<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. 18 /X/
and
REGISTRATION STATEMENT UNDER THE / /
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 20
--------------
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 JANUARY 2, 1996 PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 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 EMERGING MARKETS DEBT,
MORGAN STANLEY GLOBAL FIXED INCOME, MORGAN STANLEY HIGH YIELD AND
MORGAN STANLEY WORLDWIDE HIGH INCOME 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 AGGRESSIVE EQUITY, MORGAN
STANLEY AMERICAN VALUE, MORGAN STANLEY EQUITY GROWTH, MORGAN STANLEY
MID CAP GROWTH, MORGAN STANLEY U.S. REAL ESTATE AND MORGAN STANLEY
VALUE 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 ASIAN GROWTH, MORGAN
STANLEY EMERGING MARKETS, MORGAN STANLEY GLOBAL EQUITY, MORGAN
STANLEY GLOBAL EQUITY ALLOCATION, MORGAN STANLEY INTERNATIONAL
MAGNUM, MORGAN STANLEY JAPANESE EQUITY AND MORGAN STANLEY LATIN
AMERICAN 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 MONEY MARKET, MORGAN
STANLEY TAX-FREE MONEY MARKET AND MORGAN STANLEY GOVERNMENT
OBLIGATIONS MONEY MARKET
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
EMERGING MARKETS DEBT, MORGAN STANLEY GLOBAL FIXED INCOME, MORGAN
STANLEY HIGH YIELD, MORGAN STANLEY WORLDWIDE HIGH INCOME, MORGAN
STANLEY AGGRESSIVE EQUITY, MORGAN STANLEY AMERICAN VALUE, MORGAN
STANLEY EQUITY GROWTH, MORGAN STANLEY MID CAP GROWTH, MORGAN STANLEY
U.S. REAL ESTATE, MORGAN STANLEY VALUE, MORGAN STANLEY ASIAN GROWTH,
MORGAN STANLEY EMERGING MARKETS, MORGAN STANLEY GLOBAL EQUITY,
MORGAN STANLEY GLOBAL EQUITY ALLOCATION, MORGAN STANLEY
INTERNATIONAL MAGNUM, MORGAN STANLEY JAPANESE EQUITY, MORGAN
STANLEY LATIN AMERICAN, 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 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.
v
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS DEBT FUND
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY HIGH YIELD FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
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 twenty-two diversified and
non-diversified investment portfolios (each, a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the four 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") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
THE MORGAN STANLEY EMERGING MARKETS DEBT FUND, MORGAN STANLEY HIGH YIELD
FUND AND MORGAN STANLEY WORLDWIDE HIGH INCOME 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 and Global Fixed 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 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 Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY
AFFILIATES OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
SHAREHOLDER TRANSACTION EXPENSES DEBT FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <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)
Class B.................................. None None None None
Class C.................................. None None None None
Maximum Deferred Sales Load (as a percentage
of the lesser of initial purchase price or
current market value)
Class A
For Purchases up to $999,999........... None None None None
For Purchases of $1,000,000 or more.... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B.................................. 4.00%(3) 4.00%(3) 4.00%(3) 4.00%(3)
Class C.................................. 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Redemption Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Exchange Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load.
(2) 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."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 4.00% which decreases in
steps to 0% after five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.
(4) 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.
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
ANNUAL FUND OPERATING EXPENSES EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
(AS A PERCENTAGE OF AVERAGE NET ASSETS) DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.25% 0.04% 0.42% 0.61%
Class B.................................. 1.25% 0.04% 0.42% 0.61%
Class C.................................. 1.25% 0.04% 0.42% 0.61%
12b-1/Service Fees
Class A (6).............................. 0.25% 0.25% 0.25% 0.25%
Class B (6).............................. 1.00% 1.00% 1.00% 1.00%
Class C (6).............................. 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursement
and/or fee waiver) (5)
Class A.................................. 0.55% 1.16% 0.58% 0.69%
Class B.................................. 0.55% 1.16% 0.58% 0.69%
Class C.................................. 0.55% 1.16% 0.58% 0.69%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 2.05% 1.45% 1.25% 1.55%
Class B.................................. 2.80% 2.20% 2.00% 2.30%
Class C.................................. 2.80% 2.20% 2.00% 2.30%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds, 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 Fund investment advisory fees and expected
total operating expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Operating Expenses
Class A.................................. 2.05% 2.16% 1.58% 1.69%
Class B.................................. 2.80% 3.57% 2.33% 2.47%
Class C.................................. 2.80% 2.87% 2.33% 2.44%
Investment Advisory Fees
(All Classes)............................ 1.25% 0.75% 0.75% 0.75%
</TABLE>
The Adviser reserves the right to terminate any of its fee waivers and/or
expense reimbursements at any time in its sole discretion. For further
information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1/Service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The 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
expenses and fees for the Emerging Markets Debt and High Yield Funds are based
on estimates. For purposes of calculating the estimated expenses and fees set
forth above, the table assumes that a 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
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the
expenses are the same.)
1 Year............................................. $ 67(1) $ 62(1) $ 60(1) $ 63(1)
3 Years............................................ 109 91 85 94
5 Years............................................ * 123 * 128
10 Years........................................... * 213 * 223
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................. 68 62 60 63
3 Years............................................ 117 99 93 102
5 Years............................................ * 133 * 138
10 Years (2)....................................... * 235 * 246
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years (2)....................................... * 235 * 246
Class C shares
(Assuming complete redemption immediately prior
to the end of period)
1 Year............................................. 38 32 30 33
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
Class C shares
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
</TABLE>
- ------------------
* Because the Emerging Markets Debt Fund and High Yield Fund were either not
operational or had just recently become operational as of the date of this
Prospectus, the Funds have 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 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 eight 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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Fixed Income, High Yield and Worldwide High
Income 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 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 following information should be read in conjunction with the financial
statements and notes thereto. Financial highlights are not presented for the
Emerging Markets Debt Fund because it had not commenced operations as of June
30, 1996.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
------------------------------------------------------------------------ ----------------
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, 1995
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 $ 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
--------------- --------------- ---------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
TO JUNE 30, TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND 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.
+ 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 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A ---------------
----------------------------------------------------- AUGUST 1, 1995
SELECTED PER SHARE DATA AND APRIL 21, 1994* YEAR ENDED YEAR ENDED TO
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 12.17 $ 11.57 $ 11.63
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.18 1.26 1.36 1.18
Net Realized and Unrealized
Gain (Loss).................. 0.16 (0.52) 0.80 0.72
------- -------------- --------------- ---------------
Total From Investment
Operations................... 0.34 0.74 2.16 1.90
------- -------------- --------------- ---------------
DISTRIBUTIONS
Net Investment Income......... (0.17) (1.22) (1.26) (1.09)
Net Realized Gain............. (0.12)
------- -------------- --------------- ---------------
Total Distributions........... (0.17) (1.34) (1.26) (1.09)
------- -------------- --------------- ---------------
NET ASSET VALUE, END OF
PERIOD......................... $ 12.17 $ 11.57 $ 12.47 $ 12.44
------- -------------- --------------- ---------------
------- -------------- --------------- ---------------
TOTAL RETURN (1)................ 2.86% 6.87% 19.61% 17.07%
------- -------------- --------------- ---------------
------- -------------- --------------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 6,857 $ 14,819 $ 41,493 26,174
Ratio of Expenses to Average Net
Assets (2)..................... 1.55%** 1.55% 1.55% 2.30%**
Ratio of Net Investment Income
to Average Net Assets (2)...... 8.29%** 11.53% 11.95% 12.06%**
Portfolio Turnover Rate......... 19% 178% 220% 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....................... 3.23%** 1.97% 1.69% 2.47%**
Net Investment Income to
Average Net Assets........... 6.61%** 11.11% 11.81% 11.89%**
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
SELECTED PER SHARE DATA AND APRIL 21, 1994* 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 $ 12.16 $ 11.58
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.17 1.17 1.30
Net Realized and Unrealized
Gain (Loss).................. 0.15 (0.50) 0.77
-------- -------- --------
Total From Investment
Operations................... 0.32 0.67 2.07
-------- -------- --------
DISTRIBUTIONS
Net Investment Income......... (0.16) (1.13) (1.20)
Net Realized Gain............. (0.12)
-------- -------- --------
Total Distributions........... (0.16) (1.25) (1.20)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD......................... $ 12.16 $ 11.58 $ 12.45
-------- -------- --------
-------- -------- --------
TOTAL RETURN (1)................ 2.62% 6.20% 18.71%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 6,081 $ 11,880 $ 28,094
Ratio of Expenses to Average Net
Assets (2)..................... 2.30%** 2.30% 2.30%
Ratio of Net Investment Income
to Average Net Assets (2)...... 7.54%** 10.72% 11.40%
Portfolio Turnover Rate......... 19% 178% 220%
- -----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.06 $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 4.00%** 2.74% 2.44%
Net Investment Income to
Average Net Assets........... 5.84%** 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>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. 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 EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield income securities that offer a yield
above that generally available on debt securities in the four highest
rating categories of the recognized rating services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
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 investment objectives of the other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
9
<PAGE>
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located throughout the world,
including U.S. issuers.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH seeks long-term capital growth by investing primarily
in common stocks and other equity securities of smaller and medium size
companies which are deemed by the Adviser to offer long-term growth
potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
10
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI"), which, together with its affiliated asset management companies had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." On October 31, 1996,
MSGI purchased the parent company of Van Kampen American Capital, Inc., which in
turn is the parent company of VKAC Distributors. Van Kampen American Capital,
Inc. is the fourth largest non-proprietary mutual fund provider in the United
States with approximately $59 billion in assets under management or supervision
as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers, including emerging country securities. Securities
of foreign issuers and, in particular, emerging country securities, are subject
to certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Emerging Markets Debt and Worldwide High Income Funds invest
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 Emerging Markets Debt and Worldwide High Income Funds'
investments in emerging markets may be in small- to medium-sized companies. The
Funds 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 Emerging Markets Debt and Worldwide
High Income Funds may invest in foreign currency exchange futures and options.
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. The Emerging
Markets Debt, 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. In addition, the Emerging
Markets Debt and Worldwide High Income Funds may invest in derivatives, which
include options, futures and options on futures. The Emerging Markets Debt and
Global Fixed Income Funds are non-diversified portfolios which may invest a
greater portion of their assets in the securities of a smaller number of
11
<PAGE>
issuers and, as a result, will be subject to a greater risk resulting from such
concentration of its portfolio securities. Each Fund may invest in repurchase
agreements, lend its portfolio securities, purchase securities on a when-issued
or delayed delivery basis, and borrow money in an amount not in excess of
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than borrowing. Each of these investment
strategies involves specific risks which are described under "Investment
Objectives and Policies" and "Additional Investment Information" herein and
under "Investment Objectives and Policies" in the Statement of Additional
Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds 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 five years of purchase and are
subject to higher annual distribution-related expenses than the Class A shares.
Class C shares are subject to a CDSC for redemptions within one year of purchase
and are subject to higher annual distribution-related expenses than the Class A
shares. See "Purchase of Shares" for a discussion of reduction of waiver of
sales charges, which are available for certain investors. Share purchases may be
made through VKAC Distributors, through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $500 for
each class of a Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $25, except that 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 (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund is described below, together with the
policies it 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. 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 EMERGING MARKETS DEBT FUND
The investment objective of the Fund is to seek high total return. In
seeking to achieve this objective, the Fund will seek to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. In addition, the Fund may invest
up to 35% of its total assets in debt securities of corporate issuers located in
or organized under the laws of emerging countries. As used in this Prospectus,
the term "emerging country" applies to any country which, in the opinion of the
Adviser, is generally considered to be an emerging or developing country by the
international financial community, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. Government, government-related and
restructured debt securities in emerging markets will consist of (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in emerging
countries (including participations in loans between governments and financial
institutions), (ii) debt securities or obligations issued by government owned,
controlled or sponsored entities located in emerging countries, and (iii)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the entities
described above.
The Adviser intends to invest the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. The Fund will
focus its investments on those emerging market countries in which it believes
the economies are developing strongly and in which the markets are becoming more
sophisticated. Initially, the Fund expects that its investments in emerging
country debt securities will be made primarily in some or all of the following
emerging countries:
13
<PAGE>
Algeria
Argentina
Brazil
Bulgaria
Chile
China
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
Trinidad & Tobago
Tunisia
Turkey
Uruguay
Venezuela
Zaire
In selecting emerging country debt securities for investment by the Fund,
the Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. As opportunities to invest in debt securities in
other countries develop, the Fund expects to expand and further diversify the
emerging countries in which it invests. While the Fund generally is not
restricted in the portion of its assets which may be invested in a single
country or region, it is anticipated that, under normal conditions, the Fund's
assets will be invested in issuers in at least three countries.
Emerging country debt securities held by the Fund will take the form of
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage and other asset-backed securities,
loans, loan participations, loan assignments and interests issued by entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by emerging country issuers. U.S.
Dollar-denominated emerging country debt securities held by the Fund will
generally be listed but not traded on a securities exchange, and non-U.S.
Dollar-denominated securities held by the Fund may or may not be listed or
traded on a securities exchange. Investments in emerging country debt securities
entail special investment risks. The Fund will be subject to no restrictions on
the maturities of the emerging country debt securities it holds; those
maturities may range from overnight to 30 years.
The Fund is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Fund's assets may be invested in non-U.S. Dollar-denominated
securities. The portion of the Fund's assets invested in securities denominated
in currencies other than the U.S. Dollar will vary depending on market
conditions. Although the Fund is permitted to engage in a wide variety of
investment practices designed to hedge against currency exchange rate risks with
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks.
14
<PAGE>
Emerging country debt securities in which the Fund may invest will be
subject to high risk and will not be required to meet a minimum rating standard
and may not be rated for creditworthiness by any internationally recognized
credit rating organization. The Fund's investments are expected to be rated in
the lower and lowest rating categories of internationally recognized credit
rating organizations or are expected to be unrated securities of comparable
quality. These types of debt obligations are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and of volatility in
price than securities in higher rating categories.
The Fund is authorized to borrow up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, for investment purposes to increase the opportunity for
greater return and for payment of dividends. Such borrowings would constitute
leverage, which is a speculative characteristic. Leveraging will magnify
declines as well as increases in the net asset value of the Fund's shares and
increases in the yield on the Fund's investments. 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.
The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The Fund may also
enter into reverse repurchase agreements.
The Fund's investments in government, government-related and restructured
debt instruments are subject to special risks, including the issuer's inability
or unwillingness to repay principal and interest, requests to reschedule or
restructure outstanding debt and requests to extend additional loan amounts. The
Fund may have limited recourse in the event of default on such debt instruments.
The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may also invest in zero coupon, pay-in-kind or
deferred payment securities and in securities that may be collateralized by zero
coupon securities (such as Brady Bonds).
For temporary defensive purposes, the Fund may invest in money market
instruments and short- 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 Fund, see "Additional Investment Information" below.
THE GLOBAL FIXED INCOME FUND
The investment objective of the Global Fixed Income Fund is to produce an
attractive real rate of return while preserving capital by investing in fixed
income securities of issuers located 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
15
<PAGE>
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.
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.
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.
The Global Fixed Income Fund may invest in 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.
16
<PAGE>
For temporary defensive purposes, the Global Fixed Income Fund may invest in
money market instruments and short- 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 Global Fixed Income Fund, 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 NRSROs. 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 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
17
<PAGE>
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 an 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 short-
and medium-term debt securities that the Adviser believes to be of high quality,
or hold cash. 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.
For further information about the foregoing and certain additional
investment practices of the 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 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."
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
18
<PAGE>
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 in "junk
bonds." For a discussion of the risks associated with junk bonds, see "The High
Yield Fund" above. 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. To mitigate the risks associated with
investments in such lower rated securities, the Fund will diversify its holdings
by market, issuer, industry and credit quality. Investors should carefully
review the section below entitled "Additional Investment Information -- Risk
Factors Relating to Investing in Lower Rated Debt Securities."
The chart below indicates the 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. These
percentages are historical and are not necessarily indicative of the quality of
current or future portfolio holdings, which may vary. 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. The Fund may also invest in depositary
receipts issued by U.S. or foreign financial institutions.
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. Although the Fund is permitted to engage in a
wide variety of investment practices designed to hedge against currency exchange
rate risks with
19
<PAGE>
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. The Fund may also
buy and sell options and may enter into futures contracts and options on
futures, including indexed financial futures contracts.
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). The Worldwide High Income Fund may
invest in non-publicly traded securities, private placements and restricted
securities.
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. 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.
The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The Fund may also
enter into reverse repurchase agreements.
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.
For temporary defensive purposes, the Worldwide High Income Fund may invest
in money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality, or hold cash.
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 are commonly referred to as "junk bonds."
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
20
<PAGE>
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. For a discussion of emerging country fixed income securities, see
"Emerging Markets Debt Fund" above.
GLOBAL FIXED INCOME SECURITIES. A portion of the Worldwide High Income
Fund's assets will be invested in global fixed income securities. For a
discussion of global fixed income securities, see "Global Fixed Income Fund"
above.
For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Fixed Income and High Yield Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets. The Worldwide High Income Fund may enter into reverse repurchase
agreements in accordance with its investment objective and policies and 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. The
Emerging Markets Debt Fund may borrow money (i) as a temporary measure for
extraordinary or emergency purposes, and (ii) in connection with reverse
repurchase agreements, provided that (i) and (ii) in combination do not exceed
33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings).
DEPOSITARY RECEIPTS
The Emerging Markets Debt and Worldwide High Income Funds may invest in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such depositary receipts become available. ADRs are securities,
typically issued by a U.S. financial institution (a "depositary"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer (the "underlying issuer") and deposited with the depositary. ADRs include
American Depositary Shares and New York Shares and may be "sponsored" or
"unsponsored." Sponsored ADRs are established jointly by a depositary and the
underlying issuer, whereas unsponsored ADRs may be established by a depositary
without participation by the underlying issuer. GDRs, EDRs and other types of
depositary receipts are typically issued by foreign depositaries, although they
may also be issued by U.S. depositaries, and evidence ownership interests in a
security or pool of securities issued by either a foreign or a U.S. corporation.
FOREIGN CURRENCY HEDGING TRANSACTIONS
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.
21
<PAGE>
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 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 Funds 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 Funds also
will be required to segregate assets to cover its 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. A 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
22
<PAGE>
foreign countries than in the United States. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Many foreign securities markets have
substantially less volume than U.S. national securities exchanges, and
securities of some foreign issuers are less liquid and subject to greater price
volatility than securities of comparable domestic issuers. Brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
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.
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investments in securities of foreign issuers are generally 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 Debt, Worldwide High Income and High Yield Funds may utilize
appropriate futures contracts and options on futures contracts, including
securities index futures contracts and options on securities index futures
contracts. An indexed futures contract is an agreement to take or make delivery
of an amount of cash equal to the difference between the value of the index at
the beginning and at the end of the contract period. Successful use of indexed
futures will be subject to the Adviser's ability to predict correctly movements
in the direction of the relevant debt market. No assurance can be given that the
Adviser's judgment in this respect will be correct.
The Emerging Markets Debt, Worldwide High Income and High Yield Funds will
engage in transactions in securities index futures contracts, interest rate
futures contracts and options thereon which are traded on a recognized
securities or futures exchange. There currently are limited securities index
futures, interest rate futures and options on such futures markets in many
countries, particularly emerging countries such as Latin American countries, and
the nature of the strategies adopted by the Adviser, and the extent to which
those strategies are used, will depend on the development of such markets.
23
<PAGE>
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 anticipates a significant market advance, it may purchase
indexed futures in order to gain rapid market exposure that may in part or
entirely offset, increase in the cost of securities that it intends to purchase.
In a substantial majority of these transactions, a Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of debt securities.
The Funds 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.
Furthermore, no more than 20% of the Worldwide High Income and High Yield Fund's
total assets, in the aggregate, may be invested in futures contracts and options
on futures contracts. The Emerging Markets Debt Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under such contracts, in combination with its outstanding obligations with
respect to options transactions, would exceed 50% of its total assets.
The primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by a Fund and the prices of futures and options relating to the stocks purchased
or sold by the Fund, and (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position which
could have an adverse impact on the Fund's ability to hedge.
INVESTMENT FUNDS
A Fund may invest in securities of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commission or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the 1940 Act.
Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Emerging Markets Debt Fund and Worldwide High Income Fund may invest in these
investment funds subject to applicable provisions of the 1940 Act, and other
applicable laws. If the Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the expenses of the
Fund (including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds.
Certain of the investment funds referred to in the preceding paragraph are
advised by the Adviser. The Emerging Markets Debt Fund and Worldwide High Income
Fund may, to the extent permitted under the 1940 Act and other applicable law,
invest in these investment funds. If the Fund does elect to make an investment
in such an investment fund, it will only purchase the securities of such
investment fund in the secondary market.
LOANS OF PORTFOLIO SECURITIES
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
24
<PAGE>
plus accrued interest. A Fund will not enter into securities loan transactions
exceeding in the aggregate 33 1/3% of the market value of the Fund's total
assets. As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in collateral should the borrower of the portfolio
securities fail financially.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Emerging Markets Debt and Worldwide High Income Funds 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 Funds' 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, a Fund will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the 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, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. A Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy. When a Fund purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by a Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Funds anticipate that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets Debt, 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 additional risks 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.
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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. 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.
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. In addition, there
may be limited trading markets for debt securities of issuers located in
emerging countries.
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
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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, 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, except as set forth below,
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale. The Emerging Markets Debt Fund is not subject to the
foregoing 10% limitation. 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. 144A securities may become
illiquid if qualified institutional buyers are not interested in acquiring the
securities.
OPTIONS TRANSACTIONS
The Emerging Markets Debt and Worldwide High Income Funds may seek to
increase their returns or may hedge all or a portion of their portfolio
investments through stock options with respect to securities in which such Funds
may invest. The Funds may purchase put or call options on individual securities
or baskets of securities. When a Fund purchases a call option it acquires the
right to buy a designated security at a designated price (the "exercise price"),
and when 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 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.
The Emerging Markets Debt and Worldwide High Income Funds may write (i.e.,
sell) covered call options on securities and loan participations and assignments
held in its portfolio which give the purchaser the right to buy the underlying
security, loan participation or assignment covered by the option from the Fund
at the stated exercise price. Each Fund will receive a premium from writing call
options, which increases the Fund's return on the underlying security, loan
participation or assignment in the event the option expires unexercised or is
closed out at a profit. By writing a call, a Fund will limit its opportunity to
profit from an increase in the market value of the underlying security, loan
participation or assignment above the exercise price of the option for as long
as the Fund's obligation as writer of the option continues.
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<PAGE>
The Funds may also write (i.e., sell) covered put options. By selling a
covered put option, a Fund incurs an obligation to buy the security underlying
the option from the purchaser of the put at the option's exercise price at any
time during the option period, at the purchaser's election (certain options
written by the Fund will be exercisable by the purchaser only on a specific
date).
The Funds will engage only in transactions in options which are traded on a
recognized securities or futures exchange. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The Funds always receive
securities as collateral with a market value at least equal to the purchase
price, including accrued interest, and this value is maintained during the term
of the agreement. If the seller defaults and the collateral value declines, a
Fund might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Fund's realization upon the collateral may be delayed or
limited. Repurchase agreements with durations (or maturities) over seven days in
length are considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Emerging Markets Debt and Worldwide High Income Funds may enter into
reverse repurchase agreements with brokers, dealers, domestic and foreign banks
or other financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a 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 a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A 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. A 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 a Fund's 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.
SHORT SALES
The Emerging Markets Debt and Worldwide High Income Funds may from time to
time sell securities short without limitation. A short sale is a transaction in
which a Fund would sell securities it does not own (but
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has borrowed) in anticipation of a decline in the market price of the
securities. When a Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, 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. The Funds 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.
Each 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, each 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 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.
STRUCTURED INVESTMENTS
The Emerging Markets Debt and Worldwide High Income Funds may invest a
portion of their 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 each Fund anticipates it will invest typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Each Fund is permitted to invest in a class
of Structured Securities that is either subordinated or unsubordinated to the
right
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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, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies," above for further information about each Fund's policies.
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. 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. It is a current policy of each of the
Funds, other than the Emerging Markets Debt Fund, 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.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
INVESTMENT LIMITATIONS
Each Fund, except the Emerging Markets Debt and Global Fixed Income Funds,
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
Emerging Markets Debt and Global Fixed Income Funds are non-diversified
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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, the Emerging Markets Debt
and Global Fixed Income Funds may invest a greater proportion of their 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 Emerging Markets Debt and Global Fixed Income Funds, however,
intend to comply with the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended, for qualification as a regulated investment
company.
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 quarterly
at the following annual rates for each of the following Funds:
<TABLE>
<S> <C>
Emerging Markets Debt Fund............................................ 1.25%
Global Fixed Income Fund.............................................. 0.75%
High Yield Fund....................................................... 0.75%
Worldwide High Income 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.
On October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
EMERGING MARKETS DEBT FUND -- PAUL GHAFFARI. Paul Ghaffari is a Managing
Director of Morgan Stanley. He joined the Adviser in June 1993 as a Vice
President and Portfolio Manager for the Morgan Stanley Emerging Markets Debt
Fund (a closed-end investment company). Prior to joining the Adviser, Mr.
Ghaffari was a Vice
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President in the Fixed Income Division of the Emerging Markets Sales and Trading
Department at Morgan Stanley. From 1983 to 1992, he worked in LDC Sales and
Trading Department and the Mortgage-Backed Securities Department at J.P. Morgan
& Co. Inc. and worked in the Treasury Department at the Morgan Guaranty Trust
Co. He holds a B.A. in International Relations from Pomona College and an M.S.
in Foreign Service from Georgetown University. Mr. Ghaffari has had primary
responsibility for managing the Portfolio's assets since the Fund commenced
operations.
GLOBAL FIXED INCOME FUND -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F.
O'BRIEN AND ROBERT M. SMITH. J. David Germany shares primary responsibility for
managing the Fund's assets. He joined the Adviser in 1996 and has been a
portfolio manager with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP
("MAS") since 1991. He was Vice President & Senior Economist for Morgan Stanley
& Co. Incorporated ("Morgan Stanley") from 1989 to 1991. He assumed
responsibility for the Global Fixed Income and International Fixed Income
Portfolios of the MAS-advised MAS Funds in 1993 and the MAS Funds'
Multi-Asset-Class Portfolio in 1994. Mr. Germany was Senior Staff Economist
(International Finance and Macroeconomics) to the Council of Economic Advisors
- -- Executive Office of the President from 1986 through 1987 and an Economist
with the Board of Governors of the Federal Reserve System -- Division of
International Finance from 1983 through 1987. He holds an A.B. degree
(Valedictorian) from Princeton University and a Ph.D. in Economics from the
Massachusetts Institute of Technology. Michael B. Kushma, a Principal at Morgan
Stanley, joined the firm in 1987. He shares primary responsibility for managing
the Fund's assets. 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. 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. Paul F. O'Brien shares primary
responsibility for managing the Fund's assets. He joined the Adviser and MAS in
1996. He was head of European Economics from 1993 through 1995 for JP Morgan and
as Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the
MAS-advised MAS Funds' Global Fixed Income and International Fixed Income
Portfolios in 1996. Mr. O'Brien holds a B.S. degree from the Massachusetts
Institute of Technology and a Ph.D. in Economics from the University of
Minnesota. Robert Smith, a Principal of Morgan Stanley, joined the Adviser in
June 1994 and has had or shared primary 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 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.
HIGH YIELD FUND -- ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F. ESSER.
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. Thomas L. Bennett shares responsibility for managing the
Fund's
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assets. He joined the Adviser in 1996 and has been a portfolio manager with MAS
since 1984. Mr. Bennett assumed responsibility for the MAS-advised MAS Funds'
Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio in 1987, the
High Yield Portfolio in 1985, the Fixed Income Portfolio II in 1990, the Special
Purpose Fixed Income and Balanced Portfolios in 1992 and the Multi-Asset-Class
Portfolio in 1994. Mr. Bennett also is the Chairman of the MAS Funds and has a
B.S. degree (Chemistry) and an M.B.A. from the University of Cincinnati. Stephen
F. Esser shares primary responsibility for managing the Fund's assets. He joined
the Adviser in 1996 and has been a portfolio manager with MAS since 1988. He
assumed responsibility for the MAS-advised MAS Funds' High Yield Portfolio in
1989. Mr. Esser is a member of the New York Society of Security Analysts and has
a B.S. degree (Summa Cum Laude; Phi Beta Kappa) from the University of Delaware.
WORLDWIDE HIGH INCOME FUND -- ROBERT ANGEVINE AND PAUL GHAFFARI. Information
about Messrs. Angevine and Ghaffari is included under Emerging Markets Debt Fund
and High Yield Fund, respectively, above. Messrs. Angevine and Ghaffari have
shared 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 a separate
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Company dividend disbursing and transfer agent services. For
its services under the Administration Agreement, the Company pays the
Administrator a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the 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. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
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<PAGE>
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each 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 0.75% 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. With respect to Class B Shares, the
Distributor expects to utilize substantially all of its fee to reimburse itself
for commissions paid to investment dealers, banks or financial services firms
that provide distribution services (each, a "Participating Dealer"). With
respect to Class C Shares, the Distributor expects to reallocate substantially
all of its fee to such 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. Class A shares, 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 including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services).
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
34
<PAGE>
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset
value per share for each class is determined once daily as of the close of
trading on the New York Stock Exchange (the "NYSE") (currently 4:00 p.m.,
Eastern Time) each day the NYSE is open. Net asset value per share for each
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time.
35
<PAGE>
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares--Class A Shares." For these reasons,
it is presently the policy of the Distributor not to accept any order of
$500,000 or more for Class B Shares or any order of $1 million or more for Class
C shares as it ordinarily would be more beneficial for such an investor to
purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.
36
<PAGE>
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
37
<PAGE>
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED PRICE)
- ------------------------------ --------------- ----------------- -----------------------
<S> <C> <C> <C>
Less than $100,000............ 4.75 4.99 4.25
$100,000 but less than
$250,000..................... 3.75 3.90 3.25
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Funds impose a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00% on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "-- Purchase of
Shares Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933, as amended.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
38
<PAGE>
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc., except for the Money Market Funds.
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through
39
<PAGE>
which such participation in the qualifying program was initiated 0.50% of the
offering price as a dealer concession or agency commission. Persons desiring
more information with respect to this program, including the applicable terms
and conditions thereof, should contact their Participating Dealer or the
Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund by:
(1) Current or retired Trustees/Directors of funds advised by an Adviser and
such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age when purchasing for any
accounts they beneficially own, or, in the case of any such financial
institution, when purchasing for retirement plans for such institution's
employees.
(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12-month period following such
transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.
(6) Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
40
<PAGE>
(7) Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and sponsored
by non-profit organizations defined under Section 501(c)(3) of the Code and
assets held by an employer or trustee in connection with an eligible
deferred compensation plan under Section 457 of the Code. Such plans will
qualify for purchases at net asset value provided, for plans initially
establishing accounts with the Distributor in the Participating Funds after
February 1, 1997, that (1) the initial amount invested in the Participating
Funds is at least $500,000 or (2) such shares are purchased by an employer
sponsored plan with more than 100 eligible employees. Such plans that have
been established with a Participating Fund or have received proposals from
the Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen American Capital Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment
made by the plan or the number of eligible employees, except under certain
uniform criteria established by the Distributor from time to time. Prior to
February 1, 1997, a commission will be paid to dealers who initiate and are
responsible for such purchases within a rolling twelve month period as
follows: 1.00% on sales up to $5 million, plus 0.50% on the next $5
million, plus $0.25 on the excess over $10 million. For purchases on
February 1, 1997 and thereafter, a commission will be paid as follows:
1.00% on sales up to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million, plus 0.25% on the excess over $50 million
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment advisor or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege
will be subject to a contingent deferred sales charge of one percent in the
event of redemption within one year of purchase, and a commission will be
paid to authorized dealers who initiate and are responsible for such sales
to each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided
41
<PAGE>
that ACCESS receives federal funds for the purchase by the close of business on
the next business day following acceptance of the order. An authorized dealer
may charge a transaction fee for placing an order with respect to such shares.
Authorized dealers will be paid a service fee as described herein under
"Distribution Plans" on purchases made as described in (3) through (9) above.
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs trusteed
by Chase. This includes Simplified Employee Pension Plan ("SEP") IRA accounts
and prototype documents. Brochures describing such plans and materials for
establishing them are available from VK Trust Stanley upon request. The
brochures for plans trusteed by VK Trust describe the current fees payable to VK
Trust for its services as trustee. Investors should consult with their own tax
advisers before establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the 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 five 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 five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 5.00%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.50%
Fifth....................................................... 1.50%
Thereafter.................................................. None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
42
<PAGE>
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. Additionally, the Distributor
may pay additional promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell Class B shares of the Funds. 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.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) to the extent that the
redemption represents a minimum required distribution from an IRA or other
retirement plan to a shareholder who has attained the age of 70 1/2; (iii) to
the extent that shares redeemed have been withdrawn from a Systematic Withdrawal
Plan, up to a maximum amount of 12% per year from a shareholder account based on
the value of the account at the time the Withdrawal Plan is established; or (iv)
effected pursuant to the right of the Company to liquidate a shareholder's
account as described herein under "Redemption of 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.
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AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating 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 Funds 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. The reinstatement privilege as to any
specific Class A, Class B or Class C shares must be exercised within 180 days of
the redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the redemption proceeds. The written
request must state that the reinvestment is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinvestment may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans. See the Statement of Additional Information
for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra costs to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of Van Kampen American
Capital, Inc. performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account which shares are held by ACCESS. Except as described herein,
after each share transaction in an account, the shareholder receives a statement
showing the activity in the account. Each shareholder will receive statements at
least quarterly from ACCESS showing any reinvestments of dividends and capital
gains distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
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SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 419256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Funds. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any other Fund
so long as pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company
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should obtain and read a current prospectus of the Participating Funds into
which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER
PARTICIPATING FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the fund from which such shares
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such share originally was purchased.
Exchange of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
282-4404 or (800) 772-8889 for the hearing impaired. A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company's employ procedure considered by them to
be reasonable to confirm their instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recordings,
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, a shareholder
agrees that neither the Distributor nor the Company will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of
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establishing a monthly withdrawal plan. This plan provides for the orderly use
of the entire account, not only the income but also the principal, if necessary.
Each withdrawal constitutes a redemption of shares on which taxable gain or loss
will be recognized. The plan holder may arrange for monthly, quarterly,
semi-annual or annual checks in any amount not less than $25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of a shareholder's investment in, and any
dividends or distributions on, Class B shares of the Fund at the time the
Systematic Withdrawal Plan commences. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS or by
calling 1-800-282-4404. A shareholder's bank may charge a fee for this transfer.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to the Fund c/o ACCESS, P.O. Box 419256, Kansas City,
Missouri 64141-9256, by placing the redemption request through a Participating
Dealer or by calling the Company.
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The Company will redeem shares of each Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of the Funds
that were purchased without payment of the initial sales charge due to the size
of the purchase and are redeemed within one year of purchase. A maximum CDSC of
4.00% which decreases in steps to 0% after five years, will be imposed on
certain Class B shares of the Funds that are redeemed within five 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." Any
CDSC will be imposed on the lesser of the current market value or the total cost
of the shares being redeemed. In determining whether a CDSC is payable, and, if
so, the amount of the charge, it is assumed that shares not subject to such
charge are the first redeemed followed by other shares held for the longest
period of time.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown in the account registration, a copy of
the corporate resolution or other legal documentation appointing the authorized
signor and certified within the prior 60 days must accompany the redemption
request. The redemption price is the net asset value per share next determined
after the request is received by ACCESS in proper form. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within seven business days after acceptance by ACCESS of the request and
any other necessary documents in proper order. Such payments may be postponed or
the right of redemption suspended as provided by the rules of the SEC. If the
shares to be redeemed have been recently purchased by check, ACCESS may delay
mailing a redemption check until it confirms that the purchase check has
cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.
DEALER REDEMPTION REQUEST. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Request") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
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TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 282-4404
or (800) 772-8889 for the hearing impaired to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal indemnification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason, in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily of the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address or record. proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemption following the disability of holders of Class B shares
and Class C shares. An individual will be considered disabled for this purpose
of he or she meets the definition thereof in Section 72(m)(7) of the Code, which
in pertinent part defines a person as disabled of such person "is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
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In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition a CDSC of 1.00% may be imposed on certain redemptions of Class A shares
made within one year of purchase for investments of $1 million or more and for
certain qualified 401 (k) retirement plans. The CDSC incurred upon redemption is
paid to the Distributor in reimbursement for distribution-related expenses,. A
custodian of a retirement plan account may charge fees based on the custodian's
fee schedule.
IRA redemption requests should be sent to the IRA custodian to be fowarded
to ACCESS. Where Van Kampen American Trust Company serves as IRA custodian,
special IRA, 403(b)(7), or Keogh redemption forms must be obtained from and be
forwarded to Van Kampen American Capital Trust Company, P.O. Box 944, Houston,
Texas 77001-0944. Contact the custodian for information.
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.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is
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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.
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,
consistent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the Fund to their clients or who act as agents in the purchase of
shares of the 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 & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the
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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 Funds' objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Emerging Markets Debt and High Yield Funds each
anticipate 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 turnover rates for the
other 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 taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the distribution fee and larger shareholder services fee charged to
Class B shares and Class C shares.
PERFORMANCE OF INVESTMENT ADVISER -- EMERGING MARKETS DEBT FUND
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Emerging Markets Debt Fund. The
portfolio of MSIF (the "MSIF Portfolio") has substantially the same investment
objective and policies as the Emerging Markets Debt Fund. In addition, the
Adviser intends the Emerging Markets Debt Fund and the corresponding MSIF
Portfolio to be managed by the same personnel and to continue to have closely
similar investment strategies, techniques and characteristics. Past investment
performance of the MSIF Portfolio, as shown in the table below, may be relevant
to your consideration of investment in the Emerging Markets Debt Fund. The
investment performance of the MSIF Portfolio is not necessarily indicative of
future performance of the Emerging Markets Debt Fund. Also, the operating
expenses of the Emerging Markets Debt Fund will be different from, and may be
higher than, the operating expenses of the MSIF Portfolio. The investment
performance of the MSIF Portfolio is provided merely to indicate the experience
of the Adviser in managing similar investment portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 4.75%
sales charge applicable to purchases of Class A shares of the
52
<PAGE>
Emerging Markets Debt Fund; (ii) with respect to Class B shares, to take into
account the applicable CDSC that is imposed if Class B shares of the Emerging
Markets Debt Fund are redeemed within the year of their purchase indicated; and
(iii) with respect to the Class C shares, to take into account a 1.00% CDSC that
is imposed if Class C shares of the Emerging Markets Debt Fund are redeemed
within one year of their purchase. The data set forth below under the heading
"Return Without Sales Charge" is not adjusted to take into account such sales
charges.
TOTAL RETURN FOR THE MSIF EMERGING MARKETS DEBT PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM EMERGING MARKETS DEBT FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE EMERGING MARKETS DEBT FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR INCEPTION (1)
- ------------------------------------------------------------------ --------- ------------
<S> <C> <C>
Class A (of 4.75%)................................................ 43.21% 12.32%
Class B (of 4.00%)................................................ 43.96% 13.07%
Class C (of 1.00%)................................................ 46.96% 17.07%
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
Class A........................................................... 47.96% 17.07%
Class B........................................................... 47.96% 17.07%
Class C........................................................... 47.96% 17.07%
</TABLE>
- --------------
(1) Commenced Operations on February 1, 1994.
The past performance of the MSIF Emerging Markets Debt Portfolio is no
guarantee of the future performance of the Emerging Markets Debt 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.
The Emerging Markets Debt Fund expects to distribute substantially all of
its net investment income in the form of annual dividends. Each of the Global
Fixed Income, High Yield and Worldwide High Income Funds expects to distribute
net investment income monthly. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of the Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
53
<PAGE>
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 a 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.
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 Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
generally will not qualify for the dividends-received deduction to corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
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.
54
<PAGE>
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 THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of 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 December 11, 1996, Morgan Stanley Group Inc., 1221 Avenue of
the Americas, New York, NY 10020, 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 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,
55
<PAGE>
and any dividends or distributions paid. In addition, when a transaction occurs
in a shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
56
<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.
EMERGING MARKETS DEBT, GLOBAL FIXED INCOME, HIGH YIELD AND WORLDWIDE
HIGH INCOME FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141 (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 ACCESS Investor Services, Inc. ("ACCESS") 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 $500 and $25, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Emerging Markets Class A (466) $ Class B (566) $ Class C (666) $
Debt Fund ---------- ---------- ----------
Morgan Stanley Global Fixed Class A (601) $ Class B (626) $ Class C (651) $
Income Fund ---------- ---------- ----------
Morgan Stanley High Yield Class A (607) $ Class B (631) $ Class C (657) $
Fund ---------- ---------- ----------
Morgan Stanley Worldwide High Class A (607) $ Class B (629) $ Class C (654) $
Income Fund ---------- ---------- ----------
$
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 ACCESS to act upon instructions received
ACCESS 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.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges Name of Bank
/ / telephone redemption privileges -------------------------------------------------------
Bank A.B.A. Number ----------------- Account Number
-----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip
------------------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Investment Fund into which I/we
exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The 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>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
-----
Fund Expenses......................................................... 2
Prospectus Summary.................................................... 9
Investment Objective and Policies..................................... 13
Additional Investment Information..................................... 20
Investment Limitations................................................ 30
Management of the Company............................................. 31
Purchase of Shares.................................................... 35
Shareholder Services.................................................. 44
Redemption of Shares.................................................. 47
Valuation of Shares................................................... 50
Portfolio Transactions................................................ 51
Performance Information............................................... 52
Dividends and Distributions........................................... 53
Taxes................................................................. 54
General Information................................................... 55
</TABLE>
MORGAN STANLEY
EMERGING MARKETS DEBT FUND
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
MORGAN STANLEY
HIGH YIELD FUND
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY EQUITY GROWTH FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
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 twenty-two diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the six Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc. and its affiliate, Miller Anderson & Sherrerd, LLP, the investment advisers
(each an "Adviser" and together, the "Advisers") and administrators (each an
"Administrator" and together, the "Administrators") to the Funds. Shares are
available through Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor"), and through investment dealers, banks and
financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds are available
upon request and without charge by writing or calling the Company at the address
and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE 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 DATED JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY MID CAP U.S. REAL
SHAREHOLDER TRANSACTION EXPENSES EQUITY FUND VALUE FUND GROWTH FUND GROWTH FUND ESTATE FUND VALUE FUND
- -------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A..................... 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(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)
Class A
For Purchases up to
$999,999................ None None None None None None
For Purchases of 1,000,000
or more................. 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B..................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C..................... 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
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
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.
(2) 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."
(3) 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 five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.
(4) 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.
2
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AGGRESSIVE AMERICAN EQUITY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) EQUITY FUND VALUE FUND GROWTH FUND
----------- ---------- -----------
<S> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.50% 0.54% 0.68%
Class B............................... 0.50% 0.54% 0.68%
Class C............................... 0.50% 0.54% 0.68%
12b-1/Service Fees
Class A (6)........................... 0.25% 0.25% 0.25%
Class B (6)........................... 1.00% 1.00% 1.00%
Class C (6)........................... 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.75% 0.71% 0.47%
Class B............................... 0.75% 0.71% 0.47%
Class C............................... 0.75% 0.71% 0.47%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 1.50% 1.50% 1.40%
Class B............................... 2.25% 2.25% 2.15%
Class C............................... 2.25% 2.25% 2.15%
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MID CAP U.S. REAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) GROWTH FUND ESTATE FUND VALUE FUND
-------------- ----------- ----------
<S> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.67% 0.70% 0.64%
Class B............................... 0.67% 0.70% 0.64%
Class C............................... 0.67% 0.70% 0.64%
12b-1/Service Fees
Class A (6)........................... 0.25% 0.25% 0.25%
Class B (6)........................... 1.00% 1.00% 1.00%
Class C (6)........................... 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.48% 0.60% 0.46%
Class B............................... 0.48% 0.60% 0.46%
Class C............................... 0.48% 0.60% 0.46%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 1.40% 1.55% 1.35%
Class B............................... 2.15% 2.30% 2.10%
Class C............................... 2.15% 2.30% 2.10%
</TABLE>
- ------------------
(5) The Advisers have agreed to waive their advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, investment advisory fees and
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY
EQUITY FUND VALUE FUND GROWTH FUND
----------- ---------- -----------
<S> <C> <C> <C>
Total Operating Expenses
Class A............................... 1.90% 1.81% 1.42%
Class B............................... 2.65% 2.61% 2.17%
Class C............................... 2.65% 2.58% 2.17%
Investment Advisory Fees
(All Classes)......................... 0.90% 0.85% 0.70%
<CAPTION>
MID CAP U.S. REAL
GROWTH FUND ESTATE FUND VALUE FUND
-------------- ----------- ----------
<S> <C> <C> <C>
Total Operating Expenses
Class A............................... 1.48% 1.85% 1.41%
Class B............................... 2.23% 2.60% 2.16%
Class C............................... 2.23% 2.60% 2.16%
Investment Advisory Fees
(All Classes)......................... 0.75% 1.00% 0.70%
</TABLE>
Each Adviser reserves the right to terminate any of its fee waivers and/or
reimbursements at any time in its sole discretion. For further information
on Fund expenses, see "Management of the Company."
(6) Of the 12b-1/service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The expenses and fees for the American Value Fund are
based on actual figures for the period ended June 30, 1996. The expenses and
fees for the Aggressive Equity, Equity Growth, Mid Cap Growth, U.S. Real Estate
and Value 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 5.75% 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>
AGGRESSIVE AMERICAN EQUITY
EQUITY FUND VALUE FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
Class A shares
(If it is assumed there are no
redemptions, the expenses are the same.)
1 Year................................ $ 72 (1) $ 72 (1) $ 71 (1)
3 Years............................... 102 102 99
5 Years............................... * 135 *
10 Years.............................. * 226 *
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................ 73 73 72
3 Years............................... 100 100 97
5 Years............................... * 135 *
10 Years (2).......................... * 241 *
(Assuming no redemption)
1 Year................................ 23 23 22
3 Years............................... 70 70 67
5 Years............................... * 120 *
10 Years (2).......................... * 241 *
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................ 33 33 32
3 Years............................... 70 70 67
5 Years............................... * 120 *
10 Years.............................. * 258 *
(Assuming no redemption)
1 Year................................ 23 23 22
3 Years............................... 70 70 67
5 Years............................... * 120 *
10 Years.............................. * 258 *
<CAPTION>
MID CAP U.S. REAL
GROWTH FUND ESTATE FUND VALUE FUND
------------- ----------- -----------
<S> <C> <C> <C>
Class A shares
(If it is assumed there are no
redemptions, the expenses are the same.)
1 Year................................ $ 71 (1) $ 72 (1) $ 70 (1)
3 Years............................... 99 104 98
5 Years............................... * * *
10 Years.............................. * * *
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................ 72 73 71
3 Years............................... 97 102 96
5 Years............................... * * *
10 Years (2).......................... * * *
(Assuming no redemption)
1 Year................................ 22 23 21
3 Years............................... 67 72 66
5 Years............................... * * *
10 Years (2).......................... * * *
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................ 32 33 31
3 Years............................... 67 72 66
5 Years............................... * * *
10 Years.............................. * * *
(Assuming no redemption)
1 Year................................ 22 23 21
3 Years............................... 67 72 66
5 Years............................... * * *
10 Years.............................. * * *
</TABLE>
- ------------------
* Because the Aggressive Equity, Equity Growth, Mid Cap Growth, U.S. Real
Estate and Value Funds were either not operational or 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 eight 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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Aggressive Equity, American Value and U.S. Real Estate
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 each of 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 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. Financial highlights are not presented for the
Equity Growth, Mid Cap Growth and Value Funds because they had not commenced
operations as of June 30, 1996.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
JANUARY 2, 1996* JANUARY 2, 1996* JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996 TO JUNE 30, 1996 TO JUNE 30, 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 (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.
(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 waive 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
--------------------------------------------------------------- -------------------
OCTOBER 18, 1993* YEAR ENDED YEAR ENDED AUGUST 1, 1995
SELECTED PER SHARE DATA AND 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, 1993* YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND 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
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 RATIOS TO JUNE 30, 1996 TO JUNE 30, 1996 TO JUNE 30, 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.
8
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund. MSAM serves as the Adviser and Administrator for all of
the other Funds listed below. Each Fund has its own investment objective and
policies designed to meet its specific goals. 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 AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.
- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The objectives of these other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
9
<PAGE>
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY FUNDS:
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
10
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," an "Adviser" or an
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI"), which, together with its affiliated asset management companies other
than Miller Anderson & Sherrerd, LLP ("MAS"), had approximately $66.0 billion in
assets under management as an investment manager or as a fiduciary adviser at
September 30, 1996, acts as investment adviser to each of the Funds offered in
this prospectus, except the Mid Cap Growth and Value Funds. MAS (an "Adviser" or
an "Administrator"), established its institutional investment advisory business
in 1969 and recently became an indirectly wholly-owned subsidiary of MSGI and an
affiliate of MSAM. MAS had approximately $37.5 billion in assets under
management as an investment manager at September 30, 1996. See "Management of
the Company -- Investment Advisers" and "-- Administrators." On October 31,
1996, MSGI purchased the parent company of Van Kampen American Capital, Inc.,
which in turn is the parent company of VKAC Distributors. Van Kampen American
Capital, Inc. is the fourth largest non-proprietary mutual fund provider in the
United States with approximately $59 billion in assets under management or
supervision as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks that may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Aggressive Equity,
American Value, Mid Cap Growth and Value Funds, invest in small- to medium-sized
corporations, which are more vulnerable to financial risks and other risks than
larger corporations, and therefore may involve a higher degree of risk and price
volatility than investments in the securities of larger corporations. Each Fund
described herein may invest in securities that are neither listed on stock
exchanges 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 Funds may invest in
securities of foreign issuers which are subject to certain risks not typically
associated with domestic securities, including, among other risks, changes in
currency rates and in exchange control regulations, limited publicly available
information regarding foreign issuers, lower accounting, auditing and financial
standards, potential price volatility and lesser liquidity of shares traded on
securities markets, less government regulation of securities markets, changes in
taxes, possible seizure or expropriation of the foreign issuer or
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foreign deposits, and potentially greater difficulty in obtaining a judgment in
a court outside the United States. Certain of the Funds may invest in forward
foreign currency exchange contracts, and may invest in foreign currency exchange
futures and options. In addition, the Funds may invest in derivatives, which
include options, futures and options on futures and swaps and each Fund may
invest in repurchase agreements, borrow money, lend its portfolio securities,
and purchase securities on a when-issued or delayed delivery basis. 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. 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 5.75% 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 five years of purchase and
are subject to higher annual distribution-related expenses than the Class A
shares. Class C shares are also 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 VKAC Distributors, through Participating Dealers
or by sending payments directly to the Company. The minimum initial investment
is $500 for each class of a Fund, except that the minimum initial investment
amount is reduced for certain categories of investors. The minimum for
subsequent investments is $25, except that 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 price (less any applicable CDSC) of the Fund next determined after receipt
of the redemption request. The redemption price may be more or less than the
purchase. 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 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 Information" below and
"Investment Objectives and Policies" in the Statement of Additional Information.
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.
and 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 are derivatives, which are financial instruments that
derive their value from the value of an underlying asset, reference rate or
index.
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 market sectors. The Adviser uses its
research capabilities, analytical resources and judgment to assess economic,
industry and market trends, as well as individual company developments, to
select promising investments for the Fund. The Adviser concentrates on companies
with strong, communicative management and clearly defined strategies for growth.
In addition, the Adviser rigorously assesses earnings results. The Adviser seeks
companies that 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
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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.
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. 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.
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.
For temporary defensive purposes, the Aggressive Equity Fund may invest in
money market instruments and short- 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 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 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 Fund may invest in 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
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directly or in the form of depositary receipts. The Fund also may invest in
certain types of futures contracts and options thereon.
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
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.
For temporary defensive purposes, the American Value Fund may invest in
money market instruments and short- 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 American Value Fund, see "Additional Investment
Information" below.
THE EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization U.S. companies and, to a limited extent, as
described below, foreign corporations. Equity securities, for this purpose,
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity securities.
The Adviser employs a flexible and eclectic investment process in pursuit of
the Equity Growth Fund's investment objective. In selecting securities for the
Fund, the Adviser concentrates on a universe of rapidly
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growing, high quality companies and lower, but accelerating, earnings growth
situations. The Adviser's universe of potential investments generally comprises
companies with market capitalizations of $500 million or more. The Fund is not
restricted to investments in specific market sectors. The Adviser uses its
research capabilities, analytical resources and judgment to assess economic,
industry and market trends, as well as individual company developments, to
select promising growth investments for the Fund. The Adviser concentrates on
companies with strong, communicative management and clearly defined strategies
for growth. In addition, the Adviser rigorously assesses company developments,
including changes in strategic direction, management focus and current and
likely future earnings results. Valuation is important to the Adviser but is
viewed in the context of prospects for sustainable earnings growth and the
potential for positive earnings surprises vis-a-vis consensus expectations. The
Fund is free to invest in any equity security that, in the Adviser's judgment,
provides above average potential for capital appreciation.
In selecting investments for the Equity Growth Fund, the Adviser emphasizes
individual security selection. The Fund's investments will generally be
diversified by number of issues but concentrated sector positions may result
from the investment process. The Fund has a long-term investment perspective;
however, the Adviser may take advantage of short-term opportunities that are
consistent with the Fund's objective by selling recently purchased securities
which have increased in value.
The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of depositary receipts.
Investors should recognize that investing in foreign companies involves certain
special considerations which are not typically associated with investing in U.S.
companies.
The Equity Growth Fund may invest in convertible securities of domestic and,
subject to the above restrictions, foreign issuers on occasions when, due to
market conditions, it is more advantageous to purchase such securities than to
purchase common stock. Since the Fund invests in both common stocks and
convertible securities, the risks of investing in the general equity markets may
be tempered to a degree by the Fund's investments in convertible securities
which are often not as volatile as common stock.
The Equity Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.
For temporary defensive purposes, the Equity Growth Fund may invest in money
market instruments and short- 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 Fund, see "Additional Investment Information" below.
THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks and other equity securities of
small and medium size companies which are deemed by the Adviser to offer
long-term growth potential.
The Mid Cap Growth Fund generally will invest at least 65% of its total
assets in equity securities issued by companies offering long term growth
potential which have market capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index. Such range is currently $100 million
to $8 billion but the range fluctuates over time with changes in the equity
market. Equity securities for this purpose include common
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stock, preferred stock, convertible securities, depositary receipts, foreign
equity securities, and rights and warrants to purchase stock. Up to 5% of the
Fund's assets may be invested in foreign equity securities, excluding American
Depositary Receipts ("ADRs").
The Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Adviser uses valuation analysis to
eliminate the most overvalued securities. The Fund sells holdings when the
Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends or when the securities'
valuations exceed the level that the Adviser believes is reasonable given their
growth prospects.
The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.
For temporary defensive purposes, the Mid Cap Growth Fund may invest in
money market instruments and short- 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 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.
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 (the "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. 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,
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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 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. 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 short- 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 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
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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"). Rising interest rates may cause the value of the debt
securities in which the Fund will invest to fall. Conversely, falling interest
rates may cause their value to rise. 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.
THE VALUE FUND
The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities that are deemed by the Adviser to be relatively undervalued based on
various measures such as price/earnings ratios and price/book ratios.
The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. Equity securities, for this
purpose, include common stock, preferred stock, convertible securities,
depositary receipts and rights and warrants to purchase stock. Up to 5% of the
Fund's assets may be invested in foreign equity securities, excluding ADRs. The
Fund generally will invest in equity securities of companies with equity
capitalization greater than $300 million.
The Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the S&P 500, based on the
value measures such as price/earnings ratios and price/book ratios, as well as
fundamental research. While capital return will be emphasized somewhat more than
income return, the Value Fund's total return will consist of both capital and
income returns. Stocks which are deemed to be undervalued in the marketplace
have, under most market conditions, provided higher dividend income returns than
stocks which are deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios. However, the Adviser may select
non-dividend paying stocks for their value characteristics. For temporary
defensive purposes, the Value Fund may invest without limit in money market
instruments and medium-term debt securities that the Adviser believes to be of
high quality, or hold cash.
The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The American Value and U.S. Real Estate Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets. The Aggressive Equity Fund may borrow amounts up to 33 1/3% of its
total
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assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing. See "Investment Objectives and Policies -- The
Aggressive Growth Fund" for further information.
The Equity Growth, Mid Cap Growth, and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.
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, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, 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.
DEPOSITARY RECEIPTS
Depositary receipts include ADRs, Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such receipts become available. ADRs are securities, typically
issued by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer (the
"underlying issuer") and deposited with the depositary. Each of the Funds, other
than the U.S. Real Estate Fund, may invest in ADRs and the Funds, other than the
American Value and U.S. Real Estate Funds may invest in other depository
receipts. 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
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are typically issued by foreign depositaries, although they may also be issued
by U.S. depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation.
FOREIGN BONDS
The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FOREIGN INVESTMENT
The Funds may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic issuers. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environment than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Funds, other than the U.S. Real Estate 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
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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 Funds, other than the American Value and U.S. Real Estate Funds, may
attempt to accomplish objectives similar to those described above with respect
to forward contracts for currency by means of purchasing put or call options on
foreign currencies on exchanges. A put option gives such Funds the right to sell
a currency at the exercise price until the expiration of the option. A call
option gives the Funds the right to purchase a currency at the exercise price
until the expiration of the option. The Funds may also write covered call
options on foreign currencies for hedging purposes. See "Investment Objectives
and Policies -- Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and reduce transaction costs, the Funds
may utilize appropriate futures contracts and options on futures contracts,
including securities index futures contracts, interest rate futures contracts,
and options thereon. Futures contracts provide for the future sale by one party
and the purchase by another party if a specified amount of a specified security
or a specified currency at a specified future time and price. Futures contracts
are standardized as to the maturity date and underlying financial instrument,
under a currency. Futures contracts traded in the United States are traded on
national futures exchanges.
The Aggressive Equity and American Value Funds may enter into securities
index futures contracts, foreign currency futures contracts and options thereon.
The Equity Growth, Mid Cap Growth, U.S. Real Estate and Value Funds may enter
into these and other types of futures contacts and options thereon for hedging
purposes.
The Funds will engage only in transactions in securities index futures
contracts, interest rate futures contracts and options thereon which are traded
on a recognized securities or futures exchange. There currently are limited
securities index futures, interest rate futures and options on such futures
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser, and
the extent to which those strategies are used, will depend on the development of
such markets.
The Funds 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.
The Aggressive Equity, American Value and U.S. Real Estate Funds may invest no
more than 20% of each such Fund's total assets, in the aggregate, in futures
contracts and options on futures contracts. The Equity Growth, Mid Cap Growth
and Value Funds will not enter into futures contracts to the extent that such
Fund's outstanding obligations to purchase securities under these contracts, in
combination with its outstanding obligations with respect to options
transactions, would exceed 50% of its total assets.
The primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by a Fund and the prices of futures and options relating to the stocks purchased
or sold by the Fund, and (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position which
could have an adverse impact on the Fund's ability to hedge. For more detailed
information about futures transactions see "Investment Objectives and Policies"
in the Statement of Additional Information.
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<PAGE>
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities of another open-end or closed-end
investment company, 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. To the
extent a Fund invests a portion of its assets in investment company securities,
those assets will be subject to the expenses of the purchased investment company
as well as to the expenses of the Fund itself.
LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend its securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing its
net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Aggressive Equity,
American Value, Equity Growth and U.S Real Estate Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.
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 and
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. A Fund may not invest more than 15% of
its net assets in illiquid securities nor, with respect to the Aggressive
Equity, American Value and U.S. Real Estate Funds, 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
Each Fund, other than the American Value Fund, may seek to increase their
return or may hedge all or a portion of their portfolio investments through
options with respect to securities in which the Fund may invest. A Fund may also
purchase put or call options on individual securities or baskets of securities.
When a Fund
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<PAGE>
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
American Value Fund may not invest in options except for options on certain
futures contracts. See "Futures Contracts and Options on Futures Contracts"
above.
A Fund may write (i.e., sell) covered call options which give the purchaser
the right to buy the underlying security covered by the option from the Fund at
the stated exercise price. A Fund will receive a premium from writing call
options, which increases the Fund's return on the underlying security in the
event the option expires unexercised or is closed out at a profit. By writing a
call option, a Fund will limit its opportunity to profit from an increase in the
market value of the underlying security above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. A Fund
may also write (i.e., sell) covered put options. By 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).
There currently are limited options markets in many countries, particularly
emerging countries such as Latin American countries, and the nature of the
strategies adopted by the Adviser and the extent to which those strategies are
used will depend on the development of such option markets. The Value Fund and
the Mid Cap Growth Fund may also engage in over-the-counter options ("OTC
Options") transactions. OTC Options are purchased from or sold to securities
dealers, financial institutions or other parties ("Counterparties") through
direct bilateral agreement with the Counterparty.
The Equity Growth, Value and Mid Cap Growth Funds may invest in options to
the extent that their outstanding obligations to purchase securities under such
options in combination with their outstanding obligations with respect to
futures transactions do not exceed 50% of their total assets, and will maintain
assets sufficient to meet their obligations under such contracts in a segregated
account with the custodian or will otherwise comply with the SEC's position on
asset coverage. As a matter of operating policy, with respect to the Aggressive
Equity and U.S. Real Estate Funds: 1) 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; and 2) neither Fund may purchase put and call options to the
extent the value of its aggregate investment in such derivative securities
exceeds 5% of its total assets.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
Additional risks associate with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an over-the-
counter option will be unable to fulfill its obligation to a Fund due to the
bankruptcy or related circumstances; (iii) the risk that options may exhibit
greater short-term price volatility than the underlying security; and (iv) the
risk that a Fund may be forced to forego participation in the appreciation of
the value of underlying securities, futures contracts or currency due to the
writing of a call option.
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
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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. A Fund
always receives securities as collateral with a market value at least equal to
the purchase price, including accrued interest, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, a Fund might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Fund 's realization upon the
collateral may be delayed or limited. The aggregate of certain repurchase
agreements and certain other investments is limited as set forth under
"Investment Limitations."
REVERSE REPURCHASE AGREEMENTS
The Equity Growth, Mid Cap Growth and Value Funds may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a 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 a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A 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. A 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 a Fund's 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.
SHORT SALES
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
from time to time sell securities short without limitation, although they do not
intend 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 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 a Fund involve certain risks and
special considerations. Possible losses from short sales differ from losses
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<PAGE>
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.
SWAPS
The Mid Cap Growth and Value Funds may invest in swaps. Swaps are
derivatives in the form of a contract or other similar instrument which is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. The payment streams are calculated by reference
to a specified index and agreed upon notional amount. The term "specified index"
includes, but is not limited to, currencies, fixed interest rates, prices and
total return on interest rate indices, fixed income indices, stock indices and
commodity indices (as well as amounts derived from arithmetic operations on
these indices). The currency Swaps in which a Fund may enter will generally
involve an agreement to pay interest streams in one currency based on a
specified index in exchange for receiving interest streams denominated in
another currency. Such Swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
Funds will usually enter into Swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date, with the Funds
receiving or paying, as the case may be, only the net amount of the two returns.
A Fund's obligations under a Swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or other liquid assets. A Fund will not enter into
any Swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Company's Board of Directors.
Interest rate and total rate of return Swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return Swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return Swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency Swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency Swap is subject to the risk that the
other party to the Swap will default on its contractual delivery obligations.
The use of Swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique was not used.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies," above for further information about each Fund's policies.
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
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considered to be an advantageous yield or price at the time of the transaction.
