<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 investment
portfolios. This prospectus (the "Prospectus") describes the Class A, Class B
and Class C shares of the four portfolios listed above (each, a "Fund," and
together, the "Funds"). The Funds are designed to make available to retail
investors the expertise of Van Kampen American Capital Investment Advisory
Corp., the adviser (the "Adviser") and administrator (the "Administrator"), and
its affiliate, Morgan Stanley Asset Management Inc., the sub-adviser (the
"Sub-Adviser"), to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. (the "Distributor") and investment dealers, banks and
financial services firms that provide distribution, administrative or
shareholder services ("Participating Dealers"). As of the date of this
Prospectus, the Morgan Stanley Emerging Markets Debt Fund is not offering
shares.
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."
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. Additional information about the Company is
contained in a "Statement of Additional Information," dated October 28, 1997,
which is incorporated herein by reference. The Company offers other portfolios
which are described in other prospectuses. 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 Statement of
Additional Information and other materials regarding the Company have been filed
with the Securities and Exchange Commission and are available at the
Commission's internet web site (http://www.sec.gov).
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 OCTOBER 28, 1997.
<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 Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") providing services as adviser
and administrator and its affiliate, Morgan Stanley Asset Management Inc.
("MSAM" or the "Sub-Adviser"), providing services as sub-adviser. Van Kampen
American Capital Distributors, Inc. (the "Distributor") provides services as
distributor to the Funds. For ease of reference, the words "Morgan Stanley,"
which begin the name of each portfolio, are not used throughout this Prospectus.
The investment objective of each Fund is as follows:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries. As of the date of this
Prospectus, the Emerging Markets Debt Fund is not offering shares.
- 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, high risk 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, high risk fixed
income securities of issuers located throughout the world.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds 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. See "Additional
Investment Information--Foreign Investment" for more information. 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 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 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, High Yield and Worldwide High Income Funds may
invest in lower rated and unrated debt securities which are considered more
speculative with regard to the payment of interest and return of principal than
higher rated debt obligations. See "Additional Investment Informatioin -- Lower
Rated and Unrated Debt Securities." The Emerging Markets Debt and Worldwide High
Income Funds may borrow
2
<PAGE>
money for leveraging, and engage in reverse repurchase agreements and short
sales. Such practices involve special risks. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage", "-- Reverse Repurchase
Agreements" and "-- Short Sales."
In addition, the Funds may invest in derivatives, which include options,
futures and options on futures. The Emerging Markets Debt, Global Fixed Income
and Worldwide High Income Funds are non-diversified portfolios which may invest
a greater portion of their 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 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 a maximum initial sales charge of
4.75% which initial sales charge may be reduced on certain large purchases or
when combining purchases with the investor's aggregate investments in the
Participating Funds. Class B 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
the Distributor, 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."
3
<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 which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Participating Funds (as defined under "Purchase of Shares - Quantity
Discounts"), aggregate to $1 million or more are not subject to an initial
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. 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 are subject to a maximum CDSC of 4.00% which decreases to 0.00% after
five years. See "Purchase of Shares."
(4) Purchases of Class C shares of the Funds are subject to a CDSC of 1.00% for
redemptions made within one year of purchase. See "Purchase of Shares."
4
<PAGE>
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
ANNUAL FUND OPERATING EXPENSES EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
(AS A PERCENTAGE OF AVERAGE DAILY 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% 0.00% 0.00% 0.75%
Class B.................................. 1.25% 0.00% 0.00% 0.75%
Class C.................................. 1.25% 0.00% 0.00% 0.75%
12b-1 Distribution and 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% 1.20% 1.00% 0.52%
Class B.................................. 0.55% 1.20% 1.00% 0.52%
Class C.................................. 0.55% 1.20% 1.00% 0.52%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 2.05% 1.45% 1.25% 1.52%
Class B.................................. 2.80% 2.20% 2.00% 2.27%
Class C.................................. 2.80% 2.20% 2.00% 2.27%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive a portion of its advisory fees and/or to
reimburse a portion of 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 table sets forth for each Fund investment
advisory fees and expected total operating expenses absent fee waivers
and/or expense reimbursements.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 below
would be greater.
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Advisory Fees
(All Classes)........................ 1.25% 0.75% 0.75% 0.75%
Total Operating Expenses
Class A.............................. 2.05% 2.57% 2.04% 1.52%
Class B.............................. 2.80% 3.37% 2.82% 2.27%
Class C.............................. 2.80% 3.35% 2.88% 2.27%
</TABLE>
For further information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1 distribution and 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. See "Management of the Company--Distributor."
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges otherwise permitted as a fund-level expense
by the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD").
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Funds will bear directly or
indirectly. The expenses and fees for the Global Fixed Income, High Yield and
Worldwide High Income Funds are based on actual figures for the fiscal year
ended June 30, 1997. The expenses and fees for the Emerging Markets Debt Fund
are based on the advisory agreement, 12b-1 plan and estimates of other expenses
because the Fund has not commenced investment operations as of June 30, 1997.
5
<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 Fund, including
the maximum 4.75% initial sales charge, (ii) Class B shares of each Fund, which
have a CDSC, but no initial sales charge and (iii) Class C shares of each 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
1 Year............................................. $ 67(1) $ 62(1) $ 60(1) $ 62(1)
3 Years............................................ 109 91 85 93
5 Years............................................ * 123 113 126
10 Years........................................... * 213 191 220
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................. 68 62 60 63
3 Years............................................ 117 99 93 101
5 Years............................................ * 133 123 137
10 Years (2)....................................... * 234 213 242
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 71
5 Years............................................ * 118 108 122
10 Years (2)....................................... * 234 213 242
Class C shares
(Assuming complete redemption immediately prior
to the end of period)
1 Year............................................. 38 32 30 33
3 Years............................................ 87 69 63 71
5 Years............................................ * 118 108 122
10 Years........................................... * 253 233 261
Class C shares
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 71
5 Years............................................ * 118 108 122
10 Years........................................... * 253 233 261
</TABLE>
- ------------------
* Because the Emerging Markets Debt Fund has not commenced investment
operations as of the date of this Prospectus, the Fund has not projected
expenses beyond the three-year period shown.
