<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Morgan Stanley Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
MORGAN STANLEY FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS 02208-2798
April __, 1997
Dear Shareholder:
The enclosed proxy statement relates to a special meeting of the
shareholders of Morgan Stanley Fund, Inc. (the "Company"). The shareholders of
the Company are being asked to consider a series of related proposals which stem
from transactions involving Morgan Stanley Group Inc. ("Morgan Stanley"). Morgan
Stanley is the parent corporation of the Company's investment adviser, Morgan
Stanley Asset Management Inc. ("MSAM") and also Van Kampen American Capital Inc.
("Van Kampen"). Van Kampen is, in turn, the parent corporation of the Company's
distributor, transfer agent and the proposed investment adviser, Van Kampen
American Capital Investment Advisory Corp. ("VK Advisory").
In February, 1997, Morgan Stanley entered into an Agreement and Plan of
Merger with Dean Witter, Discover & Co. ("Dean Witter Discover"). Pursuant to
the merger agreement, both MSAM and Van Kampen will become subsidiaries of the
merged company, which will be named Morgan Stanley, Dean Witter, Discover & Co.
In order to most effectively benefit from the combined resources of Morgan
Stanley, Dean Witter, Discover & Co., it is being proposed that the Company
restructure its Board and investment advisory arrangements. To that end, the
following proposals are being submitted for shareholder approval:
1: To consider and act upon a proposal to elect a new Board of Directors
(voted on by the shareholders of the Company as a whole);
2: To approve or disapprove a new investment advisory agreement with Van
Kampen American Capital Investment Advisory Corp. (voted on by each
Fund of the Company separately); and
3: To approve or disapprove a new investment sub-advisory agreement with
Morgan Stanley Asset Management Inc. (voted on by each Fund of the
Company separately).
The majority of the Director nominees have substantial familiarity and
experience as directors of mutual funds advised, administered and distributed by
subsidiaries of Van Kampen. If the proposals are approved, VK Advisory would
serve as the Company's investment adviser and MSAM would serve as sub-adviser to
the Funds that it currently advises. Under the proposed investment sub-advisory
agreement, the personnel of MSAM will continue to provide the same portfolio
management services to the Company that they currently provide under the current
investment advisory agreement between MSAM and the Company.
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<PAGE> 3
The new advisory agreement with VK Advisory is substantially similar to
the Company's current investment advisory agreement and the fees paid for
investment advisory services will not change as a result of the restructuring.
Each of the Proposals is contingent on the consummation of the merger of Dean
Witter Discover and Morgan Stanley. Moreover, the new investment advisory and
sub-advisory agreements will be effective with respect to a Fund only if both
are approved by Shareholders of that Fund.
The attached proxy statement seeks shareholder approval on these items.
The Board of Directors of the Company have approved unanimously the
proposals and recommend you vote "FOR" each proposal. YOUR IMMEDIATE RESPONSE
WILL ELIMINATE THE NEED FOR ANY ADDITIONAL SOLICITATIONS. We look forward to
your participation, and we thank you for your continued confidence in Morgan
Stanley Fund, Inc.
PLEASE SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
Sincerely,
[Signature]
Warren J. Olsen
President
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INFORMATION ABOUT YOUR PROXY STATEMENT
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. The parent company of the investment advisers is merging with another
company and it is being proposed that the Company restructure its Board
and investment advisory arrangements, as a result, your consent is
being sought on:
- approval of a new Board of Directors;
- approval of a new investment advisory agreement; and
- approval of a new investment sub-advisory agreement.
Please refer to the proxy statement for a detailed explanation of the
proposals.
Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. You can expect the same management expertise and shareholder service
you are currently receiving. The nominees for the Board have extensive
experience in the management of mutual funds designed for the
individual investor and the new investment advisory agreement will be
substantially identical to the Company's current investment advisory
agreement. The Company's current investment advisers will, as
sub-advisers, continue to provide portfolio management services for the
Funds. The new investment advisory arrangements will not increase the
fees paid by the Funds.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposals can be acted upon.
Your immediate response on the enclosed proxy card will help prevent
the need for any further solicitations for a shareholder vote. We
encourage all shareholders to participate in the governance of the
Company.
Q. HOW DOES THE BOARD OF DIRECTORS SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Directors of the Company
unanimously recommends that you vote "FOR" each item proposed on the
enclosed proxy card.
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDER MEETING?
A. The VK Advisory or its affiliates will pay for expenses relating to the
shareholder meeting. The Company will not pay any expenses relating to
the shareholder meeting.
Q. WHERE DO I MAIL MY PROXY CARD?
A. You may use the enclosed postage-paid envelope or mail your proxy card
to:
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Proxy Tabulator
P.O. Box 9113
Hingham, MA 02043-9888
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy solicitation.
Please call us at (800) 341-2911 between 7:00 a.m. and 7:00 p.m.
Central Time, Monday through Friday.
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NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
MAY 21, 1997
A Special Meeting of Shareholders (the "Meeting") of Morgan Stanley
Fund, Inc. (the "Company") will be held at the offices of Morgan Stanley Asset
Management Inc. on May 21, 1997, at 11:30 a.m. (New York time), in Conference
Room 3, at 1221 Avenue of the Americas, 22nd Floor, New York, New York 10020,
for the following purposes:
1: To consider and act upon a proposal to elect a Board of
Directors (voted on by the shareholders of the Company as a
whole);
2. To approve or disapprove a new investment advisory agreement
with Van Kampen American Capital Investment Advisory Corp.
(voted on separately by shareholders of the Company's
investment portfolios that have commenced operations (each a
"Fund"));
3. To approve or disapprove a new investment sub-advisory
agreement with Morgan Stanley Asset Management Inc. (voted on
separately by shareholders of each Fund); and
4. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
Shareholders of record at the close of business on ________, 1997 are
entitled to notice of and to vote at this Meeting or any adjournment thereof.
The enclosed proxy card(s) will enable you to vote with respect to the Fund(s)
in which you are a shareholder. You will receive a separate solicitation for
each account you have with the Company and for each Fund in which such accounts
have an investment.
By Order of the Board of Directors
Valerie Y. Lewis, Secretary
April __, 1997
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MORGAN STANLEY FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS 02208-2798
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
MAY 21, 1997
This proxy statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Morgan Stanley Fund, Inc. (the
"Company") of proxies to be voted at a Special Meeting of Shareholders and all
adjournments thereof (the "Meeting"), to be held at the offices of Morgan
Stanley Asset Management Inc., Conference Room 3, 22nd Floor, 1221 Avenue of the
Americas, New York, NY 10020 on Wednesday, May 21, 1997 at 11:30 a.m. (New York
time). The approximate mailing date of this proxy statement and accompanying
form of proxy is April __, 1997.
The primary purpose of the Meeting is to permit the Company's
shareholders to take action on the following proposals (each a "Proposal" and,
collectively, the "Proposals"):
Proposal 1: To elect a new Board of Directors.
Proposal 2: To approve a new investment advisory agreement with Van
Kampen American Capital Investment Advisory Corp. (the "New
Advisory Agreement")
Proposal 3: To approve a new investment sub-advisory agreement with
Morgan Stanley Asset Management Inc. (the "New Sub-Advisory
Agreement")
The Meeting is being called to consider the Proposals in connection
with the transactions contemplated by an Agreement and Plan of Merger, dated as
of February 4, 1997 (the "Merger Agreement"), between Dean Witter, Discover &
Co. ("Dean Witter Discover") and Morgan Stanley Group Inc. ("MS Group"), the
direct parent of Morgan Stanley Asset Management Inc. ("MSAM"), a current
investment adviser to the Company. MS Group is also the indirect parent of
Miller Anderson & Sherrerd, LLP ("MAS"), a current investment adviser to the
Company and Van Kampen American Capital Investment Advisory Corp ("VK
Advisory"), the proposed new investment advisor to the Company. Because the
investment portfolios for which MAS has been selected to act as investment
adviser have not yet commenced operations, shareholder approval of new
sub-advisory agreements with respect to MAS is not currently being sought.
Appropriate shareholder approval will be obtained prior to each such investment
portfolio's commencement of operations. Pursuant to the Merger Agreement, MSAM
will become a direct subsidiary and VK Advisory an indirect subsidiary of the
merged company, which will be called Morgan Stanley, Dean Witter, Discover & Co.
Each of the Proposals is contingent on the consummation of the
transactions contemplated by the Merger Agreement. Moreover, the New
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Advisory and New Sub-Advisory Agreements will be effective with respect to an
investment portfolio with shares outstanding (a "Fund") only if both are
approved by Shareholders of that Fund. That is, even if Shareholders approve a
Proposal in the manner described herein, each Proposal will take effect only if
(i) the merger between Dean Witter Discover and MS Group is consummated, (ii)
VK Advisory will act as investment adviser to a Fund only if that Fund's
Shareholders elect MSAM as the Fund's investment sub-adviser and (iii) MSAM will
act as investment sub-adviser to a Fund only if that Fund's Shareholders elect
VK Advisory as the Fund's investment adviser.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS MOST
RECENT ANNUAL REPORT (AND THE SUCCEEDING SEMI-ANNUAL REPORT ) TO SHAREHOLDERS OF
THE COMPANY ON REQUEST. REQUESTS SHOULD BE DIRECTED TO THE COMPANY AT [ADDRESS]
OR BY CALLING (800) [NUMBER].
VOTING
Holders of shares of outstanding common stock, par value $.001 per
share (collectively, the "Shares"), of the Company are entitled to participate
in the Meeting. The Board has fixed the close of business on [date] as the
record date (the "Record Date") for the determination of holders of Shares of
the Company entitled to vote at the Meeting. Shareholders of the Company on the
Record Date will be entitled to one vote per Share for each Share then held and
a fractional vote for each fractional Share held with respect to each Proposal
submitted to the Shareholders of the Company. At the close of business on the
Record Date there were issued and outstanding [number] Shares of the Company
consisting of the following number of Shares of the Funds of the Company listed
below (for ease of reference the words "Morgan Stanley," which begin the name of
each Fund, have not been included):
<TABLE>
<CAPTION>
FUNDS* ISSUED AND OUTSTANDING SHARES AS OF [DATE]
<S> <C>
Global Fixed Income Fund
High Yield Fund
Worldwide High Income Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
International Magnum Fund
Latin American Fund
Aggressive Equity Fund
American Value Fund
U.S. Real Estate Fund
Government Obligations Money Market Fund
Money Market Fund
</TABLE>
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* The Emerging Markets Debt, European Equity, Global Equity, Japanese Equity,
Equity Growth, Growth and Income, Tax-Free Money Market, Mid Cap Growth and
Value Funds have not commenced operations and are currently not being offered.
Accordingly, votes are not being solicited with respect to these investment
portfolios.
Shareholders of the Company will vote on Proposal 1 together and
Shareholders of each Fund will vote separately with respect to each of Proposal
2 and Proposal 3. With respect to Proposal 1, a Director nominee (a "Nominee")
will be elected to the Board of Directors if he or she receives a vote of a
majority of the Shares represented at the Meeting at which a majority of the
Shareholders entitled to vote is present. With respect to Proposals 2 and 3, a
"vote of majority of the outstanding voting securities" of the particular Fund
is required, which is defined under the Investment Company Act of 1940, as
amended (the "1940 Act") as the lesser of (i) 67% or more of the voting
securities of the Fund entitled to vote thereon present in person or by proxy at
the Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund entitled to vote thereon are present in person or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund entitled to vote thereon. The following table summarizes these
voting requirements:
<TABLE>
<CAPTION>
SHAREHOLDERS ENTITLED TO VOTE VOTE REQUIRED FOR APPROVAL*
<S> <C> <C>
PROPOSAL 1 Shareholders of all Funds of the Company Each Nominee must be elected by a majority of the Shares
(Election of Directors) vote together for each Nominee. represented at the Meeting, provided a majority of the
Shares entitled to vote are represented at the Meeting.
PROPOSAL 2 Shareholders of each Fund vote separately. The Advisory Agreement must be approved by the lesser
(Approval of of (i) 67% of the Shares represented at the Meeting if 50%
Advisory Agreement) of the Shares are represented at the Meeting or (ii) more
than 50% of the Shares of each Fund.
PROPOSAL 3 Shareholders of each Fund vote separately. The Sub-Advisory Agreement must be approved by the lesser
(Approval of Sub- of (i) 67% of the Shares represented at the Meeting if 50%
Advisory Agreement) of the Shares are represented at the Meeting or (ii) more
than 50% of the Shares of each Fund.
</TABLE>
* Each of the Proposals is contingent on the consummation of the
transactions contemplated by the Merger Agreement. Moreover, the New
Advisory and New Sub-Advisory Agreements will be effective with respect
to an investment portfolio with shares outstanding (a "Fund") only if
both are approved by Shareholders of that Fund.
The Board recommends that you cast your vote:
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- FOR each Nominee for the Board of Directors;
- FOR approval of the New Advisory Agreement with VK Advisory;
and
- FOR approval of the New Sub-Advisory Agreement with MSAM.
All properly executed proxies received prior to the Meeting will be
voted at the Meeting in accordance with the instructions marked thereon.
Properly executed proxies received prior to the Meeting on which no vote is
indicated will be voted "FOR" the Proposal as to which it is entitled to vote.
With respect to Proposal 1, votes may be cast in favor of Nominees or withheld.
Votes that are withheld and proxies signed and returned by brokers without
voting on a proposal ("broker non-votes") will not be counted for or against the
proposal, but will be counted as votes present for purposes of determining
whether a quorum is present. With respect to Proposals 2 and 3, abstentions and
broker non-votes will be counted as votes present for purposes of determining a
"majority of the outstanding voting securities" present at the Meeting and will
therefore have the effect of counting against the Proposal to which they relate.
