32
Change in Unrealized Appreciation /Depreciation 210
------
Net Increase in Net Assets Resulting from Operations 242
------
DISTRIBUTIONS:
Net Investment Income:
Class A (5)
Class B (4)
Class C (4)
------
Net Decrease in Net Assets Resulting from Distributions (13)
------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 5,578
Distributions Reinvested 1
------
Net Increase in Net Assets Resulting from Capital Share Transactions 5,579
------
Total Increase in Net Assets 5,808
NET ASSETS -- Beginning of Period --
------
NET ASSETS -- End of Period (Including undistributed net investment income of $19) $ 5,808
------
------
- ----------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 146
Distributions Reinvested --
------
Net Increase in Class A Shares Outstanding 146
------
------
Dollars:
Subscribed $ 1,753
Distributions Reinvested 1
------
Net Increase $ 1,754
------
------
Class B:
--------
Shares:
Subscribed 175
------
Net Increase in Class B Shares Outstanding 175
------
------
Dollars:
Subscribed $ 2,116
------
Net Increase $ 2,116
------
------
Class C:
--------
Shares:
Subscribed 142
------
Net Increase in Class C Shares Outstanding 142
------
------
Dollars:
Subscribed $ 1,709
------
Net Increase $ 1,709
------
------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
<TABLE>
<CAPTION>
MAY 1, 1996*
TO
JUNE 30, 1996
(000)
<S> <C>
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 110
Net Realized Loss (3)
Change in Unrealized Appreciation /Depreciation (86)
-------------
Net Increase in Net Assets Resulting from Operations 21
-------------
DISTRIBUTIONS:
Net Investment Income:
Class A (38)
Class B (27)
Class C (27)
-------------
Net Decrease in Net Assets Resulting from Distributions (92)
-------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 10,709
Distributions Reinvested 6
-------------
Net Increase in Net Assets Resulting from Capital Share Transactions 10,715
-------------
Total Increase in Net Assets 10,644
NET ASSETS -- Beginning of Period --
-------------
NET ASSETS -- End of Period (Including undistributed net investment income of $18) $ 10,644
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Subscribed 327
Distributions Reinvested --
-------------
Net Increase in Class A Shares Outstanding 327
-------------
-------------
Dollars:
Subscribed $ 3,930
Distributions Reinvested 5
-------------
Net Increase $ 3,935
-------------
-------------
Class B:
--------
Shares:
Subscribed 287
Distributions Reinvested --
-------------
Net Increase in Class B Shares Outstanding 287
-------------
-------------
Dollars:
Subscribed $ 3,443
Distributions Reinvested 1
-------------
Net Increase $ 3,444
-------------
-------------
Class C:
--------
Shares:
Subscribed 278
-------------
Net Increase in Class C Shares Outstanding 278
-------------
-------------
Dollars:
Subscribed $ 3,336
-------------
Net Increase $ 3,336
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------------- -----------
JANUARY 4, AUGUST 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
AND RATIOS 1996 1995 1994 1993 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.60 $ 11.99 $ 11.09 $ 10.00 $ 13.01
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.19 0.12 0.10 0.04 0.30
Net Realized and
Unrealized Gain 2.82 0.67 0.90 1.05 1.98
----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 3.01 0.79 1.00 1.09 2.28
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.39) -- (0.03) -- (0.35)
In Excess of Net
Investment Income -- (0.05) -- -- --
Net Realized Gain (0.47) (0.13) (0.07) -- (0.48)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.86) (0.18) (0.10) -- (0.83)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 14.46
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN (1) 24.62% 6.69% 9.02% 10.90% 18.08%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 63,706 $ 42,586 $ 33,425 $ 10,434 $ 14,786
Ratio of Expenses to
Average Net Assets 1.70% 1.70% 1.70% 1.70%** 2.45%**
Ratio of Net Investment
Income to Average Net
Assets 0.71% 1.01% 0.98% 1.04%** 0.45%**
Portfolio Turnover Rate 44% 39% 30% 14% 44%
- ----------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.10 $ 0.04 $ 0.09 $ 0.08 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.06% 2.03% 2.58% 3.65%** 2.81%**
Net Investment Income
(Loss) to Average Net
Assets 0.35% 0.68% 0.10% (0.91)%** 0.09%**
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
JANUARY 4,
YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.43 $ 11.90 $ 11.05 $ 10.00
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.12 0.04 0.06 0.01
Net Realized and
Unrealized Gain 2.75 0.65 0.86 1.04
----------- ----------- ----------- -----------
Total From Investment
Operations 2.87 0.69 0.92 1.05
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.33) -- -- --
In Excess of Net
Investment Income -- (0.03) -- --
Net Realized Gain (0.48) (0.13) (0.07) --
----------- ----------- ----------- -----------
Total Distributions (0.81) (0.16) (0.07) --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 14.49 $ 12.43 $ 11.90 $ 11.05
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 23.65% 5.84% 8.34% 10.50%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 63,025 $ 40,460 $ 29,892 $ 6,995
Ratio of Expenses to
Average Net Assets 2.45% 2.45% 2.45% 2.45%**
Ratio of Net Investment
Income to Average Net
Assets (0.04)% 0.25% 0.23% 0.29%**
Portfolio Turnover Rate 44% 39% 30% 14%
- --------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 1.16 $ 0.05 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.81% 2.78% 3.34% 4.40%**
Net Investment Income
(Loss) to Average Net
Assets (0.40)% (0.08)% (0.66)% (1.66)%**
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------------- -----------
JANUARY 4, AUGUST 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
AND RATIOS 1996 1995 1994 1993 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.23 $ 9.53 $ 10.55 $ 10.00 $ 10.24
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.53 0.56 0.52 0.25 0.64
Net Realized and
Unrealized Gain (Loss) (0.01) 0.50 (0.42) 0.55 (0.26)
----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 0.52 1.06 0.10 0.80 0.38
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.79) (0.36) (0.50) (0.25) (0.69)
In Excess of Net
Investment Income (0.02) -- (0.12) -- (0.02)
Net Realized Gains -- -- (0.47) -- --
In Excess of Realized
Gains -- -- (0.03) -- --
----------- ----------- ----------- ----------- -----------
Total Distributions (0.81) (0.36) (1.12) (0.25) (0.71)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 9.91
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN (1) 5.20% 11.41% 0.41% 8.02% 3.76%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 7,432 $ 11,092 $ 10,369 $ 6,633 $ 1,440
Ratio of Expenses to
Average Net Assets 1.45% 1.45% 1.45% 1.45%** 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 5.02% 5.84% 4.70% 5.00%** 3.38%**
Portfolio Turnover Rate 223% 169% 168% 55% 223%
- ----------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.07 $ 0.07 $ 0.11 $ 0.07 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.16% 2.22% 2.48% 2.88%** 3.57%**
Net Investment Income
to Average Net Assets 4.31% 5.07% 3.67% 3.57%** 2.01%**
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
JANUARY 4,
YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.20 $ 9.54 $ 10.56 $ 10.00
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.37 0.49 0.43 0.21
Net Realized and
Unrealized Gain (Loss) 0.08 0.47 (0.40) 0.55
----------- ----------- ----------- -----------
Total From Investment
Operations 0.45 0.96 0.03 0.76
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.73) (0.30) (0.44) (0.20)
In Excess of Net
Investment Income (0.02) -- (0.11) --
Net Realized Gains -- -- (0.47) --
In Excess of Realized
Gains -- -- (0.03) --
----------- ----------- ----------- -----------
Total Distributions (0.75) (0.30) (1.05) (0.20)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 9.90 $ 10.20 $ 9.54 $ 10.56
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 4.47% 10.24% (0.25)% 7.61%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 2,844 $ 5,965 $ 5,407 $ 6,120
Ratio of Expenses to
Average Net Assets 2.20% 2.20% 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 4.35% 5.09% 3.95% 4.25%**
Portfolio Turnover Rate 223% 169% 168% 55%
- --------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.06 $ 0.08 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.87% 2.97% 3.29% 3.63%**
Net Investment Income
to Average Net Assets 3.68% 4.32% 2.86% 2.82%**
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------------- -----------
JUNE 23, AUGUST 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
AND RATIOS 1996 1995 1994 1993 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.42 $ 15.50 $ 12.00 $ 12.00 $ 16.51
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.04) -- (0.03) -- (0.03)
Net Realized and
Unrealized Gain 0.77 1.43 3.53 -- 0.33
----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 0.73 1.43 3.50 -- 0.30
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Realized Gain -- (0.49) -- -- --
In Excess of Net
Realized Gain -- (0.02) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions -- (0.51) -- -- --
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 17.15 $ 16.42 $ 15.50 $ 12.00 $ 16.81
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN (1) 4.45% 9.50% 29.17% 0.00% 1.82%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 248,009 $ 178,667 $ 138,212 $ 11,770 $ 52,853
Ratio of Expenses to
Average Net Assets 1.88% 1.90% 1.90% 1.90%** 2.61%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.16)% 0.04% (0.24)% (0.81)%** (0.52%)**
Portfolio Turnover Rate 38% 34% 34% 0% 38%
- ----------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Loss -- -- $ 0.03 $ 0.01 --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.88% 1.90% 2.17% 11.83%** 2.61%**
Net Investment Income
(Loss) to Average Net
Assets (0.16)% 0.04% (0.51)% (10.74)%** (0.52)%**
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
JUNE 23,
YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.19 $ 15.40 $ 12.00 $ 12.00
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.13) (0.12) (0.10) --
Net Realized and
Unrealized Gain 0.72 1.42 3.50 --
----------- ----------- ----------- -----------
Total From Investment
Operations 0.59 1.30 3.40 --
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Realized Gain -- (0.49) -- --
In Excess of Net
Realized Gain -- (0.02) -- --
----------- ----------- ----------- -----------
Total Distributions -- (0.51) -- --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 16.78 $ 16.19 $ 15.40 $ 12.00
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 3.64% 8.71% 28.33% 0.00%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 168,070 $ 139,497 $ 116,889 $ 8,491
Ratio of Expenses to
Average Net Assets 2.63% 2.63% 2.65% 2.65%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (0.94)% (0.77)% (0.99)% (1.56)%**
Portfolio Turnover Rate 38% 34% 34% 0%
- --------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Loss -- -- $ 0.03 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.63% 2.65% 2.92% 12.64%**
Net Investment Income
(Loss) to Average Net
Assets (0.94)% (0.77)% (1.26)% (11.55)%**
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------- -----------
OCTOBER 18, AUGUST 1,
YEAR ENDED YEAR ENDED 1993* 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
AND RATIOS 1996 1995 1994 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.89 $ 11.70 $ 12.00 $ 13.37
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.27 0.27 0.17 0.15
Net Realized and
Unrealized Gain (Loss) 1.94 1.44 (0.30) 1.46
----------- ----------- ----------- -----------
Total from Investment
Operations 2.21 1.71 (0.13) 1.61
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.27) (0.28) (0.17) (0.15)
In Excess of Net
Investment Income (0.01) -- -- (0.01)
Net Realized Gains (0.19) (0.24) -- (0.19)
----------- ----------- ----------- -----------
Total Distributions (0.47) (0.52) (0.17) (0.35)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 14.63 $ 12.89 $ 11.70 $ 14.63
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 17.41% 15.01% (1.12)% 12.29%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net assets, End of Period
(000's) $ 19,674 $ 20,675 $ 10,717 $ 2,485
Ratio of Expenses to
Average Net Assets 1.50% 1.50% 1.50%** 2.25%**
Ratio of Net Investment
Income to Average Net
Assets 1.90% 2.29% 2.14%** 1.18%**
Portfolio Turnover Rate 41% 23% 17% 41%
- --------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.04 $ 0.05 $ 0.08 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.81% 1.96% 2.48%** 2.61%**
Net Investment Income
to Average Net Assets 1.59% 1.83% 1.16%** 0.82%**