(1) The example reflects Class A shares sold at the maximum 4.75% initial sales
charge. Certain large purchases may be subject to a reduced initial sales
charge. Purchases of Class A shares of the Funds which, when combined with
the net asset value of the purchaser's existing investments in Class A
shares of the Participating Funds, aggregate to $1 million or more are not
subject to an initial sales charge but a CDSC of 1.00% will be imposed on
such shares that are redeemed within one year following such purchase.
(2) The expenses shown reflect that 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.
6
<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 periods presented. The financial highlights are
part of the Company's financial statements, which appear in the Company's June
30, 1997 Annual Report to Shareholders. The financial statements are
incorporated into 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
incorporated into the Statement of Additional Information. Additional
performance information about the Company is contained in the Company's Annual
Report. The Annual Report and 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 investment operations as of June 30, 1997.
7
<PAGE>
FINANCIAL HIGHLIGHTS
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
SELECTED PER SHARE DATA AND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JANUARY 4, 1993*
RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 TO JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 10.00
------ ------ ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.44 0.53 0.56 0.52 0.25
Net Realized and Unrealized
Gain (Loss) (0.02) (0.01) 0.50 (0.42) 0.55
------ ------ ------- ------- ------
Total From Investment
Operations 0.42 0.52 1.06 0.10 0.80
------ ------ ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.35) (0.79) (0.36) (0.50) (0.25)
In Excess of Net Investment
Income (0.06) (0.02) -- (0.12) --
Net Realized Gain -- -- -- (0.47) --
In Excess of Net Realized
Gain -- -- -- (0.03) --
------ ------ ------- ------- ------
Total Distributions (0.41) (0.81) (0.36) (1.12) (0.25)
------ ------ ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55
------ ------ ------- ------- ------
------ ------ ------- ------- ------
TOTAL RETURN (1) 4.27% 5.20% 11.41% 0.41% 8.02%
------ ------ ------- ------- ------
------ ------ ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 6,407 $ 7,432 $ 11,092 $ 10,369 $ 6,633
Ratio of Expenses to Average
Net Assets 1.45% 1.45% 1.45% 1.45% 1.45%**
Ratio of Net Investment Income
to Average Net Assets 4.40% 5.02% 5.84% 4.70% 5.00%**
Portfolio Turnover Rate 170% 223% 169% 168% 55%
- ----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income $ 0.12 $ 0.07 $ 0.07 $ 0.11 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.57% 2.16% 2.22% 2.48% 2.88%**
Net Investment Income to
Average Net Assets 3.25% 4.31% 5.07% 3.67% 3.57%**
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
-------------------------------------
SELECTED PER SHARE DATA AND YEAR ENDED AUGUST 1, 1995+ TO
RATIOS JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.91 $ 10.24
------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.41 0.64
Net Realized and Unrealized
Gain (Loss) (0.07) (0.26)
------ ------
Total From Investment
Operations 0.34 0.38
------ ------
DISTRIBUTIONS
Net Investment Income (0.29) (0.69)
In Excess of Net Investment
Income (0.05) (0.02)
Net Realized Gain -- --
In Excess of Net Realized
Gain -- --
------ ------
Total Distributions (0.34) (0.71)
------ ------
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.91
------ ------
------ ------
TOTAL RETURN (1) 3.48% 3.76%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 1,716 $ 1,440
Ratio of Expenses to Average
Net Assets 2.20% 2.20%**
Ratio of Net Investment Income
to Average Net Assets 3.65% 3.38%**
Portfolio Turnover Rate 170% 223%
- -----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation
During the Period
Per Share Benefit to Net
Investment Income $ 0.13 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.37% 3.57%**
Net Investment Income to
Average Net Assets 2.45% 2.01%**
- ----------------------------------------------------------------------------------------------------------------------
</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.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------------------------
JANUARY 4,
1993*
SELECTED PER SHARE DATA AND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO JUNE 30,
RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 1993
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.90 $ 10.20 $ 9.54 $ 10.56 $ 10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.39 0.37 0.49 0.43 0.21
Net Realized and Unrealized
Gain (Loss) (0.05) 0.08 0.47 (0.40) 0.55
------ ------ ------ ------ ------
Total From Investment
Operations 0.34 0.45 0.96 0.03 0.76
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.29) (0.73) (0.30) (0.44) (0.20)
In Excess of Net Investment
Income (0.05) (0.02) -- (0.11) --
Net Realized Gain -- -- -- (0.47) --
In Excess of Net Realized
Gain -- -- -- (0.03) --
------ ------ ------ ------ ------
Total Distributions (0.34) (0.75) (0.30) (1.05) (0.20)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN (1) 3.48% 4.47% 10.24% (0.25)% 7.61%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 2,445 $ 2,844 $ 5,965 $ 5,407 $ 6,120
Ratio of Expenses to Average
Net Assets 2.20% 2.20% 2.20% 2.20% 2.20%**
Ratio of Net Investment Income
to Average Net Assets 3.65% 4.35% 5.09% 3.95% 4.25%**
Portfolio Turnover Rate 170% 223% 169% 168% 55%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.12 $ 0.06 $ 0.08 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.35% 2.87% 2.97% 3.29% 3.63%**
Net Investment Income to
Average Net Assets 2.48% 3.68% 4.32% 2.86% 2.82%**
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
</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.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------ ------------------------------
YEAR ENDED MAY 1, 1996* YEAR ENDED MAY 1, 1996*
SELECTED PER SHARE DATA AND JUNE 30, TO JUNE 30, TO
RATIOS 1997 JUNE 30, 1996 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.92 $ 12.00 $ 11.93 $ 12.00
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.07 0.13 0.98 0.12
Net Realized and Unrealized
Gain (Loss) 0.99 (0.09) 0.99 (0.09)
------ ------ ------ ------
Total From Investment
Operations 2.06 0.04 1.97 0.03
------ ------ ------ ------
DISTRIBUTION:
Net Investment Income (1.07) (0.12) (0.99) (0.10)
Net Realized Gain (0.05) -- (0.05) --
------ ------ ------ ------
Total Distributions (1.12) (0.12) (1.04) (0.10)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 12.86 $ 11.92 $ 12.86 $ 11.93
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN (1) 18.12% 0.29% 17.22% 0.21%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 8,980 $ 3,907 $ 8,617 $ 3,421
Ratio of Expenses to Average
Net Assets 1.25% 1.25%** 2.00% 2.00%**
Ratio of Net Investment Income
to Average Net Assets 8.83% 6.85%** 7.99% 6.08%**
Portfolio Turnover Rate 104% 10% 104% 10%
- ------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.10 $ 0.04 $ 0.10 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.04% 3.51%** 2.82% 4.25%**
Net Investment Income to
Average Net Assets 8.04% 4.59%** 7.17% 3.83%**
- ------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------------------
YEAR ENDED MAY 1, 1996*
SELECTED PER SHARE DATA AND JUNE 30, TO
RATIOS 1997 JUNE 30, 1996
<S> <C> <C>
- ------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.93 $ 12.00
------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.99 0.12
Net Realized and Unrealized
Gain (Loss) 0.98 (0.09)
------ ------
Total From Investment
Operations 1.97 0.03
------ ------
DISTRIBUTION:
Net Investment Income (0.99) (0.10)
Net Realized Gain (0.05) --
------ ------