A majority of the outstanding Shares entitled to vote must be present in person
or by proxy to have a quorum to conduct business at the Meeting.
Shareholders who execute proxies may revoke them at any time before
they are voted by filing with the Company a written notice of revocation, by
delivering a duly executed proxy bearing a later date or by attending the
Meeting and voting in person.
BACKGROUND
The shareholders of the Company are being asked to consider a series of
interrelated proposals intended to give the Company the benefit of the combined
resources of MS Group, Dean Witter Discover and Van Kampen American Capital,
Inc. ("Van Kampen"). In particular, approval of the Proposals would make
available to the Company significant additional experience in the management and
distribution of mutual funds for individual and other noninstitutional investors
("retail investors").
MS Group acquired VK/AC Holdings, Inc. and, as a result Van Kampen, on
October 31, 1996. Van Kampen, through subsidiaries, has extensive experience in
mutual fund management, distribution and shareholder servicing. VK Advisory, the
proposed new investment adviser for the Company, managed mutual funds with
assets of $43 billion as of March 27, 1997. On December 12, 1996, the Company's
Board of Directors appointed Van Kampen American Capital Distributors, Inc. as
distributor of all classes of the Company's shares and appointed ACCESS Investor
Services, Inc. (also a Van Kampen affiliate) as the transfer agent of the
Company's shares with the exception of Prime Resource Account Holders of the
Money Market Funds.
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On February 5, 1997, MS Group and Dean Witter Discover announced that
they had entered into the Merger Agreement pursuant to which MS Group will be
merged with and into Dean Witter Discover (the "Merger"). The resulting
corporation will be called Morgan Stanley, Dean Witter, Discover & Co.
INFORMATION CONCERNING MORGAN STANLEY GROUP INC.
MS Group and various of its directly or indirectly owned subsidiaries,
including Morgan Stanley & Co. Incorporated ("Morgan Stanley & Co."), a
registered broker-dealer and investment adviser, and Morgan Stanley
International Incorporated provide a wide range of financial services on a
global basis. MS Group's principal businesses include securities underwriting,
distribution and trading; merger, acquisition, restructuring, real estate,
project finance and other corporate finance advisory activities; merchant
banking and other principal investment activities; stock brokerage and research
services; asset management; the trading of foreign exchange and commodities as
well as derivatives on a broad range of asset categories, rates and indices;
real estate advice, financing and investing; and global custody, securities
clearance services and securities lending.
INFORMATION CONCERNING DEAN WITTER, DISCOVER & CO.
Dean Witter Discover is a diversified financial services company
offering a broad range of nationally marketed credit and investment products
with a primary focus on individual customers. Dean Witter Discover has two
principal lines of business: credit services and securities. Its credit services
business consists primarily of the issuance, marketing and servicing of general
purpose credit cards and the provision of transaction processing services,
private-label credit card services and real estate secured loans. It is the
largest single issuer of general purpose credit cards in the United States as
measured by number of accounts and cardmembers and the third largest originator
and servicer of credit card receivables, as measured by managed loans. Dean
Witter Discover's securities business is conducted primarily through its
wholly-owned subsidiaries, Dean Witter Reynolds Inc. ("DWR") and Dean Witter
Intercapital Inc. ("Intercapital"). DWR is a full-service securities firm
offering a wide variety of securities products to serve the investment needs of
individual clients through over 9,100 professional account executives located in
371 branch offices. DWR is among the largest NYSE members and is a member of
other major securities, futures and options exchanges. Intercapital is a
registered investment adviser that, along with its subsidiaries, services
investment companies, individual accounts and institutional portfolios.
THE MERGER
Under the terms of the Merger Agreement, each of MS Group's common
shares will be converted into the right to receive 1.65 shares of Morgan
Stanley, Dean Witter, Discover & Co. common stock and each issued and
outstanding share of Dean Witter Discover common stock will remain outstanding
and will thereafter represent one share of Morgan Stanley, Dean Witter,
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<PAGE> 12
Discover & Co. common stock. Following the Merger, MS Group's former
shareholders will own approximately 45% and Dean Witter Discover's former
shareholders will own approximately 55% of the outstanding shares of common
stock of Morgan Stanley, Dean Witter, Discover & Co.
The Merger is expected to be consummated in mid-1997 and is subject
to certain closing conditions, including certain regulatory approvals and the
approval of shareholders of both MS Group and Dean Witter Discover.
The Board of Directors of Morgan Stanley, Dean Witter, Discover & Co.
will initially consist of fourteen members, two of whom will be MS Group
insiders and two of whom will be Dean Witter Discover insiders. The remaining
ten directors will be independent directors, with MS Group and Dean Witter
Discover each nominating five of the ten. The Chairman and Chief Executive
Officer of Morgan Stanley, Dean Witter, Discover & Co. will be the current
Chairman and Chief Executive Officer of Dean Witter Discover, Phillip Purcell.
The President and Chief Operating Officer of Morgan Stanley, Dean Witter,
Discover & Co. will be the current President of MS Group, John Mack.
On April 2, 1997, the Board of Directors of the Company unanimously
approved the interrelated proposals described below. They also approved a
proposal for VK Advisory to assume the responsibilities of MSAM and MAS under
their respective administration agreements with the Company, subject to the
contingencies discussed above.
PROPOSAL 1: ELECTION OF DIRECTORS
At the Meeting, it is proposed that nine Directors will be elected to
hold office until their successors are duly elected and qualified. The persons
named in the accompanying Proxy intend, in the absence of contrary instructions,
to vote all proxies on behalf of the shareholders for the election of the
following Nominees: J. Miles Branagan, Richard D. DeMartini, Linda Hutton Heagy,
R. Craig Kennedy, Jack E. Nelson, Jerome L. Robinson, Phillip Rooney, Fernando
Sisto and Wayne W. Whalen. The Nominees have not previously been elected by the
shareholders and have not previously served on the Board. Each of the current
members of the Board has announced his intention to resign from the Board
effective upon the election of the Nominees.
Each of the Nominees has consented to being named in this Proxy
Statement and to serve as a Director if elected. The Company knows of no reason
why any Nominee would be unable or unwilling to serve if elected. Should any of
the Nominees become unable or unwilling to accept nomination or election, the
persons named in the proxy will exercise their voting power to vote
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<PAGE> 13
for such person or persons as the management of the Company may recommend.
Directors will be elected by a majority of shareholders of the Company entitled
to vote that are present in person or by proxy at the Meeting. If you return
your proxy card with no voting instructions, your Shares will be voted for all
Nominees for Director and in favor of the remaining Proposals described in this
proxy statement.
INFORMATION REGARDING NOMINEES
The following table provides information regarding each Nominee. It
includes his or her name, position with the Company, age, principal occupations
or employment during the past five years, number of Shares of the Funds
beneficially owned and the percentage of shares of the Funds beneficially owned.
In addition, the table shows, for each Nominee, directorships with other
companies that file reports periodically with the Securities and Exchange
Commission and the number of directorships with the registered investment
companies to which VK Advisory or an affiliated person of VK Advisory provides
investment advisory services (the "VKAC Fund Complex"). As of [date] the
Nominees as a group beneficially owned less than 1% of the shares of each Fund
of the Company.
<TABLE>
<CAPTION>
SHARES OF THE FUNDS
BUSINESS EXPERIENCE BENEFICIALLY OWNED
NAME AND POSITION DURING THE PAST FIVE YEARS, AS OF MARCH __,
WITH THE COMPANY AGE INCLUDING ALL DIRECTORSHIPS 1997 PERCENTAGE
---------------- --- --------------------------- ---- ----------
<S> <C> <C> <C>
J. Miles Branagan 64 Co-Founder and retired Chairman, Chief Executive **
Nominee Officer and President, MDT Corporation (now
Getinge/Castle, Inc.) (medical and scientific
equipment). Trustee of __ funds in the VKAC Fund
Complex.
Richard D. DeMartini* 44 President and Chief Operating Officer, Dean Witter **
Nominee Capital; Executive Vice President, Dean Witter
Discover & Co. Formerly, Vice Chairman, National
Association of Securities Dealers, Inc.; Chairman,
Nasdaq, Inc. (stock market). Director of Dean Witter
Reynolds, the Manager Intercapital Distributors and
Dean Witter Trust Company; Director, National
Healthcare Resources, Inc.
Linda Hutton Heagy 47 Partner, Ray & Berndtson, an executive **
Nominee recruiting and management consulting firm. Formerly,
Executive Vice President of ABN AMRO, N.A.,
a Dutch bank holding company. Prior to
1992, Executive Vice President of LaSalle
National Bank. Trustee of the University of
Chicago Hospitals Board and the Women's Board of the
University of Chicago. Director of R.T.C., a privately
owned manufacturing and distributing company. Trustee of
funds in the VKAC Fund Complex.
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
SHARES OF THE FUNDS
BUSINESS EXPERIENCE BENEFICIALLY OWNED
NAME AND POSITION DURING THE PAST FIVE YEARS, AS OF MARCH __,
WITH THE COMPANY AGE INCLUDING ALL DIRECTORSHIPS 1997 PERCENTAGE
---------------- --- --------------------------- ---- ----------
<S> <C> <C> <C>
R. Craig Kennedy 45 President and Director, German Marshall Fund of the **
Nominee United States (Philanthropy). Formerly, Advisor,
Dennis Trading Group Inc. (investment); Prior to
1992, President, Chief Executive Officer, Director
and member of the Investment Committee of the Joyce
Foundation. Trustee of __ funds in the VKAC Fund Complex.
Jack E. Nelson 61 President, Nelson Investment Planning Services, Inc. **
Nominee (financial planning and registered investment adviser);
President, Nelson Invest Brokerage Services, Inc.
(broker). Trustee of __ funds in the VKAC Fund
Complex.
Jerome L. Robinson 74 President, Robinson Technical Products Corporation **
Nominee (welding alloys, supplies and equipment). Director,
Pacesetter Software; Director, Panasia Bank. Trustee
of __ funds in the VKAC Fund Complex.
Phillip Rooney Private Investor. Formerly, President and Chief **
Nominee Executive Officer, WMX Technologies Inc.
(environmental services); President and
Chief Operating Officer, WMX Technologies
Inc. Director, Illinois Tool Works
(manufacturing); Director, Service Master
(business and consumer services); Director,
Urban Shopping Centers (retail mall
management); Director, Stone Container
(paper manufacturing).
Fernando Sisto 72 Professor Emeritus, Stevens Institute of Technology. **
Nominee Formerly, Dean of the Graduate School and Chairman,
Department of Mechanical Engineering, Stevens
Institute of Technology. Director, Dynalysis of
Princeton (engineering). Trustee of __ funds in
the VKAC Fund Complex.
Wayne W. Whalen 57 Partner, Skadden, Arps, Slate, Meagher & Flom (Illinois) **
Nominee (legal counsel to the Van Kampen American Capital Funds).
</TABLE>
* "Interested person" within the meaning of the 1940 Act..
** As of March 1, 1997, the Nominees as a group beneficially owned an
aggregate of less than 1% of the shares of each Fund of the Company.
BOARD APPROVAL OF THE ELECTION OF NOMINEES
At a meeting held April 2, 1997, the Board recommended that
Shareholders vote for each of the Nominees for Director. In considering the
nomination of Messrs. J. Miles Branagan, Richard D. DeMartini, R. Craig Kennedy,
Jack E. Nelson, Jerome L. Robinson, Phillip Rooney,
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<PAGE> 15
Fernando Sisto and Wayne W. Whalen and Ms. Linda Hutton Heagy for election as
Directors of the Fund, the Directors considered the Nominees' experience and
qualifications. In particular, the Board considered that the majority of the
Nominees have substantial familiarity and experience as directors of mutual
funds advised, administered and distributed by subsidiaries of Van Kampen. The
Board also considered that the experience of each of the remaining Nominees
includes either experience as a director of a large retail mutual fund complex
or as a director of a number of large publicly-held companies. [At a meeting
held April 11, 1997, the Board waived certain retirement provisions to permit
Mr. Robinson to serve as a Director and conditionally determined the
"disinterested" status of Mr. Nelson.]
COMPENSATION OF CURRENT DIRECTORS
The aggregate compensation paid by the Company to each of the Company's
current Directors serving during the fiscal year ended June 30, 1996 and the
aggregate compensation paid to each Director during calendar year 1996 by the
registered investment companies which (i) hold themselves out to investors as
related companies for purposes of investment and investment services or (ii) to
which MSAM or MAS or an affiliated person of MSAM or MAS provides investment
advisory services (collectively, the "Fund Complex") is set forth in the
following compensation table. The Nominees, if elected, may establish different
compensation and/or retirement plans from the Company and the VKAC Fund Complex.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Position Aggregate Pension or Total Compensation Number of Funds in
Compensation from Retirement Benefits from the Company and Fund Complex for
the Fund Accrued as Part of Fund Complex Paid to Which Director Serves
Fund Expenses Directors
<S> <C> <C> <C> <C>
Barton M. Biggs, Director
Warren J. Olsen, Director
John D. Barrett II, Director
Gerard E. Jones, Director
Andrew McNally IV,
Director
Samuel T. Reeves, Director
Fergus Reid, Director
Frederick O. Robertshaw,
Director
Frederick B. Whittemore,
Director
</TABLE>
9
<PAGE> 16
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
There were four meetings of the Board of Directors held during the
fiscal year ended June 30, 1996. In such fiscal year, all Directors, except
Messrs. Biggs and Whittemore, attended at least 75% of the meetings of the Board
of Directors held during their respective terms.