The payment obligation and the interest rates that will be received are each
fixed at the time a Fund enters into the commitment, and no interest accrues to
the Fund until settlement. It is the current policy of the Aggressive Equity,
American Value and U.S. Real Estate 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 obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
INVESTMENT LIMITATIONS
Each Fund, except the Aggressive Equity and U.S. Real Estate Funds, is a
diversified investment company under the 1940 Act, and, therefore, with respect
to 75% of its assets, may not (a) invest more than 5% of its total assets in the
securities of any one issuer, except obligations of the U.S. Government, its
agencies and instrumentalities, or (b) own more than 10% of the outstanding
voting securities of any one issuer. 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 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. Each Fund also operates under
certain investment restrictions that are deemed fundamental policies and may be
changed only with the approval of the holders of a majority of the Fund's
outstanding shares. See "Investment Limitations" in the Statement of Additional
Information. In addition, each Fund operates under certain non-fundamental
investment limitations as described in the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISERS. Morgan Stanley Asset Management Inc. ("MSAM," or an
"Adviser") is the investment adviser and administrator of the Aggressive Equity,
American Value, Equity Growth and U.S. Real Estate
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Funds and Miller Anderson & Sherrerd, LLP ("MAS," or an "Adviser") is the
investment adviser and administrator of the Mid Cap Growth and Value Funds. The
Advisers provide investment advice and portfolio management services pursuant to
investment advisory agreements (the "Investment Advisory Agreements") and,
subject to the supervision of the Company's Board of Directors, make the Funds'
investment decisions, arrange for the execution of portfolio transactions and
generally manage the Funds' investments. The Advisers are entitled to receive an
aggregate advisory fee computed daily and paid monthly at the following annual
rates for each Fund:
<TABLE>
<S> <C>
Aggressive Equity Fund................................................ 0.90%
American Value Fund................................................... 0.85%
Equity Growth Fund.................................................... 0.70%
Mid Cap Growth Fund................................................... 0.75%
U.S. Real Estate Fund................................................. 1.00%
Value Fund............................................................ 0.70%
</TABLE>
Each 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 Funds to exceed the
maximums set forth in "Fund Expenses."
MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At September 30, 1996, the Adviser together with its affiliated asset
management companies (other than MAS) managed investments totaling approximately
$66.0 billion, including approximately $49.4 billion under active management and
$16.6 billion as Named Fiduciary or Fiduciary Adviser. MAS is a Pennsylvania
limited liability partnership founded in 1969 with principal offices at One
Tower Bridge, West Conshohocken, Pennsylvania 19428. MAS provides investment
services to employee benefit plans, endowment funds, foundations and other
institutional investors and has served as investment adviser to several open-end
investment companies since 1984. At September 30, 1996, MAS managed investments
totaling approximately $37.5 billion. See "Management of the Company Investment
Advisory and Administrative Agreements" in the Statement of Additional
Information.
On October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Funds noted below:
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. Prior to joining the
Adviser in July 1993, he spent over three years in Morgan Stanley & Co.
Incorporated's ("Morgan Stanley") 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.
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<PAGE>
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. He assumed responsibility for the MAS Funds Small Cap Value
Portfolio in 1993 and the MAS Funds Mid Cap Value Portfolio in 1994. 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. He assumed
responsibility for the MAS Funds Small Cap Value and Mid Cap Value Portfolios in
1996. Previously, he was with Alphametrics Corporation and Wharton Econometric
Forecasting Associates. Mr. Gerlach received a B.A. in Economics from Haverford
College.
EQUITY GROWTH FUND -- KURT A. FEUERMAN AND MARGARET K. JOHNSON. For a
description of Mr. Feuerman's experience, see "Aggressive Equity Fund" above.
Margaret Johnson is a Principal of the Adviser and a Portfolio Manager in the
Institutional Equity Group. She joined the Adviser in 1984 and worked as an
Analyst in the Marketing and Fiduciary Advisor areas. Ms. Johnson became an
Equity Analyst in 1986 and a Portfolio Manager in 1989. Prior to joining Morgan
Stanley, she worked for the New York City PBS affiliate, WNET, Channel 13. She
holds a B.A. degree from Yale College and is a Chartered Financial Analyst. Mr.
Feuerman and Ms. Johnson have had primary responsibility for managing the Fund's
assets since its inception.
MID CAP GROWTH FUND -- ARDEN C. ARMSTRONG AND ABHI Y. KANITKAR. Arden
Armstrong, a Managing Director of Morgan Stanley, joined MAS in 1986. She
assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1990, the
MAS Funds Growth Portfolio in 1993 and the MAS Funds Equity Portfolio in 1994.
Prior to joining MAS, Ms. Armstrong was a research analyst for American
Management Systems and for Evans Economics. Ms. Armstrong holds a B.A. (Magna
Cum Laude) in Economics from Brown University, an M.B.A. from the University of
Pennsylvania -- Wharton School and is a Chartered Financial Analyst. Abhi
Kanitkar, a Vice President of Morgan Stanley, joined MAS in 1994. He served as
an Investment Analyst from 1993 through 1994 for Newbold's Asset Management and
as Director & Investment Analyst from 1990 through 1993 for Kanitkar Investment
Services, Inc. He assumed responsibility for the MAS Funds Mid Cap Growth
Portfolio in 1996. Mr. Kanitkar holds a B.S. (Magna Cum Laude, Tau Beta Pi) in
Electrical Engineering from the University of Michigan and an M.B.A. from the
University of Pennsylvania -- Wharton School. Ms. Armstrong and Mr. Kanitkar
have shared primary responsibility for managing the Fund's assets since its
inception.
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 Managing
Director 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.
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. 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
29
<PAGE>
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. Bigman joined the
Adviser and Morgan Stanley in 1995 and currently is a Principal of the Firm.
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 with a B.A. in Economics and received his M.B.A. from
Harvard University.
VALUE FUND -- ROBERT J. MARCIN AND RICHARD M. BEHLER. Robert J. Marcin, a
Managing Director of Morgan Stanley, joined MAS in 1988. He assumed
responsibility for the MAS Funds Value Portfolio in 1990 and the MAS Funds
Equity Portfolio in 1994. Prior to joining MAS, Mr. Marcin was an Account
Executive at Smith Barney Harris Upham and Company, Inc. Mr. Marcin holds a B.A.
(Cum Laude) from Dartmouth College and is a Chartered Financial Analyst. Richard
M. Behler, a Principal of Morgan Stanley, joined Miller Anderson & Sherrerd, LLP
("MAS"), in 1995. He served as a Portfolio Manager from 1992 through 1995 for
Moore Capital Management and as Senior Vice President for Merrill Lynch
Economics from 1987 through 1992. He assumed responsibility for the MAS Funds
Value Portfolio in 1996. Mr. Behler holds a B.A. (Cum Laude) in Economics from
Villanova University and an M.A. and Ph.D. in Economics from the University of
Notre Dame. Mr. Behler and Mr. Marcin have shared primary responsibility for
managing the Fund's assets since its inception.
ADMINISTRATORS. MSAM and MAS (the "Administrators") also provide the
Company with administrative services pursuant to separate administration
agreements (the "Administration Agreements"). The services provided under the
Administration Agreements are subject to the supervision of the officers and
Board of Directors of the Company and include day-to-day administration of
matters related to the corporate existence of the Company, maintenance of its
records, preparation of reports, supervision of the Company's arrangements with
its custodian and assistance in the preparation of the Company's registration
statements under federal and state laws. The Administration Agreements also
provide that the Administrators through their agents will provide the Company
dividend disbursing and transfer agent services. For their services under the
Administration Agreements, the Company pays the Administrators a monthly fee
which on an annual basis equals 0.25% of the average daily net assets of the
applicable Funds.
Under sub-administration agreements between the Administrators and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrators supervise and monitor such administrative services
provided by CGFSC. The services provided under the sub-administration agreements
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreements as being in the
best 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.
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<PAGE>
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 Advisers, Administrators and the Company's
distributor. The Officers of the Company conduct and supervise its daily
business operations.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from these
Funds a distribution fee, which is accrued daily and paid quarterly, at a
maximum rate of 0.75% of the Class B shares and Class C shares of each Fund, on
an annualized basis of the average daily net assets of such classes. The actual
amount of such compensation is agreed upon by the Company's Board of Directors
and by the Distributor. With respect to Class B shares, the Distributor expects
to utilize substantially all of its fee to reimburse itself for commissions paid
to investment dealers, banks or financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealer").
With respect to Class C shares, the Distributor expects to reallocate
substantially all of its fee to such 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. Class A shares, Class B
shares and Class C shares are subject to a service fee at an annual rate of
0.25% on an annualized basis of the average daily net assets of such class of
shares of a Fund. In addition to such payments, the Advisers may use their
advisory fees or other resources to pay expenses associated with activities
which might be construed to be financing the sale of these Funds' shares
including payments to third parties that provide assistance in the distribution
effort (in addition to selling shares and providing shareholder services).
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
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<PAGE>
outstanding voting securities of the applicable class of a Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Advisers or their affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Advisers or their
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Advisers may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Funds are responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
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<PAGE>
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the net
asset value calculated after the next day's close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of Participating Dealers to transmit orders received by them
to the Distributor so they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, it is presently the policy of the Distributor not to accept any order
of $500,000 or more for Class B Shares or any order of $1 million or more for
Class C shares as it ordinarily would be more beneficial for such an investor to
purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a contigent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can
33
<PAGE>
be no assurance as to the return, if any, which will be realized on such
additional funds. For investments held for ten years or more, the relative value
upon liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contigent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
34
<PAGE>
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
DEALERS
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00 % on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933, as amended.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in
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<PAGE>
combination, by any of the foregoing; a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account, or a "company" as defined
in Section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc., except for the Money Market Funds.
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receive
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
36
<PAGE>
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees/Directors of funds advised by an Adviser
and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of MSGI or
VK/AC Holding, Inc. and any of their subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an affiliate of
such subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds as
described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to 0.50%
of the amount invested, over a 12-month period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans of organizations with retirement plan assets of $3 million or more and
which invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.
(6) Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has a
separate agreement with the Distributor.
(7) Investors purchasing shares of a Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
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<PAGE>
(8) Trusts created under pension, profit sharing or other employee
benefit plans qualified under Section 401(a) of the Code, or custodial
accounts held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of the
Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased by
an employer sponsored plan with more than 100 eligible employees. Such plans
that have been established with a Participating Fund or have received
proposals from the Distributor prior to February 1, 1997 based on net asset
value purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value for accounts
established on or before May 1, 1997. Section 403(b) and similar accounts
for which Van Kampen American Capital Trust Company serves as custodian will
not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except
under certain uniform criteria established by the Distributor from time to
time. A commission will be paid to dealers who initiate and are responsible
for such purchases within a rolling twelve month period as follows: 1.00% on
sales up to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the
excess over $10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales up to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million, plus 0.25%
on the excess over $50 million.
(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of a Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of a Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent in the event
of redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order with respect to such shares. Authorized dealers will be
paid a service fee as described herein under "Distribution Plans" on purchases
made as described in (3) through (9) above.
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The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
The Distributor provides retirement plan services and documents and can
establish investor accounts in IRAs trusteed by Van Kampen American Capital
Trust Company ("VK Trust"). This includes Simplified Employee Pension ("SEP")
Plan, IRA accounts and prototype documents. Brochures describing such plans and
materials for establishing them are available from VK Trust upon request. The
brochures for plans trusteed by VK Trust describe the current fees payable to VK
Trust for its services as trustee. Investors should consult with their own tax
advisers before establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five 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 five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------ ----------------
<S> <C>
First......................... 5.00%
Second........................ 4.00%
Third......................... 3.00%
Fourth........................ 2.50%
Fifth......................... 1.50%
Thereafter.................... None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to
39
<PAGE>
pay to Participating Dealers a portion of its distribution fee under the Plan as
described under "Management of the Company -- Distributor" above. Additionally,
the Distributor may pay additional promotional incentives in the form of cash or
other compensation to authorized dealers that sell Class B shares of the Funds.
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.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) to the extent that the
redemption represents a minimum required distribution from an IRA or other
retirement plan to a shareholder who has attained the age of 70 1/2; (iii) to
the extent that shares redeemed have been withdrawn from a Systematic Withdrawal
Plan, up to a maximum amount of 12% per year from a shareholder account based on
the value of the account at the time the Withdrawal Plan is established; or (iv)
effected pursuant to the right of the Company to liquidate a shareholder's
account as described herein under "Redemption of 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 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 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.
40
<PAGE>
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of a Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. The reinstatement privilege as to any specific Class
A, Class B or Class C shares must be exercised within 180 days of the
redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the redemption proceeds. The written
request must state that the reinvestment is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinvestment may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plan. See the Statement of Additional Information
for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCESS. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of Van Kampen American
Capital, Inc. performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from ACCESS showing any reinvestments of dividends
and capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee
41
<PAGE>
for replacing the lost certificate equal to no more than 2.00% of the net asset
value of the issued shares and bill the party to whom the replacement
certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distribution paid on a class of
shares of the Company invested in shares of the same class of any other Fund, so
long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. Shareholders may only exchange into such other Participating Funds as are
legally available for sale in their state.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days
42
<PAGE>
any only be exchanged upon receipt of prior approval of the Adviser. Under
normal circumstances, it is the policy of the Adviser not to approve such
requests.
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
282-4404 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital, Inc. and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company employ procedures considered by them to
be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, a shareholder
agrees that neither the Distributor nor the Company will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the Participating Fund whose
shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly, quarterly, semi-annual or annual withdrawal
plan. This plan provides for the orderly use of the entire account, not only the
income but also the principal, if necessary. Each withdrawal constitutes a
redemption of shares on which taxable gain or loss will be recognized. The plan
holder may arrange for monthly, quarterly, semi-annual, or annual checks in any
amount not less than $25.
43
<PAGE>
The CDSC on Class B shares and Class C 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. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS or by
calling 1-800-282-4404. A shareholder's bank may charge a fee for this transfer.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Fund c/o ACCESS, P.O. Box 418256, Kansas
City, Missouri 64141-9256, by placing the redemption request through
Participating Dealer or by calling the Company. See "Purchase of Shares" for a
discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-
44
<PAGE>
dealer, a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power an d sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next determined after the
request is received by ACCESS in proper form. Payment for shares redeemed (less
any sales charge, if applicable) will ordinarily be made by check mailed within
seven business days after acceptance by ACCESS of the request and any other
necessary documents in proper order. Such payments may be postponed or the right
of redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received (less any applicable CDSC) by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time. Any change in the redemption price due to failure of the
Distributor to receive a sell order prior to such time must be settled between
the shareholder and dealer. Shareholders must submit a written redemption
request in proper form (as described above under "Written Redemption Requests")
to the dealer within three business days after calling the dealer with the sell
order. Payment for shares redeemed will ordinarily be made by check mailed
within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 282-4404
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason, in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all
45
<PAGE>
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check or wiring redemption proceeds until it confirms that the
purchase check has cleared, usually a period of up to 15 days. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in or
to be of long-continued and indefinite duration." While the Company does not
specifically adopt the balance of the Code's definition which pertains to
furnishing the Secretary of Treasury with such proof as he or she may require,
the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition, a CDSC of 1.00% may be imposed on certain redemptions of Class A
shares made within one year of purchase for investments of $1 million or more
and for certain qualified 401(k) retirement plans. The CDSC incurred upon
redemption is paid to the Distributor in
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<PAGE>
reimbursement for distribution-related expenses. A custodian of a retirement
plan account may charge fees based on the custodian's fee schedule.
IRA redemption requests should be sent to the IRA custodian to be forwarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
custodian, special IRA, 403(b)(7), or Keogh redemption forms must be obtained
from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box
944, Houston, Texas 77001-0944. Contact the custodian for information.
Reinstatement of net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.
FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the
Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256. As in the
case of redemptions, the written request must be received in "good order" before
any transfer can be made. Shares held in broker street name may be transferred
only by contacting your Participating Dealer.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such classes of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income 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"
47
<PAGE>
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
substantially similar, the different expenses borne by each class will result in
different net asset values and dividends. Dividends will differ by approximately
the amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
Each Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the applicable Fund. Each Adviser may,
consistent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the applicable Fund to their clients or who act as agents in the
purchase of shares of the Fund for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisers may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley") and
affiliates of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
the commissions, fees or other remuneration received by Morgan Stanley or such
affiliates must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objectives of each Fund described herein is not to invest for
short-term trading, each Fund will seek to take advantage of trading
opportunities as they arise to the extent they are consistent with the Fund's
objectives. Accordingly, investment securities may be sold from time to time
without regard to the length of time they have been held. Each Fund anticipates
that its annual portfolio turnover rate will not exceed 100% under normal
circumstances but market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. High portfolio turnover involves
correspondingly greater transaction costs which will be borne directly by a
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund. See "Financial
Highlights" above for the Fund's historical portfolio turnover rates.
48
<PAGE>
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds
described herein. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in a Fund would have earned over a specified period of time (such as
one, three, five or ten years) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period. Total
return does not take into account any federal or state income taxes consequences
to shareholders subject to tax. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and Morgan Stanley Capital International.
The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.
PERFORMANCE OF INVESTMENT ADVISERS
MSAM manages portfolios of Morgan Stanley Institutional Fund, Inc. ("MSIF")
which served as models for the Aggressive Equity and Equity Growth Funds.
Similarly, the Value and Mid Cap Growth Funds were modeled after portfolios of
MAS Funds, which are currently managed by MAS. Each portfolio of MSIF (the "MSIF
Portfolios") and MAS Funds (the "MAS Portfolios") has substantially the same
investment objective and policies as its corresponding Fund. In addition, the
Adviser intends each of the Funds to be managed by the same personnel and to
continue to have closely similar investment strategies, techniques and
characteristics as the corresponding MSIF or MAS Portfolio. Past investment
performance of the MSIF Portfolios and the MAS Portfolios, as shown in the
tables below, may be relevant to your consideration of investment in a Fund. The
investment performance of the MSIF Portfolios or the MAS Portfolios is not
necessarily indicative of future performance of the Funds. Also, the operating
expenses of the Funds will be different from, and may be higher than, the
operating expenses of the corresponding MSIF or MAS Portfolio. The investment
performance of the MSIF Portfolios and MAS Portfolios are provided merely to
indicate the experience of the respective Advisers in managing similar
investment portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 5.75%
sales charge applicable to purchases of Class A shares of the Funds, (ii) with
respect to Class B shares, to take into account the applicable CDSC that is
imposed if Class B shares of the Funds are redeemed within the year of their
purchase indicated and (iii) with respect to the Class C shares, to take into
account a 1.00% CDSC that is imposed if Class C shares of the Funds are redeemed
within one year of their purchase. The data set forth below under the heading
"Return Without Sales Charge" is not adjusted to take into account such sales
charges.
49
<PAGE>
TOTAL RETURN FOR THE MSIF EQUITY GROWTH PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM THE EQUITY GROWTH FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------ --------- ----------- -----------------
<S> <C> <C> <C>
Class A (of 5.75%).......................................... 22.10% 11.32% 10.50%
Class B (of 5.00%).......................................... 22.85% 15.57% 16.25%
Class C (of 1.00%).......................................... 26.85% 17.07% 14.75%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------
<S> <C> <C> <C>
Class A..................................................... 27.85% 17.07% 16.25%
Class B..................................................... 27.85% 17.07% 16.25%
Class C..................................................... 27.85% 17.07% 16.25%
</TABLE>
- --------------
(1) Commenced Operations on April 2, 1991.
The past performance of the MSIF Equity Growth Portfolio is no guarantee of
the future performance of the Equity Growth Fund.
TOTAL RETURN FOR THE MAS FUNDS VALUE PORTFOLIO'S INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE VALUE FUND)
FOR THE PERIOD ENDED NOVEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -------------------------------------------------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Class A (of 5.75%)................................ 21.31% 20.12% 14.90% 17.12%
Class B (of 5.00%)................................ 23.71% 21.41% 15.58% 17.70%
Class C (of 1.00%)................................ 27.71% 21.55% 15.58% 17.70%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................... 28.71% 21.55% 15.58% 17.70%
Class B........................................... 28.71% 21.55% 15.58% 17.70%
Class C........................................... 28.71% 21.55% 15.58% 17.70%
</TABLE>
- --------------
(1) Commenced Operations on November 5, 1984.
The past performance of the MAS Funds Value Portfolio is no guarantee of the
future performance of the Value Fund.
50
<PAGE>
TOTAL RETURN FOR THE MAS FUNDS MID CAP GROWTH PORTFOLIO'S INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE MID CAP FUND)
FOR THE PERIOD ENDED NOVEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(1)
- ------------------------------------------------ --------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Class A (of 5.75%).............................. 15.71% 15.47% N/A 18.75%
Class B (of 5.00%).............................. 17.77% 16.69% N/A 19.81%
Class C (of 1.00%).............................. 21.77% 16.85% N/A 19.81%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------
<S> <C> <C> <C> <C>
Class A......................................... 22.77% 16.84% N/A 19.80%
Class B......................................... 22.77% 16.84% N/A 19.80%
Class C......................................... 22.77% 16.84% N/A 19.80%
</TABLE>
- --------------
(1) Commenced Operations on March 30, 1990.
The past performance of the MAS Funds Mid Cap Growth Portfolio is no
guarantee of the future performance of the Mid Cap Growth Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of 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
51
<PAGE>
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.
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 Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available capital loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is
52
<PAGE>
less than the shareholder's adjusted basis in the redeemed, exchanged or sold
shares. If capital gain distributions have been made with respect to shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Shareholders may also be subject to state and local taxes on
distributions from the Funds.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of 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 December 11, 1996, Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, 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.
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
53
<PAGE>
for foreign assets held outside the United States and employs subcustodians who
were approved by the Directors of the Company in accordance with regulations of
the SEC for the purpose of providing custodial services for such assets. Morgan
Stanley Trust may also hold certain domestic assets for the Company. Morgan
Stanley Trust is an affiliate of the Adviser and the Distributor. For more
information on the custodians, see "General Information -- Custody Arrangements"
in the Statement of Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
54
<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.
AGGRESSIVE EQUITY, AMERICAN VALUE, EQUITY GROWTH, MID CAP GROWTH, U.S.
REAL ESTATE AND VALUE FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 ACCESS Investor Services, Inc. ("ACCESS") 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 $500 and $25, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Aggressive Equity Fund Class A (474) $ Class B (574) $ Class C (674) $
---------- ---------- ----------
Morgan Stanley American Value Fund Class A (453) $ Class B (553) $ Class C (653) $
---------- ---------- ----------
Morgan Stanley Equity Growth Fund Class A (468) $ Class B (568) $ Class C (668) $
---------- ---------- ----------
Morgan Stanley Mid Cap Growth Fund Class A (469) $ Class B (569) $ Class C (669) $
---------- ---------- ----------
Morgan Stanley U.S. Real Estate Fund Class A (457) $ Class B (557) $ Class C (657) $
---------- ---------- ----------
Morgan Stanley Value Fund Class A (467) $ Class B (567) $ Class C (667) $
---------- ---------- ----------
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 ------------------------------- -------------------------------
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
ACCESS 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.
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:
/ / $50,000 / / $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 ACCESS 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 ($25 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 Street Address ---------------------------------------------------
redemption proceeds to be paid to City, State, Zip Code ---------------------------------------------
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 year may be withdrawn from Class B accounts
without being subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize ACCESS 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. (Not available on the
31st, 1st or 2nd day of month)
Start
- ----------------------------------------------
(month, day, year)
Amount of each debit (minimum $25) 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 Access Investor Services, Inc., 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> <C> <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 (PLEASE CHECK APPLICABLE BOXES BELOW):
/ / 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
ACCESS 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 ACCESS 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 ACCESS 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
Prospectus Summary.................................................... 9
Investment Objectives and Policies.................................... 13
Additional Investment Information..................................... 19
Investment Limitations................................................ 27
Management of the Company............................................. 27
Purchase of Shares.................................................... 32
Shareholder Services.................................................. 41
Redemption of Shares.................................................. 44
Valuation of Shares................................................... 47
Portfolio Transactions................................................ 48
Performance Information............................................... 49
Dividends and Distributions........................................... 51
Taxes................................................................. 52
General Information................................................... 53
</TABLE>
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
MORGAN STANLEY
AMERICAN VALUE FUND
MORGAN STANLEY
EQUITY GROWTH FUND
MORGAN STANLEY
MID CAP GROWTH FUND
MORGAN STANLEY
U.S. REAL ESTATE FUND
MORGAN STANLEY
VALUE FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISERS
MORGAN STANLEY
ASSET MANAGEMENT INC.
AND
MILLER ANDERSON & SHERRERD, LLP
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 41826, KANSAS CITY, MISSOURI 64141
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 twenty-two diversified and
non-diversified investment portfolios (each a "Fund" and together, the "Funds").
This prospectus (the "Prospectus") describes the Class A, Class B and Class C
shares of the seven 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") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
through investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY INTERNATIONAL JAPANESE
GROWTH MARKETS EQUITY ALLOCATION MAGNUM EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(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)
Class A
For Purchases up to $999,999........... None None None None None None
For Purchases of $1,000,000 or more.... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B.................................. 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C.................................. 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
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
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
<CAPTION>
LATIN
AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND
- --------------------------------------------- ----------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 5.75%(1)
Class B.................................. None
Class C.................................. None
Maximum Deferred Sales Load (as a Percentage
of the lesser of initial purchase price or
current market value)
Class A
For Purchases up to $999,999........... None
For Purchases of $1,000,000 or more.... 1.00%(2)
Class B.................................. 5.00%(3)
Class C.................................. 1.00%(4)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None
Class B.................................. None
Class C.................................. None
Redemption Fees
Class A.................................. None
Class B.................................. None
Class C.................................. None
Exchange Fees
Class A.................................. None
Class B.................................. None
Class C.................................. None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load.
(2) 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."
(3) 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 five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.
(4) 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.
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY INTERNATIONAL JAPANESE
ANNUAL FUND OPERATING EXPENSES GROWTH MARKETS EQUITY ALLOCATION MAGNUM EQUITY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND FUND FUND FUND FUND FUND
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.00% 0.84% 1.00% 0.64% 0.80% 0.80%
Class B.................................. 1.00% 0.84% 1.00% 0.64% 0.80% 0.80%
Class C.................................. 1.00% 0.84% 1.00% 0.64% 0.80% 0.80%
12b-1/Service Fees
Class A (6).............................. 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.................................. 0.63% 1.06% 0.55% 0.81% 0.60% 0.65%
Class B.................................. 0.63% 1.06% 0.55% 0.81% 0.60% 0.65%
Class C.................................. 0.63% 1.06% 0.55% 0.81% 0.60% 0.65%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.88% 2.15% 1.80% 1.70% 1.65% 1.70%
Class B.................................. 2.63% 2.90% 2.55% 2.45% 2.40% 2.45%
Class C.................................. 2.63% 2.90% 2.55% 2.45% 2.40% 2.45%
<CAPTION>
LATIN
ANNUAL FUND OPERATING EXPENSES AMERICAN
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
----------
<S> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 0.07%
Class B.................................. 0.07%
Class C.................................. 0.07%
12b-1/Service Fees
Class A (6).............................. 0.25%
Class B (6).............................. 1.00%
Class C (6).............................. 1.00%
Other Expenses (after expense reimbursement
and/or fee waiver) (5)
Class A.................................. 1.78%
Class B.................................. 1.78%
Class C.................................. 1.78%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 2.10%
Class B.................................. 2.85%
Class C.................................. 2.85%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds, 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 Fund investment advisory fees and expected
total operating expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OPERATING EXPENSES
----------------- -------------------------------------
(ALL CLASSES) CLASS A CLASS B CLASS C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Asian Growth Fund.................. 1.00% 1.88% 2.61% 2.63%
Emerging Markets Fund.............. 1.25% 2.56% 3.31% 3.34%
Global Equity Fund................. 1.00% 1.80% 2.55% 2.55%
Global Equity Allocation Fund...... 1.00% 2.06% 2.81% 2.81%
International Magnum Fund.......... 1.00% 1.90% 2.65% 2.65%
Japanese Equity Fund............... 1.00% 1.90% 2.65% 2.65%
Latin American Fund................ 1.25% 3.28% 3.89% 4.06%
</TABLE>
The Adviser reserves the right to terminate any of its fee waivers and/or
reimbursements at any time in its sole discretion. For further information on
Company expenses, see "Management of the Company."
(6) Of the 12b-1/Service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly. The expenses and fees for the Asian Growth, Emerging Markets, Global
Equity Allocation and Latin American Funds are based on actual figures for the
period ended June 30, 1996. The expenses and fees for the Global Equity,
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 the Funds' 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 5.75% 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
ASIAN EMERGING GLOBAL EQUITY INTERNATIONAL JAPANESE
GROWTH MARKETS EQUITY ALLOCATION MAGNUM EQUITY
SHAREHOLDER TRANSACTION EXPENSES 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................................... $ 75(1) $ 78(1) $ 75(1) $ 74(1) $ 73(1) $ 74(1)
3 Years.................................. 113 121 111 108 107 108
5 Years.................................. 153 166 * 144 * *
10 Years................................. 265 291 * 247 * *
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................... 77 79 76 75 74 75
3 Years.................................. 112 120 109 106 105 106
5 Years.................................. 155 168 * 146 * *
10 Years (2)............................. 279 306 * 261 * *
(Assuming no redemption)
1 Year................................... 27 29 26 25 24 25
3 Years.................................. 82 90 79 76 75 76
5 Years.................................. 140 153 * 131 * *
10 Years (2)............................. 279 306 * 261 * *
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................... 37 39 36 35 34 35
3 Years.................................. 82 90 78 76 75 76
5 Years.................................. 140 153 * 131 * *
10 Years................................. 296 322 * 279 * *
Class C shares
(Assuming no redemption)
1 Year................................... 27 29 26 25 24 25
3 Years.................................. 82 90 79 76 75 76
5 Years.................................. 140 153 * 131 * *
10 Years................................. 296 322 * 279 * *
<CAPTION>
LATIN
AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND
- --------------------------------------------- ----------
<S> <C>
Class A shares
(If it is assumed there are no redemptions,
the expenses are the same)
1 Year................................... $ 78(1)
3 Years.................................. 120
5 Years.................................. 164
10 Years................................. 287
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................... 79
3 Years.................................. 118
5 Years.................................. 165
10 Years (2)............................. 301
(Assuming no redemption)
1 Year................................... 29
3 Years.................................. 88
5 Years.................................. 150
10 Years (2)............................. 301
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................... 39
3 Years.................................. 88
5 Years.................................. 150
10 Years................................. 318
Class C shares
(Assuming no redemption)
1 Year................................... 29
3 Years.................................. 88
5 Years.................................. 150
10 Years................................. 318
</TABLE>
- ------------------
* Because the Global Equity, International Magnum and Japanese Equity Funds
were either not operational or had recently become operational as of the date
of this Prospectus, the Funds have 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 eight 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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Asian Growth, Emerging Markets, Global Equity
Allocation 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 highlights for the Class A, Class B and Class C
Shares of the International Magnum Fund are unaudited. 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 following
information should be read in conjunction with the financial statements and
notes thereto. Financial highlights are not presented for the Global Equity and
Japanese Equity Funds because they had not commenced operations as of June 30,
1996.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND
RATIOS
<S>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.......................
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss.........
Net Realized and Unrealized
Gain (Loss)...............
Total From Investment
Operations................
DISTRIBUTIONS
Net Realized Gain...........
In Excess of Net Realized
Gain......................
Total Distributions.........
NET ASSET VALUE, END OF
PERIOD.......................
TOTAL RETURN (1)..............
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s).......................
Ratio of Expenses to Average
Net Assets (2)...............
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2)..........................
Portfolio Turnover Rate.......
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss...........
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................
Net Investment Income (Loss)
to Average Net Assets.....
- ------------------------------
<CAPTION>
CLASS A
RATIOS 1993
<S> <C>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... --
Net Realized and Unrealized
Gain (Loss)............... --
-------
Total From Investment
Operations................ --
-------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
-------
Total Distributions......... --
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.00
-------
-------
TOTAL RETURN (1).............. 0.00%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 11,770
Ratio of Expenses to Average
Net Assets (2)............... 1.90%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.81)%**
Portfolio Turnover Rate....... 0%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 11.83%**
Net Investment Income (Loss)
to Average Net Assets..... (10.74)%**
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1994
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.03)
Net Realized and Unrealized
Gain (Loss)............... 3.53
---------------
Total From Investment
Operations................ 3.50
---------------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
---------------
Total Distributions......... --
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 15.50
---------------
---------------
TOTAL RETURN (1).............. 29.17%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 138,212
Ratio of Expenses to Average
Net Assets (2)............... 1.90%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.24 )%
Portfolio Turnover Rate....... 34%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.17%
Net Investment Income (Loss)
to Average Net Assets..... (0.51 )%
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1995
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 15.50
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... --
Net Realized and Unrealized
Gain (Loss)............... 1.43
---------------
Total From Investment
Operations................ 1.43
---------------
DISTRIBUTIONS
Net Realized Gain........... (0.49)
In Excess of Net Realized
Gain...................... (0.02)
---------------
Total Distributions......... (0.51)
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 16.42
---------------
---------------
TOTAL RETURN (1).............. 9.50%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 178,667
Ratio of Expenses to Average
Net Assets (2)............... 1.90%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... 0.04%
Portfolio Turnover Rate....... 34%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 1.90%
Net Investment Income (Loss)
to Average Net Assets..... 0.04%
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 16.42
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.04)
Net Realized and Unrealized
Gain (Loss)............... 0.77
---------------
Total From Investment
Operations................ 0.73
---------------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
---------------
Total Distributions......... --
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 17.15
---------------
---------------
TOTAL RETURN (1).............. 4.45%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 248,009
Ratio of Expenses to Average
Net Assets (2)............... 1.88%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.16)%
Portfolio Turnover Rate....... 38%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 1.88%
Net Investment Income (Loss)
to Average Net Assets..... (0.16)%
- ------------------------------
<CAPTION>
CLASS B+
---------------
AUGUST 1, 1995
SELECTED PER SHARE DATA AND TO JUNE 30,
RATIOS 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 16.51
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.03)
Net Realized and Unrealized
Gain (Loss)............... 0.33
---------------
Total From Investment
Operations................ 0.30
---------------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
---------------
Total Distributions......... --
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 16.81
---------------
---------------
TOTAL RETURN (1).............. 1.82%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 52,853
Ratio of Expenses to Average
Net Assets (2)............... 2.61%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.52 )% **
Portfolio Turnover Rate....... 38%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.61%**
Net Investment Income (Loss)
to Average Net Assets..... (0.52 )% **
- ------------------------------
<CAPTION>
CLASS C
---------------
JUNE 23, 1993*
SELECTED PER SHARE DATA AND TO JUNE 30,
RATIOS 1993
- ------------------------------ ---------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... --
Net Realized and Unrealized
Gain (Loss)............... --
------
Total From Investment
Operations................ --
------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
------
Total Distributions......... --
------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.00
------
------
TOTAL RETURN (1).............. 0.00%
------
------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 8,491
Ratio of Expenses to Average
Net Assets (2)............... 2.65%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (1.56) %* *
Portfolio Turnover Rate....... 0%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 12.64%**
Net Investment Income (Loss)
to Average Net Assets..... (11.55) %* *
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1994
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.10)
Net Realized and Unrealized
Gain (Loss)............... 3.50
---------------
Total From Investment
Operations................ 3.40
---------------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
---------------
Total Distributions......... --
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 15.40
---------------
---------------
TOTAL RETURN (1).............. 28.33%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 116,889
Ratio of Expenses to Average
Net Assets (2)............... 2.65%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.99)%
Portfolio Turnover Rate....... 34%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.92%
Net Investment Income (Loss)
to Average Net Assets..... (1.26)%
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1995
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 15.40
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.12)
Net Realized and Unrealized
Gain (Loss)............... 1.42
---------------
Total From Investment
Operations................ 1.30
---------------
DISTRIBUTIONS
Net Realized Gain........... (0.49)
In Excess of Net Realized
Gain...................... (0.02)
---------------
Total Distributions......... (0.51)
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 16.19
---------------
---------------
TOTAL RETURN (1).............. 8.71%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 139,497
Ratio of Expenses to Average
Net Assets (2)............... 2.63%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.77 )%
Portfolio Turnover Rate....... 34%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.65%
Net Investment Income (Loss)
to Average Net Assets..... (0.77 )%
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 16.19
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss......... (0.13)
Net Realized and Unrealized
Gain (Loss)............... 0.72
---------------
Total From Investment
Operations................ 0.59
---------------
DISTRIBUTIONS
Net Realized Gain........... --
In Excess of Net Realized
Gain...................... --
---------------
Total Distributions......... --
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 16.78
---------------
---------------
TOTAL RETURN (1).............. 3.64%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 168,070
Ratio of Expenses to Average
Net Assets (2)............... 2.63%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.94)%
Portfolio Turnover Rate....... 38%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss........... --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.63%
Net Investment Income (Loss)
to Average Net Assets..... (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.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND
RATIOS
<S>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD.......................
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss)....................
Net Realized and Unrealized
Loss......................
Total From Investment
Operations................
DISTRIBUTIONS
Net Investment Income.......
In Excess of Net Realized
Gain......................
Total Distributions.........
NET ASSET VALUE, END OF
PERIOD.......................
TOTAL RETURN (1)..............
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s).......................
Ratio of Expenses to Average
Net Assets (2)...............
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2)..........................
Portfolio Turnover Rate.......
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss)....................
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................
Net Investment Income (Loss)
to Average Net Assets.....
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense..................
- ------------------------------
<CAPTION>
CLASS A
RATIOS 1995
<S> <C>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss).................... 0.05
Net Realized and Unrealized
Loss...................... (1.44 )
-------
Total From Investment
Operations................ (1.39 )
-------
DISTRIBUTIONS
Net Investment Income....... --
In Excess of Net Realized
Gain...................... --
-------
Total Distributions......... --
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 10.61
-------
-------
TOTAL RETURN (1).............. (11.58 )%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 26,091
Ratio of Expenses to Average
Net Assets (2)............... 2.33%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... 0.81%**
Portfolio Turnover Rate....... 32%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss).................... $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 3.10%**
Net Investment Income (Loss)
to Average Net Assets..... 0.04%**
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense.................. 2.15%**
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.61
---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss).................... 0.05
Net Realized and Unrealized
Loss...................... 1.44
---------------
Total From Investment
Operations................ 1.49
---------------
DISTRIBUTIONS
Net Investment Income....... (0.04)
In Excess of Net Realized
Gain...................... --#
---------------
Total Distributions......... (0.04)
---------------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.06
---------------
---------------
TOTAL RETURN (1).............. 14.16%
---------------
---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 114,850
Ratio of Expenses to Average
Net Assets (2)............... 2.16%
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... 0.93%
Portfolio Turnover Rate....... 42%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss).................... $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 2.56%
Net Investment Income (Loss)
to Average Net Assets..... 0.53%
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense.................. 2.15%
- ------------------------------
<CAPTION>
CLASS B+
---------------
AUGUST 1, 1995
SELECTED PER SHARE DATA AND TO JUNE 30,
RATIOS 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.91
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss).................... 0.01
Net Realized and Unrealized
Loss...................... 1.02
-------
Total From Investment
Operations................ 1.03
-------
DISTRIBUTIONS
Net Investment Income....... --
In Excess of Net Realized
Gain...................... -- #
-------
Total Distributions......... --
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 11.94
-------
-------
TOTAL RETURN (1).............. 9.45%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 10,416
Ratio of Expenses to Average
Net Assets (2)............... 2.91%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... 0.30%**
Portfolio Turnover Rate....... 42%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss).................... $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 3.31%**
Net Investment Income (Loss)
to Average Net Assets..... (0.10 )%**
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense.................. 2.90%**
- ------------------------------
<CAPTION>
CLASS C
---------------
JULY 6, 1994*
SELECTED PER SHARE DATA AND TO JUNE 30,
RATIOS 1995
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss).................... --
Net Realized and Unrealized
Loss...................... (1.47 )
-------
Total From Investment
Operations................ (1.47 )
-------
DISTRIBUTIONS
Net Investment Income....... --
In Excess of Net Realized
Gain...................... --
-------
Total Distributions......... --
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 10.53
-------
-------
TOTAL RETURN (1).............. (12.25 )%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 22,245
Ratio of Expenses to Average
Net Assets (2)............... 3.08%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... 0.06%**
Portfolio Turnover Rate....... 32%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss).................... $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 3.90%**
Net Investment Income (Loss)
to Average Net Assets..... (0.76 )%**
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense.................. 2.90%**
- ------------------------------
<CAPTION>
SELECTED PER SHARE DATA AND YEAR ENDED
RATIOS JUNE 30, 1996
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 10.53
-------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss).................... (0.01 )
Net Realized and Unrealized
Loss...................... 1.41
-------
Total From Investment
Operations................ 1.40
-------
DISTRIBUTIONS
Net Investment Income....... --
In Excess of Net Realized
Gain...................... -- #
-------
Total Distributions......... --
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 11.93
-------
-------
TOTAL RETURN (1).............. 13.30%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 43,601
Ratio of Expenses to Average
Net Assets (2)............... 2.91%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(2).......................... (0.11 )%
Portfolio Turnover Rate....... 42%
- ------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income
(Loss).................... $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets.................... 3.34%
Net Investment Income (Loss)
to Average Net Assets..... (0.54 )%
Ratio of Expenses to Average
Net Assets Excluding Country
Tax Expense.................. 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.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
---------------------------------------------------------------------- ----------------
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 1, 1995
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 AND JANUARY 4, 1993* YEAR ENDED JUNE YEAR ENDED JUNE YEAR ENDED JUNE
RATIOS TO JUNE 30, 1993 30, 1994 30, 1995 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 Expense Lim
Period
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.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL MAGNUM FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ----------- -----------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
JULY 1, JULY 1, JULY 1,
1996 TO* 1996 TO* 1996 TO*
NOVEMBER NOVEMBER NOVEMBER
SELECTED PER SHARE DATA AND RATIOS 30, 1996 30, 1996 30, 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 12.00 $ 12.00 $ 12.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).......... 0.01 (0.02) (0.02)
Net Realized and Unrealized Gain on
Investments......................... 0.25 0.25 0.24
----------- ----------- -----------
Total From Investment Operations...... 0.26 0.23 0.22
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD.......... $ 12.26 $ 12.23 $ 12.22
----------- ----------- -----------
----------- ----------- -----------
TOTAL RETURN (1)........................ 2.17% 1.92% 1.83%
----------- ----------- -----------
----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA............
Net Assets, End of Period (000's)....... $ 4,673 $ 4,906 $ 5,458
Ratio of Expenses to Average Net
Assets................................. 1.64%** 2.39%** 2.40%
Ratio of Net Investment Income (Loss) to
Average Net Assets..................... 0.21%** (0.54)%** (0.55)%
Portfolio Turnover Rate................. 6% 6% 6%
- ---------------------------------------------------------------------------------
Average Commission Rate................. $ 0.0412 $ 0.0412 $ 0.0412
- ---------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Loss................................ $ 0.06 $ 0.05 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 2.98%** 3.73%** 3.73%
Net Investment Loss to Average Net
Assets.............................. (1.13)%** (1.88)%** (1.88)%
- ---------------------------------------------------------------------------------
</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.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
---------------------------------- ---------------- ----------------------------------
SELECTED PER SHARE DATA AND JULY 6, 1994* YEAR ENDED AUGUST 1, 1995 JULY 6, 1994* YEAR ENDED
RATIOS TO JUNE 30, 1995 JUNE 30, 1996 TO JUNE 30, 1996 TO JUNE 30, 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%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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..................... 4.30%** 3.28% 3.89% 5.20%** 4.06%
Net Investment Income (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%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
</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 twenty-two Funds which are designed to
offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, are not included in the Funds named below. The investment
objective of each Fund described in this Prospectus is as follows:
- 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 GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
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 the Company's 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.
11
<PAGE>
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH FUND seeks to achieve long-term capital growth by
investing primarily in common stocks and other equity securities of
smaller and medium size companies which are deemed by the Adviser to offer
long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
12
<PAGE>
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal taxes as is consistent with
maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI") which, together with its affiliated asset management companies, had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." On October 31, 1996,
MSGI purchased the parent company of Van Kampen American Capital, Inc., which in
turn is the parent company of VKAC Distributors. Van Kampen American Capital,
Inc. is the fourth largest non-proprietary mutual fund provider in the United
States with approximately $59 billion in assets under management or supervision
as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein 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 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, Global Equity, Latin American and
International Magnum Funds may invest in foreign currency
13
<PAGE>
exchange futures and options. The Emerging Markets, Global Equity, 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. 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" 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 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
5.75 % 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 five 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 VKAC Distributors, through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $500 for
each class of the Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $25, except that 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 (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
14
<PAGE>
INVESTMENT OBJECTIVE 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 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.
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 Asian
countries in which it will invest. 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 internationally 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.
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
15
<PAGE>
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, Switzerland,
Morgan Stanley Capital International ("MSCI"), 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.
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
securities. Securities traded in over-the-counter markets and non-publicly
traded securities pose liquidity risks.
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 short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.
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 enter into foreign currency exchange
contracts.
For further information about the foregoing and certain additional
investment practices of the Asian Growth Fund, 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
16
<PAGE>
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:
Argentina
Botswana
Brazil
Chile
China
Colombia
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Jamaica
Jordan
Kenya
Malaysia
Mexico
Morocco
Nigeria
Pakistan
Peru
Philippines
Poland
Portugal
Russia
South Africa
South Korea
Sri Lanka
Taiwan
Thailand
Turkey
Venezuela
Zimbabwe
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.
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 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
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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 short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.
The Emerging Markets Fund may invest indirectly in securities of emerging
country issuers through sponsored or unsponsored depositary receipts, including
ADRs. The Fund may also invest in 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 the particular
risks associated with Russian Securities, see "Additional Investment
Information" below.
THE GLOBAL EQUITY FUND
The Global Equity Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers. Equity securities for this Fund include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. The
Fund may invest in American, global or other types of depositary receipts. The
Fund also may invest in equity-linked securities, such as PERCS, ELKS and LYONs.
The Adviser expects that, under normal circumstances, at least 20% of the Fund's
total assets will be invested in the common stocks of U.S. issuers. The
remainder of the Fund will be invested in issuers located throughout the world,
including those located in emerging markets. At least 65% of the total assets of
the Fund will be invested in equity securities under normal circumstances.
Securities in emerging markets may not be as liquid as those in developed
markets and pose greater risks. See "The Emerging Markets Fund," above for a
discussion of emerging markets. Although the Fund intends to invest primarily in
securities listed on stock exchanges, it will also invest in securities traded
in over-the-counter markets. The Fund may invest in derivatives, when-issued and
delayed delivery securities and non-publicly traded securities, including
private placements and restricted securities. For temporary defensive purposes,
the Fund invests in money market instruments and short-term and medium-term debt
securities as described below under "Additional Investment Information --
Temporary Investments."
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection, and is value driven. The Adviser initially
identifies those stocks which it believes to be undervalued in relation to the
issuer's assets, cash flow, earnings and revenues, and then evaluates the future
value of such stocks by running the results of an in-depth study of the issuer
through a dividend discount model. The Adviser utilizes the research from a
number of sources, including MSCI, in identifying attractive securities, and
applies a number of proprietary screening criteria to identify those securities
it believes to be undervalued. Fund holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to conform
to the Adviser's value criteria. Securities which no longer conform to such
value criteria are sold.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
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
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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, above. 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.
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 particular 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 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-
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specific risk through diversification and minimizes transaction costs, which can
be substantial in foreign markets.
The Global Equity Allocation Fund will normally purchase common stocks
listed on a major stock exchange in the subject country. The Global Equity
Allocation Fund may invest in non-publicly traded securities, private placements
and restricted securities. For temporary defensive purposes, the Fund may invest
in money market instruments and short- and medium-term debt securities as
described below under "Additional Investment Information -- Temporary
Investments."
For further information about the foregoing and certain additional
investment practices of the Fund, 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.
The countries in which the International Magnum Fund will invest are those
comprising the MSCI 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 MSCI. 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.
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
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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 short
and medium-term debt securities described below under "Additional Investment
Information -- Temporary Investments."
For further information about the foregoing and certain additional
investment practices of the International Magnum Fund, see "Additional
Investment Information" below.
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 and depositary receipts.
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 Standard & Poor's Ratings Group
("S&P"), Baa by Moody's Investors Services, Inc. ("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.
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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 as described below under "Additional
Investment Information -- Temporary Investments" below.
For further information about the foregoing and certain additional
investment practices of the Japanese Equity Fund, 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 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. 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.
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"). 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. Income is not an investment objective or a
consideration in selecting investments.
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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, 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. 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.
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 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 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
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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 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.
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 S&P or Moody's. Such lower-quality securities
are regarded as being predominantly speculative and involve significant risks.
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. 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. 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 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.
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
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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. 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.
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.
For further information about the foregoing and certain additional
investment practices of the Latin American Fund, see "Additional Investment
Information" below.
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ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Equity Allocation, Asian Growth, Emerging Markets, International
Magnum, and Japanese Equity Funds may borrow up to 10% of their total assets as
a temporary measure for extraordinary or emergency purposes. These funds may not
purchase additional securities when borrowings exceed 5% of total assets. The
Latin American Fund may enter into reverse repurchase agreements in accordance
with its investment objective and policies and borrow amounts up to 33 1/3% of
its total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing. The Global Equity Fund may borrow money
(i) as a temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of the Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings) and, further, that
the Fund may not purchase additional securities when borrowings exceed 5% of its
total assets.
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 Global Equity Fund may invest in equity-linked securities 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.
DEPOSITARY RECEIPTS
The Asian Growth, Emerging Markets, Global Equity, Japanese Equity and Latin
American Funds may invest in depositary receipts, including ADRs, Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
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
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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 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
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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.
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 United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the 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. Also, it may be more difficult to obtain a judgment in a court outside
the United States. Emerging countries may have less stable political
environments than more developed countries.
Investments in securities of foreign issuers are 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.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Emerging Markets, Global Equity, International Magnum and Latin American 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 and the Latin American Fund may utilize
appropriate interest rate futures contracts and options on interest rate futures
contracts. 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.
The Global Equity and International Magnum Funds will engage only in
transactions in securities index futures contracts, interest rate futures
contracts and options thereon which are traded on a recognized securities or
futures exchange. There currently are limited securities index futures, interest
rate futures and options on such futures markets in many countries, particularly
emerging countries such as Latin American countries, and the nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, will depend on the development of such markets.
The Emerging Markets, Latin American 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 the Emerging Markets, International Magnum or Latin American Fund's
total assets, in the aggregate, may be invested in futures contracts and options
on futures contracts. The Global Equity Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under such contracts, in combination with its outstanding obligations with
respect to options transactions, would exceed 50% of its total assets.
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.
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INVESTMENT COMPANIES
A Fund may invest in securities of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the 1940 Act.
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 as well as other investment
companies, subject to applicable 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 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
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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 international and 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.
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
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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, with the exception of the
Global Equity Fund, 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 ("Rule
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, Global Equity, Latin American and
International Magnum Funds may seek to increase their return or may hedge all or
a portion of their portfolio investments through options with respect to
securities in which such Funds may invest. A Fund may also purchase put or call
options on individual securities or baskets of securities. When a Fund purchases
a call option it acquires the right to buy a designated security at a designated
price (the "exercise price"), and when the Fund purchases a put option it
acquires the right to sell a designated security at the exercise price, in each
case on or before a specified date (the "termination date"), usually not more
than nine months from the date the option is issued.
A Fund may write (i.e., sell) covered call options which give the purchaser
the right to buy the underlying security covered by the option from the Fund at
the stated exercise price. A Fund will receive a premium from writing call
options, which increases the Fund's return on the underlying security in the
event the option expires unexercised or is closed out at a profit. By writing a
call option, a Fund will limit its opportunity to profit from an increase in the
market value of the underlying security above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. A Fund
may also write (i.e., sell) covered put options. By selling a covered put
option, the Fund incurs an obligation to buy the security underlying the option
from the purchaser of the put at the option's exercise price at any time during
the option period, at the purchaser's election (certain options written by the
Fund will be exercisable by the purchaser only on a specific date).
The Funds will engage in transactions in options only which are traded on a
recognized securities or futures exchange. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets. The Global Equity Fund may also engage in over-the-counter
options ("OTC Options") transactions. OTC Options are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty.
The Global Equity Fund may invest in options to the extent that their
outstanding obligations to purchase securities under such options in combination
with their outstanding obligations with respect to futures transactions do not
exceed 50% of their total assets, and will maintain assets sufficient to meet
their obligations under such contracts in a segregated account with the
custodian or will otherwise comply with the SEC's position on
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asset coverage. 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 other than the Global Equity Fund.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with investment dealers or
financial institutions that meet the credit guidelines of the Company's Board of
Directors. In a repurchase agreement, 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 Latin American and Global Equity Funds may enter into reverse repurchase
agreements with brokers, dealers, domestic and foreign banks or other financial
institutions that have been determined by the Adviser to be creditworthy. In a
reverse repurchase agreement, a 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 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.
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
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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 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.
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SWAPS
Swaps are derivatives in the form of a contract or other similar instrument
which is an agreement to exchange the return generated by one instrument for the
return generated by another instrument. The payment streams are calculated by
reference to a specified index and agreed upon notional amount. The term
"specified index" includes, but is not limited to, currencies, fixed interest
rates, prices and total return on interest rate indices, fixed income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). The currency swaps in which a Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
Funds will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date, with the Funds
receiving or paying, as the case may be, only the net amount of the two returns.
A Fund's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or other liquid assets. A Fund will not enter into
any swap agreement unless the counterparty meets the rating requirements set
forth in guidelines established by the Company's Board of Directors.
Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique was not used.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies" above for further information about each Fund's policies.
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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, other than the Global
Equity Fund, 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.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because the Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
INVESTMENT LIMITATIONS
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 as to 75% of its total assets: (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, 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
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requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company.
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 quarterly at the following annual rates for each of the following Funds.
<TABLE>
<S> <C>
Asian Growth Fund.................................................... 1.00%
Emerging Markets Fund................................................ 1.25%
Global Equity Fund................................................... 1.00%
Global Equity Allocation Fund........................................ 1.00%
International Magnum Fund............................................ 1.00%
Japanese Equity Fund................................................. 1.00%
Latin American Fund.................................................. 1.25%
</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 October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
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
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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. Madhav Dhar is a
Managing Director of the Adviser and Morgan Stanley & Co. Incorporated ("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. Mr. Dhar has shared primary responsibility
for 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
Management, 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.
GLOBAL EQUITY FUND - FRANCES CAMPION. Frances Campion joined the Adviser in
January 1990 as a Global Equity Fund Manager and is now a Principal of Morgan
Stanley. Her responsibilities include day to day management of the Global Equity
product. Prior to joining the Adviser, Ms. Campion was a U.S. equity analyst
with Lombard Odier Limited where she had responsibility for the management of
global portfolios. Ms. Campion has ten years global investment experience. She
is a graduate of University College, Dublin.
GLOBAL EQUITY ALLOCATION FUND -- BARTON M. BIGGS, MADHAV DHAR, FRANCINE J.
BOVICH AND ANN D. THIVIERGE. Barton Biggs has been Chairman and a director of
the Adviser since 1980 and a Managing Director of Morgan Stanley since 1975. He
is also a director of Morgan Stanley Group Inc. and a director and 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. Information about Madhav
Dhar is included under the Emerging Markets Fund above. 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
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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.
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.
LATIN AMERICAN FUND -- ROBERT L. MEYER. Robert Meyer joined the Adviser in
1989 and is now a Managing Director of the Adviser and Morgan Stanley. Born in
Argentina, Mr. Meyer received a B.A. in Economics and Political Science from
Yale University and a J.D. from Harvard Law School. Mr. Meyer is also a
Chartered Financial Analyst. 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.
ADMINISTRATOR. 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 the Funds.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain
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<PAGE>
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.
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 Administrator 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
0.115% 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
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<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, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Funds 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 each Fund
a distribution fee, which is accrued daily and paid quarterly, at a maximum rate
of 0.75% of the Class B shares and Class C shares of the Fund, on an annualized
basis of the average daily net assets of such classes. The actual amount of such
compensation is agreed upon by the Company's Board of Directors and by the
Distributor. With respect to Class B shares, the Distributor expects to utilize
substantially all of its fee to reimburse itself for commissions paid to
investment dealers, banks or financial services firms that provide distribution
services (each, a "Participating Dealer"). With respect to the Class C shares,
the Distributor expects to reallocate substantially all of its fee to such
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. Class A shares, Class B shares and Class C shares authorizes the
payment of service fee at an annual rate of 0.25% on an annualized basis of the
average daily net assets of such class of shares of the Funds as compensation
the Distributor for shareholder services. In addition to such payments, the
Adviser may use its advisory fees or other resources to pay expenses associated
with activities which might be construed to be financing the sale of the Fund's
shares, including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services).
The Plans obligate the 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 Morgan Stanley may incur in
fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. If actual
expenses are less than the fee it receives, the Distributor 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 the Funds. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the 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 Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimums may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued
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<PAGE>
interest) attributable to such class less all liabilities (including accrued
expenses) attributable to such class by the total number of shares of the class
outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the net
asset value calculated after the next day's close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of Participating Dealers to transmit orders received by them
to the Distributor so they will be received prior to such time. Orders of less
than $500 are mailed by the Participating Dealer and processed at the offering
price next calculated after acceptance by ACCESS.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, it is presently the policy of the Distributor not to accept any order
of $500,000 or more for Class B shares or any order of $1 million or more for
Class C shares as it ordinarily would be more beneficial for such investor to
purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore,
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initially own fewer shares. Other investors might determine that it is more
advantageous to purchase either Class B shares or Class C shares and have all
their funds invested initially, although remaining subject to a contingent
deferred sales charge. Ongoing distribution fees on Class B shares and Class C
shares will be offset to the extent of the additional funds originally invested
and any return realized on those funds. However, there can be no assurance as to
the return, if any, which will be realized on such additional funds. For
investments held for ten years or more, the relative value upon liquidation of
the three classes tends to favor Class A or Class B shares, rather than Class C
shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
44
<PAGE>
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET AMOUNT (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE INVESTED PRICE)
- --------------------------------------------------------- --------------- ------------------- -----------------------
<S> <C> <C> <C>
Less than $50,000........................................ 5.75 6.10 5.00
$50,000 but less than $100,000........................... 4.75 4.99 4.00
$100,000 but less than $250,000.......................... 3.75 3.90 3.00
$250,000 but less than $500,000.......................... 2.75 2.83 2.25
$500,000 but less than $1,000,000........................ 2.00 2.04 1.75
$1,000,000 or more*...................................... * * *
</TABLE>
- ------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00 % on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933, as amended. The Distributor may also pay financial institutions (which may
include banks) and other industry professionals that provide services to
facilitate transactions in shares of the Company for their clients a transaction
fee up to the level of the reallowance allowable to Participating Dealers
described herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate.
The Distributor does not believe that termination of a relationship with a
bank would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
45
<PAGE>
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc., except for the Money Market Funds.
VOLUME DISCOUNTS. The size of investment shown in the preceding tables
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
tables may also be determined by combining the amount being invested in shares
of the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding tables also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
46
<PAGE>
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees/Directors of funds advised by an Adviser
and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of MSGI or
VK/AC Holding, Inc. and any of their subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an affiliate of
such subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds as
described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to 0.50%
of the amount invested, over a 12-month period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans of organizations with retirement plan assets of $3 million or more and
which invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.
(6) Accounts as to which a bank or broker-dealer charges an account
management fee ("wrap accounts"), provided the bank or broker-dealer has a
separate agreement with the Distributor.
(7) Investors purchasing shares of a Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
47
<PAGE>
(8) Trusts created under pension, profit sharing or other employee
benefit plans qualified under Section 401(a) of the Code, or custodial
accounts held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of the
Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased by
an employer sponsored plan with more than 100 eligible employees. Such plans
that have been established with a Participating Fund or have received
proposals from the Distributor prior to February 1, 1997 based on net asset
value purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value for accounts
established on or before May 1, 1997. Section 403(b) and similar accounts
for which Van Kampen American Capital Trust Company serves as custodian will
not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employee, except under
certain uniform criteria established by the Distributor from time to time. A
commission will be paid to dealers who initiate and are responsible for such
purchases within a rolling twelve month period as follows: 1.00% on sales up
to $5 million, plus 0.50% on the next $5 million, plus 0.25% on the excess
over $10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales up to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million, plus 0.25%
on the excess over $50 million.
(9) GROUP PURCHASES. Individuals who are members of a "qualified group".
For this purpose, a qualified group is one which (i) has been in existence
for more than six months, (ii) has a purpose other than to acquire shares of
the Fund or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of the Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent in the event
of redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of
age and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution Plans" on
purchases made as described in (3) through (9) above.
48
<PAGE>
The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.
RETIREMENT PLANS
Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs trusteed
by Chase. This includes Simplified Employee Pension ("SEP") Plan, IRA accounts
and prototype documents. Brochures describing such plans and materials for
establishing them are available from VK Trust upon request. The brochures for
plans trusteed by Chase describe the current fees payable to Chase for its
services as trustee. Investors should consult with their own tax advisers before
establishing a retirement plan.
PURCHASE OF CLASS B SHARES
Class B shares of the 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 five 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 five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF THE
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO CHARGE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
First....................................................................... 5.00%
Second...................................................................... 4.00%
Third....................................................................... 3.00%
Fourth...................................................................... 2.50%
Fifth....................................................................... 1.50%
Thereafter.................................................................. None*
</TABLE>
- ------------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan, as described under
"Management of
49
<PAGE>
the Company -- Distributor" above. Additionally, the Distributor may pay
additional promotional incentives, in the form of cash or other compensation, to
authorized dealers that sell Class B shares of the Funds. 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.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) to the extent that the
redemption represents a minimum required distribution from an IRA or other
retirement plan to a shareholder who has attained the age of 70 1/2; (iii) to
the extent that shares redeemed have been withdrawn from a Systematic Withdrawal
Plan, up to a maximum of 12% per year from a shareholder account based on the
value of the account at the time the Withdrawal Plan is established; or (iv)
effected pursuant to the right of the Company to liquidate a shareholder's
account as described herein under "Redemption of 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 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 REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of the Funds may reinvest up
to the full amount received at net asset value at the time of the reinvestment
in Class A shares of the Funds 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
50
<PAGE>
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A shareholder who has redeemed Class C
shares of the Fund and paid a CDSC upon such redemption may reinvest up to the
full amount received upon redemption in Class C shares at net asset value and
not be subject to a CDSC. The reinstatement privilege as to any specific Class
A, Class B or Class C shares must be exercised within 180 days of the
redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the redemption proceeds. The written
request must state that the reinstatement is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinstatement may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings. See the Statement of Additional Information for further
discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of Van Kampen American
Capital, Inc. performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from ACCESS showing any reinvestments of dividends
and capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs
51
<PAGE>
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 282-4404 or (800) 772-8889 for the hearing impaired,
or in writing to ACCESS. The investor may, on the initial application or prior
to any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any other Fund
so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Funds.
52
<PAGE>
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
282-4404 ((800) 772-8889 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital, Inc. and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Company employ procedures considered by them to
be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, a shareholder
agrees that neither the Distributor nor the Company will be liable for following
telephone instructions which it reasonably believes to be genuine. If the
exchanging shareholder does not have an account in the Fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification options) and
broker, dealer or financial intermediary of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or dividend
diversification options for the new account, an exchanging shareholder must file
a specific written request. The Company reserves the right to reject any order
to acquire its shares through exchange. In addition, the Company may restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of a shareholder's investment in, and any
dividends or distributions on, Class B shares of the Funds at the time the
Systematic Withdrawal Plan commences. 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
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Class B shares not subject to the CDSC are available, or not enough such shares
are available, Class B shares having a CDSC will be redeemed next, beginning
with such shares held for the longest period of time (having the lowest CDSC
payable upon redemption) and continuing with shares held the next longest period
of time until shares held the shortest period of time are redeemed. Under this
policy, the least amount of CDSC will be waived by withdrawals under the
Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS or by
calling 1-800-282-4404. A shareholder's bank may charge a fee for this transfer.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, any applicable contingent deferred sales charge) at
any time by sending a written request in proper form directly to the Fund c/o
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, by placing the
redemption request through Participating Dealer or by calling the Company. See
"Purchase of Shares" for a discussion of applicable CDSC levels.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, and the name and title of the individual(s)
authorizing such redemption is not shown
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<PAGE>
in the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within seven business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
it confirms that the purchase check has cleared, usually a period of up to 15
days. Any gain or loss realized on the redemption of shares is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received, less any applicable CDSC, by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time. Any change in the redemption price due to failure of the
Distributor to receive a sell order prior to such time must be settled between
the shareholder and dealer. Shareholders must submit a written redemption
request in proper form (as described above under "Written Redemption Requests")
to the dealer within three business days after calling the dealer with the sell
order. Payment for shares redeemed will ordinarily be made by check mailed
within three business days to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 287-4404
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.