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------
OCTOBER 18,
YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.89 $ 11.69 $ 12.00
----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.16 0.17 0.11
Net Realized and
Unrealized Gain (Loss) 1.94 1.44 (0.31)
----------- ----------- -----------
Total from Investment
Operations 2.10 1.61 (0.20)
----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.15) (0.17) (0.11)
In Excess of Net
Investment Income (0.01) -- --
Net Realized Gains (0.19) (0.24) --
----------- ----------- -----------
Total Distributions (0.35) (0.41) (0.11)
----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 14.64 $ 12.89 $ 11.69
----------- ----------- -----------
----------- ----------- -----------
TOTAL RETURN (1) 16.50% 14.13% (1.70)%
----------- ----------- -----------
----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net assets, End of Period
(000's) $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to
Average Net Assets 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income to Average Net
Assets 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 41% 23% 17%
- ------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.58% 2.71% 3.28%**
Net Investment Income
to Average Net Assets 0.84% 1.08% 0.36%**
- ------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------- -----------
APRIL 21, AUGUST 1,
YEAR ENDED YEAR ENDED 1994* 1995+ TO
SELECTED PER SHARE DATA JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
AND RATIOS 1996 1995 1994 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.57 $ 12.17 $ 12.00 $ 11.63
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.36 1.26 0.18 1.18
Net Realized and
Unrealized Gain (Loss) 0.80 (0.52) 0.16 0.72
----------- ----------- ----------- -----------
Total From Investment
Operations 2.16 0.74 0.34 1.90
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (1.26) (1.22) (0.17) (1.09)
Realized Gains -- (0.12) -- --
----------- ----------- ----------- -----------
Total Distributions (1.26) (1.34) (0.17) (1.09)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 12.47 $ 11.57 $ 12.17 $ 12.44
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 19.61% 6.87% 2.86% 17.07%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net assets, End of Period
(000's) $ 41,493 $ 14,819 $ 6,857 $ 26,174
Ratio of Expenses to
Average Net Assets 1.55% 1.55% 1.55%** 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 11.95% 11.53% 8.29%** 12.06%**
Portfolio Turnover Rate 220% 178% 19% 220%
- --------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.05 $ 0.02 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.69% 1.97% 3.23%** 2.47%**
Net Investment Income
to Average Net Assets 11.81% 11.11% 6.61%** 11.89%**
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------------
APRIL 21,
YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.58 $ 12.16 $ 12.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.30 1.17 0.17
Net Realized and
Unrealized Gain (Loss) 0.77 (0.50) 0.15
----------- ----------- -----------
Total From Investment
Operations 2.07 0.67 0.32
----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (1.20) (1.13) (0.16)
Realized Gains -- (0.12) --
----------- ----------- -----------
Total Distributions (1.20) (1.25) (0.16)
----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 12.45 $ 11.58 $ 12.16
----------- ----------- -----------
----------- ----------- -----------
TOTAL RETURN (1) 18.71% 6.20% 2.62%
----------- ----------- -----------
----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net assets, End of Period
(000's) $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to
Average Net Assets 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 220% 178% 19%
- ------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.44% 2.74% 4.00%**
Net Investment Income
to Average Net Assets 11.26% 10.28% 5.84%**
- ------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------- ----------- -------------------------
JULY 6, AUGUST 1, JULY 6,
YEAR ENDED 1994* 1995+ TO YEAR ENDED 1994*
SELECTED PER SHARE DATA JUNE 30, TO JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1996 1995 1996 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.08 $ 12.00 $ 9.58 $ 8.99 $ 12.00
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.10 (0.02) 0.03 0.04 (0.08)
Net Realized and
Unrealized Gain (Loss) 3.47 (2.70) 2.84 3.40 (2.73)
----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 3.57 (2.72) 2.87 3.44 (2.81)
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.02) -- -- -- --
Paid in Capital -- (0.20) -- -- (0.20)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.02) (0.20) -- -- (0.20)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 12.63 $ 9.08 $ 12.45 $ 12.43 $ 8.99
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN (1) 39.35% (23.07)% 29.26% 38.26% (23.83)%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 18,701 $ 7,658 $ 2,041 $ 6,780 $ 4,085
Ratio of Expenses to
Average Net Assets 2.11% 2.46%** 2.87%** 2.86% 3.20%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 1.18% (0.44)%** 0.88%** 0.42% (1.16)%**
Portfolio Turnover Rate 131% 107% 131% 131% 107%
- -----------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to
Net Investment Loss $ 0.09 $ 0.13 $ 0.04 $ 0.12 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.28% 4.30%** 3.89%** 4.06% 5.20%**
Net Investment Income
(Loss) to Average Net
Assets 0.01% (2.26)%** (0.14)%* (0.78)% (3.16)%*
Ratio of Expenses to
Average Net Assets
excluding Country Tax
expense 2.10% 2.10%** 2.85%** 2.85% 2.85%**
- -----------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------- --------------- ----------------------------------
JULY 6, 1994* AUGUST 1, 1995+ JULY 6, 1994*
SELECTED PER SHARE DATA AND YEAR ENDED TO JUNE 30, TO YEAR ENDED TO JUNE 30,
RATIOS JUNE 30, 1996 1995 JUNE 30, 1996 JUNE 30, 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.61 $ 12.00 $ 10.91 $ 10.53 $ 12.00
--------------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.05 0.05 0.01 (0.01) --
Net Realized and Unrealized
Gain (Loss) 1.44 (1.44) 1.02 1.41 (1.47)
--------------- ------- ------- ------- -------
Total From Investment
Operations 1.49 (1.39) 1.03 1.40 (1.47)
--------------- ------- ------- ------- -------
DISTRIBUTION:
Net Investment Income (0.04) -- -- -- --
In Excess of Net Realized
Gain -- -- -- -- --
--------------- ------- ------- ------- -------
Total Distributions (0.04) -- -- -- --
--------------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.06 $ 10.61 $ 11.94 $ 11.93 $ 10.53
--------------- ------- ------- ------- -------
--------------- ------- ------- ------- -------
TOTAL RETURN (1) 14.16% (11.58)% 9.45% 13.30% (12.25)%
--------------- ------- ------- ------- -------
--------------- ------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 114,850 $ 26,091 $ 10,416 $ 43,601 $ 22,245
Ratio of Expenses to Average
Net Assets 2.16% 2.33%** 2.91%** 2.91% 3.08%**
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.93% 0.81%** 0.30%** (0.11)% 0.06%**
Portfolio Turnover Rate 42% 32% 42% 42% 32%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income (Loss) $ 0.02 $ 0.04 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.56% 3.10%** 3.31%** 3.34% 3.90%**
Net Investment Income (Loss)
to Average Net Assets 0.53% 0.04%** (0.10)%** (0.54)% (0.76)%**
Ratio of Expenses to Average
Net Assets excluding Country
Tax expense 2.15% 2.15%** 2.90%** 2.90% 2.90%**
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
JANUARY 2, JANUARY 2, JANUARY 2,
1996* 1996* 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 12.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.06 0.03 0.03
Net Realized and Unrealized
Gain 2.40 2.39 2.38
------- ------- -------
Total From Investment
Operations 2.46 2.42 2.41
------- ------- -------
DISTRIBUTION:
Net Investment Income (0.06) (0.04) (0.04)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 14.40 $ 14.38 $ 14.37
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 20.52% 20.18% 20.10%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 5,382 $ 2,426 $ 2,582
Ratio of Expenses to Average
Net Assets 2.03%** 2.67%** 2.67%**
Ratio of Net Investment Income
to Average Net Assets 1.22%** 0.43%** 0.44%**
Portfolio Turnover Rate 204% 204% 204%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.06 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.26%** 3.79%** 3.80%**
Net Investment Income (Loss)
to Average Net Assets (0.01)%** (0.69)%** (0.69)%**
Ratio of Expenses to Average
Net Assets excluding
dividend expense on
securities sold short 1.50%** 2.25%** 2.25%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 12.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.08 0.07 0.07
Net Realized and Unrealized
Gain 0.48 0.48 0.48
------- ------- -------
Total From Investment
Operations 0.56 0.55 0.55
------- ------- -------
DISTRIBUTION:
Net Investment Income (0.04) (0.03) (0.03)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.52 $ 12.52 $ 12.52
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 4.63% 4.54% 4.54%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 1,829 $ 2,197 $ 1,782
Ratio of Expenses to Average
Net Assets 1.55%** 2.30%** 2.30%**
Ratio of Net Investment Income
to Average Net Assets 4.11%** 3.35%** 3.39%**
Portfolio Turnover Rate 0% 0% 0%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.08 $ 0.07 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 5.58%** 6.34%** 6.32%**
Net Investment Income to
Average Net Assets 0.08%** (0.69)%** (0.63)%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
SELECTED PER SHARE DATA AND TO JUNE 30, TO JUNE 30, TO JUNE 30,
RATIOS 1996 1996 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 12.00
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.13 0.12 0.12
Net Realized and Unrealized
Loss (0.09) (0.09) (0.09)
------ ------ ------
Total From Investment
Operations 0.04 0.03 0.03
------ ------ ------
DISTRIBUTION:
Net Investment Income (0.12) (0.10) (0.10)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 11.92 $ 11.93 $ 11.93
------ ------ ------
------ ------ ------
TOTAL RETURN (1) 0.29% 0.21% 0.21%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 3,907 $ 3,421 $ 3,316
Ratio of Expenses to Average
Net Assets 1.25%** 2.00%** 2.00%**
Ratio of Net Investment Income
to Average Net Assets 6.85%** 6.08%** 6.07%**
Portfolio Turnover Rate 10% 10% 10%
- -------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.04 $ 0.04 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.51%** 4.25%** 4.25%**
Net Investment Income to
Average Net Assets 4.59%** 3.83%** 3.82%**
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
**Annualized
(1)Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on August 14, 1992 and commenced operations on January 4, 1993. The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company which offers redeemable shares of
diversified and non-diversified investment portfolios. As of June 30, 1996, the
Fund had ten separate active investment portfolios: Morgan Stanley Global Equity
Allocation Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley Asian
Growth Fund, Morgan Stanley American Value Fund, Morgan Stanley Worldwide High
Income Fund, Morgan Stanley Latin American Fund, Morgan Stanley Emerging Markets
Fund, Morgan Stanley Aggressive Equity Fund, Morgan Stanley U.S. Real Estate
Fund and Morgan Stanley High Yield Fund (referred to herein respectively as
"Global Equity Allocation Fund", "Global Fixed Income Fund", "Asian Growth
Fund", "American Value Fund", "Worldwide High Income Fund", "Latin American
Fund", "Emerging Markets Fund", "Aggressive Equity Fund", "U.S. Real Estate
Fund" and "High Yield Fund" individually a "Portfolio" and collectively as the
"Portfolios"). The Fund currently offers three classes of shares, Class A, Class
B and Class C shares. Class A shares are sold with a front-end sales charge of
up to 4.75%. Class B shares are sold with a contingent deferred sales charge on
redemptions made within 6 years of purchase which declines annually from 5% for
redemptions made in year one, down to 1% in year six. The contingent deferred
sales charge is based on the lesser of the current market value of the shares
redeemed or the total cost of such shares. Class B shares will automatically
convert to Class A shares after the seventh year following purchase. Class C
shares are sold with a contingent deferred sales charge of 1% for shares that
are redeemed within one year of purchase, based on the lesser of the current
market value of the shares redeemed or the total cost of such shares. All three
classes of shares have identical voting, dividend, liquidation and other rights.