Total Distributions (1.04) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD $ 12.86 $ 11.93
------ ------
------ ------
TOTAL RETURN (1) 17.21% 0.21%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 4,970 $ 3,316
Ratio of Expenses to Average
Net Assets 2.00% 2.00%**
Ratio of Net Investment Income
to Average Net Assets 8.03% 6.07%**
Portfolio Turnover Rate 104% 10%
- ----------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.11 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88% 4.25%**
Net Investment Income to
Average Net Assets 7.15% 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------ --------------------------
APRIL 21, AUGUST 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1994* YEAR ENDED 1995+
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, JUNE 30, TO JUNE 30,
RATIOS 1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.47 $ 11.57 $ 12.17 $ 12.00 $ 12.44 $ 11.63
------------ ------------ ------------ ------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.25 1.36 1.26 0.18 1.07 1.18
Net Realized and Unrealized
Gain (Loss) 2.30 0.80 (0.52) 0.16 2.35 0.72
------------ ------------ ------------ ------ ------------ ------------
Total From Investment
Operations 3.55 2.16 0.74 0.34 3.42 1.90
------------ ------------ ------------ ------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (1.25) (1.26) (1.22) (0.17) (1.15) (1.09)
Net Realized Gain (0.51) -- (0.12) -- (0.51) --
------------ ------------ ------------ ------ ------------ ------------
Total Distributions (1.76) (1.26) (1.34) (0.17) (1.66) (1.09)
------------ ------------ ------------ ------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 14.20 $ 12.44
------------ ------------ ------------ ------ ------------ ------------
------------ ------------ ------------ ------ ------------ ------------
TOTAL RETURN (1) 30.29% 19.61% 6.87% 2.86% 29.14% 17.07%
------------ ------------ ------------ ------ ------------ ------------
------------ ------------ ------------ ------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 76,439 $ 41,493 $ 14,819 $ 6,857 $ 78,340 $ 26,174
Ratio of Expenses to Average
Net Assets 1.52% 1.55% 1.55% 1.55%** 2.27% 2.30%**
Ratio of Net Investment Income
to Average Net Assets 9.73% 11.95% 11.53% 8.29%** 8.86% 12.06%**
Portfolio Turnover Rate 157% 220% 178% 19% 157% 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 Invesment Income to
Average Net Assets -- 11.81% 11.11% 6.61%** -- 11.89%**
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
------------------------------------------------------
APRIL 21,
YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA AND JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
RATIOS 1997 1996 1995 1994
<S> <C> <C> <C> <C>
- ------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.45 $ 11.58 $ 12.16 $ 12.00
------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.16 1.30 1.17 0.17
Net Realized and Unrealized
Gain (Loss) 2.26 0.77 (0.50) 0.15
------------ ------------ ------------ ------
Total From Investment
Operations 3.42 2.07 0.67 0.32
------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (0.51) -- (0.12) --
------------ ------------ ------------ ------
Total Distributions (1.66) (1.20) (1.25) (0.16)
------------ ------------ ------------ ------
NET ASSET VALUE, END OF PERIOD $ 14.21 $ 12.45 $ 11.58 $ 12.16
------------ ------------ ------------ ------
------------ ------------ ------------ ------
TOTAL RETURN (1) 29.12% 18.71% 6.20% 2.62%
------------ ------------ ------------ ------
------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to Average
Net Assets 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment Income
to Average Net Assets 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 157% 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 Invesment 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 returns for periods of less than one year are not annualized.
11
<PAGE>
INVESTMENT OBJECTIVES 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
Sub-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 Sub-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. The Fund expects that its investments in emerging country debt
securities will be made primarily in some or all of the following emerging
countries:
12
<PAGE>
Algeria
Argentina
Brazil
Bulgaria
Chile
China
Colombia
Costa Rica
Czech Republic
Democratic Republic
of Congo
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
In selecting emerging country debt securities for investment by the Fund,
the Sub-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. 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. Investments in emerging country
debt securities entail special investment risks.
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.
13
<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. See "Additional Investment
Information -- Lower Rated and Unrated Debt Securities." 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 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. See "Additional Investment
Information -- Borrowing and Other Forms of Leverage." The Fund may also enter
into reverse repurchase agreements.
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 a portion or all of
its assets in money market instruments and short- and medium-term debt
securities that the Sub-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 supranational entities, Eurobonds, corporate bonds and structured
investments with fixed income characteristics, with varying maturities
denominated in various currencies. In selecting portfolio securities, the Sub-
Adviser evaluates the currency, market, and individual features of the
securities being considered for investment.
The Sub-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
14
<PAGE>
recognized statistical rating organization (an "NRSRO") or, if unrated, will be
of comparable quality as determined by the Sub-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 Sub-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 Rating Group
("S&P") or IBCA Ltd., or if unrated, of comparable quality as determined by the
Sub-Adviser under the supervision of the Board of Directors.
The Sub-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 Sub-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 Sub-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 Sub-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.
For temporary defensive purposes, the Global Fixed Income Fund may invest a
portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Sub-Adviser believes to be of high quality
or hold cash.
15
<PAGE>
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, high risk 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 entail 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 S&P. Corporate bonds rated below Baa by Moody's
or BBB by S&P are considered speculative. Securities in the lowest rating
categories may have predominantly speculative characteristics or may be in
default. Ratings of S&P 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 Sub-Adviser
will consider ratings, it will perform its own analysis and will not rely
principally on ratings. The Sub-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 Sub-Adviser believes are comparable to rated
securities and are consistent with the Fund's objective and policies. The
Sub-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 the Fund's assets invested in rated
securities with the ratings assigned by S&P and in unrated securities determined
by the Sub-Adviser to be of comparable quality. These figures are
dollar-weighted averages of month-end portfolio holdings during the period ended
June 30, 1997, and are presented as a percentage of net assets. These
percentages are historical and are not necessarily indicative of the quality of
current or future portfolio holdings, which may vary.