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<PAGE>
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition, a CDSC of 1.00% may be imposed on certain redemptions of Class A
shares made within one year of purchase for investments of $1 million or more
and for certain qualified 401(k) retirement plans. The CDSC incurred upon
redemption is paid to the Distributor in reimbursement for distribution-related
expenses. A custodian of a retirement plan account may charge fees based on the
custodian's fee schedule.
IRA redemption requests should be sent to the IRA custodian to be forwarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
custodian, special IRA, 403(b)(7), or Keogh redemption
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forms must be obtained from and be forwarded to Van Kampen American Trust
Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian for
information.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.
VALUATION OF SHARES
Net asset value is calculated separately for each class of a 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 class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the closing price, or if that is
unavailable, the latest quoted sale price on the day of valuation. If there is
no such reported sale, the latest quoted bid price will be used. Debt securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost, if it approximates market value. In the event that amortized cost does not
approximate market value, market prices as determined above will be used. The
"amortized cost" method of valuation does not take into account unrealized gains
or losses. This method involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
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.
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<PAGE>
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the 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 & Co. Incorporated ("Morgan Stanley"), an
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 objective of each Fund is not to invest for short-term trading,
a 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, other than the Latin American Fund, anticipates
that its annual portfolio turnover rate will not exceed 100% under normal
circumstances but market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. High portfolio turnover involves
correspondingly greater transaction costs which will be borne directly by a
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the particular 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 taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing
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the Funds' 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
a Fund will generally be lower than those for Class A shares because of the
larger distribution fee charged to Class B shares and Class C shares.
PERFORMANCE OF INVESTMENT ADVISER
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Global Equity Fund. The portfolio of
MSIF (the "MSIF Portfolio") has substantially the same investment objective and
policies as the Global Equity Fund. In addition, the Adviser intends the Global
Equity Fund and the corresponding MSIF Portfolio to be managed by the same
personnel and to continue to have closely similar investment strategies,
techniques and characteristics. Past investment performance of the MSIF
Portfolio, as shown in the table below, may be relevant to your consideration of
investment in the Global Equity Fund. The investment performance of the MSIF
Portfolio is not necessarily indicative of future performance of the Global
Equity Fund. Also, the operating expenses of the Global Equity Fund will be
different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 5.75%
sales charge applicable to purchases of Class A shares of the Global Equity
Fund; (ii) with respect to Class B shares, to take into account the applicable
CDSC that is imposed if Class B shares of the Global Equity Fund are redeemed
within the year of their purchase indicated; and (iii) with respect to the Class
C shares, to take into account a 1.00% CDSC that is imposed if Class C shares of
the Global Equity Fund are redeemed within one year of their purchase. The data
set forth below under the heading "Return Without Sales Charge" is not adjusted
to take into account such sales charges.
TOTAL RETURN FOR THE MSIF GLOBAL EQUITY PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM THE GLOBAL EQUITY FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE GLOBAL EQUITY FUND)
<TABLE>
<CAPTION>
RETURN WITH SALES CHARGE 1 YEAR SINCE INCEPTION(1)
- ------------------------------------------------------------------------------------- ---------- -------------------
<S> <C> <C>
Class A (of 5.75%)................................................................... 8.44% 12.34%
Class B (of 5.00%)................................................................... 9.19% 13.09%
Class C (of 1.00%)................................................................... 13.19% 18.09%
<CAPTION>
RETURN WITHOUT SALES CHARGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Class A.............................................................................. 14.19% 18.09%
Class B.............................................................................. 14.19% 18.09%
Class C.............................................................................. 14.19% 18.09%
</TABLE>
- ------------------
(1) Commenced Operations on July 15, 1992.
The past performance of the MSIF Global Equity Portfolio is no guarantee of
the future performance of the Global Equity Fund.
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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 expects to distribute substantially all of its net investment
income in the form of annual dividends. Net realized gains, if any, will be
distributed annually. Confirmations of the purchase of shares of a Fund through
the automatic reinvestment of income dividends and capital gains distributions
will be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act
of 1934, as amended, on the next quarterly client statement following such
purchase of shares. Consequently, confirmations of such purchases will not be
provided at the time of completion of such purchases, as might otherwise be
required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of the Funds, the net income attributable to and the dividends payable
on Class B shares and Class C shares of the Funds 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 the Funds will
differ at times. Expenses of the Company allocated to a particular class of
shares of the Fund will be borne on a pro rata basis by each outstanding share
of that class.
TAXES
TAX STATUS OF THE 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 Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
Each Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net
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investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss less any available capital loss carryforward)
which is distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. The Funds 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 Funds.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of the Funds, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or
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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 December 11, 1996, Charles Schwab & Co., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, was presumed to
"control" the Emerging Markets Fund and Morgan Stanley Group Inc., 1221 Avenue
of the Americas, New York, NY 10020, was presumed to "control" the International
Magnum Fund based solely on its ownership of 25% or more of the outstanding
voting shares of such Funds.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information--Custody Arrangements" in the Statement of
Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP -- CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
GLOBAL EQUITY, GLOBAL EQUITY ALLOCATION, ASIAN GROWTH, EMERGING
MARKETS,
LATIN AMERICAN, INTERNATIONAL MAGNUM AND JAPANESE EQUITY FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141 (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 ACCESS Investor Services, Inc. ("ACCESS") 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 $500 and $25, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Asian
Growth Fund Class A (453) $ Class B (553) $ Class C (653) $
---------- ---------- ----------
Morgan Stanley Emerging
Markets Fund Class A (605) $ Class B (630) $ Class C (655) $
---------- ---------- ----------
Morgan Stanley Global
Equity Fund Class A (465) $ Class B (565) $ Class C (665) $
---------- ---------- ----------
Morgan Stanley Global Equity Allocation Fund Class A (474) $ Class B (574) $ Class C (674) $
---------- ---------- ----------
Morgan Stanley International Magnum Fund Class A (612) $ Class B (636) $ Class C (662) $
---------- ---------- ----------
Morgan Stanley Latin American
Fund Class A (457) $ Class B (557) $ 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 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 ACCESS to act upon instructions received
ACCESS 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.
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:
/ / $50,000 / / $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 ACCESS 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 ($25 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 ACCESS 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. (Not available on the
31st, 1st, or 2nd day of month)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Start ----------------------------------------------
(month, day, year)
<CAPTION>
Start ----------------------------------------------
<CAPTION>
(month, day, year)
</TABLE>
Amount of each debit (minimum $25) 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 ACCESS Investor Services, Inc., 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 (PLEASE CHECK APPLICABLE BOXES BELOW):
/ / 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 ACCESS 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 ACCESS 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
Prospectus Summary.................................................... 11
Investment Objective and Policies..................................... 15
Additional Investment Information..................................... 26
Investment Limitations................................................ 36
Management of the Company............................................. 37
Purchase of Shares.................................................... 42
Shareholder Services.................................................. 51
Redemption of Shares.................................................. 54
Valuation of Shares................................................... 57
Portfolio Transactions................................................ 58
Performance Information............................................... 58
Dividends and Distributions........................................... 60
Taxes................................................................. 60
General Information................................................... 61
</TABLE>
MORGAN STANLEY
ASIAN GROWTH FUND
MORGAN STANLEY
EMERGING MARKETS FUND
MORGAN STANLEY
GLOBAL EQUITY FUND
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
MORGAN STANLEY
JAPANESE EQUITY FUND
MORGAN STANLEY
LATIN AMERICAN FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURT 64141
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 twenty-two diversified and
non-diversified investment portfolios. This prospectus (the "Prospectus")
describes the shares of the Morgan Stanley Money Market Fund, the Morgan Stanley
Tax-Free Money Market Fund and the Morgan Stanley Government Obligations Money
Market Fund (collectively, the "Money Market Funds" and each a "Fund"). The
Company is designed to make available to retail investors the expertise of
Morgan Stanley Asset Management Inc., the investment adviser (the "Adviser") and
administrator (the "Administrator"). Shares are available through Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors" or the "Distributor")
and investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
The Tax-Free Money Market Fund is not currently offering shares.
The Money Market Funds are subject to certain special risk factors. For
information about these risk factors, see "Prospectus Summary -- Risk Factors."
INVESTMENTS IN THE MONEY MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus is designed to set forth concisely the information about the
Money Market Funds that a prospective investor should know before investing and
it should be retained for future reference. The Company offers additional
portfolios 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 Asian Growth, Morgan Stanley Emerging
Markets, Morgan Stanley Global Equity, Morgan Stanley Global Equity Allocation,
Morgan Stanley International Magnum and Morgan Stanley Latin American Funds;
(ii) U.S. EQUITY -- Morgan Stanley Aggressive Equity, Morgan Stanley American
Value, Morgan Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan
Stanley U.S. Real Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED
INCOME -- Morgan Stanley Emerging Markets Debt, Morgan Stanley Global Fixed
Income, Morgan Stanley High Yield and Morgan Stanley Worldwide High Income
Funds; and (iv) MONEY MARKET -- Morgan Stanley Government Obligations Money
Market and Morgan Stanley Money Market Funds. Additional information about the
Company is contained in a "Statement of Additional Information," dated January
1, 1997, which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other portfolios of the
Company are available upon request and without charge by writing or calling the
Company at the address and telephone number set forth above.
THE MONEY MARKET FUNDS' SHARES ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS
(COMPANY OR OTHERWISE) OF, OR ENDORSED OR GUARANTEED BY, ANY BANK OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN THE COMPANY INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GOVERNMENT
TAX-FREE OBLIGATIONS
MONEY MONEY MONEY
MARKET MARKET MARKET
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases...... None None None
Maximum Sales Load Imposed on Reinvested
Dividends................................... None None None
Maximum Deferred Sales Load.................. None None None
Redemption Fees.............................. None None None
Exchange Fees................................ None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (1)........ .36% .14% .41%
12b-1 Fees (after fee waivers) (1)........... .35% .35% .25%
Other Expenses............................... .27% .46% .29%
Total Operating Expenses (after expense
reimbursement and/or fee waiver)............ .98% .95% .95%
</TABLE>
- ------------------
(1) The Adviser and the Distributor will voluntarily waive a portion of their
respective fees and/or reimburse fund expenses until such time as they
determine that the particular Fund's performance is competitive with other
comparable funds without such waivers. However, such fee waivers are
voluntary and may be terminated at any time. There can be no assurances that
any future waivers will not vary from the figures reflected in the expense
table. Absent fee waivers, investment advisory fees would be 0.45% and 12b-1
fees would be 0.50% for each Fund and total operating expenses would be
1.22% for the Money Market Fund, 1.41% for the Tax-Free Money Market Fund
and 1.24% for the Government Obligations Money Market Fund. (Investment
advisory fees are contractually reduced when average daily net assets exceed
$250 million. (See "Management of the Company".)) The percentages shown
above representing annual fund operating expenses are based on net operating
expenses for the PCS Money Market Portfolio (the "Predecessor Money Market
Portfolio"), the predecessor portfolio to the Money Market Fund, and for the
PCS Government Obligations Money Market Portfolio (the "Predecessor
Government Obligations Money Market Portfolio"), the predecessor portfolio
to the Government Obligations Money Market Fund, for the fiscal year ended
June 30, 1996. The expenses for the Tax-Free Money Market Fund, which is not
in operation, are estimates based on an estimated average net asset level
for the first year of $50,000,000.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Money Market Funds will bear
directly or indirectly. "Other Expenses" include, among others, Directors' fees
and expenses, amortization of organizational costs, filing fees, professional
fees, and the costs for reports to shareholders. Due to the continuous nature of
Rule 12b-1 fees, long-term shareholders may pay more than the equivalent of the
maximum front-end sales charges otherwise permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD").
2
<PAGE>
The following example illustrates the expenses that you would pay on a
$1,000 investment, assuming (1) a 5% annual rate of return and (2) redemption at
the end of each time period. (If it is assumed there are no redemptions, the
expenses are the same.)
<TABLE>
<CAPTION>
GOVERNMENT
TAX-FREE OBLIGATIONS
MONEY MONEY MONEY
MARKET MARKET MARKET
FUND (1) FUND FUND (1)
---------- ---------- ----------
<S> <C> <C> <C>
1 Year...................................................... $ 10 $ 10 $ 10
3 Years..................................................... 31 30 30
5 Years..................................................... 54 * 53
10 Years.................................................... 120 * 117
</TABLE>
- --------------
(1) The projected expenses are based upon the respective operating histories of
the Predecessor Money Market Portfolio and the Predecessor Government
Obligations Money Market Portfolio.
* Because the Tax-Free Money Market Fund was not operational as of the date
of this Prospectus, the Company has not projected expenses beyond the
three-year period shown.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The Adviser in its discretion may terminate voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the example above would be greater.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the PCS Money Market
Portfolio and PCS Government Obligations Money Market Portfolio (the
"Predecessor Portfolios"), the predecessors of the Morgan Stanley Money Market
Fund and Morgan Stanley Government Obligations Money Market Fund, respectively,
for each of the periods presented. The audited financial highlights for the
shares for the fiscal year ended June 30, 1996 are part of the Company's
financial statements which appear in the PCS Cash Fund, Inc.'s June 30, 1996
Annual Report to Shareholders and in the Company's Statement of Additional
Information. The Predecessor Portfolios' financial highlights for each of the
periods presented have been derived from financial statements audited by Coopers
& Lybrand L.L.P., whose unqualified report thereon also appears in the Statement
of Additional Information. Additional performance information for the shares of
the Predecessor Portfolios is included in the Annual Report. The Annual Report
and the financial statements therein, along with the Statement of Additional
Information, are available at no cost from the Company at the address and
telephone number noted on the cover page of this Prospectus. The following
financial highlights should be read in conjunction with the financial statements
and notes thereto.
4
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1989
(COMMENCEMENT
FOR THE FISCAL YEAR ENDED JUNE 30 OF OPERATIONS)
--------------------------------------------------------------------------------- TO JUNE 30,
1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- ----------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment
Income.............. .0463 .0446 .0246 .0243 .0402 .0652 .0690
Net Realized Gains on
Investments......... (.0006) .0001 -- .0001 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -------
LESS DIVIDENDS TO
SHAREHOLDERS FROM:
Net Investment
Income.............. (.0463) (.0446) (.0246) (.0243) (.0402) (.0652) (.0690)
Net Realized Gains... -- (.0001) -- (.0001) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -------
NET ASSET VALUE, END OF
PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- ----------- -------
----------- ----------- ----------- ----------- ----------- ----------- -------
TOTAL RETURN........... 4.72% 4.55% 2.49% 2.47% 4.11% 6.72% 7.12%(c)
----------- ----------- ----------- ----------- ----------- ----------- -------
----------- ----------- ----------- ----------- ----------- ----------- -------
Ratio of Expenses to
Average Net Assets.... .98%(b) .98%(b) .98%(b) .98%(b) .98%(b) .98%(b) .98%(a)(b)
Ratio of Net Investment
Income to Average Net
Assets................ 4.65%(b) 4.45%(b) 2.45%(b) 2.44%(b) 3.97%(b) 6.40%(b) 7.53%(a)(b)
Net Assets at End of
Period (000).......... $170,973 $171,515 $176,599 $156,310 $190,034 $140,594 $76,463
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) Without voluntary fee waiver of advisory and distribution fees, the ratios
of expenses to average net assets would have been 1.22%, 1.18%, 1.19%,
1.20%, 1.27%, 1.27% and 1.48% (annualized), respectively. The ratio of net
investment income to average net assets would have been 4.41%, 4.25%, 2.24%,
2.22%, 3.68%, 6.11% and 7.03% (annualized), respectively.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 12, 1992
(COMMENCEMENT
FOR THE FISCAL YEAR ENDED JUNE 30 OF OPERATIONS)
----------------------------------------------------- TO JUNE 30,
1996 1995 1994 1993 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......................... .0464 .0448 .0243 .0246 .0094
Net Realized Gains on Investments............. (.0011) -- .0011 .0002 --
----------- ----------- ----------- ----------- --------------
LESS DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income......................... (.0464) (.0448) (.0243) (.0246) (.0094)
Net Realized Gains............................ (.0001) -- .0011 (.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% .094%(c)
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
Ratio of Expenses to Average Net Assets......... .95%(b) .95%(b) .95%(b) .95%(b) .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 $67,705 $102,551 $101,736 $269,627
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) Without voluntary fee waiver of advisory and distribution fees, the ration
of expenses to average net assets would have been 1.24%, 1.12%, 1.22%, 1.19%
and 1.29% annualized and the ratio of net investment income to average net
assets would have been 4.39%, 4.44%, 2.13%, 2.26% and 2.73% annualized.
(c) Not annualized. Total return, if on an annualized basis, would have been
3.16% for the Government Obligations Money Market Portfolio.
6
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two Funds which are designed to
offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, are not included in the Funds named below. The investment
objective of each Fund described in this Prospectus is as follows:
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
The other 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 the Company's other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
7
<PAGE>
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH FUND seeks to achieve long-term capital growth by
investing primarily in common stocks and other equity securities of
smaller and medium size companies which are deemed by the Adviser to offer
long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
8
<PAGE>
- 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 GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI") which, together with its affiliated asset management companies, had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company Investment Adviser" and "-- Administrator." On October 31, 1996,
MSGI purchased the parent company of Van Kampen American Capital, Inc., which in
turn is the parent company of VKAC Distributors. Van Kampen American Capital,
Inc. is the fourth largest non-proprietary mutual fund provider in the United
States with approximately $59 billion in assets under management or supervision
as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. Investments in the Funds are neither
insured nor guaranteed by the U.S. Government, and there is no assurance that a
Fund will be able to maintain a stable net asset value of $1.00 per share. The
Money Market and Government Obligations Money Market Funds, to the extent set
forth under "Investment Objectives and Policies," may engage in the following
investment practices: the use of repurchase agreements and reverse repurchase
agreements; the purchase of mortgage-backed securities; the purchase of
securities on a "when-issued" basis; and the purchase of securities on a
"forward commitment" basis. The Money Market Fund may also invest in securities
of foreign issuers, which are subject to certain risks not typically associated
with U.S. securities. All of these transactions involve certain special risks,
as set forth under "Investment Objectives and Policies."
HOW TO INVEST
Shares of each of the Money Market Funds are offered at net asset value.
Share purchases may be made through VKAC Distributors, through Participating
Dealers or by sending payments directly to the Company. The minimum initial
investment is $500 for each class of the Fund, except that the minimum initial
investment amount is reduced for certain categories of investors. The minimum
for subsequent investments is $25, except that 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. If a shareholder
reduces his/her total investment in shares of a Fund to less than $500, the
entire investment may be subject to involuntary redemption. See "Redemption of
Shares."
9
<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. 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 objective. For more information about certain investment
practices common to two or more of the Money Market Funds and applicable quality
requirements, see "Additional Investment Information."
THE MONEY MARKET FUND
The Money Market Fund's investment objective is to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. Obligations held by the Money Market Fund will have
remaining maturities of 397 days or less (except that portfolio securities which
are subject to repurchase agreements may bear maturities exceeding 397 days). In
pursuing its investment objective, the Money Market Fund invests in a broad
range of U.S. dollar-denominated instruments, such as government, bank and
commercial obligations, that may be available in the money markets and that
satisfy strict credit quality standards imposed by the Fund in accordance with
applicable law ("Money Market Instruments"). The following descriptions
illustrate the types of Money Market Instruments in which the Money Market Fund
invests.
BANK OBLIGATIONS. The Fund may purchase bank obligations, such as
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Fund may invest substantially in U.S.
dollar-denominated obligations of foreign banks or foreign branches of U.S.
banks where the Adviser deems the instrument to present minimal credit risks and
to otherwise satisfy applicable quality standards. Such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the 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 Fund
may also make interest-bearing savings deposits in commercial and savings banks
in amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated (at the time
of purchase) "A-1" or "A-1+" by Standard & Poor's Ratings Group ("S&P") or
"Prime-1" by Moody's Investors Service, Inc. ("Moody's") or when deemed
advisable by the Adviser and to the extent permitted under applicable
regulations, limited amounts of issues rated "A-2" or "Prime-2" by S&P or
Moody's, respectively that the Adviser believes to be of high quality. The Fund
may also purchase commercial paper not rated by S&P or Moody's provided that
such paper is determined by the Adviser to be of comparable quality pursuant to
guidelines approved by the Company's Board of Directors. The applicable
short-term corporate ratings are described in the Appendix to the Statement of
Additional Information.
10
<PAGE>
UNITED STATES GOVERNMENT OBLIGATIONS. The Money Market Fund may invest in
obligations issued or guaranteed by the United States Government, including
United States Treasury securities and other securities backed by the full faith
and credit of the United States, such as obligations of the Government National
Mortgage Association ("GNMA"), the Farmers Home Administration and the
Export-Import Bank. The Fund may also invest in obligations issued or guaranteed
by United States Government agencies or instrumentalities, such as the Federal
Farm Credit System and the Federal Home Loan Banks, where the Fund must look
principally to the issuing or guaranteeing agency for ultimate repayment. For a
more complete discussion of United States Government Obligations, see the
description of the Government Obligations Money Market Fund.
MUNICIPAL OBLIGATIONS. "Municipal Obligations" are obligations issued by or
on behalf of states, territories and possessions of the United States, the
District of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. The Fund may invest without limitation in
high quality, short-term Municipal Obligations issued by state and local
governmental issuers, the interest on which may be taxable or tax-exempt for
federal income tax purposes, when deemed appropriate by the Adviser in light of
the Fund's investment objective, and provided that such obligations carry yields
that are competitive with those of other types of Money Market Instruments of
comparable quality. For a more complete discussion of Municipal Obligations, see
the description of the Tax-Free Money Market Fund. In addition, the Fund may
acquire "stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, a dealer would agree to purchase at the
Fund's option specified Municipal Obligations at a specified price. The
acquisition of a stand-by commitment may increase the cost, and thereby reduce
the yield, of the Municipal Obligation to which such commitment relates. The
Fund will acquire stand-by commitments solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading purposes.
THE TAX-FREE MONEY MARKET FUND
The Tax-Free Money Market Fund's investment objective is to provide as high
a level of current interest income exempt from regular federal income taxes as
is consistent with maintaining liquidity and stability of principal. The
Tax-Free Money Market Fund invests substantially all of its assets in a
diversified portfolio of high quality, short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular federal income tax. It is a
fundamental policy of the Fund that under normal market conditions, at least 80%
of the net assets of the Tax-Free Money Market Fund will be invested in
short-term Municipal Obligations, the interest on which is exempt from regular
federal income tax and is not an item of tax preference for noncorporate
shareholders for purposes of the alternative minimum tax ("Tax-Exempt
Interest"). All portfolio investments must satisfy strict credit quality
standards imposed by the Company in accordance with applicable law.
MUNICIPAL OBLIGATIONS. The Fund invests in short-term Municipal Obligations
which are determined by the Adviser to present minimal credit risks and to
otherwise satisfy applicable quality standards pursuant to guidelines
established by the Company's Board of Directors and which at the time of
purchase are considered to be "first-tier" securities e.g., rated "AAA" or
higher by S&P or "Aaa" or higher by Moody's in the case of bonds; rated "SP-1"
by S&P or "MIG-1" by Moody's in the case of notes; rated "VMIG-1" by Moody's in
the case of variable rate demand notes; or rated "A-1" or "A-1+" by S&P or
"Prime-1" by Moody's in the case of tax-exempt commercial paper. The Fund may
also purchase securities that are not rated by S&P or Moody's at the time of
11
<PAGE>
purchase provided that the securities are determined to be of comparable quality
by the Adviser pursuant to guidelines approved by the Company's Board of
Directors. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
The Fund may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Adviser, suitable
obligations bearing Tax-Exempt Interest are unavailable. There is no percentage
limitation on the amount of assets which may be held uninvested during temporary
defensive periods. Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Municipal Obligations
may also include "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer of moral obligation bonds is unable to
meet its debt service obligations from current revenues, it may draw on a
reserve fund, the restoration of which is a moral commitment but not a legal
obligation of the state or municipality which created the issuer. Municipal
Obligations may include variable rate demand notes, which are described below
under "Additional Investment Information."
Current federal tax law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest. Such limitations may have an
effect on the ability of the Fund to purchase sufficient amounts of tax-exempt
securities. In addition, interest on certain bonds, although exempt from the
regular federal income tax, may be subject to alternative minimum tax. See the
discussion below under "Taxes" and the Statement of Additional Information.
Although the Tax-Free Money Market Fund may invest more than 25% of its net
assets in (i) Municipal Obligations whose issuers are in the same state, (ii)
Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Tax-Free Money Market Fund's assets are concentrated in Municipal Obligations
that are payable from the revenues of similar projects or are issued by issuers
located in the same state, the Fund will be subject to the peculiar risks
presented by the laws and economic conditions relating to such states or
projects to a greater extent than it would be if its assets were not so
concentrated.
THE GOVERNMENT OBLIGATIONS MONEY MARKET FUND
The Government Obligations Money Market Fund's investment objective is to
provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing at least 65% of its net assets, under normal market
conditions, in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and entering into repurchase agreements relating to such obligations. Purchases
of portfolio securities must satisfy strict credit quality standards imposed by
the Fund in accordance with applicable law.
12
<PAGE>
The types of U.S. Government obligations in which the Fund may invest include a
variety of U.S. Treasury obligations, which differ only in their interest rates,
maturities, and time of issuance, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, including mortgage-backed
securities. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as GNMA and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk with respect thereto is minimal and that applicable quality standards have
been satisfied.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns shares
representing an interest in the Fund. Certain government securities held by the
Fund may have remaining maturities exceeding 397 days if such securities provide
for adjustments in their interest rates not less frequently than annually and
the adjustments are sufficient to cause the securities to have market values,
after adjustment, which approximate their par values.
ADDITIONAL INVESTMENT INFORMATION
ILLIQUID SECURITIES AND RESTRICTED SECURITIES
Each Fund may invest up to 10% of the value of its net assets in illiquid
securities. Illiquid securities include repurchase agreements with maturities
greater than seven days and securities that are restricted from sale to the
public without registration ("Restricted Securities") under the Securities Act
of 1933, as amended (the "1933 Act"), other than Restricted Securities that can
be offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("144A Securities") or commercial paper sold without restriction
pursuant to Section 4(2) of the 1933 Act ("4(2) Commercial Paper") if such 144A
Securities or 4(2) Commercial Paper are determined to be liquid pursuant to
procedures approved by the Company's Board of Directors. Each Fund may invest in
144A Securities and 4(2) Commercial Paper determined to be liquid pursuant to
such procedures. The Board of Directors has delegated to the Adviser, subject to
the supervision of the Board of Directors, the daily function of determining and
monitoring the liquidity of 144A Securities. 144A Securities may become illiquid
if qualified institutional buyers are not interested in acquiring the
securities.
LOANS OF PORTFOLIO SECURITIES
Each of the Money Market and Government Obligations Money Market Funds may
lend its securities to brokers, dealers, domestic and foreign banks or other
financial institutions for the purpose of increasing its net investment income.
These loans must be secured continuously by cash or equivalent collateral or by
a letter of credit at least equal to the market value of the securities loaned
plus accrued interest. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in collateral should the borrower of
the portfolio
13
<PAGE>
securities fail financially. 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. For more detailed information about securities lending, see
"Investment Objectives and Policies" in the Statement of Additional Information.
MORTGAGE-BACKED SECURITIES
The Money Market and Government Obligations Money Market Funds may invest in
mortgage-backed securities. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-backed securities."
One such type of mortgage-backed security in which the Funds may invest is a
GNMA Certificate. GNMA Certificates are backed as to the timely payment of
principal and interest by the full faith and credit of the U.S. Government.
Another type is a FNMA Certificate. Principal and interest payments on FNMA
Certificates are guaranteed only by FNMA itself, not by the full faith and
credit of the U.S. Government. A third type of mortgage-backed security in which
such Funds may invest is a Federal Home Loan Mortgage Association ("FHLMC")
Participation Certificate. This type of security is guaranteed by FHLMC as to
timely payment of principal and interest but, like a FNMA security it is not
guaranteed by the full faith and credit of the U.S. Government. For a further
discussion of GNMA, FNMA and FHLMC, see "Mortgage-Related Debt Securities" in
the Statement of Additional Information.
Each of the mortgage-backed securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as a Fund), like the payments on the underlying loans, represent
both principal and interest. Although the underlying mortgage loans are for
specified periods of time, such as twenty or thirty years, the borrowers can,
and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of a Fund's higher yielding securities might be
repaid and thereby converted to cash and the Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities. A Fund
normally will not distribute principal payments (whether regular or prepaid) to
its shareholders. Interest received by each Fund will, however, be distributed
to shareholders in the form of dividends.
REPURCHASE AGREEMENTS
The Money Market and Government Obligations Money Market Funds may enter
into repurchase agreements with brokers, dealers or banks that meet the credit
guidelines of the 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. A Fund
always receives securities as collateral with a market value at least equal to
the purchase price, including accrued interest, and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, a Fund
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<PAGE>
might incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Fund's realization upon the collateral may be delayed or limited.
The aggregate of certain repurchase agreements and certain other investments is
limited as set forth under "Investment Limitations."
REVERSE REPURCHASE AGREEMENTS
The Money Market and Government Obligations Money Market Funds may enter
into reverse repurchase agreements with brokers, dealers, banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a 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. A Fund's investment of the proceeds of a
reverse repurchase agreement is a speculative factor known as leverage. A 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. A Fund will maintain with the Custodian a separate
account with a segregated portfolio of cash or other liquid securities in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect a 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 a 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."
STAND-BY COMMITMENTS. The Money Market and Tax-Free Money Market Funds may
each acquire "stand-by commitments" with respect to Municipal Obligations held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at a Fund's option specified Municipal Obligations at a specified price. The
acquisition of a stand-by commitment may increase the cost, and thereby reduce
the yield, of the Municipal Obligations to which such commitment relates. A Fund
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights thereunder for trading purposes.
VARIABLE RATE DEMAND NOTES. The Money Market and Tax-Free Money Market
Funds may purchase variable rate demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustment in the interest rate. Although the notes are not normally traded and
there may be no active secondary market in the notes, a Fund will be able (at
any time or during the specified periods not exceeding 397 days, depending upon
the note involved) to demand payment of the principal of a note. The notes are
frequently not rated by credit rating agencies, but notes not rated by S&P or
Moody's purchased by a Fund will have been determined by the Adviser to be of
comparable quality at the time of the purchase to rated instruments purchasable
by the Fund. Where necessary to ensure that a note is of sufficiently high
quality, a Fund will require that the issuer's obligation to pay the principal
of the note be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. While there may be no active secondary market
with respect to a particular variable rate demand note purchased by a Fund, the
Fund may, upon the notice specified in the note, demand payment of the principal
of the note at any time or during specified periods not exceeding 397 days,
depending upon the instrument involved. The absence of such an active secondary
market, however, could make it difficult for a Fund to dispose of a variable
rate demand note if the issuer defaulted on its payment obligation or during the
periods that the Fund is not entitled to exercise its demand rights. A Fund
could, for this
15
<PAGE>
or other reasons, suffer a loss to the extent of the default. A Fund will invest
in variable rate demand notes only when the Adviser deems the investment to
involve minimal credit risk and to otherwise satisfy applicable quality
standards. The Adviser also monitors the continuing creditworthiness of issuers
of such notes to determine whether a Fund should continue to hold such notes.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Money Market Fund and Government Obligations Money Market Fund may
purchase securities on a when-issued or delayed delivery basis. In such
transactions, instruments are bought with payment and 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. A
Fund will maintain with the Custodian a separate account with a segregated
portfolio of cash or liquid securities in an amount at least equal to 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
Fund not to enter into when-issued commitments or delayed delivery securities
exceeding, in the aggregate, 25% of the Fund's net assets other than the
obligations created by these commitments.
QUALITY INFORMATION. The Money Market Funds utilize the amortized cost
method of valuation in accordance with regulations issued by the SEC. See
"Valuation of Shares." Accordingly, each Fund will limit its portfolio
investments to those instruments which present minimal credit risks and which
are of eligible quality, as determined by the Adviser under the supervision of
the Board of Directors and in accordance with regulations of the SEC, as such
regulations may from time to time be amended. Eligible quality for this purpose
means a security (i) rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs")
assigning a rating to the security or issuer or, if only one rating organization
assigned a rating, by that rating organization or (ii) if unrated, determined to
be of comparable quality by the Adviser under the supervision of the Board of
Directors. Each of the Government Obligations Money Market and Money Market
Funds will not invest more than 5% of its total assets in securities of issuers
having the second highest rating from any NRSRO; and these Funds will not invest
more than the greater of one percent of its total assets or $1 million in
securities issued by an issuer, having at the time of acquisition or roll over,
the second highest rating from any NRSRO. The Tax-Exempt Money Market Fund will
not invest more than 5% of its total assets in conduit securities (not subject
to unconditional demand features) of issuers having the second highest rating
from any NRSRO. Additionally, the Tax-Exempt Money Market Fund will not invest
more than the greater of one percent of its total assets or $1 million in
conduit securities (not subject to unconditional demand features) of an issuer
which, at the time of acquisition or roll over, has the second highest rating
from an NRSRO. Among the criteria adopted by the Board of Directors, a Fund will
not purchase any bank or corporate obligation unless it is rated at least Aa or
Prime-1 by Moody's or AA, A-1+ or A-1 by S&P or, if not rated by S&P or Moody's,
it is determined to be of comparable quality by the Adviser under the
supervision of the Board of Directors. Ratings, however, are not the only
criteria utilized under the procedures adopted by the Board of Directors. For a
more detailed discussion of other quality requirements applicable to the Fund,
see "Description of Securities and Ratings" in the Statement of Additional
Information.
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<PAGE>
These quality standards must be satisfied at the time an investment is made.
In the event that an investment held by the Fund is assigned a lower rating or
ceases to be rated, the Adviser, under the supervision of the Board of
Directors, will promptly reassess whether such security presents minimal credit
risks and whether the Fund should continue to hold the security in its
portfolio. If a portfolio security no longer presents minimal credit risks, is
in default or its rating is downgraded to below the second highest rating
category, the Fund will dispose of the security as soon as reasonably
practicable unless the Board of Directors determines that to do so is not in the
best interests of the Fund.
INVESTMENT LIMITATIONS
Each Fund is a diversified investment company under the Investment Company
Act of 1940, as amended (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, its agencies and instrumentalities, and (b)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. Under regulations applicable to money Market Funds, however, a Fund
may invest more than 5% of its assets in any one issuer of "first tier"
securities for no more than three days.
The Money Market Funds also operate under certain investment restrictions
that are deemed fundamental policies and may be changed by 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) enter into repurchase agreements with more than
seven days to maturity if, as a result, more than 10% of the market value of its
total assets would be invested in these agreements and other investments for
which market quotations are not readily available or which are otherwise
illiquid; or (ii) invest more than 25% of the Fund's total assets in securities
of companies in any one industry, except that there is no limitation with
respect to investments in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or, for the Money Market Fund,
obligations of U.S. banks or their domestic branches.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of its Money
Market Funds. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") and, subject to the supervision of the 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 from each Fund an annual management fee, payable
monthly, equal to the percentages of average daily net assets set forth in the
table below. However, the Adviser will waive a portion of its fees and/or
reimburse expenses of a 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."
<TABLE>
<CAPTION>
ASSETS ABOVE
ASSETS UP TO $250 MILLION UP ASSETS EXCEEDING
$250 MILLION TO $500 MILLION $500 MILLION
------------- --------------- -----------------
<S> <C> <C> <C>
Money Market Fund................................................ 0.45% 0.40% 0.35%
Tax-Free Money Market Fund....................................... 0.45% 0.40% 0.35%
Government Obligations Money Market Fund......................... 0.45% 0.40% 0.35%
</TABLE>
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<PAGE>
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 October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
The Money Market Funds have adopted a plan of distribution pursuant to Rule
12b-1 (the "Plan") under the 1940 Act. Under the Plan, which is described in
more detail under "Distributor" below, the Distributor is entitled to receive
from each Money Market Fund payments of 0.50% of such Fund's annual average net
assets. The Plan recognizes that, in addition to such payments, the Adviser may
use its advisory fees or other resources to pay expenses associated with
activities which might be construed to be financing the sale of these Money
Market Funds' shares. The Plan provides that the Adviser may make payments from
these sources to third parties, such as consultants that provide assistance in
the distribution effort (in addition to selling shares and providing shareholder
services).
ADMINISTRATOR. The 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 as Administrator under the
Administration Agreement, the Company pays the Administrator a monthly fee which
on an annual basis equals 0.10% of the first $200 million of the Funds' average
daily net assets, 0.075% on the next $200 million of average daily net assets,
0.05% on the next $200 million of average daily net assets, and 0.03% on the
average daily net assets over $600 million of each Fund.
Under an agreement between the Administrator and The Chase Manhattan Bank
("Chase"), Chase Global Funds Services Company ("CGFSC"), a corporate affiliate
of Chase, provides certain administrative services to the Company. The
Administrator supervises and monitors such administrative services provided by
CGFSC. The services provided under the administration agreement are subject to
the supervision of the Board of Directors of the Company. The Board of Directors
of the Company has approved the provision of services described above pursuant
to the Administration Agreement as being in the best interests of the Company.
PFPC, Inc., under an agreement with the Administrator, will perform as
sub-transfer agent and dividend disbursing agent for Prime Resource Account
holders. ACCESS, under an agreement with the Administrator, will perform as
sub-transfer agent and dividend disbursing agent for all other shareholders. For
additional information on the Administration Agreement, see "Management of the
Company" in the Statement of Additional Information.
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<PAGE>
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. Van Kampen American Capital, Inc. ("VKAC Distributors" or the
"Distributor") serves as the Distributor of the shares of the Company. Under its
distribution agreement (the "Distribution Agreement") with the Company, VKAC
Distributors sells shares of the Company upon the terms and at the current
offering price described in this Prospectus. VKAC Distributors is not obligated
to sell any specific number of shares of the Company.
Each Fund currently offers only one class of shares. The Company may in the
future offer one or more classes of shares for each Fund that may have different
sales charges or other distribution charges or a combination thereof than the
class currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for the Money Market Funds
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is
entitled to receive from these Money Market Funds a distribution fee, which is
accrued daily and paid monthly, of 0.50% for each of the Money Market Funds on
an annualized basis of the average daily net assets of such Fund. The
Distributor expects to reallocate most of its fee to investment dealers, banks
or financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealer"). The actual amount of such
compensation is agreed upon by the 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 Plan obligates the Money Market Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plan does
not obligate the Money Market Funds to reimburse VKAC Distributors for the
actual expenses VKAC Distributors may incur in fulfilling its obligations under
the Plan. Thus, under the Plan, even if VKAC Distributors' actual expenses
exceed the fee payable to it thereunder at any given time, the Money Market
Funds will not be obligated to pay more than that fee. If VKAC Distributors'
actual expenses are less than the fee it receives, VKAC Distributors will retain
the full amount of the fee.
The Plan, under the terms of Rule 12b-1, will remain in effect only if
approved at least annually by the 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 the Plan or in any agreements related thereto ("12b-1
Directors"). The Plan may be terminated at any time by a vote of a majority of
the 12b-1 Directors or by a vote of a majority of the outstanding voting
securities of the applicable class of a Fund. The fee set forth above will be
paid by the Fund to VKAC Distributors unless and until the Plan is terminated or
not renewed. The Company intends to operate the Plan in accordance with its
terms and the NASD Rules concerning sales charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Money Market Funds pursuant to the advice of such
financial institutions. These payments will be made directly by the Adviser or
its affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares.
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<PAGE>
Such financial institutions may also perform certain shareholder or
recordkeeping services that would otherwise be performed by CGFSC. The Adviser
may elect to enter into a contract to pay the financial institutions for such
services.
EXPENSES. The Money Market Funds are responsible for payment of certain
other fees and expenses (including professional fees, custodial fees and
printing and mailing costs) specified in the Administration and Distribution
Agreements.
PURCHASE OF SHARES
GENERAL. The Company offers one class of shares to the public on a
continuous basis through the Distributor as principal underwriter, which is
located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also
offered through members of the NASD who are acting as securities dealers
("dealers") and NASD members or eligible non-NASD members who are acting as
brokers or agents for investors ("brokers"). The term "dealers" and "brokers"
are sometimes referred to herein as "Participating Dealers." Shares are also
offered through Morgan Stanley & Co. to Prime Resource Account Holders.
Shares are sold without a front-end sales load on a continuous basis by the
Distributor. The minimum initial investment is $500, except that the minimum
initial investment amount for individual retirement accounts ("IRAs") is $250.
The minimum for subsequent investments is $25 and there is no minimum for
automatic reinvestment of dividends and distributions. The Distributor may waive
the $500 minimum in its sole discretion. The Company in its sole discretion may
accept or reject any order for purchases of shares.
PURCHASES BY PRIME RESOURCE ACCOUNT HOLDERS
GENERAL. Prime Resource Account Holders are account holders who open a
prime resource account with the Distributor. A prime resource account is a cash
management account offering such features as check writing privileges, automatic
sweep of all cash balances into a Money Market Fund and a Visa Gold credit card.
Pursuant to the sweep feature, Prime Resource Account Holders will be permitted
to purchase shares of the Money Market Funds. Prime resource accounts are
available only to clients of broker-dealers who use the Morgan Stanley & Co. as
their clearing firm. Investors may purchase shares through an account maintained
by the investor with his brokerage firm (the "Account").
All payments for initial and subsequent investments should be in U.S.
Dollars. Purchases will be effected at the net asset value next determined after
PFPC, Inc. (the "Sub-Transfer Agent"), has received a purchase order in proper
form and the Company's custodian has Federal Funds immediately available to it.
PURCHASES THROUGH A PRIME RESOURCE ACCOUNT. Share purchases may be effected
through an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker.
In such event, beneficial ownership of shares will be recorded by the broker
and will be reflected in the Account statements provided by the broker to such
investors. A broker may impose minimum investor Account requirements. Although a
broker does not impose a sales charge for purchases of shares, depending on the
terms of an investor's Account with his broker, the broker may charge an
investor's Account fees for automatic
20
<PAGE>
investment and other service provided to the Account. Information concerning
Account requirements, services and charges should be obtained from an investor's
broker. This Prospectus should be read in conjunction with any information
received from a broker.
A broker may offer investors maintaining Accounts the ability to purchase
shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
shares of the Fund which he has designated (the "Designated Fund") under the
Purchase Program. The frequency of investments and the minimum investment
requirement will be established by the broker and the Company. In addition, the
broker may require a minimum amount of cash and/or securities to be deposited in
an Account for participants in its Purchase Program. The description of the
particular broker's Purchase Program should be read for details, and any
inquiries concerning an Account under a Purchase Program should be directed to
the broker. A participant in a Purchase Program may change the designation Fund
at any time by so instructing his broker.
If a broker makes special arrangements under which orders for shares are
received by the Sub-Transfer Agent prior to 12:00 noon (Eastern Time) on any day
that the New York Stock Exchange (the "NYSE") and Federal Reserve Banks are open
for business (a "Business Day"), and the broker guarantees that payment for such
shares will be made in Federal Funds to the Company's custodian prior to 4:00
p.m. (Eastern Time), on the same day, such purchase orders will be effective,
and shares will be purchased at the offering price in effect, as of 12:00 p.m.
(Eastern Time) on the date the purchase order is received by the Sub-Transfer
Agent. Purchase orders received after 12:00 p.m. (Eastern Time) and prior to
4:00 p.m. (Eastern Time), on any Business Day for which payment in Federal Funds
has been received by 4:00 p.m. (Eastern Time), will be effective, and shares
will be purchased at the offering price in effect, as of 4:00 p.m. (Eastern
Time) the same day.
FOR PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON EACH MONEY MARKET FUND
CAN BE OBTAINED BY CALLING THE SUB-TRANSFER AGENT AT 1-800-533-7719.
PURCHASES BY ALL OTHER SHAREHOLDERS
GENERAL. Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS").
The price paid for shares purchased is based on the next calculation of net
asset value after an order is received by a Participating Dealer and transmitted
to the Distributor. If the Distributor receives a purchase order prior to 12:00
noon (Eastern Time) and receives payment in Federal funds prior to 4:00 p.m.
(Eastern Time) on any day that the New York Stock Exchange (the "NYSE") and
Federal Reserve Banks are open for business (a "Business Day"), shares will be
purchased at the offering price in effect, as of 12:00 p.m. (Eastern Time) on
the date the purchase order is received by a Participating Dealer. Purchase
orders received after 12:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern
Time), on any Business Day for which payment in Federal Funds has been received
by 4:00 p.m. (Eastern Time), will be effective, and shares will be purchased at
the offering price in effect, as of 4:00 p.m. (Eastern Time) the same day
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. Orders received by Participating Dealers
21
<PAGE>
after the close of the NYSE are priced based on the net asset value calculated
after the next day's close provided they are received by the Distributor prior
to the Distributor's close of business on such day. It is the responsibility of
Participating Dealers to transmit orders received by them to the Distributor so
they will be received prior to such time. Orders of less than $500 are mailed by
the Participating Dealer and processed at the offering price next calculated
after acceptance by ACCESS.
OTHER PURCHASE INFORMATION
Orders for the purchase of shares of the Money Market Funds become effective
on the Business Day that Federal Funds are received, and the purchase will be
effected at the net asset value next computed after receipt of Federal Funds.
Purchase of shares of the Money Market Funds by check is credited to your
account at the price next determined after receipt of Federal Funds on the day
of receipt and will begin receiving dividends the following day. If you purchase
shares of 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.
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.
SHAREHOLDER SERVICES RELATED TO PURCHASES (Shareholders Other Than Prime
Resource Account Holders). The Company offers a number of shareholder services
designed to facilitate investment in its shares at little or no extra cost to
the investor. Below is a description of such services. Unless otherwise
described below, each of these services may be modified or terminated by the
Company at any time.
INVESTMENT ACCOUNT. ACCESS Investor Services, Inc. ("ACCESS"), transfer
agent for the Company and a wholly-owned subsidiary of Van Kampen American
Capital, Inc. performs bookkeeping, data processing and administration services
related to the maintenance of shareholder accounts. Each shareholder has an
investment account under which shares are held by ACCESS. Except as described
herein, after each share transaction in an account, the shareholder receives a
statement showing the activity in the account. Each shareholder will receive
statements at least quarterly from ACCESS showing any reinvestments of dividends
and capital gains distributions and any other activity in the account since the
preceding statement. Such shareholders also will receive separate confirmations
for each purchase or sale transaction other than reinvestment of dividends and
capital gains distributions and systematic purchases or redemptions. Additions
to an investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value on the record
date of such dividend or distribution. Unless the shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 282-4404 or
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<PAGE>
(800) 772-8889 for the hearing impaired, or in writing to ACCESS. The investor
may, on the initial application or prior to any declaration, instruct that
dividends be paid in cash and capital gains distributions be reinvested at net
asset value, or that both dividends and capital gains distributions be paid in
cash. For further information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any other Fund,
so long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
FOR SHAREHOLDERS, OTHER THAN PRIME RESOURCE ACCOUNT HOLDERS, INFORMATION ON
EACH MONEY MARKET FUND CAN BE OBTAINED BY CALLING THE TRANSFER AGENT AT
1-800-282-4404.
REDEMPTION OF SHARES
REDEMPTIONS BY MORGAN STANLEY PRIME RESOURCE ACCOUNT HOLDERS
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Sub-Transfer Agent.
Investors may redeem all or some of their shares in accordance with one of the
procedures described below.
REDEMPTION OF SHARES IN A PRIME RESOURCE ACCOUNT. An investor who
beneficially owns shares may redeem such shares in his Account in accordance
with instructions and limitations pertaining to his Account by contacting his
broker. If such notice is received by the Sub-Transfer Agent by 12:00 noon
(Eastern Time) on any Business Day, the redemption will be effective as of 12:00
noon (Eastern Time) on that day. Payment of the redemption proceeds will be made
after 12:00 noon (Eastern Time) on the day the redemption is effected, provided
that the Custodian Bank is open for business. If the Custodian Bank is not open,
payment will be made on the next bank business day. If the redemption request is
received after 12:00 noon but before 4:00 p.m. (Eastern Time), the redemption
will be effected as of 4:00 p.m. (Eastern Time) on that day and payment of the
redemptions proceeds will be made after 12:00 noon (Eastern Time) on the next
Business Day after the
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redemption is effected, provided that the Custodian Bank is open for business.
If the Custodian Bank is not open, payment will be made on the next bank
business day. If all shares are redeemed, all accrued but unpaid dividends on
those shares will be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a sufficient number
of shares of the Designated Fund to cover debit balances created by transactions
in the Account or instructions for cash disbursements. Fund shares will be
redeemed on the same day that a transaction occurs that results in such a debit
balance or charge.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION BY CHECK. Upon request, the Company will provide any Prime
Resource Account Holder with forms of drafts ("checks") payable through PNC
Bank, N.A. (the "Custodian Bank"). These checks may be made payable to the order
of anyone. The minimum amount of a check is $500. An investor wishing to use
this check writing redemption procedure should complete specimen signature
cards, and then forward such signature cards to the investor's broker or in
accordance with the broker's instructions. Upon receipt, the Sub-Transfer Agent
will then arrange for the checks to be honored by the Custodian Bank. Investors
who own shares through an Account should contact their brokers for signature
cards. Investors with joint accounts may elect to have checks honored with a
single signature. Check redemptions will be subject to the Custodian Bank's
rules governing checks. An investor will be able to stop payment on a check
redemption. The Company or Sub-Transfer Agent may terminate this redemption
service at any time, and shall not incur any liability for honoring checks, for
effecting redemptions to pay checks, or for returning checks which have not been
accepted.
When a check is presented to the Bank for clearance, the Bank, as the
investor's agent, will cause the Company to redeem a sufficient number of full
and fractional shares owned by the investor to cover the amount of the check.
This procedure enables the investor to continue to receive dividends on those
shares equaling the amount being redeemed by check until such time as the check
is presented to the Bank. Checks may not be presented for cash payment at the
offices of the Bank because, under 1940 Act rules, redemptions may be effected
only at the redemption price next determined after the redemption requested is
presented to the Transfer Agent or Sub-Transfer Agent. This limitation does not
affect checks used for the payment of bills or to obtain cash at other banks.
REDEMPTION BY ALL OTHER SHAREHOLDERS
Shareholders may redeem for cash some or all of their shares without charge
by the Company at any time by sending a written request in proper form directly
to the Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through Participating Dealer or by calling the
Company.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the account number and be signed exactly as the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $50,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings
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<PAGE>
bank. If certificates are held for the shares being redeemed, such certificates
must be endorsed for transfer or accompanied by an endorsed stock power and sent
with the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed will ordinarily be made by check mailed
within seven business days after acceptance by ACCESS of the request and any
other necessary documents in proper order. Such payments may be postponed or the
right of redemption suspended as provided by the rules of the SEC. If the shares
to be redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.
DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed will ordinarily be made by check mailed within three business days to
the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 282-4404
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. The
Distributor and the Company employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither the Distributor nor the Company will be liable for following
instructions which it reasonably believes to be genuine. The Distributor and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the Company's other redemption procedures
previously described. Requests received by ACCESS prior to 4:00 p.m., Eastern
Time, on a regular business day will be processed at the net asset value per
share determined that day. These privileges are available for all accounts other
than retirement accounts. The telephone redemption privilege is not available
for shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may
25
<PAGE>
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Company reserves the right at any time to terminate,
limit or otherwise modify this telephone redemption privilege.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value. Any involuntary redemption may
only occur if the shareholder account is less than the minimum investment due to
shareholder redemptions.
IRA redemption requests should be sent to the IRA custodian to be forwarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
Custodian, special IRA, 403(b)(7), or Keogh redemption forms must be obtained
from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box
944, Houston, Texas 77001-0944. Contact the custodian for information.
FOR SHARES HELD IN BROKER STREET NAME, YOU CANNOT REQUEST REDEMPTION BY
TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY CONTACTING YOUR
PARTICIPATING DEALER.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder, other than a Prime Resource Account Holder, whose shares in a
single account total $10,000 or more at the offering price next computed after
receipt of instructions may establish a monthly, quarterly, semi-annual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the principal, if necessary. Each
withdrawal constitutes a redemption of shares on which taxable gain or loss will
be recognized. The plan holder may arrange for monthly, quarterly, semi-annual,
or annual checks in any amount not less than $25.
26
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Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
The Company reserves the right to amend or terminate the systematic withdrawal
program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. A shareholder, other than a
Prime Resource Account Holder, can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of Automated Clearing House. In
addition, the shareholder must fill out the appropriate section of the account
application. The shareholder must also include a voided check or deposit slip
from the bank account into which redemptions are to be deposited together with
the completed application. Once ACCESS has received the application and the
voided check or deposit slip, such shareholder's designated bank account,
following any redemption, will be credited with the proceeds of such redemption.
Once enrolled in the ACH plan, a shareholder may terminate participation at any
time by writing to ACCESS or by calling (800) 282-4404. A shareholder's bank may
charge a fee for this transfer.
SHAREHOLDER SERVICES
TRANSFER OF REGISTRATION
You may transfer the registration of any of your Company shares to another
person by writing to the Fund
c/o ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256. As in the case of
redemptions, the written request must be received in "good order" before any
transfer can be made. Shares held in broker street name may be transferred only
by contacting your Participating Dealer.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
another Money Market Fund, subject to certain limitations. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
27
<PAGE>
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 or (800) 772-8889 for the hearing impaired. A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request. Any shares exchanged begin earning dividends on the next business day
after the exchange is affected. Van Kampen American Capital and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Company employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither the Distributor nor the Company will be liable
for following telephone instructions which it reasonably believes to be genuine.
If the exchanging shareholder does not have an account in the Fund whose shares
are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or dividend diversification options for the new account, an exchanging
shareholder must file a specific written request. The Company reserves the right
to reject any order to acquire its shares through exchange. In addition, the
Company may restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.
VALUATION OF SHARES
The net asset value per share of each of the Money Market Funds is
determined at 12:00 p.m. (Eastern Time) and 4:00 p.m. (Eastern Time) on the days
on which the NYSE and the Custodian Bank are open. For the purpose of
calculating the Fund's net asset value per share, securities are valued by the
"amortized cost" method of valuation, which does not take into account
unrealized gains or losses. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
PERFORMANCE INFORMATION
From time to time the Money Market Funds may advertise "yield," and may
advertise "effective yield." Yield figures are based on historical performance
and are not intended to indicate future performance. The "yield" of such Funds
refers to the income generated by an investment in the Funds over a seven-day
period and the income generated over the seven-day period is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned on an investment in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than
28
<PAGE>
the "yield" because of the compounding effect of this assumed reinvestment. The
Tax-Free Money Market Fund may also quote its "tax-equivalent yield" from time
to time. The tax-equivalent yield shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of federal income tax at a stated tax rate. For further
information concerning these figures, see "Performance Information" in the
Statement of Additional Information. The Fund may also use comparative
performance information from time to time in marketing Fund shares, including
data from Lipper Analytical Services, Inc. and/or Donoghue's Money Fund Report.
For information on each Fund's seven-day yield call the Transfer Agent at
1-800-282-4404.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, except that, upon written
notice to the 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.
For the Money Market Funds, net investment income is computed and dividends
declared as of 1:00 p.m. (Eastern Time) on each day. Such dividends are payable
to Fund shareholders of record as of 12:00 p.m. (Eastern Time) on that day, if
the Company and the Custodian Bank are open for business. This means that
shareholders whose purchase orders become effective as of 12:00 p.m. (Eastern
Time) receive the dividend for that day and shareholders whose purchase orders
become effective as of 4:00 p.m. (Eastern Time) receive the dividend for the
following day. Dividends declared for Saturdays, Sundays and holidays are
payable to shareholders of record as of 4:00 p.m. (Eastern Time) on the last
preceding day the Company and the Custodian Bank were open for business. Net
realized gains, if any, after reduction for any available tax loss carry forward
may be distributed annually.
It is an objective of management to maintain the price per share of each
Money Market Fund as computed for the purpose of sales and redemptions at
exactly $1.00. In the event the Directors determine that a deviation from the
$1.00 per share price may exist which may result in a material dilution or other
unfair results to investors or existing shareholders, they will take corrective
action they regard as necessary and appropriate, including the sale of
instruments from the Fund prior to maturity to realize gains or losses,
shortening average portfolio maturity, withholding dividends, making a special
capital distribution, or redemptions of shares in kind.
TAXES
TAX STATUS OF THE 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 a Fund or its shareholders. Accordingly,
shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
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<PAGE>
Each Fund is treated as a separate entity for federal income tax purposes,
and thus the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), generally will be applied to each 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.
Each Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) which is distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by the Money Market Fund and Government Obligations Money Market
Fund from their respective net investment income will be taxable to the
shareholders of such 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 the 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.
The Tax-Free Money Market Fund intends to qualify to pay "exempt interest
dividends" by satisfying the Code's requirement that at the close of each
quarter of its taxable year at least 50% of the value of its total assets
consists of securities the interest on which is exempt from federal income tax.
So long as this and certain other requirements are satisfied, the Fund's "exempt
interest dividends" will be exempt from regular federal income tax. Investors in
this Fund should note, however, that in certain circumstances such amounts,
while exempt from regular federal income tax, are subject to alternative minimum
tax. In addition, this Fund may not be an appropriate investment for persons who
are "substantial users" of facilities financed by industrial development or
private activity bonds. See the Statement of Additional Information for a
description of the application of the alternative minimum tax and certain other
collateral tax consequences.
Current federal income tax law limits the types and volume of bonds
qualifying for the federal income tax exemption of interest, which may affect
the ability of the Tax-Free Money Market Fund to purchase sufficient amounts of
tax-exempt securities to qualify to pay "exempt interest dividends." Investors
should note that interest on indebtedness incurred or continued by shareholders
to purchase or carry shares of the Tax-Free Money Market Fund will not be
deductible for federal income tax purposes.
The Tax-Free Money Market Fund will determine annually the percentages of
its net investment income which are exempt form the regular federal income tax
and will apply such percentages uniformly to all distributions declared from net
investment income during that year. These percentages may differ significantly
form the actual percentages for any particular day.
30
<PAGE>
Shareholders may also be subject to state and local taxes on distributions
from the Company. Shareholders are advised to consult their own tax advisers
with respect to tax consequences to them of an investment in the Company.
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 a Fund and
received by the shareholders on December 31 of the year declared.
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 the Funds, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the 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. A Director may be removed by shareholders at a special meeting called upon
written request of shareholders owning at least 10% of the outstanding shares of
the Company. 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 December 11, 1996, PFPC, Inc., 400 Bellevue Parkway,
Wilmington, DE 19809, was presumed to "control" the Money Market Fund and
Government Obligations Money Market Fund based solely on its ownership of 25% or
more of the outstanding voting shares of such Funds.
REPORTS TO SHAREHOLDERS
The Company and/or its agents will send to shareholders of the Company
annual and semi-annual reports; the financial statements appearing in annual
reports are audited by independent accountants. Shareholder inquiries for Prime
Resource Accounts should be directed to the Sub-Transfer Agent, PFPC, Inc., P.O.
Box 8950, Delaware 19899. Shareholder inquiries for all other accounts should be
directed to the Transfer Agent, Chase Global Funds Services Company, P.O. Box
2798, Boston, Massachusetts 02208-2798.
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<PAGE>
CUSTODIAN
PNC Bank, N.A. acts as custodian for each of the Money Market Funds. For
more information on the Company's custodians, see "General Information --
Custody Arrangements" in the Statement of Additional Information.
DIVIDEND DISBURSING, TRANSFER AGENT AND SUB-TRANSFER AGENT
Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913, acts as dividend disbursing and transfer agent for the
Company. PFPC, Inc., an indirect wholly-owned subsidiary of PNC Financial Corp.,
a multi-bank holding company, serves as sub-transfer agent for Morgan Stanley
Prime Resource Account shareholders. PFPC's address is 400 Bellevue Parkway,
Wilmington, Delaware 19809. ACCESS, a wholly-owned subsidiary of VKAC
Distributors, serves as sub-transfer agent for all other shareholders. ACCESS's
address is P.O. Box 418256, Kansas City, Missouri 64141.
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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<PAGE>
MORGAN STANLEY FUND, INC.
MORGAN STANLEY MONEY MARKET AND MORGAN STANLEY GOVERNMENT OBLIGATIONS
MONEY MARKET FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141 (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 ACCESS Investor Services, Inc. ("ACCESS") 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 $500 and $25, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Money Market Fund (462) $
Morgan Stanley Government
Obligations Money Market Fund (463) $
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 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 ACCESS to act upon instructions received
ACCESS 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.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges
/ / telephone redemption privileges Name of Bank
-----------------------------------------------------------
for myself/ourselves or my/our investment dealer. Bank A.B.A. Number ----------------- Account Number
-----------------
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>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize ACCESS 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. (Not available on the
31st, 1st or 2nd day of the month).
Start ___________________________________________________
(Month, Day, Year)
Amount of each debit (minimum $25) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------- Code : ---------- $ -------------------------------
- ---------------------------------------------------------------- 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 ACCESS Investor Services, Inc., 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 (please check applicable boxes below):
/ / 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 ACCESS 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 ACCESS 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 ACCESS 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 ACCESS 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.................................................. 4
Prospectus Summary.................................................... 7
Investment Objectives and Policies.................................... 10
Additional Investment Information..................................... 13
Investment Limitations................................................ 17
Management of the Company............................................. 17
Purchase of Shares.................................................... 20
Redemption of Shares.................................................. 23
Shareholder Services.................................................. 27
Performance Information............................................... 28
Dividends and Distributions........................................... 29
Taxes................................................................. 29
General Information................................................... 31
</TABLE>
MORGAN STANLEY
MONEY MARKET FUND
MORGAN STANLEY
TAX-FREE MONEY MARKET FUND
MORGAN STANLEY
GOVERNMENT OBLIGATIONS
MONEY MARKET FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
<PAGE>
MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of twenty-two diversified and
non-diversified investment portfolios designed to offer a range of investment
choices (each, a "Fund" and collectively, the "Funds"). The Company is designed
to make available to retail investors the expertise of Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS," and each of MSAM and MAS, an "Adviser"). This Statement of Additional
Information ("SAI") addresses information of the Company applicable to the
Funds. The Morgan Stanley Growth and Income, Morgan Stanley Japanese Equity,
Morgan Stanley European Equity and Morgan Stanley Tax-Free Money Market Funds
currently are not offering shares.
This Statement is not a prospectus but should be read in conjunction with
the Company's prospectuses (each a "Prospectus" and together, the
"Prospectuses"). To obtain the Prospectuses, please call the Morgan Stanley
Fund, Inc. Services Group at:
1-800-341-2911
--------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
INVESTMENT OBJECTIVES AND POLICIES...... 1
FEDERAL INCOME TAX...................... 16
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE
CHANGES................................ 18
TAXES AND FOREIGN SHAREHOLDERS.......... 19
PURCHASE OF SHARES...................... 20
REDEMPTION OF SHARES.................... 21
INVESTMENT LIMITATIONS.................. 21
DETERMINING MATURITIES OF CERTAIN
INSTRUMENTS............................ 25
MANAGEMENT OF THE COMPANY............... 26
MONEY MARKET FUND NET ASSET VALUE....... 32
PORTFOLIO TRANSACTIONS.................. 33
PERFORMANCE INFORMATION................. 33
GENERAL INFORMATION..................... 41
DESCRIPTION OF SECURITIES AND RATINGS... 42
FINANCIAL STATEMENTS.................... 45
</TABLE>
Statement of Additional Information dated January 2, 1997, relating to the
following prospectuses (Class A, B and C shares of each Fund, other than the
money market funds, which only offer one class of shares):
Morgan Stanley Emerging Markets Debt Fund, Morgan Stanley Global Fixed
Income Fund, Morgan Stanley High Yield Fund and Morgan Stanley Worldwide
High Income Fund, dated January 2, 1997.