The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures on the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the mean between the current bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be valued on the basis of prices provided by a
pricing service which are based primarily on institutional size trading in
similar groups of securities. Debt securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market value. All other securities and assets for which market values are not
readily available, including restricted securities, are valued at fair value as
determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. TAXES: It is each Portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements. A Portfolio may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income and/or capital gains earned or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation as the income and/or capital gains is earned.
During the year ended June 30, 1996, the Global Fixed Income Fund utilized
capital loss carryforwards for U.S. Federal income tax purposes of approximately
$256,000.
At June 30, 1996, the following Funds had available capital loss carryforwards
to offset future net capital gains, to the extent provided by regulations,
through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
JUNE 30,
(000)
-------------------------------
FUND 2000 2003 2004
- ----------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Global Fixed Income...................... $ -- $ 110 $ --
Latin American........................... 1,310 -- --
Emerging Markets......................... -- -- 1,033
</TABLE>
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. For the period
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
from November 1, 1995 to June 30, 1996 certain Funds incurred and elected to
defer until July 1, 1996 for U.S. Federal income tax purposes net currency
losses of approximately:
<TABLE>
<CAPTION>
CURRENCY
FUND LOSSES (000)
- ------------------------------------------------------ -------------
<S> <C>
Global Fixed Income................................... $ 113
Asian Growth.......................................... 158
Latin American........................................ 15
Emerging Markets...................................... 80
</TABLE>
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/ or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, gains and losses from certain foreign currency transactions and
the foreign currency portion of gain and losses realized on sales and maturities
of foreign denominated debt securities are treated as ordinary income for U.S.
Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency exchange
contracts, disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. Net unrealized currency gains (losses) from valuing foreign
currency denominated assets and liabilities at period end exchange rates are
reflected as a component of unrealized appreciation (depreciation) on the
Statement of Assets and Liabilities. The change in net unrealized currency gains
(losses) for the period is reflected on the Statement of Operations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
domestic companies may be subject to limitation in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Portfolio of Investments) may be created and offered for investment. The
"local" and "foreign" shares' market values may vary.
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: Each Portfolio may enter into
forward foreign currency exchange contracts to attempt to protect securities and
related receivables and payables against changes in future foreign currency
exchange rates. A forward currency exchange contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange rates.
The contract is marked-to-market daily using the forward rate and the change in
market value is recorded by the Portfolio as unrealized gain or loss. The
Portfolio records realized gains or losses when the contract is closed equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Risk may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and is generally limited to the amount of unrealized gain on the
contracts, if any, at the date of default. Risks may also arise from the
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
6. SHORT SALES: The Aggressive Equity Fund may sell securities short. A short
sale is a transaction in which the Portfolio sells securities it may or may not
own, but has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolio is obligated to replace the borrowed securities at the
market price at the time of replacement. The Portfolio may have to pay a premium
to borrow the securities as well as pay any dividends or interest payable on the
securities until they are replaced. The Portfolio's obligation to replace the
securities borrowed in connection with a short sale will generally be secured by
collateral deposited with the broker that consists of cash, U.S. government
securities or other liquid, high grade debt obligations. In addition, the
Portfolio will place in a segregated account with its Custodian an amount of
cash, U.S. government securities or other liquid high grade debt obligations
equal to the difference, if any, between (1) the market value of the securities
sold at the time they were sold short and (2) any cash, U.S. government
securities or other liquid high grade debt obligations deposited as collateral
with the broker in connection with the short sale (not including the proceeds of
the short sale). Short sales by the Portfolio involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from a purchase of a security, because losses from short sales may
be unlimited, whereas losses from purchases cannot exceed the total amount
invested.
7. PURCHASED OPTIONS: Certain Portfolios may purchase call or put options on
their portfolio securities. A Portfolio may purchase call options to protect
against an increase in the price of a security it anticipates purchasing. A
Portfolio may purchase put options on securities which it holds to protect
against a decline in the value of the security. Risks may arise from an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
8. SECURITY LENDING: Each Portfolio may lend its investment securities to
qualified institutional investors who borrow securities in order to complete
certain transactions. By lending its investment securities, a Portfolio 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 and any interest earned or dividends declared during the term of the loan
would be for the account of the Portfolio. Risks of delay in recovery of the
securities or even loss of rights in the collateral may occur should the
borrower of the securities fail financially. Risks may also arise to the extent
that the value of the collateral decreases below the value of the securities
loaned.
Portfolios that lend securities receive cash, securities issued or guaranteed by
the U.S. Government or letters of credit as collateral in an amount equal to or
exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in interest bearing repurchase agreements
with approved counterparties. A portion of the interest received on the
repurchase agreements is retained by the Fund and the remainder is rebated to
the borrower of the securities. The net amount of interest earned and interest
rebated is included in the Statement of Operations as interest income. The value
of loaned securities and related collateral outstanding at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
FUND (000) (000)
- ------------------------------------- --------------- -----------
<S> <C> <C>
Global Equity Allocation............. $ 21,884 $ 23,165
</TABLE>
At June 30, 1996, the Fund had invested the cash collateral in a repurchase
agreement with Goldman Sachs. Such repurchase agreement was collateralized by
U.S. Treasury Obligations.
Morgan Stanley Trust Company administers the security lending program and has
received fees for its services in the amount of $3,087 for the year ended June
30, 1996.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days) after
the date of the transaction. Additionally, each Portfolio may purchase
securities on a when-issued or delayed-delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and yield, and no income accrues to the
Portfolio on such securities prior to delivery. When the Portfolio enters into a
purchase transaction on a when-issued or delayed delivery basis, it establishes
a segregated account in which it maintains liquid assets in an amount at least
equal in value to the Portfolio's commitments to purchase such securities.
Purchasing securities on a forward commitment or when-issued or delayed-delivery
basis may involve a risk that the market price at the time of delivery may be
lower than the agreed upon purchase price, in which case there could be an
unrealized loss at the time of delivery.
10. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each Portfolio's commencement of operations. Morgan Stanley Asset Management,
Inc. has agreed that in the event any of it's initial shares in a Portfolio
which comprised the Fund at it's inception are redeemed, the proceeds on
redemption will be reduced by
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
the pro-rata portion of any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the initial shares held at
time of redemption.
11. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Fund is informed of such dividends) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. Interest income is recognized on the accrual basis except where
collection is in doubt. Discounts and premiums on securities purchased are
amortized according to the effective yield method over their respective lives.
Most expenses of the Fund can be directly attributed to a particular Portfolio.
Expenses which cannot be directly attributed are apportioned among the
Portfolios based upon relative net assets. Income, expenses (other than class
specific expenses) and realized and unrealized gains or losses are allocated to
each class of shares based upon their relative net assets. Distributions from
the Portfolios are recorded on the ex-distribution date.
Certain portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A portion of
distributions received from REITs during the year is estimated to be a return of
capital and is recorded as a reduction of their cost.
The amount and character of income and capital gain distributions to be paid by
the Fund are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatment for foreign currency
transactions, net operating losses, foreign taxes on net realized gains,
deductibility of interest expense on short sales and gains on certain securities
of corporations designated as "passive foreign investment companies".
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among undistributed net investment income
(loss), accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of calculating net investment income (loss) per share in the Financial
Highlights.
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MSAM"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., provides the Fund with
investment advisory services at a fee paid quarterly and calculated at the
annual rates of average daily net assets indicated below. The Adviser has agreed
to reduce advisory fees payable to it and to reimburse the Portfolios, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
AND
CLASS A CLASS C
MAXIMUM MAXIMUM
OPERATING OPERATING
ADVISORY EXPENSE EXPENSE
FUND FEE RATIO RATIO
- ------------------------------------------------------------------------------------------ -------- ------- -------
<S> <C> <C> <C>
Global Equity Allocation.................................................................. 1.00% 1.70% 2.45%
Global Fixed Income....................................................................... 0.75% 1.45% 2.20%
Asian Growth.............................................................................. 1.00% 1.90% 2.65%
American Value............................................................................ 0.85% 1.50% 2.25%
Worldwide High Income..................................................................... 0.75% 1.55% 2.30%
Latin American............................................................................ 1.25% 2.10% 2.85%
Emerging Markets.......................................................................... 1.25% 2.15% 2.90%
Aggressive Equity......................................................................... 0.90% 1.50% 2.25%
U.S. Real Estate.......................................................................... 1.00% 1.55% 2.30%
High Yield................................................................................ 0.75% 1.25% 2.00%
</TABLE>
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an administrative agreement for a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of each Portfolio, plus
reimbursement of out-of-pocket expenses. Under an agreement between MSAM and The
Chase Manhattan Bank ("Chase"), effective September 1, 1995, Chase through its
affiliate Chase Global Funds Services Company ("CGFSC"), formerly Mutual Funds
Service Company ("MFSC"), provides certain administrative services to the Fund.
Chase is compensated for such services by MSAM from the fee it receives from the
Fund. Certain employees of CGFSC are officers of the Fund. Prior to September 1,
1995, MFSC was an affiliate of the United States Trust Company of New York and
provided administrative services to the Fund under the same terms, conditions
and fees as stated above.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM,
serves as the distributor of the Fund and provides all classes of each Portfolio
with distribution services pursuant to separate Distribution Plans in accordance
with Rule 12b-1 under the Investment Company Act of 1940. The Distributor is
entitled to receive from the Portfolios a distribution fee, which is accrued
daily and paid quarterly, of up to 0.25% for the Class A shares of each
Portfolio and up to 1.00% on an annualized basis, of the average daily net
assets attributable to the Class B and Class C shares of each Portfolio.
The Distributor may receive a contingent deferred sales charge for certain
purchases of Class A, Class B and Class C shares of each Portfolio redeemed
within one to six years following such purchase. For the year ended June 30,
1996, the Distributor has advised the Fund that it earned initial
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
sales charges of $234,000 for Class A shares and deferred sales charges of
$70,000 and $115,000 for Class B shares and Class C shares, respectively.
E. CUSTODIANS: Morgan Stanley Trust Company ("MSTC"), a wholly-owned subsidiary
of Morgan Stanley Group Inc., acts as custodian for the Fund's assets held
outside the United States in accordance with a custodian agreement. Effective
September 1, 1995, Chase replaced the United States Trust Company of New York as
custodian for the Fund's domestic assets in accordance with a Custodian
Agreement. Custodian fees are computed and payable monthly based on assets held,
investment purchases and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses.