The Board of Directors has an Audit Committee. The Audit Committee
makes recommendations to the full Board of Directors with respect to the
engagement of independent accountants and reviews, with the independent
accountants, the results of the audit engagement and matters having a material
effect on the Company's financial operations. The members of the Audit Committee
during the fiscal year ended June 30, 1996 were Messrs. Jones (Chairman),
Barrett and Reid, each of whom is not an "interested person" within the meaning
of the 1940 Act. The Audit Committee met two times during the fiscal year ended
June 30, 1996. During such fiscal year, all members attended at least 75% of the
meetings of the Audit Committee held during their respective terms.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF EACH NOMINEE.
APPROVAL OF A NEW ADVISORY AGREEMENT AND A NEW SUB-ADVISORY AGREEMENT
INTRODUCTION
At a meeting held on April 2, 1997, the Directors of the Company
unanimously voted in favor of a management recommendation that VK Advisory
become the investment adviser for all of the Funds and called the present
Special Meeting for the purpose of, among others, requesting that Shareholders
approve the selection of VK Advisory, MSAM, the New Advisory Agreement and the
New Sub-Advisory Agreement. At the same Board meeting, the Directors unanimously
authorized the assignment of the Company's administration agreements with,
respectively, MSAM and MAS to VK Advisory. The Board also approved the selection
of MSAM and MAS as sub-advisers to the Company and approved the New Sub-Advisory
Agreement with MSAM and a form of sub-advisory agreement with MAS. (The Funds
for which MAS would be the sub-adviser have not yet become operational.) Under
the New Sub-Advisory Agreement, MSAM would continue to manage the assets of the
Funds for which it now acts as investment adviser.
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. (VK ADVISORY)
VK Advisory is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and has its offices at One Parkview Plaza,
Oakbrook Terrace, Illinois and
10
<PAGE> 17
2800 Post Oak Boulevard, Houston, Texas 77056. Prior to 1988, VK Advisory
provided investment advisory services under the name "American Portfolio
Advisory Services Inc." On December 31, 1987, VK Advisory changed its name to
Van Kampen Merritt Investment Advisory Corp. In January 1995, VK Advisory
adopted its current name.
Set forth below is the name, address and principal occupation of the
principal executive officer and each director of VK Advisory:
DIRECTORS AND OFFICERS OF VK ADVISORY
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
<S> <C>
Don G. Powell President, Chief Executive Officer and Director of Van Kampen, Chairman, Chief Executive Officer and
2800 Post Oak Blvd. a Director of Van Kampen American Capital Distributors, Inc. (the "Distributor"), VK Advisory,
Houston, TX 77056 Van Kampen American Capital Asset Management, Inc. ("VKAC Asset Management"), Van Kampen American
Capital Management, Inc. and Van Kampen American Capital Advisors, Inc. Chairman, President and a
Director of Van Kampen American Capital Exchange Corporation, American Capital Contractual Services,
Inc., and American Capital Services, Inc. Chairman and a Director of ACCESS Investor Services, Inc.
("ACCESS") and Van Kampen American Capital Trust Company. President, Chief Executive Officer and a
Trustee/Director of certain open-end investment companies and closed-end investment companies advised
by VKAC Asset Management. Chairman of the Board of Governors and the Executive Committee of the
Investment Company Institute. Prior to July 1996, President, Chief Executive Officer and a Trustee/
Director of certain open-end investment companies and certain closed-end investment companies advised
by VKAC Asset Management.
Dennis J. McDonnell President, Chief Operating Officer and a Director of VK Advisory, VKAC Asset Management, Inc., Van
One Parkview Plaza Kampen American Capital Advisors, Inc. and Van Kampen American Capital Management, Inc. Executive
Oakbrook Terrace, IL Vice President and a Director of Van Kampen. Director of MCM Group, Inc., McCarthy, Crisanti & Maffei,
60181 Inc., MCM (Europe) Limited and MCM Asia Pacific Company, Limited. Chairman of the Board, President and
Trustee of closed-end investment companies advised by the Advisers. Executive Vice President and prior
to [ ] 1997, Trustee of Funds in the VKAC Fund Complex. Prior to November 1996,
Executive Vice President and a Director of VK/AC Holding, Inc.
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
<S> <C>
Ronald A. Nyberg Executive Vice President, General Counsel and Secretary of Van Kampen. Executive Vice President,
One Parkview Plaza General Counsel, Assistant Secretary and a Director of the Distributor, VK Advisory, VKAC
Oakbrook Terrace, IL Asset Management, Van Kampen American Capital Management, Inc., Van Kampen American Capital Trust
60181 Company, Van Kampen American Capital Record Keeping Services, Inc. and Van Kampen American Capital
Insurance Agency of Illinois, Inc. Executive Vice President, General Counsel and Assistant Secretary of
Van Kampen American Capital Advisors, Inc., American Capital Contractual Services, Inc., Van Kampen
American Capital Exchange Corporation, ACCESS and Van Kampen American Capital Services, Inc. Vice
President and Secretary of Funds in the VKAC Fund Complex and certain other open-end investment
companies and closed-end investment companies advised by VK Advisory and VKAC Asset Management. Director
of ICI Mutual Insurance Co., a provider of insurance to members of the Investment Company Institute.
Prior to November 1996, Executive Vice President, General Counsel and Secretary of VK/AC Holding, Inc.
William R. Rybak Executive Vice President and Chief Financial Officer of Van Kampen since February 1993, and
One Parkview Plaza Treasurer of VK/AC Holding, Inc. through December 1993 and Executive Vice President and Chief
Oakbrook Terrance, IL Financial Officer of VK/AC Holding, Inc. through October 1996. Executive Vice President, Chief
60181 Financial Officer and a Director of the Distributor, VK Advisory, VKAC Asset Management, Van Kampen
American Capital Management, Inc., Van Kampen American Capital Record Keeping Services, Inc. and Van
Kampen American Capital Insurance Agency of Illinois, Inc. Executive Vice President and Chief Financial
Officer of Van Kampen American Capital Advisors, Inc., Van Kampen American Capital Exchange Corporation,
Van Kampen American Capital Trust Company, ACCESS, and American Capital Contractual Services, Inc.
Executive Vice President, Chief Financial Officer and Treasurer of American Capital Shareholders
Corporation and Van Kampen American Capital Services, Inc. [Director of Alliance Bancorp, a savings and
loan holding company and, prior to [ ] 1997, Chairman of the Board of Hinsdale Financial Corp.,
a savings and loan holding company].
Peter W. Hegel Executive Vice President of VK Advisory, VKAC Asset Management, Van Kampen American Capital Advisors,
One Parkview Plaza Inc. and Van Kampen American Capital Management, Inc. Vice President of Funds in the VKAC Fund
Oakbrook Terrace, IL Complex and certain open-end and closed-end investment companies advised by VK Advisory.
60181
Alan T. Sachtleben Executive Vice President of VK Advisory and Van Kampen American Capital Management, Inc., VKAC Asset
2800 Post Oak Blvd. Management and Van Kampen American Capital Advisors, Inc. Vice President of open-end investment
Houston, TX 77056 companies advised by the Advisers.
</TABLE>
12
<PAGE> 19
MORGAN STANLEY ASSET MANAGEMENT INC. (MSAM)
MSAM, located at 1221 Avenue of the Americas, New York, New York 10020,
acts as investment adviser for each of the Funds that the Company currently
offers.
MSAM currently is a wholly-owned subsidiary of MS Group and provides a
broad range of portfolio management services to customers in the United States
and abroad. At February 28, 1997, MSAM, together with its affiliated asset
management companies other than Van Kampen and its subsidiaries, including VK
Advisory, managed investments totaling approximately $176.9 billion.
Set forth below is the name, address and principal occupation of the
principal executive officer and each director of MSAM:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
<S> <C>
Barton M. Biggs, Chairman and Managing Director, MSAM; Managing Director of Morgan Stanley &
Chairman of the Board of Directors Co. Incorporated; Chairman of Morgan Stanley Asset Management Limited;
1221 Avenue of the Americas Director of VK/AC Holdings, Inc.
New York, New York 10020
Peter A. Nadosy, Vice Chairman, Director and Managing Director, MSAM; Managing Director of
Vice-Chairman of the Board of Morgan Stanley & Co. Incorporated; Director of Morgan Stanley Asset Management
Directors Limited
1221 Avenue of the Americas
New York, New York 10020
James M. Allwin, President, Director and Managing Director, MSAM; Managing Director of Morgan
Director and President Stanley & Co. Incorporated; President of Morgan Stanley Realty Inc.;
1221 Avenue of the Americas Director of VK/AC Holdings, Inc.
New York, New York 10020
Gordon S. Gray, Director and Managing Director, MSAM; Managing Director of Morgan Stanley &
Director Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
Dennis G. Sherva, Director and Managing Director, MSAM; Managing Director of Morgan Stanley &
Director Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
</TABLE>
THE ADVISORY AGREEMENTS
A majority of the Directors of the Company, including a majority of the
Directors who are not (i) parties to the New Advisory Agreement or the New
Sub-Advisory Agreement (together, the "New Agreements") or (ii) interested
persons of any such party, approved the New
13
<PAGE> 20
Agreements at an in-person meeting called for the purpose of voting on such
approval. The holders of a majority of the outstanding voting securities (within
the meaning of the 1940 Act) of each Fund are being asked to approve the New
Agreements. The summaries of the Current Advisory Agreement and the New Advisory
Agreement set forth herein are qualified by reference to Annex A and the summary
of the New Sub-Advisory Agreement is qualified by reference to Annex B.
THE CURRENT ADVISORY AGREEMENT. Since the beginning of the Company's
last fiscal year, the Board has taken several actions with respect to the
current advisory agreement dated November 17, 1992 between the Company and MSAM
(the "Current Advisory Agreement"). In particular, at a Board of Directors
Meeting held on July 16, 1996, the Directors, including a majority of the
Directors who are not "interested persons" as such term is defined under the
1940 Act (the "Independent Directors"), approved the addition of the Money
Market, Tax-Free Money Market and Government Obligations Money Market Funds as
additional Funds subject to the Current Advisory Agreement. Similarly, at a
Board of Directors Meeting held on December 12, 1996, the Board, including a
majority of the Independent Directors, approved the addition of the Global
Equity, Emerging Markets Debt and Equity Growth Funds as additional Funds
subject to the Current Advisory Agreement. Most recently, at the Annual Board of
Directors meeting held February 13, 1997, the Directors, including a majority of
the Independent Directors, approved for continuance, for the year beginning
April 14, 1997, the Current Advisory Agreement.
The Current Advisory Agreement provides that MSAM, as an investment
adviser to the Company, in return for its fee, and subject to the control and
supervision of the Board and in conformance with the stated investment
objectives and policies of each Fund, will manage the investment and
reinvestment of the assets of each Fund. In this regard, it is the
responsibility of MSAM to make investment decisions for each Fund and to place
each such Fund's purchase and sale orders for investment securities. The Current
Advisory Agreement states that MSAM will provide adequate office space,
facilities and personnel to perform its advisory services for the Company.
The Current Advisory Agreement provides that it shall continue for
successive annual periods with respect to a Fund, provided that such
continuation is approved at least annually by the Company's Independent
Directors or by vote of the holders of a majority of the Fund's outstanding
voting securities, as well as by a majority of the Company's Directors. The
Current Advisory Agreement may be terminated by any Fund at any time, without
the payment of any penalty, by vote of a majority of the Directors of the
Company or by vote of a majority of the outstanding voting securities of the
Fund on 60 days' written notice to MSAM. The Current Advisory Agreement may be
terminated by MSAM at any time, without the payment of any penalty, upon 90
days' written notice to the Company. The Current Advisory Agreement
automatically terminates in the event of its assignment.
14
<PAGE> 21
The Current Advisory Agreement provides that, in the absence of (i)
willful misfeasance, bad faith or gross negligence on the part of MSAM in the
performance of its obligations and duties, (ii) reckless disregard by MSAM of
its obligations and duties, or (iii) a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services, MSAM shall not be
liable to the Company, or to any Shareholder of the Company, for any error or
judgment, mistake of law or any other act or omission in connection with
rendering services under the respective agreements, including any losses that
may be sustained in connection with the purchase, holding, redemption or sale of
any security on behalf of any Fund of the Company.
The following table sets forth: (i) the compensation that MSAM is entitled to
receive under the Current Advisory Agreement as a percentage of average daily
net assets; (ii) MSAM's advisory fees after expense reimbursement or fee waiver
as a percentage of average daily net assets; (iii) the aggregate fees the
Company paid to MSAM during the Company's last fiscal year under the Current
Advisory Agreement; (iv) the advisory fees MSAM waived during the Company's last
fiscal year; and (v) the date shareholders of each of the Funds approved the
Current Advisory Agreement.