Morgan Stanley Aggressive Equity Fund, Morgan Stanley American Value Fund,
Morgan Stanley Equity Growth Fund, Morgan Stanley Mid Cap Growth Fund,
Morgan Stanley U.S. Real Estate Fund and Morgan Stanley Value Fund, dated
January 2, 1997.
Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Global Equity Fund, Morgan Stanley Global Equity Allocation
Fund, Morgan Stanley International Magnum Fund, Morgan Stanley Japanese
Equity Fund and Morgan Stanley Latin American Fund, dated January 2, 1997.
Morgan Stanley Money Market Fund, Morgan Stanley Tax-Free Money Market Fund
and Morgan Stanley Government Obligations Money Market Fund, dated January
2, 1997.
Morgan Stanley Growth and Income Fund and Morgan Stanley European Equity
Fund, undated (not currently offered).
INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's twenty-two Funds: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley High Yield Fund,
Morgan Stanley American Value Fund, Morgan Stanley Aggressive Equity Fund,
Morgan Stanley U.S. Real Estate Fund, Morgan Stanley Global Equity Allocation
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley International Magnum Fund,
Morgan Stanley Japanese Equity Fund, Morgan Stanley Growth and Income Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Equity Growth Fund, Morgan
Stanley Global Equity Fund, Morgan
1
<PAGE>
Stanley Emerging Markets Debt Fund, Morgan Stanley Mid Cap Growth Fund, Morgan
Stanley Value Fund (collectively, the "Non-Money Funds") and Morgan Stanley
Money Market Fund, Morgan Stanley Tax-Free Money Market Fund and Morgan Stanley
Government Obligations Money Market Fund (collectively, the "Money Market
Funds").
For ease of reference, the words "Morgan Stanley," which begin the name of
each Fund, are not used hereinafter. MSAM is the Adviser to all of the Funds,
except that MAS is the Adviser to the Mid Cap Growth and Value Funds.
EMERGING COUNTRY DEBT SECURITIES
GENERAL. The Emerging Markets Debt and Worldwide High Income Funds'
definition of emerging country debt securities includes securities of companies
that may have characteristics and business relationships common to companies in
a country or countries other than an emerging country. As a result, the value of
the securities of such companies may reflect economic and market forces
applicable to other countries, as well as to an emerging country. The Adviser
believes, however, that investment in such companies will be appropriate because
the Funds will invest in those emerging market companies which, in its view,
have sufficiently strong exposure to economic and market forces in an emerging
country such that their value will tend to reflect developments in such emerging
country to a greater extent than developments in another country or countries.
For example, the Funds may invest in companies organized and located in
countries other than an emerging country, including companies having their
entire production facilities outside of an emerging country, when securities of
such companies meet one or more elements of the Funds' definition of an emerging
country debt security and so long as the Adviser believes at the time of
investment that the value of the company's securities will reflect principally
conditions in such emerging country.
The Emerging Markets Debt Fund and Worldwide High Income Fund are subject to
no restrictions on the maturities of the emerging country debt securities they
hold; those maturities may range from overnight to 30 years. The value of debt
securities held by a Fund generally will vary inversely to changes in prevailing
interest rates. A Fund's investments in fixed-rated debt securities with longer
terms to maturity are subject to greater volatility than the Fund's investments
in shorter-term obligations. Debt obligations acquired at a discount are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which are not subject to such
discount.
Government, government-related and restructured debt securities in emerging
markets will consist of (i) debt securities or obligations issued or guaranteed
by governments, governmental agencies or instrumentalities and political
subdivisions located in emerging countries (including participations in loans
between governments and financial institutions), (ii) debt securities or
obligations issued by government owned, controlled or sponsored entities located
in emerging countries, and (iii) interests in issuers organized and operated for
the purpose of restructuring the investment characteristics of instruments
issued by any of the entities described above. Such type of restructuring
involves the deposit with or purchase by an entity of specific instruments and
the issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. Certain issuers of such
structured securities may be deemed to be "investment companies" as defined in
the Investment Company Act of 1940 (the "1940 Act"). As a result, a Fund's
investment in such securities may be limited by certain investment restrictions
contained in the 1940 Act.
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, a Fund may have limited
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government debt obligations in the
event of default under their commercial bank loan agreements.
Debt securities of corporate issuers in emerging countries may include debt
securities or obligations issued (i) by banks located in emerging countries or
by branches of emerging country banks located outside the country or (ii) by
companies organized under the laws of an emerging country. Determinations as to
eligibility will be made by the Adviser based on publicly available information
and inquiries made to the issuer.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer.
2
<PAGE>
BRADY BONDS. The Emerging Markets Debt Fund and Worldwide High Income Fund
may invest in certain debt obligations customarily referred to as "Brady Bonds,"
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury Nicholas F. Brady
(the "Brady Plan"). Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated) and they are actively traded in the over-the-counter
secondary market. A 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, a 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 will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
Brady Plan debt restructuring totaling approximately $73 billion have been
implemented to date in Argentina, Bulgaria, Costa Rica, Ecuador, Mexico,
Nigeria, the Philippines, Uruguay and Venezuela, with the largest proportion of
Brady Bonds having been issued to date by Mexico and Venezuela. Brazil and
Poland have announced plans to issue Brady Bonds aggregating approximately $52
billion, based on current estimates. There can be no assurance that the
circumstances regarding the issuance of Brady Bonds by these countries will not
change.
STRUCTURED SECURITIES. The Emerging Markets Debt Fund and Worldwide High
Income Fund may also invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which each Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Each Fund is permitted to invest in a class of
Structured Securities that is either subordinated or unsubordinated to the right
of payment of another class. Subordinated Structured Securities typically have
higher yields and present greater risks than unsubordinated Structured
Securities. Certain issuers of Structured Securities may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, a Fund's
investment in these Structured Securities may be limited by restrictions
contained in the 1940 Act. Structured Securities are typically sold in private
placement transactions, and there currently is no active trading market for
Structured Securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Emerging Markets Debt Fund and
Worldwide High Income Fund may also invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
debt obligations and one or more financial institutions ("Lenders"). A Fund's
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of all or a portion
of Loans ("Assignments") from third parties. A Fund's investment in
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. A Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, a Fund may be subject to the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
3
<PAGE>
insolvency of the Lender selling a Participation, a Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. Certain Participations may be structured in a manner
designed to avoid purchasers of Participations being subject to the credit risk
of the Lender with respect to the Participation, but even under such a
structure, in the event of the Lender's insolvency, the Lender's servicing of
the Participation may be delayed and the assignability of the Participation
impaired. A Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy.
When a Fund purchases Assignments from Lenders it will acquire direct rights
against the borrower on the Loan. Because Assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by the Fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the
assigning Lender. The assignability of certain sovereign debt obligations is
restricted by the governing documentation as to the nature of the assignee such
that the only way in which a Fund may acquire an interest in a loan is through a
Participation and not an Assignment. A Fund may have difficulty disposing of
Assignments and Participations because to do so it will have to assign such
securities to a third party. Because there is no liquid market for such
securities, the Funds anticipate that such securities could be sold only to a
limited number of institutional investors. The lack of a liquid secondary market
may have an adverse impact on the value of such securities and a Fund's ability
to dispose of particular Assignments or Participations when necessary to meet
the Fund's liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's securities and calculating its net asset value.
EQUITY-LINKED SECURITIES
The Value, Mid Cap Growth, Global Equity, Equity Growth, Growth and Income
and Aggressive Equity Funds may invest in equity-linked securities, including,
among others, PERCS, ELKS, or LYONs, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. It is impossible to predict whether the price of the underlying common
stock will rise or fall. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. It is not possible to predict how
equity-linked securities will trade in the secondary market or whether such
market will be liquid or illiquid. The following are three examples of
equity-linked securities. The Funds may invest in the securities described below
or other similar equity-linked securities.
There are certain risks of loss of principal in connection with investing in
equity-linked securities, as described in the following examples of certain
equity-linked securities. Preferred Equity Redemption Cumulative Stock ("PERCS")
convert into common stock within three years regardless of the price at which
the common stock trades. If the common stock is trading at a price that is at or
below the cap, a Fund receives one share of common stock for each PERCS share.
If the common stock is trading at a price that is above the cap, the Fund
receives less than one share, with the conversion ratio adjusted so that the
market value of the common stock received by the Fund equals the cap.
Accordingly, a Fund is subject to the risk that if the price of the common
stock is above the cap price at the maturity of the PERCS, the Fund will lose
the amount of the difference between the price of the common stock and the cap.
Such a loss could substantially reduce the Fund's initial investment in the
PERCS and any dividends that were paid on the PERCS. PERCS also present risks
based on payment expectations. If a PERCS issuer redeems the PERCS, the Fund may
have to replace the PERCS with a lower yielding security, resulting in a
decreased return for investors.
The principal amount that Equity-Linked Securities ("ELKS") holders receive
at maturity 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, a Fund receives for
each ELKS share an amount equal to the average price of the common stock. If the
common stock is trading at a price that is above the cap, the Fund receives the
cap amount. Accordingly, a Fund is subject to the risk that if the price of the
common stock is above the cap price at the maturity of the ELKS, the Fund will
lose the amount of the difference between the price of the common stock and the
cap. Such a loss could substantially reduce the Fund's initial investment in the
ELKS and any dividends that were paid on the ELKS. An additional risk is that
the issuer may "reopen" the issue of ELKS and issue additional ELKS at a later
time or issue additional debt securities or other securities with terms similar
to those of the ELKS, and such issuances may affect the trading value of the
ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-market yield at maturity, is based
on the price of underlying common stock. If the common stock is trading at a
price that is at or below the purchase price of the LYONs plus accrued original
issue discount, a Fund receives only the lower-than-market yield, assuming the
LYONs are not in default. If the common stock is trading at a price that is
above the purchase price of the LYON's plus accrued original issue discount, the
Fund will receive an amount above the lower-than-market yield on the LYONs,
based on how well the underlying common stock performs. LYONs also present risks
based on payment expectations. If a LYON's issuer redeems the LYONs, the Fund
may have to replace the LYONs with a lower yielding security, resulting in a
decreased return for investors.
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EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
FIRM COMMITMENTS
Firm commitments for securities include "when-issued" and delayed delivery
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. While a Fund has firm commitments outstanding, the Fund will
maintain in a segregated account cash or liquid securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
Custodian for a Fund will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, a Fund may be required subsequently to place
additional assets in the separate account in order to ensure that the value of
the account remains equal to the amount of such Fund's commitment. It may be
expected that a Non-Money Market Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund's liquidity and ability
to manage its portfolio might be affected when it sets aside cash or portfolio
securities to cover such purchase commitments, it is expected that commitments
to purchase "when-issued" securities will not exceed 25% of the value of a Money
Market Fund's total assets absent unusual market conditions. When a Fund engages
in when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants are warrants which entitle the holder to receive
from their issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. Dollars) which is calculated pursuant to a predetermined
formula and based on the exchange rate between a specified foreign currency and
the U.S. Dollar as of the exercise date of the warrant. Foreign currency
warrants generally are exercisable upon their issuance and expire as of a
specified date and time. Foreign currency warrants have been issued in
connection with U.S. Dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
Dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. Dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities are debt obligations the principal
on which is payable at maturity in an amount that may vary based on the exchange
rate between the U.S. Dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked appreciates
against the U.S. Dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. Dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by
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increases in the value of the U.S. Dollar and adversely impacted by increases in
the value of foreign currency. Interest payments on the securities are generally
made in U.S. Dollars at rates that reflect the degree of foreign currency risk
assumed or given up by the purchaser of the notes (i.e., at relatively higher
interest rates if the purchaser has assumed some of the foreign exchange risk,
or relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper is U.S. Dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. Dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. Dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. Dollar value of the assets of the Global Equity, Global Equity
Allocation, Global Fixed Income, Asian Growth, Emerging Markets, Emerging
Markets Debt, Latin American, European Equity, Japanese Equity and International
Magnum Funds and to the extent they invest in assets denominated in foreign
currencies, the Value, Mid Cap Growth, American Value, Aggressive Equity, Growth
and Income, Equity Growth, Worldwide High Income and High Yield Funds may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Funds may incur costs in connection
with conversions between various currencies. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract (a "forward contract") involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
The Funds may enter into forward contracts in several circumstances. When a
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. Dollar price of the security or the U.S.
Dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Funds anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. A Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate such Fund to deliver an amount of foreign currency
in excess of the value of such Fund's securities or other assets denominated in
that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Company believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Fund will thereby be served. Except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder, the
Company's Custodian will place cash or liquid assets into a segregated account
of a Fund in an amount equal to the value of such Fund's total assets committed
to the consummation of forward contracts. If the value of the securities placed
in the segregated account declines, additional cash or assets will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Fund's commitments with respect to such contracts.
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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.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract.
FUTURES CONTRACTS
The Emerging Markets, Latin American, European Equity, International Magnum,
American Value, Aggressive Equity, Growth and Income and Worldwide High Income
Funds may enter into securities index futures contracts and options on
securities index futures contracts to a limited extent and the Latin American
Fund may utilize appropriate interest rate futures contracts and options on
interest rate futures contracts to a limited extent. In addition, the Emerging
Markets, Latin American, European Equity, American Value, Aggressive Equity,
Growth and Income and Worldwide High Income Funds may enter into foreign
currency futures contracts and options thereon. The U.S. Real Estate Fund may
enter into futures contracts and options on futures contracts for the purpose of
remaining fully invested and reducing transaction costs. The High Yield, U.S.
Real Estate, Emerging Markets Debt, Equity Growth, Global Equity, Value and Mid
Cap Growth Funds may also enter into futures contracts for hedging purposes. No
Fund will enter into futures contracts or options thereon for speculative
purposes. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security or a
specific currency at a specified future time and at a specified price. Futures
contracts, which are standardized as to maturity date and underlying financial
instrument, index or currency, traded in the United States are traded on
national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
The Emerging Markets, Latin American, European Equity, Equity Growth,
Emerging Markets Debt, Global Equity, American Value, Aggressive Equity, Growth
and Income, Value, Mid Cap Growth and Worldwide High Income Funds may purchase
and sell indexed financial futures contracts. An index futures contract is an
agreement to take or make delivery of an amount of cash equal to the difference
between the value of the index at the beginning and at the end of the contract
period. Successful use of index futures will be subject to the Adviser's ability
to predict correctly movements in the direction of the relevant securities
market. No assurance can be given that the Adviser's judgment in this respect
will be correct.
The Emerging Markets, Latin American, European Equity, American Value,
Equity Growth, Emerging Markets Debt, Global Equity, Aggressive Equity, Growth
and Income, Value, Mid Cap Growth and Worldwide High Income Funds may sell
indexed financial futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value
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of securities in its portfolio that might otherwise result. If the Adviser
believes that a portion of a Fund's assets should be invested in emerging
country securities but such investments have not been fully made and the Adviser
anticipates a significant market advance, the Fund may purchase index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds will only sell futures contracts to protect securities owned
against declines in price or purchase contracts to protect against an increase
in the price of securities intended for purchase. As evidence of this hedging
interest, the Funds expect that approximately 75% of their respective futures
contracts will be "completed"; that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Fund upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. In addition to the limits
imposed under CFTC regulations, described above, the Emerging Markets, Latin
American, European Equity, American Value, Aggressive Equity, Growth and Income
and Worldwide High Income Funds will not enter into futures contract
transactions to the extent that the Fund's outstanding obligations to purchase
securities under futures contracts and options would exceed 20% of its total
assets. The Emerging Markets Debt, Equity Growth, Global Equity, Value and Mid
Cap Growth Funds will not enter into futures contracts to the extent that their
outstanding obligations to purchase securities under these contracts in
combination with their outstanding obligations with respect to options
transactions would exceed 50% of their total assets. Each such Fund will
maintain assets sufficient to meet its obligations under such contracts in a
segregated account with the custodian bank or will otherwise comply with the
SEC's position on asset coverage.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
Each Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures for which there appears to be a
liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
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purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Adviser does not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable losses
if, instead of the futures contract, the Fund had invested in the underlying
security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS ON FOREIGN CURRENCIES
The Emerging Markets, Latin American, European Equity, American Value,
Global Equity, Emerging Markets Debt, Equity Growth, Aggressive Equity, Growth
and Income, Value, Mid Cap Growth and Worldwide High Income Funds may attempt to
accomplish objectives similar to those described above with respect to forward
foreign currency exchange contracts and futures contracts for currency by means
of purchasing put or call options on foreign currencies on exchanges. A put
option gives a Fund the right to sell a currency at the exercise price until the
expiration of the option. A call option gives a Fund the right to purchase a
currency at the exercise price until the expiration of the option.
The Funds noted above may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise
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price of the call written if the difference is maintained by the Fund in cash or
other liquid securities in a segregated account with the Custodian, or (c)
maintains in a segregated account cash or other liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. Dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. Dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Custodian, cash or other liquid securities in an
amount not less than the value of the underlying foreign currency in U.S.
Dollars marked-to-market daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a Fund may purchase a U.S.
dollar-denominated security and at the same time enter into a forward contract
to exchange U.S. dollars for the contract's underlying currency at a future
date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, the Fund may be able
to lock in the foreign currency value of the security and adopt a synthetic
position reflecting the credit quality of the U.S. dollar-denominated security.
To the extent required by SEC rules and regulations, the Custodian of the
Funds will place cash or other liquid assets into a segregated account of a Fund
in an amount equal to the value of such Fund's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
securities placed in the segregated account declines, additional cash or liquid
assets will be placed in the account on a daily basis so that the value of the
account will be at least equal to the amount of such Fund's commitments with
respect to such contracts.
OPTIONS TRANSACTIONS
The Emerging Markets, Equity Growth, Emerging Markets Debt, Value, Latin
American, European Equity, International Magnum, Aggressive Equity, Global
Equity, U.S. Real Estate, Growth and Income, Mid Cap Growth and Worldwide High
Income Funds may write (i.e., sell) covered call options which give the
purchaser the right to buy the underlying security covered by the option from
the Fund at the stated exercise price. A "covered" call option means that so
long as a Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, or (ii) securities convertible or
exchangeable without the payment of any consideration into the securities
subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor of credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC Options will be
satisfied. The staff of the SEC currently takes the position that OTC Options
purchased by a Fund or sold by it (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid unless the Fund has entered into a
special arrangement to dispose of the security, and are subject to the Fund's
limitation on investing in illiquid securities.
Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be
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more volatile than the market prices on the underlying futures contract or
securities. In the opinion of the Adviser, the risk that a Fund will be unable
to close out an options contract will be minimized by only entering into options
transactions for which there appears to be a liquid secondary market.
COMBINED TRANSACTIONS
Funds may enter into multiples of the forwards, futures and options
transactions described above in which they are permitted to engage, including
multiple options transactions, multiple futures transactions, multiple foreign
currency transactions (including forward foreign currency exchange contracts)
and any combination of futures, options and foreign currency transactions,
instead of a single transaction, as part of a single hedging strategy when, in
the opinion of the Adviser, it is in the best interest of the Fund to do so. A
combined transaction, while part of a single strategy, may contain elements of
risk that are present in each of its component transactions and will be
structured in accordance with applicable Securities and Exchange Commission (the
"SEC") regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
GLOBAL INVESTING
Investors should recognize that investing in foreign securities involves
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since a Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of certain Funds permit entering
into forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
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As non-U.S. companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic issuers, there may be less publicly available information
about certain foreign securities than about domestic securities. Securities of
some foreign issuers are generally less liquid and more volatile than securities
of comparable domestic companies. There is generally less government supervision
and regulation of stock exchanges, brokers and listed issuers than in the U.S.
In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Although the Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of a
Fund's foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries.
INVESTMENT COMPANY SECURITIES
The 1940 Act, generally prohibits a Fund from acquiring more than 3% of the
outstanding voting shares of an investment company and limits such investments
to no more than 5% of the Fund's total assets in any one investment company and
no more than 10% in any combination of investment companies. The 1940 Act also
prohibits a Fund from acquiring in the aggregate more than 10% of the
outstanding voting shares of any registered closed-end investment company. A
Fund may not purchase shares of any affiliated investment company except as
permitted by the Investment Company Act of 1940 or other applicable law.
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.
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
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in the United States and industrialized countries throughout the world that
comprise the Morgan Stanley Capital International World Index (the "World
Index"). The World Index is one of seven International Indices, twenty National
Indices and thirty-eight International Industry Indices making up the Morgan
Stanley Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/ Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks.
These risks may include future unfavorable political and economic developments,
possible withholding taxes on interest income, seizure or nationalization of
foreign deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on the
securities held by a Fund. Additionally, these institutions may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and record keeping requirements than those applicable to domestic
branches of U.S. banks. The Money Market Funds will invest in U.S.
Dollar-denominated obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when the Adviser believes that the risks
associated with such investment are minimal and that all applicable quality
standards have been satisfied.
PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rate for each of the
Funds, except the Growth and Income and Aggressive Equity Funds, will not exceed
100%, although in any particular year, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. High rates of
portfolio turnover necessarily result in correspondingly heavier brokerage and
portfolio trading costs which are paid by the Funds. In addition to portfolio
trading costs, higher rates of portfolio turnover may result in the realization
of capital gains. See "Taxes" in the Prospectus for more information on
taxation. The portfolio turnover rate for a year is the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the Fund for the year, excluding securities with maturities of one year or
less. The rate of portfolio turnover will not be a limiting factor when a Fund
deems it appropriate to purchase or sell securities for the portfolio. However,
the U.S. federal tax requirement that a Fund derive less than 30% of its gross
income from the sale or disposition of securities held less than three months
may limit the Fund's ability to dispose of its securities. See "Federal Income
Tax." The tables set forth in the Prospectus under "Financial Highlights"
present each of the Non-Money Market Funds historical portfolio turnover ratios.
REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository. The term of a repurchase agreement is usually from overnight to one
week, and never exceeds one year. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement involves the sale of securities held by a
Fund pursuant to the Fund's agreement to repurchase the securities at an agreed
upon price, date and rate of interest. Such agreements are considered to be
borrowings under the 1940 Act. While reverse repurchase transactions are
outstanding, the Funds will maintain in a segregated account cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
SECURITIES LENDING
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. Government having a value at all times not less than 100% of
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the value of the securities loaned, including accrued interest, (b) the borrower
add to such collateral whenever the price of the securities loaned rises (i.e.,
the borrower "marks to the market" on a daily basis), (c) the loan be made
subject to termination by the Fund at any time, and (d) the Fund receive
reasonable interest on the loan (which may include the Fund investing any cash
collateral in interest bearing short-term investments), any distributions on the
loaned securities and any increase in their market value. There may be risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will only
be made to borrowers deemed by the Adviser to be of good standing and when, in
the judgment of the Adviser, the consideration which can be earned currently
from such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
STAND-BY COMMITMENTS
A Fund may enter into stand-by commitments with respect to obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase,
at a Fund's option, a specified Municipal Obligation at its amortized cost value
to the Fund plus accrued interest, if any. Stand-by commitments may be
exercisable by a Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers, banks
and broker-dealers which, in the Advisor's opinion, present minimal credit risks
and otherwise satisfy applicable quality standards. The Funds' reliance upon the
credit of these dealers, banks and broker-dealers will be secured by the value
of the underlying Municipal Obligations that are subject to the commitment.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their right thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where a Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by that Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
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SWAP CONTRACTS
The Global Equity, Emerging Markets Debt, Equity Growth, Value and Mid Cap
Growth Funds may enter into Swap Contracts. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The payment streams are calculated by reference to a specified index
and agreed upon notional amount. The term "specified index" includes currencies,
fixed interest rates, prices, total return on interest rate indices, fixed
income indices, stock indices and commodity indices (as well as amounts derived
from arithmetic operations on these indices). For example, a Fund may agree to
swap the return generated by a fixed-income index for the return generated by a
second fixed-income index. The currency swaps in which a Fund may enter will
generally involve an agreement to pay interest streams in one currency based on
a specified index in exchange for receiving interest streams denominated in
another currency. Such swaps may involve initial and final exchanges that
correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Adviser believes such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Funds may enter into OTC
Derivatives transactions (Swaps, Caps, Floors, Puts, etc., but excluding foreign
exchange contracts) with counterparties that are approved by the Adviser in
accordance with guidelines established by the Board of Directors. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolio would be less favorable than it would have been if this
investment technique were not used.
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments held by each Money Market Fund may have
maturities of more than 397 days, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 days, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 397 days. In determining the weighted average maturity of
a Fund and whether a variable rate demand instrument has a remaining maturity of
397 days or less, each instrument will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable rate demand
instrument is of comparable quality at the time of purchase to instruments rated
"high quality," the Adviser will follow guidelines adopted by the Company's
Board of Directors.
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WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Delivery of and payment for these securities may take as long as a month or
more after the date of the purchase commitment but will take place no more than
120 days after the trade date. Each Fund will maintain with the appropriate
Custodian a separate account with a segregated portfolio of cash or liquid
securities in an amount at least equal to these commitments. It is possible that
the market value at the time of settlement would be higher or lower than the
purchase price if the general level of interest rates has changed.
ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such
as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRs"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax
considerations generally affecting the Company and its shareholders that are not
described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Company
or its shareholders, and the discussion here and in the Company's prospectuses
are not intended as a substitute for careful tax planning.
Each Fund is generally treated as a separate corporation for federal income
tax purposes, and thus the provisions of the Internal Revenue Code of 1986, as
amended (the "Code") generally will be applied to each Fund separately, rather
than to the Company as a whole. Each Fund intends to qualify and elect to be
treated for each taxable year as a regulated investment company ("RIC") under
subchapter M of the Code.
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Legislation and administrative changes or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
In order to qualify for the special tax treatment afforded to RICs under
Subchapter M of the Code, each Fund must, among other things, (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test"); (b) derive less than 30% of its gross
income each taxable year from the sale or other disposition of (i) stocks or
securities, (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies) and (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies), but only if
not directly related to the Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities) held
less than three months (the "Short-Short Gain Test"), and (c) diversify its
holdings so that, at the end of each fiscal quarter of the Company's taxable
year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, United States Government securities, securities of other
RICs, and other securities and cash items, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the value of
the Fund's total assets or 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer or two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses (other than U.S. Government securities or the securities of other
RICs). For purposes of the 90% gross income requirement described above, foreign
currency gains may be excluded by regulation from income that qualifies under
the 90% requirement.
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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 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.
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
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such bonds may become subject to federal income taxation retroactively to the
date of issuance thereof if such representations are determined to have been
inaccurate or if the issuer of such bonds (or the beneficiary of such bonds)
fails to comply with such covenants.
Distributions of net investment income received by the Tax-Free Money Market
Fund from investments in debt securities (other than interest on tax-exempt
Municipal Obligations) and any net short-term capital gains distributed by the
Fund will be taxable to shareholders as ordinary income and will not be eligible
for the dividends received deduction for corporate shareholders. Although the
Tax-Free Money Market Fund generally does not expect to receive net investment
income other than Tax-Exempt Interest, up to 20% of the net assets of the Fund
may be invested in Municipal Obligations that do not bear Tax-Exempt Interest,
and any taxable income recognized by the Fund will be distributed and taxed to
its shareholders.
FOREIGN INCOME TAX
It is expected that each Fund will be subject to foreign withholding taxes
with respect to its dividend and interest income from foreign countries, if any,
and a Fund may be subject to foreign income or other taxes with respect to other
income. So long as more than 50% in value of a Fund's total assets at the close
of the taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat certain foreign income taxes imposed on it under U.S.
federal income tax law as paid directly by its shareholders. A Fund will make
such an election only if it deems it to be in the best interest of its
shareholders and will notify shareholders in writing each year if it makes an
election and of the amount of foreign income taxes, if any, to be treated as
paid by the shareholders. If a Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Fund and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they
itemize deductions, a deduction for their shares of the foreign income taxes in
computing their federal income tax liability. (No deductions will be allowed in
computing alternative minimum tax liability.)
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by a Fund from its foreign source
income will be treated as foreign source income. A Fund's gains from the sale of
securities will generally be treated as derived from U.S. sources and certain
foreign currency gains and losses likewise will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations as individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal 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 CONTRACTS
Except for certain hedging transactions, each Fund is required for federal
income tax purposes to recognize as gain or loss for each taxable year its net
unrealized gains and losses on certain forward currency and futures contracts as
of the end of each taxable year, as well as those actually realized during the
year. In most cases, any such gain or loss recognized with respect to a
regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Gain or loss attributable to a foreign currency forward
contract is treated as 100% ordinary income. Furthermore, forward currency
futures contracts which are intended to hedge against a change in the value of
securities held by a Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition.
Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, a Fund will have to avoid
realizing gains on futures contracts and certain forward contracts held less
than three months and may be required to defer the closing out of futures
contracts beyond the time when it would otherwise be advantageous to do so. It
is anticipated that unrealized gains of such contracts that have been open for
less than three months as of the end of a Fund's taxable year and which are
treated as recognized for tax purposes at the end of the taxable year will not
be considered gains on securities held less than three months for purposes of
the Short-Short Gain test.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or ordinary
loss. Similarly, gains or losses on disposition of debt securities denominated
in a foreign currency attributable to fluctuations in the value of the
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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 Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Funds an order received prior to the regular close of the New York Stock
Exchange (the "NYSE") (currently, 4:00 p.m., Eastern Time) will be executed at
the price computed on the date of receipt; and an order received after the
regular close of the NYSE will be executed at the price computed on the next day
the NYSE is open. The purchase price of shares of the Non-Money Funds is based
on such price as further described in the Prospectuses under "Purchase of
Shares." Class A shares of the Non-Money Funds purchased without an initial
sales charge that are redeemed within one year of purchase are subject to a
1.00% contingent deferred sales charge ("CDSC"), certain Class B shares of the
Non-Money Funds that are redeemed within six years of purchase are subject to a
CDSC of up to 5.00% and certain Class C shares of the Non-Money Funds that are
redeemed within one year of purchase are subject to a 1.00% CDSC, as described
in the Prospectus under "Purchase of Shares." The initial sales charge and CDSC
are not applicable to shares of any class of any Non-Money Market Fund purchased
through the automatic reinvestment of dividends or distributions paid by any
Fund.
The price of shares of the Money Market Funds is the net asset value per
share next determined after Federal Funds are available to such Fund. A purchase
of a Money Market Fund's shares by check is credited to the shareholder's
account at the price next determined after receipt of Federal Funds on the day
of receipt and will begin receiving dividends the following day.
Shares of the Company may be purchased on any day the NYSE is open, except
that shares of the Money Market Funds may be purchased on any day when both the
NYSE and the Federal Reserve Banks are open. The NYSE is closed when the
following holidays are observed: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and on the preceding Friday or subsequent Monday when any of these holidays
falls on a Saturday or Sunday, respectively. Federal Reserve Banks are closed on
Martin Luther King Day, Columbus Day and Veterans Day, in addition to such NYSE
holidays.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Company, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Fund's shares.
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REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the SEC may permit. Additionally, if the Board of Directors determines that it
would be detrimental to the best interests of the remaining shareholders of the
Fund to payment wholly or partly in cash, the Company may pay the redemption
proceeds in whole or in part by a distribution-in-kind of readily marketable
securities held by the Funds in lieu of cash in conformity with applicable rules
of the SEC. Shareholders may incur brokerage charges upon the sale of portfolio
securities so received in payment of redemptions.
Any redemption may be more or less than the shareholder's cost depending on,
among other factors, the market value of the securities held by the Fund(s).
Class A shares of the Non-Money Funds purchased without an initial sales charge
due to the size of the purchase that are redeemed within one year of purchase
are subject to a 1.00% CDSC, certain Class B shares of the Non-Money Funds that
are redeemed within six years of purchase are subject to a CDSC of up to 5.00%
that decreases to 0% after six years, and certain Class C shares of the
Non-Money Funds that are redeemed within one year of purchase are subject to a
1.00% CDSC as described in the Prospectus under "Purchase of Shares." Such
initial sales charge and CDSC are not applicable to shares of any class of any
Fund purchased through the automatic reinvestment of dividends or distributions
paid by any Fund.
To protect your account and the Company from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Company to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and (2)
share transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Company are also
being redeemed, on the letter or stock power.
Redemption of shares held in broker street name may not be accomplished by
mail or telephone as described above. Shares held in broker street name may be
redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
INVESTMENT LIMITATIONS
Each current Fund of the Company has adopted certain investment policies
which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) at least 67% of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company.
For the purpose of adopting investment limitations the current Funds have
been divided into three separate groups, which limitations apply only to the
Funds that form a part of that group. The groups are comprised as follows:
Category I Funds: Global Fixed Income, Worldwide High
Income, High Yield, American Value,
Aggressive Equity, U.S. Real Estate,
Global Equity Allocation, Asian Growth,
Emerging Markets, Latin American,
International Magnum, Japanese Equity,
Growth and Income and European Equity
Funds.
Category II Funds: Equity Growth, Global Equity, Emerging
Markets Debt, Mid Cap Growth and Value
Funds.
Money Market Funds: Money Market, Tax-Free Money Market and
Government Obligations Money Market
Funds.
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the Emerging Markets Fund,
Latin American Fund, European Equity Fund, American Value Fund, Aggressive
Equity Fund, Growth and Income and Worldwide High Income Fund may invest in
futures contracts and options to the extent that not more than 5% of its total
assets are required as deposits to secure obligations under futures contracts
and not more than 20% of its total assets are invested in futures contracts and
options at any time;
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(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(6) except with respect to the Latin American Fund and U.S. Real Estate
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Fund's total assets would be
invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund, Aggressive Equity Fund and Worldwide High Income Fund may enter into short
sales in accordance with its investment objective and policies;
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(10) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Worldwide High Income Fund, Latin American Fund and Growth and Income Fund may
enter into reverse repurchase agreements in accordance with its investment
objective and policies and except that each of the Latin 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;
(11) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that each of the Latin
American, Aggressive Equity and Worldwide High Income Funds may pledge, mortgage
or hypothecate its assets to secure borrowings in amounts up to 33 1/3% of its
assets (including the amount borrowed);
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale and (ii) in fixed time deposits with a duration of over seven calendar
days;
(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(14) issue senior securities;
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
(16) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
America Fund, Aggressive Equity Fund and U.S. Real Estate Fund, purchase more
than 10% of any class of the outstanding securities of any issuer; and
(17) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
America Fund and U.S. Real Estate Fund, purchase securities of an issuer (except
obligations of the U.S. Government and its instrumentalities) if as the result,
with respect to 75% of its total assets, more than 5% of the Funds total assets,
at market value, would be invested in the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) purchase puts, calls, straddles, spreads and any combination thereof if
by reason thereof the value of its aggregate investment in such derivative
securities will exceed 5% of its respective total assets except that the
Emerging Markets, Latin American, European Equity, Aggressive Equity, Growth and
Income and Worldwide High Income Funds may purchase puts and calls on foreign
currencies and may write covered call options in accordance with its investment
objective and policies;
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(2) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange;
(3) invest in oil, gas or other mineral leases; and
(4) invest in illiquid securities, except the Emerging Markets Fund may
invest up to 25% of its total assets in privately placed securities, provided
that it may not invest more than 15% of its total assets in illiquid securities,
including securities for which there is no readily available market, and
provided further that it will not invest more than 10% of its total assets in
securities which are restricted from sale to the public without registration
under the Securities Act of 1933, as amended (the "1933 Act"), except securities
that are not registered under the 1933 Act but that can be offered and sold to
qualified institutional buyers under Rule 144A under the 1933 Act.
Each of the Global Fixed Income, Latin American, Aggressive Equity and U.S.
Real Estate Funds will diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the market value of the Fund's
total assets is represented by cash (including cash items and receivables), U.S.
Government securities, and other securities, with such other securities limited,
in respect of any one issuer, for purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities).
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future Funds of the Company may adopt different
limitations.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities;
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation (8) below, (ii) by lending their portfolio securities, and (iii) by
lending portfolio assets to other Funds, banks, brokers, dealers and other
financial institutions, so long as such loans are not inconsistent with the 1940
Act, the rules, regulations, interpretations or orders of the SEC and its staff
thereunder;
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
any temporary borrowings that do not exceed 5% of the value of a Fund's total
assets at the time the Fund makes such temporary borrowing. Notwithstanding the
foregoing limitations on issuing or selling senior securities and borrowing, a
Fund may engage in investment strategies that obligate it either to purchase
securities or segregate assets, or enter into reverse repurchase agreements,
provided that it will segregate assets to cover its obligations pursuant to such
transactions in accordance with applicable rules, orders, or interpretations of
the SEC or its staff. This investment limitation shall not preclude a Fund from
issuing multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities);
22
<PAGE>
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) enter into futures contracts to the extent that each Fund's outstanding
obligations to purchase securities under these contracts in combination with its
outstanding obligations with respect to options transactions would exceed 50% of
each Fund's total assets, and will maintain assets sufficient to meet its
obligations under such contracts in a segregated account with the custodian bank
or will otherwise comply with the SEC's position on asset coverage;
(2) write put or call options except to the extent described above in (1);
(3) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures;
(4) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
(5) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
(6) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets;
(7) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the Equity Growth, Global Equity and Emerging
Markets Debt Funds or 50% of its total assets in the case of the Mid Cap Growth
and Value Funds, provided that each Fund may segregate assets without limit in
order to comply with the requirements of Section 18(f) of the 1940 Act and
applicable rules, regulations or interpretations of the SEC and its staff;
(8) invest more than an aggregate of 15% of the net assets of the Fund,
determined at the time of investment, in illiquid securities provided that this
limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Directors;
(9) invest for the purpose of exercising control over management of any
company;
(10) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(11) in the case of the Equity Growth, Global Equity, and Emerging Markets
Debt Funds, make loans as described in fundamental investment limitations 3(ii)
and 3(iii), above, in an amount exceeding 33 1/3% of its total assets; and
(12) in the case of the Emerging Markets Debt Fund, purchase a security if,
as a result, with respect to 50% of its assets, it would hold more than 10% of
the outstanding voting securities of an issuer or have more than 5% of its total
assets invested in securities of an issuer or, with respect to 100% of its
assets, it would have more than 25% of its total assets invested in securities
of the issuer, except that these limitations do not apply to investments in U.S.
Government securities.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
23
<PAGE>
MONEY MARKET FUNDS
The following are fundamental investment limitations with respect to the
Money Market Funds. No Money Market Fund will:
(1) invest in commodities;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation, except that the Tax-Free Money Market Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations;
(6) acquire any securities of companies within one industry if, as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or (in the
case of the Money Market Fund) instruments issued by U.S. banks or their
domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) issue senior securities or borrow money, except for borrowing money
from banks for temporary purposes or (with respect to the Money Market Fund and
Government Obligations Fund) for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Fund's total assets at the time
of such borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Fund; or mortgage, pledge, hypothecate
or in any manner transfer as security for indebtedness any securities owned or
held by the Fund, any assets except as may be necessary in connection with
permitted borrowings and then, in amounts not in excess of 10% of the value of
the Fund's total assets at the time of the borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Fund's securities by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient.);
(9) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(10) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(11) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the Fund
may invest only in investment companies that are unaffiliated with the Fund; and
with respect to the Tax-Free Money Market Fund and Government Obligations Money
Market Fund, invest more than 10% of the value of the Fund's assets in other
investment companies that are unaffiliated with the Fund and then no more than
5% of the Fund's assets may be invested in any one money market fund;
(12) with respect to the Money Market Fund, purchase any securities other
than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Fund's assets and may make time
deposits;
(13) with respect to the Tax-Free Money Market Fund, under normal market
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
(14) with respect to the Government Obligations Money Market Fund, purchase
securities other than U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There is no limit on the
amount of the Fund's assets which may be invested in the securities of any one
issuer of obligations that the Fund is permitted to purchase;
(15) purchase the securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or
securities subject to unconditional demand features issued by a non-controlled
person) if immediately after and as a result at the time of purchase more than
5% of the Fund's total assets would be invested in the securities of such
issuer; except that, under applicable regulations, the Fund may invest more than
5% of its total assets in any one issuer for up to three business days;
(16) enter into repurchase agreements with more than seven days maturity if,
as a result, more than 10% of the value of its net assets would be invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid; and
24
<PAGE>
(17) make loans, except that a Fund may purchase or hold debt obligations in
accordance with its investment objectives, policies and limitations and, with
respect to the Money Market and Government Obligations Money Market Funds, may
enter into repurchase agreements for securities, and may lend portfolio
securities against collateral, consisting of cash or securities which are
consistent with the Fund's permitted investments, which is equal at all times to
at least 100% of the value of the securities loaned. There is no investment
restriction on the amount of securities that may be loaned.
With respect to limitation (6) above concerning industry concentration, the
Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The following are non-fundamental investment limitations with respect to the
Money Market Funds. As a matter of non-fundamental policy, no Money Market Fund
will:
(1) purchase puts, calls, straddles, spreads and any combination thereof if
by reason thereof the value of its aggregate investment in such derivative
securities will exceed 5% of its respective total assets;
(2) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange; and
(3) invest in oil, gas or other mineral leases.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future Funds of the Company may adopt different
limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a government
obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
25
<PAGE>
MANAGEMENT OF THE COMPANY
OFFICERS AND DIRECTORS
The Company's Officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Company. The Directors set broad
policies for the Company and choose its Officers. Three Directors and all of the
Officers of the Company are directors, officers or employees of the Company's
advisers or administrative services providers. The other Directors have no
affiliation with the Company's advisers, distributor or administrative services
providers or their affiliates. The Directors are also Directors of other
open-end funds advised by MSAM (collectively with the Company, the "Open-End
Fund Complex") and certain Directors are Directors of closed-end fund[s] advised
by MSAM (together with the Open-End Fund Complex, the "Fund Complex"). Officers
of the Company are also officers of funds in the Fund Complex and some or all of
the other investment companies managed, administered, advised or distributed by
MSAM or its affiliates. A list of the Directors and Officers of the Company and
a brief statement of their present positions and principal occupations during
the past five years is set forth below:
<TABLE>
<CAPTION>
NAME, ADDRESS AND DATE OF
BIRTH POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------ ---------------------- --------------------------------------------------
<S> <C> <C>
Barton M. Biggs* Chairman and Director Chairman and Director of Morgan Stanley Asset
1221 Avenue of the Americas Management Inc. and Morgan Stanley Asset
New York, NY 10020 Management Limited; Managing Director of Morgan
11/26/32 Stanley & Co. Incorporated; Member of Investment
Advisory Counsel of the Thailand Fund; Member of
the Yale Development Board; Director of the Rand
McNally Company; Director and Officer of various
investment companies managed by Morgan Stanley
Asset Management Inc.
Warren J. Olsen* Director and President Principal of Morgan Stanley Asset Management Inc;
1221 Avenue of the Americas President and Director of various investment
New York, NY 10020 companies managed by Morgan Stanley Asset
12/21/56 Management Inc.
John D. Barrett, II Director Chairman and Director of Barrett Associates, Inc.
521 Fifth Avenue (investment counseling); Director of the Ashforth
New York, NY 10135 Company (real estate); Director of the Morgan
8/21/35 Stanley Institutional Fund, Inc., Morgan Stanley
Universal Funds, Inc. and PCS Cash Fund, Inc.
Gerard E. Jones Director Partner in Richards & O'Neil LLP (law firm);
43 Arch Street Director of the Morgan Stanley Institutional
Greenwich, CT 06830 Fund, Inc., Morgan Stanley Universal Funds, Inc.
1/23/37 and PCS Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive Officer of Rand
8255 North Central McNally (publication); Director of Allendale
Park Avenue Insurance Co., Mercury Finance (consumer
Skokie, IL 60076 finance); Zenith Electronics, Hubbell, Inc.
11/11/39 (industrial electronics); Director of the Morgan
Stanley Institutional Fund, Inc., Morgan Stanley
Universal Funds, Inc. and PCS Cash Fund, Inc.
Samuel T. Reeves Director Chairman of the Board and CEO, Pinacle Trading
8211 North Fresno Street L.L.C. (investment firm); Director, Pacific Gas
Fresno, CA 93720 and Electric and PG&E Enterprises (utilities);
7/28/34 Director of the Morgan Stanley Institutional
Fund, Inc., Morgan Stanley Universal Funds, Inc.
and PCS Cash Fund, Inc.
Fergus Reid Director Chairman and Chief Executive Officer of LumeLite
85 Charles Colman Blvd. Corporation (injection molding firm); Trustee and
Pawling, NY 12564 Director of Vista Mutual Fund Group; Director of
8/12/32 the Morgan Stanley Institutional Fund, Inc.,
Morgan Stanley Universal Funds, Inc. and PCS Cash
Fund, Inc.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND DATE OF
BIRTH POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------ ---------------------- --------------------------------------------------
<S> <C> <C>
Frederick O. Robertshaw Director Of Counsel, Copple, Chamberlin & Boehm, P.C. and
2800 North Central Avenue Rake, Copple, Downey & Black, P.C. (law firms);
Phoenix, AZ 85004 Director of the Morgan Stanley Institutional
1/24/34 Fund, Inc., Morgan Stanley Universal Funds, Inc.
and PCS Cash Fund, Inc.
Frederick B. Whittemore* Director Advisory Director of Morgan Stanley & Co.
1251 Avenue of the Incorporated; Vice-Chairman and Director of
Americas, 30th Flr. various investment companies managed by Morgan
New York, NY 10020 Stanley Asset Management Inc.
11/12/30
James W. Grisham* Vice President Principal of Morgan Stanley Asset Management Inc.;
1221 Avenue of the Americas Officer of various investment companies managed
New York, NY 10020 by Morgan Stanley Asset Management Inc.
10/24/41
Michael F. Klein* Vice President Principal of Morgan Stanley Asset Management Inc;
1221 Avenue of the Americas Officer of various investment companies managed
New York, NY 10020 by Morgan Stanley Asset Management Inc.
12/12/58 Previously practiced law with the New York law
firm of Rogers & Wells.
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley & Co. Incorporated;
1221 Avenue of the Americas General Counsel and Secretary of Morgan Stanley
New York, NY 10020 Asset Management Inc.; Officer of various
6/10/60 investment companies managed by Morgan Stanley
Asset Management Inc.
Joseph P. Stadler* Vice President Vice President of Morgan Stanley Asset Management
1221 Avenue of the Americas Inc.; Officer of various investment companies
New York, NY 10020 managed by Morgan Stanley Asset Management Inc.
6/7/54 Previously with Price Waterhouse LLP
(accounting).
Valerie Y. Lewis* Secretary Vice President of Morgan Stanley Asset Management
1221 Avenue of the Americas Inc.; Officer of various investment companies
New York, NY 10020 managed by Morgan Stanley Asset Management Inc.
3/26/56 Previously with Citicorp (banking).
Karl O. Hartmann Assistant Secretary Senior Vice President, Secretary and General
73 Tremont Street Counsel of Chase Global Funds Services Company;
Boston, MA 02108-3913 Previously with Leland, O'Brien, Rubinstein
3/7/55 Associates, Inc. (investments).
James R. Rooney Treasurer Vice President, Director of Fund Administration
73 Tremont Street and Compliance Services, Chase Global Funds
Boston, MA 02108-3913 Services Company; Officer of various investment
10/21/58 companies managed by Morgan Stanley Asset
Management Inc. Previously with Scudder, Stevens
& Clark, Inc. (investment) and Ernst & Young LLP
(accounting).
Joanna Haigney Assistant Treasurer Manager of Fund Administration and Compliance
73 Tremont Street Services, Chase Global Funds Services Company;
Boston, MA 02108-3913 Officer of various investment companies managed
10/10/66 by Morgan Stanley Asset Management Inc.
Previously with Coopers & Lybrand LLP.
</TABLE>
- ------------------
* "Interested Person" within the meaning of the 1940 Act
27
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
The Open-End Fund Complex pays each of the nine Directors who is not an
"interested person" an annual aggregate fee of $55,000, plus out-of-pocket
expenses. The Open-End Fund Complex will pay each of the members of the
Company's Audit Committee, which consists of three of the Company's Directors
who are not "interested persons," an additional annual aggregate fee of $10,000
for serving on such a committee. The allocation of such fees will be among the
two funds in the Open-End Fund Complex in direct proportion to their respective
average net assets. For the fiscal period ended June 30, 1996, the Company paid
approximately $77,000 in Directors' fees and expenses. Directors who are also
Officers or affiliated persons receive no remuneration for their services as
Directors. The Company's Officers and employees are paid by the Advisers or
their agents. As of December 11, 1996, to Company management's knowledge, the
Directors and officers of the Company, as a group, owned less than 1% of the
outstanding common stock of each Fund of the Company. The following table shows
aggregate compensation paid to each of the Company's Directors by the Company
and the Fund Complex, respectively, for the fiscal year from July 1, 1995 to
June 30, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
(5)
TOTAL
(3) COMPENSATION
PENSION OR FROM
(2) RETIREMENT (4) REGISTRANT
AGGREGATE BENEFITS ESTIMATED AND FUND
COMPENSATION ACCRUED AS ANNUAL COMPLEX PAID
(1) FROM PART OF FUND BENEFITS UPON TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS++
- -------------------------------------------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Barton M. Biggs*
Director and Chairman of the Board............... $ 0 $ 0 $ 0 $ 0
John D. Barrett, II,*
Director......................................... $65,000 $ 0 $ 0 $65,000
John E. Eckleberry,***
Director......................................... $ 0 $ 0 $ 0 $ 0
Gerard E. Jones,*
Director......................................... $65,000 $ 0 $ 0 $72,100
Warren J. Olsen,*
Director and President........................... $ 0 $ 0 $ 0 $ 0
Andrew McNally IV,*
Director......................................... $55,000+ $ 0 $ 0 $55,000
Samuel T. Reeves,*
Director......................................... $55,000+ $ 0 $ 0 $55,000
Fergus Reid,*
Director......................................... $65,000+ $ 0 $ 0 $72,100
Frederick O. Robertshaw,**
Director......................................... $55,000+ $ 0 $ 0 $55,000
Frederick B. Whittemore,**
Director (Chairman of the Board until June 28,
1995)............................................ $ 0 $ 0 $ 0 $13,750
</TABLE>
- ------------------
* Elected (Director) as of June 28, 1995.
** Reelected as of June 28, 1995.
*** Resigned as of June 28, 1995.
+ The total amount of deferred compensation for Frederick O. Robertshaw,
Samuel T. Reeves, Fergus Reid, Andrew McNally, IV, and Frederick B.
Whittemore was $0, $32,500, $27,500, $27,500 and $3,000, respectively.
++ Although the Fund Complex includes Morgan Stanley Universal Funds, Inc.
("Universal"), as of June 30, 1996, the Directors had not received
compensation for their services on the Board of Directors of Universal.
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
MSAM is a wholly-owned subsidiary of Morgan Stanley Group Inc. (the
"Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020. MAS is an indirect wholly-owned subsidiary of the
Group with its principal offices located at One Tower Bridge, West Conshohocken,
PA 19428.
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
28
<PAGE>
voluntarily waived a portion of such fees equal to approximately $1,026,000),
$4,571,000 (and voluntarily waived a portion of such fees equal to approximately
$868,000), $7,177,000 (and voluntarily waived a portion of such fees equal to
approximately $1,328,000) respectively. Further, for the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996, MSAM, as adviser for the PCS Money
Market Portfolio (the "Predecessor Money Market Portfolio") the predecessor to
the Money Market Fund received $686,138, $611,754 and $759,398, respectively
(net of voluntary fee waivers of $109,879, $87,105 and $153,797 respectively)
and as adviser for the PCS Government Obligations Money Market Portfolio (the
"Predecessor Government Obligations Money Market Portfolio") the predecessor to
the Government Obligations Money Market Fund received $412,757, $897,867 and
$395,312 respectively (net of voluntary fee waivers of $25,448, $0 and $45,251,
respectively).
MAS provides investment services to employee benefit plans, endowment funds,
foundations, and other institutional investors and has served as investment
adviser to the MAS Funds, a registered open-end investment company, since 1984.
At September 30, 1996, MAS managed investments totaling approximately $37.5
billion.
Pursuant to the Administration Agreements between the Advisers,
respectively, and the Company, MSAM and MAS (each, an "Administrator") provide
administrative services to those Funds that MSAM or MAS, respectively, serves as
Adviser. For their services under the Administration Agreements, the Company
pays the Administrators a monthly fee which on an annual basis equals 0.25% of
the average daily net assets of each Non-Money Market Fund and 0.10% of the
first $200 million of each Money Market Fund's average daily net assets, 0.75%
of the next $200 million of average daily net assets, .05% of the next $200
million of average daily net assets, and .03% on average daily net assets over
$600 million. For the fiscal years ended June 30, 1994, June 30, 1995 and June
30, 1996, the Company paid administrative fees to MSAM of approximately
$852,000, $1,154,000 and $1,801,654 respectively. For the fiscal years ended
June 30, 1994, June 30, 1995 and June 30, 1996, PFPC Inc., which served as
administrator to the Predecessor Money Market Portfolio and Predecessor
Government Obligations Money Market Portfolio (the "Predecessor Portfolios"),
was paid aggregate administrative fees of $283,085, $346,829 and $273,252
respectively. MAS did not serve as an Administrator and received no compensation
from the Company prior to the end of the fiscal year ended June 30, 1996.
Under Sub-Administration Agreements between the Administrators,
respectively, and The Chase Manhattan Bank ("Chase"), Chase Global Funds
Services Company ("CGFSC," formerly Mutual Funds Service Company, a corporate
affiliate of Chase) provides certain administrative services to the Company.
CGFSC provides operational and administrative services to investment companies
with approximately $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 ("Morgan Stanley"), a wholly-owned
subsidiary of the Group, served as the distributor of the Company's shares
pursuant to a Distribution Agreement with the Company and a Plan of Distribution
for the Money Market Funds and each class of the Non-Money Funds pursuant to
Rule 12b-1 under the 1940 Act (each, a "Plan" and collectively, the "Plans").
Subsequent to January 1, 1997, Van Kampen American Capital Distributors, Inc.
(the "Distributor") replaced Morgan Stanley as distributor of the Company's
shares pursuant to a Distribution Agreement with the Company and the Plans.
Under each Plan the Company's distributor is entitled to receive from the Funds
a distribution fee, which is accrued daily and paid quarterly, of up to 0.50%
for each of the Money Market Funds and up to 0.75% of the Class B shares and
Class C shares of each of the Non-Money Funds, on an annualized basis, of the
average daily net assets of such Fund or classes. The Distributor expects to
allocate most of its fee to investment dealers, banks or financial service firms
that provide distribution, administrative or shareholder services (a
"Participating Dealer"). The actual amount of such compensation is agreed upon
by the Company's Board of Directors and by the Distributor. The Distributor may,
in its discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee. The Plans for the Class A, Class B and
Class C shares of the Non-Money Market Funds were most recently approved by the
Company's Board of Directors, including those directors who are not "interested
persons" of the Company as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of a Plan or in any
agreements related thereto, on December 12, 1996 and the Plan for the Money
Market Funds was most recently approved on .
29
<PAGE>
The Distributor did not serve as the distributor and received no
compensation from the Company prior to the end of the fiscal year ended June 30,
1996. As compensation for providing distribution services to the Company for the
fiscal year ended June 30, 1996, Morgan Stanley received aggregate fees of
approximately $4,267,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1996
FUND NAME (000)
- ------------------------------------------------------------------------------------------------- -------------------
<S> <C>
Global Equity Allocation Fund-Class A............................................................ $ 126
Global Equity Allocation Fund-Class B+........................................................... 47
Global Equity Allocation Fund-Class C+........................................................... 496
Global Fixed Income Fund-Class A................................................................. 26
Global Fixed Income Fund-Class B+................................................................ 3
Global Fixed Income Fund-Class C+................................................................ 56
Asian Growth Fund-Class A........................................................................ 516
Asian Growth Fund-Class B+....................................................................... 194
Asian Growth Fund-Class C+....................................................................... 1,505
Emerging Markets Fund-Class A.................................................................... 131
Emerging Markets Fund-Class B+................................................................... 35
Emerging Markets Fund-Class C+................................................................... 309
Latin American Fund-Class A...................................................................... 28
Latin American Fund-Class B+..................................................................... 6
Latin American Fund-Class C+..................................................................... 55
American Value Fund-Class A...................................................................... 57
American Value Fund-Class B+..................................................................... 14
American Value Fund-Class C+..................................................................... 187
Worldwide High Income Fund-Class A............................................................... 90
Worldwide High Income Fund-Class B+.............................................................. 112
Worldwide High Income Fund-Class C+.............................................................. 231
Aggressive Equity Fund-Class A................................................................... 4
Aggressive Equity Fund-Class B................................................................... 10
Aggressive Equity Fund-Class C................................................................... 10
High Yield Fund-Class A.......................................................................... 2
High Yield Fund-Class B.......................................................................... 5
High Yield Fund-Class C.......................................................................... 5
U.S. Real Estate Fund-Class A.................................................................... 1
U.S. Real Estate Fund-Class B.................................................................... 3
U.S. Real Estate Fund-Class C.................................................................... 3
International Magnum Fund-Class A**.............................................................. N/A
International Magnum Fund-Class B**.............................................................. N/A
International Magnum Fund-Class C**.............................................................. N/A
Japanese Equity Fund-Class A**................................................................... N/A
Japanese Equity Fund-Class B**................................................................... N/A
Japanese Equity Fund-Class C**................................................................... N/A
Growth and Income Fund-Class A**................................................................. N/A
Growth and Income Fund-Class B**................................................................. N/A
Growth and Income Fund-Class C**................................................................. N/A
European Equity Fund-Class A**................................................................... N/A
European Equity Fund-Class B**................................................................... N/A
European Equity Fund-Class C**................................................................... N/A
Money Market Fund**++............................................................................ N/A
Tax-Free Money Market Fund**..................................................................... N/A
Government Obligations Money Market Fund**++..................................................... N/A
Equity Growth Fund-Class A**..................................................................... N/A
Equity Growth Fund-Class B**..................................................................... N/A
Equity Growth Fund-Class C**..................................................................... N/A
Global Equity Fund-Class A**..................................................................... N/A
Global Equity Fund-Class B**..................................................................... N/A
Global Equity Fund-Class C**..................................................................... N/A
Emerging Markets Debt Fund-Class A**............................................................. N/A
Emerging Markets Debt Fund-Class B**............................................................. N/A
Emerging Markets Debt Fund-Class C**............................................................. N/A
Mid Cap Growth Fund-Class A**.................................................................... N/A
Mid Cap Growth Fund-Class B**.................................................................... N/A
Mid Cap Growth Fund-Class C**.................................................................... N/A
Value Fund-Class A**............................................................................. N/A
Value Fund-Class B**............................................................................. N/A
Value Fund-Class C**............................................................................. N/A
</TABLE>
- ------------------
** Not operational as of June 30, 1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
++ As compensation for providing distribution services to the Predecessor
Portfolios for the fiscal years ended June 30, 1996, Morgan Stanley received
fees from the Predecessor Money Market Portfolio in the amount of $843,776
and from the Predecessor Government Obligations Money Market Portfolio in the
amount of $439,236.
30
<PAGE>
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal investing
activities of all employees of the Adviser and, as described below, impose
additional, more onerous, restrictions on the Company's investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Company within periods of trading by the
Company in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of December 11, 1996 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Company management's knowledge, as follows:
GLOBAL EQUITY ALLOCATION FUND: Scott & Stringfellow PSP, C/O David
Plageman, P.O. Box 1575, Richmond, VA 23213, owned 5% of the total outstanding
Class A shares of such Fund.
GLOBAL FIXED INCOME FUND: The Private Bank & Trust Co., 10 Dearborn Street,
Chicago, IL 60602, owned 9% of the total outstanding Class A shares of such Fund
and Oppenheimer Company, Inc., P.O. Box 3484, Church Street Station, New York,
NY 10008, owned 12% of the total outstanding Class B shares of such Fund.
AMERICAN VALUE FUND: Smith Barney, Inc., 388 Greenwich Street, New York, NY
10013, owned 6% 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 6% of the total outstanding Class B shares of such Fund and
Morgan Stanley Group, Inc., 1221 Avenue of the Americas, New York, NY 10020,
owned 13% of the total outstanding Class C shares of such Fund.
WORLDWIDE HIGH INCOME FUND: Charles Schwab & Co., Inc., Exclusive Benefit
of its Customers, 101 Montgomery Street, San Francisco, CA 94104 owned 13% 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 30% of the
total outstanding Class A shares of such Fund.*
HIGH YIELD FUND: Morgan Stanley Group, Inc., 1221 Avenue of the Americas,
New York, NY 10020, owned 75% of the total outstanding Class A shares of such
Fund, 63% of the total outstanding Class B shares of such Fund and 78% 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 23% of the
total outstanding Class A shares of such Fund and Smith Barney, Inc., 388
Greenwich Street, New York, NY 10013, owned 6% of the total outstanding Class B
shares of such Fund.
U.S. REAL ESTATE FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 35% of the total outstanding Class A shares
of such Fund, 51% of the total outstanding Class B shares of such Fund and 82%
of the total outstanding Class C shares of such Fund.*
AGGRESSIVE EQUITY FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 26% of the total outstanding Class A shares
of such Fund, 43% of the total outstanding Class B shares of such Fund and 43%
of the total outstanding Class C shares of such Fund.*
INTERNATIONAL MAGNUM FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 73% of the total outstanding Class A shares
of such Fund; 64% of the total outstanding Class B shares of such Fund and 62%
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 94% of the total outstanding shares of
the Fund.*
TAX-FREE MONEY MARKET FUND: N/A
31
<PAGE>
JAPANESE EQUITY FUND: N/A
GROWTH AND INCOME FUND: N/A
EUROPEAN EQUITY FUND: N/A
EQUITY GROWTH FUND: N/A
GLOBAL EQUITY FUND: N/A
EMERGING MARKETS DEBT FUND: N/A
MID CAP GROWTH FUND: N/A
VALUE FUND: N/A
The shareholder may be deemed a "controlling person" of the particular Fund
by virtue of its power to control the voting or disposition of the shares it
owns. As a result of its ownership position, the shareholder may be able to
control the outcome of matters voted on by shareholders of the Fund.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset value
per share of $1.00. Each Fund uses the amortized cost method of valuing its
securities, which does not take into account unrealized gains or losses. The use
of amortized cost and the maintenance of a Fund's per share net asset value at
$1.00 is based on the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. As a condition of operating under that Rule, each of
the Money Market Funds must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less, and invest only in securities which are of
"eligible quality" as determined in accordance with regulations of the SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Funds' investment objectives, to stabilize the net asset value per share as
computed for the purposes of sales and redemptions at $1.00. These procedures
include periodic review, as the Directors deem appropriate and at such intervals
as are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value. In such review, investments for
which market quotations are readily available are valued at the most recent bid
price or quoted yield available for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by, or under procedures
adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between a Fund's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Directors will promptly consider what action,
if any, should be taken. The Directors will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redemption in kind, selling instruments
prior to maturity to realize capital gains or losses or to shorten the average
maturity, withholding dividends, paying distributions from capital or capital
gains or utilizing a net asset value per share as determined by using available
market quotations.
There are various methods of valuing the assets and of paying dividends and
distributions from a money market fund. Each of the Money Market Funds values
its assets at amortized cost while also monitoring the available market bid
price, or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of such Funds
will ordinarily remain at $1.00, but the Investment Funds' daily dividends will
vary in amount. Net realized short-term capital gains, if any, less any capital
loss carryforwards, will be distributed whenever the Directors determine that
such distributions would be in the best interest of shareholders, but in any
event, at least once a year. The Money Market Funds do not expect to realize any
long-term capital gains. Should any such gains be realized, they will be
distributed annually, less any capital loss carryforwards.