For the year ended June 30, 1996, the following Portfolios incurred custody fees
and had amounts payable to MSTC at June 30, 1996:
<TABLE>
<CAPTION>
MSTC CUSTODY
CUSTODY FEES
FEES PAYABLE
INCURRED TO MSTC
FUND (000) (000)
- ---------------------------------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Global Equity Allocation............................................................................ $ 210 $ 71
Global Fixed Income................................................................................. 14 3
Asian Growth........................................................................................ 623 202
Worldwide High Income............................................................................... 40 13
Latin American...................................................................................... 114 26
Emerging Markets.................................................................................... 333 101
</TABLE>
In addition, for the year ended June 30, 1996, certain Portfolios earned
interest income and/or incurred interest expense in amounts not exceeding
$10,000 per Portfolio on balances maintained with MSTC.
F. PURCHASES AND SALES: For the year ended June 30, 1996, purchases and sales of
investment securities other than long-term U.S. Government securities and
short-term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ---------------------------------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Global Equity Allocation............................................................................ $ 80,860 $43,973
Global Fixed Income................................................................................. 18,816 21,909
Asian Growth........................................................................................ 254,082 138,019
American Value...................................................................................... 20,177 16,468
Worldwide High Income............................................................................... 196,699 140,733
Latin American...................................................................................... 31,022 22,136
Emerging Markets.................................................................................... 120,624 31,439
Aggressive Equity................................................................................... 20,548 11,959
U.S. Real Estate.................................................................................... 5,262 --
High Yield.......................................................................................... 9,556 530
</TABLE>
Purchases and sales of long-term U.S. Government securities during the year
ended June 30, 1996 occurred in the Global Fixed Income Fund and totaled
$14,788,000 and $17,575,000, respectively.
G. OTHER: At June 30, 1996, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
Foreign denominated assets and liabilities, including Portfolio securities and
foreign currency holdings, were translated at the following exchange rates as of
June 30, 1996:
<TABLE>
<S> <C> <C> <C>
Argentine Peso............................. 0.99963 = $ 1.00
Australian Dollar.......................... 1.27235 = $ 1.00
Austrian Shilling.......................... 10.69550 = $ 1.00
Brazilian Real............................. 1.00395 = $ 1.00
British Pound.............................. 0.64371 = $ 1.00
Canadian Dollar............................ 1.36455 = $ 1.00
Colombian Peso............................. 1,067.00000 = $ 1.00
Danish Krone............................... 5.85550 = $ 1.00
Deutsche Mark.............................. 1.52000 = $ 1.00
Egyptian Pound............................. 3.40200 = $ 1.00
French Franc............................... 5.13900 = $ 1.00
Greek Drachma.............................. 240.47000 = $ 1.00
Hong Kong Dollar........................... 7.74075 = $ 1.00
Indian Rupee............................... 35.23000 = $ 1.00
Indonesian Rupiah.......................... 2,327.50000 = $ 1.00
Israeli Shekel............................. 3.20030 = $ 1.00
Italian Lira............................... 1,530.84000 = $ 1.00
Japanese Yen............................... 109.32500 = $ 1.00
Korean Won................................. 811.20000 = $ 1.00
Malaysian Ringgit.......................... 2.49450 = $ 1.00
Mexican Peso............................... 7.58250 = $ 1.00
Moroccan Dirham............................ 8.72285 = $ 1.00
Netherlands Guilder........................ 1.70450 = $ 1.00
Pakistani Rupee............................ 35.00500 = $ 1.00
Peruvian Sol............................... 2.44300 = $ 1.00
Philippine Peso............................ 26.20000 = $ 1.00
Polish Zloty............................... 2.71710 = $ 1.00
Portuguese Escudo.......................... 156.30000 = $ 1.00
Singapore Dollar........................... 1.41100 = $ 1.00
South African Rand......................... 4.33300 = $ 1.00
Spanish Peseta............................. 127.91500 = $ 1.00
Swedish Krona.............................. 6.61490 = $ 1.00
Swiss Franc................................ 1.24950 = $ 1.00
Taiwan Dollar.............................. 27.52000 = $ 1.00
Thailand Baht.............................. 25.38500 = $ 1.00
Turkish Lira............................... 82,100.00000 = $ 1.00
</TABLE>
During the year ended June 30, 1996, Asian Growth Fund, Latin American Fund and
Emerging Markets Fund incurred approximately $164,000, $2,000 and $15,000,
respectively, as brokerage commissions with Morgan Stanley & Co. Incorporated,
an affiliated broker/dealer.
At June 30, 1996 the Global Equity Allocation Fund and Emerging Markets Fund
owned shares of an affiliate fund for which the Fund earned dividend income of
$174,000 and $42,000, respectively.
At June 30, 1996, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of each Portfolio were
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- -------------------------------------------------------------------------------- -------- ------- --------- --------------
<S> <C> <C> <C> <C>
Global Equity Allocation........................................................ $123,716 $15,798 $ (2,270) $13,528
Global Fixed Income............................................................. 11,168 115 (163) (48)
Asian Growth.................................................................... 426,428 54,966 (17,673) 37,293
American Value.................................................................. 37,623 5,884 (752) 5,132
Worldwide High Income........................................................... 92,940 2,591 (3,227) (636)
Latin American.................................................................. 23,068 4,112 (675) 3,437
Emerging Markets................................................................ 151,506 19,065 (6,596) 12,469
Aggressive Equity............................................................... 10,838 408 (126) 282
U.S. Real Estate................................................................ 5,523 232 (22) 210
High Yield...................................................................... 10,804 36 (125) (89)
</TABLE>
<PAGE>
MORGAN STANLEY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide High
Income Fund, Latin American Fund, Emerging Markets Fund, Aggressive Equity Fund,
U.S. Real Estate Fund and High Yield Fund (constituting the Morgan Stanley Fund,
Inc., hereafter referred to as the "Fund") at June 30, 1996, the results of each
of their operations, the changes in each of their net assets and the financial
highlights for each of the Funds for each of the respective periods presented,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 6, 1996
<PAGE>
PCS CASH FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT
(000) VALUE
----- -----
<S> <C> <C>
AGENCY OBLIGATIONS (11.6%)
Federal Home Loan Bank Discount Note
5.52%, 07/01/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 $10,000,000
Federal National Mortgage Association Discount Note
5.18%, 09/20/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,883,450
------------
TOTAL AGENCY OBLIGATIONS (COST $19,883,450). . . . . . . . . . . . . . . . . 19,883,450
------------
CERTIFICATES OF DEPOSIT (10.5%)
BANKS
Duetsche Bank Financial, Inc.
5.37%, 07/10/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,000,000
National Westminister Bank (NY)
5.36%, 07/10/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,000,015
Royal Bank of Canada (NY)(Banks LOC)
6.05%, 06/11/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT (COST $18,000,015) . . . . . . . . . . . . . . 18,000,015
------------
COMMERCIAL PAPER (35.4%)
BEVERAGES (3.5%)
Coca-Cola Financial Corp.
5.28%, 08/08/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,966,560
------------
COMPUTER & OFFICE EQUIPMENT (4.0%)
Hewlett-Packard Co.
5.38%, 09/24/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 6,911,081
------------
FINANCIAL (8.7%)
Abbey Nat'l North Amer. Corp.
5.35%, 11/29/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 2,932,679
ABN-AMRO North American Finance Corp.
5.30%, 07/11/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,991,167
UBS Financial, Inc.
5.55%, 07/01/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 6,000,000
------------
TOTAL FINANCIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,923,846
------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
PCS CASH FUND, INC.
Money Market Portfolio
Statement of Net Assets (Continued)
June 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT
(000) VALUE
----- -----
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
MOTOR VEHICLES & CAR BODIES (4.6%)
Daimler Benz
5.38%, 08/02/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,000 $ 2,985,653
5.44%, 11/14/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 4,897,339
------------
TOTAL MOTOR VEHICLES & CAR BODIES. . . . . . . . . . . . . . . . . . . . . . 7,882,992
------------
OIL & GAS (3.5%)
Koch Industries, Inc.
5.30%, 07/15/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,987,633
------------
RESTAURANTS (4.1%)
McDonald's Corp.
5.35%, 07/15/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 6,985,436
------------
SERVICES - EDUCATIONAL (3.5%)
Harvard University
5.34%, 07/23/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,980,420
------------
TELECOMMUNICATIONS (3.5%)
Ameritech Capital Funding Corp.
5.28%, 07/16/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,986,800
------------
TOTAL COMMERCIAL PAPER (COST $60,624,768). . . . . . . . . . . . . . . . . . . 60,624,768
------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PCS CASH FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT
(000) VALUE
----- -----
<S> <C> <C> <C>
VARIABLE RATE OBLIGATIONS (25.2%)
Federal National Mortgage Association FLoating Rate Notes
5.18%, 07/01/96** . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 $ 4,998,642
5.19%, 09/02/96** . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 15,000,000
5.25%, 10/11/96** . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 2,999,176
Federal National Mortgage Association Medium Term Note
5.28%, 07/16/96** . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 4,999,626
Student Loan Marketing Association Floating Rate Note
5.59%, 07/02/96** . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 15,008,299
------------
TOTAL VARIABLE RATE OBLIGATIONS (COST $43,005,743) . . . . . . . . . . . . . 43,005,743
------------
REPURCHASE AGREEMENT (17.2%)
Goldman, Sachs & Co. 5.38%, 07/01/96 (Agreement dated
06/28/96, to be repurchased at $29,379,154 collateralized
by $29,325,000, U.S. Treasury Bonds 7.25%, due
05/15/96. The total market value and accrued interest of
the collateral is $30,235,908)(cost $29,366,000). . . . . . . . . . . . 29,366 29,366,000
------------
TOTAL INVESTMENTS (COST $170,879,976*) . . . . . . . . . . . . . . . 99.9% $170,879,976
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3% 447,415
LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2%) (354,365)
------------
NET ASSETS (BASED ON 171,084,598 SHARES, HAVING A PAR
VALUE OF $.001 PER SHARE). . . . . . . . . . . . . . . . . . . . . 100.0% $170,973,026
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE ($170,973,026 DIVIDED BY 171,084,598 SHARES OUTSTANDING) $1.00
------
------
</TABLE>
- --------------
*Also cost for Federal income tax purposes.
**Variable Rate Obligations -- the interest rate shown is the rate as of June
30, 1996 and the maturity date is the shorter of the next interest
readjustment date or the date the principal amount can be recovered through
demand.
See accompanying notes to financial statements.