<TABLE>
<CAPTION>
UNRATED
SECURITIES
OF
RATED COMPARABLE
SECURITIES QUALITY AS
AS A A
PERCENTAGE PERCENTAGE
DEBT SECURITIES RATINGS OF OF
(STANDARD & POOR'S) NET ASSETS NET ASSETS
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
AA.......................................................... 0.21% 0.14%
BBB......................................................... 6.12% 0.17%
BB.......................................................... 46.34% 3.66%
B........................................................... 39.18% 3.97%
CCC......................................................... 0.00% 0.05%
CC.......................................................... 0.00% 0.00%
C........................................................... 0.00% 0.16%
D........................................................... 0.00% 0.00%
Not Rated................................................... 8.15% 0.00%
</TABLE>
16
<PAGE>
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 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 a portion or all of its assets in money market
instruments and short- and medium-term debt securities that the Sub-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 S&P or may be unrated but
determined to be of comparable quality by the Sub-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 S&P (or are unrated but determined to be of comparable quality by
the Sub-Adviser) when purchased by the Fund that are later downgraded may
continue to be held by the Fund at the discretion of the Sub-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, high risk
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 Sub-Adviser will consider, among other
things, the price of the security, and the financial history, condition,
prospects and management of an issuer. The Sub-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 Sub-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
17
<PAGE>
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 known as "junk bonds."
The Sub-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 Sub-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 market conditions, substantially all of the Worldwide High
Income Fund's investments may be in "junk bonds." 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. For a
discussion of the risks associated with junk bonds, see "The High Yield Fund"
above. Investors should also carefully review the section below entitled
"Additional Investment Information -- Risk Factors Relating to Investing in
Lower Rated Debt Securities."
The table below provides a summary of the Fund's assets invested in
securities with the ratings assigned by S&P and in unrated securities determined
by the Sub-Adviser to be of comparable quality. These figures are
dollar-weighted averages of quarter-end portfolio holdings during the period
ended June 30, 1997, and are presented as a percentage of net assets. These
percentages are historical and are not necessarily indicative of the quality of
current or future portfolio holdings, which may vary.
<TABLE>
<CAPTION>
UNRATED
SECURITIES
OF
RATED COMPARABLE
SECURITIES QUALITY AS
AS A A
PERCENTAGE PERCENTAGE
DEBT SECURITIES RATINGS OF OF
(STANDARD & POOR'S) NET ASSETS NET ASSETS
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
A........................................................... 3.84% 0.02%
BBB......................................................... 3.03% 0.03%
BB.......................................................... 26.91% 0.00%
B........................................................... 15.22% 0.69%
CCC......................................................... 0.00% 21.98%
CC.......................................................... 0.00% 23.48%
C........................................................... 0.00% 4.68%
D........................................................... 0.00% 0.12%
Not Rated................................................... 51.00% 0.00%
</TABLE>
For a description of S&P 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
18
<PAGE>
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 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 engage in derivatives transactions.
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. See
"Additional Investment Information -- Borrowing and Other Forms of Leverage."
The Fund may also enter into reverse repurchase agreements.
For temporary defensive purposes, the Worldwide High Income Fund may invest
a portion or all of its assets in money market instruments and short- and
medium-term debt securities that the Sub-Adviser believes to be of high quality
or hold cash.
The Fund may acquire fixed income securities, including debt obligations and
preferred stock. These fixed income securities may have equity features, such as
conversion rights or warrants and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock. 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. For a discussion of fixed income
securities of U.S. issuers, see "High Yield Fund" above. A portion of the
Worldwide High Income Fund's assets will be invested in emerging country debt
securities. For a discussion of emerging country debt securities, see "Emerging
Markets Debt Fund" above. 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.
The average time to maturity of the Worldwide High Income Fund's securities
will vary depending upon the Sub-Adviser's perception of market conditions. The
Sub-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 Sub-Adviser believes that real yields are high, the Sub-Adviser
lengthens the remaining maturities of securities held by the Fund and,
conversely, when the Sub-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 Sub-Adviser may vary the
average maturity of the securities held in the Fund's portfolio without limit.
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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).
Borrowings by the Emerging Markets Debt and Wideworld High Income Funds may
result in leveraging. Leveraging will magnify declines as well as increases in
the net asset value of a Fund's shares and in the yield on a Fund's investments.
Although a Fund is authorized to borrow, it will do so only when the Sub-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 a Fund will create
the opportunity for increased net income but, at the same time, will involve
special risk considerations. Each Fund expects that its borrowing, for other
than temporary purposes, will be made on a secured basis. The Funds' 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 Funds may be required to
pledge additional collateral to the lender in the form of cash or securities to
avoid liquidation of those assets.
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.
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.
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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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S. 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.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of 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
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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.
INVESTMENT COMPANY SECURITIES
Each 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 Investment Company Act
of 1940, as amended (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, Global Fixed Income Fund and Worldwide High Income
Fund may invest in these investment funds, including those advised by MSAM,
subject to applicable provisions of the 1940 Act, and other applicable laws. If
a 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.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its securities to brokers, dealers, domestic and foreign
banks or other financial institutions for the purpose of increasing its net
investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. 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 Sub-Adviser to be
creditworthy.
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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, High Yield and Worldwide High Income 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.
The Sub-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.
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 Sub-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 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
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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, 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 pending other
investment, prior to settlement of portfolio transactions, for liquidity and for
temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. 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. No Fund may invest more than 15%
of its net assets in illiquid securities and, except as set forth below, no Fund
may invest 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
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("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 and therefore not subject to the limitation on illiquid securities.
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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The term for 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 Emerging Markets Debt and Worldwide High Income Funds may enter into
reverse repurchase agreements with brokers, dealers, banks or other financial
institutions that meet the credit guidelines of the Company's Board of
Directors. 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 sells securities it 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
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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 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,
and (2) any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Possible losses from short sales differ from losses that could be incurred from
a purchase of a security, because losses from short sales may be unlimited,
whereas losses from purchases can equal only the total amount invested.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. 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 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.