<TABLE>
<CAPTION>
INVESTMENT ADVISORY FEES--
FISCAL YEAR ENDED JUNE 30,
1996(1)
ADVISORY FEE
CONTRACTUAL (AFTER EXPENSE AMOUNT DATE OF
ADVISORY REIMBURSEMENT NET FEES WAIVED SHAREHOLDER
FUND FEE OR FEE WAIVER) PAID (000) (000) APPROVAL
---- --- -------------- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
Global Fixed Income Fund 0.75 0.04 10 112 January 4, 1993
High Yield Fund 0.75 0.42 0 13 May 1, 1996
Worldwide High Income Fund 0.75 0.61 430 97 February 2, 1994
Asian Growth Fund 1.00 1.00 3762 0 June 23, 1993
Emerging Markets Fund 1.25 0.84 727 355 July 6, 1994
Global Equity Allocation Fund 1.00 0.64 677 371 January 4, 1993
Global Equity Fund 1.00 1.00 N/A N/A January 4, 1993
International Magnum Fund(3) 0.80 0.80 N/A N/A June 29, 1995
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
ADVISORY FEE
CONTRACTUAL (AFTER EXPENSE INVESTMENT ADVISORY FEES-- DATE OF
ADVISORY REIMBURSEMENT FISCAL YEAR ENDED JUNE 30, SHAREHOLDER
FUND FEE OR FEE WAIVER) 1996(1) APPROVAL
---- --- -------------- ------- --------
<S> <C> <C> <C> <C> <C>
Latin American Fund 1.25 0.07 13 206 July 6, 1994
Aggressive Equity Fund 0.90 0.50 0 31 December 29, 1995
American Value Fund 0.85 0.54 230 134 October 18, 1993
U.S. Real Estate Fund 1.00 0.70 0 9 May 1, 1996
Government Obligations Money(2)(3) 0.45 on assets 0.41 759(2) 154(2) September 27, 1996
Market Fund up to $250
million
0.40 on assets
above $250
million up to
$500 million
0.35 on assets
exceeding $500
million
Money Market Fund(2)(3) 0.45 on assets 0.36 395(2) 45(2) September 27, 1996
up to $250
million
0.40 on assets
above $250
million up to
$500 million
0.35 on assets
exceeding $500
million
</TABLE>
(1) [The investment advisory fees represent fees paid for the fiscal period
(beginning on the Fund's commencement of operations) ended June 30, 1996. The
____ Fund commenced operations on ___________.]
(2) MSAM acted as investment adviser to the predecessor portfolios of the
Government Obligations Money Market Fund (the PCS Government Obligations Money
Market Fund) and the Money Market Fund (the PCS Money Market Fund). PCS Cash
Fund, Inc. paid MSAM the fees (and MSAM waived fees) in the amounts indicated in
the foregoing chart with respect to the predecessor portfolios.
(3) The International Magnum, Government Obligations Money Market and Money
Market Funds were not yet effective on June 30, 1996.
The net assets of the Funds as of [Date], as well as other investment
companies advised by MSAM, and other investment companies for which MSAM acts as
subadviser, the rates of compensation to MSAM, the aggregate amount of advisory
fees paid by the Company to MSAM and the aggregate amount of any other material
payments by the Company to MSAM are set forth at Annex C hereto. Annex D hereto
contains similar information with respect to investment companies for which VK
Advisory serves as adviser or sub-adviser.
PROPOSAL 2: APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT.
The Board approved the proposed New Advisory Agreement between the
Company and VK Advisory on April 2, 1997. The form of the New Advisory Agreement
is attached hereto as Annex A.
16
<PAGE> 23
The New Advisory Agreement provides that VK Advisory will supply
investment research and portfolio management, including the selection of
securities for each Fund to purchase, hold or sell and the selection of brokers
through which that Fund's portfolio transactions are executed. However, the New
Advisory Agreement also provides that VK Advisory may appoint a sub-adviser
selected and approved in the manner provided for in the 1940 Act to perform
these portfolio management responsibilities. See "Proposal 3." The New Advisory
Agreement further provides for VK Advisory to administer the business affairs of
each Fund, furnish offices, necessary facilities and equipment, provide certain
administrative services and permit its officers and employees to serve without
compensation as directors and officers of the Company if duly elected to such
positions. The New Advisory Agreement acknowledges that (i) the chief executive
officer, president, treasurer and secretary of VK Advisory; and (ii) each
director, officer and employee of VK Advisory or any of its affiliates who
serves as an officer of the Company, in their current capacities, are viewed as
essential personnel and, for a period of one year, will not be replaced by VK
Advisory or any of its affiliates without first informing the Board of Directors
in a timely manner. This latter provision is not in the Current Advisory
Agreement.
The New Advisory Agreement provides that VK Advisory shall not be
liable for any error of judgment or law, or for any loss suffered by a
particular Fund in connection with the matters to which the New Advisory
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of VK Advisory in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under the New Advisory Agreement. The Current Advisory
Agreement also does not limit MSAM's liability for losses resulting from a
breach of fiduciary duty with respect to receipt of compensation for services.
The Current Advisory Agreement also states that any limitation of liability does
not apply to statutory liability pursuant to Section 16(b) of the 1940 Act.
The investment advisory fee as a percentage of net assets payable by
each Fund will be the same under the New Advisory Agreement as under the Current
Advisory Agreement. If the investment advisory fee under the New Advisory
Agreement had been in effect for the Company's most recently completed fiscal
year, advisory fees paid to VK Advisory by the Company would have been identical
to those paid under the Current Advisory Agreement.
The New Advisory Agreement provides that VK Advisory's activities are
subject to the review and supervision of the Board of Directors to which VK
Advisory will render periodic reports with respect to each Fund's investment
activities. The New Advisory Agreement provides that it must be approved and may
be continued from year to year after an initial two-year term in the manner
provided for in the 1940 Act. The New Advisory Agreement may be terminated by
either party, at any time, without penalty, upon 60 days' written notice, and
automatically terminates in the event of its assignment. The Current Advisory
Agreement requires MSAM to give 90 days' notice of termination.
At its April 2, 1997 [and April 11, 1997] meetings, the Board of
Directors considered written and oral information provided to it concerning
the experience and qualifications of VK Advisory. The materials and
presentations included: (1) information on the number, size, investment
objectives and performance of mutual funds advised by VK Advisory; (2)
historical information about VK
17
<PAGE> 24
Advisory and its affiliates; (3) background information on senior employees of
VK Advisory (and in this regard, the Board met with Don G. Powell, the Chairman
and Chief Executive Officer of VK Advisory); (4) information on services to be
provided by VK Advisory as investment adviser and administrator; (5) information
regarding the post-Merger relationships among MS Group and its affiliates,
including VK Advisory, and Dean Witter Discover and its affiliates, particularly
as they affect the strategy for sales and services to retail investors and the
possibility of benefits to be derived by shareholders, particularly with respect
to the quality of services and the possibility of reduction in expenses due to
efficiencies and future growth and the possibility of making shares of the
Company exchangeable for shares of other Van Kampen funds; (6) the fact that the
contractual advisory fee rates would remain the same and that those fees would
continue to be waived to the extent necessary to maintain total operating
expenses for each Fund at their current levels; (7) information relating to
sub-advisory fees, taking into account among other things the fact that these
fees reflect a business judgment among affiliated entities as to how to share
revenues; and (8) the terms of the New Advisory Agreement, and in particular the
fact that the terms of the New Advisory Agreement are substantially similar to
those of the Current Advisory Agreement in all material respects and are in
compliance with applicable legal requirements. The Board also considered that
MSAM, as sub-adviser, would continue to provide portfolio management to the
Funds using the same portfolio managers and other personnel currently managing
the Fund and that, under the New Advisory Agreement, VK Advisory could terminate
MSAM as sub-adviser only with the approval of a majority of the Directors who
are not "interested persons" of a party to the New Advisory Agreement.
The Board also considered possible benefits to VK Advisory and Morgan
Stanley, Dean Witter, Discover & Co. that may result from the Merger including
the continued use of Morgan Stanley & Co. and Dean Witter Discover brokers and
its affiliates, to the extent permitted by law, for brokerage services.
The Board also considered the terms of the Merger Agreement and the
possible effects of the Merger upon the organization of VK Advisory and upon the
ability of VK Advisory to provide advisory services to the Company. In this
regard, the Board was informed of the resources of Morgan Stanley, Dean Witter,
Discover & Co. to be made available to VK Advisory.
The Board also considered the effect on the Company of VK Advisory and
MSAM becoming affiliated persons of Morgan Stanley, Dean Witter, Discover & Co.
Following the Merger, the 1940 Act will prohibit or impose certain conditions on
the ability of the Company to engage in certain transactions with Morgan
Stanley, Dean Witter, Discover & Co. and its affiliates. For example, absent
exemptive relief, the Company will be prohibited from purchasing securities from
Morgan Stanley & Co. and DWR in transactions in which Morgan Stanley & Co. and
DWR acts as a principal. Currently the Company is prohibited from making such
purchases in only those transactions in which Morgan Stanley & Co. or an
affiliate acts as principal. The Company will also have to satisfy certain
conditions in order to engage in securities transactions in which Morgan Stanley
& Co. or DWR is acting as an underwriter. The Company is already required to
satisfy such conditions when engaging in transactions in which Morgan Stanley &
Co. or an affiliate is acting as an underwriter. In this connection, the
18
<PAGE> 25
management of VK Advisory and MSAM represented to the Board that they do not
believe these prohibitions or conditions will have a material effect on the
management or performance of the Funds.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Directors, including the
Independent Directors, unanimously: (i) approved the New Advisory Agreement and
(ii) voted to recommend the approval of the New Advisory Agreement to the
Shareholders of the Funds.
In the event that Shareholders of any Fund do not approve both New
Advisory Agreement and the New Sub-Advisory Agreement (Proposal No. 3), the
Current Advisory Agreement will remain in effect and the Board will take such
action as it deems in the best interest of the Fund and its Shareholders, which
may include proposing that Shareholders approve another agreement in lieu of the
New Advisory Agreement. If the Merger is not consummated, MSAM will continue to
serve as investment adviser of each Fund of the Company pursuant to the terms of
the Current Advisory Agreement whether or not this Proposal and Proposal No. 3
are approved by Shareholders of that Fund.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
NEW ADVISORY AGREEMENT.
PROPOSAL 3: APPROVAL OF A NEW INVESTMENT SUB-ADVISORY AGREEMENT.
At its April 2, 1997 [and April 11, 1997] meetings, the Board approved
a proposed New Sub-Advisory Agreement between VK Advisory and MSAM, the form of
which is attached as Annex B [and the fee split between the VK Advisory and
MSAM]. At the meeting the Directors, including the Independent Directors,
unanimously approved the New Sub-Advisory Agreement and recommended the
agreement for approval by the Shareholders of the Funds.
The New Sub-Advisory Agreement provides that subject to the overall
policies, control, direction and review of the Company's Directors and VK
Advisory, MSAM shall manage the investment and reinvestment of the assets of
each of the Funds, continuously review, supervise and administer the investment
program of each of the Funds, determine in its discretion the securities to be
purchased or sold and the portion of each Fund's assets to be held uninvested,
to provide the Company with records concerning MSAM's activities which the
Company is required to maintain, and to render regular reports to the Company's
officers and Board of Directors concerning MSAM's discharge of the foregoing
responsibilities.
19
<PAGE> 26
The New Sub-Advisory Agreement provides that MSAM shall not be liable
to the Funds or any shareholder of the Funds to any degree greater than VK
Advisory.
The investment sub-advisory fee as a percentage of net assets payable
by VK Advisory to MSAM with respect to each Fund will be [40-60%] of the fees
received by VK Advisory under the New Advisory Agreement. The investment
sub-advisory fee will be paid to MSAM by VK Advisory and, therefore, had the
proposed investment advisory/investment sub-advisory fee structure been in
effect for the Company's most recently completed fiscal year, advisory fees paid
to VK Advisory by the Company would have been identical to those paid under the
Current Advisory Agreement.
The New Sub-Advisory Agreement provides that it must be approved and
may be continued from year to year after an initial two-year term in the manner
provided for in the 1940 Act. The New Sub-Advisory Agreement may be terminated
by either party, at any time, without penalty, upon 60 days' written notice, and
automatically terminates in the event of its assignment.
In evaluating the New Sub-Advisory Agreement, the Board took into
account that the terms relating to the portfolio management services to be
provided under the Company's Current Advisory Agreement and the New
Sub-Advisory Agreement are substantially similar. The Board also considered
possible benefits to MSAM and Morgan Stanley, Dean Witter, Discover & Co. that
may result from the Merger including the continued use of Morgan Stanley & Co.
and Dean Witter Discover brokers and its affiliates, to the extent permitted
by law, for brokerage services.
The Board also considered the terms of the Merger Agreement and the
possible effects of the Merger upon the organization of MSAM and upon the
ability of MSAM to provide sub-advisory services to the Company. The Board
considered the skills and capabilities of MSAM, taking note of the information
they had considered in approving the continuation of the Current Advisory
Agreement on February 13, 1997. In this regard, the Board was informed of the
resources of Morgan Stanley, Dean Witter, Discover & Co. to be made available to
VK Advisory and MSAM.
The Board also considered the effect on the Company of VK Advisory and
MSAM becoming affiliated persons of Morgan Stanley, Dean Witter, Discover & Co.
Following the Merger, the 1940 Act will prohibit or impose certain conditions on
the ability of the Company to engage in certain transactions with Morgan
Stanley, Dean Witter, Discover & Co. and its affiliates. For example, absent
exemptive relief, the Company will be prohibited from purchasing securities from
Morgan Stanley & Co. and DWR in transactions in which Morgan Stanley & Co. and
DWR acts as a principal. Currently the Company is prohibited from making such
purchases in only those transactions in which Morgan Stanley & Co. or an
affiliate acts as principal. The Company will also have to satisfy certain
conditions in order to engage in
20
<PAGE> 27
securities transactions in which Morgan Stanley & Co. or DWR is acting as an
underwriter. The Company is already required to satisfy such conditions when
engaging in transactions in which Morgan Stanley & Co. or an affiliate is acting
as an underwriter. In this connection, the management of MSAM represented to the
Board that they do not believe these prohibitions or conditions will have a
material effect on the management or performance of the Funds.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Directors, including the
Independent Directors, unanimously: (i) approved the New Sub-Advisory Agreement
and (ii) voted to recommend the approval of the New Sub-Advisory Agreement to
the Shareholders of the Funds.