4
<PAGE>
PCS CASH FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT
(000) VALUE
----- -----
<S> <C> <C>
AGENCY OBLIGATIONS (82.1%)
Federal Farm Credit Bank Discount Note
5.29%, 07/02/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 $ 9,998,531
Federal Home Loan Bank Discount Notes
5.52%, 07/01/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 30,000,000
5.26%, 07/05/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,994,156
Federal Home Loan Mortgage Corporation Discount Notes
5.24%, 07/03/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,996,846
5.31%, 07/08/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,989,675
5.26%, 07/10/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,986,850
5.28%, 07/15/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,979,467
5.29%, 07/16/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,977,958
5.29%, 07/18/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,975,019
5.30%, 07/23/96. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,967,611
------------
TOTAL AGENCY OBLIGATIONS (COST $119,866,113). . . . . . . . . . . . . . . . . . . . 119,866,113
------------
VARIABLE RATE OBLIGATIONS (4.8%)
Federal National Mortgage Association Floating Rate Note
5.25%, 10,11/96**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 1,999,451
Federal National Mortgage Association Medium Term Note
5.28%, 07/16/96**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 4,999,626
------------
TOTAL VARIABLE RATE OBLIGATIONS (COST$6,999,077) . . . . . . . . . . . . . . . . . . 6,999,077
------------
REPURCHASE AGREEMENT (13.2%)
Goldman, Sachs & Co. 5.38%, 07/01/96 (Agreement
dated 06/28/96, to be repurchased at $19,294,638
collateralized by $19,260,000, U.S. Treasury Bonds
7.25%, due 05/15/16. The total market value and
accrued interest of the collateral is $19,858,264)
(cost $19,286,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,286 19,286,000
------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PCS CASH FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
JUNE 30, 1996
<TABLE>
<CAPTION>
VALUE
-----
<S> <C> <C>
TOTAL INVESTMENTS (COST $146,151,190). . . . . . . . . . . . . . . . . . . . . . . 100.1% $146,151,190
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% 43,994
LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1%) (217,628)
------------
NET ASSETS (BASED ON 146,076,545 SHARES, HAVING A PAR
VALUE OF $.001 PER SHARE). . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $145,977,556
-------- ------------
-------- ------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE ($145,977,556 DIVIDED BY 146,076,545 SHARES OUTSTANDING) $1.00
------
------
</TABLE>
- ------------------
*Also cost for Federal income tax purposes.
**Variable Rate Obligations -- the interest rate shown is the rate as of June
30, 1996 and the maturity date is the shorter of the next interest
readjustment date or the date the principal amount can be recovered through
demand.
See accompanying notes to financial statements.
6
<PAGE>
PCS CASH FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
--------------------- ----------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,502,974 $4,948,893
----------- -----------
EXPENSES
Distribution fees (Note 2). . . . . . . . . . . . . . . . . . . . . . . . 843,776 439,236
Investment advisory fees (Note 2) . . . . . . . . . . . . . . . . . . . . 759,398 395,312
Administration fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 167,790 105,462
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,232 26,020
Custodian fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 50,957 26,756
Transfer agent fees (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 49,945 12,000
Printing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,500 22,500
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,250 16,445
Insurance expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,485 15,485
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,356 12,978
Directors' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,597 8,597
Miscellaneous expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 10,443 10,959
----------- -----------
2,060,729 1,091,750
LESS FEES VOLUNTARILY WAIVED (NOTE 2). . . . . . . . . . . . . . . . . . . . . (406,928) (257,203)
----------- -----------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,653,801 834,547
----------- -----------
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,849,173 4,114,346
NET REALIZED LOSS ON INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . (99,906) (98,989)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . $7,749,267 $4,015,357
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
PCS CASH FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,849,173 $ 6,917,658
Net realized loss on investments . . . . . . . . . . . . . . . . . . . . . (99,906) (11,667)
------------- -------------
Net increase in net assets resulting from operations . . . . . . . . . . . 7,749,267 6,905,991
------------- -------------
Dividends to shareholders from:
Net investment income ($.0463 and $.0446 per
share, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . (7,849,173) (6,917,658)
Net realized gains ($.0000 and $.0001 per
share, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . -- (7,700)
------------- -------------
Total dividends to shareholders. . . . . . . . . . . . . . . . . . . . . . . (7,849,173) (6,925,358)
------------- -------------
Decrease in net assets derived from capital
share transactions (Note 3). . . . . . . . . . . . . . . . . . . . . . . . (441,635) (5,064,947)
------------- -------------
Total decrease in net assets . . . . . . . . . . . . . . . . . . . . . . . . (541,541) (5,084,314)
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,514,567 176,598,881
------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,973,026 $171,514,567
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
PCS CASH FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,114,346 $ 9,351,381
Net realized gain (loss) on investments. . . . . . . . . . . . . . . . . . (98,989) 11,936
------------- -------------
Net increase in net assets resulting from operations . . . . . . . . . . . 4,015,357 8,363,317
------------- -------------
Dividends to shareholders from:
Net investment income ($.0464 and $.0448 per
share, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . (4,114,346) (8,351,381)
Net realized gains ($.0001 and $.0000 per
share, respectively). . . . . . . . . . . . . . . . . . . . . . . . . . (11,936) (572)
------------- -------------
Total dividends to shareholders. . . . . . . . . . . . . . . . . . . . . . . (4,126,282) (9,351,953)
------------- -------------
Increase (decrease) in net assets derived from capital
share transactions (Note 3) . . . . . . . . . . . . . . . . . . . . . . . 78,583,923 (35,057,979)
------------- -------------
Total increase (decrease) in net assets. . . . . . . . . . . . . . . . . . . 78,472,998 (35,046,615)
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,504,558 102,551,173
------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $145,977,556 $ 67,504,558
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
PCS CASH FUND, INC.
FINANCIAL HIGHLIGHTS
(for a share outstanding through each period)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. . . . . . . . . . . . . . . . 0.0463 0.0446 0.0246 0.0243 0.0402
Net realized gains/(losses) on investments . . . . . (.0006) 0.0001 -- 0.0001 --
Less dividends to shareholders from:
Net investment income. . . . . . . . . . . . . . . . (0.0463) (0.0446) (0.0246) (0.0243) (0.0402)
Net realized gains . . . . . . . . . . . . . . . . . -- (0.0001) -- (0.0001) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return . . . . . . . . . . . . . . . . . . . . . 4.72% 4.55% 2.49% 2.47% 4.11%
Ratios of expenses to average net assets . . . . . . . 0.98%(b) 0.98%(b) 0.98%(b) 0.98%(b) 0.98%(b)
Ratios of net investment income to
average net assets . . . . . . . . . . . . . . . . . 4.65%(b) 4.45%(b) 2.45%(b) 2.44%(b) 3.97%(b)
Net assets at end of period (000). . . . . . . . . . . $170,973 $171,515 $176,599 $156,310 $190,034
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
FOR THE PERIOD
MARCH 12, 1992
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR (COMMENCEMENT
ENDED ENDED ENDED ENDED OF OPERATIONS)
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993 TO JUNE 30, 1992
-------------- ------------- -------------- ------------ ----------------
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------
Income from investment operations:
Net investment income. . . . . . . . . . . . . . . . 0.0464 0.0448 0.0243 0.0246 0.0094
Net realized gains/(losses) on investments . . . . . (0.0011) -- 0.0011 0.0002 --
Less dividends to shareholders from:
Net investment income. . . . . . . . . . . . . . . . (0.0464) (0.0448) (0.0243) (0.0246) (0.0094)
Net realized gains . . . . . . . . . . . . . . . . . (0.0001) -- (0.0011) (0.0002) --
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
Total return . . . . . . . . . . . . . . . . . . . . . 4.72% 4.58% 2.45% 2.51% 0.94%(c)
Ratio of expenses to average net assets. . . . . . . . 0.95%(b) 0.95%(b) 0.95%(b) 0.95%(b) 0.95%(a)(b)
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . . . . 4.68%(b) 4.61%(b) 2.40%(b) 2.50%(b) 3.07%(a)(b)
Net assets at end of period (000). . . . . . . . . . . $145,978 $67,505 $102,551 $101,736 $269,627
</TABLE>
- ---------------------
(a) Annualized.
(b) Without the voluntary waiver of advisory and distribution fees, the ratios
of expenses to average net assets would have been 1.22%, 1.18%, 1.19%,
1.20%, and 1.27% for the Money Market Portfolio and 1.24%, 1.12%, 1.22%,
1.19% and 1.29% annualized for the Government Obligations Money Market
Portfolio. The ratios of net investment income to average net assets would
have been 4.41%, 4.25% 2.24%, 2.22%, and 3.68% for the Money Market
Portfolio and 4.39%, 4.44%, 2.13%, 2.26% and 2.73% annualized for the
Government Obligations Money Market Portfolio.
(c) Not annualized. Total return, if on an annualized basis, would have been
3.16% for the Government Obligations Money Market Portfolio.
See accompanying notes to financial statements.
10
<PAGE>
PCS CASH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PCS Cash Fund, Inc. (The "Fund"), an open-end diversified management
investment company, was incorporated in Maryland on January 5, 1989, and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940.
The Fund is authorized to issue 10 billion shares, $.001 par value per
share, of which 1 billion are classified in each of the following three
portfolios: PCS Money Market Portfolio, PCS Tax-Free Money Market Portfolio,
and PCS Government Obligations Money Market Portfolio. There are currently no
shares outstanding in the Tax-Free Money Market Portfolio.
Preparation of the financial statements in accordance with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that effect reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by
the fund in the preparation of their financial statements:
A)SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and, thereafter, a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00. INVESTMENT IN SHARES OF THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND
WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
B)SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions
are accounted for on the trade date. The cost of investments sold is
determined by use of the specific identification method for both financial
reporting and income tax purposes. Interest income is recorded on the
accrual basis.
C)DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income
are declared daily and paid monthly. Any net realized capital gains will
be distributed at least annually.
D)FEDERAL INCOME TAXES -- The Fund intends to continue to qualify for
the tax treatment applicable to regulated investment companies under the
Internal Revenue Code and make the requisite distributions to its
shareholders which will be sufficient to relieve it from Federal income and
Federal excise taxes. Therefore, no provision has been recorded for
Federal income or Federal excise taxes.
E)REPURCHASE AGREEMENTS -- The Fund may purchase money market
instruments from financial institutions, such as banks and non-bank
dealers, subject to the seller's agreement to repurchase them at an agreed
upon date and price (repurchase agreements). Collateral for repurchase
agreements may have longer maturities than the maximum permissible
remaining maturity of portfolio investments. The seller will be required
on a daily basis to maintain the value of the securities subject to the
agreement at not less than the repurchase price, marked-to-market daily.
The agreements are conditioned upon the collateral being deposited under the
Federal Reserve book-entry system or with the Fund's custodian or a third
party sub-custodian.
11
<PAGE>
PCS CASH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
NOTE 2 -- TRANSACTIONS WITH AFFILIATES AND OTHERS
The Fund has entered into an investment advisory agreement with Morgan
Stanley Asset Management Inc. (The "Advisor"), a wholly owned subsidiary of
Morgan Stanley Group Inc. The Fund has also entered into an Administration
and Accounting Services Agreement with PFPC Inc., a wholly owned subsidiary
of PNC Bank Corp., and a distribution agreement with Morgan Stanley & Co.
Inc. PNC Bank Corp. serves as custodian for each of the Fund's portfolios.
PFPC Inc. also serves as the Fund's transfer agent.
For the advisory services provided and expenses assumed by it, the
Advisor is entitled to receive from each Portfolio a fee, computed daily and
payable monthly, at an annual rate of .45% of the first $250 million of the
Portfolio's daily net assets, .40% of the next $250 million of the
portfolio's daily net assets and .35% of the Portfolio's daily net assets in
excess of $500 million. The Advisor may, at its discretion from time to time,
waive voluntarily all of any portion of its advisory fee or reimburse the
Portfolio for a portion of the expenses of its operations. For the year
ended June 30, 1996, advisory fees, net of voluntary fee waivers, were
$605,601 for the Money Market Portfolio and $350,061 for the Government
Obligations Money Market Portfolio.