32
<PAGE>
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Funds and directs the Adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for the Funds. The Company has authorized the Adviser to pay higher
commissions in recognition of brokerage services which, in the opinion of the
Adviser, are necessary for the achievement of better execution, provided the
Adviser believes this to be in the best interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Funds, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Company. Some
securities considered for investment by a Fund may also be appropriate for other
clients served by the Adviser. If purchase or sale of securities consistent with
the investment policies of a Fund and one or more of these other clients served
by the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair
and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic review by
the Company's Directors.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For the three fiscal years ended
June 30, 1994, June 30, 1995 and June 30, 1996, the Company paid brokerage
commissions of approximately $618,000, $115,622 and $180,458, respectively, to
the Distributor, an affiliated broker-dealer. For the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996, commissions paid to the Distributor
represented approximately 30%, 7% and 6%, respectively, of the total amount of
brokerage commissions paid in such period and which were paid on transactions
that represented 21%, 3% and 2% respectively, of the aggregate dollar amount of
transactions that incurred commissions paid by the Company during such period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser or Morgan Stanley or any "affiliated persons," as defined
in the 1940 Act, of Morgan Stanley when such entities are acting as principals,
except to the extent permitted by law.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Company but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Company are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total return figures
are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
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:
<TABLE>
<C> <C> <S>
P(1+T)n = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
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).
</TABLE>
33
<PAGE>
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>
ONE-YEAR INCEPTION
INCEPTION PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1996 30, 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%
Global Fixed Income Fund
Class A Shares...................... 01/04/93 5.20% 7.12%
Class B Shares+..................... 08/01/95 3.76% N/A
Class C Shares+..................... 01/04/93 4.47% 6.27%
Asian Growth Fund
Class A Shares...................... 06/23/93 4.45% 13.78%
Class B Shares+..................... 08/01/95 1.82% N/A
Class C Shares+..................... 06/23/93 3.64% 12.98%
American Value Fund
Class A Shares...................... 10/18/93 17.41% 11.29%
Class B Shares+..................... 08/01/95 12.29% N/A
Class C Shares+..................... 10/18/93 16.50% 10.42%
Worldwide High Income Fund
Class A Shares...................... 04/21/94 19.61% 13.28%
Class B Shares+..................... 08/01/95 17.07% N/A
Class C Shares+..................... 04/21/94 18.71% 12.45%
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
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR INCEPTION
INCEPTION PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1996 30, 1996
--------- ------------- -------------
European Equity Fund
<S> <C> <C> <C>
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Equity Growth Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Global Equity Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Emerging Markets Debt Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
MidCap Growth Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Value Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Money Market Fund....................... 03/12/92 N/A N/A
Tax-Free Money Market Fund.............. N/A N/A N/A
Government Obligations Money Market
Fund................................... 03/12/96 N/A N/A
</TABLE>
- ------------------
The European Equity, International Magnum, Japanese Equity, Growth and Income,
Equity Growth, Global Equity, Emerging Markets Debt, Mid Cap Growth, Value,
Money Market, Tax-Free Money Market and Government Obligations Money Market
Funds had not commenced operations in the fiscal year ended June 30, 1996.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
* Not Annualized.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
<TABLE>
<S> <C> <C>
2[(a - b + 1) - 1]
Yield = ------------------
cd
</TABLE>
where:
<TABLE>
<C> <C> <S>
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
</TABLE>
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.
35
<PAGE>
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:
<TABLE>
<C> <C> <S>
Tax Free Yield
- ------------------- = Your Taxable Equivalent
1 - Your Tax Bracket Yield
</TABLE>
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 Fund 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 FEDERAL
TAXABLE INCOME INCOME TAXABLE EQUIVALENT RATES BASED ON TAX-EXEMPT YIELD OF:
- ------------------------------------ TAX ------------------------------------------------------------------
SINGLE RETURN JOINT RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
- ----------------- ----------------- -------- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,000 $0-$40,000 15% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 12.94%
$24,001-$58,150 $40,101-$96,900 28% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 15.28%
$58,151-$121,300 $96,901-$147,700 31% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49% 15.94%
$123,301-$263,750 $147,001-$263,750 36% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% 17.19%
$263,751 and up $263,751 and up 39.6% 4.97% 6.62% 8.28% 9.93% 11.59% 13.23% 14.90% 16.56% 18.21%
</TABLE>
- --------------
* Net amount subject to 1996 Federal Income Tax after deductions and exemptions,
not indexed for 1996 income tax rates.
COMPARISONS
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages -- an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
company stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
36
<PAGE>
(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:
<TABLE>
<S> <C>
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
</TABLE>
(m) J.P. Morgan Traded Global Bond Index -- is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(n) Lehman LONG-TERM Treasury Bond -- is composed of all bonds covered by
the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) Lehman Aggregate Bond Index -- is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(p) NASDAQ Industrial Index -- is composed of more than 3,000 industrial
issues. Ifmis 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.
37
<PAGE>
(w) Savings and Loan Historical Interest Rates -- as published in the United
States Savings & Loan League Fact Book.
(x) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index, a market-capitalization
weighted index comprising stocks in Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Taiwan and Thailand. Korea is included in the MSCI Combined Far
East Free ex-Japan Index at 20% of its market capitalization.
(z) CS First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(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.
(ii) Standard & Poor's 400 Mid Cap Index -- The Standard and Poor's Midcap
400 is a capitalization-weighted index that measures the performance of the
mid-range sector of the U.S. stock market where the medium market capitalization
is approximately $700 million.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Company's Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
GENERAL PERFORMANCE INFORMATION
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital
38
<PAGE>
markets is based on the returns of different indices. The Funds may use the
performance of these capital markets in order to demonstrate general
risk-versus-reward investment scenarios. Performance comparisons may also
include the value of a hypothetical investment in any of these capital markets.
The risks associated with the security types in any capital market may or may
not correspond directly to those of the Funds. The Funds may also compare their
performance to that of other compilations or indices that may be developed and
made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. Advertisements may include lists
of representative Morgan Stanley clients. The Funds may also from time to time
include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting, questionnaires designed to
help create a personal financial profile, worksheets used to project savings
needs based on assumed rates of inflation and hypothetical rates of return and
action plans offering investment alternatives), investment management
techniques, policies or investment suitability of a Fund (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer, automatic account rebalancing, the advantages and disadvantages
of investing in tax-deferred and taxable investments). Advertisements and sales
materials relating to a Fund may include information regarding the background
and experience of its portfolio managers; the resources, expertise and support
made available to the portfolio managers by Morgan Stanley; and the portfolio
managers' goals, strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the U.S. and foreign countries, the relationship between sectors of the U.S., a
foreign, or the global economy and the U.S., a foreign, or the global economy as
a whole and the effects of inflation. The Funds may include discussions and
illustrations of the growth potential of various global markets including, but
not limited to, Africa, Europe, Latin America, North America, South America,
Emerging Markets and individual countries. These discussions may include the
past performance of the various markets or market sectors; forecasts of
population, gross national product and market performance; and the underlying
data which supports such forecasts. From time to time advertisements, sales
literature, communications to shareholders or other materials may summarize the
substance of information contained in the Funds' shareholder reports (including
the investment composition of a Fund), as well as the views of Morgan Stanley as
to current market, economic, trade and interest rate trends, legislative,
regulatory and monetary developments, investment strategies and related matters
believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund may also
advertise its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
AMERICAN VALUE FUND
The American Value Fund's portfolio managers are "value" investors, and as
such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value. This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.
Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized. Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.
Wilshire Associates reports small cap value stocks (an index made up of the
lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap
39
<PAGE>
growth stock during the period of 1978 to 1995, 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).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RETURNS RISK (STANDARD DEVIATION)
<S> <C> <C>
S&P 500 15.4% 15.7%
Small Capitalization Value 20.0% 19.7%
Small Capitalization Mean 16.7% 21.3%
Small Capitalization Growth 16.6% 24.7%
Source:
Wilber Associates Style
Performance
Date 1978-1995
</TABLE>
Past performance is no guarantee of future results. The S&P 500 and the
Style Portfolio Data are unmanaged indices of securities. The risk factor is an
annualized standard deviation of the annual returns. The Small Cap Value Index
is a straightforward composite benchmark. It is the average of three separate
indices: Low Price/Book Index ("Low P/B"), High Yield Index, and Low
Price/Earnings Index ("Low P/E"). Each index is computed by sorting the
companies of stocks ranked 501-2000 by market capitalization by the fundamental
measure. The universe is then split into equally weighted deciles based on the
sorted fundamental measure. The Low P/B and the Low P/E indices are simply the
unweighted returns from the 8th and 9th decile. The High Yield Index is the
unweighted return from the 2nd and 3rd decile. The process is a repetitive,
rigid algorithm which is not subject to manager selectivity. The Small Cap Index
is the Decile 6-8 index of the Center for Research in Security Prices of the
University of Chicago ("CRSP"). The CRSP indices are composed of nearly all
common stocks traded on the NYSE, AMEX, and NASDAQ within a given market-cap
range. The size cutoffs are determined by ranking all NYSE stocks by market cap,
forming deciles, and then adding all the issues that fit the size range from the
other deciles. The CRSP Decile 6-8 represents the sixth through eighth deciles.
The market capitalization ranges characterized by both indices are consistent
with each other and represent the MSAM/Chicago definition of the small
capitalization universe.
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 Asia 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.
40
<PAGE>
ESTIMATED GNP GROWTH
1990-2000
<TABLE>
<S> <C>
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
</TABLE>
1991-1995 ANNUALIZED RETURNS/GROSS DIVIDENDS (US DOLLARS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RETURNS (%)
<S> <C>
Hong Kong 25.51
Philippines 36.29
CFEFxJ 20.89
Thailand 20.62
Singapore 18.60
Malaysia 15.29
USA 13.62
World 9.73
EAFE 7.56
Korea 4.52
Indonesia -3.61
Taiwan -5.11
Japan -4.89
Past performance of Asian markets is not a guarantee of their future performance and
is
not indicative of the Fund's future performance. The chart is for educational
purposes only.
For information on the performance of the Morgan Stanley Asian Growth Fund, please
contact
your investment representative.
Sources: MSCI Indices*
</TABLE>
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.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Company's Articles of Incorporation permit the Directors to issue 21.75
billion shares of common stock, par value $.001 per share, from an unlimited
number of Funds. Currently the Company is authorized to offer shares of
twenty-two Funds, nineteen of which have Class A, Class B and Class C shares.
The shares of each Fund of the Company are fully paid and non-assessable,
and have no preference as to conversion, exchange, dividends, retirement or
other features. The shares of each Fund of the Company have no pre-emptive
rights. The shares of the Company have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so. A shareholder
is entitled to one vote for each full share owned (and a fractional vote for
each fractional share owned), then standing in his name on the books of the
Company.
DIVIDENDS AND DISTRIBUTIONS
The Company's policy is to distribute substantially all of each Fund's net
investment income, if any. Each Fund may choose to make sufficient distributions
of net capital gains to avoid liability for federal excise tax. A Fund will not
be subject to federal income tax on capital gains or ordinary income distributed
to shareholders so long as it qualifies as a RIC (see discussion under
"Dividends and Distributions" and "Taxes" in the Prospectus). However, the
Company may also choose to retain net realized capital gains and pay taxes on
such gains. The amounts of any income dividends or distributions cannot be
predicted.
Any dividend or distribution paid shortly after an investor purchases shares
of an Non-Money Market Fund will reduce the per share net asset value of that
Fund by the per share amount of the dividend or distribution. 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.
41
<PAGE>
This reinvestment policy will remain in effect until the shareholder notifies
the Transfer Agent in writing at least three days prior to a record date that
the shareholder has elected either the Income Option (income dividends in cash
and distributions in additional shares at net asset value) or the Cash Option
(both income dividends and distributions in cash). No initial sales charge or
CDSC is imposed on shares of any of the Funds, including the Non-Money Funds,
that are purchased through the automatic reinvestment of dividends and
distributions of a Fund.
Each Fund generally will be treated as a separate corporation (and hence as
a separate "regulated investment company") for federal tax purposes. Any net
capital gains of any Fund, whether or not distributed to investors, cannot be
offset against net capital losses of any other Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Company's domestic custodian except with respect to the
Money Market Funds. Chase is not affiliated with Morgan Stanley & Co.
Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as the Company's
custodian for foreign assets held outside the United States and employs
subcustodians who were approved by the Directors of the Company in accordance
with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley Trust
Company is an affiliate of Morgan Stanley & Co. Incorporated. In the selection
of foreign subcustodians, the Directors consider a number of factors, including,
but not limited to, the reliability and financial stability of the institution,
the ability of the institution to provide efficiently the custodial services
required for the Company, and the reputation of the institution in the
particular country or region. PNC Bank, N.A. serves as the Company's custodian
for each of the Money Market Funds.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS:
AAA -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. AA -- Bonds which are
rated AA are judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The modifier 1
indicates that the security ranks at a higher end of the rating category,
modifier 2 indicates a mid-range rating and the modifier 3 indicates that the
issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future. BAA
- -- Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. BA -- Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B --
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. CAA --
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
ARATINGS: 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
42
<PAGE>
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid. D -- Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- -- best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 -- high quality with margins of protection ample
although not so large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTES ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-1 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATING: 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.
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.
43
<PAGE>
FINANCIAL STATEMENTS
The Company's audited financial statements and notes thereto for the fiscal
year ended June 30, 1996, and the report thereon of Price Waterhouse LLP,
independent accountants, which appear in the June 30, 1996 Annual Report to
Shareholders and the unaudited financial statements and notes thereto for the
period from July 1, 1996 to November 30, 1996 for the International Magnum Fund
follow. The International Magnum Fund, Japanese Equity Fund, Growth and Income
Fund, European Equity Fund, Equity Growth Fund, Global Equity Fund, Emerging
Markets Debt Fund, Mid Cap Growth Fund, Value Fund, Money Market Fund, Tax-Free
Money Market Fund and Government Obligations Money Market Fund were not
operational as of the date of the Annual Report.
The PCS Cash Fund, Inc.'s audited financial statements and notes thereon for
the fiscal year ended June 30, 1996, and the report thereon of Coopers & Lybrand
LLP which appear in the PCS Cash Fund, Inc.'s Annual Report to Shareholders also
follow. These financial statements and notes and report thereon relate to the
PCS Money Market Portfolio and PCS Government Obligations Money Market Portfolio
which were the predecessors of the Morgan Stanley Money Market Fund and Morgan
Stanley Government Obligations Money Market Fund, respectively.
44
<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>
46
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.
47
<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>
48
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.
49
<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>
50
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.
51
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1996
UNITED STATES (CONT.)
<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>
52
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.
53
<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>
54
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 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 NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (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.
55
<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>
56
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.
57
<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>
58
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.
59
<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>
60
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.
61
<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>
62
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
--------
PERU (0.9%)
127,885 Telefonica del Peru 'B' .......................... 258
--------
TOTAL COMMON STOCKS (COST $15,324)................................. 16,923
--------
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
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.
63
<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>
64
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.
65
<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>
66
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.
67
<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>
68
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.
69
<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>
70
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.
71
<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>
72
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.
73
<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
74
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.
75
<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.
76
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.
77
<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.
78
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.
79
<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.
80
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.
81
<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
82
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.
83
<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
84
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
YEAR ENDED YEAR ENDED YEAR ENDED ----------------
JUNE 30, JUNE 30, JUNE 30, JANUARY 4, 1993* AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS 1996 1995 1994 TO JUNE 30, 1993 TO JUNE 30, 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
-------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 4,
JUNE 30, JUNE 30, JUNE 30, 1993* TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1996 1995 1994 30, 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.
85
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 4, AUGUST 1, 1995+
JUNE 30, JUNE 30, JUNE 30, 1993* TO JUNE TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1996 1995 1994 30, 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
-------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 4,
JUNE 30, JUNE 30, JUNE 30, 1993* TO JUNE
SELECTED PER SHARE DATA AND RATIOS 1996 1995 1994 30, 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.
86
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, ---------------
YEAR ENDED YEAR ENDED YEAR ENDED 1993* TO AUGUST 1, 1995+
JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA 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* TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA 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.
87
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A --------------
------------------------------------------------- AUGUST 1,
YEAR ENDED YEAR ENDED OCTOBER 18, 1993* 1995+ TO JUNE
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994 30, 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
---------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 18, 1993*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 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.
88
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
------------------------------------------------- ----------------
YEAR ENDED YEAR ENDED APRIL 21, 1994* AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994 TO JUNE 30, 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
---------------------------------------------------
YEAR ENDED YEAR ENDED APRIL 21, 1994*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 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.
89
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------ ------------- ------------------------------
YEAR ENDED JULY 6, 1994* AUGUST 1, YEAR ENDED JULY 6, 1994*
SELECTED PER SHARE DATA AND JUNE 30, TO JUNE 30, 1995+ TO JUNE JUNE 30, TO JUNE 30,
RATIOS 1996 1995 30, 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.
90
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
------------------------------ ------------- ------------------------------
YEAR ENDED JULY 6, 1994* AUGUST 1, YEAR ENDED JULY 6, 1994*
SELECTED PER SHARE DATA AND JUNE 30, TO JUNE 30, 1995+ TO JUNE JUNE 30, TO JUNE 30,
RATIOS 1996 1995 30, 1996 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.
91
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
JANUARY 2, JANUARY 2, JANUARY 2,
SELECTED PER SHARE DATA AND 1996* TO JUNE 1996* TO JUNE 1996* TO JUNE
RATIOS 30, 1996 30, 1996 30, 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.
92
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
--------------- --------------- ---------------
SELECTED PER SHARE DATA AND MAY 1, 1996* TO MAY 1, 1996* TO MAY 1, 1996* TO
RATIOS JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 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 returns for periods of less than one year are not
annualized.
The accompanying notes are an integral part of the financial statements.
93
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------- --------------- ---------------
SELECTED PER SHARE DATA AND MAY 1, 1996* TO MAY 1, 1996* TO MAY 1, 1996* TO
RATIOS JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 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.
94
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
95
<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.
6. SHORT SALES: The Aggressive Equity Fund may sell securities short. A short
sale is a transaction in which the Portfolio
96
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
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 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.
97
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1996
- --------------------------------------------------------------------------------
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
98
<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>
99
<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
100
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (86.1%)
AUSTRALIA (1.5%)
7,300 Broken Hill Proprietary Co., Ltd. ................ $ 107
7,700 News Corp., Ltd. ................................. 41
12,000 Western Mining Corp. Holdings Ltd. ............... 76
--------
224
--------
AUSTRIA (0.4%)
800 Boehler-Udderholm AG.............................. 55
--------
BELGIUM (1.0%)
400 Arbed S.A. ....................................... 45
400 Delhaize Freres et Cie, 'Le Lion' S.A. ........... 23
1,500 G.I.B. Holdings LTD............................... 67
400 G.I.B. Holdings VVPR (New)........................ 18
--------
153
--------
DENMARK (1.3%)
1,030 BG Bank A/S (New) 45
500 Jyske Bank A/S (Registered)....................... 37
2,340 Unidanmark A/S, Class A (Registered).............. 117
--------
199
--------
FINLAND (1.1%)
2,650 Amer Group Ltd. Class A........................... 58
1,750 Huhtamaki Oy, series 1............................ 76
11,000 Merita Ltd., Class A 34
--------
168
--------
FRANCE (5.7%)
240 Bongrain S.A. .................................... 94
1,500 Banque Nationale de Paris......................... 60
700 Cie de Saint Gobain............................... 101
750 Elf Acquitaine.................................... 65
460 Eridania Beghin-Say S.A. ......................... 71
500 Groupe Danone RFD................................. 74
1,500 Lafarge Coppee S.A. .............................. 95
540 PSA Peugeot Citroen S.A. ......................... 66
700 SGS-Thomson Microelectronics N.V. ................ 46
1,090 Total S.A., Class B............................... 87
6,250 Usinor Sacilor.................................... 94
--------
853
--------
GERMANY (5.1%)
2,670 BASF AG........................................... 99
1,900 Bayer AG.......................................... 76
1,700 Deutsche Telekom AG ADR........................... 36
9,900 Gerresheimer Glas AG.............................. 217
250 Karstadt AG....................................... 86
120 Mannesmann AG..................................... 50
1,300 VEBA AG........................................... 77
300 Volkswagen AG..................................... 119
--------
760
--------
HONG KONG (6.5%)
2,000 Asia Satellite Telecommunications Holdings
Ltd. ........................................... 5
55,000 China Resources Enterprise Ltd. .................. 79
17,000 Cheung Kong Holdings Ltd. ........................ 150
14,000 Citic Pacific Ltd. ............................... 73
4,000 Hang Seng Bank Ltd. .............................. 48
3,000 Henderson Land Development Co., Ltd. ............. 30
5,200 Hong Kong & Shanghai Bank......................... 108
83,200 Hong Kong Telecommunications Ltd. ................ 144
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
19,000 Hutchison Whampoa Ltd. ........................... $ 147
13,000 New World Development Co. Ltd. ................... 88
7,000 Swire Pacific Ltd., Class A....................... 66
6,000 Wharf Holdings Ltd. .............................. 31
--------
969
--------
ITALY (1.6%)
9,700 Marzotto (Gaetano) & Figili S.p.A. ............... 61
73,000 Olivetti S.p.A. .................................. 26
30,000 Stet Societa' Finanziaria Telefonica S.p.A. ...... 92
35,000 Telecom Italia S.p.A. Di Risp..................... 64
--------
243
--------
JAPAN (33.5%)
9,000 Amada Co., Ltd. .................................. 75
13,000 Asahi Tec Corp. .................................. 80
5,000 Canon, Inc. ...................................... 105
7,000 Daibiru Corp. .................................... 82
15,000 Daicel Chemical Industries Ltd. .................. 71
7,000 Daifuku Co., Ltd. ................................ 82
5,000 Dai Nippon Printing Co., Ltd. .................... 91
9,000 Daikin Industries Ltd. ........................... 84
8,000 Daiwa Securities Co., Ltd. ....................... 86
2,100 FamilyMart........................................ 83
4,000 Fuji Machine Manufacturing Co. ................... 109
3,000 Fuji Photo Film Ltd. ............................. 94
3,000 Hitachi Credit Corp. ............................. 50
14,000 Hitachi Ltd. ..................................... 130
12,000 Inabata & Co. .................................... 83
19,000 Kaneka Corp. ..................................... 113
4,000 Kurita Water Industries........................... 85
2,000 Kyocera Ltd. ..................................... 129
7,000 Kyudenko Co., Ltd. ............................... 75
4,000 Matsushita Communication Industries............... 104
7,000 Matsushita Electric Industries Ltd. .............. 121
26,000 Mitsubishi Chemical Corp. ........................ 98
7,000 Mitsubishi Estate Co., Ltd. ...................... 89
15,000 Mitsubishi Heavy Industries Ltd. ................. 123
6,000 Mitsumi Electric Co., Ltd. ....................... 110
3,000 Murata Manufacturing Co., Ltd. ................... 102
12,000 NEC Corp. ........................................ 145
8,000 Nifco, Inc. ...................................... 88
1,300 Nintendo Corp., Ltd. ............................. 92
13 Nippon Telephone & Telegraph Corp. ............... 93
16,000 Nissan Motor Co. ................................. 114
5,000 Nomura Securities Co., Ltd. ...................... 84
14,000 Obayashi Corp. ................................... 105
9,000 Ricoh Co., Ltd. .................................. 96
4,000 Rinnai............................................ 88
2,000 Sangetsu Co., Ltd. ............................... 44
4,000 Sankyo Co., Ltd. ................................. 107
10,000 Sanwa Shutter..................................... 80
2,000 Secom Co., Ltd. .................................. 121
8,000 Sekisui Chemical Co. ............................. 89
9,000 Sekisui House Co., Ltd. .......................... 96
2,000 Shimamura Co Ltd ................................. 75
2,400 Sony Corp. ....................................... 154
16,000 Stanley Electric Co. ............................. 98
11,000 Sumitomo Marine & Fire Insurance Co. ............. 78
7,000 Suzuki Motor Co., Ltd. ........................... 73
2,000 TDK Corp. ........................................ 129
22,000 Toshiba Corp. .................................... 142
</TABLE>
101
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
14,000 Tsubakimoto Chain................................. $ 82
18,000 Taisei Corp., Ltd. ............................... 100
4,000 Tokyo Electron Ltd. .............................. 114
5,000 Yamanuchi Pharmaceutical Co. ..................... 101
--------
5,042
--------
MALAYSIA (4.1%)
7,000 Commerce Asset Holgings Bhd. ..................... 53
4,000 Edaran Otomobil Nasional Bhd. .................... 39
6,000 Genting Bhd. ..................................... 43
10,000 Ijm Corp. Bhd..................................... 23
14,000 IOI Corp. Bhd. ................................... 22
4,000 Leader Universal Holdings Bhd. ................... 9
12,000 Magnum Corp. Bhd. ................................ 24
2,000 Malayan Banking Bhd. ............................. 20
13,000 Malaysian International Shipping Bhd. (Foreign)... 41
12,000 Petronas Gas Bhd. ................................ 49
19,000 Renong Bhd. ...................................... 35
9,000 Resorts World Bhd. ............................... 45
24,000 Sime Darby Bhd. .................................. 90
6,000 TA Enterprise Bhd. ............................... 9
8,000 Tanjong plc....................................... 33
8,000 Telekom Malaysia Bhd. ............................ 73
1,000 United Engineers Ltd. (Malaysia).................. 8
--------
616
--------
NETHERLANDS (3.9%)
1,528 ABN Amro Holdings N.V. ........................... 99
1,000 Akzo Nobel N.V. .................................. 133
2,700 ING Groep N.V. ................................... 95
3,000 KLM Royal Dutch Airlines N.V. .................... 77
2,000 Koninklijke Van Ommeren N.V. ..................... 87
2,500 Phillips Electronics N.V. ........................ 101
--------
592
--------
NORWAY (1.4%)
26,600 Den Norske Bank A/S, Class A...................... 99
2,900 Saga Petroleum A/S, Series B...................... 43
12,200 Storebrand Asa.................................... 73
--------
215
--------
PORTUGAL (0.2%)
1,700 Banco Totta & Acores S.A., Class B (Registered)... 30
--------
SINGAPORE (1.2%)
2,000 Development Bank of Singapore Ltd. (Foreign)...... 26
4,000 Keppel Corp., Ltd. ............................... 31
2,000 Sembawang Corp., Ltd. ............................ 11
2,000 Singapore Airlines Ltd. (Foreign)................. 19
1,000 Singapore Press Holdings (Foreign)................ 19
3,000 Straits Steamship Land Ltd. ...................... 10
4,000 United Overseas Bank Ltd. (Foreign)............... 42
11,000 Want Want Holdings................................ 27
--------
185
--------
SPAIN (2.9%)
7,000 Iberdrola S.A. ................................... 81
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
2,100 Repsol S.A. ...................................... $ 78
9,000 Sevillana de Electricidad......................... 84
4,850 Telefonica de Espana S.A. ........................ 106
12,000 Uralita S.A. ..................................... 89
--------
438
--------
SWEDEN (2.3%)
600 Electrolux AB, Series B........................... 35
3,600 Nordbanken AB..................................... 102
2,000 Skandia Forsakrings AB............................ 57
3,300 S.K.F. AB, Class B................................ 70
2,500 Sparbanken Sverige AB Class A..................... 41
1,600 Svenska Handelsbanken Class A..................... 44
--------
349
--------
SWITZERLAND (5.3%)
65 Ascom Holding AG (Bearer)......................... 69
50 Bobst AG (Bearer)................................. 69
50 Ciba-Geigy AG (Registered)........................ 62
180 Forbo Holdings AG (Registered).................... 73
120 Holderbank Financiere Glarus AG, Class B
(Bearer)........................................ 87
70 Magazine Globus (Participating Certificates)...... 38
120 Nestle S.A. (Registered).......................... 130
700 Oerlikon-Buehrle Holdings AG...................... 72
40 Schindler Holding AG.............................. 42
50 SIG Schweizerische Industrie-Gesellschaft Holdings
AG (Registered)................................. 61
150 Sulzer AG (Registered)............................ 86
--------
789
--------
UNITED KINGDOM (7.1%)
6,000 Bass plc.......................................... 79
12,300 BAT Industries plc................................ 98
16,000 British Telecommunications plc.................... 102
14,700 Calor Group plc................................... 73
19,000 Courtaulds Textiles plc........................... 80
12,000 Imperial Tobacco Group plc........................ 76
15,500 John Mowlem & Co plc.............................. 30
5,600 Kwik Save Group plc............................... 28
7,125 Reckitt & Colman plc.............................. 84
18,000 Royal & Sun Alliance Insurance Group plc.......... 136
2,800 Southern Electric plc............................. 33
10,000 Tate Lyle plc..................................... 82
5,100 Unilever plc...................................... 121
11,800 WPP Group plc..................................... 45
--------
1,067
--------
TOTAL COMMON STOCKS (COST $12,821)............................... 12,947
--------
PREFERRED STOCKS (1.3%)
GERMANY (1.3%)
295 Dyckerhoff AG..................................... 76
1,030 Hornbach Holding AG............................... 68
1,320 RWE AG............................................ 48
--------
TOTAL PREFERRED STOCKS (COST $181)............................... 192
--------
</TABLE>
102
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.2%)
SINGAPORE (0.2%)
3,000 Oversea-Chinese Banking Corp. (Foreign) (Cost
$36)............................................ $ 36
--------
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
WARRANTS (0.1%)
SINGAPORE (0.1%)
8,000 Straits Steamship, expiring 12/12/00 (Cost $10)... 9
TOTAL FOREIGN SECURITIES (87.7%) (COST $13,048).................. 13,184
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (8.9%)
REPURCHASE AGREEMENT (8.9%)
$1,344 Chase Securities, Inc., 5.45%, dated 11/29/96, due
12/2/96, to be repurchased at $1,345,
collateralized by $1,390 of U.S. Treasury Bills,
4.76%, due 2/27/96, valued at $1,373 (COST
$1,344)......................................... $ 1,344
--------
FOREIGN CURRENCY (2.2%) (COST $327).............................. 336
--------
TOTAL INVESTMENTS (98.8%) (COST $14,719)......................... 14,864
OTHER ASSETS AND LIABILITIES (1.2%).............................. 173
--------
NET ASSETS (100%)................................................ $ 15,037
--------
--------
</TABLE>
<TABLE>
<S> <C>
- ---------------
ADR -- American Depositary Receipt
RFD -- Ranked for Dividend
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency exchange contracts open at
November 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 NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- --------------- ------- ---------- ---------------- ------- --------------
<C> <C> <C> <S> <C> <C>
BEF 309 $ 10 12/27/96 USD 10 $ 10 $ --
FRF 903 173 12/27/96 USD 177 177 4
DEM 275 179 12/27/96 USD 183 183 4
JPY 87,324 770 12/27/96 USD 810 810 40
NLG 135 78 12/27/96 USD 80 80 2
CHF 108 83 12/27/96 USD 88 88 5
BEF 3,245 103 1/24/97 USD 104 104 1
DEM 771 503 1/24/97 USD 510 510 7
JPY 282,362 2,501 1/30/97 USD 2,540 2,540 39
USD 1,320 1,320 1/30/97 JPY 145,380 1,288 (32)
NLG 485 283 2/10/97 USD 285 285 2
CHF 666 515 2/10/97 USD 535 535 20
FRF 2,370 456 2/24/97 USD 463 463 7
NLG 100 59 2/24/97 USD 60 60 1
------- ------- ------
$ 7,033 $ 7,133 $ 100
------- ------- ------
------- ------- ------
</TABLE>
- ---------------
BEF -- Belgian Franc
DEM -- German Mark
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Netherlands Guilder
CHF -- Swiss Franc
USD -- United States Dollar
- --------------------------------------------------------------------------------
103
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------
NOVEMBER 30, 1996
<TABLE>
<CAPTION>
(000)
<S> <C>
- ---------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value (Note 1) -- See
accompanying portfolios $14,528
Foreign Currency at Value 336
Receivable for:
Investments Sold 1,372
Fund Shares Sold 347
Dividends 24
Interest 1
Unrealized Gain on Forward Foreign Currency Contracts 100
Deferred Organization Costs 27
Receivable from Investment Adviser 25
-------
Total Assets 16,760
-------
LIABILITIES:
Payable for:
Investments Purchased 1,641
Investment Advisory Fees 23
Administrative Fees 6
Custody Fees 24
Other 29
-------
Total Liabilities 1,723
-------
NET ASSETS $15,037
-------
-------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 1
Paid in Capital in Excess of Par 14,659
Accumulated Net Investment Income (Loss) (15)
Accumulated Net Realized Gain 148
Unrealized Appreciation (Depreciation) on Investments and
Foreign Currency Translations 244
-------
NET ASSETS $15,037
-------
-------
CLASS A SHARES:
Net Assets $ 4,673
Shares Issued and Outstanding ($.001 par value)
(Authorized 375,000,000) 381
Net Asset Value and Redemption Price Per Share $ 12.26
-------
-------
Maximum Sales Charge 4.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/95.25) $ 12.87
-------
-------
CLASS B SHARES:
Net Assets $ 4,906
Shares Issued and Outstanding ($.001 par value)
(Authorized 375,000,000) 401
Net Asset Value and Offering Price Per Share $ 12.23
-------
-------
CLASS C SHARES:
Net Assets $ 5,458
Shares Issued and Outstanding ($.001 par value)
(Authorized 375,000,000) 447
Net Asset Value and Offering Price Per Share $ 12.22
-------
-------
</TABLE>
104
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 1,
1996 TO *
NOVEMBER
30,1996
(000)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 59
Interest 39
Less Foreign Taxes Withheld (6)
-----------
Total Income 92
-----------
EXPENSES:
Investment Advisory Fees
Basic Fee 50
Less: Fees Waived (50)
-----------
Investment Advisory Fees -- Net 0
Administrative Fees 18
Custodian Fees 38
Filing and Registration Fees 3
Directors' Fees and Expenses 1
Professional Fees 14
Shareholder Reports 1
Distribution Fees
Class A 4
Class B 16
Class C 18
Blue Sky Fees
Class A 3
Class B 3
Class C 3
Other 2
Expenses Reimbursed by Adviser (17)
-----------
Net Expenses 107
-----------
Net Investment Income (Loss) (15)
-----------
NET REALIZED GAIN (LOSS) ON:
Investments 26
Foreign Currency Transactions 122
-----------
Net Realized Gain (Loss) 148
-----------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 136
Foreign Currency Translations 108
-----------
Change in Unrealized Appreciation/Depreciation 244
-----------
Net Realized Gain (Loss) and Change in Unrealized
Appreciation/Depreciation 392
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 377
-----------
-----------
</TABLE>
- ------------------
* Commencement of Operations.
105
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 1, 1996
TO *
NOVEMBER 30,
1996
(000)
<S> <C>
- ---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Gain (Loss) $ (15)
Net Realized Gain (Loss) on Investments and Foreign
Currency 148
Change in Unrealized Appreciation/(Depreciation) 244
-------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 377
-------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 14,804
Distributions Reinvested 0
Redeemed (144)
-------------
Net Increase in Net Assets Resulitng from Capital Share
Transactions 14,660
-------------
Total Increase in Net Assets 15,037
NET ASSETS -- Beginning of Period --
-------------
NET ASSETS -- End of Period (Including undistributed net
investment income of $0 and $0, respectively) $ 15,037
-------------
-------------
- ---------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 386
Distributions Reinvested 0
Redeemed (5)
-------------
Net Increase in Class A Shares Outstanding 381
-------------
-------------
Dollars:
Issued $ 4,609
Distributions Reinvested 0
Redeemed (64)
-------------
Net Increase in Class A Shares Outstanding $ 4,545
-------------
-------------
(1) Class B:
--------
Shares:
Issued 400
Distributions Reinvested 0
Redeemed 1
-------------
Net Increase in Class B Shares Outstanding 401
-------------
-------------
Dollars:
Issued $ 4,817
Distributions Reinvested 0
Redeemed (15)
-------------
Net Increase in Class B Shares Outstanding $ 4,802
-------------
-------------
(1) Class C:
--------
Shares:
Issued 453
Distributions Reinvested 0
Redeemed (6)
-------------
Net Increase in Class A Shares Outstanding 447
-------------
-------------
Dollars:
Issued $ 5,378
Distributions Reinvested 0
Redeemed (65)
-------------
Net Increase in Class A Shares Outstanding $ 5,313
-------------
-------------
- ---------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
106
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------- --------- ---------
FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
JULY 1, JULY 1, JULY 1,
1996 TO* 1996 TO* 1996 TO*
NOVEMBER NOVEMBER NOVEMBER
SELECTED PER SHARE DATA AND RATIOS 30, 1996 30, 1996 30, 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00 $ 12.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01 (0.02) (0.02)
Net Realized and Unrealized Gain on
Investments 0.25 0.25 0.24
--------- --------- ---------
Total From Investment Operations 0.26 0.23 0.22
NET ASSET VALUE, END OF PERIOD $ 12.26 $ 12.23 $ 12.22
--------- --------- ---------
--------- --------- ---------
TOTAL RETURN (1) 2.17% 1.92% 1.83%
--------- --------- ---------
--------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 4,673 $ 4,906 $ 5,458
Ratio of Expenses to Average Net Assets 1.64%** 2.39%** 2.40%
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.21%** (0.54)%** (0.55)%
Portfolio Turnover Rate 6% 6% 6%
- ---------------------------------------------------------------------------------------
Average Commission Rate $ 0.0412 $ 0.0412 $ 0.0412
- ---------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Loss $ 0.06 $ 0.05 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.98%** 3.73%** 3.73%
Net Investment Loss to Average Net
Assets (1.13)%** (1.88)%** (1.88)%
- ---------------------------------------------------------------------------------------
</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.
107
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland. 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 November
30, 1996, the Fund had thirteen separate active investment portfolios (each a
"Portfolio", and together, the "Portfolios"). These financial statements report
on the Morgan Stanley International Magnum Fund (referred to herein as
"International Magnum"), which commenced operations on July 1, 1996.
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.
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.
3. REPURCHASE AGREEMENTS: In connections 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, and the foreign currency portion of gain and losses
108
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
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 limitations 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 realized 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.
6. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each Portfolio's commencement of operations. 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 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 the same time of redemption.
7. 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
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 (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 shares based upon their relative net assets. Distributions
from the Portfolios are recorded as a reduction of their costs.
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 the 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.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification 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.
109
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MASM" ), 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 A MAX. CLASS B AND CLASS C
OPERATING MAX. OPERATING
FUND ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ----------------------- ------------- --------------- ---------------------
<S> <C> <C> <C>
International Magnum 1.00% 1.65% 2.40%
</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 and agreement between MASM and
The Chase Manhattan Bank ("Chase"), Chase through its affiliate Chase Global
Funds Services 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.
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 the distribution services pursuant to separate Distribution Plans in
accordance with Rule12b-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, at a minimum rate of 0.25% for the Class A
shares of each Portfolio, and 0.75% of the Class B shares and Class C shares of
each Portfolio, on an annualized basis of the average daily net assets of such
classes.
E. CUSTODIAN: 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. Chase is the
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 purchased and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses.
For the period ended November 30, 1996, the following Portfolios incurred
custody fees and had amounts payable to MSTC at November 30, 1996:
<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
FUND (000) (000)
- ------------------------------------------ ------------------- ---------------------
<S> <C> <C>
International 34 20
</TABLE>
F. PURCHASES AND SALES: For the period ended November 30, 1996, purchases and
sales of investment securities other than long-term U.S. Government securities
and short term investments were:
<TABLE>
<CAPTION>
PURCHASES
FUND (000) SALES (000)
- --------------------------------------------------------- ----------- -----
<S> <C> <C>
International Magnum 13,524 502
</TABLE>
G. OTHER: At November 30, 1996, the net assets of the Portfolios was
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.
At November 30, 1996, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of the Portfolio was:
<TABLE>
<CAPTION>
NET APPRECIATION
COST (DEPRECIATION) APPRECIATION (DEPRECIATION)
FUND (000) (000) (000) (000)
- ------------------------- --------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
International Magnum 14,392 136 763 (627)
</TABLE>
110
<PAGE>
PCS CASH FUND, INC.
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------
STATEMENT OF NET ASSETS
JUNE 30, 1996
<TABLE>
<CAPTION>
FACE
AMOUNT
(000) VALUE
- ----------------------------------------------------------------------------------
<S> <C> <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
------------
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
------------
</TABLE>
See accompanying notes to financial statements. 111
<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> <C>
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
------------
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.
112 See accompanying notes to financial statements.
<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> <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
------------
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. 113
<PAGE>
PCS CASH FUND, INC.
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
MONEY MARKET GOVERNMENT OBLIGATIONS
PORTFOLIO MONEY MARKET 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>
114 See accompanying notes to financial statements.
<PAGE>
PCS CASH FUND, INC.
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED JUNE ENDED JUNE
30, 1996 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. 115
<PAGE>
PCS CASH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED JUNE ENDED JUNE
30, 1996 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
------------- -------------
NET ASSETS -- End of year......................... $ 145,977,556 $ 67,504,558
------------- -------------
------------- -------------
</TABLE>
116 See accompanying notes to financial statements.
<PAGE>
PCS CASH FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGH EACH PERIOD)
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED FOR THE YEAR
FOR A SHARE OUTSTANDING JUNE 30, JUNE 30, JUNE 30, JUNE 30, ENDED
THROUGH EACH PERIOD 1996 1995 1994 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
</TABLE>
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 12, 1992
FOR THE FOR THE FOR THE FOR THE (COMMNCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS)
FOR A SHARE OUTSTANDING JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
THROUGH EACH PERIOD 1996 1995 1994 1993 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....... 0.0464 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. 117
<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.
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.
118
<PAGE>
PCS CASH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
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.
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.
119
<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
120
<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) Articles Supplementary (adding Registrant's Global Equity,
Emerging Markets Debt, Mid Cap Growth, Equity Growth and Value
Funds) to the Amended and Restated Articles of Incorporation are
filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
(b) Investment Advisory Agreement between Registrant and Miller
Anderson & Sherrerd, LLP with respect to the Morgan Stanley Mid
Cap Growth Fund and the Morgan Stanley Value Fund is filed
herewith.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management, Inc. (adding
Registrant's Global Equity, Emerging Markets Debt and
Equity Growth Funds) are filed herewith.
6 Distribution Agreement between Registrant and Van Kampen American
Capital Distributors, Inc. is filed herewith.
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) Administration Agreement between Registrant and Miller Anderson &
Sherrerd, LLP (the "MAS Administration Agreement") is filed
herewith.
(c) Sub-Administration Agreement between Morgan Stanley Asset
Management Inc. and The Chase Manhattan Bank is filed herewith.
(d) Sub-Administration Agreement between Miller Anderson & Sherrerd,
LLP and The Chase Manhattan Bank is filed herewith.
(e) 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.
(f) 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.
(g) Sub-Transfer Agent Agreement between Morgan Stanley Asset
Management Inc. and ACCESS Investor Services, Inc. is filed
herewith.
(h) Sub-Transfer Agent Agreement between Miller Anderson & Sherrerd,
LLP and ACCESS Investor Services, Inc. is filed herewith.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
(b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is
filed herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
15 (a) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
for shares of the Morgan Stanley Money Market Fund ("Money Market
Plan") is filed herewith. 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 Government Obligations Money Market Fund.
(b) Form of Plan of Distribution Pursuant to Rule 12b-1 for shares of
the Morgan Stanley Tax-Free Money Market Fund is filed herewith.
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A
Shares (the "Class A Plan") of the Morgan Stanley Global Fixed
Income Fund is filed herewith. 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 Asian
Growth Fund, Morgan Stanley Small Cap Value Equity Fund (currently
the Morgan Stanley American Value Fund), Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley Global Equity
Allocation Fund, Morgan Stanley High Yield Fund, Morgan Stanley U.S.
Real Estate Fund, Morgan Stanley International Magnum Fund,
Morgan Stanley Aggressive Equity Fund.
(d) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A
Shares (the "Class A Plan") of the Morgan Stanley Japanese Equity
Equity Fund is filed herewith. 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
European Equity Fund, Morgan Stanley Growth and Income Fund.
(e) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Global Equity Fund is
filed herewith. 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 Emerging Markets Debt
Fund, Morgan Stanley Mid Cap Growth Fund, Morgan Stanley Equity
Growth Fund, Morgan Stanley Value Fund.
<PAGE>
(f) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
for Class B and Class C shares (the "Class B and Class C Plan")
relating to the Morgan Stanley Global Fixed Income Fund, Morgan
Stanley Asian Growth Fund, Morgan Stanley Small Cap Value Equity
Fund (currently the Morgan Stanley American Value Fund), Morgan
Stanley Worldwide High Income Fund, Morgan Stanley Emerging Markets
Fund, Morgan Stanley Latin American Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund and Morgan Stanley Aggressive Equity Fund is filed herewith.
(g) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B and
Class C shares (the "Class B and Class C Plan") relating to the
Morgan Stanley Japanese Equity Fund, Morgan Stanley European Equity
Fund and Morgan Stanley Growth and Income Fund is filed herewith.
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 Rule 18f-3 Multiple Class Plan is filed herewith.
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 December 11, 1996.
Number of
Title of Class Record Holders
-------------- ---------------
Morgan Stanley Global Equity Allocation Fund-Class A..... 4256
Morgan Stanley Global Equity Allocation Fund-Class B..... 2006
<PAGE>
Morgan Stanley Global Equity Allocation Fund-Class C.... 4989
Morgan Stanley Global Fixed Income Fund-Class A......... 341
Morgan Stanley Global Fixed Income Fund-Class B......... 61
Morgan Stanley Global Fixed Income Fund-Class C......... 199
Morgan Stanley Asian Growth Fund-Class A................ 19969
Morgan Stanley Asian Growth Fund-Class B................ 6834
Morgan Stanley Asian Growth Fund-Class C................ 13680
Morgan Stanley Emerging Markets Fund-Class A............ 4089
Morgan Stanley Emerging Markets Fund-Class B............ 1596
Morgan Stanley Emerging Markets Fund-Class C............ 3611
Morgan Stanley Latin American Fund-Class A.............. 1084
Morgan Stanley Latin American Fund-Class B.............. 210
Morgan Stanley Latin American Fund-Class C.............. 588
Morgan Stanley European Equity Fund-Class A.............
Morgan Stanley European Equity Fund-Class B.............
Morgan Stanley European Equity Fund-Class C.............
Morgan Stanley American Value Fund-Class A.............. 1255
Morgan Stanley American Value Fund-Class B.............. 274
Morgan Stanley American Value Fund-Class C.............. 1342
Morgan Stanley Worldwide High Income Fund-Class A....... 1982
Morgan Stanley Worldwide High Income Fund-Class B....... 2240
Morgan Stanley Worldwide High Income Fund-Class C....... 1676
Morgan Stanley Aggressive Equity Fund-Class A........... 358
Morgan Stanley Aggressive Equity Fund-Class B........... 238
Morgan Stanley Aggressive Equity Fund-Class C........... 206
Morgan Stanley Growth and Income Fund-Class A...........
Morgan Stanley Growth and Income Fund-Class B...........
Morgan Stanley Growth and Income Fund-Class C...........
Morgan Stanley High Yield Fund-Class A.................. 38
Morgan Stanley High Yield Fund-Class B.................. 82
Morgan Stanley High Yield Fund-Class C.................. 54
Morgan Stanley U.S. Real Estate Fund-Class A............ 199
Morgan Stanley U.S. Real Estate Fund-Class B............ 113
Morgan Stanley U.S. Real Estate Fund-Class C............ 70
Morgan Stanley International Magnum Fund-Class A........ 91
Morgan Stanley International Magnum Fund-Class B........ 175
Morgan Stanley International Magnum Fund-Class C........ 46
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
John R. Alkire Managing Director (MSAM) - Toyko
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
Paul B. Ghaffari Managing Director
Gordon S. Gray Managing Director
Marianne Laing Hay Managing Director
Gary D. Latainer Managing Director
Mahmoud A. Mamdani Managing Director
Robert L. Meyer Managing Director
Russell C. Platt 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
Robert E. Angevine Principal
Suzanne S. Akers Principal
Gerald P. Barth-Wehrenaip Principal
Theodore R. Bigman 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
Raye L. Dube Principal
Abigail Jones Feder Principal
Eugene Flood, Jr. Principal
Thomas C. Frame Principal
James Wayne Grisham Principal
Perry E. Hall II Principal
Ruth A. Hughes-Guden Principal
Margaret Kinsley Johnson Principal
Michael F. Klein Principal
Michael B. Kushma Principal
Khoon-Min Lim Principal
Marianne J. Lippmann Principal
Yvonne Longley Principal (MSAM) - UK
Andrew Mack Principal (MSAM) - UK
Gary J. Mangino Principal
Jeffrey Margolis Principal
M. Paul Martin Principal
Walter Maynard, Jr. Principal
Margaret P. Naylor Principal (MSAM) - UK
Yoshiro Okawa Principal (MSAM) - Tokyo
Warren Olsen Principal
Christopher G. Petrow 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
Maryann Savadelis Agre Vice President
Peter Aliprantis Vice President
Jeffrey Alvino Vice President
Alistair Anderson Vice President
William S. Auslander Vice President
Kimberly L. Austin Vice President
Marshall T. Bassett Vice President
Christopher Blair Vice President
Richard Boon Vice President
Geraldine Boyle Vice President
Paul Boyne 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
Richard S. Farden Vice President
Daniel E. Fox Vice President
Karen T. Frost Vice President (MSAM) - UK
Lisa Gallo Vice President
Josephine M. Glass Vice President
Charles A. Golden Vice President
Dimitri Goulandris Vice President
James A. Grasselino Vice President
<PAGE>
Kenneth John Greig Vice President (MSAM) - UK
Maureen A. Grover Vice President
Michael Hewett Vice President
Kenneth R. Holley Vice President
Holly D. Hopps Vice President
Etsuko Fuseya Jennings Vice President
Donald B. Johnston Vice President
Jaideep Khanna Vice President
Peter L. Kirby Vice President
George Koshy Vice President
Paul Koske Vice President
Daniel R. Lascano Vice President
Arthur J. Lev Vice President
Valerie Y. Lewis Vice President
Jane Likins Vice President (MSAM) - UK
William David Lock Vice President (MSAM) - UK
Gordon W. Loery Vice President
Paula J. Morgan Vice President (MSAM) - UK
Nancy Morton Vice President
Clare K. Mutone Vice President
Terumi Nagata Vice President (MSAM) - Tokyo
Bradley Okita Vice President
Martin O. Pearce Vice President (MSAM) - UK
Alexander A. Pena Vice President
Anthony J. Pesce Vice President
David J. Polansky Vice President
Karen Post Vice President
Akash Prakash Vice President (MSAM) - Muabai
Gregg A. Robinson Vice President
Gerald D. Rubin Vice President
Donald P. Ryan Vice President
Neil Siegel Vice President
Ashutosh Sinha 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
Keiko Tamaki-Kuroda Vice President
Shunso Tatsumi Vice President
Louise Teeple Vice President
Joseph Y.S. Tern Vice President (MSAM) Singapore
Landon Thomas Vice President
Richard Boon Hwee Toh Vice President (MSAM) Singapore
K.N. Vaidyanathan Vice President (MSAM) Muabai
Dennis J. Walsh Vice President
Jacob Walthour Vice President
Kevin V. Wasp Vice President
Patricia Woo 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 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 31st day of December, 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 December 31, 1996
- ----------------------------- (Principal Executive -----------------
Warren J. Olsen Officer)
*/s/ Barton M. Biggs Director (Chairman) December 31, 1996
- ------------------------------ -----------------
Barton M. Biggs
*/s/ Fergus Reid Director December 31, 1996
- ----------------------------- -----------------
Fergus Reid
*/s/ Frederick O. Robertshaw Director December 31, 1996
- ----------------------------- -----------------
Frederick O. Robertshaw
*/s/ Andrew McNally IV Director December 31, 1996
- ----------------------------- -----------------
Andrew McNally IV
*/s/ John D. Barrett II Director December 31, 1996
- ----------------------------- -----------------
John D. Barrett II
*/s/ Gerard E. Jones Director December 31, 1996
- ----------------------------- -----------------
Gerard E. Jones
*/s/ Samuel T. Reeves Director December 31, 1996
- ----------------------------- -----------------
Samuel T. Reeves
*/s/ Frederick B. Whittemore Director December 31, 1996
- ----------------------------- -----------------
Frederick B. Whittemore
*/s/ James R. Rooney Treasurer December 31, 1996
- ----------------------------- (Principal -----------------
James R. Rooney Accounting Officer)
*By: /s/ Warren J. Olsen
-----------------------
Warren J. Olsen
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
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1 (a) Articles of Amendment and Restatement are incorporated by
reference to Post Effective Amendment No. 10 to the Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-
7140), as filed with the SEC via EDGAR on October 4, 1995.
(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.
EX-99.1d (d) Articles Supplementary (adding Registrant's Global Equity,
Emerging Markets Debt, Mid Cap Growth, Equity Growth and
Value Funds) to the Amended and Restated Articles of Incorporation
are filed herewith.
2 Amended and Restated By-laws are incorporated by reference to Post-
Effective Amendment No. 10 to the Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as filed
with the SEC via EDGAR on October 4, 1995.
3 Not applicable.
4 Registrant's Forms of Specimen Securities were previously filed and
are incorporated herein by reference.
5 (a) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc. with respect to the Morgan
Stanley Money Market Fund, the Morgan Stanley Global Fixed
Income Fund and the Morgan Stanley Global Equity Allocation
Fund is incorporated by reference to Post-Effective Amendment
No. 10 to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 4, 1995.
EX-99.5b (b) Investment Advisory Agreement between Registrant and Miller
Anderson & Sherrerd, LLP with respect to the Morgan Stanley Mid
Cap Growth Fund and the Morgan Stanley Value Fund is filed
herewith.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
EX-99.5k (k) Supplements to Investment Advisory Agreement between the
Registrant and Morgan Stanley Asset Management Inc. (adding
Registrant's Global Equity, Emerging Markets Debt and Equity
Growth Funds) are filed herewith.
EX-99.6 6 Distribution Agreement between Registrant and Van Kampen American
Capital Distributors, Inc. is filed herewith.
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.
EX-99.9b (b) Administration Agreement between Registrant and Miller Anderson &
Sherrerd, LLP (the "MAS Administration Agreement") is filed herewith.
EX-99.9c (c) Sub-Administration Agreement between Morgan Stanley Asset Management
Inc. and The Chase Manhattan Bank is filed herewith.
EX-99.9d (d) Sub-Administration Agreement between Miller Anderson & Sherrerd, LLP
and The Chase Manhattan Bank is filed herewith.
(e) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with
respect to the Morgan Stanley Asian
</TABLE>
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<TABLE>
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Growth Fund and Morgan Stanley Small Cap Value Equity Fund
(currently the Morgan Stanley American Value Fund) is
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), as filed with the SEC via EDGAR on
October 30, 1995.
(f) 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.
EX-99.9g (g) Sub-Transfer Agent Agreement between Morgan Stanley Asset
Management Inc. and ACCESS Investor Services, Inc. is filed
herewith.
EX-99.9h (h) Sub-Transfer Agent Agreement between Miller Anderson &
Sherrerd, LLP and ACCESS Investor Services, Inc. is filed
herewith.
10 Opinion of Counsel is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
EX-99.11a 11 (a) Consent of Price Waterhouse LLP, Independent Accountants is filed
herewith.
EX-99.11b (b) Consent of Coopers & Lybrand L.L.P., Independent Accountants is
filed herewith.
12 Not applicable.
13 Purchase Agreement is incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), as filed with the SEC via
EDGAR on October 30, 1995.
14 Not applicable.
EX-99.15a 15 (a) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
for shares of the Morgan Stanley Money Market Fund ("Money Market
Plan") is filed herewith. 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 Government Obligations Money Market Fund.
EX-99.15b (b) Form of Plan of Distribution Pursuant to Rule 12b-1 for shares of
the Morgan Stanley Tax-Free Money Market Fund is filed herewith.
EX-99.15c (c) Form of Plan of Distribution Pursuant to Rule 12b-1 for
Class A Shares (the "Class A Plan") of the Morgan Stanley Global Fixed
Income Fund is filed herewith. 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 Asian
Growth Fund, Morgan Stanley Small Cap Value Equity Fund (currently
the Morgan Stanley American Value Fund), Morgan Stanley Worldwide
High Income Fund, Morgan Stanley Emerging Markets Fund, Morgan
Stanley Latin American Fund, Morgan Stanley Global Equity Allocation
Fund, Morgan Stanley High Yield Fund, Morgan Stanley U.S. Real Estate
Fund, Morgan Stanley International Magnum Fund, Morgan Stanley
Aggressive Equity Fund.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
EX-99.15d (d) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A
Shares (the "Class A Plan") of the Morgan Stanley Japanese Equity
Fund is filed herewith. 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 European Equity Fund,
Morgan Stanley Growth and Income Fund.
EX-99.15e (e) Plan of Distribution Pursuant to Rule 12b-1 for Class A Shares
(the "Class A Plan") of the Morgan Stanley Global Equity Fund is
filed herewith. 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 Emerging Markets Debt Fund, Morgan
Stanley Mid Cap Growth Fund, Morgan Stanley Equity Growth Fund,
Morgan Stanley Value Fund.
EX-99.15f (f) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
for Class B and Class C shares (the "Class B and Class C Plan")
relating to the Morgan Stanley Global Fixed Income Fund, Morgan
Stanley Asian Growth Fund, Morgan Stanley Small Cap Value Equity
Fund (currently the Morgan Stanley American Value Fund), Morgan
Stanley Worldwide High Income Fund, Morgan Stanley Emerging Markets
Fund, Morgan Stanley Latin American Fund, Morgan Stanley Global
Equity Allocation Fund, Morgan Stanley High Yield Fund, Morgan
Stanley U.S. Real Estate Fund, Morgan Stanley International Magnum
Fund and Morgan Stanley Aggressive Equity Fund is filed herewith.
EX-99.15g (g) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B
and Class C shares (the "Class B and Class C Plan") relating to
the Morgan Stanley Japanese Equity Fund, Morgan Stanley European
Equity and Morgan Stanley Growth and Income Fund is filed herewith.
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.
EX-99.18 18 Registrant's Rule 18f-3 Multiple Class Plan is filed herewith.
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>
MORGAN STANLEY FUND, INC.
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly
held on December 12, 1996 adopted a resolution increasing the total number of
shares of stock that the Corporation shall have the authority to issue from
twenty-one billion seven hundred fifty million (21,750,000,000) shares of
common stock, par value $.001 per share, having an aggregate par value of
twenty-one million seven hundred fifty thousand dollars ($21,750,000) and
designated and classified as follows:
<PAGE>
NUMBER OF SHARES OF
COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
2
<PAGE>
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
to twenty-seven billion three hundred seventy-five million (27,375,000,000)
shares of common stock, par value $.001 per share, having an aggregate par
value of twenty-seven million three hundred and seventy five thousand dollars
($27,375,000), designating and classifying five additional investment
funds, each offering Class A, Class B and Class C shares of common stock, so
that the common stock, par value $.001
3
<PAGE>
per share of the Corporation authorized to be issued is designated and
classified as follows:
Number of Shares of
Common Stock Classified
Name of Class and Allocated
- ------------- -----------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
4
<PAGE>
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A 375,000,000 shares
5
<PAGE>
Morgan Stanley Japanese Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund 2,000,000,000 shares
Morgan Stanley Global Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Global Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Global Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
- Class C 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
- Class C 375,000,000 shares
Morgan Stanley Equity Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Equity Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Equity Growth Fund
- Class C 375,000,000 shares
Morgan Stanley Value Fund
- Class A 375,000,000 shares
Morgan Stanley Value Fund
- Class B 375,000,000 shares
Morgan Stanley Value Fund
- Class C 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
6
<PAGE>
IN WITNESS WHEREOF, MORGAN STANLEY FUND, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Secretary on this 12th day of December, 1996.
MORGAN STANLEY FUND, INC.
By: /s/ Warren J. Olsen
------------------------
Warren J. Olsen
President
Attest: /s/ Valerie Y. Lewis
-------------------------
Valerie Y. Lewis
Secretary
7
<PAGE>
The undersigned, President of MORGAN STANLEY FUND, INC., who executed
on behalf of said corporation the foregoing Articles Supplementary to the
Articles of Amendment and Restatement of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Amendment and Restatement to
be the corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ Warren J. Olsen
----------------------
Warren J. Olsen
8
<PAGE>
Exhibit 5b
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this _____ day of ________________, 19__, by and between MAS
Funds (the "Fund"), a business trust organized under the laws of the
Commonwealth of Pennsylvania, and Miller Anderson & Sherrerd, LLP (or any
successor-in-interest (by merger or otherwise) thereto or transferee thereof
that does not involve an "assignment" within the meaning of the Investment
Company Act of 1940 and that is a limited liability partnership or other entity
wholly owned, directly or indirectly, by Morgan Stanley Asset Management
Holdings, Inc. and/or its affiliates; Miller Anderson & Sherrerd, LLP or such
successor-in-interest or transferee being referred to herein as the "Adviser").
1. DUTIES OF ADVISER. The Fund hereby appoints the Adviser to act as
investment adviser to each of the Portfolios listed on Schedule A hereto (the
"Portfolios"), for the period and on such terms set forth in this Agreement.
The Fund employs the Adviser to manage the investment and reinvestment of the
assets of the Portfolios, to continuously review, supervise and administer
the investment program of each of the Portfolios, to determine in its
discretion the securities to be purchased or sold and the portion of each
such Portfolio's assets to be held uninvested, to provide the Fund with
records concerning the Adviser's activities which the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Trustees concerning the Adviser's discharge of the foregoing
responsibilities. The Adviser shall discharge the foregoing responsibilities
subject to the control of the officers and the Board of Trustees of the Fund,
and in compliance with the objectives, policies and limitations set forth in
the Fund's prospectus and applicable laws and regulations. The Adviser
accepts such employment and agrees to render the services and to provide, at
its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of securities
for each of the Portfolios and is directed to use its best efforts to obtain
the best available price and most favorable execution, except as prescribed
herein. Subject to policies established by the Board of Trustees of the Fund,
the Adviser may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Adviser's overall responsibilities
with respect to the Fund. The execution of such transactions shall not be
deemed to represent an unlawful act or breach of any duty created by this
Agreement or otherwise. The Adviser will promptly communicate to the
officers and Trustees of the Fund such information relating to portfolio
transactions as they may reasonably request.
<PAGE>
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Section 1 of this Agreement, the Fund shall pay to the
Adviser at the end of each of the Fund's fiscal quarters, an advisory fee
calculated by applying a quarterly rate, based on the annual percentage rates
set forth opposite each Portfolio's name on Schedule A hereto, to each
Portfolio's average daily net assets for the quarter.
In the event of termination of this Agreement, the fee provided under
this Section shall be computed on the basis of the period ending on the last
business day on which this Agreement is in effect subject to a PRO RATA
adjustment based on the number of days elapsed in the current fiscal quarter
as a percentage of the total number of days in such quarter.
4. OTHER SERVICES. At the request of the Fund, the Adviser, in its
discretion may make available to the Fund office facilities, equipment,
personnel and other services. Such office facilities, equipment, personnel
and services shall be provided for or rendered by the Adviser and billed to
the Fund at the Adviser's cost.
5. REPORTS. The Fund and the Adviser agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard
to their affairs as each may reasonably request.
6. STATUS OF ADVISER. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Fund are not impaired
thereby.
7. LIABILITY OF ADVISER. In the absence of (i) willful misfeasance,
bad faith or gross negligence on the part of the Adviser in performance of
its obligations and duties hereunder, (ii) reckless disregard by the Adviser
of its obligations and duties hereunder, or (iii) a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period
and the amount set forth in Section 36(b)(3) of the Investment Company Act,
the Adviser shall not be subject to any liability whatsoever to the Fund, or
to any shareholder of the Fund, for any error or judgment, mistake of law or
any other act or omission in the course of, or connected with, rendering
services hereunder including, without limitation, for any losses that may be
sustained in connection with the purchase, holding, redemption or sale of any
security on behalf of any Portfolio of the Fund.