DERIVATIVE INSTRUMENTS
The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured investments and structured notes,
caps, floors, collars and swaps. Additionally, the Funds may invest in other
derivative instruments that are developed over time if their use would be
consistent with the objectives of the Funds. Each Fund,
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other than the Emerging Markets Debt Fund (as described below), will limit its
use of the foregoing derivative instruments for non-hedging purposes to 33 1/3%
of its total assets measured by the aggregate notional amount of outstanding
derivative instruments. In addition, no Fund, other than the Emerging Markets
Debt Fund, will enter into futures contracts and options on futures contracts to
the extent that the notional value of its outstanding obligations to purchase
securities under such contracts would exceed 20% of its total assets. The
Emerging Markets Debt Fund will limit its use of the foregoing derivative
instruments to 50% of its total assets measured by the aggregate notional amount
of outstanding derivative instruments, provided that no more than 33 1/3% of its
total assets are invested, for non-hedging purposes, in derivatives other than
futures and options on futures. The Funds' investments in forward foreign
currency contracts and derivatives used for hedging purposes are not subject to
the limits described above.
The Funds may use derivatives instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's investment strategy, or upon the inflow of investable cash or when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Fund for hedging purposes and in other circumstances when a Fund's portfolio
managers believe it advantageous to do so consistent with the Fund's investment
objective. The Funds will not, however, use derivatives in a manner that creates
leverage, except to the extent that the use of leverage is expressly permitted
by a particular Fund's investment policies, and then only in a manner consistent
with such policies.
Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.
CAPS, FLOORS AND COLLARS
The Funds may invest in caps, floors and collars, which are instruments
analogous to options. In particular, a cap is the right to receive the excess of
a reference rate over a given rate and is analogous to a put option. A floor is
the right to receive the excess of a given rate over a reference rate and is
analogous to a call option. Finally, a collar is an instrument that combines a
cap and a floor. That is, the buyer of a collar buys a cap and writes a floor,
and the writer of a collar writes a cap and buys a floor. The risks associated
with caps, floors and collars are similar to those associated with options. In
addition, caps, floors and collars are subject to risk of default by the
counterparty because they are privately negotiated instruments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds may purchase and sell futures contracts and options on futures
contracts, including but not limited to securities index futures, foreign
currency exchange futures, interest rate futures and other financial futures.
Futures contracts provide for the sale by one party and purchase by another
party of a specified amount of a specific security, instrument or basket
thereof, at a specific future date and at a specified price. An option on a
futures contract is a legal contract that gives the holder the right to buy or
sell a specified amount of futures contracts at a fixed or determinable price
upon the exercise of the option.
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The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging countries. The nature of the strategies
adopted by the Sub-Adviser, and the extent to which those strategies are used,
may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.
Gains and losses on futures contracts and options thereon depend on the
Sub-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 investments held by a Fund and the prices of futures and options
relating to investments 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. 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
exchange or secondary market. 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.
OPTIONS TRANSACTIONS
The Funds may seek to increase their returns or may hedge their portfolio
investments through options transactions with respect to (i) securities,
instruments, indices or baskets thereof in which such Funds may invest and (ii)
foreign currencies. Purchasing a put option gives a Fund the right to sell a
specified security, currency or
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basket of securities or currencies at the exercise price until the expiration of
the option. Purchasing a call option gives a Fund the right to purchase a
specified security, currency or basket of securities or currencies at the
exercise price until the expiration of the option.
Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to a foreign currency. A Fund
that has written an option receives a premium, which increases the Fund's return
on the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any consideration into the security or instrument subject to the option, or
(iii) a call option on the same underlying security with a strike price no
higher than the price at which the underlying instrument was sold pursuant to a
short option position.
By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument 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. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging countries, and the nature of
the strategies adopted by the Sub-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 investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.
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
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permitted to invest in a class of Structured Securities that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields and present
greater risks than unsubordinated Structured Securities. Structured Securities
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Securities.
STRUCTURED NOTES
Structured Notes are derivatives on which the amount of principal repayment
and/or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators. The Funds may
use structured notes to tailor their investments to the specific risks and
returns the Sub-Adviser wishes to accept while avoiding or reducing certain
other risks.
SWAPS -- SWAP CONTRACTS
Swaps and Swap Contracts are derivatives in the form of a contract or other
similar instrument in which two parties agree to exchange the returns generated
by a security, instrument, basket thereof or index for the returns generated by
another security, instrument, basket thereof or index. The payment streams are
calculated by reference to a specific security, instrument, basket thereof or
index and an agreed upon notional amount. The relevant indices include but are
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). 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 the Funds 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.
A Fund 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 or dates
specified in the instrument, with a Fund 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 liquid
securities. 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 payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may 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 may be 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, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps 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
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swap documentation. As a result, the swaps market has become relatively liquid.
Swaps that include caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid that "traditional" swaps.
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 Sub-Adviser is incorrect in its forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the Funds would be less favorable than it would have been if this
investment technique were not used.
INVESTMENT LIMITATIONS
The High Yield Fund is a diversified investment company under the 1940 Act,
and is subject to the following limitations: (a) the Fund may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (b)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. The Emerging Markets Debt, Global Fixed Income and Worldwide High
Income 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, the Emerging Markets Debt, Global Fixed Income and Worldwide High 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, Global Fixed Income and Worldwide High Income Funds, however,
intend 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.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp.
(the "Adviser") is the investment adviser and administrator of the Funds. The
Adviser provides investment advice and portfolio management services pursuant to
an advisory agreement (the "Advisory Agreement") and subject to the supervision
of the Company's Board of Directors, makes the Funds' investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments. The Advisory Agreement also provides that the Adviser may
appoint sub-advisers to perform these portfolio management responsibilities. See
"Investment Sub-Adviser" below. The Adviser is entitled to receive an aggregate
advisory fee computed daily and paid monthly at the following annual rates for
each Fund:
<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 reserves the right in its sole discretion from time to time to
waive all or a portion of its management fee or to reimburse the Funds for all
or a portion of other expenses.