As required by various state regulations in which the Fund is registered
to sell shares, the Advisor will reimburse each Portfolio if and to the
extent that the aggregate operating expenses of the Portfolio exceed
applicable state limits for the fiscal year. Currently, the most restrictive
of such applicable limits is 2.5% of the first $30 million of average annual
net assets, 2.0% of the next $70 million of average annual net assets, and
1.5% of the remaining average annual net assets. Certain expenses such as
brokerage commissions, taxes, interest, and extraordinary items are excluded
from this limitation. No such reimbursements were required for the year
ended June 30, 1996.
For administration services provided, PFPC Inc. is entitled to receive
from each Portfolio a fee, computed daily and payable monthly, at an annual
rate of .10% of the first $200 million daily net assets, .075% of the next
$200 million of daily net assets, .05% of the next $200 million of daily net
assets and .03% of the daily assets in excess of $600 million.
The Fund has adopted a Plan of Distribution and pursuant thereto has
entered into an agreement under which the distributor, Morgan Stanley & Co.
Inc., (the "Distributor") is entitled to receive from each Portfolio
compensation of its distribution costs at an annual rate of up to .50% of
daily net assets. The Distributor may at its discretion from time to time
waive voluntarily all of any portion of its distribution fee. For the year
ended June 30, 1996, distribution fees, net of voluntary fee waivers, were
$590,645 for the Money Market Portfolio and $227,284 for the Government
Obligations Money Market Portfolio.
12
<PAGE>
PCS CASH FUND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
JUNE 30, 1996
NOTE 3 -- CAPITAL STOCK
Transactions in capital stock for each Portfolio were as follows:
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------------------ --------------------------------------
SHARES VALUE SHARES VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold. . . . . . . . . . . . . . . . . . . 1,390,773,760 $1,390,773,760 1,261,410,987 $1,261,410,987
Shares issued in reinvestment of dividends . . . 7,425,521 7,425,521 6,579,514 6,579,514
Shares redeemed. . . . . . . . . . . . . . . . . (1,398,640,916) (1,398,640,916) (1,273,055,448) (1,273,055,448)
------------- --------------- -------------- --------------
Net decrease . . . . . . . . . . . . . . . . . . (441,635) $ (441,635) (5,064,947) $ (5,064,947)
------------- --------------- -------------- --------------
------------- --------------- -------------- --------------
</TABLE>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------------------ --------------------------------------
SHARES VALUE SHARES VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold. . . . . . . . . . . . . . . . . . . 1,373,640,193 $1,373,640,193 2,017,389,099 $2,017,389,099
Shares issued in reinvestment of dividends . . . 3,510,973 3,510,973 9,053,037 9,053,037
Shares redeemed. . . . . . . . . . . . . . . . . (1,298,567,243) (1,298,567,243) (2,061,500,115) (2,061,500,115)
------------- --------------- -------------- --------------
Net increase (decrease). . . . . . . . . . . . . 78,583,923 $ 78,583,923 (35,057,979) $ (35,057,979)
------------- --------------- -------------- ---------------
------------- --------------- -------------- ---------------
</TABLE>
NOTE 4 -- NET ASSETS
At June 30, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
MONEY MARKET GOVERNMENT OBLIGATIONS
PORTFOLIO MONEY MARKET PORTFOLIO
------------ ----------------------
<S> <C> <C>
Capital Paid-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $171,084,599 $146,076,545
Accumulated Net Realized Loss on Investments. . . . . . . . . . . . . . . (111,573) (98,989)
------------ ------------
$170,973,026 $145,977,556
------------ ------------
------------ ------------
</TABLE>
NOTE 5 -- SUBSEQUENT EVENTS
On July 16, 1996 the Board of Directors of the Fund approved an Agreement
and Plan of Reorganization and Liquidation by and between the Fund and Morgan
Stanley Fund, Inc. The Plan, subject to shareholder approval, provides for the
transfer of all or substantially all of the Fund's assets and liabilities to
Morgan Stanley Fund, Inc. in exchange for shares of Morgan Stanley Fund, Inc.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The PCS Cash Fund, Inc.:
We have audited the accompanying statements of net assets of the PCS Cash
Fund, Inc. (Money Market and Government Obligations Money Market Portfolios),
as of June 30, 1996, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the periods
in the two years then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments held by the custodian as of June 30, 1996. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
PCS Cash Fund, Inc. (Money Market and Government Obligations Money Market
Portfolios) as of June 30, 1996 and the results of their operations for the year
then ended, the changes in their net assets for each of the periods in the two
years then ended and the financial highlights for each of the periods presented,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 31, 1996
14
<PAGE>
PART C
Morgan Stanley Fund, Inc.
Other Information
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS (included in Part A)
Audited financial highlights for the Morgan Stanley Global Equity
Allocation, Morgan Stanley Global Fixed Income, Morgan Stanley Asian
Growth, Morgan Stanley American Value, Morgan Stanley Worldwide High
Income, Morgan Stanley Latin American, Morgan Stanley Emerging
Markets, Morgan Stanley Aggressive Equity, Morgan Stanley U.S. Real
Estate and Morgan Stanley High Yield Funds for the fiscal year ended
June 30, 1996 are included in Part A (the prospectuses). As of June
30, 1996, the Morgan Stanley Government Obligations Money Market,
Morgan Stanley Tax-Free Money Market, Morgan Stanley European Equity,
Morgan Stanley Growth and Income, Morgan Stanley International Magnum,
Morgan Stanley Japanese Equity, Morgan Stanley Value, Morgan Stanley
Equity Growth, Morgan Stanley Global Equity, Morgan Stanley Aggressive
Equity, Morgan Stanley U.S. Real Estate, Morgan Stanley High Yield,
Morgan Stanley Emerging Markets Debt and Morgan Stanley Mid Cap Growth
Funds had not yet commenced operations. Accordingly, no audited
financial highlights for these Funds are included in the prospectus
relating to such Funds.
Audited financial highlights for the PCS Money Market Portfolio and PCS
Government Obligations Money Market Portfolio, portfolios of PCS Cash
Fund, Inc., for the fiscal year ended June 30, 1996 are included in
Part A (the prospectuses). The PCS Money Market Portfolio is the
predecessor to the Morgan Stanley Money Market Fund and the PCS
Government Obligations Money Market Portfolio is the predecessor
portfolio to the Morgan Stanley Government Obligations Money Market Fund.
(2) FINANCIAL STATEMENTS (included in Part B)
The registrant's audited financial statements for the Morgan Stanley
Global Equity Allocation, Morgan Stanley Global Fixed Income, Morgan
Stanley Asian Growth, Morgan Stanley American Value, Morgan Stanley
Worldwide High Income, Morgan Stanley Latin American and Morgan
Stanley Emerging Markets, Morgan Stanley Aggressive Equity, Morgan
Stanley U.S. Real Estate and Morgan Stanley High Yield Funds,
respectively, for the fiscal year ended June 30, 1996, 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, 1996 Annual Report to Shareholders. The
financial statements incorporated by reference into Part B are:
1. Statements of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
As of June 30, 1996, the Morgan Stanley Money Market, Morgan Stanley
Government Obligations Money Market, Morgan Stanley Tax-Free Money
Market, Morgan Stanley European Equity, Morgan Stanley Growth and
Income, Morgan Stanley International Magnum, Morgan Stanley Japanese
Equity, Morgan Stanley Value, Morgan Stanley Equity Growth, Morgan
Stanley Mid Cap Growth, Morgan Stanley Global Equity and Morgan
Stanley Emerging Markets Debt Funds had not yet commenced operations.
Accordingly, no audited financial statements are filed for these Funds
at this time.
PCS Cash Fund Inc.'s audited financial statements for the PCS Money
Market and PCS Government Obligations Money Market Portfolios, for the
fiscal year ended June 30, 1996 are
<PAGE>
incorporated by reference into Part B (the Statement of Additional
Information) and are a part of the PCS Cash Fund, Inc.'s June 30, 1996
Annual Report to Shareholders. The financial statements incorporated by
reference into Part B are:
1. Statement of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
<PAGE>
(B) EXHIBITS
1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33- 51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(b) Articles Supplementary (adding Registrant's High Yield, U.S. Real
Estate and Japanese Equity Funds) to the Amended and Restated
Articles of Incorporation are incorporated by reference to
Post-Effective Amendment No. 16 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 18, 1996.
(c) Articles Supplementary (adding Registrant's Government
Obligations Money Market and Tax-Free Money Market Funds)to the
Amended and Restated Articles of Incorporation are incorporated
by reference to Post-Effective Amendment No. 16 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 18, 1996.
(d) Form of Articles Supplementary (adding Registrant's Global Equity,
Emerging Markets Debt, Mid Cap Growth, Equity Growth and Value
Funds) to the Amended and Restated Articles of Incorporation are
incorporated by reference to Post-Effective Amendment No. 16 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 18, 1996.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(b) Amended Schedule A and Supplement to Investment Advisory
Agreement between Registrant and Morgan Stanley Asset
Management Inc. (adding Registrant's Asian Growth Fund and
Small Cap Value Equity Fund (currently the American Value
Fund)) is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(c) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Worldwide High Income Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(d) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Growth and Income Fund, European Equity Fund,
Latin American Fund and Emerging Markets Fund) is incorporated
by reference to Post-Effective Amendment No. 10 to the
Registrant's
<PAGE>
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(e) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Aggressive Equity Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(f) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's International Magnum, Japanese Equity, U.S. Real
Estate and High Yield Funds) is incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as
filed with the SEC via EDGAR on September 23, 1996.
(g) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's U.S. Real Estate and High Yield Funds) are
incorporated by reference to Post-Effective Amendment No. 16 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 18, 1996.
(h) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Tax-Free Money Market Fund) is incorporated by
reference to Post-Effective Amendment No. 14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on July 9, 1996.
(i) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Government Obligations and Money Market Funds) are
incorporated by reference to Post-Effective Amendment No. 16 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 18, 1996.
(j) Form of Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management, Inc. (adding
Registrant's Value Fund, Global Equity, Emerging Markets Debt,
Equity Growth and Mid Cap Growth Funds) are incorporated by
reference to Post-Effective Amendment No. 16 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 18, 1996.
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase
Manhattan Bank, N.A. dated March 11, 1994 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(b) Registrant's Custody Agreement (Global) with Morgan Stanley
Trust Company dated January 4, 1993 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995.
(c) Registrant's Custody Agreement with PNC Bank, N.A. (with respect
to the Money Market Funds) is incorporated by reference to
Post-Effective Amendment No. 16 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 18, 1996.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement
incorporated by reference to Post-Effective Amendment No. 16 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 18, 1996.
(b) Chase Administration Agreement is incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such Agreement
incorporated by reference to Post-Effective Amendment No. 16 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 18, 1996.
(c) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
<PAGE>
Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
(d) Sub-Transfer Agent Agreement among Morgan Stanley Asset
Management Inc., Chase Global Funds Services Company and PFPC,
Inc. is incorporated by reference to Post-Effective Amendment No.
16 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 18, 1996.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
(b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is filed
herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Morgan Stanley Money Market Fund ("Money Market Plan") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995. The following Rule 12b-1 distribution plans have
been omitted because they are substantially identical to the
Money Market Plan and differ from the Money Market Plan only in
references to the Investment Fund to which the plan relates:
Morgan Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund.