In the event that Shareholders of any Fund do not approve both the New
Advisory Agreement (Proposal No. 2) and the New Sub-Advisory Agreement, the
Current Advisory Agreement will remain in effect and the Board will take such
action as it deems in the best interest of the Fund and its Shareholders, which
may include proposing that Shareholders approve another agreement in lieu of the
New Advisory Agreement. If the Merger is not consummated, MSAM will continue to
serve as investment adviser of each Fund of the Company pursuant to the terms of
the Current Advisory Agreement whether or not this Proposal and Proposal No. 2
are approved by Shareholders of that Fund.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
NEW SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
CURRENT DIRECTORS AND OFFICERS OF THE COMPANY
Information is set forth below about the Company's current Directors
and principal executive officers, including their name, principal occupation,
relationship to VK Advisory and MSAM, if any, and, in the case of Directors, the
number of shares of each Fund beneficially owned. It is the intention of the
Nominees, if elected, to replace certain of the Company's officers with
individuals familiar with Van Kampen's mutual fund organization.
21
<PAGE> 28
<TABLE>
<CAPTION>
NAME AND POSITION WITH THE PRINCIPAL OCCUPATION FUND SHARES BENEFICIALLY PERCENTAGE OF
COMPANY OWNED AS OF _______, 1997 OUTSTANDING
FUND SHARES
<S> <C>
Barton M. Biggs Chairman, Director and Managing Director of <C> <C>
Chairman and Director Morgan Stanley Asset Management Inc. and
Morgan Stanley Asset Management Limited;
Managing Director of Morgan Stanley & Co.,
Inc.; Director of Morgan Stanley Group Inc.;
Director of VK/AC Holdings, Inc.; Director
of the Rand McNally Company; Member of the
Yale Development Board; Chairman and Director
of 16 U.S. registered investment companies
managed by Morgan Stanley Asset Management Inc.
Warren J. Olsen Principal of Morgan Stanley & Co. Incorporated
Director and President and of Morgan Stanley Asset Management Inc.;
President and Director of 16 U.S. registered
investment companies managed by Morgan
Stanley Asset Management Inc.
John D. Barrett, II Chairman and Director of Barrett Associates,
Director Inc. (investment counseling); Director of the
Ashforth Company (real estate); Director of
Morgan Stanley Institutional Fund, Inc.,
Morgan Stanley Universal Funds, Inc. and PCS
Cash Fund, Inc.
Gerard E. Jones Partner in Richards & O'Neil LLP (law firm);
Director Director of Morgan Stanley Institutional
Fund, Inc., Morgan Stanley Universal Funds,
Inc. and PCS Cash Fund, Inc.
Andrew McNally IV Chairman and Chief Executive Officer of Rand
Director McNally (publication); Director of Allendale
Insurance Co., Mercury Finance (consumer
finance); Zenith Electronics, Hubbell, Inc.
(industrial electronics); Director of Morgan
Stanley Institutional Fund, Inc., Morgan
Stanley Universal Funds, Inc. and PCS Cash
Fund, Inc.
Samuel T. Reeves Chairman of the Board and CEO, Pinacle
Director L.L.C. (investment firm); Director, Pacific
Gas and Electric and PG&E Enterprises
(utilities); Director of Morgan Stanley
Institutional Fund, Inc., Morgan Stanley
Universal Funds, Inc. and PCS Cash Fund,
Inc.
</TABLE>
22
<PAGE> 29
<TABLE>
<CAPTION>
NAME AND POSITION WITH THE PRINCIPAL OCCUPATION FUND SHARES BENEFICIALLY PERCENTAGE OF
COMPANY OWNED AS OF _______, 1997 OUTSTANDING
<S> <C> <C> <C>
Fergus Reid Chairman and Chief Executive Officer of
Director LumeLite Corporation (injection molding
firm); Trustee and Director of Vista Mutual
Fund Group; Director of Morgan Stanley
Institutional Fund, Inc., Morgan Stanley
Universal Funds, Inc. and PCS Cash Fund,
Inc.
Frederick O. Robertshaw Of Counsel, Bryan Cave LLP; Of Counsel,
Director Copple, Chamberlin & Boehm, P.C. (law firms);
Director of the Morgan Stanley Institutional Fund,
Inc., Morgan Stanley Universal Funds, Inc. and
PCS Cash Fund, Inc.
Frederick B. Whittemore Advisory Director of Morgan Stanley & Co.
Director Incorporated; Vice-Chairman and Director of 15
U.S. registered investment companies managed by
Morgan Stanley Asset Management Inc.
James W. Grisham Principal of Morgan Stanley & Co., Inc. and of N/A
Vice President Morgan Stanley Asset Management Inc.; Vice
President of 16 U.S. registered investment
companies managed by Morgan Stanley Asset
Management Inc.
Michael F. Klein Principal of Morgan Stanley Asset Management N/A
Vice President Inc.; Officer of various investment companies
managed by Morgan Stanley Asset Management
Inc. Previously practiced law with the New
York law firm of Rogers & Wells.
Harold J. Schaaff, Jr. Principal of Morgan Stanley & Co. and of N/A
Vice President Morgan Stanley Asset Management Inc.;
General Counsel and Secretary of Morgan
Stanley Asset Management Inc.; Vice President
of 16 U.S. registered investment companies
managed by Morgan Stanley Asset
Management Inc.
Joseph P. Stadler Vice President of Morgan Stanley & Co. N/A
Vice President Incorporated and Morgan Stanley Asset
Management Inc.; Previously with Price
Waterhouse LLP (accounting); Vice President of
16 U.S. registered investment companies managed
by Morgan Stanley Asset Management Inc.
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND POSITION WITH THE PRINCIPAL OCCUPATION FUND SHARES BENEFICIALLY PERCENTAGE OF
COMPANY OWNED AS OF _______, 1997 OUTSTANDING
FUND SHARES
<S> <C> <C> <C>
Valerie Y. Lewis Vice President of Morgan Stanley & Co. N/A
Secretary Incorporated and Morgan Stanley Asset
Management Inc.; Previously with Citicorp
(banking); Secretary of 16 U.S. registered
investment companies managed by Morgan Stanley
Asset Management Inc.
Lorraine Truten Vice President, MAS Funds; Head of Mutual N/A
Vice President Fund Administration, Miller Anderson &
Sherrerd, LLP; Principal of Morgan Stanley
Asset Management Inc.; President, MAS Fund
Distribution, Inc.
Douglas W. Kugler Treasurer, MAS Funds; Manager of Mutual N/A
Vice President Fund Administration, Miller Anderson &
Sherrerd, LLP; Vice President of Morgan Stanley
Asset Management Inc.; formerly Assistant Vice
President, Provident Financial Processing
Corporation.
Karl O. Hartman Senior Vice President, Secretary and General N/A
Assistant Secretary Counsel of Chase Global Funds Services
Company; Previously, Leland, O'Brien,
Rubinstein Associates, Inc. (investments).
James R. Rooney Vice President, Chase Global Funds Services N/A
Treasurer Company; Director of Fund Administration;
Officer of various investment companies managed
by Morgan Stanley Asset Management Inc.;
Previously with Scudder, Stevens & Clark, Inc.
(investments) and Ernst & Young LLP
(accounting); Treasurer of 16 U.S. registered
investment companies managed by Morgan Stanley
Asset Management Inc.
Joanna Haigney Supervisor of Fund Administration and N/A
Assistant Treasurer Compliance, Chase Global Funds Services
Company; Previously with Coopers & Lybrand LLP;
Assistant Treasurer of 16 U.S. registered
investment companies managed by Morgan Stanley
Asset Management Inc.
</TABLE>
BENEFICIAL OWNERS
To the knowledge of Fund Management, as of ________, 1997, the
following were beneficial owners of 5% or more of the outstanding Shares of the
Funds:
[Insert 5% Shareholders]
24
<PAGE> 31
TRANSACTIONS/AGREEMENTS WITH AFFILIATES
ADMINISTRATOR
On April 2, 1997, the Board of Directors of the Company approved a
proposal for VK Advisory to assume the responsibilities of MSAM and MAS under
their respective administration agreements with the Company, subject to the
contingencies discussed above. If Shareholder approval for each of the Proposals
is obtained, VK Advisory will provide administrative services to the Company
pursuant to administration agreements with the Company, which will be assigned
from MSAM and MAS, respectively, to VK Advisory. The Board of Directors
consented to the assignment at its April 2, 1997 meeting.
For its services under the current administration agreement with MSAM,
the Company pays MSAM, and if the agreement is assigned, will pay VK Advisory, a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the respective Funds, other than the money market funds, and 0.10% of
the first $200 million of each money market fund's average daily net assets,
0.075% of the next $200 million of average daily net assets, 0.05% of the next
$200 million of average daily net assets, and 0.03% on average daily net assets
over $600 million. For the fiscal year ended June 30, 1996, MSAM served as the
administrator to the Company and PFPC, Inc. served as the administrator to the
predecessor portfolios of the Government Obligations Money Market Fund (the PCS
Government Obligations Money Market Fund) and the Money Market Fund (the PCS
Money Market Fund). The Company paid administration fees to MSAM of
approximately $1,801,654 and PFPC, Inc. received aggregate administration fees
of $273,252 for their respective administrative services. The Funds for which
MAS serves as administrator are not yet operational and MAS has received no
compensation from Company for administrative services.
If the Proposals are not approved, MSAM and MAS will provide
administrative services to the respective investment portfolios which they
advise.
CUSTODIAN
The Chase Manhattan Bank, located at 770 Broadway, New York, NY 10003,
is the Fund's custodian for domestic and certain foreign assets. Morgan Stanley
Trust Company ("MSTC"), located at 1 Pierrepont Plaza, Brooklyn, NY 11201, 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 the regulations of the SEC for the purpose of providing
custodial services for such assets. As compensation for providing custodial
services for the fiscal year ended June 30, 1996, MSTC received fees from the
Funds as indicated in the following table:
25
<PAGE> 32
<TABLE>
<CAPTION>
FUND CUSTODIAN FEES
<S> <C>
Global Equity Allocation Fund $217,000
Global Fixed Income Fund 20,000
Asian Growth Fund 631,000
American Value Fund 20,000
Worldwide High Income Fund 58,000
Latin American Fund 120,000
Emerging Markets Fund 359,000
Aggressive Equity Fund 7,000
U.S. Real Estate Fund 1,000
High Yield Fund 1,000
</TABLE>
Whether or not a particular proposal is approved, MSTC will continue to act as
the Company's custodian for foreign assets held outside the United States.
DISTRIBUTOR
Van Kampen is the parent company of Van Kampen American Capital
Distributors, Inc. ("VKAC Distributors"). VKAC Distributors serves as the
distributor of the Shares of the Company.
Prior to December 31, 1996, Morgan Stanley & Co., served as the
distributor of the Company's shares pursuant to a distribution agreement with
the Company and a Plan of Distribution for the Money Market Funds and each class
of the Non-Money Funds pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan"
and collectively, the "Plans"). Subsequent to January 1, 1997, VKAC
Distributors, Inc. replaced Morgan Stanley & Co. as distributor of the Company's
shares pursuant to a distribution agreement with the Company and the Plans.
Under each Plan the Company's distributor is entitled to receive from the Funds
a distribution fee, which is accrued daily and paid quarterly, of up to 0.50%
for each of the Money Market Funds and up to 0.75% of the Class B shares and
Class C shares of each of the Non-Money Funds, on an annualized basis, of the
average daily net assets of such Fund or classes. With respect to Class B
shares, VKAC Distributors expects to utilize substantially all of its fee to
reimburse itself for commissions paid to investment dealers, banks or financial
services firms that provide distribution, administrative or shareholder services
("Participating Dealers"). With respect to Class C shares, VKAC Distributors
expects to allocate most of its fee to Participating Dealers.
26
<PAGE> 33
The actual amount of such compensation is agreed upon by the Company's Board of
Directors and by VKAC Distributors. VKAC Distributors may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee
and VKAC Distributors 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 of each Fund are subject to a service fee at an annual rate of 0.25% on
an annualized basis of the average daily net assets of such class of shares.
VKAC Distributors did not serve as the distributor and received no
compensation from the Company prior to the end of the fiscal year ended June 30,
1996. As compensation for providing distribution services to the Company for the
fiscal year ended June 30, 1996, Morgan Stanley & Co. received aggregate fees of
approximately $4,267,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996
FUND
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Global Equity Allocation Fund-Class $ 126,000 $ 47,000 $ 496,000
Global Fixed Income Fund-Class 26,000 3,000 56,000
Asian Growth Fund 516,000 194,000 1,505,000
Emerging Markets Fund 131,000 35,000 309,000
Latin American Fund 28,000 6,000 55,000
American Value Fund 57,000 14,000 187,000
Worldwide High Income Fund 90,000 112,000 231,000
Aggressive Equity Fund 4,000 10,000 10,000
High Yield Fund 2,000 5,000 5,000
U.S. Real Estate Fund 1,000 3,000 3,000
Money Market Fund+ N/A -- --
Government Obligations Money Market Fund+ N/A -- --
</TABLE>
27
<PAGE> 34
+ Not operational as of June 30, 1996. As compensation for providing
distribution services to the Predecessor Portfolios for the fiscal year
ended June 30, 1996, Morgan Stanley & Co. received fees from the
Predecessor Money Market Portfolio in the amount of $843,776 and from
the Predecessor Government Obligations Money Market Portfolio in the
amount of $439,236.