The Adviser is a wholly-owned subsidiary of Van Kampen American Capital,
Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $60 billion
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under management or supervision. Van Kampen American Capital's more than 50
open-end and 37 closed-end funds and more than 2,500 unit investment trust are
professionally distributed by leading financial advisers nationwide. The
Distributor of the Company and the sponsor of the funds mentioned above is also
a wholly-owned subsidiary of Van Kampen American Capital. The Adviser's
principal office is located at One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
Van Kampen American Capital is an indirect wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. Morgan Stanley, Dean Witter, Discover & Co.
and various of its directly or indirectly owned subsidiaries, including Morgan
Stanley & Co. Incorporated, a registered broker-dealer and investment adviser,
and Morgan Stanley International are engaged in a wide range of financial
services. Their principal businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring and other corporate
finance advisory activities; merchant banking, stock brokerage and research
services; asset management; trading of futures, option, foreign exchange
commodities and swaps (including foreign exchange, commodities, indices and
interest rates); real estate advice, financing and investing; and global
custody, securities clearance services and securities lending; and credit
services.
INVESTMENT SUB-ADVISER. Morgan Stanley Asset Management Inc. ("MSAM," or
the "Sub-Adviser") is the investment sub-adviser of the Funds. The Sub-Adviser
provides investment advice and portfolio management services pursuant to an
investment sub-advisory agreement and, subject to the supervision of the Adviser
and the Company's Board of Directors, makes the Funds' investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Funds' investments.
The Sub-Adviser is entitled to receive sub-advisory fees computed daily and
paid monthly. If the average daily net assets of a Fund during the monthly
period are less than or equal to $500 million, the Adviser shall pay MSAM
one-half of the total investment advisory fee payable to the Adviser by the Fund
(after application of any fee waivers in effect) for such monthly period. If a
Fund's average daily net assets for the monthly period are greater than $500
million, the Adviser shall pay MSAM a fee for such monthly period equal to the
greater of (a) one-half of what the total investment advisory fee payable to the
Adviser by the Fund (after application of any fee waivers in effect) for such
monthly period would have been had the Fund's average daily net assets during
such period been equal to $500 million, or (b) forty-five percent of the total
investment advisory fee payable to the Adviser by the Fund (after application of
any fee waivers in effect) for such monthly period.
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 August 31, 1997, MSAM had approximately $80.9 billion in assets under
management as an investment adviser or as a named fiduciary or fiduciary
adviser.
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 & Co. Incorporated ("Morgan Stanley"). He joined the
Sub-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 Sub-Adviser, Mr. Ghaffari was a Vice President in the Fixed
Income Division of the Emerging Markets Sales and Trading Department at Morgan
Stanley. From 1983 to 1992, he worked in LDC Sales and Trading Department and
the Mortgage-Backed Securities Department at J.P. Morgan & Co. Inc. and worked
in
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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 will have primary responsibility for
managing the Portfolio's assets upon the Fund's commencement of operations.
GLOBAL FIXED INCOME FUND -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F.
O'BRIEN, ROBERT M. SMITH AND RICHARD B. WORLEY. J. David Germany shares primary
responsibility for managing the Fund's assets. He joined the Sub-Adviser in 1996
and has been a portfolio manager with the Adviser's affiliate, Miller Anderson &
Sherrerd, LLP ("MAS") since 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. 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
Sub-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 Sub-Adviser
and MAS in 1996. He was head of European Economics from 1993 through 1995 for JP
Morgan. 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 Sub-Adviser in June 1994 and has had or shared primary
responsibility for managing the Fund's assets since July 1994. Prior to joining
the Sub-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. Richard B.
Worley, a Managing Director of Morgan Stanley, joined MAS in 1978. He assumed
responsibility for the MAS Funds' Fixed Income Portfolio in 1984, the MAS Funds'
Domestic Fixed Income Portfolio in 1987, the MAS Funds' Fixed Income Portfolio
II in 1990, the MAS Funds' Balanced and Special Purpose Fixed Income Portfolios
in 1992, the MAS Funds' Global Fixed Income and International Fixed Income
Portfolios in 1993 and the MAS Funds' Multi-Asset-Class Portfolio in 1994. Mr.
Worley received a B.A. in Economics from University of Tennessee and attended
the Graduate School of Economics at University of Texas.
HIGH YIELD FUND -- ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F. ESSER.
Robert Angevine is a Principal of the Sub-Adviser and the portfolio manager for
high yield investments. He has shared primary management responsibility for the
Fund since it commenced operations. 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 assets. He joined the
Sub-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
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<PAGE>
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 Sub-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. The Administrator provides the Company with administrative
services pursuant to an administration agreement (the "Administration
Agreement"). The services provided under the Administration Agreement are
subject to the supervision of the officers and Board of Directors of the Company
and include day-to-day administration of matters related to the corporate
existence of the Company, maintenance of its records, preparation of reports,
supervision of the Company's arrangements with its custodian and assistance in
the preparation of the Company's registration statements under federal and state
laws. The Administration Agreement also provides that the Administrator through
its agents will provide the Company dividend disbursing and transfer agent
services. For its services under the Administration Agreement, the Company pays
the Administrator a monthly fee which on an annual basis equals 0.25% of the
average daily net assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Adviser, Administrator and Distributor.
The Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor") serves as the distributor of the shares of the Company. Under its
distribution agreement (the "Distribution Agreement") with the Company, the
Distributor sells shares of the Company upon the terms and at the current
offering price described in this Prospectus. The Distributor is not obligated to
sell any specific number of shares of the Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds. The Company may in the future offer one or more classes of
shares for Funds that may have sales charges or other distribution charges or a
combination thereof different from those of the classes currently offered.
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<PAGE>
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 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 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
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 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 ACCESS. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. Each 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.
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<PAGE>
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. ("ACCESS"), a wholly-owned subsidiary of Van Kampen American
Capital, Inc. 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 an
initial or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. See "Valuation of Shares"
for a further description of net asset value computations.
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 classes of
shares may differ from one another, reflecting the daily expense accruals of the
higher distribution 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 New York Stock Exchange (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 higher distribution fees) 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, (iii) certain shares are subject to a
conversion feature, (iv) each class has different exchange privileges and (v)
each class has 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
36
<PAGE>
Class C shares will be reduced by the amount of the higher distribution fees
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 a 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 most
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.
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 CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Investors should understand that the purpose and function of the CDSC
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."
37
<PAGE>
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. In some instances, additional compensation or promotional incentives may
be offered to Participating Dealers that have sold or may sell significant
amounts of shares during specified periods of time. Such fees paid for such
services and activities with respect to a Fund will not exceed in the aggregate
1.25% of the average total daily net assets of the Fund on an annual basis. All
of the foregoing payments are made by the Distributor out of its own assets.