(b) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Aggressive Equity
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995. The following plans have been omitted
because they are substantially identical to the Class A Plan and
differ from the Class A Plan only in references to the Investment
Fund to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth Fund,
Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide High
Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares (the "Class B Plan") of the Morgan Stanley Aggressive
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-51294 and 811-7140), as filed with the
SEC via EDGAR on October 4, 1995. The following plans have been
omitted because they are substantially identical to the Class B
Plan and differ from the Class B Plan only in references to the
Investment Fund to which the plan relates: Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund,
Morgan Stanley Small Cap Value Equity Fund (currently the
<PAGE>
Morgan Stanley American Value Fund), Morgan Stanley Value Fund,
Morgan Stanley Equity Growth Fund, Morgan Stanley Mid Cap Growth
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley
Emerging Markets Debt Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund, Morgan Stanley Japanese Equity Fund.
(d) Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(now known as Class C Shares) and referred to as the "Class C
Plan" of the Morgan Stanley Aggressive Equity Fund is
incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 4, 1995. The following plans have been omitted because
they are substantially identical to the Class C Plan and differ
from the Class C Plan only in references to the Investment Fund
to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
16 Schedules of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 30, 1995.
18 Registrant's Form of Rule 18f-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
27 Financial data schedules for the fiscal year ended June 30, 1996, are
filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of September 30, 1996.
Number of
Title of Class Record Holders
-------------- ---------------
Morgan Stanley Global Equity Allocation Fund-Class A . . . . 4,169
Morgan Stanley Global Equity Allocation Fund-Class B . . . . 1,694
<PAGE>
Morgan Stanley Global Equity Allocation Fund-Class C . . . . 4,846
Morgan Stanley Global Fixed Income Fund-Class A. . . . . . . 340
Morgan Stanley Global Fixed Income Fund-Class B. . . . . . . 57
Morgan Stanley Global Fixed Income Fund-Class C. . . . . . . 193
Morgan Stanley Asian Growth Fund-Class A . . . . . . . . . . 20,896
Morgan Stanley Asian Growth Fund-Class B . . . . . . . . . . 6,449
Morgan Stanley Asian Growth Fund-Class C . . . . . . . . . . 14,141
Morgan Stanley Emerging Markets Fund-Class A . . . . . . . . 4,104
Morgan Stanley Emerging Markets Fund-Class B . . . . . . . . 1,366
Morgan Stanley Emerging Markets Fund-Class C . . . . . . . . 3,605
Morgan Stanley Latin American Fund-Class A . . . . . . . . . 1,130
Morgan Stanley Latin American Fund-Class B . . . . . . . . . 194
Morgan Stanley Latin American Fund-Class C . . . . . . . . . 577
Morgan Stanley European Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley European Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley American Value Fund-Class A . . . . . . . . . 1,266
Morgan Stanley American Value Fund-Class B . . . . . . . . . 256
Morgan Stanley American Value Fund-Class C . . . . . . . . . 1,317
Morgan Stanley Worldwide High Income Fund-Class A. . . . . . 1,858
Morgan Stanley Worldwide High Income Fund-Class B. . . . . . 1,928
Morgan Stanley Worldwide High Income Fund-Class C. . . . . . 1,607
Morgan Stanley Aggressive Equity Fund-Class A. . . . . . . . 269
Morgan Stanley Aggressive Equity Fund-Class B. . . . . . . . 157
Morgan Stanley Aggressive Equity Fund-Class C. . . . . . . . 138
Morgan Stanley Growth and Income Fund-Class A. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class B. . . . . . . . 0
Morgan Stanley Growth and Income Fund-Class C. . . . . . . . 0
Morgan Stanley High Yield Fund-Class A . . . . . . . . . . . 18
Morgan Stanley High Yield Fund-Class B . . . . . . . . . . . 30
Morgan Stanley High Yield Fund-Class C . . . . . . . . . . . 16
Morgan Stanley U.S. Real Estate Fund-Class A . . . . . . . . 72
Morgan Stanley U.S. Real Estate Fund-Class B . . . . . . . . 51
Morgan Stanley U.S. Real Estate Fund-Class C . . . . . . . . 37
Morgan Stanley International Magnum Fund-Class A . . . . . . 55
Morgan Stanley International Magnum Fund-Class B . . . . . . 65
Morgan Stanley International Magnum Fund-Class C . . . . . . 21
Morgan Stanley Japanese Equity Fund-Class A. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class B. . . . . . . . . 0
Morgan Stanley Japanese Equity Fund-Class C. . . . . . . . . 0
Morgan Stanley Money Market Fund . . . . . . . . . . . . . . 0
Morgan Stanley Government Obligations Money Market Fund. . . 0
Morgan Stanley Tax-Free Money Market Fund. . . . . . . . . . 0
Morgan Stanley Value Fund - Class A . . . . . . . . . . . . 0
Morgan Stanley Value Fund - Class B . . . . . . . . . . . . 0
Morgan Stanley Value Fund - Class C . . . . . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class A. . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class B. . . . . . . . . 0
Morgan Stanley Equity Growth Fund - Class C. . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class A . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class B . . . . . . . . 0
Morgan Stanley Global Equity Fund - Class C . . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class A . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class B . . . . . . . 0
Morgan Stanley Emerging Markets Debt - Class C . . . . . . . 0
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the 1933 Act and is,
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be governed
by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Management of the Fund--Investment
Adviser" in the Prospectus constituting Part A of this Registration Statement
and "Management of the Fund" in Part B of this Registration Statement.
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business,
profession, vocation, or employment of a substantial nature engaged in by the
Chairman, President and Directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form ADV filed by MSAM
pursuant to the Advisers Act (SEC File No. 801-15757).
DIRECTORS
James M. Allwin Director
Barton M. Biggs Director
Gordon S. Gray Director
Peter A. Nadosy Director
Dennis G. Sherva Director
OFFICERS
Barton M. Biggs Chairman
Managing Director
Peter A. Nadosy Vice Chairman
Managing Director
James M. Allwin President
Managing Director
P. Dominic Caldecott Managing Director (MSAM) - UK
A. Macdonald Caputo Managing Director
Ean Wah Chin Managing Director (MSAM) -
Singapore
Garry B. Crowder Managing Director
Madhav Dhar Managing Director
Kurt A. Feuerman Managing Director
Gordon S. Gray Managing Director
Marianne Laing Hay Managing Director
Gary D. Latainer Managing Director
Mahmoud A. Mamdani Managing Director
Robert A. Sargent Managing Director (MSAM) - UK
Bidyut C. Sen Managing Director
Vinod R. Sethi Managing Director
Dennis G. Sherva Managing Director
James L. Tanner Managing Director (MSAM) - UK
Richard G. Woolworth, Jr. Managing Director
Debra M. Aaron Principal
Warren Ackerman III Principal
John R. Alkire Principal (MSAM) - Toyko
Robert E. Angevine Principal
Gerald P. Barth-Wehrenaip Principal
Francine J. Bovich Principal
Stuart J. M. Breslow Principal
Andrew C. Brown Principal (MSAM) - UK
Jeffrey P. Brown Principal
Frances Campion Principal (MSAM) - UK
Terence P. Carmichael Principal
Arthur Certosimo Principal
<PAGE>
Stephen C. Cordy Principal
Jacqueline A. Day Principal (MSAM) - UK
Abigail Jones Feder Principal
Eugene Flood, Jr. Principal
Thomas C. Frame Principal
Paul B. Ghaffari Principal
James Wayne Grisham Principal
Perry E. Hall II Principal
Ruth A. Hughes-Guden Principal
Margaret Kinsley Johnson Principal
Michael B. Kushma Principal
Marianne J. Lippmann Principal
Andrew Mack Principal (MSAM) - UK
Gary J. Mangino Principal
Jeffrey Margolis Principal
M. Paul Martin Principal
Walter Maynard, Jr. Principal
Robert L. Meyer Principal
Margaret P. Naylor Principal (MSAM) - UK
Warren Olsen Principal
Christopher G. Petrow Principal
Russell C. Platt Principal
Narayan Ramachandran Principal
Gail Hunt Reeke Principal
Christine I. Reilly Principal
Stefano Russo Principal (MSAM) - Milan
Bruce R. Sandberg Principal
Kiat Seng Seah Principal (MSAM) - Singapore
Stephen C. Sexauer Principal
Robert M. Smith Principal
Kunihiko Sugio Principal (MSAM) - Tokyo
Ann D. Thivierge Principal
Philip W. Winters Principal
Alford E. Zick, Jr. Principal
Suzanne S. Akers Vice President
William S. Auslander Vice President
Kimberly L. Austin Vice President
Marshall T. Bassett Vice President
Theodore R. Bigman Vice President
L. Kenneth Brooks Vice President
Jonathan Paul Buckeridge Vice President (MSAM) - Melbourne
Carl Kuo-Wei Chien Vice President (MSAM) - Hong Kong
Lori A. Cohane Vice President
James Colmenares Vice President
Kate Cornish-Bowden Vice President (MSAM) - UK
Nikhil Dhaon Vice President
Christine H. du Bois Vice President
Raye L. Dube Vice President
Richard S. Farden Vice President
Daniel E. Fox Vice President
Karen T. Frost Vice President (MSAM) - UK
Josephine M. Glass Vice President
Charles A. Golden Vice President
James A. Grasselino Vice President
<PAGE>
Kenneth John Greig Vice President (MSAM) - UK
Maureen A. Grover Vice President
Kenneth R. Holley Vice President
Holly D. Hopps Vice President
Etsuko Fuseya Jennings Vice President
Donald B. Johnston Vice President
Peter L. Kirby Vice President
Michael F. Klein Vice President
George Koshy Vice President
Daniel R. Lascano Vice President
Arthur J. Lev Vice President
Valerie Y. Lewis Vice President
Jane Likins Vice President (MSAM) - UK
Khoon-Min Lim Vice President
William David Lock Vice President (MSAM) - UK
Gordon W. Loery Vice President
Yvonne Longley Vice President (MSAM) - UK
Paula J. Morgan Vice President (MSAM) - UK
Clare K. Mutone Vice President
Terumi Nagata Vice President (MSAM) - Tokyo
Yoshiro Okawa Vice President (MSAM) - Tokyo
Martin O. Pearce Vice President (MSAM) - UK
Alexander A. Pena Vice President
Anthony J. Pesce Vice President
David J. Polansky Vice President
Akash Prakash Vice President (MSAM) - Muabai
Gregg A. Robinson Vice President
Gerald D. Rubin Vice President
Donald P. Ryan Vice President
Andy B. Skov Vice President
Michael James Smith Vice President (MSAM) - UK
Kim I. Spellman Vice President
Joseph P. Stadler Vice President
Christian K. Stadlinger Vice President
Catherine Steinhardt Vice President
Ram K. Sundaram Vice President
Joseph Y.S. Tern Vice President (MSAM) Singapore
Richard Boon Hwee Toh Vice President (MSAM) Singapore
K.N. Vaidyanathan Vice President (MSAM) Muabai
Dennis J. Walsh Vice President
Kevin V. Wasp Vice President
Harold J. Schaaff, Jr. Principal
General Counsel and Secretary
Eileen K. Murray Treasurer
Madeline D. Barkhorn Assistant Secretary
Charlene R. Herzer Assistant Secretary
<PAGE>
In addition, MSAM acts as investment adviser to the following
registered investment companies: American Advantage International Equity
Fund; The Brazilian Investment Fund, Inc.; The Enterprise Group of Funds, Inc.