Whether or not a particular proposal is approved, VKAC Distributors
will continue to provide distribution services to the Funds.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned subsidiary of
Van Kampen acts as the dividend disbursing and transfer agent for Shareholders
of each of the Funds, other than for the Prime Resource Account Holders of the
Money Market Funds. ACCESS performs book keeping, data processing and
administration services related to the maintenance of shareholder accounts.
ACCESS did not serve as the dividend disbursing and transfer agent and received
no compensation from the Company prior to the end of the fiscal year ended June
30, 1996. Whether or not a particular proposal is approved, ACCESS will continue
to provide dividend disbursing and transfer agent services to the Funds.
INDEPENDENT ACCOUNTANTS
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected Price Waterhouse LLP as the independent
accountants of the Fund for the fiscal year ending June 30, 1997. A
representative of Price Waterhouse LLP will be available during the Special
Meeting, if needed, to make a statement if desired and to respond to appropriate
questions from shareholders.
PORTFOLIO TRANSACTIONS
The adviser or sub-adviser as the case may be (collectively the
"Adviser") is authorized to select the brokers or dealers that will execute the
purchases and sales of investment securities for the Funds and to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Funds. The Company has authorized the
Adviser to pay higher commissions in recognition of brokerage and research
services which, in the opinion of the Adviser, are necessary for the achievement
of better execution, provided that the Adviser believes this to be in the best
interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Funds, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and
28
<PAGE> 35
operational capabilities of competing broker-dealers, and the brokerage and
research services which they provide. Some securities considered for investment
by a Fund may also be appropriate for other clients served by the Fund's
Adviser. If purchase or sale of securities consistent with the investment
policies of a Fund and one or more of these other clients served by the Fund's
Adviser is considered at or about the same time, transactions in such securities
will be allocated among the Fund and clients in a manner deemed fair and
reasonable by the Adviser. Although there is no specified formula for allocating
such transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Company's
Directors.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. or broker affiliates of Morgan Stanley &
Co. and, subsequent to the Merger, to DWR or broker affiliates of DWR, in each
case under procedures adopted by the Board of Directors. For the fiscal year
ended June 30, 1996, the Company paid brokerage commissions of approximately
$180,458 to Morgan Stanley & Co., an affiliated broker-dealer. For the fiscal
year ended June 30, 1996, commissions paid to Morgan Stanley & Co. represented
approximately 6% of the total amount of brokerage commissions paid in such
period and which were paid on transactions that represented 2% of the aggregate
dollar amount of transactions that incurred commissions paid by the Company
during such period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser or Morgan Stanley & Co. or, subsequent to the Merger, DWR
or any "affiliated persons," as defined in the 1940 Act, of Morgan Stanley and
DWR when such entities are acting as principals, except to the extent permitted
by law.
EXPENSES
VK Advisory or its affiliates will bear the expense of preparing,
printing and mailing the enclosed form of proxy, the accompanying Notice and
this Proxy Statement.
In order to obtain the necessary quorum at the Meeting, additional
solicitation may be made by mail, telephone, telegraph or personal interview by
representatives of the Company, the Adviser, ACCESS, dealers or their
representatives or by First Data Investor Services Group, or by [First Data
Corporation], a solicitation firm located in Boston, Massachusetts that has
been engaged to assist in proxy solicitation at an estimated cost of
approximately [ ].
SUBMISSION OF SHAREHOLDER PROPOSALS
The Company is incorporated under the laws of the State of Maryland.
Under Maryland General Corporation Law, a corporation registered under the 1940
Act is not required to hold an annual meeting in any year in which the election
of Directors is not required to be acted upon
29
<PAGE> 36
under the 1940 Act. The Company has availed itself of this provision and
achieves cost savings by eliminating printing costs, mailing charges and other
expenses involved in routine annual meetings.
Even with the elimination of routine annual meetings, the Board may
call special meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act, or required or permitted by the Articles of
Incorporation and By-Laws of the Company. In compliance with the 1940 Act,
shareholder meetings will be held to elect Directors under certain
circumstances. The Company may also hold shareholder meetings for other
purposes, including to approve changes in investment policy, a new investment
advisory agreement or other matters requiring shareholder action under the 1940
Act. In addition, Maryland General Corporation Law provides for the calling of a
special meeting by the written request of shareholders holding at least 25% of
the Shares entitled to vote at the meeting. Shareholders wishing to submit
proposals for inclusion in a proxy statement for a shareholder meeting
subsequent to the Meeting, if any, should send their written proposals to the
Secretary of Morgan Stanley Fund, Inc., c/o Morgan Stanley Asset Management
Inc., Legal Department, 1221 Avenue of the Americas, New York, New York 10020.
GENERAL
The Company knows of no business other than that mentioned in the
Proposals of the Notice that will be presented for consideration at the Meeting.
If any other matters are properly presented, it is the intention of the persons
named on the enclosed proxy to vote proxies in accordance with their best
judgment. In the event a quorum is present at the Meeting but sufficient votes
to approve a proposal are not received, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies provided they determine that such an adjournment and additional
solicitation is reasonable and in the interest of Shareholders based on a
consideration of all relevant factors, including the nature of the relevant
Proposal, the percentage of affirmative votes then cast, the percentage of
negative votes then cast, the nature of the proposed solicitation activities and
the nature of the reasons for such further solicitation.
A list of Shareholders of the Company entitled to be present and vote
at the Meeting will be available at the offices of the Company, 1221 Avenue of
the Americas, New York, NY 10020 for inspection by any Shareholder during
regular business hours for ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting for the Company may
necessitate adjournment and may necessitate additional proxy solicitations.
30
<PAGE> 37
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN
AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
[Date]
Valerie Y. Lewis, Secretary
31
<PAGE> 38
ANNEX A
FORM OF NEW ADVISORY AGREEMENT
MORGAN STANLEY FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of ____________, 1997 (the
"Agreement"), by and between MORGAN STANLEY FUND, INC., a Maryland corporation
(the "Fund"), on behalf of each of its investment funds identified at Schedule A
(the "Investment Funds") and VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY
CORP. (the "Adviser"), a Delaware corporation.
1. (a) Retention of Adviser by Fund. Subject to the terms and
conditions set forth herein, the Fund hereby employs the Adviser to act as the
investment adviser for and to manage the investment and reinvestment of the
assets of the Fund in accordance with the Fund's investment objective and
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Directors of the
Fund for the period and upon the terms herein set forth. The investment of funds
shall be subject to all applicable restrictions of applicable law and of the
Articles of Incorporation and By-Laws of the Fund, and resolutions of the Board
of Directors of the Fund as may from time to time be in force and delivered or
made available to the Adviser. The Adviser may appoint a sub-adviser for the
Fund to perform any or all services provided for in this Agreement, provided
that such sub-adviser is appointed pursuant to a written agreement between the
Adviser and the sub-adviser and such agreement is approved by a majority of the
Fund's Directors who are not "interested persons" of the Fund, the Adviser, or
the subadviser as defined in the Investment Company Act of 1940 (the "1940 Act")
and by a majority of the outstanding voting securities of each Investment Fund
in accordance with the 1940 Act. The Adviser shall be solely responsible for
paying any such sub-adviser for its services.
(b) Adviser's Acceptance of Employment. The Adviser accepts such
employment and agrees during such period to render such services, to supply
investment research and portfolio management (including without limitation the
selection of securities for the Fund to purchase, hold or sell and the selection
of brokers through whom the Fund's portfolio transactions are executed, in
accordance with the policies adopted by the Fund and its Board of Directors), to
administer the business affairs of the Fund, to furnish offices and necessary
facilities and equipment to the Fund, to provide administrative services for the
Fund, to render periodic reports to the Board of Directors of the Fund, and to
permit any of its officers or employees to serve without compensation as
Directors or officers of the Fund if selected to such positions.
(c) Essential Personnel. For a period of one year commencing on the
effective date of this agreement, the Adviser and the Fund agree that the
retention of (i) the chief executive officer, president, chief financial officer
and secretary of the Adviser, (ii) each director, officer and employee of the
Adviser or any of its Affiliates (as defined in the 1940 Act) who serves as an
32
<PAGE> 39
officer of the Fund (each person referred to in (i) or (ii) hereinafter being
referred to as an "Essential Person"), in his or her current capacities, is in
the best interest of the Fund and the Fund's shareholders. In connection with
the Adviser's acceptance of employment hereunder, the Adviser hereby agrees and
covenants for itself and on behalf of its Affiliates that neither the Adviser
nor any of its Affiliates shall make any material or significant personnel
changes or replace or seek to replace any Essential Person or cause to be
replaced any Essential Person, in each case without first informing the Board of
Directors of the Fund in a timely manner. In addition, neither the Adviser nor
any Affiliate of the Adviser shall change or seek to change or cause to be
changed, in any material respect, the duties and responsibilities of any
Essential Person, in each case without first informing the Board of Directors of
the Fund in a timely manner.
(d) Independent Contractor. The Adviser shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the Fund
in any way or otherwise be deemed as agent of the Fund.
(e) Non-Exclusive Agreement. The services of the Adviser to the Fund
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
2. (a) Fee. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Adviser at the end of each calendar month
an investment management fee computed based on a fee rate (expressed as a
percentage per annum), applied to the average daily net assets of each
Investment Fund as set forth at Schedule A.
(b) Determination of Net Asset Value. The net asset value of the
Fund shall be calculated as of ___________ on each day the Exchange is open for
trading or such other time or times as the Directors may determine in accordance
with the provisions of applicable law and the Articles of Incorporation and
By-Laws of the Fund, and resolutions of the Board of Directors of the Fund as
from time to time in force. For the purposes of the foregoing computations, on
each such day when net asset value is not calculated, the net asset value of a
share of beneficial interest of the Fund shall be deemed to be the net asset
value of such share as of the close of business of the last day on which such
calculation was made.
(c) Proration. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
Adviser's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.
3. Expenses. In addition to the fee of the Adviser, the Fund shall
assume and pay any expenses for services rendered by a custodian for the
safekeeping of the Fund's securities or other property, for keeping its books of
account, for any other charges of the custodian and for
33
<PAGE> 40
calculating the net asset value of the Fund as provided above. The Adviser shall
not be required to pay, and the Fund shall assume and pay, the charges and
expenses of its operations, including compensation of the Directors (other than
those who are interested persons of the Adviser and other than those who are
interested persons of the distributor of the Fund but not of the Adviser, if the
distributor has agreed to pay such compensation), charges and expenses of
independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, costs of acquiring and disposing of portfolio securities,
interest (if any) on obligations incurred by the Fund, costs of share
certificates, membership dues in the Investment Company Institute or any similar
organization, costs of reports and notices to shareholders, costs of registering
shares of the Fund under the federal securities laws, miscellaneous expenses and
all taxes and fees to federal, state or other governmental agencies on account
of the registration of securities issued by the Fund, filing of corporate
documents or otherwise. The Fund shall not pay or incur any obligation for any
management or administrative expenses for which the Fund intends to seek
reimbursement from the Adviser without first obtaining the written approval of
the Adviser. The Adviser shall arrange, if desired by the Fund, for officers or
employees of the Adviser to serve, without compensation from the Fund, as
directors, officers or agents of the Fund if duly elected or appointed to such
positions and subject to their individual consent and to any limitations imposed
by the law.
4. Interested Persons. Subject to applicable statutes and regulations,
it is understood that directors, officers, shareholders and agents of the Fund
are or may be interested in the Adviser as directors, officers, shareholders,
agents or otherwise and that the directors, officers, shareholders and agents of
the Adviser may be interested in the Fund as directors, officers, shareholders,
agents or otherwise.
5. Liability. The Adviser shall not be liable for any error of judgment
or of law, or for any loss suffered by the Fund in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. (a) Term. This Agreement shall become effective on the date hereof
and shall remain in full force until ____________, 199__ unless sooner
terminated as hereinafter provided. This Agreement shall continue in force from
year to year thereafter, but only for so long as such continuance is
specifically approved at least annually, in the manner required by the 1940 Act.
(b) Termination. This Agreement shall automatically terminate in the
event of its assignment. This Agreement may be terminated at any time without
the payment of any penalty by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The fund may effect termination by action of
the Board of Directors or by vote of a majority of the outstanding shares of
stock of the Fund, accompanied by appropriate notice. This Agreement may be
34
<PAGE> 41
terminated at any time without the payment of any penalty and without advance
notice by the Board of Directors or by vote of a majority of the outstanding
shares of the Fund in the event that it shall have been established by a court
of competent jurisdiction that the Adviser or any officer or director of the
Adviser has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
(c) Payment upon Termination. Termination of this Agreement shall
not affect the right of the Adviser to receive payment on any unpaid balance of
the compensation described in Section 2 earned prior to such termination.
7. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
shall not thereby be affected.
8. Notices. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
10. Governing Law. All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of Delaware applicable to contracts made and to be performed in that state.
11. Name. In connection with its employment hereunder, the Adviser
hereby agrees and covenants not to change its name without the prior consent of
the Board of Directors
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
MORGAN STANLEY FUND, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
By:_________________________________
Name:_______________________________
35
<PAGE> 42
Title:______________________________
36
<PAGE> 43
Schedule A
<TABLE>
<CAPTION>
Investment Fund Annual Percentage Rate
- --------------- ----------------------
<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
Asian Growth Fund 1.00
Emerging Markets Fund 1.25
European Equity Fund 1.00
Global Equity Allocation Fund 1.00
Global Equity Fund 1.00
International Magnum Fund 0.80
Japanese Equity Fund 1.00
Latin American Fund 1.25
Aggressive Equity Fund 0.90
American Value Fund 0.85
Equity Growth Fund 0.70
Growth and Income Fund 1.00
Mid Cap Growth Fund 0.75
Value Fund 0.70
U.S. Real Estate Fund 1.00
Government Obligations Money Market Fund 0.45 on assets up to $250 million
0.40 on assets above $250 million up
to $500 million
0.35 on assets exceeding $500
million
</TABLE>
37
<PAGE> 44
<TABLE>
<S> <C>
Money Market Fund 0.45 on assets up to $250 million
0.40 on assets above $250 million up
to $500 million
0.35 on assets exceeding $500
million
Tax-Free Money Market Fund 0.45 on assets up to $250 million
0.40 on assets above $250 million up
to $500 million
0.35 on assets exceeding $500
million
</TABLE>
38
<PAGE> 45
ANNEX B
FORM OF NEW SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
AND
MORGAN STANLEY ASSET MANAGEMENT INC.