These programs will not change the price an investor will pay for shares or the
amount that a Fund will receive from such sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO 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 initial 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 $1 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 1933 Act.
38
<PAGE>
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
The phrase "Participating Funds," as used herein, refers to certain open-end
investment companies advised by the Adviser or Van Kampen American Capital Asset
Management Inc. and distributed by the Distributor as determined from time to
time by the Company's Board of Directors.
VOLUME DISCOUNTS. The size of investment shown in the preceding sales
charge 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
sales charge 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
39
<PAGE>
goal is not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the sales 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 investment trust reinvestment programs and
purchases by registered representatives of selling firms or purchases by persons
affiliated with the Company or the Distributor. The Company reserves the right
to modify or terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased without an
initial sales charge, 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 the Adviser or
Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its 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.
40
<PAGE>
(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 broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) 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 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. Section 403(b) and similar accounts for which Van
Kampen American Capital Trust Company ("VKAC Trust") 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 $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
(8) 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 Funds 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
Funds 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
41
<PAGE>
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 $1 million and 0.50% on the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution Plans" on
purchases made as described in (3) through (8) above.
The Company may terminate, or amend the terms of, offering shares of the
Funds at net asset value to the foregoing groups at any time.
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 CDSC, 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.
42
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 4.00%
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 Rule 12b-1 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 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 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 c
onversion is not a taxable event to the shareholder.
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) certain distributions from an IRA or other
retirement plan; (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
43
<PAGE>
liquidate a shareholder's account as described herein under "Redemption of
Shares." A shareholder, or their 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 Investor Services 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 classes 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 Participating Fund and paid a
CDSC upon such redemption may reinvest up to the full amount received upon
redemption in Class A shares of a Fund at net asset value with no initial sales
charge. A Class C shareholder who has redeemed shares of a Participating Fund
may reinstate any portion or all of the net proceeds of such redemption in Class
C shares of a Fund with credit given for any CDSC paid upon such redemption. 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 VKAC Trust 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. Each shareholder has an investment account under which
shares are held by ACCESS. ACCESS acts as transfer agent for the Company and
performs bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. 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
44
<PAGE>
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 Morgan Stanley Fund, Inc.
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
Participating 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 portfolio into which distributions would be invested. Distributions are
invested into the selected portfolio at its net asset value as of the payable
date of the distribution only if shares of such selected portfolio have been
registered for sale in the investor's state and are currently available for
sale.
RETIREMENT PLANS. Eligible investors may establish 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
45
<PAGE>
the Distributor. VKAC Trust 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 Funds may be exchanged for shares of the
same class of another Participating Fund, based on the net asset values of each
fund on the date of exchange, 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 AND ARE CURRENTLY AVAILABLE FOR SALE.
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 a Participating Fund that generally impose an initial
sales charge are not subject to any sales charge upon exchange into another
Participating Fund. Class A shares of Participating Funds that do not impose an
initial sales charge will be subject to the applicable sales charge of the
Participating Fund being obtained in the exchange.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The CDSC schedule, conversion schedule and holding period applicable to a
Class B share or a Class C share acquired through the exchange privilege is
determined by reference to the Participating Fund from which such shares
originally was purchased.
Exchange of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. See
"Redemption of Shares -- Telephone Transaction Procedures" for more information.
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. 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. If an account has multiple owners, ACCESS may
rely on the instructions of any one owner.
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SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more at the offering price next computed after receipt of
instructions 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 may establish a monthly,
quarterly, semi-annual or annual withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of the initial value of a shareholder's account.
Under this CDSC waiver policy, amounts withdrawn each period will be paid by
redeeming first 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 shares subject to the
CDSC must be redeemed, shares held for the longest period of time will be
redeemed first and continuing with shares held the next longest period of time
until shares held the shortest period of time are redeemed.
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 30 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 ACH. 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 ACH transfers.
TRANSFER OF REGISTRATION. You may transfer the registration of any of your
Company shares to another person by writing to the Company 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.
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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 Company 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. 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, additional documents may be necessary. 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.
DEALER REDEMPTION REQUEST. Shareholders may redeem shares through their
securities dealer, who will submit 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 redemption request 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 redemption request. Payment for shares redeemed (less any sales charge, if
applicable) will ordinarily be made by check mailed within three business days
to the dealer.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 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. See
"Telephone Transaction Procedures" for more information. 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
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<PAGE>
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
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 or bank account 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 CDSC on redemption
following the disability of holders of Class B shares and Class C shares. An
individual will be considered disabled for this purpose of he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled of such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Company does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
contingent deferred sales charge on Class B shares and Class C shares.
In cases of disability, the CDSCs 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
CDSC 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. 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. In addition, the redemption payment
may be delayed or the right of redemption suspended by the Fund pursuant to
rules of the SEC.
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 involuntary redemption may only occur if
the shareholder account is less than the minimum investment due to shareholder
redemptions.
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 VKAC Trust serves as IRA custodian,
special IRA, 403(b)(7), or Keogh redemption forms must be obtained from and be
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forwarded to Van Kampen American Capital Trust Company, P.O. Box 944, Houston,
Texas 77001-0944. Contact the custodian for information. Reinstatement
privileges (as otherwise described under "Purchase of Shares -- Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by VKAC Trust who repay the principal and
interest on their borrowings from 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.
TELEPHONE TRANSACTION PROCEDURES. 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 VKAC nor the Company will be liable for
following instructions which it reasonably believes to be genuine. VKAC and the
Company may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed.
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such class of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium,
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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.
PORTFOLIO TRANSACTIONS
The Adviser and the Sub-Adviser select the brokers or dealers that will
execute the purchases and sales of investment securities for each of the Funds.
The Adviser and the Sub-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 and the Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Adviser and Sub-Adviser or broker affiliates of
Morgan Stanley under procedures adopted by the Board of Directors. For such
portfolio transactions, the commissions, fees or other remuneration received by
Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers for comparable
transactions involving similar securities being purchased or sold during a
comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Fund's objective. 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 Fund, which has not
commenced investment operations, anticipates that its annual portfolio turnover
rate will not exceed 100% under normal circumstances. Market conditions could
result in portfolio activity at a greater or lesser rate than anticipated. For
the annual 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. In
addition, from time to time the Company may advertise "yield" for each 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 "yield" of a Fund refers to the income generated by an
investment in the Fund over a one-month or 30-day period. This income is
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then "annualized." That is, the amount of income generated by the investment
during that 30-day period is assumed to be generated each 30-day period for
twelve periods, and is shown as a percentage of the investment. 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.