- - Tax-Exempt Income Portfolio; Fortis Series Fund, Inc. - Global Asset
Allocation Series; Fountain Square International Equity Fund; General American
Capital Company; The Latin American Discovery Fund, Inc.; certain portfolios
of The Legends Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa
Investment Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley
Emerging Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.;
Morgan Stanley European Emerging Markets Fund, Inc.; all funds of the Morgan
Stanley Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund, Inc.; The
Morgan Stanley High Yield Fund, Inc.; Morgan Stanley India Investment Fund,
Inc.; Morgan Stanley Institutional Fund, Inc.; The Pakistan Investment Fund,
Inc.; PCS Cash Fund, Inc.; Principal Aggressive Growth Fund, Inc.; Principal
Asset Allocation Fund, Inc.; certain portfolios of Sun America Series Trust;
SEI Institutional Managed Trust - Balanced Portfolio; The Thai Fund, Inc. and
The Turkish Investment Fund, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
<PAGE>
Morgan Stanley & Co. Incorporated ("MS&Co.") is distributor for
Morgan Stanley Institutional Fund, Inc., Morgan Stanley Fund, Inc., and PCS
Cash Fund, Inc. The information required by this Item 29 with respect to each
Director and officer of MS&Co. is incorporated by reference to Schedule A of
Form BD filed by MS&Co. pursuant to the Securities and Exchange Act of 1934
(SEC File No. 8-15869).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a)
under the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained in the physical possession of the
Registrant; Registrant's Transfer Agent and Sub-Administrator, Chase Global
Funds Services Company, 73 Tremont Street, P.O. Box 2798, Boston,
Massachusetts 02208-2798; Registrant's Sub-Transfer Agent, PFPC, Inc. 400
Bellevue Parkway, Wilmington, Delaware 19809; and the Registrant's custodian
banks, including sub-custodians.
ITEM 31. MANAGEMENT SERVICES
Morgan Stanley Asset Management Inc. ("MSAM") has entered into a
Chase Administration Agreement with The Chase Manhattan Bank, N.A. ("Chase"),
successor in interest to United States Trust Company of New York (which is
incorporated herein by reference to Exhibit No. 9(b) to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement) pursuant to which
Chase will provide the following services to the Registrant: (i) managing,
administering and conducting the general business activities of the
Registrant, other than those which are contracted to third parties; (ii)
providing personnel and facilities to perform the foregoing; (iii) accounting
services, including the preparation of statements and reports; (iv) transfer
agent services, including processing correspondence from shareholders,
recording transfers, issuing stock certificates and handling checks; (v)
handling dividends and distributions, including disbursing, withholding and
tax reporting; and (vi) providing office facilities, statistical and research
data, office supplies and assisting the Registrant to comply with regulatory
developments.
ITEM 32. UNDERTAKINGS
1. Registrant undertakes to file a post-effective amendment
containing reasonably current financial statements, which need not be
certified, for the Morgan Stanley International Magnum Fund, Morgan Stanley
Japanese Equity Fund, Morgan Stanley Growth and Income Fund, Morgan Stanley
European Equity Fund, Morgan Stanley Money Market Fund, Morgan Stanley
Tax-Free Money Market Fund, Morgan Stanley Government Obligations Money
Market Fund, Morgan Stanley Value Fund, Morgan Stanley Equity Growth Fund,
Morgan Stanley Global Equity Fund, Morgan Stanley Emerging Markets Debt Fund,
and Morgan Stanley Mid Cap Growth Fund within four to six months of their
effective date or the commencement of operations of each such Investment Fund,
whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act inform
the Board of Directors of his or their desire to communicate with other
Shareholders of the Fund, the Directors will inform such Shareholder(s) as to
the approximate number of Shareholders of record and the approximate costs of
mailing or afford said Shareholders access to a list of Shareholders.
3. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) and 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 24th day of October, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Warren J. Olsen Director, President October 24, 1996
- ----------------------------- ----------------
Warren J. Olsen (Principal Executive
Officer)
*/s/ Barton M. Biggs Director (Chairman) October 24, 1996
- ------------------------------ ----------------
Barton M. Biggs
*/s/ Fergus Reid Director October 24, 1996
- ----------------------------- ----------------
Fergus Reid
*/s/ Frederick O. Robertshaw Director October 24, 1996
- ----------------------------- ----------------
Frederick O. Robertshaw
*/s/ Andrew McNally IV Director October 24, 1996
- ----------------------------- ----------------
Andrew McNally IV
*/s/ John D. Barrett II Director October 24, 1996
- ----------------------------- ----------------
John D. Barrett II
*/s/ Gerard E. Jones Director October 24, 1996
- ----------------------------- ----------------
Gerard E. Jones
*/s/ Samuel T. Reeves Director October 24, 1996
- ----------------------------- ----------------
Samuel T. Reeves
*/s/ Frederick B. Whittemore Director October 24, 1996
- ----------------------------- ----------------
Frederick B. Whittemore
*/s/ James R. Rooney Treasurer October 24, 1996
- ----------------------------- ----------------
James R. Rooney (Principal
Accounting
Officer)
*By: /s/ Warren J. Olsen
--------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
(b) Articles Supplementary (addding Registrant's High Yield, U.S.
Real Estate and Japanese Equity Funds) to the Amended and
Restated Articles of Incorporation are incorporated by
reference to Post-Effective Amendment No. 16 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 18, 1996.
(c) Articles Supplementary (adding Registrant's Government
Obligations Money Market and Tax-Free Money Market Funds)to the
Amended and Restated Articles of Incorporation are
incorporated by reference to Post-Effective Amendment No.
16 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 18, 1996.
(d) Form of Articles Supplementary (adding Registrant's Global
Equity, Emerging Markets Debt, Mid Cap Growth, Equity Growth and
Value Funds) to the Amended and Restated Articles of Incorporation
are incorporated by reference to Post-Effective Amendment
No. 16 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 18, 1996.
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
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(e) Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Aggressive Equity Fund) is incorporated by
reference to Post-Effective Amendment No. 10 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
4, 1995.
(f) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's International Magnum, Japanese Equity, U.S. Real
Estate and High Yield Funds) is incorporated by reference to
Post-Effective Amendment No. 15 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as
filed with the SEC via EDGAR on September 23, 1996.
(g) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's U.S. Real Estate and High Yield Funds) are
incorporated by reference to Post-Effective Amendment No.
16 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 18, 1996.
(h) Form of Supplement to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Tax-Free Money Market Fund) is incorporated by
reference to Post-Effective Amendment No. 14 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as filed with the SEC via EDGAR on July 9, 1996.
(i) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Government Obligations and Money Market
Funds) are incorporated by reference to Post-Effective
Amendment No. 16 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 18, 1996.
(j) Form of Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Value Fund, Global Equity, Emerging Markets Debt,
Equity Growth and Mid Cap Growth Funds) are incorporated
by reference to Post-Effective Amendment No. 16 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 18, 1996.
6 Distribution Agreement between Registrant and Morgan Stanley & Co.
Incorporated is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase
Manhattan Bank, N.A. dated March 11, 1994 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as filed with the SEC via EDGAR on October
30, 1995.
(b) Registrant's Custody Agreement (Global) with Morgan Stanley
Trust Company dated January 4, 1993 is incorporated by
reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A (File Nos. 33-
51294 and 811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995.
(c) Registrant's Custody Agreement with PNC Bank, N.A. (with
respect to the Money Market Funds) is incorporated by
reference to Post-Effective Amendment No. 16 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 18, 1996.
9 (a) Administration Agreement between Registrant and Morgan Stanley
Asset Management Inc. (the "MSAM Administration Agreement") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such
Agreement incorporated by reference to Post-Effective
Amendment No. 16 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 18, 1996.
(b) Chase Administration Agreement is incorporated by reference to
Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140), as amended, as filed with the SEC via EDGAR on
October 30, 1995 and as amended by Addendum to such
Agreement incorporated by reference to Post-Effective
Amendment No. 16 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 18, 1996.
(c) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
(d) Sub-Transfer Agent Agreement among Morgan Stanley Asset
Management Inc., Chase Global Funds Services Company and PFPC,
Inc. is incorporated by reference to Post-Effective
Amendment No. 16 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 18, 1996.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
EX-99.11a 11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
EX-99.11b (b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is filed
herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Morgan Stanley Money Market Fund ("Money Market Plan") is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995. The following Rule 12b-1 distribution plans have
been omitted because they are substantially identical to the
Money Market Plan and differ from the Money Market Plan only in
references to the Investment Fund to which the plan relates:
Morgan Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund.
(b) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Aggressive Equity
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995. The following plans have been omitted
because they are substantially identical to the Class A Plan and
differ from the Class A Plan only in references to the Investment
Fund to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares (the "Class B Plan") of the Morgan Stanley Aggressive
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-51294 and 811-7140), as filed with the
SEC via EDGAR on October 4, 1995. The following plans have been
omitted because they are substantially identical to the Class B
Plan and differ from the Class B Plan only in references to the
Investment Fund to which the plan relates: Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund,
Morgan Stanley Small Cap Value Equity Fund (currently the
</TABLE>
<PAGE>
<TABLE>
<C> <S>
Morgan Stanley American Value Fund), Morgan Stanley Value Fund,
Morgan Stanley Equity Growth Fund, Morgan Stanley Mid Cap Growth
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley
Emerging Markets Debt Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley Global Equity Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund, Morgan Stanley Japanese Equity Fund.
(d) Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares
(now known as Class C Shares) and referred to as the "Class C
Plan" of the Morgan Stanley Aggressive Equity Fund is
incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 4, 1995. The following plans have been omitted because
they are substantially identical to the Class C Plan and differ
from the Class C Plan only in references to the Investment Fund
to which the plan relates: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Small Cap
Value Equity Fund (currently the Morgan Stanley American Value
Fund), Morgan Stanley Value Fund, Morgan Stanley Equity Growth
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Emerging Markets Fund, Morgan Stanley Latin American Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Global Equity
Fund, Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
High Yield Fund, Morgan Stanley U.S. Real Estate Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Japanese Equity
Fund.
16 Schedules of Computation of Performance Information is incorporated
by reference to Post-Effective Amendment No. 11 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 30, 1995.
18 Registrant's Form of Rule 18f-3 Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
24 Powers of Attorney are incorporated by reference to Post-Effective
Amendment No. 10 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
EX-99.27 27 Financial data schedules for the fiscal year ended June 30, 1996, are
filed herewith.
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated August
6, 1996, relating to the financial statements and financial highlights of Morgan
Stanley Fund, Inc., which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the Prospectuses, which
constitute part of this Registration Statement. We also consent to the
reference to us under the heading "Independent Accountants" in such Statement of
Additional Information and to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in such Prospectuses.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 25, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to this Post-Effective Amendment No. 17
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. (consisting of
the PCS Money Market and PCS Government Obligations Portfolios which were the
predecessors of the Morgan Stanley Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund).
- The inclusion of our report dated July 31, 1996 accompanying the
financial statements and financial highlights in the Statement of
Additional Information.
- The reference to our Firm under the heading "Financial Statements" in
the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 28, 1996
<TABLE> <S> <C>
<PAGE>
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<NUMBER-OF-SHARES-SOLD> 150
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<SHARES-REINVESTED> 1
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<AVERAGE-NET-ASSETS> 376
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<PER-SHARE-NII> 0.64
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