THIS AGREEMENT is made as of this _________ day of ________, 1997 by and between
MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware corporation, located at 1221
Avenue of the Americas, New York, New York 10020, and VAN KAMPEN AMERICAN
CAPITAL INVESTMENT ADVISORY CORP. ("VKAC") a Delaware corporation, located at
2800 Post Oak Boulevard, Houston, Texas 77058.
WHEREAS, VKAC acts as Investment Adviser to Morgan Stanley Fund, Inc. (the
"Fund") and each of its series identified at Schedule A (the "Investment
Funds"); and
WHEREAS, MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM") has available a staff of
experienced investment personnel and facilities for providing investment
sub-advisory services to the Investment Funds; and
WHEREAS, MSAM is an investment adviser registered under the Investment Advisers
Act of 1940, as amended and is willing to provide VKAC with investment advisory
services on the terms and conditions hereinafter set forth; and
WHEREAS, VKAC and MSAM (jointly referred to as "the Advisers") desire to enter
into an agreement for MSAM to provide sub-advisory services to the Fund and to
VKAC with respect to the investment of the assets of each of the Investment
Funds.
NOW THEREFORE it is mutually agreed:
9.. INVESTMENT SUB-ADVISORY SERVICES.
(a) Investment Advice
i. Effective on __________, 1997, and subject to the overall policies,
control, direction and review of the Fund's Directors and VKAC, MSAM shall
manage the investment and reinvestment of the assets of each of the Investment
Funds, continuously review, supervise and administer the investment program of
each of the Investment Funds, determine in its discretion the securities to be
purchased or sold and the portion of each Investment Fund's assets to be held
uninvested, to provide the Fund with records concerning MSAM's activities which
the Fund is required to maintain, and to render regular reports to the Fund's
officers and Board of Directors concerning MSAM's discharge of the foregoing
responsibilities.
39
<PAGE> 46
ii. Unless otherwise instructed by VKAC or the Directors, and subject
to the provisions of this Agreement and to any guidelines or limitations
specified from time to time by VKAC or by the Directors MSAM shall determine the
securities to be purchased and sold by the Fund and shall place orders for the
purchase, sale or exchange of securities for the Fund's accounts with brokers or
dealers and to that end MSAM is authorized by the Directors to give instructions
to the Custodian and any Sub-Custodian of the Fund as to deliveries of such
securities, transfers of currencies and payments of cash for the account of the
Fund.
iii. In performing these services, MSAM shall adhere to the Fund's
investment objectives, restrictions and limitations as contained in its
Prospectus, Statement or Additional Information, or Agreement and Articles of
Incorporation and shall comply with all statutory and regulatory restrictions,
limitations and requirements applicable to the activity of the Fund.
iv. Unless otherwise instructed by VKAC or the Directors, and subject
to the provisions of this Agreement and to any guidelines or limitations
specified from time to time by VKAC or by the Directors, MSAM shall have
executed and performed on behalf of and at the expense of the Fund:
(1) Purchases, sales, exchanges, conversions, and placement or orders
for execution, and
(2) Reporting of all transactions to VKAC and to other entities as
directed by VKAC or by the Directors.
v. MSAM shall provide the Directors at least quarterly, in advance of
the regular meetings of the Directors, a report of its activities hereunder on
behalf of the Fund and its proposed strategy for the next quarter, all in such
form and detail as requested by the Directors. MSAM shall also make an
investment officer available to attend such meetings of the Directors as the
Directors may reasonably request.
(b) Restriction of MSAM's Powers
i. In carrying out its duties hereunder, MSAM shall comply with all
reasonable instruction of the Fund or VKAC in connection therewith. Such
instructions may be given by letter, telex, telefax or telephone confirmed by
telex, by the Directors or by any other person authorized by a resolution of the
Directors provided a certified copy of such resolution has been supplied to
MSAM.
ii. All securities, cash and other assets of the Fund shall be placed
and maintained in the care of a member bank of the Federal Reserve System of the
United States approved by the Directors as custodian and one or more "Eligible
Foreign Custodians" (as defined in Rule 17f-5
40
<PAGE> 47
under the Investment Company Act of 1940 (the "1940 Act")) approved by the
Directors as sub-custodians.
iii. Persons authorized by resolution of the Directors shall have the
right to inspect and copy contracts, notes, vouchers, and copies of entries in
books or electronic recording media relating to the Fund's transactions at the
registered office of MSAM at any time during normal business hours. Such
records, in relation to each transaction effected by MSAM on behalf of the Fund
shall be maintained by MSAM for a period of seven years from the date of such
transaction.
(c) Purchase and Sale of Securities
In performing the services described above, MSAM shall use its best
efforts to obtain for the Fund the most favorable price and execution available.
Subject to prior authorization of appropriate policies and procedures by the
Directors, MSAM may, to the extent authorized by law, cause the Fund to pay a
broker or dealer who provides brokerage and research services an amount of
commission for effecting the Fund's investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, in recognition of the brokerage and research services provided
by the broker or dealer. To the extent authorized by law, MSAM shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of such action.
(d) Custodian
MSAM shall not act as Custodian for the securities or any other assets
of the Fund. All such assets shall be held by the Custodian or Sub-Custodian
appointed by the Directors.
10.. DUTIES OF VKAC.
(a) Provision of Information
VKAC shall advise MSAM from time to time with respect to the Fund of
its investment objectives and of any changes or modifications thereto, as well
as any specific investment restrictions or limitations by sending to MSAM a copy
of each registration statement relating to the Fund as filed with the Securities
and Exchange Commission. As requested by MSAM, VKAC shall furnish such
information to MSAM as to holdings, purchases, and sales of the securities under
its management as will reasonably enable MSAM to furnish its investment advice
under this Agreement.
41
<PAGE> 48
(b) Compensation to MSAM
The fee for the services provided under this Agreement will be
determined as follows:
i. An amount for each month (or such other valuation period as may be
mutually agreed upon) equivalent, on an annual basis, to [__%] of the
compensation actually received by VKAC pursuant to the investment advisory fee
schedule set forth in the Investment Advisory Agreement between the Fund and
VKAC taking into account any waiver or return to the Fund of any or all of such
advisory fee by VKAC (with any such return of fees to be treated as if not
actually received). The value of the assets of the Fund shall be computed as of
the close of business on the last day of each valuation period of the Fund,
using the average of all the daily determinations of the net value of the assets
of the Fund.
ii. The foregoing fee shall be paid in cash by VKAC to MSAM within five
(5) business days after the last day of the valuation period.
11.. MISCELLANEOUS.
(a) Activities of MSAM
The services of MSAM as Sub-Adviser to VKAC under this Agreement are
not to be deemed exclusive, MSAM and its affiliates being free to render
services to others. It is understood that shareholders, directors, officers and
employees of MSAM may become interested in the Fund or VKAC as a shareholder,
director, officer, partner or otherwise.
(b) Services to Other Clients
VKAC acknowledges that MSAM may have investment responsibilities, or
render investment advice to, or perform other investment advisory services for,
other individuals or entities, ("Clients"). Subject to the provisions of this
paragraph, VKAC agrees that MSAM may give advice or exercise investment
responsibility and take such other action with respect to such Clients which may
differ from advice given or the timing or nature of action taken with respect to
the Fund, provided that MSAM acts in good faith, and provided, further, that it
is MSAM policy to allocate, within its reasonable discretion, investment
opportunities to the Fund over a period of time on a fair and equitable basis
relative to the Clients, taking into account the investment objectives and
policies of the Fund and any specific investment restrictions applicable
thereto. VKAC acknowledges that one or more of the Clients may at any time hold,
acquire, increase, decrease, dispose of or otherwise deal with positions in
investments in which the Fund may have an interest from time to time, whether in
transactions which may involve the Fund or otherwise MSAM shall have no
obligation to acquire for the Fund a position in any
42
<PAGE> 49
investment which any Client may acquire, and VKAC shall have no first refusal,
coinvestment or other rights in respect of any such investment, either for the
Fund or otherwise.
(c) Best Efforts
It is understood and agreed that in furnishing the investment advice
and other services as herein provided, MSAM shall use its best professional
judgment to recommend actions which will provide favorable results of the Fund.
MSAM shall not be liable to the Fund or to any shareholder of the Fund to any
greater degree than VKAC.
(d) Duration of Agreement
i. This Agreement, unless terminated pursuant to paragraph (b) or (c)
below or Section 2.2(c), shall continue in effect through ______________, 199__,
and thereafter shall continue in effect from year to year, provided its
continued applicability is specifically approved at least annually by the
Directors or by a vote of the holders of a majority of the outstanding shares of
the Fund. In addition, such continuation shall be approved by vote of a majority
of the Directors who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. As used in this paragraph, the term "interested person" shall
have the same meaning as set forth in the 1940 Act.
ii. This Agreement may be terminated by sixty (60) days' written notice
by either VKAC or MSAM to the other party, provided that VKAC's termination of
this Agreement shall be approved by vote of a majority of the Directors who are
not parties to this Agreement or interested persons of any such party. The
Agreement may also be terminated at any time, without the payment of any
penalty, by the Fund (by vote of the Directors or, by the vote of a majority of
the outstanding voting securities of such Fund), on sixty (60) days' written
notice to both VKAC and MSAM. This Agreement shall automatically terminate in
the event of the termination of the investment advisory agreement between VKAC
and the Fund.
iii. This Agreement shall terminate in the event of its assignment. The
term "assignment" for this purpose shall have the same meaning set forth in
Section 2(a)(4) of the 1940 Act.
iv. Termination shall be without prejudice to the completion of any
transactions which MSAM shall have committed to on behalf of the Fund prior to
the time of termination. MSAM shall not effect and the Fund shall not be
entitled to instruct MSAM to effect any further transactions on behalf of the
Fund subsequent to the time termination takes effect.
v. This Agreement shall terminate forthwith by notice in writing on the
happening of any of the following events:
43
<PAGE> 50
(i) If VKAC or MSAM shall go into liquidation (except a voluntary
liquidation for the purpose of and followed by a bona fide reconstruction or
amalgamation upon terms previously approved in writing by the party not in
liquidation) or if a receiver or receiver and manager of any of the assets of
any of them is appointed; or
(ii) If either of the parties hereto shall commit any breach of
the provisions hereof and shall not have remedied such breach within 30 days
after the service of notice by the party not in breach on the other requiring
the same to be remedied.
vi. On the termination of this Agreement and completion of all matters
referred to in the foregoing paragraph (d) MSAM shall deliver or cause to be
delivered to the Fund copies of all documents, records and books of the Fund
required to be maintained pursuant to Rules 31a-1 or 31a-2 of the 1940 Act which
are in MSAM's possession, power or control and which are valid and in force at
the date of termination.
(e) Notices
Any notice, request, instruction, or other document to be given under
this Agreement by any party hereto to the other parties shall be in writing and
delivered personally or sent by mail or telecopy (with a hard copy to follow):
If to MSAM to:
Morgan Stanley Asset Management, Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention: Warren J. Olsen
with a copy to:
Morgan Stanley Asset Management, Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention: Harold J. Schaaff, Esquire
44
<PAGE> 51
If to VKAC, to:
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Dennis J. McDonnell
with a copy to:
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Ronald A. Nyberg, Esquire
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be presumed to have
been duly given to the party to which it is addressed, on the date three (3)
days after mailing, and in the case of delivery by telecopy, on the date the
hard copy is received.
(f) Choice of Law
This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the United
States and the State of New York, without regard to the conflicts of laws
principles thereof.
(g) Miscellaneous Provisions
The execution of this Agreement has been authorized by the Fund's
Directors and by the shareholders. This Agreement is executed on behalf of the
Fund or the Directors of the Fund as Directors and not individually and that the
obligations of this Agreement are not binding upon any of the Directors,
officers or shareholders of the Fund individually but are binding only upon the
assets and property of the Fund. The Articles of Incorporation of the Fund is on
file with the Department of Assessments and Taxation of the State of Maryland.
IN WITNESS WHEREOF, the Agreement has been executed as of the date first above
given.
VAN KAMPEN AMERICAN CAPITAL MORGAN STANLEY ASSET
INVESTMENT ADVISORY CORP. MANAGEMENT INC.
45
<PAGE> 52
By:________________________________ By:________________________________
Name:______________________________ Name:______________________________
Its:_______________________________ Its:_______________________________
46
<PAGE> 53
Schedule A
Investment Fund
- ---------------
Emerging Markets Debt Fund
Global Fixed Income Fund
High Yield Fund
Worldwide High Income Fund
Asian Growth Fund
Emerging Markets Fund
European Equity Fund
Global Equity Allocation Fund
Global Equity Fund
International Magnum Fund
Japanese Equity Fund
Latin American Fund
Aggressive Equity Fund
American Value Fund
Equity Growth Fund
Growth and Income Fund
U.S. Real Estate Fund
Government Obligations Money Market Fund
Money Market Fund
Tax-Free Money Market Fund
47
<PAGE> 54
ANNEX C
The following tables indicate the name, net assets as of December 31, 1996,
contractual advisory fee and net advisory fee after fee waivers or expense
reimbursements for the last fiscal year for the Portfolios, as well as other
registered investment companies advised by MSAM. Except with respect to the U.S.