PERFORMANCE OF INVESTMENT SUB-ADVISER -- EMERGING MARKETS DEBT FUND
The Sub-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, policies and strategies as the Emerging Markets Debt Fund. In
addition, the Adviser and Sub-Adviser intend 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 Sub-Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted to reflect the Fund's projected operating expenses and (i) with respect
to the Class A shares, to take into account a maximum 4.75% initial sales charge
applicable to purchases of Class A shares of the Emerging Markets Debt Fund;
(ii) with respect to Class B shares, to take into account the applicable CDSC
that is imposed if Class B shares of the Emerging Markets Debt Fund are redeemed
within the year of their purchase indicated; and (iii) with respect to the Class
C shares, to take into account a 1.00% CDSC that is imposed if Class C shares of
the Emerging Markets Debt Fund are redeemed within one year of their purchase.
The data set forth below under the heading "Return Without Sales Charge" is
adjusted to reflect the Fund's projected operating expenses and not adjusted to
take into account such sales charges.
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TOTAL RETURN FOR THE MSIF PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM EMERGING MARKETS DEBT FUND)
FOR THE PERIOD ENDED JUNE 30, 1997
(ADJUSTED TO REFLECT PROJECTED OPERATING EXPENSES AND, WHERE INDICATED, THE
SALES CHARGES OF THE EMERGING MARKETS DEBT FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 3 YEAR INCEPTION (1)
- ------------------------------------------------------- --------- --------- ------------
<S> <C> <C> <C>
Class A................................................ 41.60% 31.24% 19.55%
Class B................................................ 43.91% 32.39% 20.78%
Class C................................................ 46.91% 32.96% 20.78%
RETURN WITHOUT
SALES CHARGE
- -------------------------------------------------------
Class A................................................ 48.66% 33.39% 21.27%
Class B................................................ 47.91% 32.96% 20.78%
Class C................................................ 47.91% 32.96% 20.78%
</TABLE>
- --------------
(1) Commenced operations on February 1, 1994.
The past performance of the MSIF 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
sales charge of the Funds, except that, upon written notice to the Company or by
checking off the appropriate box in the account application form, a shareholder
may elect to receive dividends and/or distributions in cash.
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 in the form of monthly dividends. Each of the Funds
expects to distribute net realized gains, if any, annually. Confirmations of the
purchase of shares of the Fund through the automatic reinvestment of income
dividends and capital gains distributions will be provided, pursuant to Rule
10b-10(b) under the Securities Exchange Act of 1934, as amended, on the next
quarterly client statement following such purchase of shares. Consequently,
confirmations of such purchases will not be provided at the time of completion
of such purchases, as might otherwise be required by Rule 10b-10.
Any undistributed net investment income and undistributed realized gains
increase 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.
Expenses of the Company allocated to a particular class of shares of a Fund
will be borne on a pro rata basis by each outstanding share of that class.
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TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action, possibly with retroactive effect. 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, mid-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 less any available loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS AND DISPOSITIONS
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 ("capital gain dividends") 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 gain 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. For a summary of the tax rates applicable to capital gains
(including capital gain dividends); see the discussion below regarding the
Taxpayer Relief Act of 1997.
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 qualify as an RIC under the Code and to avoid liability for federal
income and excise taxes.
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 dividends
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<PAGE>
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 dividends. Shareholders may also be subject to
state and local taxes on distributions from the Funds.
Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other
non-corporate taxpayers are (i) the same as ordinary income rates for capital
assets held for one year or less, (ii) 28% for capital assets held for more than
one year but not more than 18 months and (iii) 20% for capital assets held for
more than 18 months. The maximum long-term capital gains rate for corporations
remains at 35%. Under the 1997 Tax Act, the Treasury is authorized to issue
regulations that address the application of the new capital gains rates to sales
and exchanges by RICs and to sales and exchanges of interests in RICs, but no
such regulations have been issued as of the date hereof. It is expected that the
new tax rates for capital gains under the 1997 Tax Act described above will
apply to distributions of capital gain dividends by the Funds as well as to
sales and exchanges of shares in the Funds. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gain
dividends received on such shares (see discussion above regarding gains or
losses recognized on the sale or exchange of shares), it is unclear how such
capital losses offset the capital gains referred to above. Shareholders should
consult their own tax advisers as to the application of the new capital gains
rates to their particular circumstances.
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. Except as
described herein, 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 October 16, 1997, Lehman
Brothers Inc., FBO 835-91032-18, P.O. Box 29198, Brooklyn, NY 11202-9198, was
presumed to "control" the Global Fixed Income Fund based solely on its ownership
of more than 25% of the outstanding voting shares of such Fund. As
55
<PAGE>
of October 16, 1997, Morgan Stanley Group Inc., 1221 Avenue of the Americas, New
York, New York 10020-1001, was presumed to "control" the High Yield Fund based
solely on its ownership of more than 25% 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 ACCESS 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 ACCESS 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, the Sub-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, the Sub-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
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
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STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
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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.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
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Prospectus Summary.................................................... 2
Fund Expenses......................................................... 4
Financial Highlights.................................................. 7
Investment Objectives and Policies.................................... 12
Additional Investment Information..................................... 20
Investment Limitations................................................ 31
Management of the Company............................................. 31
Purchase of Shares.................................................... 36
Shareholder Services.................................................. 44
Redemption of Shares.................................................. 48
Valuation of Shares................................................... 50
Portfolio Transactions................................................ 51
Performance Information............................................... 51
Dividends and Distributions........................................... 53
Taxes................................................................. 54
General Information................................................... 55
Appendix A -- Description of Corporate Bond Ratings................... A-1
</TABLE>
MORGAN STANLEY
EMERGING MARKETS DEBT FUND
GLOBAL FIXED INCOME FUND
HIGH YIELD FUND
WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF
MORGAN STANLEY
FUND, INC.
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
VAN KAMPEN AMERICAN
CAPITAL INVESTMENT
ADVISORY CORP.
INVESTMENT SUB-ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
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