8. PERMISSIBLE INTERESTS. Subject to and in accordance with the
Declaration of Trust of the Fund and the Partnership Agreement (or other
governing or organizational documents)
<PAGE>
of the Adviser, Trustees, agents and shareholders of the Fund are or may be
interested in the Adviser (or any successor thereof) as officers or partners, or
otherwise; officers, agents and partners of the Adviser are or may be interested
in the Fund as Trustees, officers, shareholders or otherwise; and the Adviser
(or any successor) is or may be interested in the Fund as a shareholder or
otherwise. The effect of any such interrelationships shall be governed by said
Declaration of Trust or Partnership Agreement (or other governing or
organizational documents) and provisions of the Investment Company Act.
9. DECLARATION OF TRUST. The Adviser is hereby expressly put on notice
of the limitation of shareholder liability as set forth in Article VIII of
the Declaration of Trust of the Fund and agrees that the obligations assumed
by the Fund pursuant to this Agreement shall be limited in all cases to the
Fund and its assets, and the Adviser shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund. Nor shall
the Adviser seek satisfaction of any such obligations from the Trustees or
any individual Trustee.
10. DURATION AND TERMINATION. This Agreement, unless sooner terminated
as provided herein, shall continue until ________________, __________ and
thereafter for additional periods of one year from the anniversary thereof,
but only so long as such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Board of
Trustees of the Fund who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the Fund or
by vote of a majority of the outstanding voting securities of each Portfolio
of the Fund; PROVIDED, HOWEVER, that if the holders of any Portfolio fail to
approve the Agreement as provided herein, the Adviser may continue to serve
in such capacity in the manner and to the extent permitted by the Investment
Company Act and Rules thereunder. This Agreement may be terminated by any
Portfolio of the Fund at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Fund or by vote of
a majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time, without the payment of any penalty, upon 90 days'
written notice to the Fund. This Agreement will automatically and
immediately terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered or mailed
postpaid, to the other party at any office of such party.
As used in this Section 10, the terms "assignment," "interested
persons," and "a vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19) and Section 2(a)(42) of the Investment Company Act.
11. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Fund must be approved (a) by a vote of a
majority of those members
<PAGE>
of the Board of Trustees of the Fund who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) by vote of a majority of the
outstanding voting securities of each Portfolio of the Fund.
12. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of this ____ day of __________, 19__.
MILLER ANDERSON & SHERRERD, LLP MAS FUNDS
By By
--------------------------- -----------------------------
Name Name:
------------------------- --------------------------
Title: Title:
----------------------- -------------------------
<PAGE>
Schedule A
Portfolio Rate
- --------- ----
Advisory Foreign Fixed Income .375%
Advisory Mortgage .375%
Balanced .450%
Cash Reserves .250%
Domestic Fixed Income .375%
Emerging Markets .750%
Equity .500%
Fixed Income .375%
Fixed Income II .375%
Global Fixed Income .375%
Growth .500%
High Yield .375%
Intermediate Duration .375%
International Fixed Income .375%
International Equity .500%
Limited Duration .300%
Mid Cap Growth .500%
Mid Cap Value .750%
Mortgage-Backed Securities .375%
Multi-Asset-Class .450%
Municipal .375%
PA Municipal .375%
Select Equity .500%
Small Cap Value .750%
Special Purpose Fixed Income .375%
Value .500%
<PAGE>
Exhibit 5k
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY GLOBAL EQUITY FUND)
Supplement dated as of _____________, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund"), and Morgan Stanley Asset Management Inc. (the "Adviser")
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Global Equity Fund (the "Global Equity Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
Schedule A to the Agreement is hereby amended to include the following
information:
Annual
Investment Fund Percentage Rate
---------------- ----------------
Global Equity Fund 1.00%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET MANAGEMENT INC.
By:
--------------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY EQUITY GROWTH FUND)
Supplement dated as of _____________, 1996 (the "Supplement") to Investment
Advisory Agreement (the "Agreement") between Morgan Stanley Fund, Inc. (the
"Fund"), and Morgan Stanley Asset Management Inc. (the "Adviser")
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Equity Growth Fund (the "Equity Growth Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
Schedule A to the Agreement is hereby amended to include the following
information:
Annual
Investment Fund Percentage Rate
---------------- ----------------
Equity Growth Fund .70%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET MANAGEMENT INC.
By:
--------------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY EMERGING MARKETS DEBT FUND)
Supplement dated as of ________________, 1996 (the "Supplement") to
Investment Advisory Agreement (the "Agreement") between Morgan Stanley Fund,
Inc. (the "Fund"), and Morgan Stanley Asset Management Inc. (the "Adviser")
RECITALS
The Fund has executed and delivered the Agreement, dated as of November 17,
1992, between the Fund and the Adviser. The Agreement sets forth the rights and
obligations of the parties with respect to the management of the Investment
Funds of the Fund. The Fund has created one additional Investment Fund: Morgan
Stanley Emerging Markets Debt Fund (the "Emerging Markets Debt Fund").
AGREEMENTS
NOW, therefore, the parties agree as follows:
Schedule A to the Agreement is hereby amended to include the following
information:
Annual
Investment Fund Percentage Rate
---------------- ----------------
Emerging Markets Debt Fund 1.25%
This Supplement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
The parties listed below have executed this Supplement as of the ___th day
of _____________, 1996.
MORGAN STANLEY ASSET MANAGEMENT INC.
By:
--------------------------------
Name:
Title:
MORGAN STANLEY FUND, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit 6
MORGAN STANLEY FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT dated as of January 1, 1997 by and between MORGAN STANLEY FUND,
INC., a corporation organized under the laws of the State of Maryland (the
"Fund"), and VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., a corporation
organized under the laws of the State of Delaware (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company and it
is in the interest of the Fund to offer its shares for sale continuously and to
appoint a principal underwriter for the purpose of facilitating such offers and
sales;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's common stock,
par value $.001 per share ("Shares"), which commenced after the effectiveness of
its initial registration statement filed pursuant to the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.
The Fund hereby appoints the Distributor its exclusive underwriter in connection
with the offering and sale of the Shares on the terms set forth in this
Agreement and the Distributor hereby accepts such appointment and agrees to act
hereunder.
SECTION 2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
<PAGE>
(a) The Distributor agrees to sell, as agent for the Fund, from time to
time during the term of this Agreement, Shares upon the terms described in the
Prospectus. As used in this Agreement, the term "Prospectus" shall mean the
prospectus included as part of the Fund's Registration Statement, as such
prospectus may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement most recently
filed from time to time by the Fund with the Securities and Exchange Commission
and effective under the 1933 Act and the 1940 Act, as such Registration
Statement is amended by any amendments thereto at the time in effect.
(b) The Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of Shares and will accept such
orders on behalf of the Fund and will transmit such orders as are so accepted to
the Fund's transfer and shareholder servicing agent as promptly as practicable.
The Distributor shall promptly forward to the Fund's Custodian funds received in
respect of purchases of shares in accordance with the instructions of the Fund's
Administrator. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Prospectus.
(c) The offering price of the Shares shall be as defined in the Articles
of Incorporation of the Fund and determined as set forth in the Prospectus. The
Fund shall furnish the Distributor, with all possible promptness, an advice of
each computation of net asset value.
(d) The Distributor shall not be obligated to sell any certain number of
Shares and nothing herein contained shall prevent the Distributor from entering
into like distribution arrangements with other investment companies.
SECTION 3. DUTIES OF THE FUND.
(a) The Fund agrees to sell its Shares so long as it has Shares available
for sale and to cause the Fund's transfer and shareholder servicing agent to
record on its books the ownership of (or deliver certificates, if any, for) such
Shares registered in such names and amounts as the Distributor has requested in
writing or other means of data transmission, as promptly as practicable after
receipt by the Fund of the net
-2-
<PAGE>
asset value thereof and written request of the Distributor therefor.
(b) The Fund shall keep the Distributor fully informed with regard to its
affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Shares of the Fund, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent accountants and such
reasonable number of copies of its most current Prospectus and annual and
interim reports as the Distributor may request and shall cooperate fully in the
efforts of the Distributor to sell and arrange for the sale of the Shares and in
the performance of the Distributor under this Agreement.
(c) The Fund shall take, from time to time, such steps, including payment
of the related filing fee, as may be necessary to register its Shares under the
1933 Act to the end that there will be available for sale such number of Shares
as the Distributor may be expected to sell. The Fund agrees to file from time
to time such amendments, reports and other documents as may be necessary in
order that there may be no untrue statement of a material fact in a Registration
Statement of Prospectus, or necessary in order that there may be no omission to
state a material fact in the Registration Statement or Prospectus which omission
would make the statements therein misleading.
(d) The Fund shall use its best efforts to accomplish the requisite
filings and payment of fees to permit the ongoing offer and sale of an
appropriate number of its Shares under the securities laws of such states as
the Distributor and the Fund may approve, and, if necessary or appropriate in
connection therewith, to qualify and maintain the qualification of the Fund
as a broker or dealer in such states; provided that the Fund shall not be
required to amend its Articles of Incorporation or By-Laws to comply with the
laws of any state, to maintain an office in any state, to change the terms of
the offering of the Shares in any state from the terms set forth in its
Registration Statement and Prospectus, to qualify as a foreign corporation in
any state or to consent to service of process in any state other than with
respect to claims arising out of the offering of the Shares. The Distributor
shall furnish such information and other material relating to its
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<PAGE>
affairs and activities as may be required by the Fund in connection with such
qualifications.
SECTION 4. EXPENSES.
(a) The Fund shall bear all costs and expenses of the continuous offering
of the Shares in connection with:
(i) fees and disbursements of its counsel and independent accountants, (ii)
the preparation, filing and printing of any registration statements and/or
prospectuses required to be filed by and under the federal and state
securities laws, (iii) the preparation and mailing of annual and interim
reports, prospectuses and proxy materials to shareholders and (iv) the
qualifications of Shares for sale and of the Fund as a broker or dealer under
the securities laws of such states or other jurisdictions as shall be
selected by the Fund and the Distributor pursuant to Section 3(d) hereof and
the cost and expenses payable to each such state for continuing qualification
therein.
(b) The Distributor shall bear (i) the costs and expenses of preparing,
printing and distributing any materials not prepared by the Fund and other
materials used by the Distributor in connection with its offering of the Shares
for sale to the public, including the additional cost of printing copies, at
printer's overrun cost, of the Prospectus and of annual and interim reports to
shareholders other than copies thereof required for distribution to shareholders
or for filing with any federal and state securities authorities, (ii) any
expenses of advertising incurred by the Distributor in connection with such
offering and (iii) the expenses of registration or qualification of the
Distributor as a dealer or broker under federal or state laws and the expenses
of continuing such registration or qualification.
SECTION 5. COMPENSATION.
(a) DISTRIBUTION FEE. The Fund shall pay to the Distributor, in
consideration of its services in connection with the distribution of Shares of
the Fund, compensation at an annual rate not to exceed 0.25% per annum of the
average daily net asset value of the Class A shares of the Fund, 0.75% per annum
of the
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<PAGE>
average daily net asset value of the Class B shares of the Fund and 0.75% per
annum of the average daily net asset value of the Class C shares of the Fund
(the "Distribution Fees"), subject to the aggregate maximum limitation on the
distribution fee allowable under the Conduct Rules of the National Association
of Securities Dealers, Inc. (the "NASD Rules") and the Plan of Distribution
pursuant to Rule 12b-1 with respect to each such class of shares of the Fund
(each, a "12b-1 Plan"), which Distribution Fees shall accrue daily and be paid
monthly as promptly as possible after the last day of each month but in any
event prior to the tenth day of the following calendar month.
(b) SALES CHARGES. The Fund shall pay to the Distributor the proceeds
from any front-end sales charge and any contingent deferred sales charge
("CDSC") imposed on the purchase and redemption, respectively, of the Shares.
The Fund shall cause its transfer agent (the "Transfer Agent") to withhold, from
redemption proceeds payable to holders of Shares of the Fund, all CDSCs properly
payable by such holders in accordance with the terms of the Prospectuses
relating to such Shares and shall cause the Transfer Agent to pay such amounts
over to the Distributor as promptly as possible after the settlement date for
each redemption of such Shares.
(c) OTHER SERVICES; SERVICE FEE. The Distributor shall perform
stockholder services for the holders of the Class A, Class B and Class C
Shares on behalf of the Fund, which are in addition to the distribution
services performed by the Distributor and for which the Distributor may
receive an asset based service fee under the NASD Rules, including, but are
not limited to, the following: telephone service to stockholders, including
the acceptance of telephone inquiries and transaction requests; acceptance
and processing of written correspondence, new account applications and
subsequent purchases by check; mailing of confirmations, statements and tax
forms directly to stockholders; and acceptance of payment for trades by
check, Federal Reserve wire or Automated Clearing House payment. Subject to
the applicable 12b-1 Plans and examination by the Fund's independent
accountants, the Distributor is entitled to receive a stockholder services
fee at an annual rate not to exceed 0.25% per annum of the average daily net
assets of the Class A Shares pursuant to the Service Plan of the Class A
Shares and at an annual rate of 0.25% per annum of the average daily net
assets of the Class B Shares and Class C Shares, respectively, for providing
such
-5-
<PAGE>
stockholder services for the holders of such Class B and Class C Shares,
respectively. Such stockholder services fee shall be calculated daily and paid
monthly as promptly as possible after the last day of each month but in any
event prior to the tenth day of the following calendar month. The Distribution
Fees payable pursuant to this Agreement shall not be deemed to compensate the
Distributor for any stockholder services it may provide to the Fund.
The Distributor's payment or assumption of any expense of the Fund that the
Distributor is not required to pay or assume under this Agreement shall not
relieve the Distributor of any of its obligations to the Fund or obligate the
Distributor to pay or assume any similar expense on any subsequent occasion.
(d) REALLOCATION OF DISTRIBUTION FEES AND SALES CHARGES. The Distributor
may reallocate part or all of the Distribution Fees payable to the Distributor
with respect of any Shares of the Fund directly to investment dealers, banks or
financial services firms ("Participating Dealers") providing distribution
services. The Distributor may also reallocate part or all of the sales charges
payable to the Distributor in respect of any Shares of the Fund directly to
Participating Dealers providing distribution, administrative or shareholder
services.
(e) MAXIMUM CHARGES. Notwithstanding anything to the contrary contained
in this Agreement or in any relevant 12b-1 Plan, the amount of asset-based sales
charges and CDSCs paid to the Distributor by any class of Shares of the Fund
shall not exceed the amount permitted by the NASD Rules, as in effect from time
to time.
SECTION 6. INDEMNIFICATION. The Fund agrees to indemnify, defend and hold
the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the
-6-
<PAGE>
Registration Statement or Prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished in
writing by the Distributor to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement, to the extent that
it might require indemnification of any person who is also an officer or
director of the Fund or who controls the Fund within the meaning of Section 15
of the 1933 Act, shall not inure to the benefit of such officer, director or
controlling person unless a court of competent jurisdiction shall determine, or
it shall have been determined by controlling precedent, that such result would
not be against public policy as expressed in the 1933 Act; and further provided,
that in no event shall anything contained herein be so construed as to protect
the Distributor against any liability to the Fund or to its security holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of it reckless disregard of its obligations under this Agreement. The
Fund's agreement to indemnify the Distributor, its officers and directors and
any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given to the Fund at its principal business office. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue and
sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Fund, its
directors and officers and any person who controls the Fund, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors or
officers or any such controlling person may incur under the 1933 Act or under
common
-7-
<PAGE>
law or otherwise, but only to the extent that such liability or expense incurred
by the Fund, its directors or officers or such controlling person resulting from
such claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the preparation of the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in such information or a fact necessary to
make such information not misleading, it being understood that the Fund will
rely upon the information provided by the Distributor for use in the preparation
of the Registration Statement and Prospectus. The Distributor's agreement to
indemnify the Fund, its directors and officers, and any such controlling person
as aforesaid is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its directors or officers or
any such controlling person, such notification to be given to the Distributor at
its principal business office.
SECTION 7. COMPLIANCE WITH SECURITIES LAWS. The Fund represents that
it is registered as an open-end management investment company under the 1940
Act, and agrees that it will comply with the provisions of the 1940 Act and
of the rules and regulations thereunder. The Fund and the Distributor each
agree to comply with the applicable terms and provisions of the 1940 Act, the
1933 Act and, subject to the provisions of Section 3(d), applicable state
securities or "Blue Sky" laws. The Distributor agrees to comply with the
applicable terms and provisions of the Securities Exchange Act of 1934, as
amended.
SECTION 8. TERM OF AGREEMENT; TERMINATION. This Agreement shall
commence on the date first set forth above. This Agreement shall continue in
effect for a period more than two years from the date hereof only so long as
such continuance is specifically approved at least annually in conformity with
the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its assignment
(as defined by the 1940 Act). In addition, this Agreement may be terminated by
either party at any time, without penalty, on not more than sixty days' nor less
than thirty days' written notice to the other party.
-8-
<PAGE>
SECTION 9. NOTICES. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Distributor at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, or (2) to the Fund at Morgan Stanley Fund, Inc., 1221 Avenue of
the Americas, 21st Floor, New York, N.Y. 10020, Attention: Warren J. Olsen.
SECTION 10. The directors have authorized the execution of this
Agreement in their capacity as directors and not individually and the
Distributor agrees that neither the shareholders nor the directors nor any
officers, employee, representative or agent of the Fund shall be personally
liable upon, nor shall resort be had to their private property for the
satisfaction of, obligations given, executed or delivered on behalf of or by the
Fund, that the shareholders, directors, officers, employees, representatives and
agents of the Fund shall not be personally liable hereunder, and that it shall
look solely to the property of the Fund for the satisfaction of any claim
hereunder.
SECTION 11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Morgan Stanley Fund, Inc.
By
--------------------------------
Name:
Title:
Van Kampen American Capital
Distributors, Inc.
By
--------------------------------
Name:
Title:
-9-
<PAGE>
Exhibit 9b
FUND ADMINISTRATION AGREEMENT
MORGAN STANLEY FUND, INC.
AGREEMENT made as of this ___ day of _____________, 1996, by and between
Morgan Stanley Fund, Inc., a Maryland corporation (the "Company"), and Miller
Anderson & Sherrerd, LLP ("MAS"), a limited liability partnership organized
under the laws of the Commonwealth of Pennsylvania.
W I T N E S S E T H:
WHEREAS, the Company is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Company wishes to retain MAS to provide administration, fund
accounting, transfer agency, dividend disbursing and shareholder communication
services with respect to the Company and MAS is willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT OF ADMINISTRATOR.
(a) The Company hereby appoints MAS to provide administration, fund
accounting, dividend disbursing and shareholder communication services to, and
to retain the services of a transfer agent for, each series of the Company
identified on Schedule A hereto (each a "Fund" and, collectively, the "Funds"),
subject to the supervision of the Board of Directors of the Company (the
"Board"), for the period and on the terms set forth in this Agreement. MAS
accepts such appointment and agrees to furnish the services herein set forth in
return for compensation as provided in Paragraph 5 of this Agreement and
Schedule B, hereto. The Company shall notify MAS in writing of each additional
Fund established by the Company that has as its investment adviser Miller
Anderson & Sherrerd, LLP. Each new Fund that has Miller Anderson & Sherrerd,
LLP as its investment adviser shall be subject to the provisions of this
Agreement, except to the extent that the provisions (including those relating to
the compensation and expenses payable by the Company) may be modified with
respect to such new Fund in writing by the Company and MAS at the time of the
addition of the new Fund.
(b) The parties hereby agree that MAS is authorized to provide the
services to be performed hereunder, directly, or through the services of one or
more third parties; provided, however, that, MAS shall be solely responsible for
all fees and expenses of such third-paries except as otherwise provided in
Paragraph 5 of this Agreement and, provided further, that the use of such third
parties shall in no way limit MAS's contractual rights and obligations
hereunder. References to "MAS" hereunder shall be deemed to include any third
party service provider.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES.
(a) MAS represents and warrants to the Company that:
(i) it is a limited liability partnership duly organized and
existing under the laws of the Commonwealth of Pennsylvania;
(ii) it is duly qualified to carry on its business in the
Commonwealth of Pennsylvania;
(iii) it is empowered under applicable laws and by its
organizational documents to enter into and perform this Agreement;
(iv) it is authorized to enter into and perform this Agreement;
(v) it has, and will continue to maintain access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair its ability to perform its duties
and obligations under this Agreement; and
(vii) its entrance into this Agreement will not cause a material
breach of or be in material conflict with any other agreement or obligation of
MAS or any law or regulation applicable to it.
(b) The Company represents and warrants to MAS that:
(i) it is a corporation duly organized and in good standing
under the laws of the State of Maryland;
(ii) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws ("By-Laws") to enter into and perform this
Agreement;
(iii) all requisite proceedings have been taken to authorize the
Company to enter into and perform this Agreement;
(iv) it is an investment company currently registered under the
1940 Act, and its units of beneficial interest ("shares") are registered under
the Securities Act of 1933, as amended (the "1933 Act");
(v) a registration statement under the 1933 Act and 1940 Act
on
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<PAGE>
Form N-1A is currently effective and is expected to remain effective; and all
necessary filings under the laws of the states have been made and are current;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair its ability to perform its duties
and obligations under this Agreement; and
(vii) its entrance into this Agreement will not cause a material
breach of or be in material conflict with any other agreement or obligation of
the Company or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Company has furnished MAS with copies,
properly certified or authenticated, of each of the following in their most
current form:
(a) Resolutions of the Company's Board authorizing the appointment of
MAS to provide administration, fund accounting, transfer agency, dividend
disbursing and shareholder communication services to the Company and approving
this Agreement;
(b) The Company's Articles of Incorporation;
(c) The Company's By-Laws;
(d) The Company's Notification of Registration on Form N-8A under the
1940 Act, as filed with the Securities and Exchange Commission ("SEC");
(e) The Company's registration statement on Form N-1A under the 1933
Act and the 1940 Act, and all pre- and post-effective amendments thereto, as
filed with the SEC (the "Registration Statement");
(f) A copy of all custodial agreements with the Company's approved
domestic and foreign custodians (collectively referred to herein as the
"Custodian");
(g) The Company's most recent prospectuses and Statement of
Additional Information relating to all Funds subject to this Agreement and all
amendments and supplements thereto (such prospectuses and Statement of
Additional Information, and supplements thereto, as presently in effect and as
from time to time hereafter amended and supplemented, are herein called the
"prospectuses"); and
(h) Such other agreements as the Company may have entered into from
time to time including, without limitation, securities lending agreements,
foreign exchange transaction agreements, options agreements and futures
agreements.
The Company will furnish MAS from time to time with copies, properly
certified or
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<PAGE>
authenticated, of all amendments of or supplements to the foregoing.
4. SERVICES PROVIDED BY MAS. MAS shall provide the following services
for each Fund, subject to the control, direction and supervision of the Board,
in compliance with the objectives, policies and limitations set forth in the
Company's Registration Statement, Articles of Incorporation and By-Laws, and in
accordance with all applicable laws and regulations, and all resolutions and
policies adopted by the Board:
(a) ADMINISTRATION. MAS shall perform the administration services
described in Schedule C, hereto.
(b) ACCOUNTING SERVICES. MAS shall provide the Company accounting
services described in Schedule D, hereto.
(c) TRANSFER AGENT. The Company hereby directs MAS to be
responsible for the appointment of a transfer agent for the Company and MAS
agrees to act in such capacity. In connection with such appointment, the
transfer agent shall:
(i) Maintain records showing for each Fund shareholder the
following:
(A) Name, address and tax identifying number (if
applicable);
(B) Number of Shares of each Fund held;
(C) Historical information, including dividends paid and
date, and price of all transactions, including individual purchases and
redemptions; and
(D) Any dividend reinvestment order, application,
dividend address and correspondence relating to the current maintenance of the
account;
(ii) Record the issuance of shares of each Fund and notify the
Fund in case any proposed issue of shares by the Fund shall result in an over-
issue as identified by Section 8-104(2) of the Uniform Commercial Code of New
York and in case any issue would result in such an over-issue, shall refuse to
countersign and issue, and/or credit, said Shares. Except as specifically
agreed in writing, MAS and any transfer agent appointed by MAS shall have no
obligation, when countersigning and issuing and/or crediting shares, to take
cognizance of any other laws relating to the issue and sale of such shares
except insofar as policies and procedures of the Stock Transfer Association
recognize such laws.
(iii) Process all orders for the purchase of each Fund in
accordance with the Fund's current registration statement. Upon receipt of any
check or other payment for purchase of shares from an investor, the transfer
agent will (A) stamp the order with the date of receipt, and (B) determine the
amounts thereof due the Fund, and notify the Fund of such
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<PAGE>
determination and deposit, such notification to be given on a daily basis of the
total amounts determined and deposited to said account during such day. The
transfer agent shall then credit the share account of the investor with the
number of shares to be purchased according to the price of the shares in effect
for purchases made on the date such payment is received as set forth in the
Fund's current prospectus and shall promptly mail a confirmation of said
purchase to the investor, all subject to any instructions which the Fund may
give to MAS or the transfer agent with respect to the timing or manner of
acceptance of orders for shares relating to payments so received by it.
(iv) Receive and stamp with the date of receipt all requests for
redemption of shares held in certificate or noncertificate form, and shall
process said redemption requests as follows:
(A) MAS or the transfer agent shall on each business day
notify the Fund of the total number of shares presented and covered by such
requests that comply with the applicable standards approved by the Fund and are
received by MAS or the transfer agent on such day;
(B) On or prior to the seventh calendar day succeeding
any such request for redemption, MAS or the transfer agent shall notify the
Fund's custodian, subject to instructions from the Fund, to transfer monies to
such account as designated by MAS or the transfer agent for payment to the
redeeming shareholder of the applicable redemption or repurchase price.
(C) If any such certificate or request for redemption
does not comply with applicable standards, MAS or the transfer agent shall
promptly notify the investor of such fact, together with the reason therefore,
and shall effect such redemption at the Fund's price next determined after
receipt of documents complying with said standards or, at such other time as the
Fund shall so direct;
(v) Acknowledge all correspondence from shareholders relating to
their share accounts and undertake such other shareholder correspondence as may
from time to time be mutually agreed upon;
(vi) Process redemptions, exchanges and transfers of shares upon
telephone instructions from qualified shareholders in accordance with the
procedures set forth in the Fund's current prospectus. MAS and any transfer
agent appointed by MAS shall be permitted to act upon the instruction of any
person by telephone to redeem, exchange and/or transfer shares from any account
for which such services have been authorized. In accordance with Section 7
herein, the Fund hereby agrees to indemnify and hold MAS and any transfer agent
appointed by MAS harmless against all losses, costs or expenses, including
attorney fees, suffered or incurred by MAS and any transfer agent appointed by
MAS directly or indirectly as a result of (A) taping the telephone conversation
of any shareholder, or (B) relying on the telephone instructions of any
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<PAGE>
person acting on behalf of a shareholder account for which telephone services
have been authorized.
(vii) Transfer on the records of the Fund maintained by it,
shares represented by certificates, as well as issued shares held in
noncertificate form, upon the surrender to it of the certificate or in the case
of noncertificated shares, comparable transfer documents in proper form for
transfer, and upon cancellation thereof to countersign and issue new
certificates or other documents of ownership for a like amount of shares and to
deliver the same pursuant to the transfer instructions.
(d) STOCK CERTIFICATES. If a shareholder of any Fund requests a
stock certificate representing his shares, the transfer agent will countersign
and mail by first class mail, a stock certificate to the investor at his address
as set forth on the transfer books of the Fund. In this connection, the Fund
shall supply any transfer agent appointed by MAS with a sufficient supply of
continuous form blank stock certificates for each of the Funds and from time to
time shall renew such supply upon request of MAS or such transfer agent. Such
blank stock certificates shall be properly signed, manually or by facsimile, as
authorized by the Fund, and shall bear the Fund's seal or facsimile thereof;
and, notwithstanding the death, resignation or removal of any officers of the
Fund authorized to sign certificates of stock, the transfer agent may, until
otherwise directed by the Fund or MAS, continue to countersign certificates
which bear the manual or facsimile signature of such officer.
(e) DIVIDEND DISBURSING. In connection with its services as dividend
disbursing agent for the Company, MAS shall prepare and mail checks, place wire
transfers or credit income and capital gain payments to shareholders. The
Company shall advise MAS of the declaration of any dividend or distribution and
the record and payable date thereof at least five (5) days prior to the record
date. MAS shall, on or before the payment date of any such dividend or
distribution, notify the Company's Custodian of the estimated amount required to
pay any portion of said dividend or distribution payable in cash, and on or
before the payment date of such distribution, the Company shall instruct its
Custodian to make available to MAS sufficient funds for the cash amount to be
paid out. If a shareholder is entitled to receive additional shares by virtue
of any such distribution or dividend, appropriate credits will be made to his
account and/or certificates will be delivered where requested. A shareholder
not electing issuance of certificates will receive a confirmation from MAS
indicating the number of shares credited to his account.
(f) MAS shall also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of MAS or a
corporate affiliate of MAS);
(ii) provide the services of individuals to serve as officers
of the
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<PAGE>
Company who will be designated by MAS and elected by the Board;
(iii) provide or otherwise obtain personnel sufficient, in MAS's
sole discretion, for provision of the services contemplated herein;
(iv) furnish materials, including telecommunications equipment,
which MAS, in its sole discretion, believes are necessary or desirable for
provision of shareholder communication services and the other services
contemplated herein; and
(v) keep records relating to the services provided hereunder
in such form and manner as set forth in this Agreement and the Schedules hereto,
and as MAS may otherwise deem appropriate or advisable, all in accordance with
the 1940 Act. To the extent required by Section 31 of the 1940 Act and the
rules thereunder, MAS agrees that all such records prepared or maintained by it
relating to the services provided hereunder are the property of the Fund and
will be preserved for the periods prescribed under Rule 31a-2 under the 1940
Act, maintained at the Company's expense, and made available in accordance with
such Section and rules. MAS further agrees to surrender promptly to the Company
upon its request and cease to retain in its records and files those records and
documents created and maintained by MAS pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company pursuant
to Paragraph 4 of this Agreement and Schedules C and D, hereto, the Company
shall pay MAS fees determined as set forth in Schedule B to this Agreement.
Such fees are to be computed daily and paid monthly on the second business day
of the month following the provision of the services. Upon any termination of
this Agreement before the end of any month, the fee for the part of the month
before such termination shall be prorated according to the proportion which such
part bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(b) For the purposes of determining any fees calculated as a function
of the Company's assets, the value of the Company's assets and net assets shall
be computed as required by its Prospectuses, generally accepted accounting
principles and resolutions of the Board.
(c) MAS will from time to time employ or associate with such person
or persons as may be appropriate to assist MAS in the performance of this
Agreement. Such persons or persons may be officers and employees who are
employed or designated as officers by both MAS and the Company. The
compensation of such person or persons for such employment shall be paid by MAS
and no obligation will be incurred by or on behalf of the Company in such
respect.
(d) MAS will generally bear all of its own expenses in connection
with the
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<PAGE>
performance of its services under this Agreement. The Company agrees to
promptly reimburse MAS for any equipment and supplies specially ordered by or
for the Company through MAS and for any other expenses not contemplated by this
Agreement that MAS may incur on the Company's behalf at the Company's request or
as consented to by the Company. Such other expenses to be incurred in the
operation of the Company and to be borne by the Company include, but are not
limited to: taxes; interest; brokerage fees and commissions; salaries and fees
of officers and directors who are not officers, directors, shareholders or
employees of MAS or its affiliates; SEC and state blue sky registration and
qualification fees, levies, fines and other charges; advisory fees; charges and
expenses of custodians; insurance premiums including fidelity bond premiums;
auditing and legal expenses; costs of maintenance of corporate existence;
expenses of typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Company (the Company's
distributor to bear the expense of all other printing, production, and
distribution of Prospectuses, statements of additional information, and
marketing materials); expenses of printing and production costs of shareholders'
reports and proxy statements and materials; costs and expenses of Company
stationery and forms; costs and expenses of special telephone and data lines and
devices; costs associated with corporate, shareholder and Board meetings; and
any extraordinary expenses and other customary Fund expenses. In addition, MAS
may utilize one or more independent pricing services, approved from time to time
by the Board, to obtain securities prices and to act as backup to the primary
pricing services, in connection with determining the net asset values of the
Company, and the Company will reimburse MAS for the Company's share of the cost
of such services based upon the actual usage, or a pro rata estimate of the use,
of the services for the benefit of the Company.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. MAS agrees on behalf of
itself, its partners and its employees to treat confidentially and as
proprietary information of the Company all records and other information
relating to the Company's prior, present or potential shareholders, and further
agrees not to use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Company, which approval shall not
be unreasonably withheld and may not be withheld where MAS may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
7. DUTIES, RESPONSIBILITIES AND LIMITATION OF LIABILITY OF ADMINISTRATOR.
(a) In the performance of its duties hereunder, MAS shall be
obligated to exercise the due care and diligence of a mutual fund accounting
service agent, dividend disbursing agent, and administrator, and to act in good
faith in performing the services provided for under this Agreement. In
performing its services hereunder, MAS shall be entitled to rely on any oral or
written instructions, notices or other communications which it reasonably
believes to be genuine, valid and authorized.
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<PAGE>
(b) Subject to the foregoing, MAS shall not be liable for any error
of judgment or for any loss or expense suffered by the Company in connection
with the matters included in this Agreement or to which it relates, except for a
loss or expense resulting from willful misfeasance, bad faith or negligence on
its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this agreement.
8. TERM. The Agreement will be effective for a period of two (2) years
from the date first written above. Thereafter, unless sooner terminated as
provided herein, the Agreement shall continue in effect from year to year,
provided that such continuance is specifically approved at least annually by the
Company's Board. This Agreement is terminable, without penalty, by the
Company's Board or by MAS on not less than ninety (90) days' notice.
9. FORCE MAJEURE. MAS shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including without limitation, acts of God, earthquakes, fires, floods,
wars, civil or military authority, or governmental actions, nor shall any such
failure or delay give the Company the right to terminate this Agreement, unless
such failure or delay shall result in the Company's inability to comply with
the requirements of state and federal law.
10. NOTICE. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
If to MAS:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428-0868
Attention: Ms. Lorraine Truten
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the
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<PAGE>
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
13. SUCCESSOR AND ASSIGNS. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the
successors and assigns of the parties hereto.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Maryland.
15. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
MORGAN STANLEY FUND, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MILLER ANDERSON & SHERRERD, LLP
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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<PAGE>
SCHEDULE A
LISTING OF FUNDS SUBJECT TO THIS AGREEMENT
Morgan Stanley Mid Cap Growth Fund
Morgan Stanley Value Fund
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<PAGE>
SCHEDULE B
FEE SCHEDULE
MAS shall be compensated at the annual rate of .25%, paid monthly, based
on the average monthly net assets of all Funds listed on Schedule A.
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<PAGE>
SCHEDULE C
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. FINANCIAL AND TAX REPORTING
A. Prepare agreed upon management reports and Board materials, such as
unaudited financial statements, distribution summaries, and deviations
of mark-to-market valuation from amortized cost for money market
funds.
B. Report performance of Funds to outside services as directed by Company
management.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Funds' prospectuses. Assist
Company management in making final determinations of distribution
amounts.
D. Estimate and recommend Funds' year-end dividend and capital gain
distributions necessary to establish each Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue
Code of 1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Assist in preparation and filing of Funds' Federal tax returns on Form
1120-RIC along with all state and local tax returns where applicable.
Prepare and file Federal Excise Tax Return (Form 8613).
F. Assist in preparation and filing of Funds' semi-annual reports on
Form N-SAR with the SEC.
G. Assist in preparation and coordinating printing of Funds' semi-annual
and annual reports to shareholders.
H. Assist in filing of copies of every financial report to shareholders
with the SEC under Rule 30b2-1 under the 1940 Act.
I. Notify Fund shareholders as to what portion, if any, of the
distributions made by the Funds during the prior fiscal year were
exempt-interest dividends under Section 852(b)(5)(A) of the Code.
J. Provide Form 1099-MISC to persons other than corporations (i.e.,
Trustees) to whom the Funds paid more than $600 during the year.
K. Prepare and file State Expense Limitation Report(s) (if applicable).
L. Provide financial information for Fund proxies and prospectuses
(Expense Table).
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<PAGE>
II. FUND COMPLIANCE
A. Assist with monitoring each Fund's compliance with investment
restrictions (e.g., issuer or industry diversification, etc.) listed
in the current Prospectuses and Statement of Additional Information.
B. Assist with monitoring each Fund's compliance with the requirements of
the Code Section 851 for qualification as RICs.
C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements," Rule 2a-7 procedures for money market funds and Rule
12d3-1, Rule 17a-7 and Rule 17e-1 procedures, as appropriate.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Company's Board, and Officers and "access persons" under the terms of
the Company's Code of Ethics and SEC regulations.
III. REGISTRATION AND CORPORATE GOVERNANCE
A. Coordinate the preparation and filing of annual, financial update
post-effective amendments to the Company's registration statement on
Form N-1A and supplements as needed.
B. Coordinate the preparation and filing of proxy materials and the
administration of shareholder meetings.
C. Coordinate the preparation and filing of Rule 24f-2 Notices.
D. Coordinate the preparation and filing of all state registrations of
the Funds' securities, including annual renewals, registering new
Portfolios, preparing and filing sales reports, the filing of copies
of the registration statement and final prospectus and statement of
additional information, and any actions to increase the amount of
securities registered in individual states.
IV. GENERAL ADMINISTRATION
A. Furnish officers of the Company, subject to reasonable Board approval.
B. Prepare Company or Fund expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage
of the Fund's average daily net assets (advisory and administrative
fees) and expenses based on actual charges annualized and accrued
daily (audit fees, registration fees, directors' fees,
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<PAGE>
etc.).
C. For new Funds, obtain Employer Identification Number and CUSIP number.
Estimate organization (offering) costs and monitor against actual
disbursements.
D. Coordinate all communications and data collection pertaining to any
regulatory examinations and yearly audits by independent accountants.
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<PAGE>
SCHEDULE D
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. GENERAL DESCRIPTION
MAS shall provide the following accounting services to the Funds:
A. Maintenance of the books and records and accounting controls for the
Funds' assets, including records of all securities transactions;
B. Calculation and transmission of each Fund's net asset value to the
NASD source for publication of prices in accordance with the
Prospectuses and to such other entities as directed by the Company;
C. Accounting for dividends and interest received and distributions made
by the Fund;
D. Assist in preparation and filing of the Funds' tax returns and semi-
annual reports on Form N-SAR;
E. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request;
F. Preparation of financial statements for the semi-annual and annual
reports and other shareholder communications;
G. Liaison with the Company's independent auditors;
H. Monitoring and administration of arrangements with the Company's
custodian and depository banks; and
I. Preparing such daily and monthly reports as are agreed upon by the
Company's Officers and MAS.
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<PAGE>
Exhibit 9c
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
- Fund Administration Services
- Fund Accounting Services
By and Between
MORGAN STANLEY ASSET MANAGEMENT INC.
and
THE CHASE MANHATTAN BANK
January 1, 1997
<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
By and Between
MORGAN STANLEY ASSET MANAGEMENT INC.
and THE CHASE MANHATTAN BANK
TABLE OF CONTENTS
Section/Paragraph Page
----------------- ----
1. Appointment.......................................................... 2
2. Representations and Warranties....................................... 2
3. Delivery of Documents................................................ 4
4. Services Provided by the Administrator............................... 6
5. Fees, Expenses, Expense Reimbursement................................ 7
6. Proprietary and Confidential Information............................. 9
7. Duties, Responsibilities and Limitation of Liability................. 10
8. Term................................................................. 13
9. Hiring of Employees.................................................. 13
10. Notices.............................................................. 13
11. Assignability........................................................ 14
12. Waiver............................................................... 15
13. Force Majeure........................................................ 15
14. Use of Name.......................................................... 16
15. Amendments........................................................... 16
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<PAGE>
16. Severability......................................................... 16
17. Governing Law........................................................ 16
Signatures........................................................... 17
SCHEDULE A
Fees and Expenses.................................................... A-1
SCHEDULE B
Listing of MSAM Funds Subject to this Agreement...................... B-1
SCHEDULE C
General Description of Fund Administration Services.................. C-1
SCHEDULE D
Description of Fund Accounting Services.............................. D-1
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<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
MORGAN STANLEY ASSET MANAGEMENT INC.
and THE CHASE MANHATTAN BANK
AGREEMENT made as of January 1, 1997 by and between Morgan Stanley Asset
Management Inc. ("MSAM"), a Delaware corporation ("MSAM"), and The Chase
Manhattan Bank (the "Administrator"), a ___________ corporation (the
"Agreement").
WITNESSETH:
WHEREAS, the Morgan Stanley Fund, Inc. (the "Fund") is registered as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, MSAM is responsible for the provision of certain fund accounting
and administration services to the Fund pursuant to an agreement between MSAM
and the Fund dated as of November 17, 1992 (the "MSAM Administration
Agreement"); and
WHEREAS, MSAM wishes to retain the Administrator to provide certain fund
accounting and administration services with respect to certain series of shares
of the Fund, and the Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT. The Fund hereby appoints the Administrator to provide
fund accounting and fund administration services for MSAM for the benefit of
certain series of shares (each, an "MSAM Fund") of the Fund listed on Schedule
B, attached hereto, subject to the supervision of the Board of Directors of the
Fund (the "Board"), for the period and on the terms set forth in this Agreement.
The Administrator accepts such appointment and agrees to furnish the services
herein set forth in return for the compensation as provided in Paragraph 5 of
and Schedule A to this Agreement. The Fund shall notify the Administrator in
writing of each additional series of shares established by the Fund for which
the Fund appoints the Administrator to provide services pursuant to this
Agreement (each such series, also an "MSAM Fund"). Each new MSAM Fund shall be
subject to the provisions of this Agreement, except to the extent that said
provisions (including those relating to the compensation and expenses payable by
the Fund and its MSAM Funds) may be modified with respect to such new MSAM Fund
in writing by the Fund and the Administrator at the time of the addition of such
new MSAM Fund.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Administrator represents and warrants to the Fund that:
(i) the Administrator is a corporation, organized and existing
and in good standing under the laws of the State of [New York] [_____________];
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<PAGE>
(ii) the Administrator is duly qualified to carry on its business
in the State of New York;
(iii) the Administrator is empowered under applicable laws and by
its [Certificate of Incorporation] [____________________], as amended or
restated, and By-Laws, as amended or restated, to enter into and perform this
Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize the Administrator to enter into and perform this Agreement;
(v) the Administrator has, and will continue to have, access to
the facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair the Administrator's ability to perform its
duties and obligations under this Agreement; and
(vii) the Administrator's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation applicable to the
Administrator;
(b) MSAM represents and warrants to the Administrator that:
(i) MSAM is a Delaware corporation, duly organized and existing
and in good standing under the laws of the State of Delaware;
(ii) MSAM is empowered under applicable laws and by its Articles
of Incorporation, as amended or restated, and By-laws, as amended or restated,
to enter into and perform this Agreement;
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<PAGE>
(iii) all requisite corporate proceedings have been taken to
authorize MSAM and the Fund to permit MSAM to enter into and perform this
Agreement;
(iv) the Fund is a Maryland corporation, duly organized and
existing and in good standing under the laws of the State of Maryland;
(v) the Fund is an investment company properly registered under
the 1940 Act;
(vi) a registration statement under the Securities Act of 1933,
as amended ("1933 Act"), and the 1940 Act on Form N-1A has been filed and will
be effective and will remain effective during the term of this Agreement, and
all necessary filings under the laws of the states will have been made and will
be current during the term of this Agreement;
(vii) no legal or administrative proceedings have been instituted
or threatened which would impair MSAM's or the Fund's ability to perform their
duties and obligations under this Agreement; and
(viii) MSAM's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of MSAM or the Fund or any law or regulation applicable to either.
3. DELIVERY OF DOCUMENTS. MSAM will promptly furnish to the
Administrator such copies, properly certified or authenticated, of contracts,
documents and other related information that the Administrator may request or
requires to properly discharge its duties. Such documents may include but are
not limited to the following:
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<PAGE>
(a) Resolutions of the Board authorizing the appointment of the
Administrator to provide certain fund accounting and administration services to
MSAM and the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation, as amended or restated (the
"Fund's Articles");
(c) The Fund's By-laws, as amended or restated, (the "Fund's By-
laws");
(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's registration statement including exhibits, as amended,
on Form N-1A (the "Registration Statement") under the 1933 Act and the 1940 Act,
as filed with the SEC;
(f) Copies of the Investment Advisory Agreements between the Fund and
its investment advisers (the "Advisory Agreements") and the MSAM Administration
Agreement;
(g) Opinions of counsel and auditors reports;
(h) The Fund's Prospectus(es) and Statement(s) of Additional
Information relating to all MSAM Funds and all amendments and supplements
thereto (such Prospectus(es) and Statement(s) of Additional Information and
supplements thereto, as presently in effect and as from time to time hereafter
amended and supplemented, herein called the "Prospectuses"); and
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<PAGE>
(i) Such other agreements as the Fund may enter into from time to time
including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
4. SERVICES PROVIDED BY THE ADMINISTRATOR.
(a) The Administrator will provide the following services subject to
the control, direction and supervision of the Board and in compliance with the
objectives, policies and limitations set forth in the Registration Statement,
Fund's Articles and Fund's By-laws; applicable laws and registrations, and all
resolutions and policies implemented by the Board:
(i) Fund administration; and
(ii) Fund accounting.
A detailed description of each of the above services is contained in Schedules C
and D, respectively, to this Agreement.
(b) The Administrator will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of the
Administrator or a corporate affiliate of the Administrator);
(ii) provide the services of individuals to serve as the Fund's
secretary and a principal financial officer who will be designated by the
Administrator and elected by the Board;
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<PAGE>
(iii) provide or otherwise obtain personnel sufficient, in the
Administrator's sole discretion, for provision of the services contemplated
herein;
(iv) furnish equipment and other materials, which the
Administrator, in its sole discretion, believes are necessary or desirable for
provision of the services contemplated herein; and
(v) keep records relating to the services provided hereunder in
such form and manner as set forth in Schedules C and D and as the Administrator
may otherwise deem appropriate or advisable, all in accordance with the 1940
Act. To the extent required by the 1940 Act and the rules thereunder, the
Administrator agrees that all such records prepared or maintained by the
Administrator relating to the services provided hereunder are the property of
the Fund and will be preserved for the periods prescribed under the 1940 Act,
and the rules adopted thereunder, maintained at the Fund's expense, and made
available in accordance with the 1940 Act and rules adopted thereunder. The
Administrator further agrees that upon request of the Fund promptly to surrender
to the Fund and to cease to retain in the records and files of the Administrator
those records and documents created and maintained by the Administrator pursuant
to this Agreement.
5. FEES, EXPENSES, EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Fund pursuant to
this Agreement, the Fund shall pay the Administrator monthly fees determined as
set forth in Schedule A to this Agreement. Such fees are to be computed daily
and paid monthly on the first business day of the month following provision of
the services. Upon any
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<PAGE>
termination of this Agreement before the end of any month, the fee for the part
of the month before such termination shall be pro-rated according to the
proportion which such part bears to the full monthly period and shall be payable
upon the date of termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Fund's assets, the value of the Fund's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles and resolutions of the Board.
(c) The Administrator will from time to time employ or associate with
such person or persons as may be appropriate to assist the Administrator in the
performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both the Administrator
and the Fund. The compensation of such person or persons for such employment
shall be paid by the Administrator and no obligation will be incurred by or on
behalf of the Fund in such respect.
(d) The Administrator will generally bear all of its own expenses in
connection with the performance of its services under this Agreement. The Fund
agrees to promptly reimburse the Administrator for any equipment and supplies
specially ordered by or for the Fund through the Administrator and for any other
expenses not contemplated by this Agreement that the Administrator may incur on
the Fund's behalf at the Fund's request or as consented to by the Fund. Such
other expenses to be incurred in the operation of the Fund and to be borne by
the Fund, include, but are not limited to: taxes; interest; brokerage fees and
commissions; salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of the Administrator, or the Fund's
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<PAGE>
investment advisers or distributor; SEC and state Blue Sky fees, levies, fines
and other charges; administration fees; charges and expenses of custodians;
insurance premiums including fidelity bond premiums; auditing and legal
expenses; costs of maintenance of the Fund's corporate existence; expenses of
typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund (the Fund's distributor to bear
the expense of all other printing, production, and distribution of prospectuses,
statements of additional information, and marketing materials); expenses of
printing and production costs of shareholders' reports and proxy statements and
materials; costs and expenses of Fund stationery and forms; costs and expenses
of special telephone and data lines and devices; costs associated with
corporate, shareholder, and Board meetings; and any extraordinary expenses and
other customary Fund expenses. In addition, the Administrator may utilize one
or more independent pricing services, approved from time to time by the Board,
to obtain securities prices and to act as backup to the primary pricing
services, in connection with determining the net asset values of the Fund, and
the Fund will reimburse the Administrator for the Fund's share of the cost of
such services based upon the actual usage, or a pro-rata estimate of the use, of
the services for the benefit of the Fund.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator agrees on
behalf of itself and its employees to treat confidentially and as proprietary
information of the Fund, all records and other information relative to the
Fund's prior, present or potential shareholders, and to not use such records and
information for any purpose other than
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<PAGE>
performance of the Administrator's responsibilities and duties hereunder. The
Administrator may seek a waiver of such confidentiality provisions by furnishing
reasonable prior notice to the Fund and obtaining approval in writing from the
Fund, which approval shall not be unreasonably withheld and may not be withheld
where the Administrator may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities. Waivers of confidentiality are automatically effective
without further action by the Administrator with respect to Internal Revenue
Service levies, subpoenas and similar actions, or with respect to any request by
the Fund.
7. DUTIES, RESPONSIBILITIES AND LIMITATION OF LIABILITY
(a) In the performance of its duties hereunder, the Administrator
shall be obligated to exercise the due care and diligence of a mutual fund
accounting and pricing service agent and blue sky administrator, and to act in
good faith in performing the services provided for under this Agreement. In
performing its services hereunder, the Administrator shall be entitled to rely
on any oral or written instructions, notices or other communications from the
Fund and its custodians, officers and directors, investors, agents and other
service providers which the Administrator reasonably believes to be genuine,
valid and authorized.
(b) Subject to the foregoing, the Administrator shall not be liable
for any error of judgement or mistake of law or for any loss or expense suffered
by the Fund, in connection with the matters to which this Agreement relates,
except for a loss or expense
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<PAGE>
resulting from willful misfeasance, bad faith or negligence on the
Administrator's part in the performance of its duties or from reckless disregard
by the Administrator of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of the
Administrator, who may be or become an officer, director, partner, employee or
agent of the Fund, shall be deemed when rendering services to the Fund or acting
on any business of the Fund (other than services or business in connection with
the Administrator's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or person under the control or direction of the Administrator even though paid
by the Administrator.
(c) Subject to Paragraph 7(b) above, the Administrator shall not be
responsible for, and MSAM and the Fund shall indemnify and hold the
Administrator harmless from and against, any and all losses, damages, costs,
reasonable attorneys' fees and expenses, payments, expenses and liabilities
arising out of or attributable to:
(i) all actions of the Administrator or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by the Administrator or its officers
or agents of information, records, or documents which are received by the
Administrator or its officers or agents and furnished to it or them by or on
behalf of MSAM or the Fund, and which have been prepared or maintained by the
Fund, MSAM or any other third party on behalf of MSAM or the Fund;
-11-
<PAGE>
(iii) MSAM's or the Fund's refusal or failure to comply with the
terms of this Agreement or MSAM's or the Fund's lack of good faith, or its
actions, or lack thereof, involving negligence or willful malfeasance;
(iv) the breach of any representation or warranty of MSAM
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with investors and
shareholders, or reliance by the Administrator on telephone or other electronic
instructions of any person acting on behalf of a shareholder or shareholder
account for which telephone or other electronic services have been authorized;
(vi) the reliance on or the carrying out by the Administrator or
its officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of the Fund; and
(vii) the offer or sale of shares by the Fund in violation of any
requirement under the Federal securities laws or regulations or the securities
laws or regulations of any state, or in violation of any stop order or other
determination or ruling by any Federal agency or any state agency with respect
to the offer or sale of such shares in such state resulting from activities,
actions, or omissions by the Fund's distributor or existing or arising out of
activities, actions or omissions by or on behalf of the Fund prior to the
effective date of this Agreement.
(d) The Administrator shall indemnify and hold MSAM or the Fund
harmless from and against any and all losses, damages, costs, charges,
reasonable attorneys' fees and expenses, payments, expenses and liability
arising out of or attributable to the
-12-
<PAGE>
Administrator's refusal or failure to comply with the terms of this Agreement;
the Administrator's breach of any representation or warranty made by it herein;
or the Administrator's lack of good faith, or acts involving new negligence,
willful misfeasance or reckless disregard of its duties.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 90 days' prior written
notice. Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of termination or the date that the
provision of services ceases, whichever is later.
9. HIRING OF EMPLOYEES. MSAM and the Administrator agree that they will
not enter into discussions of employment or make offers of employment to each
others' employees without written approval from the other.
10. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
-13-
<PAGE>
If to MSAM or the Fund:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, NY 10020
Attn:______________________
Fax: (212)__________________
WITH A COPY TO:
___________________________
___________________________
___________________________
___________________________
If to the Administrator:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
Attention: James R. Rooney
Fax: (617) 557-8610
Notice shall be effective upon receipt if by mail; on the date of personal
delivery if by private messenger, courier service or otherwise; or upon
confirmed receipt of telex or facsimile, whichever occurs first.
11. ASSIGNABILITY. This Agreement shall not be assigned by any of the
parties hereto without the prior consent in writing of the other party;
provided, however, that the Administrator may in its own discretion and without
limitation or prior consent of the Fund, whenever and on such terms and
conditions as the Administrator deems necessary or appropriate, subcontract,
delegate or assign its rights, duties, obligations and liabilities to
subsidiaries or affiliates of the Administrator; provided, further, that any
such
-14-
<PAGE>
subcontract, agreement or understanding shall not discharge the Administrator or
its affiliates or subsidiaries, as the case may be, from its obligations
hereunder. Similarly, the Administrator or its affiliated subcontractor,
designee, or assignee may at its discretion, without notice to the Fund, enter
into such subcontracts, agreements and understandings, whenever and on such
terms and conditions as the Administrator or they deem necessary or appropriate
to perform services hereunder, with non-affiliated third parties; provided, that
such subcontract, agreement or understanding shall not discharge the
Administrator, or its subcontractor, designee, or assignee, as the case may be,
from the Administrator's obligations hereunder.
12. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
13. FORCE MAJEURE. The Administrator shall not be responsible or liable
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation, acts of God, earthquakes, fires, floods,
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Fund the right to terminate this Agreement.
-15-
<PAGE>
14. USE OF NAME. MSAM and the Administrator agree not to use the other's
name nor the names of such other's affiliates, designees, or assignees in any
prospectus, sales literature or other printed material written in a manner not
previously, expressly approved in writing by the other or such other's
affiliates, designees, or assignees except where required by the SEC or any
state agency responsible for securities regulation.
15. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
16. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
17. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
MORGAN STANLEY ASSET MANAGEMENT INC.
By:
-------------------------------------
Name: Warren J. Olsen
Title: President
Attest:
----------------------------
Name:
------------------------------
THE CHASE MANHATTAN BANK
By:
-------------------------------------
Name:
Title:
Attest:
----------------------------
Name:
------------------------------
-17-
<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
JANUARY 1, 1997
SCHEDULE A
FEES AND EXPENSES
I. FUND ACCOUNTING AND ADMINISTRATION FEES - MORGAN STANLEY MONEY MARKET FUND,
MORGAN STANLEY TAX-FREE MONEY MARKET FUND AND MORGAN STANLEY GOVERNMENT
OBLIGATIONS MONEY MARKET FUND (THE "MONEY MARKET FUNDS")
MSAM shall pay to the Administrator an annual fee for each of the Money
Market Funds based on the following schedule:
0.07 OF 1% ON THE FIRST $200 MILLION IN ASSETS, PLUS
0.05 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.04 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.03 OF 1% ON ASSETS IN EXCESS OF $600 MILLION.
The fees in the foregoing table shall be based on the average daily net
assets of such Money Market Funds. The fees will be computed and are payable
monthly.
Minimum Monthly Fee (exclusive of out-of-pocket expenses):
$7,083 per month for each of the first two portfolios
(provided that, for portfolios with assets under $40,000.00,
the minimum monthly fee will be $6,250 per month); and
$6,250 per month for each additional portfolio.
Out-of-pocket expenses for such Money Market Funds, including, but not
limited to, the cost of security pricing services, including backup pricing
services, the preparation of Board materials, and mailings will be billed to
MSAM on a monthly basis.
II. FUND ACCOUNTING AND ADMINISTRATION FEES - ALL MSAM FUNDS OTHER THAN THE
MONEY MARKET FUNDS
MSAM shall pay to the Administrator an annual fee based on the following
schedule:
0.18 OF 1% ON THE FIRST $200 MILLION IN ASSETS, PLUS
0.12 OF 1% ON THE NEXT $200 MILLION IN ASSETS, PLUS
0.07 OF 1% ON THE NEXT $400 MILLION IN ASSETS, PLUS
0.06 OF 1% ON ASSETS IN EXCESS OF $800 MILLION.
A-1
<PAGE>
The fees in the foregoing table shall be based on the average daily net
assets of all of the Fund's MSAM Funds other than the Money Market Funds.
The fees will be computed and are payable monthly.
Out-of-pocket expenses for such Money Market Funds, including, but not
limited to, the cost of security pricing services, including backup pricing
services, the preparation of Board materials, and mailings will be billed to
MSAM on a monthly basis.
III. MINIMUM FEES - ALL MSAM FUNDS OTHER THAN THE MONEY MARKET FUNDS
The fees payable by MSAM to the Administrator for Fund Accounting and
Administration will be subject to a minimum annual average per MSAM Fund of
$__________. Out-of-pocket expenses are not included in the calculation of the
minimum annual fees and are payable monthly as billed by the Administrator.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
JANUARY 1, 1997
SCHEDULE B
LISTING OF MSAM FUNDS SUBJECT TO THIS AGREEMENT
1. Morgan Stanley Aggressive Equity Fund
2. Morgan Stanley American Value Fund
3. Morgan Stanley Asian Growth Fund
4. Morgan Stanley Emerging Markets Debt Fund
5. Morgan Stanley Emerging Markets Fund
6. Morgan Stanley Equity Growth Fund
7. Morgan Stanley European Equity Fund
8. Morgan Stanley Global Equity Allocation Fund
9. Morgan Stanley Global Equity Fund
10. Morgan Stanley Global Fixed Income Fund
11. Morgan Stanley Government Obligations Money Market Fund
12. Morgan Stanley Growth and Income Fund
13. Morgan Stanley High Yield Fund
14. Morgan Stanley International Magnum Fund
15. Morgan Stanley Japanese Equity Fund
16. Morgan Stanley Latin American Fund
17. Morgan Stanley Money Market Fund
18. Morgan Stanley Tax-Free Money Market Fund
19. Morgan Stanley U.S. Real Estate Fund
20. Morgan Stanley Worldwide High Income Fund
B-1
<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
JANUARY 1, 1997
SCHEDULE C
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. Financial and Tax Reporting
A. Prepare agreed upon management reports and Board of Directors
materials such as unaudited financial statements, distribution
summaries, and deviations of mark-to-market valuation and the
amortized cost for money market funds.
B. Report Fund performance to outside services as directed by Fund
management.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Fund's prospectus(es). Assist
Fund management in making final determinations of distribution
amounts.
D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue
Code of 1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Prepare and file Fund's Federal tax return on Form 1120-RIC along with
all state and local tax returns where applicable. Prepare and file
Federal Excise Tax Return (Fori-n 8613).
F. Prepare and file Fund's Semiannual Reports on Form N-SAR with the SEC.
G. Prepare and coordinate printing of Fund's Semiannual and Annual
Reports to Shareholders.
H. File copies of every financial report to shareholders with the SEC
under Rule 3Ob2- 1.
I. In conjunction with transfer agent, notify shareholders as to
what portion, if any, of the distributions made by the Fund's
during the prior fiscal year were exempt-interest dividends under
Section 852 (b)(5)(A) of the Code.
C-1
<PAGE>
J. Provide Form 1099-MISC to persons other than corporations (i.e.,
Directors) to whom the Fund paid more than $600 during the year.
K. [Prepare and file California State Expense Limitation Report, if
applicable.]
L. Provide financial information for Fund proxies and prospectuses
(Expense Table).
II. Portfolio Compliance
A. Assist with monitoring each MSAM Fund's compliance with investment
restrictions (e.g., issuer or industry diversification, etc.) listed
in the current prospectus(es) and statement(s) of additional
information.
B. Assist with monitoring each MSAM Fund's compliance with the
requirements of the Code Section 851 for qualification as regulated
investment companies (i.e., 90% Income, 30% Income - Short Three
Diversification Tests).
C. Assist with monitoring investment manager's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements," Rule 2a-7 procedures for money market funds and
Rule 12d-3 procedures.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Fund's Directors and Officers and "access persons" under the terms of
the Fund's Code of Ethics and SEC regulations.
III. Registration and Corporate Governance
A. Prepare and file annual, financial update post-effective amendments to
the Fund's registration statement on Form N-1A and file supplements as
needed.
B. Prepare and file Rule 24f-2 Notice and Opinion (state corporate law
legal opinion must be furnished by outside counsel).
C-2
<PAGE>
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES (continued)
C. Prepare and file all state registrations of the Fund's securities
including annual renewals, registering new Portfolios, preparing and
filing sales reports, filing copies of the registration statement and
final prospectus and statement of additional information, and
increasing registered amounts of securities in individual states.
IV. General Administration
A. Furnish Secretary and Chief Financial Officer or Treasurer of the
Fund, subject to reasonable Board approval.
B. Prepare Fund portfolio expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage
of Fund's average daily net assets (advisory and administrative fees)
and expenses based on actual charges annualized and accrued daily
(audit fees, registration fees, directors' fees, etc.).
C. For new portfolios, obtain Employer Identification Number and CUSIP
numbers or portfolios. Estimate organization (offering) costs and
monitor against actual disbursements.
D. Coordinate all communications and data collection with regards to any
regulatory examinations and yearly audits by independent accountants.
C-3
<PAGE>
MORGAN STANLEY FUND, INC.
MSAM-CHASE SUB-ADMINISTRATION AGREEMENT
JANUARY 1, 1997
SCHEDULE D
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. General Description
The Administrator shall provide the following accounting services to the
Fund on behalf of MSAM:
A. Maintenance of the books and records and accounting controls for the
Fund's assets, including records of all Securities transactions,
B. Calculation and transmission of each MSAM Fund's Net Asset Value to
the NASD source for publication of prices in accordance with the
prospectus and to such other entities as directed by MSAM;
C. Accounting for dividends and interest received and distributions made
by the Fund;
D. Preparation and filing of the Fund's lax returns and Semiannual
Reports on Form N-SAR;
E. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request;
F. The preparation of financial statements for the semiannual and annual
reports and other shareholder communications;
G. Liaison with the Fund's Independent auditors; and
H. Monitoring and administration of arrangements with the Fund's
custodian and depository banks. A listing of reports that will be
available to the Fund is included below.
D-1
<PAGE>
DESCRIPTION OF FUND ACCOUNTING SERVICES (Continued)
II. Domestic Fund Accounting Daily Reports
A. General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C. Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E. Other Reports
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
III. International Fund Accounting Daily Reports
A. General Ledger
1. Trial Balance Report
2. General Ledger Activity Report
D-2
<PAGE>
DESCRIPTION OF FUND ACCOUNTING SERVICES (Continued)
B. Portfolio Reports
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C. Currency Reports
1. Currency Purchase/Sales Journal
2. Currency Valuation Report
D. Pricing Reports
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by % Change
4. NAV Report
5. NAV Proof Report
E. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Sold/Matured
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F. Other Reports
1. Exchange Rate Report
IV. Monthly Fund Accounting Reports
A. Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
D-3
<PAGE>
DESCRIPTION OF FUND ACCOUNTING SERVICES (Continued)
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
10. SEC Yield Calculation Work Sheet
B. International Reports
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
D-4
<PAGE>
Exhibit 9d
SUB-ADMINISTRATION AGREEMENT
(MORGAN STANLEY FUND, INC.)
AGREEMENT made as of December __, 1996 by and between Miller Anderson &
Sherrerd, LLP, a Pennsylvania limited liability partnership ("MAS"), and The
Chase Manhattan Bank, a bank chartered under the laws of the State of New York
(the "Administrator").
W I T N E S S E T H:
WHEREAS, the Morgan Stanley Funds, Inc. (the "Company") is registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, MAS is responsible for the provision of administration and fund
accounting services to the series of the Company identified on Schedule A (each,
a "Fund" and, collectively, the "Funds") pursuant to an Agreement between MAS
and the Company dated as of _____________, 1996 (the "MAS Administration
Agreement"); and
WHEREAS, MAS wishes to retain the Administrator to provide certain
administration and fund accounting services with respect to the Funds, and the
Administrator is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT AND DELEGATION.
(a) MAS hereby appoints the Administrator to provide administration
and fund accounting services for MAS for the benefit of the Funds, subject to
the supervision of MAS and the Board of Directors of the Company (the "Board"),
for the period and on the terms set forth in this Agreement. The Administrator
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 5 of this Agreement. In
the event that the Company establishes one or more additional Funds to be
administered under the MAS Administration Agreement and with respect to which
MAS decides to retain the Administrator to act as administrator hereunder, MAS
shall notify the Administrator in writing. If the Administrator is willing to
render such services to a new Fund, the Administrator shall so notify MAS in
writing whereupon such Fund shall be added to Schedule A hereto and shall become
subject to the provisions of this Agreement to the same extent as the existing
Funds, except to the extent that said provisions (including those relating to
the compensation payable by MAS) may be modified with respect to such Fund in
writing by MAS and the Administrator at the time of the addition of such new
Fund.
(b) The Administrator is hereby authorized to use the services of its
wholly-owned subsidiary, Chase Global Funds Services Company ("CGFSC"), to
perform any of the
<PAGE>
functions provided for hereunder; provided, that such use shall in no way limit
the Administrator's contractual rights and obligations hereunder. Reference
(except under Paragraph 2 hereof) to the Administrator herein shall be deemed to
include CGFSC.
2. REPRESENTATIONS AND WARRANTIES:
(a) The Administrator represents and warrants that:
(i) it is a bank duly chartered, organized and existing and in
good standing under the laws of the State of New York;
(ii) it is duly qualified to carry on its business in the State
of New York;
(iii) it is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement;
(iv) all requisite corporate proceedings have been taken to
authorize the Administrator to enter into and perform this Agreement;
(v) it has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
(vii) its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation applicable to it;
(b) MAS represents and warrants that:
(i) it is a Pennsylvania limited liability partnership, duly
organized and existing and in good standing under the laws of the Commonwealth
of Pennsylvania;
(ii) it is empowered under applicable laws and by its Agreement
of Limited Liability Partnership to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize MAS
to enter into and perform this Agreement;
(iv) the Company is a Maryland corporation, duly organized and
existing and in good standing under the laws of the State of Maryland;
-2-
<PAGE>
(v) the Company is an investment company registered under the
1940 Act;
(vi) a registration statement under the Securities Act of 1933,
as amended ("1933 Act") and the 1940 Act on Form N-1A has been filed for the
Company and is currently effective, and will remain effective during the term of
this Agreement, and all necessary filings under the laws of the states will be
made and will be current during the term of this Agreement;
(vii) no legal or administrative proceedings have been
instituted or threatened which would impair MAS's ability to perform its duties
and obligations under this Agreement; and
(viii) MAS's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of MAS or the Company, or any law or regulation applicable to either.
3. DELIVERY OF DOCUMENTS. MAS will promptly furnish to the Administrator
such copies, properly certified or authenticated, of contracts, documents and
other related information that the Administrator may request or require to
properly discharge its duties. Such documents may include but are not limited
to the following:
(a) Resolutions of the Board authorizing the appointment of the
Administrator to provide certain administration and fund accounting services to
MAS and the Company;
(b) The Company's Articles of Incorporation, as amended ("Articles");
(c) The Company's By-Laws ("By-Laws");
(d) The Company's Notification of Registration on Form N-8A under the
1940 Act, as filed with the Securities and Exchange Commission ("SEC");
(e) The Company's registration statement, including exhibits, on Form
N-1A under the 1933 Act and the 1940 Act, and all amendments thereto, as filed
with the SEC (the "Registration Statement");
(f) Copies of the Investment Advisory Agreement between the Company
and MAS dated ____________, 1996 (the "Advisory Agreement") and the MAS
Administration Agreement;
(g) A copy of the custodian agreement dated ______________, 19__
between the Company and ________________ (the "Custodian
Agreement")(____________ is referred to herein as the "Custodian");
-3-
<PAGE>
(h) Opinions of counsel and auditors reports;
(i) Each Fund's current Prospectuses and Statement of Additional
Information and all amendments and supplements thereto (such Prospectuses and
Statement of Additional Information and supplements thereto, as presently in
effect and as from time to time hereafter amended and supplemented, are herein
called the "Prospectuses"); and
(j) Such other agreements as the Company may enter into from time to
time, including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
4. SERVICES PROVIDED BY THE ADMINISTRATOR.
The Administrator will provide the following services, subject to the
control, direction and supervision of MAS and the Board and in compliance with
the objectives, policies and limitations set forth in the Company's Registration
Statement, Articles and By-Laws, applicable laws and regulation, and all
resolutions and policies adopted by the Board:
(a) FUND ADMINISTRATION. The Administrator will provide the fund
administration services described in Schedule B, hereto.
(b) FUND ACCOUNTING. The Administrator shall provide the fund
accounting services described in Schedule C, hereto.
(c) The Administrator will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of the
Administrator or a corporate affiliate of the Administrator);
(ii) provide the services of individuals to serve as officers
of the Company who will be designated by the Administrator and elected by the
Company's Board;
(iii) provide or otherwise obtain personnel sufficient, in the
Administrator's sole discretion, for provision of the services contemplated
herein;
(iv) furnish equipment and other materials which the
Administrator, in its sole discretion, believes are necessary or desirable for
provision of the services contemplated herein; and
(v) keep records relating to the services provided hereunder
in such form and manner as set forth in this Agreement and the Schedules hereto
and as the Administrator may otherwise deem appropriate or advisable, all in
accordance with the 1940 Act. To the extent
-4-
<PAGE>
required by Section 31 of the 1940 Act and the rules thereunder, the
Administrator agrees that all such records prepared or maintained by it relating
to the services provided hereunder are the property of the Company and will be
preserved for the periods prescribed under Rule 31a-2 under the 1940 Act,
maintained at the Company's expense, and made available in accordance with such
Section and rules. The Administrator further agrees to surrender promptly to
the Company upon its request and cease to retain in its records and files those
records and documents created and maintained by the Administrator pursuant to
this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT
(a) As compensation for the services rendered to MAS and the Company
pursuant to this Agreement, MAS shall pay the Company such compensation as is
agreed to in writing from time to time by the parties hereto.
(b) For the purposes of determining any fees calculated by reference
to the Company's assets, the value of the Company's net assets shall be computed
as required by its Prospectuses, generally accepted accounting principles and
resolutions of the Board.
(c) The Administrator will from time to time employ or associate with
such person or persons as may be appropriate to assist the Administrator in the
performance of this Agreement. Such persons or persons may be officers and
employees who are employed or designated as officers by both the Administrator
and the Company. The compensation of such person or persons for such employment
shall be paid by the Administrator and no obligation will be incurred by or on
behalf of the Company in such respect.
(d) The Administrator will bear all of its own expenses in connection
with its performance of services under this Agreement except as otherwise agreed
to by the parties hereto. MAS agrees to promptly reimburse the Administrator
for any equipment and supplies specially ordered by or for the Company through
the Administrator and for any other expenses not contemplated by this Agreement
that the Administrator may incur on the Company's behalf at MAS's or the
Company's request or as consented to by MAS or by the Company. Such other
expenses to be incurred in the operation of the Company and to be borne by the
Company include, but are not limited to: taxes; interest; SEC and state blue sky
registration and qualification fees, levies, fines and other charges; charges
and expenses of custodians; advisory fees; insurance premiums, including
fidelity bond premiums; auditing and legal expenses; expenses of typesetting and
printing of Prospectuses for regulatory purposes and for distribution to current
shareholders of the Company (the Company's distributor to bear the expense of
all other printing, production, and distribution of Prospectuses and marketing
materials); expenses of typesetting, printing and production costs of
shareholders' reports and proxy statements and materials; costs and expenses of
Company stationery and forms; costs associated with shareholder and Board
meetings; and any extraordinary Company expenses. In addition, the
Administrator may utilize one or more independent pricing services, approved
from time to time by the Board, to obtain securities prices and to act as backup
to the primary pricing services, in connection with
-5-
<PAGE>
determining the net asset value of the Company, and the Company will reimburse
the Administrator for the Company's share of the cost of such services based
upon the actual usage or a pro rata estimate of the use of the services for the
benefit of the Company.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator agrees on
behalf of itself and its employees to treat confidentially and as proprietary
information of the Company, all records and other information relative to the
Company, and to not use such records and information for any purpose other than
performance of the Administrator's responsibilities and duties hereunder. The
Administrator may seek a waiver of such confidentiality provisions by furnishing
reasonable prior notice to the Company and obtaining approval in writing from
the Company, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities. Waivers of confidentiality are automatically
effective without further action by the Administrator with respect to Internal
Revenue Service levies, subpoenas and similar actions, or with respect to any
request by the Company.
7. DUTIES, RESPONSIBILITIES AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, the Administrator
shall be obligated, as applicable, to exercise the due care and diligence of a
mutual fund accounting agent and administrator, and in all events to act in good
faith in performing the services provided for under this Agreement. In
performing its services hereunder, the Administrator shall be entitled to rely
on any oral or written instructions, notices or other communications from the
Company and its Custodian, officers and directors, investors, agents and other
service providers which the Administrator reasonably believes to be genuine,
valid and authorized. The Administrator shall also be entitled to rely on the
advice and opinions of outside legal counsel retained by the Company, as
necessary or appropriate.
(b) Subject to the foregoing, the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss or expense suffered
by the Company, in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
gross negligence on the Administrator's part in the performance of its duties or
from reckless disregard by the Administrator of its obligations and duties under
this Agreement. Any officer, director, partner, employee or agent of the
Company who is also an officer, director, partner, employee or agent of the
Administrator shall be deemed to be rendering services to or acting solely for
the Company, except when rendering services or business in connection with the
Administrator's duties hereunder.
(c) Subject to Paragraph 7(b) above, the Administrator shall not be
responsible for, and MAS shall indemnify and hold the Administrator harmless
from and against, any and all losses, damages, costs, reasonable attorneys' fees
and expenses, payments, expenses and liabilities arising out of or attributable
to:
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<PAGE>
(i) all actions of the Administrator or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by the Administrator or its
officers or agents of information, records or documents which are received by
the Administrator or its officers or agents and furnished to it or them by or on
behalf of MAS or the Company, and which have been prepared or maintained by the
Company, MAS or any other third party on behalf of MAS or the Company;
(iii) MAS's refusal or failure to comply with the terms of this
Agreement or MAS's lack of good faith, or its actions, or lack thereof,
involving gross negligence or willful misfeasance;
(iv) the breach of any representation or warranty of MAS
hereunder; or
(v) the offer or sale of shares by the Company and/or its
distributor (a) in violation of any requirement under the federal securities
laws or regulations or the securities laws or regulations of any state, or (b)
in violation of any stop order or other determination or ruling by any Federal
agency or any state agency with respect to the offer or sale of such shares in
such state resulting from activities, actions, or omissions by the Company or
its distributor or existing or arising out of activities, actions or omissions
by or on behalf of the Company prior to the effective date of this Agreement.
(d) The Administrator shall indemnify and hold MAS harmless from and
against any and all losses, damages, costs, charges, reasonable attorneys' fees
and expenses, payments, expenses and liabilities arising out of or attributable
to the Administrator's refusal or failure to comply with the terms of this
Agreement, the Administrator's breach of any representation or warranty made by
it herein, or the Administrator's lack of good faith, or acts involving gross
negligence, willful misfeasance or reckless disregard of its duties.
8. TERM. This Agreement shall become effective on the date that MAS
first assumes responsibility for providing administrative services to the
Company pursuant to the MAS Administration Agreement. This Agreement shall
continue in effect unless terminated by either party on 90 days' prior written
notice. Upon termination of this Agreement, MAS shall pay to the Administrator
such compensation and any reimbursable expenses as may be due under the terms
hereof as of the date of termination or the date that the provision of services
under this Agreement by the Administrator ceases, whichever is later.
9. HIRING OF EMPLOYEES. MAS and the Administrator agree that they will
not enter into discussions of employment or make offers of employment to each
others' employees without written approval from the other.
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<PAGE>
10. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to MAS:
Miller, Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, PA 19428
Attn: Ms. Lorraine Truten
FAX: (610) 940-0652
WITH A COPY TO:
John H. Grady, Jr., Esquire
Morgan, Lewis & Bockius LLP
1800 M St., N.W.
Washington, DC 20036
FAX: (202) 467-7176
If to the Administrator:
-------------------------------
-------------------------------
-------------------------------
Attn:
------------------------
FAX:
------------------------
WITH A COPY TO:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
Attn:
------------------------
FAX: (617)
-------------------
Notice shall be effective upon receipt, if by mail, on the date of personal
delivery, if by private messenger, courier service or otherwise, or upon
confirmed receipt of telex or facsimile, whichever occurs first.
11. ASSIGNABILITY. This Agreement shall not be assigned by any of the
parties hereto without the prior consent in writing of the other party;
provided, however, that the Administrator may in its own discretion and without
limitation or prior consent of MAS or the Company,
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<PAGE>
whenever and on such terms and conditions as the Administrator deems necessary
or appropriate, subcontract, delegate or assign its rights, duties, obligations
and liabilities to its subsidiaries or affiliates; provided further, that any
such subcontract, agreement or understanding shall not discharge the
Administrator or its affiliates or subsidiaries, as the case may be, from the
obligations hereunder. Similarly, the Administrator or its affiliated
subcontractor, designee, or assignee may, at its discretion, without notice to
the Company, enter into such subcontracts, agreements and understandings,
whenever and on such terms and conditions as the Administrator or they deem
necessary or appropriate to perform services hereunder, with non-affiliated
third parties; provided, however, that such subcontract, agreement or
understanding shall not discharge the Administrator, or its subcontractor,
designee, or assignee, as the case may be, from the Administrator's obligations
hereunder.
12. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
13. FORCE MAJEURE. The Administrator shall not be responsible or liable
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including without limitation, acts of God, earthquakes,
fires, floods, wars, acts of civil or military authorities, or governmental
actions, nor shall any such failure or delay give MAS the right to terminate
this Agreement.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
16. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
MILLER ANDERSON & SHERRERD, LLP
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
THE CHASE MANHATTAN BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE>
SCHEDULE A
LISTING OF FUNDS SUBJECT TO THIS AGREEMENT
1. Morgan Stanley Mid Cap Growth Fund
2. Morgan Stanley Value Fund
-11-
<PAGE>
SCHEDULE B
GENERAL DESCRIPTION OF FUND ADMINISTRATION SERVICES
I. FINANCIAL AND TAX REPORTING
In accordance with specific procedures and guidelines established in
writing by the parties hereto from time to time, the Administrator will provide
the following administrative services:
A. Prepare agreed-upon management reports and Board materials, such as
unaudited financial statements, distribution summaries, and deviations
from mark-to-market to amortized cost valuation for money market
portfolios.
B. Report Fund performance to outside services as directed by Company
management.
C. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in each Fund's Prospectuses. Assist
Company management in making final determinations of distribution
amounts.
D. Estimate and recommend year-end dividend and capital gain
distributions necessary to establish each Fund's status as a regulated
investment company ("RIC") under Section 4982 of the Internal Revenue
Code of 1986, as amended (the "Code") regarding minimum distribution
requirements.
E. Prepare and file the Funds' Federal tax returns on Form 1120-RIC along
with all state and local tax returns, where applicable. Prepare and
file Federal Excise Tax Return (Form 8613).
F. Prepare and file the Funds' semi-annual reports on Form N-SAR with the
SEC.
G. Prepare and coordinate printing of Funds' semi-annual and annual
reports to shareholders.
H. File copies of every financial report to shareholders with the SEC
under Rule 30b2-1 under the 1940 Act.
I. Notify shareholders as to what portion, if any, of the distributions
made by the Funds during the prior fiscal year were exempt-interest
dividends under Section 852(b)(5)(A) of the Code.
J. Provide Form 1099-MISC to persons other than corporations (i.e.,
Trustees) to whom the Funds paid more than $600 during the year.
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<PAGE>
K. Prepare and file State Expense Limitation Report(s) (if applicable).
L. Provide financial information for Fund proxies and Prospectuses.
II. FUND COMPLIANCE. In accordance with specific procedures and guidelines
established in writing from time to time by the parties hereto, the
Administrator will:
A. Assist with monitoring each Fund's compliance with investment
restrictions (e.g., issuer or industry diversification) listed in the
Prospectuses.
B. Assist with monitoring each Fund's compliance with the requirements of
the Code Section 851 for qualification as RICs.
C. Assist with monitoring the investment adviser's compliance with Board
directives such as "Approved Issuers Listings for Repurchase
Agreements," Rule 2a-7 procedures for money market funds and Rule 17a-
7, Rule 17e-1 and Rule 12d3-1 procedures.
D. Mail quarterly requests for "Securities Transaction Reports" to the
Company's Board, Officers and other "access persons" under the terms
of the Company's Code of Ethics and SEC regulations.
III. REGISTRATION AND CORPORATE GOVERNANCE
A. Prepare and file post-effective amendments to the Company's
Registration Statement, and prepare and file supplements as needed.
B. Prepare and file proxy materials and administer shareholder meetings.
C. Prepare and file Rule 24f-2 Notices.
D. Prepare and file all state registrations of the Company's securities,
including annual renewals, registering new Portfolios, preparing and
filing sales reports, filing copies of the Registration Statement and
Prospectuses, and increasing registered amounts of securities in
individual states.
E. Prepare Board materials for all Board meetings.
IV. GENERAL ADMINISTRATION
A. Furnish officers of the Company, subject to Board approval.
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<PAGE>
B. In accordance with specific procedures and guidelines established in
writing from time to time by the parties hereto, the Administrator
will prepare Company and Fund expense projections, and establish and
review accruals on a periodic basis, including expenses based on a
percentage of the Funds' average daily net assets and expenses based
on actual charges annualized and accrued daily (i.e., audit fees,
registration fees, Director' fees).
C. For new Funds, obtain Employer Identification Number and CUSIP number.
Estimate organizational costs and expenses, and monitor against actual
disbursements.
D. Coordinate all communications and data collection pertaining to any
regulatory examinations and yearly audits by independent accountants.
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<PAGE>
SCHEDULE C
DESCRIPTION OF FUND ACCOUNTING SERVICES
I. GENERAL DESCRIPTION
In accordance with specific procedures and guidelines established in
writing from time to time by the parties hereto, the Administrator shall provide
the following accounting services to the Funds on behalf of MAS:
A. Maintenance of the books and records and accounting controls for the
Funds' assets, including records of all securities transactions;
B. Calculation and transmission of each Fund's net asset value to the
NASD source for publication of prices in accordance with the
prospectus and to such other entities as directed by MAS;
C. Accounting for dividends and interest received and distributions made
by the Funds;
D. Production of transaction data, financial reports and such other
periodic and special reports as the Board may reasonably request;
E. Preparation of financial statements for the semi-annual and annual
reports and other shareholder communications;
F. Liaison with the Company's independent auditors;
G. Monitoring and administration of arrangements with the Company's
custodian and depository banks; and
H. Furnishing the following reports
II. DOMESTIC FUND ACCOUNTING DAILY REPORTS
The Administrator will supply MAS with the following reports on a
daily basis:
A. General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
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<PAGE>
1. Portfolio Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C. Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by Percentage Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E. Other Reports
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
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<PAGE>
III. INTERNATIONAL FUND ACCOUNTING DAILY REPORTS
The Administrator will supply MAS with the following reports on a daily
basis:
A. General Ledger
1. Trial Balance Report
2. General Ledger Activity Report
B. Portfolio Reports
1. Portfolio Report by Sector
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
C. Currency Reports
1. Currency Purchase/Sales Journal
2. Currency Valuation Report
D. Pricing Reports
1. Pricing Report by Country
2. Pricing Report by Market Value
3. Price Variance by Percentage Change
4. NAV Report
5. NAV Proof Report
E. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Sold/Matured
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<PAGE>
2. Accounts Payable for Investments Purchased
3. Accounts Receivable for Forward Exchange Contracts
4. Accounts Payable for Forward Exchange Contracts
5. Interest Receivable Valuation
6. Interest Recoverable Withholding Tax
7. Dividends Receivable Valuation
8. Dividends Recoverable Withholding Tax
F. Other Reports
1. Exchange Rate Report
IV. MONTHLY FUND ACCOUNTING REPORTS
The Administrator will provide MAS with the following reports on a monthly
basis.
A. Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Fund Performance Report
10. SEC Yield Calculation Work Sheet
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<PAGE>
B. International Reports
1. Forward Contract Transaction History Report
2. Currency Gain/Loss Report
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<PAGE>
Exhibit 9g
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the __ day of December, 1996 by and among Morgan
Stanley Asset Management, Inc., a Delaware corporation ("MSAM"), ACCESS
INVESTOR SERVICES, INC., a Delaware corporation ("ACCESS") and Morgan Stanley
Fund, Inc., a Maryland corporation.
RECITAL:
WHEREAS, the Morgan Stanley Fund, Inc. is registered as an open-end,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act") which has issued shares of several series
(collectively, the "Funds", and individually, a "Fund"); and
WHEREAS, MSAM is responsible for the provision of certain transfer agent,
fund accounting and administration services to the Fund pursuant to the
Agreement between MSAM and the Fund dated as of [November 17, 1992] (the "MSAM
Administration Agreement"); and
WHEREAS, MSAM wishes to retain ACCESS to provide sub-transfer agent
services with respect to the Fund, and ACCESS is willing to furnish such
services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT: DUTIES OF ACCESS
1.01 Subject to the terms and conditions set forth in this Agreement,
MSAM hereby employs and appoints ACCESS as sub-transfer agent, dividend
disbursing agent and shareholder service agent for each of the Funds.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the sub-
transfer agent, dividend disbursing agent and shareholder service agent for each
of the Funds on the terms and conditions set forth herein.
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence in
accordance with reasonable industry practice, and that the necessary facilities,
equipment and personnel for such performance will be provided.
1
<PAGE>
1.04 In order to assure compliance with section 1.03 and to implement
a cooperative effort to improve the quality of sub-transfer agency and
shareholder services received by each of the Funds and its shareholders, ACCESS
agrees to provide and maintain quantitative performance objectives, including
maximum target turn-around times and maximum target error rates, for the various
services provided hereunder. ACCESS also agrees to provide a reporting system
designed to provide MSAM and the Board of Directors of the Funds (the "Board")
on a quarterly basis with quantitative data comparing actual performance for the
period with the performance objectives. The foregoing procedures are designed
to provide a basis for continuing monitoring by MSAM and the Board of the
quality of services rendered hereunder.
ARTICLE 2. FEES AND EXPENSES
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, MSAM agrees to pay ACCESS the fees provided in the fee schedules
agreed upon from time to time by MSAM and ACCESS.
2.02 In addition to the amounts paid under section 2.01 above, each of
the Funds agree to reimburse ACCESS promptly for reasonable out-of-pocket
expenses or advances paid on the Fund's behalf by ACCESS in connection with its
performance under this Agreement for postage, freight, envelopes, checks,
drafts, continuous forms, reports and statements, telephones, telegraph, costs
of outside mailing firms, necessary outside record storage costs, media for
storage of records (e.g., microfilm, microfiche and computer tapes) and printing
costs incurred due to special requirements of such Fund. In addition, any other
special out-of-pocket expenses paid by ACCESS at the specific request of any of
the Funds will be promptly reimbursed by the requesting Fund. Postage for
mailings of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to ACCESS by the respective Fund three
business days prior to the mailing date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS
ACCESS represents and warrants to MSAM and the Funds that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
3.02 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.03 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement.
2
<PAGE>
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to perform
its duties and obligations hereunder.
3.06 It will maintain a system regarding "as of" transactions as follows:
(a) Each "as of" transaction effected at a price other than that
in effect on the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS error, or
delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such
Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month. If,
on any day during the month, the cumulative net effect upon any Fund is
negative and exceeds an amount equivalent to 1/2 of 1 cent per share of
such Fund, ACCESS shall promptly make a payment to such Fund (in cash or
through use of a credit as described in paragraph (c) below) in such amount
as necessary to reduce the negative cumulative net effect to less than 1/2
of 1 cent per share of such Fund. If on the last business day of the month
the cumulative net effect (adjusted by the amount of any payments pursuant
to the preceding sentence) upon any Fund is negative, ACCESS shall
promptly make a payment to such Fund (in cash or through use of a credit as
described in paragraph (c) below) of an equivalent amount. If on the last
business day of the month the cumulative net effect (similarly adjusted)
upon any Fund is positive, ACCESS shall be entitled to recover certain past
payments and to a credit against all future payments made under this
paragraph to such Fund, as described in paragraph (c) below.
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first be
applied to recover from that Fund any payments made by Access to such Fund
under paragraph (b) above during the year. Any portion of a credit to
ACCESS not so used shall remain as a credit to be used as payment against
the amount of any future negative cumulative net effects that would
otherwise require a payment to such Fund pursuant to paragraph (b) above.
3
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MSAM.
MSAM hereby represents and warrants on behalf of itself and the
Funds that:
4.01 MSAM is duly organized and in good standing under the laws of the
State of Delaware.
4.02 The Funds are duly organized and existing and in good standing
under the laws of the State of Maryland.
4.03 The Funds are series of an open-end, diversified, management
investment company registered under the Investment Company Act of 1940, as
amended.
4.04 MSAM is empowered under applicable laws and regulations and by
its Articles of Incorporation and by-laws to enter into and perform this
Agreement.
4.05 All requisite proceedings have been taken by MSAM's and the
Funds' Boards to authorize MSAM to enter into and perform this Agreement.
4.06 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will remain effective, and appropriate state
securities laws filings have been made and will continue to be made, with
respect to all Fund shares being offered for sale.
ARTICLE 5. INDEMNIFICATION.
5.01 ACCESS shall not be responsible for and each of the Funds shall
indemnify and hold ACCESS harmless from and against any and all losses, damages,
costs, charges, reasonable counsel fees, payments, expenses and liabilities
arising out of or attributable to:
(a) All actions of ACCESS required to be taken by ACCESS for the
benefit of such Fund pursuant to this Agreement, provided ACCESS has acted
in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS of, information, records and documents which have been prepared or
maintained by or on behalf of such Fund or have been furnished to ACCESS by
or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS of, any instructions or requests of such Fund.
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<PAGE>
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state or in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless such
violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares be
made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of
this Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder.
5.02 ACCESS shall indemnify and hold each of the Funds harmless from
and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to ACCESS'
refusal or failure to comply with the terms of this Agreement, or ACCESS' lack
of good faith, negligency or willful misconduct, or the breach of any
representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of
the Funds for instructions, and may consult with any of the Funds' legal
counsel, at the expense of such concerned Fund, with respect to any matter
arising in connection with the services to be performed by ACCESS under this
Agreement, and ACCESS shall not be liable and shall be indemnified by such
concerned Fund for any action taken or omitted by it in good faith in reasonable
reliance upon such instructions or upon the opinion of such counsel. ACCESS
shall be protected and indemnified in acting upon any paper or document
reasonably believed by ACCESS to be genuine and to have been signed by the
proper person or persons and shall not be held to have notice of any change of
authority of any person, until receipt of written notice thereof from the
concerned Fund. ACCESS shall also be protected and indemnified in recognizing
stock certificates which ACCESS reasonably believes to bear the proper manual or
facsimile signatures of the officers of the concerned Fund, and the proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
5.04 In the event any party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
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<PAGE>
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 6. COVENANTS OF MSAM AND ACCESS.
6.01 MSAM shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of the Funds' Board
authorizing the appointment of ACCESS and the execution and delivery of
this Agreement.
(b) Certified copies of the Funds' Articles of Incorporation and
by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures reasonably
acceptable to MSAM and the Funds for safekeeping of share certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.03 ACCESS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Fund Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31
of the Investment Company Act of 1940 and the Rules thereunder (such Section
and Rules being hereinafter referred to as the "1940 Act Requirements"). To
the extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with
the 1940 Act Requirements, and shall be surrendered promptly to the concerned
Fund on its request. ACCESS agrees at such reasonable times as may be
requested by the Board and at least quarterly to provide (i) written
confirmation to the Board that all fund Records are maintained and kept
current
6
<PAGE>
in accordance with the 1940 Act Requirements, and (ii) such other reports
regarding its performance hereunder as may be reasonably requested by the Board.
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned Funds and
to secure instructions from an authorized officer of each of the concerned Funds
as to such inspection. ACCESS reserves the right, however, to exhibit such fund
Records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit such Fund records to such person.
ARTICLE 7. TERMS AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect from the date hereof
through December 31, 1997; provided, however, that this Agreement may be
terminated by any party with respect to that party for good and reasonable cause
at any time by giving written notice to the other party at least 120 days prior
to the date on which such termination is to be effective. Any unpaid fees or
reimbursable expenses payable to ACCESS shall be due on any such termination
date. ACCESS agrees to use its best efforts to cooperate with each of the Funds
and the successor sub-transfer agent or agents in accomplishing an orderly
transition.
7.02 Subject to the prior approval of MSAM, this Agreement shall be
renewed and extended for periods of not more than one year each, unless and
until this Agreement is terminated in accordance with section 7.01 above.
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by any party without the
written consent of ACCESS or MSAM, as the case may be, provided, however, that
no consent shall be required for any merger of any of the Funds with, or any
sale of all or substantially all the assets of any of the Funds to, another
investment company.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of MSAM or any of
the Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities; provided,
7
<PAGE>
however, that ACCESS shall be as fully responsible to MSAM and each of the Funds
for the acts and omissions of DST, Inc., or other qualified servicer as it is
for its own acts and omissions.
8.04 ACCESS may, without further consent on the part of MSAM or any of
the Funds, provide services to its affiliated companies. Such services may be
provided at cost.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 In the event of a change in the business or regulatory
environment affecting all or any portion of this Agreement, the parties hereto
agree to renegotiate such affected portions in good faith.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
MORGAN STANLEY ASSET MANAGEMENT, INC.
BY:
--------------------------------
Vice President
ATTEST:
- -------------------------
Assistant Secretary
MORGAN STANLEY FUND, INC.
BY:
--------------------------------
Vice President
ATTEST:
- -------------------------
Assistant Secretary
ACCESS INVESTOR SERVICES, INC.
BY:
--------------------------------
Vice President
ATTEST:
- -------------------------
Assistant Secretary
9
<PAGE>
PRICING SCHEDULE
PRICE PER ACCOUNT PLUS OUT OF POCKETS
[TO COME]
* Add $1.00 for Class B or Class C Surcharge
** New funds, when added, will have an annual charge of $15,000 after a six
months zero fee grace period.
(1) Minimum annual charge based on reimbursement, profit margin expenses not
applied.
10
<PAGE>
Exhibit 9h
SUB-TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 16th day of December, 1996 by and among Miller
Anderson & Sherrerd, LLP a Pennsylvania limited liability partnership ("MAS"),
ACCESS INVESTOR SERVICES, INC., a Delaware corporation ("ACCESS") and Morgan
Stanley Fund, Inc., a Maryland corporation, on behalf of its Morgan Stanley
Value Fund and Morgan Stanley Mid Cap Growth Fund series (collectively, the
"Funds", and individually, a "Fund").
RECITAL
WHEREAS, the Morgan Stanley Fund, Inc. is registered as an open-end,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act") which has issued shares of several series including the
Funds; and
WHEREAS, MAS is responsible for the provision of certain transfer agent,
fixed accounting and administration services to the Fund pursuant to the
Agreement between MAS and the Funds as of September 9, 1996, (the "MAS
Administration Agreement"); and
WHEREAS, MAS wishes to retain ACCESS to provide transfer agent services
with respect to the Funds, and ACCESS is willing to furnish such services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT: DUTIES OF ACCESS
1.01 Subject to the terms and conditions set forth in this Agreement,
MAS hereby employs and appoints ACCESS as transfer agent, dividend disbursing
agent and shareholder services agent for each of the Funds.
1.02 ACCESS hereby accepts such employment and appointments and agrees
that on and after the effective date of this Agreement it will act as the
transfer agent, dividend disbursing agent and shareholder services agent for
each of the Funds on the terms and conditions set forth herein.
1
<PAGE>
1.03 ACCESS agrees that its duties and obligations hereunder will be
performed in a competent, efficient and workmanlike manner with due diligence in
accordance with reasonable industry practices, and that the necessary
facilities, equipment and personnel for such performance will be provided.
1.04 In order to assure compliance with section 1.03 and to implement
a cooperative effort to improve quality of sub-transfer agency and shareholder
services received by each of the Funds and its shareholders, ACCESS agrees to
provide and maintain qualitative performance objectives, including maximum
target turn-around times and maximum target error rates, for the various
services provided hereunder. ACCESS also agrees to provide a reporting system
designed to provide MAS and the Board of Directors of the Funds (the "Board") on
a quarterly basis with quantitative data comparing actual performance for the
period with the performance objectives. The foregoing procedures are designed
to provide a basis for continuing monitoring by MAS and the Board of the quality
of services provided hereunder.
ARTICLE 2. FEES AND EXPENSES
2.01 For the services to be performed by ACCESS pursuant to this
Agreement, MAS agrees to pay ACCESS the fees provided in the fee schedule agreed
upon from time to time by MAS and ACCESS.
2.02 In addition to the amounts paid under section 2.01, each of the
Funds agree to reimburse ACCESS promptly for reasonable out-of-pocket expenses
or advances paid on the Fund's behalf by ACCESS in connection with its
performance under this Agreement for postage, freight, envelopes, checks,
drafts, continuous forms, reports and statements, telephone, telegraph, costs of
outside mailing firms, necessary outside record storage costs, media for storage
of records (e.g., microfilm, microfiche and computer tapes) and printing costs
incurred due to special requirements of such Fund. In addition, any other
special out-of-pocket expenses paid by ACCESS at the specific request of any of
the Funds will be promptly reimbursed by the requesting Fund. Postage for
mailings of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to ACCESS by the respective Fund three
business days prior to the mailing date of such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ACCESS
ACCESS represents and warrants to MAS and the Funds that:
3.10 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
2
<PAGE>
3.02 It is duly registered as a transfer agent under the Securities
Exchange Act of 1934.
3.03 It is duly qualified to carry on its business in the states of
Texas and Missouri.
3.04 It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this agreement.
3.05 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this agreement.
3.06 It has and will continue to have during the term of this
Agreement access to the necessary facilities, equipment and personnel to perform
its duties and obligations hereunder.
3.07 It will maintain a system regarding "as of" transactions as
follows:
(a) Each "as of" transaction effected at a price other than that
in effect of the day of processing for which an estimate has not been given
to any of the affected Funds and which is necessitated by ACCESS' error, or
delay for which ACCESS is responsible or which could have been avoided
through the exercise of reasonable care, will be identified, and the net
effect of such transactions determined, on a daily basis for each such Fund.
(b) The cumulative net effect of the transactions included in
paragraph (a) above will be determined each day throughout each month. If,
on any day during the month, the cumulative net effect upon any Fund is
negative and exceeds an amount equivalent to 1/2 of 1 cent per share of
such Fund, ACCESS shall promptly make a payment to such Fund (in cash or
through use of a credit as described in paragraph (c) below) in such amount
as necessary to reduce the negative cumulative net effect to less than 1/2
of 1 cent per share of such Fund. If on the last business day of the month
the cumulative net effect (adjusted by the amount of any payments pursuant
to the preceding sentence) upon any Fund is negative, ACCESS shall promptly
make a payment to such Fund (in cash or through use of credit as described
in paragraph (c) below of an equivalent amount. If on the last business
day of the month the cumulative net effect (similarly adjusted) upon any
Fund is positive, ACCESS shall be entitled to recover certain past payments
and to a credit against all future payments made under this paragraph to
such Fund, as described in paragraph (c) below.
3
<PAGE>
(c) At the end of each month, any positive cumulative net effect
upon any Fund shall be deemed to be a credit to ACCESS which shall first be
applied to recover from that Fund any payments made by ACCESS to such Fund
under paragraph (b) above during the year. Any portion of a credit to
ACCESS not so used shall remain as a credit to be used as payment against
the amount of any future negative cumulative net effects that would
otherwise require a payment to such Fund pursuant to paragraph (b) above.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MAS.
MAS hereby represents and warrants on behalf of itself and the
Funds that:
4.01 MAS is duly organized and in good standing under the laws of the
State of Pennsylvania.
4.02 The Funds are duly organized and existing and in good standing
under the laws of the State of Maryland.
4.03 The Funds are series of an open-end management investment company
registered under the Investment Company Act of 1940, as amended.
4.04 MAS is empowered under applicable laws and regulations and by its
partnership agreement to enter into and perform this Agreement.
4.05 All requisite proceedings have been taken by MAS's and the Funds'
Boards to authorize MAS to enter into and perform this Agreement.
4.06 A registration statement under the Securities Act of 1933, as
amended, is currently effective and will maintain effective, and appropriate
state securities laws filings have been made and will continue to be made with
respect to all Fund shares being offered for sale.
ARTICLE 5. INDEMNIFICATION
5.01 ACCESS shall not be responsible for and MAS shall indemnify and
hold ACCESS harmless from and against any and all losses, damages, suits,
charges, reasonable counsel fees, payments, expenses and liabilities arising
out of or attributable to:
4
<PAGE>
(a) All actions of ACCESS required to be taken by ACCESS for
the benefit of such Fund pursuant to this Agreement, provided ACCESS has
acted in good faith with due diligence and without negligence or willful
misconduct.
(b) The reasonable reliance by ACCESS on, or reasonable use by
ACCESS for the benefit of a Fund of, information, records and documents
which have been prepared or maintained by or on behalf of such Fund or have
been furnished to ACCESS by or on behalf of such Fund.
(c) The reasonable reliance by ACCESS on, or the carrying out by
ACCESS for the benefit of a Fund of, any instructions or requests of such
Fund.
(d) The offer or sale of such Fund's shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state is in violation of any stop
order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such shares in such state unless such
violation results from any failure by ACCESS to comply with written
instructions of such Fund that no offers or sales of such Fund's shares be
made in general or to the residents of a particular state.
(e) Such Fund's refusal or failure to comply with the terms of
this Agreement, or such Fund's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of such Fund
hereunder.
5.02 ACCESS shall indemnify and hold each of MAS and the Funds
harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to ACCESS' refusal or failure to comply with the terms of this
Agreement, or ACCESS' lack of good faith, negligence or willful misconduct,
or the breach of any representation or warranty of ACCESS hereunder.
5.03 At any time ACCESS may apply to any authorized officer of any of
the Funds for instructions and may consult with any of the Funds' legal counsel,
at the expense of such concerned Fund, with respect to any matter arising in
connection with the services to be performed by ACCESS under this Agreement, and
ACCESS shall not be liable and shall be indemnified by such concerned Fund for
any action taken or omitted by it in good faith in reasonable reliance upon such
instructions or upon the opinion of such counsel. ACCESS shall be protected and
indemnified in acting upon any paper or document reasonably believed by ACCESS
to be genuine and to have been
5
<PAGE>
signed by the proper person or persons and shall not be held to have notice of
any change of authority of any person, until receipt of written notice thereof
from the concerned Fund. ACCESS shall also be protected and indemnified in
recognizing stock certificates which ACCESS reasonably believes to bear the
proper manual or facsimile signatures of the officers of the concerned Fund,
and the proper countersignature of any former transfer agent or registrar, or
of a co-transfer agent or co-registrar.
5.04 In the event any party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 In no event and under no circumstances shall any party to this
Agreement be liable to another party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the party seeking indemnification shall promptly
notify the other party of such assertion, and shall keep the other party advised
with respect to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
ARTICLE 6. COVENANTS OF MAS AND ACCESS.
6.01 MAS shall promptly furnish to ACCESS the following:
(a) Certified copies of the resolution of the Funds' Board
authorizing the appointment of ACCESS and the execution and delivery of
this Agreement.
(b) Certified copies of the Funds' Articles of Incorporation and
by-laws and all amendments thereto.
6.02 ACCESS hereby agrees to maintain facilities and procedures
reasonably acceptable to MAS and the Funds for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6
<PAGE>
6.03 ACCESS shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable; provided,
however, that all accounts, books and other records of each of the Funds
(hereinafter referred to as "Funds Records") prepared or maintained by ACCESS
hereunder shall be maintained and kept current in compliance with Section 31 of
the Investment Company Act of 1940 and the Rules thereunder (such Section and
Rules being hereinafter referred to as the "1940 Act Requirements"). To the
extent required by the 1940 Act Requirements, ACCESS agrees that all Fund
Records prepared or maintained by ACCESS hereunder are the property of the
concerned Fund and shall be preserved and made available in accordance with the
1940 Act Requirements, and shall be surrendered promptly to the concerned Fund
on its request. ACCESS agrees at such reasonable time as may be requested by
the Board and at least quarterly to provide (i) written confirmation to the
Board that all Fund Records are maintained and kept current in accordance with
the 1940 Act Requirements, and (ii) such other reports regarding its performance
hereunder as may be reasonably requested by the Board.
6.04 ACCESS and each of the Funds agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of any of
the Fund Records, ACCESS will endeavor to notify each of the concerned Funds and
to secure instructions from an authorized officer of each of the concerned Funds
as to such inspection. ACCESS reserves the right, however, to exhibit such Fund
Records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit such Fund records to such person.
ARTICLE 7. TERM AND TERMINATION OF AGREEMENT.
7.01 This Agreement shall remain in effect until terminated by a party
with respect to that party for good and reasonable cause at any time by giving
written notice to the other party at least 120 days prior to the date on which
such termination is to be effective. Any unpaid fees or reimbursable expenses
payable to ACCESS shall be due on any such termination date. ACCESS agrees to
use its best efforts to cooperate with each of the Funds and the successor
transfer agent or agents in accomplishing an orderly transition.
7
<PAGE>
ARTICLE 8. MISCELLANEOUS.
8.01 Except as provided in section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by any party without the
written consent of ACCESS or MAS, as the case may be; provided, however, that no
consent shall be required for any merger of any of the Funds with, or any sale
of all or substantially all the assets of any of the Funds to, another
investment company.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 ACCESS may, without further consent on the part of MAS or any of
the Funds, subcontract with DST, Inc., a Missouri corporation, or any other
qualified servicer, for the performance of data processing activities; provided,
however, that ACCESS shall be as fully responsible to MAS and each of the Funds
for the acts and omissions of DST, Inc., or other qualified servicer as it is
for its own acts and omissions.
8.04 ACCESS may, without further consent on the part of MAS or any of
the Funds, provide services to its affiliated companies. Such services
may be provided at cost.
8.05 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, and supercedes any
prior agreement with respect thereto, whether oral or written, and this
Agreement may not be modified except by written instrument executed by the
affected parties.
8.06 In the event of a change in the business or regulatory
environment affecting all or any parties of this Agreement, the parties hereto
agree to renegotiate such affected parties in good faith.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf and through their duly authorized
officers, as of the date first above written.
MORGAN STANLEY ASSET MANAGEMENT INC.
BY:
----------------------------------
ATTEST:
- ----------------------------
MORGAN STANLEY FUND, INC.
BY:
----------------------------------
ATTEST:
- ----------------------------
ACCESS INVESTOR SERVICES, INC.
BY:
----------------------------------
ATTEST:
- ----------------------------
9
<PAGE>
Exhibit 11a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 18 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
December 26, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to this Post-Effective Amendment No. 18
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,
among others, Morgan Stanley Money Market Fund and Morgan Stanley Government
Obligations Money Markey Fund, successors to the PCS Money Market and PCS
Government Obligations Money Market Portfolios):
-- 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 Highlights" in
the Prospectus and "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
December 30, 1996
<PAGE>
Exhibit 15a
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
(AS OF JANUARY 2, 1997)
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY MONEY MARKET FUND)
WHEREAS, Morgan Stanley Fund, Inc. (the "Fund") intends to engage in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act with respect to shares of its common stock, par value $.001
per share, that are classified and allocated to its Morgan Stanley Money Market
Fund (the "Shares") and the Board of Directors has determined that there is a
reasonable likelihood that adoption of this Plan of Distribution will benefit
the Fund and its stockholders; and
WHEREAS, the Fund intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
WHEREAS, the Fund and the Distributor have entered into a Distribution
Agreement with the Fund for the Shares, pursuant to which the Fund will employ
the Distributor as distributor of the continuous offering of the Shares;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby agrees
to the terms of, this Plan of Distribution (the "Plan") in accordance with Rule
12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of the
Shares, compensation for the distribution of the Shares at the annual rate not
to exceed 0.50% of the average daily net assets of the Morgan Stanley Money
Market Fund. The amount of such compensation shall be agreed upon by the Board
of Directors of the Fund and by the Distributor and shall be calculated and
accrued daily and paid monthly or at such other intervals as the Board of
Directors and the Distributor shall mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the Shares. Such amount may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Shares, including, but not limited to: compensation to
and expenses, including overhead and telephone expenses, of employees of the
Distributor who engage in or support distribution of the Shares; printing of
prospectuses and reports for other than existing stockholders or filings with
any federal or state securities authorities; preparation, printing and
distribution of sales literature and advertising materials; and compensation
to broker/dealers who sell Shares. The Distributor may negotiate with any
such broker/dealer the services to be provided by the broker/dealer to
stockholders in connection with the sale of Shares, and all or any portion of
the compensation paid to the Distributor under Paragraph 1 of this Plan may
be reallocated by the Distributor to broker/dealers who sell Shares.
3. This Plan initially became effective after it was approved by a vote
of at least a majority (as defined in the Act) of the outstanding Shares.
4. In addition to the approval required by Paragraph 3 above, this Plan
and the amendment and restatement of this Plan is effective only if it has
been approved, together with any related agreements, by votes of a majority
of both (a) the Board of Directors of the Fund and (b) those Directors of the
Fund who are not "interested persons" of the Fund (as defined in the Act) and
who have no direct or indirect financial interest in the operation of this
Plan
<PAGE>
or any agreements related to it (the "Rule 12b-1 Directors"), cast in person at
a meeting (or meetings) called for the purpose of voting on this Plan and such
related agreements.
5. This Plan was adopted for the Shares effective on the date the class
of the Shares commenced operation and the amendment and restatement of this
Plan became effective as of January 2, 1997. This Plan as amended and
restated shall continue in effect for a term of one year from the date of its
adoption. Thereafter, this Plan as amended and restated shall continue in
effect for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in Paragraph 4.
6. The Distributor shall provide to the Board of Directors of the Fund
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
7. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by a vote of a majority of the outstanding Shares.
8. This Plan may not be amended to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 3 hereof, and
no material amendment to the Plan of any kind, including an amendment that would
increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the then current Directors who are not
interested persons (as defined in the Act) of the Fund.
10. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Paragraph 6 hereof for a period of not less
than six years from the date of this Plan, such agreements or such reports, as
the case may be, the first two years in an easily accessible place.
<PAGE>
Exhibit 15b
FORM OF
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
(AS OF _______ __, 199_)
OF
MORGAN STANLEY FUND, INC.
(MORGAN STANLEY TAX-FREE MONEY MARKET FUND)
WHEREAS, Morgan Stanley Fund, Inc. (the "Fund) intends to engage in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act with respect to shares of its common stock, par value $.001
per share, that are classified and allocated to its Morgan Stanley Tax-Free
Money Market Fund (the "Shares") and the Board of Directors has determined that
there is a reasonable likelihood that adoption of this Plan of Distribution will
benefit the Fund and its stockholders; and
WHEREAS, the Fund intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
WHEREAS, the Fund and the Distributor have entered into a Distribution
Agreement with the Fund for the Shares pursuant to which the Fund will employ
the Distributor as distributor for the continuous offering of the Shares;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby agrees
to the terms of, this Plan of Distribution (the "Plan") in accordance with Rule
12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of the
Shares, compensation for the distribution of the Shares at the annual rate not
to exceed 0.50% of the average daily net assets of the Morgan Stanley Tax-Free
Money Market Fund. The amount of such compensation shall be agreed upon by the
Board of Directors of the Fund and by the Distributor and shall be calculated
and accrued daily and paid monthly or at such other intervals as the Board of
Directors and the Distributor shall mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the Shares. Such amount may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Shares, including, but not limited to: compensation to
and expenses, including overhead and telephone expenses, of employees of the
Distributor who engage in or support distribution of the Shares; printing of
prospectuses and reports for other than existing stockholders or filings with
any federal or state securities authorities; preparation, printing and
distribution of sales literature and advertising materials; and compensation
to broker/dealers who sell Shares. The Distributor may negotiate with any
such broker/dealer the services to be provided by the broker/dealer to
stockholders in connection with the sale of Shares, and all or any portion of
the compensation paid to the Distributor under Paragraph 1 of this Plan may
be reallocated by the Distributor to broker/dealers who sell Shares.
3. This Plan is effective only if it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding Shares.
4. In addition to the approval required by Paragraph 3 above, this Plan
is effective only if it has been approved, together with any related
agreements, by votes of a majority of both (a) the
<PAGE>
Board of Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. This Plan is adopted for the Shares effective on the date that the
class of the Shares commences operation. This Plan shall continue in effect
for a term of one year from the date of its adoption. Thereafter, this Plan
shall continue in effect for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
in Paragraph 4.
6. The Distributor shall provide to the Board of Directors of the Fund
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
7. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by a vote of a majority of the outstanding Shares.
8. This Plan may not be amended to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 3 hereof, and
no material amendment to the Plan of any kind, including an amendment that would
increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the then current Directors who are not
interested persons (as defined in the Act) of the Fund.
10. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Paragraph 6 hereof for a period of not less
than six years from the date of this Plan, such agreements or such reports, as
the case may be, the first two years in an easily accessible place.
<PAGE>
Exhibit 15c
FORM OF
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
(AS OF ________ __, 199_)
OF
MORGAN STANLEY FUND, INC.
FOR THE MORGAN STANLEY GLOBAL FIXED INCOME FUND CLASS A
WHEREAS, Morgan Stanley Fund, Inc. (the "Fund") intends to engage in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to
Rule 12b-1 under the Act (the "Plan") with respect to shares of its common
stock, par value $.001 per share, that are classified and allocated (the
"Shares") to its Morgan Stanley Global Fixed Income Fund Class A (the
"Class") and the Board of Directors has determined that there is a reasonable
likelihood that adoption of the Plan will benefit the Fund and its
stockholders; and
WHEREAS, the Fund intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
WHEREAS, the Fund and the Distributor intend to enter into a separate
Distribution Agreement with the Fund for Shares, pursuant to which the Fund will
employ the Distributor as distributor for the continuous offering of Shares;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby agrees
to the terms of, the Plan with respect to the Class in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of the
Shares, compensation for distribution of the Shares at the annual rate not to
exceed 0.25% of the average daily net assets of the Class. The amount of such
compensation
<PAGE>
shall be agreed upon by the Board of Directors of the Fund and by the
Distributor and shall be calculated and accrued daily and paid monthly or at
such other intervals as the Board of Directors and the Distributor shall
mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for the
Distributor's services as distributor of the Shares. Such amount may be spent
by the Distributor on any activities or expenses primarily intended to result in
the sale of Shares, including, but not limited to: compensation to and
expenses, including overhead and telephone expenses, of employees of the
Distributor who engage in or support distribution of the Shares; printing of
prospectuses and reports for other than existing stockholders; preparation,
printing and distribution of sales literature and advertising materials; and
compensation to broker/dealers who sell Shares. The Distributor may negotiate
with any such broker/dealer the services to be provided by the broker/dealer to
stockholders in connection with the sale of Shares, and all or any portion of
the compensation paid to the Distributor under Paragraph 1 of this Plan may be
reallocated by the Distributor to broker/dealers who sell Shares.
3. This Plan shall not take effect until it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding Shares.
4. In addition to the approval required by Paragraph 3 above, this Plan
shall not take effect until it has been approved, together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Fund and (b) those Directors of the Fund who are not "interested persons" of the
Fund (as defined in the Act) and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan and such related agreements.
5. This Plan shall be adopted for the Class effective on the date the
Class commences operation. This Plan shall continue in effect for one year from
the date of its adoption and thereafter, the Plan shall continue in effect for
so long as such continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Paragraph 4.
<PAGE>
6. The Distributor shall provide to the Board of Directors of the Fund
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
7. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by a vote of a majority of the outstanding Shares.
8. This Plan may not be amended to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 3 hereof, and
no material amendment to the Plan of any kind, including an amendment which
would increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraphs 4
and 5 hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the then current Directors who are not
interested persons (as defined in the Act) of the Fund.
10. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Paragraph 6 hereof for a period of not less
than six years from the date of this Plan, such agreements or such reports, as
the case may be, the first two years in an easily accessible place.
<PAGE>
Exhibit 15d
FORM OF
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
(AS OF __________ __, 199_)
OF
MORGAN STANLEY FUND, INC.
FOR THE MORGAN STANLEY JAPANESE EQUITY FUND CLASS A
WHEREAS, Morgan Stanley Fund, Inc. (the "Fund") intends to engage in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to
Rule 12b-1 under the Act (the "Plan") with respect to shares of its common
stock, par value $.001 per share, that are classified and allocated (the
"Shares") to its Morgan Stanley Japanese Equity Fund Class A (the "Class")
and the Board of Directors has determined that there is a reasonable
likelihood that adoption of the Plan will benefit the Fund and its
stockholders; and
WHEREAS, the Fund intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
WHEREAS, the Fund and the Distributor intend to enter into a separate
Distribution Agreement with the Fund for Shares, pursuant to which the Fund will
employ the Distributor as distributor for the continuous offering of Shares;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby agrees
to the terms of, the Plan with respect to the Class in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the distributor of the
Shares, compensation for distribution of the Shares at the annual rate not to
exceed 0.25% of the average daily net assets of the Class. The amount of such
compensation
<PAGE>
shall be agreed upon by the Board of Directors of the Fund and by the
Distributor and shall be calculated and accrued daily and paid monthly or at
such other intervals as the Board of Directors and the Distributor shall
mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the Shares. Such amount may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Shares, including, but not limited to: compensation to
and expenses, including overhead and telephone expenses, of employees of the
Distributor who engage in or support distribution of the Shares; printing of
prospectuses and reports for other than existing stockholders or filings with
any federal or state securities authorities; preparation, printing and
distribution of sales literature and advertising materials; and compensation
to broker/dealers who sell Shares. The Distributor may negotiate with any
such broker/dealer the services to be provided by the broker/dealer to
stockholders in connection with the sale of Shares, and all or any portion of
the compensation paid to the Distributor under Paragraph 1 of this Plan may
be reallocated by the Distributor to broker/dealers who sell Shares.
3. This Plan is effective only if it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding Shares.
4. In addition to the approval required by Paragraph 3 above, this Plan
is effective only if it has been approved, together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Fund and (b) those Directors of the Fund who are not "interested persons" of the
Fund (as defined in the Act) and have no direct or indirect financial interest
in the operation of this Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan and such related agreements.
5. This Plan is adopted for the Class effective on the date the
Class commences operation. This Plan shall continue in effect for one year from
the date of its adoption and thereafter, the Plan shall continue in effect for
so long as such continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Paragraph 4.
<PAGE>
6. The Distributor shall provide to the Board of Directors of the Fund
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
7. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by a vote of a majority of the outstanding Shares.
8. This Plan may not be amended to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 3 hereof, and
no material amendment to the Plan of any kind, including an amendment which
would increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraphs 4
and 5 hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the then current Directors who are not
interested persons (as defined in the Act) of the Fund.
10. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Paragraph 6 hereof for a period of not less
than six years from the date of this Plan, such agreements or such reports, as
the case may be, the first two years in an easily accessible place.
<PAGE>
Exhibit 15e
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
(AS OF JANUARY 2, 1997)
OF
MORGAN STANLEY FUND, INC.
FOR THE MORGAN STANLEY GLOBAL EQUITY FUND CLASS A
WHEREAS, Morgan Stanley Fund, Inc. (the "Fund") intends to engage in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act (the "Plan") with respect to shares of its common stock, par
value $.001 per share, that are classified and allocated (the "Shares") to its
Morgan Stanley Global Equity Fund Class A (the "Class") and the Board of
Directors has determined that there is a reasonable likelihood that adoption of
the Plan will benefit the Fund and its stockholders; and
WHEREAS, the Fund intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
WHEREAS, the Fund and the Distributor intend to enter into a separate
Distribution Agreement with the Fund for Shares, pursuant to which the Fund will
employ the Distributor as distributor for the continuous offering of Shares;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor hereby agrees
to the terms of, the Plan with respect to the Class in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
<PAGE>
1. The Fund shall pay to the Distributor, as the distributor of the
Shares, compensation for distribution of the Shares at the annual rate not to
exceed 0.25% of the average daily net assets of the Class. The amount of such
compensation shall be agreed upon by the Board of Directors of the Fund and by
the Distributor and shall be calculated and accrued daily and paid monthly or at
such other intervals as the Board of Directors and the Distributor shall
mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the Shares. Such amount may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Shares, including, but not limited to: compensation to
and expenses, including overhead and telephone expenses, of employees of the
Distributor who engage in or support distribution of the Shares; printing of
prospectuses and reports for other than existing stockholders or filings with
any federal or state securities authorities; preparation, printing and
distribution of sales literature and advertising materials; and compensation
to broker/dealers who sell Shares. The Distributor may negotiate with any
such broker/dealer the services to be provided by the broker/dealer to
stockholders in connection with the sale of Shares, and all or any portion of
the compensation paid to the Distributor under Paragraph 1 of this Plan may
be reallocated by the Distributor to broker/dealers who sell Shares.
3. This Plan is effective only if it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding Shares.
4. In addition to the approval required by Paragraph 3 above, this
Plan is effective only if it has been approved, together with any related
agreements, by votes of a majority of both (a) the Board of Directors of the
Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of this Plan or any agreements related to it (the
"Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan and such related agreements.
5. This Plan is adopted for the Class effective on the date the
Class commences operation. This Plan shall continue
<PAGE>
in effect for one year from the date of its adoption and thereafter, the Plan
shall continue in effect for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Paragraph 4.
6. The Distributor shall provide to the Board of Directors of the Fund
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
7. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by a vote of a majority of the outstanding Shares.
8. This Plan may not be amended to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 3 hereof, and
no material amendment to the Plan of any kind, including an amendment which
would increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraphs 4
and 5 hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the then current Directors who are not
interested persons (as defined in the Act) of the Fund.
10. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to Paragraph 6 hereof for a period of not less
than six years from the date of this Plan, such agreements or such reports, as
the case may be, the first two years in an easily accessible place.
<PAGE>
Exhibit 15f
AMENDED AND RESTATED
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
(AS OF JANUARY 2, 1997)
OF
MORGAN STANLEY FUND, INC.
CLASS B SHARES
AND
CLASS C SHARES
WHEREAS, Morgan Stanley Fund, Inc. (the "Company") intends to engage in business
as an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Company desires to adopt a Plan of Distribution pursuant to
Rule 12b-1 under the Act (the "Plan") with respect to shares of its common
stock, par value $.001 per share (the "Shares"), that are classified and
allocated to each of its series of Shares (each, a "Fund") having Class B shares
(the "Class B Shares") as listed on Schedule A attached hereto and separately
with respect to Shares that are classified and allocated to each of its Funds
having Class C shares (the "Class C Shares") as listed on Schedule B attached
hereto and the Board of Directors has determined that there is a reasonable
likelihood that adoption of the Plan will benefit the Company and its
stockholders; and
WHEREAS, the Company intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
<PAGE>
WHEREAS, the Company and the Distributor intend to enter into a separate
Distribution Agreement with the Company for Shares, pursuant to which the
Company will employ the Distributor as distributor for the continuous offering
of Shares;
NOW, THEREFORE, the Company hereby adopts, and the Distributor hereby
agrees to the terms of, the Plan with respect to the Class B Shares of each
Fund and separately with respect to the Class C Shares of each Fund in
accordance with Rule 12b-1 under the Act on the following terms and
conditions:
1. The Company shall pay to the Distributor, as the distributor of the
Shares, compensation for distribution of the Class B Shares at an annual rate
not to exceed 0.75% of the average daily net assets of such Class B Shares of
the Fund and the compensation for distribution of the Class C Shares at an
annual rate not to exceed 0.75% of the average daily net assets of such Class
C Shares of the Fund. The amount of such compensation respectively for each
such class of shares shall be agreed upon by the Board of Directors of the
Company and by the Distributor and shall be calculated and accrued daily and
paid monthly or at such other intervals as the Board of Directors and the
Distributor shall mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for
the Distributor's services as distributor of the Class B Shares of a Fund and
Class C Shares of the Fund, respectively. Such amount may be spent by the
Distributor on any activities or expenses primarily intended to result in the
sale of such Class B Shares and Class C Shares, respectively, including, but
not limited to: compensation to and expenses, including overhead and
telephone expenses, of employees of the Distributor who engage in or support
distribution of the Shares; printing of prospectuses and reports for other
than existing stockholders or filings with any federal or state securities
authorities; preparation, printing and distribution of sales literature and
advertising materials; and compensation to broker/dealers who sell Shares.
The Distributor may negotiate with any such broker/dealer the services to be
provided by the broker/dealer to stockholders in connection with the sale of
Shares, and all or any portion of the compensation paid to the Distributor
under Paragraph 1 of this Plan may be reallocated by the Distributor to
broker/dealers who sell such Class B Shares and Class C Shares, respectively.
<PAGE>
3. (a) Stockholder Services Annual Fee. The Company is authorized
to pay the Distributor an annual fee that is calculated daily and paid
monthly for the stockholder services provided to stockholders of the Class B
Shares of the Fund and to stockholders of the Class C Shares of the Fund,
respectively described in paragraph (b) of this Section, at the annual rate
of 0.25% of the average daily net assets of each such class, respectively.
(b) Stockholder Services. In addition to the distribution services
set forth in Paragraph 2 above, the Distributor will provide stockholder
services to accounts of the Class B Shares and of the Class C Shares,
respectively, including, but not limited to, the following: telephone service
to stockholders, including the acceptance of telephone inquiries and transaction
requests; acceptance and processing of written correspondence, new account
applications and subsequent purchases by check; mailing of confirmations,
statements and tax forms directly to stockholders; and acceptance of payment for
trades by check, Federal Reserve wire or Automated Clearing House payment. In
addition, the Distributor shall perform or supervise the performance by others
of other stockholder services in connection with the operations of the Class B
Shares and of the Class C Shares, respectively, as agreed from time to time.
4. For Funds in operation prior to January 2, 1997, this plan
initially became effective with respect to the Class B Shares and the Class C
Shares, respectively, of such Fund, after this plan was approved by a vote of
the majority (as defined in the Act) of the outstanding Shares of such class.
For each Fund that commenced operation on January 2, 1997, this Plan as
amended and restated is effective with respect to Shares of those Funds that
have approved it by a vote of at least a majority (as defined in the Act) of
the outstanding Shares of such class.
5. In addition to the approval required by Paragraph 4 above, and the
amendment and restatement of this Plan is effective with respect to the Class
B or the Class C Shares of those Funds for which it has been approved with
respect to such class, together with any related agreements, by votes of a
majority of both (a) the Board of Directors of the Company and (b) those
Directors of the Company who are not "interested persons" of the Company (as
defined in the Act) and have no direct or indirect financial interest in the
operation of this Plan with respect to such class or any agreements related
to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on this Plan with respect to such class and
such related agreements.
<PAGE>
6. This Plan was adopted for the Class B Shares and Class C Shares of
the Funds in operation prior to January 2, 1997 effective on the date each
such class, respectively, commenced operations. The amendment and restatement
of this Plan with respect to the Class B Shares and the Class C Shares of
each Fund in operation prior to January 2, 1997 became effective as of
January 2, 1997. With respect to a class of Shares of a Fund that commenced
operation on January 2, 1997, this plan as amended and restated adopted for
such class of Shares of such Fund effective on the date such class commences
operation. This Plan as amended and restated continues in effect for one
year from the date of its adoption and thereafter, this Plan as amended and
restated continues in effect for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan
as amended and restated continues in Paragraph 5.
7. The Distributor shall provide to the Board of Directors of the Company
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan with respect to each class of Shares
of a Fund to which this Plan applies and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
8. This Plan may be terminated at any time with respect to a class of
Shares of a Fund to which this Plan applies by vote of a majority of the Rule
12b-1 Directors, or by a vote of a majority of the outstanding Shares of such
class.
9. This Plan may not be amended with respect to a class of Shares of a
Fund to which this Plan applies to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 4 hereof, and
no material amendment to the Plan of any kind with respect to a class of Shares
of a Fund to which this Plan applies, including an amendment which would
increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraphs 5
and 6 hereof.
10. While this Plan is in effect for any class of Shares of a Fund, the
selection and nomination of Directors who are not interested persons (as defined
in the Act) of the Company shall be committed to the discretion of the then
current Directors who are not interested persons (as defined in the Act) of the
Company.
11. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 7
<PAGE>
hereof for a period of not less than six years from the date of this Plan, such
agreements or such reports, as the case may be, the first two years in an easily
accessible place.
<PAGE>
SCHEDULE A
TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FUNDS WITH CLASS B SHARES
Funds in operation prior
to January 2, 1997:
1. Morgan Stanley Global Equity Allocation Fund
2. Morgan Stanley Global Fixed Income Fund
3. Morgan Stanley Asian Growth Fund
4. Morgan Stanley American Value Fund
5. Morgan Stanley Worldwide High Income Fund
6. Morgan Stanley Emerging Markets Fund
7. Morgan Stanley Latin American Fund
8. Morgan Stanley International Magnum Fund
9. Morgan Stanley Aggressive Equity Fund
10. Morgan Stanley High Yield Fund
11. Morgan Stanley U.S. Real Estate Fund
Funds that commenced operations on January 2, 1997:
1. Morgan Stanley Global Equity Fund
2. Morgan Stanley Emerging Markets Debt Fund
3. Morgan Stanley Mid Cap Growth Fund
4. Morgan Stanley Equity Growth Fund
5. Morgan Stanley Value Fund
<PAGE>
SCHEDULE B
TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FUNDS WITH CLASS C SHARES
Funds in operation prior
to January 2, 1997:
1. Morgan Stanley Global Equity Allocation Fund
2. Morgan Stanley Global Fixed Income Fund
3. Morgan Stanley Asian Growth Fund
4. Morgan Stanley American Value Fund
5. Morgan Stanley Worldwide High Income Fund
6. Morgan Stanley Emerging Markets Fund
7. Morgan Stanley Latin American Fund
8. Morgan Stanley International Magnum Fund
9. Morgan Stanley Aggressive Equity Fund
10. Morgan Stanley High Yield Fund
11. Morgan Stanley U.S. Real Estate Fund
Funds that commenced operations on January 2, 1997:
1. Morgan Stanley Global Equity Fund
2. Morgan Stanley Emerging Markets Debt Fund
3. Morgan Stanley Mid Cap Growth Fund
4. Morgan Stanley Equity Growth Fund
5. Morgan Stanley Value Fund
<PAGE>
Exhibit 15g
FORM OF
PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
(AS OF _______ __, 1996)
OF
MORGAN STANLEY FUND, INC.
CLASS B SHARES
AND
CLASS C SHARES
WHEREAS, Morgan Stanley Fund, Inc. (the "Company") intends to engage in business
as an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Company desires to adopt a Plan of Distribution pursuant to
Rule 12b-1 under the Act (the "Plan") with respect to shares of its common
stock, par value $.001 per share (the "Shares"), that are classified and
allocated to each of its series of Shares (each, a "Fund") having Class B shares
(the "Class B Shares") as listed on Schedule A attached hereto and separately
with respect to Shares that are classified and allocated to each of its Funds
having Class C shares (the "Class C Shares") as listed on Schedule B attached
hereto and the Board of Directors has determined that there is a reasonable
likelihood that adoption of the Plan will benefit the Company and its
stockholders; and
WHEREAS, the Company intends to employ Van Kampen American Capital
Distributors, Inc. (the "Distributor") as distributor of the Shares; and
<PAGE>
WHEREAS, the Company and the Distributor intend to enter into a separate
Distribution Agreement with the Company for Shares, pursuant to which the
Company will employ the Distributor as distributor for the continuous offering
of Shares;
NOW, THEREFORE, the Company hereby adopts, and the Distributor hereby
agrees to the terms of, the Plan with respect to the Class B Shares of a Fund
and separately with respect to the Class C Shares of a Fund in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
1. The Company shall pay to the Distributor, as the distributor of the
Shares, compensation for distribution of the Class B Shares at an annual rate
not to exceed 0.75% of the average daily net assets of such Class B Shares of a
Fund and the compensation for distribution of the Class C Shares at an annual
rate not to exceed 0.75% of the average daily net assets of such Class C Shares
of a Fund. The amount of such compensation respectively for each such class of
shares shall be agreed upon by the Board of Directors of the Company and by the
Distributor and shall be calculated and accrued daily and paid monthly or at
such other intervals as the Board of Directors and the Distributor shall
mutually agree.
2. The amount set forth in Paragraph 1 of this Plan shall be paid for the
Distributor's services as distributor of the Class B Shares of a Fund and Class
C Shares of a Fund, respectively. Such amount may be spent by the Distributor
on any activities or expenses primarily intended to result in the sale of such
Class B Shares and Class C Shares, respectively, including, but not limited to:
compensation to and expenses, including overhead and telephone expenses, of
employees of the Distributor who engage in or support distribution of the
Shares; printing of prospectuses and reports for other than existing
stockholders; preparation, printing and distribution of sales literature and
advertising materials; and compensation to broker/dealers who sell Shares. The
Distributor may negotiate with any such broker/dealer the services to be
provided by the broker/dealer to stockholders in connection with the sale of
Shares, and all or any portion of the compensation paid to the Distributor under
Paragraph 1 of this Plan may be reallocated by the Distributor to broker/dealers
who sell such Class B Shares and Class C Shares, respectively.
<PAGE>
3. (a) Stockholder Services Annual Fee. The Company is authorized to
pay the Distributor an annual fee that is calculated daily and paid monthly for
the stockholder services provided to stockholders of the Class B Shares of a
Fund and to stockholders of the Class C Shares of a Fund, respectively described
in paragraph (b) of this Section, at the annual rate of 0.25% of the average
daily net assets of each such class, respectively.
(b) Stockholder Services. In addition to the distribution services
set forth in Paragraph 2 above, the Distributor will provide stockholder
services to accounts of the Class B Shares and of the Class C Shares,
respectively, including, but not limited to, the following: telephone service
to stockholders, including the acceptance of telephone inquiries and transaction
requests; acceptance and processing of written correspondence, new account
applications and subsequent purchases by check; mailing of confirmations,
statements and tax forms directly to stockholders; and acceptance of payment for
trades by check, Federal Reserve wire or Automated Clearing House payment. In
addition, the Distributor shall perform or supervise the performance by others
of other stockholder services in connection with the operations of the Class B
Shares and of the Class C Shares, respectively, as agreed from time to time.
4. This Plan is effective with respect to the Class B Shares or Class
C Shares of a Fund only if it has been approved by a vote of at least a
majority (as defined in the Act) of the outstanding Shares of such class.
5. In addition to the approval required by Paragraph 4 above, this
Plan is effective with respect to the Class B or the Class C Shares of a Fund
only if it has been approved with respect to such class, together with any
related agreements, by votes of a majority of both (a) the Board of Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and have no direct or
indirect financial interest in the operation of this Plan with respect to
such class or any agreements related to it (the "Rule 12b-1 Directors"), cast
in person at a meeting (or meetings) called for the purpose of voting on this
Plan with respect to such class and such related agreements.
<PAGE>
6. This Plan is adopted for the Class B Shares or the Class C
Shares of a Fund effective on the date such class commences operation. This
Plan shall continue in effect for one year from the date of its adoption and
thereafter, the Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for
approval of this Plan in Paragraph 5.
7. The Distributor shall provide to the Board of Directors of the Company
and the Board of Directors shall review, at least quarterly, a written report of
the amounts expended pursuant to this Plan with respect to each class of Shares
of a Fund to which this Plan applies and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and allocated overhead expenses.
8. This Plan may be terminated at any time with respect to a class of
Shares of a Fund to which this Plan applies by vote of a majority of the Rule
12b-1 Directors, or by a vote of a majority of the outstanding Shares of such
class.
9. This Plan may not be amended with respect to a class of Shares of a
Fund to which this Plan applies to increase materially the amount of
compensation provided for in Paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in Paragraph 4 hereof, and
no material amendment to the Plan of any kind with respect to a class of Shares
of a Fund to which this Plan applies, including an amendment which would
increase materially the amount of such compensation, shall be made unless
approved in the manner provided for approval and annual renewal in Paragraphs 5
and 6 hereof.
10. While this Plan is in effect for any class of Shares of a Fund, the
selection and nomination of Directors who are not interested persons (as defined
in the Act) of the Company shall be committed to the discretion of the then
current Directors who are not interested persons (as defined in the Act) of the
Company.
11. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 7
<PAGE>
hereof for a period of not less than six years from the date of this Plan, such
agreements or such reports, as the case may be, the first two years in an easily
accessible place.
<PAGE>
SCHEDULE A
TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FUNDS WITH CLASS B SHARES
1. Morgan Stanley European Equity Fund
2. Morgan Stanley Growth and Income Fund
3. Morgan Stanley Japanese Equity Fund
<PAGE>
SCHEDULE B
TO
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
FUNDS WITH CLASS C SHARES
1. Morgan Stanley European Equity Fund
2. Morgan Stanley Growth and Income Fund
3. Morgan Stanley Japanese Equity Fund
<PAGE>
EXHIBIT 18(a)
MORGAN STANLEY FUND, INC.
RULE 18f-3 MULTIPLE CLASS PLAN
FOR
CLASSES A, B AND C
Adopted March 7, 1995 and Amended December 12, 1996
I. INTRODUCTION.
A. AUTHORITY. Pursuant to Rule 18f-3 (that became effective on April 1,
1995) under the Investment Company Act of 1940, as amended (the "1940 Act"),
this Rule 18f-3 Multiple Class Plan (the "Plan") has been adopted by the Board
of Directors (the "Board") of the Morgan Stanley Fund, Inc. (the "Fund"),
including a majority of the Directors of the Fund who are not "interested
persons" of the Fund as defined in the 1940 Act (the "Independent Directors").
B. HISTORY. Pursuant to an exemptive order dated December 29, 1992,
obtained by, and applicable to, the Fund (Inv. Co. Act Release No. IC-19189)
(the "Order"), the Fund created a multiple class distribution arrangement for
two classes of shares of the common stock of each of the investment series funds
(each, a "Series") of the Fund, except the Morgan Stanley Money Market Fund, the
Morgan Stanley Government Obligations Money Market Fund and the Morgan Stanley
Tax-Free Money Market Fund (the "Money Funds"), which have only one class. The
initial two classes of each Series except the Money Funds (the "Non-Money
Funds") were named the Class A Shares and Class B Shares. Effective on May 1,
1995, the Fund renamed its Class B Shares as Class C Shares and created a third
class of shares of each of the Non-Money Funds, named the Class B Shares.
Effective March 7, 1995, the Fund elected to rely on Rule 18f-3 rather than the
Order, as permitted by Rule 18f-3, subject to certain conditions. Effective on
August 1, 1995 the offering of the new Class B shares and the continued offering
of the Class A and Class C shares (formerly named Class B shares) commenced.
C. ADOPTION OF PLAN; AMENDMENT OF PLAN; AND PERIODIC REVIEW. Pursuant to
Rule 18f-3, the Fund is required to create a written plan specifying all of the
differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. Before any material amendment of the Plan,
<PAGE>
the Fund is required to obtain a finding by a majority of the Board, and a
majority of the Independent Directors, that the Plan as proposed to be amended,
including the expense allocations, is in the best interests of each class
individually and the Fund as a whole.
II. ATTRIBUTES OF SHARE CLASSES
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes shall be
as set forth in the Fund's Articles of Incorporation and Bylaws, as each such
document is amended or restated to date, the resolutions that are adopted with
respect to the classes of the Fund and that are adopted pursuant to the Plan to
date, and related materials of the Board, as set forth in Exhibit A hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series must represent
an equal PRO RATA interest in the Series and must have identical voting,
dividend, liquidation and other rights, preferences, powers, restrictions,
limitations, qualifications, designations and terms and conditions, except
that (i) each class must have a different class designation (e.g., Class A,
Class B, Class C, etc.); (ii) each class of shares must separately bear any
distribution expenses in connection with the plan adopted pursuant to Rule
12b-1 under the 1940 Act (a "Rule 12b-1 Plan") for such class (and any other
costs relating to obtaining shareholder approval of the Rule 12b-1 Plan for
such class, or an amendment of such plan) and must separately bear any
expenses associated with any non-Rule 12b-1 Plan service payments ("service
fees") that are made under any servicing agreement entered into with respect
to that class; (iii) holders of the shares of the class shall have exclusive
voting rights regarding the Rule 12b-1 Plan relating to such class (e.g., the
adoption, amendment or termination of a Rule 12b-1 Plan), regarding the
servicing agreements relating to such class and regarding any matter
submitted to shareholders in which the interests of that class differ from
the interests of any other class; (iv) each new class of shares may bear,
consistent with rulings and other published statements of position by the
Internal Revenue Service, the expenses of the Fund's operation that are
directly attributable to such class ("Class Expenses")(1); and (v) each class
may have conversion features
- --------------------------------
(1) Class Expenses are limited to any or all of the following:
(i) transfer agent fees identified as being attributable to a specific class of
shares, (ii) stationery, printing, postage, and delivery expenses related to
preparing and distributing materials such as shareholder reports, prospectuses,
and proxy statements to current shareholders of a specific class, (iii) Blue Sky
<PAGE>
unique to such class, permitting conversion of shares of such class to shares
of another class, subject to the requirements set forth in Rule 18f-3.
C. Classes of Shares of the Fund
(1) MORGAN STANLEY MONEY MARKET, MORGAN STANLEY GOVERNMENT
OBLIGATIONS MONEY MARKET AND MORGAN STANLEY TAX-FREE MONEY MARKET FUNDS
SHARES. The Money Funds have a class of shares that are not designated as
any class ("Money Fund Shares").
SALES LOADS. Money Fund Shares are offered at net asset value
without any sales charge assessed at time of purchase ("front-end
sales charge").
12b-1 FEES. Money Fund Shares are subject to a distribution fee
equal to .25% of the average daily net assets of the Money Fund
Shares. The distribution fee is paid for distribution-related
services to broker-dealers that have entered into dealer agreements
with the Fund's Distributor ("Authorized Dealers") and that have
effected sales of Money Fund Shares.
EXCHANGE PRIVILEGES AND CONVERSION FEATURES. The Money Fund
Shares are not exchangeable for any Class A, Class B or Class C Shares
of the other Series. Money Fund Shares have no conversion features.
(2) CLASS A SHARES. Each of the Non-Money Funds has a class of
shares designated as its "Class A Shares."
SALES LOADS. Class A Shares are offered with a maximum front-end
sales charge of 4.75% of the offering price of the shares. The sales
charge is reduced at four break points and purchases of $1 million or
more are not subject to the front-end sales charge. However, a CDSC
of 1.00% will be imposed in the event of redemption within 12 months
following purchase on sales at net asset value (i.e., purchases of $1
million
- ----------------------(1)
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to
a class of shares, (vii) account expenses relating solely to a class of
shares, (viii) auditors' fees, litigation expenses, and legal fees and
expenses relating solely to a class of shares, and (ix) expenses incurred in
connection with shareholder meetings as a result of issues relating solely to
a class of shares.
<PAGE>
or more.) This CDSC arrangement applies in lieu of the front-end
sales charge on purchases of $1 million or more.
The Distributor receives the sales charges and either retains
such amounts (on shares sold through its investment representatives)
or reallows all or a substantial part of such charges to Authorized
Dealers that have effected sales of Class A Shares. The Distributor
may make payments to Authorized Dealers in amounts up to 1.00% of the
offering price in connection with purchases where no front-end sales
charge is imposed because the purchase was in an amount of $1 million
or more.
Class A Shares purchased through the reinvestment of dividends
and other distributions paid in respect of Class A Shares will also be
Class A Shares, although such shares will not be subject to the front-
end sales charge or 1.00% CDSC. However, such shares will be subject
to the .25% distribution fee.
12b-1 FEES. Class A Shares are subject to a distribution fee
equal to .25% of the average daily net assets of Class A Shares. The
distribution fee is paid for distribution-related services to
Authorized Dealers that have effected sales of Class A Shares.
EXCHANGE PRIVILEGES AND CONVERSION FEATURES. Class A Shares of
each Series are exchangeable only for Class A Shares of the other
Series. Class A Shares have no conversion feature.
(3) CLASS B SHARES. Each of the Non-Money Funds has a class of
shares designated as its "Class B Shares."
SALES LOADS. Class B Shares are offered without the imposition
of a front-end sales charge, but are subject to a maximum contingent
deferred sales charge ("CDSC") of 5% for redemptions in the first year
after purchase; the CDSC is reduced by one percent per year after the
first, second, fourth, fifth and sixth years after purchase,
decreasing to 0% after the sixth year. The CDSC is assessed as
described in each Fund's prospectus and statement of additional
information ("SAI"). No CDSC is imposed at the time of exchanges of
Class B Shares to purchase Class B Shares of another Fund. The CDSC
may be waived in certain instances as described in each Fund's
prospectus and SAI.
12b-1 FEES AND SERVICE FEES. Class B Shares are subject to a
distribution fee of .75%, and a shareholder service fee of .25%, of
the average daily net assets of the Class B Shares of the Series. The
<PAGE>
shareholder service fee is used to compensate the Distributor and
other Authorized Dealers for services provided and expenses incurred
in maintaining shareholder accounts, responding to shareholder
inquiries and providing information on shareholder investments.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B Shares will also be Class B
Shares, although such shares will not be subject to the CDSC.
However, such shares will be subject to the .75% distribution fee and
the .25% service fee.
EXCHANGE PRIVILEGES AND CONVERSION FEATURES. Class B Shares of
each Series are exchangeable only for Class B Shares of other Series.
Class B Shares automatically convert after the end of seven years to
Class A Shares. The conversion feature is fully disclosed in each
Fund's prospectus and SAI.
(4) CLASS C SHARES. Each of the Non-Money Funds has a class of
shares designated as its "Class C Shares."
SALES LOADS. Class C Shares are offered at net asset value
without any front-end sales charge, but are subject to a 1.00% CDSC on
redemptions of such Class C Shares for a period of one year. The CDSC
may be waived in certain instances as set forth in the Fund's
prospectus.
12b-1 FEES AND SERVICE FEES. Class C Shares are subject to a
distribution fee of .75%, and a shareholder service fee of .25%, of
the average daily net assets of the Class C Shares of the Series. The
shareholder service fee is used to compensate the Distributor and
other Authorized Dealers for services provided and expenses incurred
maintaining shareholder accounts, responding to shareholder inquiries
and providing information on shareholder investments.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class C Shares will also be Class C
Shares, although such shares will not be subject to the CDSC.
However, such shares will be subject to the .75% distribution fee and
the .25% service fee.
EXCHANGE PRIVILEGES AND CONVERSION FEATURES. Class C Shares of
each Series are exchangeable only for Class C Shares of other Series.
Class C Shares have no conversion feature.
<PAGE>
III. EXPENSE ALLOCATIONS
Expenses of each class created after the date hereof must be allocated
as follows: (i) distribution and shareholder servicing payments associated with
any Rule 12b-1 Plan or servicing agreement relating to each respective class of
shares (including any costs relating to implementing such plans or any amendment
thereto) will be borne exclusively by that class; (ii) any incremental transfer
agency fees relating to a particular class will be borne exclusively by that
class; and (iii) Class Expenses relating to a particular class will be borne
exclusively by that class.
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares of the Fund and the
proper allocation of income and expenses among the various classes of shares of
the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
<PAGE>
EXHIBIT A
MORGAN STANLEY FUND, Inc
18f-3 Exhibit Index
Item No.
--------
1 Resolutions and appropriate Articles Supplementary and
Certificates of Correction organized in reverse chronological
order.
2 Registrant's Articles of Amendment and Restatement filed as an
Exhibit to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-41294 and
811-7140), via EDGAR on October 4, 1995 are incorporated herein
by reference.
3 Registrant's Amended and Restated By-Laws filed as an Exhibit to
Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-41294 and 811-7140), via
EDGAR on October 4, 1995 are incorporated herein by reference.
4(a) Registrant's Distribution Agreement with Van Kampen American
Capital Distributors, Inc. ("VKAC") filed as an Exhibit to this
Post-Effective Amendment No.18 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), via
EDGAR is incorporated herein by reference.
4(b) Registrant's Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated filed as an Exhibit to Post-
Effective Amendment No. 11 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), via
EDGAR on October 30, 1995 is incorporated herein by reference
and is effective until the Distribution Agreement with VKAC takes
effect.
5(a) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for
shares of the Money Market Funds (MS Money Market, MS Government
Obligations Money Market and Tax-Free Money Market Funds)
filed as an Exhibit to this Post-Effective Amendment No. 18 to
<PAGE>
Registrant's Registration Statement on Form N-1A (File Nos.
33-51294 and 811-7140), via EDGAR is incorporated herein by
reference.
5(b) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for
Class A Shares filed as an Exhibit to this Post-Effective
Amendment No. 18 to Registrant's Registration Statement on Form
N-1A (File Nos. 33-51294 and 811-7140), via EDGAR is
incorporated herein by reference.
5(c) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for
Class B and Class C Shares filed as an Exhibit to this Post-
Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A (File Nos.33- 51294 and 811-7140), via
EDGAR is incorporated herein by reference.
6 Registrant's Exemptive Order Application (the "Order") was
initially filed with the SEC on October 29, 1992 under the
Investment Company Act of 1940 and the Order (Release No. 19189)
was granted on December 29, 1992.
The Prospectus dated January 1, 1997 relating to the MS Government Obligations
Money Market, MS Money Market and MS Tax-Free Money Market Funds filed as a part
of this Post-Effective Amendment No. 18 to Registrant's Registration Statement
on Form N-1A (File Nos. 33-51294 and 811-7140), as supplemented and amended from
time to time, is incorporated herein by reference.
The Prospectus dated January 1, 1997 relating to the MS Aggressive Equity, MS
American Value, MS Equity Growth, MS Mid Cap Growth, MS U.S. Real Estate and MS
Value filed as a part of this Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as
supplemented and amended from time to time, is incorporated herein by reference.
The Prospectus dated January 1, 1997 relating to the MS Asian Growth, MS
Emerging Markets, MS Global Equity, MS Global Equity Allocation, MS
International Magnum, MS Japanese Equity and MS Latin American Funds filed as
part of this Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as supplemented and
amended from time to time, is incorporated herein by reference.
The Prospectus dated January 1, 1997 relating to the MS Emerging Markets Debt,
MS Global Fixed Income, MS High Yield and MS Worldwide High Income Funds filed
as a part of this Post-Effective Amendment No. 18 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-51294 and 811-7140), as supplemented and
amended from time to time, is incorporated herein by reference.
<PAGE>
The Prospectus currently undated relating to the MS Growth and Income and MS
European Equity Funds filed as part of Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294 and
811-7140) on October 18, 1996, as supplemented and amended from time to time,
is incorporated herein by reference.
<PAGE>
ITEM 1
DECEMBER 12, 1996
MORGAN STANLEY GLOBAL EQUITY FUND, MORGAN STANLEY EMERGING MARKETS DEBT FUND,
MORGAN STANLEY EQUITY GROWTH FUND, MORGAN STANLEY MID CAP GROWTH FUND AND MORGAN
STANLEY VALUE FUND
Morgan Stanley Global Equity Fund, Morgan Stanley Emerging Markets Debt Fund and
Morgan Stanley Equity Growth Fund are collectively referred to as the
"Additional MSAM Funds". Morgan Stanley Mid Cap Growth Fund and Morgan Stanley
Value Fund are collectively referred to as the "MAS Funds".
AUTHORIZATION TO INCREASE SHARES; DESIGNATION OF NEW CLASSES; APPROVAL OF
ARTICLES SUPPLEMENTARY TO AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
AUTHORIZATION TO FILE ARTICLES SUPPLEMENTARY
RESOLVED, that the total number of shares of common stock, par value $.001 per
share (the "Common Stock"), that MSF is authorized to issue is hereby increased
from 21,750,000,000 to 27,375,000,000;
FURTHER RESOLVED, that MSF is hereby authorized to designate and classify the
following additional classes of shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
<S> <C>
Morgan Stanley Global Equity Fund-Class A. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity Fund-Class B. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity Fund-Class C. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund-Class A. . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund-Class B. . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund-Class C. . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund-Class A . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund-Class B . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund-Class C . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund-Class A. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund-Class B. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund-Class C. . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund-Class A . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund-Class B . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund-Class C. . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
</TABLE>
FURTHER RESOLVED, that the Articles Supplementary to MSF's Amended and Restated
Articles of Incorporation, in substantially the form presented to this meeting,
be, and they hereby are, approved and adopted; and
FURTHER RESOLVED, that the proper officers of MSF be, and each of them hereby
is, authorized and directed to cause such Articles Supplementary to be filed
with the State of Maryland.
<PAGE>
APPROVAL OF VKAC DISTRIBUTION AGREEMENT AND PLANS OF DISTRIBUTION (ALL NEW
FUNDS)
FURTHER RESOLVED, that the Distribution Agreement dated as of January 1, 1997
between MSF and VKAC, in substantially the form presented to this meeting, be,
and it hereby is, approved and adopted as the Distribution Agreement for the
Shares of the Additional MSAM Funds and the MAS Funds, respectively.
FURTHER RESOLVED, that the proposed Plans of Distribution under Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), for each class
of the Shares of the Additional MSAM Funds and the MAS Funds (the "Plans") in
substantially the forms attached hereto have been determined by the Directors,
including a majority of the Directors who are not "interested persons" as that
term is defined in the 1940 Act to be reasonably likely to benefit MSF, the
Additional MSAM Funds and the MAS Funds, and their respective stockholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds; and
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Board of Directors, including a majority of the Directors who are not
"interested persons" as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plans or in any
agreements related to the Plans.
DECEMBER 12, 1996
RULE 18f-3 PLAN REVISION
APPROVAL OF REVISION OF RULE 18f-3 PLAN
(MORGAN STANLEY FUND, INC. AND MORGAN STANLEY INSTITUTIONAL FUND, INC.)
RESOLVED, that the revision of the Rule 18f-3 Plan of the Fund in substantially
the form presented to this meeting of the Board of Directors be, and it hereby
is, approved, adopted and confirmed and that the appropriate officers of the
Fund be, and they hereby are, authorized and directed to file such Rule 18f-3
Plan as revised hereby with any regulatory body as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
DECEMBER 12, 1996
ARTICLES SUPPLEMENTARY TO THE ARTICLES OF AMENDMENT AND RESTATEMENT
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation Law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered under
the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation, at a meeting duly held
on December12, 1996 adopted a resolution increasing the total number of shares
of stock that the Corporation shall have the authority to issue from twenty-one
billion seven hundred fifty million (21,750,000,000) shares of common stock, par
value $.001 per share, having an aggregate par value of twenty-one million seven
hundred fifty thousand dollars ($21,750,000) and designated and classified as
follows:
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
- ------------- ------------------------
<S> <C>
Morgan Stanley Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Growth and Income Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
</TABLE>
to twenty-seven billion three hundred seventy-five million (27,375,000,000)
shares of common stock, par value $.001 per share, having an aggregate par
value of twenty-seven million three hundred and seventy-five thousand dollars
($27,375,000), designating and classifying five additional investment funds,
each offering Class A shares, Class B shares and Class C shares of common
stock, so that the common stock, par value $.001 per share, of the
Corporation authorized to be issued is designated and classified as follows:
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK CLASSIFIED
NAME OF CLASS AND ALLOCATED
- ------------- -----------------------
<S> <C>
Morgan Stanley Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley American Value Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Growth and Income Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley International Magnum Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Aggressive Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley High Yield Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley U.S. Real Estate Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Japanese Equity Fund
- Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Tax-Free Income Money
Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
Morgan Stanley Government Obligations
Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000,000 shares
Morgan Stanley Global Equity Fund
-Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity Fund
-Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Global Equity Fund
-Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Emerging Markets Debt Fund
-Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Mid Cap Growth Fund
-Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
-Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Mid Cap Growth Fund
-Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Equity Growth Fund
-Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund
-Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund
-Class B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
Morgan Stanley Value Fund
-Class C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000,000 shares
</TABLE>
THIRD: Such shares have been duly authorized and classified by the Board
of Directors pursuant to authority and power contained in Section 2-105(c) of
the MGCL and the Corporation's Articles of Amendment and Restatement to the
Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Articles of Amendment and
Restatement and has not changed in connection with these Articles Supplementary
to the Articles of Amendment and Restatement.
<PAGE>
JULY 16, 1996
MORGAN STANLEY MONEY MARKET FUND, MORGAN STANLEY TAX-FREE MONEY MARKET FUND AND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
AUTHORIZATION TO INCREASE SHARES; DESIGNATION OF NEW CLASSES; APPROVAL OF
ARTICLES SUPPLEMENTARY TO AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
AUTHORIZATION TO FILE ARTICLES SUPPLEMENTARY
RESOLVED, that the total number of shares of common stock, par value $.001 per
share (the "Common Stock"), that MSF is authorized to issue is hereby increased
from 16,750,000,000 to 21,750,000,000;
FURTHER RESOLVED, that from such increased amount, one billion (1,000,000,000)
shares be added to the one billion shares previously authorized for the Morgan
Stanley Money Market; and
FURTHER RESOLVED, that MSF is hereby authorized to designate and classify the
following additional classes of shares:
Number of Shares of Common Stock
Name of Class Classified and Allocated
------------- ------------------------
Morgan Stanley Tax-Free Money Market Fund 2,000,000,000 shares
Morgan Stanley Government
Obligations Money Market Fund 2,000,000,000 shares
FURTHER RESOLVED, that the Articles Supplementary to MSF's Amended and Restated
Articles of Incorporation, in substantially the form presented to this meeting,
be, and they hereby are, approved and adopted; and
FURTHER RESOLVED, that the proper officers of MSF be, and each of them hereby
is, authorized and directed to cause such Articles Supplementary to be filed
with the State of Maryland.
APPROVAL OF DISTRIBUTION AGREEMENT AND PLANS OF DISTRIBUTION
RESOLVED, that the terms and conditions of the Distribution Agreement dated
November 17, 1992 between MSF and Morgan Stanley & Co. Incorporated, are hereby
deemed to encompass the Shares of common stock, par value $.001 per share, of
the Additional Portfolios.
FURTHER RESOLVED, that the proposed Plans of Distribution for the Shares of the
Additional Portfolios (the "Plans") in substantially the forms attached hereto
have been determined by the Directors, including a majority of the Directors who
are not "interested persons" as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), to be reasonably likely to benefit
MSF, the Additional Portfolios and their respective stockholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds; and
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plans or in any agreements
related to the Plans.
<PAGE>
APRIL 22, 1996
MORGAN STANLEY U.S. REAL ESTATE FUND, MORGAN STANLEY HIGH YIELD FUND, MORGAN
STANLEY INTERNATIONAL MAGNUM FUND AND MORGAN STANLEY JAPANESE EQUITY FUND
APPROVAL OF DISTRIBUTION AGREEMENT AND PLANS OF DISTRIBUTION
MORGAN STANLEY FUND, INC.
RESOLVED, that the terms and conditions of the Distribution Agreement dated
November 17, 1992 and as amended at this meeting, between MSF and MS&Co., are
hereby deemed to encompass the Class A, Class B and Class C shares of common
stock, par value $.001 per share, of the Additional Portfolios.
FURTHER RESOLVED, that each of the proposed Plans of Distribution (the "Plans")
in substantially the forms attached hereto as Annex C, with each Plan relating
to a separate class of the Additional Portfolios, has been determined by the
Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), to be reasonably likely to benefit MSF, the Additional
Portfolios and their respective stockholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds; and
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plans or in any agreements
related to the Plans.
AUTHORIZATION TO INCREASE SHARES; DESIGNATION OF NEW CLASSES; APPROVAL OF
ARTICLES SUPPLEMENTARY AND AUTHORIZATION TO FILE SUCH ARTICLES SUPPLEMENTARY
MORGAN STANLEY FUND, INC.
RESOLVED, that the total number of shares of common stock, par value $.001 per
share (the "Common Stock"), that MSF is authorized to issue is hereby increased
from thirteen billion three hundred seventy-five million (13,375,000,000) to
seventeen billion eight hundred seventy-five million (17,875,000,000) and that
MSF is hereby authorized to designate and classify the following classes of the
Additional Portfolios:
Number of Shares of Common Stock
Name of Class Classified and Allocated
- ------------- ------------------------
U.S. Real Estate Fund - Class A 375,000,000 shares
U.S. Real Estate Fund - Class B 375,000,000 shares
U.S. Real Estate Fund - Class C 375,000,000 shares
High Yield Fund - Class A 375,000,000 shares
High Yield Fund - Class B 375,000,000 shares
High Yield Fund - Class C 375,000,000 shares
International Magnum Fund - Class A 375,000,000 shares
International Magnum Fund - Class B 375,000,000 shares
International Magnum Fund - Class C 375,000,000 shares
Japanese Equity Fund - Class A 375,000,000 shares
Japanese Equity Fund - Class B 375,000,000 shares
Japanese Equity Fund - Class C 375,000,000 shares
<PAGE>
FURTHER RESOLVED, that the proper officers of MSF be, and each of them hereby
is, authorized and directed to cause Articles Supplementary to the Amended and
Restated Articles of Incorporation of MSF to be filed with the State of Maryland
to effect the purposes of the foregoing resolutions.
<PAGE>
SEPTEMBER 20, 1995
MORGAN STANLEY AGGRESSIVE EQUITY FUND
APPROVAL OF DISTRIBUTION AGREEMENT AND PLANS OF DISTRIBUTION
RESOLVED, that the terms and conditions of the Distribution Agreement dated
November 17, 1992 between the Fund and Morgan Stanley & Co. Incorporated, are
hereby deemed to encompass the Class A, Class B and Class C shares of common
stock, par value $.001 per share, of the Morgan Stanley Aggressive Equity Fund
(the "Aggressive Equity Fund").
FURTHER RESOLVED, that each of the proposed Plans of Distribution (the "Plans")
in substantially the forms attached hereto as Annex B, with each Plan relating
to a separate class of the Aggressive Equity Fund, has been determined by the
Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), to be reasonably likely to benefit the Fund, the
Aggressive Equity Fund and their respective stockholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds; and
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plans or in any agreements
related to the Plans.
AUTHORIZATION TO INCREASE SHARES; DESIGNATION OF NEW CLASSES; APPROVAL OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BY-LAWS AND AUTHORIZATION TO
FILE SUCH ARTICLES
RESOLVED, that the total number of shares of common stock, par value $.001 per
share (the "Common Stock"), that Morgan Stanley Fund, Inc. (the "Fund") is
authorized to issue is hereby increased from 12,250,000,000 to 13,375,000,000
and that the Fund is hereby authorized to designate and classify the following
classes of the Morgan Stanley Aggressive Equity Fund (the "Aggressive Equity
Fund"):
Number of Shares of Common Stock
Name of Class Classified and Allocated
- ------------- ------------------------
Aggressive Equity Fund - Class A 375,000,000 shares
Aggressive Equity Fund - Class B 375,000,000 shares
Aggressive Equity Fund - Class C 375,000,000 shares;
FURTHER RESOLVED, that the Fund's Articles of Incorporation, as supplemented to
date, be amended and restated to effect the purposes of the foregoing resolution
and all previous supplements;
FURTHER RESOLVED, that the Fund's Amended and Restated Articles of Incorporation
and the Fund's Restated By-Laws, in substantially the form attached hereto as
Annex D, be, and they hereby are, approved and adopted; and
FURTHER RESOLVED, that the proper officers of the Fund be, and each of them
hereby is, authorized and directed to cause such Articles to be filed with the
State of Maryland.
<PAGE>
JUNE 28, 1995
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
APPROVAL OF DISTRIBUTION AGREEMENTS AND PLANS OF DISTRIBUTION
MORGAN STANLEY FUND, INC. - INTERNATIONAL MAGNUM FUND (THE "FUND')
RESOLVED, that the terms and conditions of the Distribution Agreement dated
November 17, 1992 between the Fund and Morgan Stanley & Co. Incorporated, are
hereby deemed to encompass the Class A, Class B and Class C shares of common
stock, par value $.001 per share, of the International Magnum Fund.
FURTHER RESOLVED, that each of the proposed Plans of Distribution (the "Plans")
in substantially the forms attached hereto as ANNEX III, with each Plan relating
to a separate class of the International Magnum Fund, has been determined by the
Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act, to be reasonably likely to
benefit the Fund, the International Magnum Fund and their respective
stockholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds; and
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plans or in any agreements
related to the Plans.
AUTHORIZATION TO INCREASE SHARES; DESIGNATION OF NEW CLASSES; APPROVAL OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BY-LAWS AND AUTHORIZATION TO
FILE SUCH ARTICLES
MORGAN STANLEY FUND, INC. - INTERNATIONAL MAGNUM FUND
RESOLVED, that the total number of shares of common stock, par value $.001 per
share (the "Common Stock"), that the Fund is authorized to issue is hereby
increased from 11,125,000,000 to 12,250,000,000 and that the Fund is hereby
authorized to designate and classify the following classes of the Morgan Stanley
International Magnum Fund (the "International Magnum Fund"):
Number of Shares of Common Stock
Name of Class Classified and Allocated
- ------------- ------------------------
International Magnum Fund - Class A 375,000,000 shares
International Magnum Fund - Class B 375,000,000 shares
International Magnum Fund - Class C 375,000,000 shares;
FURTHER RESOLVED, that the Fund's Articles of Incorporation, as supplemented to
date, be amended and restated to effect the purposes of the foregoing resolution
and all previous supplements;
FURTHER RESOLVED, that the Fund's Restated Articles of Incorporation and the
Fund's Restated By-Laws, in substantially the form attached hereto as ANNEX V,
be, and they hereby are, approved and adopted; and
FURTHER RESOLVED, that the proper officers of the Fund be, and each of them
hereby is, authorized and directed to cause such Articles to be filed with the
State of Maryland.
<PAGE>
MARCH 23, 1995
UNANIMOUS WRITTEN CONSENT IN LIEU OF A MEETING OF THE BOARD OF DIRECTORS OF
MORGAN STANLEY FUND, INC. Changing class B shares to class C shares and
designating additional shares titled class B shares increasing shares from
7,750,000,000 to 11,125,000,000 effective May 1, 1995.
The undersigned, being all the members of the Board of Directors of Morgan
Stanley Fund, Inc., a Maryland corporation (the "Fund"), do hereby adopt the
following resolutions, pursuant to Section 2-408(c) of the General Corporation
Law of the State of Maryland, by written consent without a meeting, with full
force and effect as if adopted by the unanimous affirmative vote of the Board of
Directors at a duly constituted meeting:
RESOLVED, that, effective May 1, 1995, the name of the Fund's Class B shares of
common stock, par value $.001 per share, shall be changed to Class C shares and
the total number of shares of stock that the Fund shall have the authority to
issue shall be increased from 7,750,000,000 shares of common stock, par value
$.001 per share, having an aggregate par value of $7,750,000 and designated and
classified until May 1, 1995 as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
<PAGE>
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
to 11,125,000,000 shares of common stock, par value $.001 per share, having an
aggregate par value of $11,125,000; and that, effective May 1, 1995, one
additional class of shares that shall be designated as new Class B shares, for
each of nine of the series investment funds (the "Investment Funds") of the Fund
shall be designated as set forth below so that the common stock, par value $.001
per share, of the Fund authorized to be issued shall be designated and
classified as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class C 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class C 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class C 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class C 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class C 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class C 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class C 375,000,000 shares
<PAGE>
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class C 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class C 375,000,000 shares;
FURTHER RESOLVED, that the proper officers of the Fund are hereby authorized to
file articles supplementary to the Fund's Articles of Incorporation, as
previously supplemented, to effectuate the renaming of the current Class B
shares to Class C shares and the designation of the new Class B shares as set
forth above.
FURTHER RESOLVED, that the proper officers of the Fund are hereby authorized to
issue ten shares of common stock of the new Class B shares of each of the nine
Investment Funds of the Fund as set forth above to Morgan Stanley Asset
Management Inc. ("MSAM") upon payment by MSAM of $100 for the ten Class B shares
of each such Investment Fund, respectively;
FURTHER RESOLVED, that the continuous issuance, sale and delivery of the new
Class B shares of the foregoing nine Investment Funds of the Fund (subject to
the number of such shares authorized in the Fund's charter, as amended and
supplemented from time to time) are hereby authorized to be issued for
consideration equal to the net asset value thereof determined as provided in
such Investment Funds' prospectuses, but not less than the par value thereof and
that such shares, when so issued, shall be validly issued, fully paid and
nonassessable; and that the officers of the Fund are hereby authorized and
directed to take or cause to be taken all actions they may deem to be necessary
or desirable in connection with such continuous issuance, sale and delivery
subject to the Fund's Distribution Agreement and through the Distributor
thereunder, the taking of such action to establish conclusively such officer's
authority therefor and the necessity and appropriateness thereof and the
approval and ratification thereof by the Fund;
FURTHER RESOLVED, that any actions taken prior to the date of this unanimous
consent by the proper officers of the Fund with respect to the renaming of the
current Class B shares of the Fund as Class C shares of the Fund and the
creation of new Class B shares of the Fund, be and they hereby are, ratified,
confirmed and approved; and that said officers be, and each of them hereby is,
authorized and directed to take any and all actions in the name and on behalf of
the Fund as shall be necessary or appropriate in connection with the
establishment and registration of such Class B shares, including, but not
limited to, causing a prospectus or prospectuses and statement of additional
information to be drafted, the taking of such action to establish conclusively
such officer's authority therefor and the necessity and appropriateness thereof
and the approval and ratification thereof by the Fund;
FURTHER RESOLVED, that the proper officers of the Fund be, and each of them
hereby is, specifically authorized and directed to execute, in the name and on
behalf of the Fund, and to file, Post-Effective Amendment No. 8 under the
Securities Act of 1933, as amended (the "1933 Act") and Amendment No. 10 under
the Investment Company Act of 1940, as amended (the "1940 Act") to the Fund's
Registration Statement on Form N-1A (File No. 33-51294) (collectively, the
"Registration Statement") relating to the renaming of the current Class B shares
as Class C shares and the creation of the new Class B shares effective on May 1,
1995, and all necessary exhibits and other instruments relating thereto, and the
procurement of all other necessary signatures thereon, and the appropriate
exhibits thereto, with the Securities and Exchange Commission (the
"Commission"), under the 1933 Act and the 1940 Act, and that the proper officers
of the Fund be, and they hereby are, authorized and directed to appear, together
with legal counsel, on behalf of the Fund before the Commission in connection
with any matter relating to the Registration Statement;
<PAGE>
FURTHER RESOLVED, that it is desirable and in the best interest of the Fund that
the Fund's shares that are renamed Class C shares and the new Class B shares be
qualified or registered for sale in various states; that any officer of the Fund
be, and each of them hereby is, authorized to determine the states in which
appropriate action shall be taken to qualify or register for sale all of or such
part of such renamed Class C shares and new Class B shares that said officer may
deem advisable; that each such officer be, and hereby is, authorized to take any
and all actions that he or she may deem necessary or advisable in order to
effect the registration or qualification (or exemption therefrom) of such
renamed Class C shares and new Class B shares under the "Blue Sky" or securities
laws of any of the states of the United States of America and any and all
actions that he or she may deem necessary or advisable in order to comply with
the applicable laws of any such states, and in connection therewith to execute,
acknowledge, verify, deliver, file or cause to be published all requisite papers
and documents, including, but not limited to, applications, reports, surety
bonds, irrevocable consents and appointments of attorneys for service of
process, and to take any and all further action which they may deem necessary or
advisable in order to maintain any such registration or qualification for as
long as they deem necessary or for exemption as required by law; and that the
execution by any such officer of any such paper or document or the doing by them
of any act in connection with the foregoing matters shall establish conclusively
his or her authority therefor from the Fund and the approval and ratification by
the Fund of papers and documents so executed and the action so taken;
FURTHER RESOLVED, that any and all actions heretofore or hereafter taken by such
officer or officers within the purposes and terms of the foregoing resolutions
be, and they hereby are, ratified and confirmed as the authorized deeds of the
Fund, the taking of such action to establish conclusively such officer's
authority therefor and the necessity and appropriateness thereof, and the
approval and ratification thereof by the Fund; and
FURTHER RESOLVED, that this consent may be executed in one or more counterparts,
each of which shall be deemed an original, and when taken together shall
constitute one and the same instrument.
<PAGE>
MARCH 7, 1995
APPROVAL OF RULE 18f-3 PLAN
RESOLVED, that the Board of Directors hereby determines, in the exercise of its
reasonable business judgment and in light of its fiduciary duties under state
law and under Section 36(a) and (b) of the 1940 Act, that the Fund should rely
on Rule 18f-3 rather than its Multi-Class exemptive order and that the Rule
18f-3 Multiple Class Plan (the "Multiple Class Plan") of the Fund, in
substantially the form presented at this meeting of the Board of Directors, is
in the best interests of each class of the Fund individually and the Fund as a
whole, taking into account, among other things, the relationship among the
classes and the potential conflicts of interest among the classes regarding
the allocation of fees, services, waivers and reimbursements of expenses, and
voting rights; and further
RESOLVED, that the Multiple Class Plan be, and it hereby is, approved and
adopted by the Board of Directors (all Directors voting) and separately by the
"non-interested" Directors, as defined in the 1940 Act.
<PAGE>
APRIL 15, 1994
ARTICLES SUPPLEMENTARY TO REGISTRANT'S ARTICLES OF INCORPORATION
changing the name of "MS Latin American Equity Fund" to "MS Latin American
Fund".
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"), pursuant
to Section 2-208 and 2-208.1 of the Maryland General Corporation Law ("MGCL"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST, The Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation at a meeting duly
convened and held on February 15, 1994 adopted a resolution increasing the total
number of shares of stock which the Corporation shall have the authority to
issue from 4,750,000,000 shares of common stock, par value $.001 per share,
having an aggregate par value of $4,750,000 designated and classified as
follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High
Income Fund - Class A 375,000,000 shares
Morgan Stanley Worldwide High
Income Fund - Class B 375,000,000 shares
to 7,750,000,000 shares of common stock, par value $.001 per share, having an
aggregate par value of $7,750,000 and designating four additional portfolios
with Class A and Class B shares so that the common stock, par value $.001 per
share of the Corporation authorized to be issued is designated and classified as
follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class A 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund - Class B 375,000,000 shares
Morgan Stanley Global Fixed Income
Fund - Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
- Class A 375,000,000 shares
<PAGE>
Morgan Stanley Asian Growth Fund
- Class B 375,000,000 shares
Morgan Stanley American Value Fund
- Class A 375,000,000 shares
Morgan Stanley American Value Fund
- Class B 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class A 375,000,000 shares
Morgan Stanley Worldwide High Income Fund
- Class B 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund
- Class B 375,000,000 shares
Morgan Stanley Latin American Fund
- Class A 375,000,000 shares
Morgan Stanley Latin American Fund
- Class B 375,000,000 shares
Morgan Stanley European Equity Fund
- Class A 375,000,000 shares
Morgan Stanley European Equity Fund
- Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund
- Class B 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the
Board of Directors pursuant to authority and power contained in Section 2-105(c)
of the MGCL and the Corporation's Amended Articles of Incorporation.
FOURTH: The description of the shares designated and classified as
set forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Amended Articles of
Incorporation and has not changed in connection with these Articles
Supplementary to the Amended Articles of Incorporation.
<PAGE>
FEBRUARY 15, 1994
MORGAN STANLEY EMERGING MARKETS FUND, MORGAN STANLEY LATIN AMERICAN EQUITY FUND,
MORGAN STANLEY EUROPEAN EQUITY FUND, AND MORGAN STANLEY GROWTH AND INCOME FUND
Designation of new classes and approval of filing of articles supplementary
adding the Morgan Stanley Emerging Markets Fund, the Morgan Stanley Latin
American Equity Fund, the Morgan Stanley European Equity Fund and the Morgan
Stanley Growth and Income
RESOLVED, that the total number of shares of common stock, par value $.001 per
share, which the Morgan Stanley Fund, Inc. (the "Fund") is authorized to issue
is hereby increased from 4,750,000,000 to 7,750,000,000 and that the Fund is
hereby authorized to file articles supplementary to its Articles of
Incorporation to effectuate such increase and to designate and classify the
following classes of the Morgan Stanley Emerging Markets Fund, the Morgan
Stanley Latin American Equity Fund, the Morgan Stanley European Equity Fund and
the Morgan Stanley Growth and Income Fund (the "Additional Investment Funds"):
NUMBER OF SHARES OF COMMON STOCK
NAME OF CLASS CLASSIFIED AND ALLOCATED
- ------------- ------------------------
Morgan Stanley Emerging Markets Fund - Class A 375,000,000 shares
Morgan Stanley Emerging Markets Fund - Class B 375,000,000 shares
Morgan Stanley Latin American Equity Fund - Class A 375,000,000 shares
Morgan Stanley Latin American Equity Fund - Class B 375,000,000 shares
Morgan Stanley European Equity Fund - Class A 375,000,000 shares
Morgan Stanley European Equity Fund - Class B 375,000,000 shares
Morgan Stanley Growth and Income Fund - Class A 375,000,000 shares
Morgan Stanley Growth and Income Fund - Class B 375,000,000 shares
Approval of distribution agreement and plans of distribution (additional
investment funds only)
FURTHER RESOLVED, that the terms and conditions of the Distribution Agreement
dated November 17, 1992 between the Fund and Morgan Stanley & Co. Incorporated,
are hereby deemed to encompass the Class A and Class B Shares of common stock,
par value $.001 per share, of the Additional Investment funds;
FURTHER RESOLVED, that each of the proposed Plans of Distribution (the "Plans")
in substantially the forms attached hereto as Annex II, with each Plan relating
to a separate class of the Additional Investment Funds, has been determined by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act, to be reasonably likely to
benefit the Fund, the Additional Investment Funds and their respective
shareholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans have been determined to be
comparable to expenditures for other similar funds;
FURTHER RESOLVED, that the Plans be, and each of the same hereby is, approved by
the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plans or in any agreements
related to the Plans.
<PAGE>
DECEMBER 14, 1993
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
Designation of new classes and approval of filing of articles supplementary
adding the Morgan Stanley Worldwide High Income Fund (the "additional investment
fund")
RESOLVED, that the total number of shares of common stock which the
Morgan Stanley Fund, Inc. (the "Fund") is authorized to issue is hereby
increased from 4,000,000,000 to 4,750,000,000 and that the Fund is hereby
authorized to file articles supplementary to its Articles of Incorporation to
effectuate such increase and to designate and classify the following Additional
Investment Fund of the Fund:
NUMBER OF SHARES OF
COMMON STOCK
CLASSIFIED AND
NAME OF CLASS ALLOCATED
- ------------- ---------
Worldwide High Income Fund - Class A 375,000,000 shares
Worldwide High Income Fund - Class B 375,000,000 shares
Approval of distribution agreement and plans of distribution (additional
investment fund only)
RESOLVED, that the terms and conditions of the Distribution Agreement
dated November 17, 1992 between the Fund and Morgan Stanley & Co., Incorporated,
are hereby deemed to encompass the Class A and Class B Shares of Morgan Stanley
Worldwide High Income Fund;
FURTHER RESOLVED, that the proposed Plans of Distribution (the
"Plans") in substantially the forms attached hereto as Annex II, with each plan
relating to a separate class of the Additional Investment Fund, are determined
by the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended, to be reasonably likely to benefit the Fund, the Worldwide Fund and
their shareholders;
FURTHER RESOLVED, that based on information reasonably available to
the Directors, the expenditures contemplated by the Plans are comparable to
expenditures for other similar funds;
FURTHER RESOLVED, that the Plans be, and the same hereby are, approved
by the Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the 1940 Act and have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plans.
<PAGE>
SEPTEMBER 20, 1993
NAME CHANGE WITH RESPECT TO MORGAN STANLEY SMALL CAP VALUE EQUITY FUND
RESOLVED, that the name of the Morgan Stanley Small Cap Value Equity Fund be,
and it hereby is, changed to Morgan Stanley American Value Fund and that the
proper officers of the Fund be, and each of them hereby is, authorized and
directed to prepare, execute and file articles supplementary to the Fund's
Amended Articles of Incorporation to effectuate the name change;
FURTHER RESOLVED, that the proper officers of the Fund be, and they hereby are,
authorized in the name and on behalf of the Fund, to take any and all action
which they may deem necessary or advisable, including making any filings with
the Securities and Exchange Commission and any state securities administration,
in order to maintain registration or qualification of such investment fund's
shares or any exemption from registration or qualification.
<PAGE>
APRIL 28, 1993
ARTICLES SUPPLEMENTARY TO REGISTRANT'S ARTICLES OF INCORPORATION
CHANGING THE NAME OF "MS ASIAN EQUITY FUND" TO THE "MS ASIAN GROWTH FUND".
MORGAN STANLEY FUND, INC., a Maryland Corporation (the "Corporation"),
pursuant to Section 2-208 of the Maryland General Corporation Law ("MGCL"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST, The Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended.
SECOND, The Board of Directors of the Corporation at a meeting duly
convened and held on April 7, 1993 adopted a resolution changing the name of a
portfolio of the Corporation, namely the Morgan Stanley Asian Equity Fund to
the Morgan Stanley Asian Growth Fund, so that the common stock, par value $.001
per share, of the Corporation authorized to be issued is designated and
classified as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity
Allocation Fund- Class A 375,000,000 shares
Morgan Stanley Fixed Income
Fund- Class A 375,000,000 shares
Morgan Stanley Global Equity
Allocation Fund- Class B 375,000,000 shares
Morgan Stanley Fixed Income
Fund- Class B 375,000,000 shares
Morgan Stanley Asian Growth Fund
-Class A 375,000,000 shares
Morgan Stanley Asian Growth Fund
-Class B 375,000,000 shares
Morgan Stanley Small Cap Value Equity
Fund- Class A 375,000,000 shares
Morgan Stanley Small Cap Value Equity
Fund- Class B 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the
Board of Directors pursuant to authority and power contained in Section 2-105(c)
of the MGCL and the Corporation's Amended Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qulaifications and terms and
conditions of redemption is as set forth in the Amended Articles of
Incorporation.
<PAGE>
APRIL 8, 1993
MORGAN STANLEY SMALL CAP VALUE FUND AND MORGAN STANLEY ASIAN EQUITY FUND
DESIGNATION OF NEW CLASSES AND APPROVAL AND THE MORGAN STANLEY SMALL CAP VALUE
FUND AND MORGAN STANLEY ASIAN EQUITY FUND (THE "INVESTMENT FUNDS")
RESOLVED, that the total number of shares of common stock which Morgan Stanley
Fund, Inc. ("Fund") is authorized to issue is hereby increased from
2,500,000,000 to 4,000,000,000 and that the Company is hereby authorized to file
articles supplementary to its Articles of Incorporation to effectuate such
increase and to designate and classify the following Additional Funds of the
Company:
Number of Shares of
Common Stock Classified
Name of Class and Allocated
- -------------- --------------
Morgan Stanley Asian Equity Fund - Class A 375,000,000 shares
Morgan Stanley Asian Equity Fund - Class B 375,000,000 shares
Morgan Stanley Small Cap Value Equity Fund
- Class A 375,000,000 shares
Morgan Stanley Small Cap Value Equity Fund
- Class B 375,000,000 shares
APPROVAL OF DISTRIBUTION AGREEMENT AND PLANS OF DISTRIBUTION (INVESTMENT FUNDS
ONLY)
RESOLVED, that the terms and conditions of the Distribution Agreement dated
November 17, 1992 between the Fund and Morgan Stanley & Co., Incorporated
(herein, "Morgan Stanley" or the "Distributor") are hereby deemed to encompass
the Class A and Class B Shares of Morgan Stanley Asian Equity Fund and Morgan
Stanley Small Cap Value Equity Fund.
FURTHER RESOLVED, that the Fund shall enter into an amendment to the MSAM
Agreement encompassing the additional Investment Funds in substantially the form
attached hereto as Annex II and that the officers of the Fund are hereby
authorized and any one or more of them is directed to execute such amendment to
the MSAM Agreement;
FURTHER RESOLVED, that the proposed Plans of Distribution (the "Plans")
substantially in the forms attached hereto as Annex III, with each plan relating
to a separate class of each additional Investment Fund, are determined by the
Directors, including a majority of the Directors who are not "interested
persons" as that term is defined in the Investment Company Act of 1940, as
amended, to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that based on information reasonably available to the
Directors, the expenditures contemplated by the Plans are comparable to
expenditures for other similar funds;
FURTHER RESOLVED, that the Plans be, and the same hereby are, approved.
<PAGE>
NOVEMBER 19, 1992
ARTICLES SUPPLEMENTARY TO THE ARTICLES OF INCORPORATION
CREATING CLASS A AND B SHARES
MORGAN STANLEY FUND, INC., a Maryland corporation (the "Corporation"),
pursuant to Section 2-208 and 2-208.1 of the Maryland General Corporation law
("MGCL"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST, The Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended.
SECOND, The names of the classes and the number of shares of common
stock, par value $.001 per share (the "Common Stock"), initially classified and
allocated in the Amended Articles of Incorporation were as follows:
Number of Shares of Common Stock
Name of Class Initially Classified and Allocated
------------- ----------------------------------
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity Allocation Fund 750,000,000 shares
Morgan Stanley Global Fixed Income Fund 750,000,000 shares
The Board of Directors of the Corporation at a meeting duly convened and held on
November 17, 1992 adopted a resolution changing the designation and
classification of the Common Stock as follows:
Morgan Stanley Money Market Fund 1,000,000,000 shares
Morgan Stanley Global Equity Allocation Fund
-Class A 375,000,000 shares
Morgan Stanley Global Fixed Income Fund
-Class A 375,000,000 shares
Morgan Stanley Global Equity Fund
-Class B 375,000,000 shares
Morgan Stanley Global Fixed Income Fund
-Class B 375,000,000 shares
THIRD: Such shares have been duly authorized and classified by the
Board of Directors pursuant to authority and power contained in Section 2-105
(c) of the MGCL and the Corporation's Amended Articles of Incorporation.
FOURTH: The description of the shares designated and classified as set
forth above, including any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is as set forth in the Amended Articles of
Incorporation and has not changed in connection with these Articles
Supplementary to the Amended Articles of Incorporation.
<PAGE>
NOVEMBER 17, 1992
DESIGNATION OF CLASSES: A AND B SHARES
RESOLVED, that in accordance with the authority granted to the Board of
Directors of Morgan Stanley Fund, Inc (the "Fund") pursuant to Article V,
Section 3 of the Fund's Amended Articles of Incorporation, the Fund shall have
five classes of shares of common stock, par value $.001 per share (the "Common
Stock"), designated as follows and with the number of shares in such classes as
set forth opposite such classes as follows:
Number of Shares of Common
Name of Class Stock Classified and Allocated
------------- ------------------------------
Morgan Stanley Money Market Fund 1,000,000,000
Morgan Stanley Global Equity Allocation Fund
-Class A 375,000,000
Morgan Stanley Global Equity Allocation Fund
-Class B 375,000,000
Morgan Stanley Fixed Income Fund
-Class A 375,000,000
Morgan Stanley Fixed Income Fund
-Class B 375,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and they hereby are,
authorized and directed in the name and on behalf of the Fund to make all
appropriate filings with the Securities and Exchange Commission (the
"Commission") with respect to the establishment of such new classes of shares,
the related Distribution Agreement and Plans of Distribution under Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act"), approved
at this meeting by this Board of Directors, including, if they deem it necessary
or appropriate, supplements and post-effective amendments under the Securities
Act of 1933 (the "1933 Act") and under the 1940 Act to the Fund's Registration
Statement on Form N-1A (Registration No. 33-51294), and all necessary exhibits
and other instruments relating thereto (collectively, the "Registration
Statement"), procuring all other necessary signatures thereon, and filing the
appropriate exhibits thereto with the Commission under the 1933 Act and the 1940
Act;
FURTHER RESOLVED, that the proper officers of the Fund be, and they hereby are,
authorized jointly and severally and directed to file with the State of Maryland
such amendments or supplements to the Fund's Amended Articles of Incorporation
(the "Articles") as are necessary or appropriate to amend or supplement the
Articles to designate, classify and allocate the shares of Common Stock as
provided in the foregoing resolutions; and
FURTHER RESOLVED, that the proper officers of the Fund be, and they hereby are,
authorized and directed in the name and on behalf of the Fund, to take any other
action that the officer so acting may deem necessary or appropriate in
connection with the establishment and registration of the classes of Common
Stock of the Fund, the taking of any such action to establish conclusively such
officer's authority therefore and the approval and ratification thereof by the
Fund.
<PAGE>
NOVEMBER 17, 1992
MONEY MARKET PORTFOLIO, GLOBAL ACTIVE COUNTRY ALLOCATION PORTFOLIO, AND GLOBAL
FIXED INCOME PORTFOLIO
Approval For:
Number of Shares of Common
Name of Class Stock Classified and Allocated
- ------------- ------------------------------
Money Market Portfolio 1,000,000,000
Global Active Country Allocation Portfolio 750,000,000,000
Global Fixed Income Portfolio 750,000,000,000
APPROVAL OF DISTRIBUTION AGREEMENT, PLANS OF DISTRIBUTION
RESOLVED, that the proposed Distribution Agreement between the Fund
and Morgan Stanley & Co. Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, in substantially the form presented to this
meeting, and that the appropriate officers of the Fund be, and they hereby are,
authorized and directed to enter into and execute such Distribution Agreement
with such modifications as said officers shall deem necessary or appropriate or
as may be required to conform with the requirements of any applicable statute,
regulation or regulatory body;
FURTHER RESOLVED, that the continuous issuance, sale and delivery of
an indefinite number of shares of the Fund's portfolios (subject to the number
of shares authorized in the Fund's charter) is hereby authorized provided that
such shares will be when issued for consideration at least equal to the part
value thereof, validly issued, fully paid and nonassessable; and that the
officers of the Fund are hereby authorized and directed to take or cause to be
taken all actions them may deem necessary or desirable in connection with such
continuous issuance, sale and delivery subject to the Distribution Agreement and
through the Distributor thereunder;
FURTHER RESOLVED, that the proposed Plans of Distribution (the
"Plans"), with each plan relating to a separate investment portfolio of the
Fund, are determined by the Directors, including a majority of the Directors who
are not "interested persons" as that term is defined in the Investment Company
Act of 1940, as amended, to be reasonably likely to benefit the Fund and its
shareholders;
FURTHER RESOLVED, that based on information reasonably available to
the Directors, the expenditures contemplated by the Plans are comparable to
expenditures for other similar funds;
FURTHER RESOLVED, that the Plans be, and the same hereby are,
approved; and
FURTHER RESOLVED, that, if required by the Staff of the Securities and
Exchange Commission, each Plan be submitted to the shareholders of the relevant
investment portfolio of the Fund at the first regular or special meeting for
their approval and ratification.
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