Registered Closed-End Funds, MSAM has voluntarily agreed to a reduction in the
fees payable to it and to reimburse each portfolio, if necessary, if payment of
advisory fees would cause the total annual operating expenses of each portfolio
to exceed certain maximums.
MORGAN STANLEY FUND, INC.
<TABLE>
<CAPTION>
NET ADVISORY
CONTRACTUAL FEES
RATE OF AFTER EXPENSE
ASSETS AS OF ADVISORY REIMBURSEMENTS
FUND 12/31/96 FEES(2) OR FEE WAIVERS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Equity Fund $ 19,194,919 0.90% 0.50%
- ------------------------------------------------------------------------------------------------------------------------
American Value Fund 481,199,603 0.85% 0.54%
- ------------------------------------------------------------------------------------------------------------------------
Asian Growth Fund 423,229,234 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
Emerging Markets Fund 128,640,271 1.25% 0.84%
- ------------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt Fund N/A 1.25% N/A
- ------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund (1) N/A 0.70% N/A
- ------------------------------------------------------------------------------------------------------------------------
European Equity Fund (1) N/A 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------------
Global Equity Fund (1) N/A 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------------
Global Equity Allocation Fund 156,402,540 1.00% 0.64%
- ------------------------------------------------------------------------------------------------------------------------
Global Fixed Income Fund 10,452,774 0.75% 0.04%
- ------------------------------------------------------------------------------------------------------------------------
Government Obligations Money 116,815,884 0.45%(3) 0.41%
Market Fund 0.40%(4)
0.35%(5)
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund(1) N/A 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------------
High Yield Fund 14,794,857 0.75% 0.42%
- ------------------------------------------------------------------------------------------------------------------------
International Magnum Fund 16,490,305 0.80% 0.80%
- ------------------------------------------------------------------------------------------------------------------------
Japanese Equity Fund (1) N/A 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------------
Latin American Fund 28,891,074 1.25% 0.07%
- ------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund (1) N/A 0.75% N/A
- ------------------------------------------------------------------------------------------------------------------------
Money Market Fund 254,854,113 0.45%(3) 0.36%
0.40%(4)
0.35%(5)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 55
<TABLE>
<CAPTION>
NET ADVISORY
CONTRACTUAL FEES
RATE OF AFTER EXPENSE
ASSETS AS OF ADVISORY REIMBURSEMENTS
FUND 12/31/96 FEES(2) OR FEE WAIVERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Free Money Market Fund (1) N/A 0.45%(3) N/A
0.40%(4)
0.35%(5)
- ------------------------------------------------------------------------------------------------------------------
U.S. Real Estate Fund 14,131,988 1.00% 0.70%
- ------------------------------------------------------------------------------------------------------------------
Value Fund (1) N/A 0.70% N/A
- ------------------------------------------------------------------------------------------------------------------
Worldwide High Income Fund 144,780,814 0.75% 0.61%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Portfolio had not commenced operations as of December 31, 1996.
(2) As a percentage of average daily net assets
(3) As a percentage of first $250 million
(4) As a percentage of next $250 million
(5) As a percentage of excess over $500 million
49
<PAGE> 56
MORGAN STANLEY INSTITUTIONAL FUND, INC.
<TABLE>
<CAPTION>
NET ADVISORY
CONTRACTUAL FEES
RATE OF AFTER EXPENSE
ASSETS AS OF ADVISORY REIMBURSEMENTS
PORTFOLIO 12/31/96 FEES(2) OR FEE WAIVERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Active Country Allocation Portfolio $ 183,866,164 0.65% 0.36%
- ------------------------------------------------------------------------------------------------------------------
Aggressive Equity Portfolio 77,289,407 0.80% 0.56%
- ------------------------------------------------------------------------------------------------------------------
Asian Equity Portfolio 374,522,755 0.80% 0.55%
- ------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 8,189,270 0.50% 0.00%
- ------------------------------------------------------------------------------------------------------------------
China Growth Portfolio(1) N/A 1.25% N/A
- ------------------------------------------------------------------------------------------------------------------
Emerging Growth Portfolio 66,789,901 1.00% 0.95%
- ------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 1,321,363,055 1.25% 1.25%
- ------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt Portfolio 156,419,732 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
Equity Growth Portfolio 66,789,901 0.60% 0.36%
- ------------------------------------------------------------------------------------------------------------------
European Equity Portfolio 181,009,746 0.80% 0.64%
- ------------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio 132,194,980 0.35% 0.20%
- ------------------------------------------------------------------------------------------------------------------
Global Equity Portfolio 84,224,959 0.80% 0.65%
- ------------------------------------------------------------------------------------------------------------------
Global Fixed Income Portfolio 114,446,527 0.40% 0.18%
- ------------------------------------------------------------------------------------------------------------------
Gold Portfolio 29,180,247 1.00% 0.52%
- ------------------------------------------------------------------------------------------------------------------
High Yield Portfolio 101,321,211 0.50% 0.43%
- ------------------------------------------------------------------------------------------------------------------
International Equity Portfolio 2,269,491,236 0.80% 0.78%
- ------------------------------------------------------------------------------------------------------------------
International Magnum Portfolio 108,463,901 0.80% 0.26%
- ------------------------------------------------------------------------------------------------------------------
International Small Cap Portfolio 234,743,343 0.95% 0.87%
- ------------------------------------------------------------------------------------------------------------------
Japanese Equity Portfolio 155,659,538 0.80% 0.73%
- ------------------------------------------------------------------------------------------------------------------
Latin American Portfolio 31,740,977 1.10% 0.62%
- ------------------------------------------------------------------------------------------------------------------
MicroCap Portfolio(1) N/A 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------
Money Market Portfolio 1,284,371,173 0.30% 0.30%
- ------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities N/A 0.35% N/A
- ------------------------------------------------------------------------------------------------------------------
Portfolio(1)
- ------------------------------------------------------------------------------------------------------------------
Municipal Bond Portfolio 40,295,907 0.35% 0.07%
- ------------------------------------------------------------------------------------------------------------------
Municipal Money Market Portfolio 721,240,884 0.30% 0.30%
- ------------------------------------------------------------------------------------------------------------------
Small Cap Value Equity Portfolio 25,659,189 0.85% 0.53%
- ------------------------------------------------------------------------------------------------------------------
Technology Portfolio 5,077,462 1.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------
U.S. Real Estate Portfolio 219,140,369 0.80% 0.66%
- ------------------------------------------------------------------------------------------------------------------
Value Equity Portfolio 108,683,175 0.50% 0.42%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Portfolio had not commenced operations as of December 31, 1996.
(2) As a percentage of average daily net assets
50
<PAGE> 57
MORGAN STANLEY UNIVERSAL FUNDS, INC.
<TABLE>
<CAPTION>
NET ADVISORY
CONTRACTUAL FEES
RATE OF AFTER EXPENSE
ASSETS AS OF ADVISORY REIMBURSEMENTS
PORTFOLIO 12/31/96 FEES(2) OR FEE WAIVERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0.80%(3)
Asian Equity Portfolio(1) N/A 0.75%(4) N/A
0.70%(5)
- ------------------------------------------------------------------------------------------------------------------
0.75%(3)
Emerging Market Debt Portfolio(1) N/A 0.70%(4) N/A
0.65%(5)
- ------------------------------------------------------------------------------------------------------------------
1.25%(3)
Emerging Markets Equity Portfolio 11,786,569 1.20%(4) 0.31%
1.15%(5)
- ------------------------------------------------------------------------------------------------------------------
0.80%(3)
Global Equity Portfolio(1) N/A 0.75%(4) N/A
0.70%(5)
- ------------------------------------------------------------------------------------------------------------------
0.55%(3)
Growth Portfolio(1) N/A 0.50%(4) N/A
0.45%(5)
- ------------------------------------------------------------------------------------------------------------------
0.80%(3)
International Magnum Portfolio(1) N/A 0.75%(4) N/A
0.70%(5)
- ------------------------------------------------------------------------------------------------------------------
0.30%(3)
Money Market Portfolio(1) N/A 0.25%(4) N/A
0.20%(5)
- ------------------------------------------------------------------------------------------------------------------
0.80%(3)
U.S. Real Estate Portfolio N/A 0.75%(4) N/A
0.70%(5)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Portfolio had not commenced operations as of December 31, 1996.
(2) As a percentage of average daily net assets
(3) As a percentage of first $500 million
(4) As a percentage of next $500 million
(5) As a percentage of excess over $1 billion
51
<PAGE> 58
U.S. REGISTERED CLOSED-END FUNDS *
<TABLE>
<CAPTION>
CONTRACTUAL
ASSETS AS OF RATE OF
COMPANY 12/31/96 ADVISORY FEES(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Morgan Stanley Africa Investment Fund, Inc. $ 260,522,375 1.20%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Asia-Pacific Fund, Inc. 856,422,087 1.00%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Fund, Inc. 358,394,428 1.25%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Debt Fund, 372,677,758 1.00%
Inc.
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Global Opportunity Fund, Inc. 61,590,818 1.00%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley India Investment Fund, Inc. 314,423,032 1.10%
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley Russia & New Europe Fund, Inc. 103,944,599 1.60%
- --------------------------------------------------------------------------------------------------------------------
0.90%(2)
The Brazilian Investment Fund, Inc. 48,856,226 0.70%(3)
0.50%(4)
- --------------------------------------------------------------------------------------------------------------------
The Latin America Discovery Fund, Inc. 171,586,180 1.15%
- --------------------------------------------------------------------------------------------------------------------
0.90%(2)
The Malaysia Fund, Inc. 187,762,289 0.70%(3)
0.50%(4)
- --------------------------------------------------------------------------------------------------------------------
The Morgan Stanley High Yield Fund, Inc. 126,330,034 0.70%
- --------------------------------------------------------------------------------------------------------------------
The Pakistan Investment Fund, Inc. 55,399,039 1.00%
- --------------------------------------------------------------------------------------------------------------------
0.90%(2)
The Thai Fund, Inc. 204,208,935 0.70%(3)
0.50%(4)
- --------------------------------------------------------------------------------------------------------------------
0.95%(2)
The Turkish Investment Fund, Inc. 36,937,008 0.75%(3)
0.55%(5)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As a percentage of average weekly net assets
(2) As a percentage of first $50 million
(3) As a percentage of next $50 million
(4) As a percentage of excess over $100 million
* No voluntary fee waivers are in effect with regard to any U.S.
Registered Closed-End Fund
52
<PAGE> 59
ANNEX D
The following tables indicate the name, net assets as of [Date], contractual
advisory fee and net advisory fee after fee waivers or expense reimbursements
for the last fiscal year for other registered investment companies advised by VK
Advisory. [Except with respect to the U.S. Registered Closed-End Funds, VK
Advisory has voluntarily agreed to a reduction in the fees payable to it and to
reimburse each portfolio, if necessary, if payment of advisory fees would cause
the total annual operating expenses of each portfolio to exceed certain
maximums.]
53
<PAGE> 60
MORGAN STANLEY FUND, INC.
PRELIMINARY PROXY FOR SPECIAL MEETING OF SHAREHOLDERS,
MAY 21, 1997
This Proxy is for your use in voting on various matters relating to
Morgan Stanley Fund, Inc. (the "Company"). The undersigned Shareholder(s) of the
Morgan Stanley [FUND NAME] Fund (the "Fund") of the Company hereby appoint(s)
Warren J. Olsen, Harold J. Schaaff, Jr., Michael F. Klein and Valerie Y. Lewis
and each of them (with full power of substitution), the proxy or proxies of the
undersigned to attend the Special Meeting of Shareholders of the Company to be
held on May 21, 1997, and any adjournments thereof (the "Special Meeting"), to
vote all of the shares of the Fund that the signer would be entitled to vote if
personally present at the Special Meeting of Shareholders on the following
proposals and on any other matters brought before the Special Meeting, all as
set forth in the Notice of Special Meeting of Shareholders and Proxy Statement
of the Board of Directors. Said proxies are directed to vote or refrain from
voting pursuant to the Proxy Statement as checked below upon the following
matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY AND WILL BE VOTED "FOR" EACH PROPOSAL UNLESS OTHERWISE
INDICATED.
Please vote by filling in the appropriate boxes below, as shown, using blue or
black ink or dark pencil. Do not use red ink.
Proposal 1: To elect a Board of Directors.
<TABLE>
<S> <C> <C>
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY to [ ] FOR all nominees listed below,
listed below. vote for all nominees listed EXCEPT for those whose names
below. have been stricken.
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY OR ALL OF THE
NOMINEES, STRIKE A LINE THROUGH THE NAME(S) OF SUCH NOMINEE(S) BELOW.)
J. Miles Branagan Jerome L. Robinson
Richard D. DeMartini Phillip Rooney
Linda Hutton Heagy Fernando Sisto
R. Craig Kennedy Wayne W. Whalen
Jack E. Nelson
54
<PAGE> 61
Proposal 2: Approval of the investment advisory agreement by and between the
Company and Van Kampen American Capital Investment Advisory Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal 3: Approval of the investment sub-advisory agreement by and between Van
Kampen American Capital Investment Advisory Corp. and Morgan Stanley
Asset Management Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In accordance with their own discretion, the proxies are authorized to vote
on such other business as may properly come before the Special Meeting.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO DIRECTION IS GIVEN WITH RESPECT TO A PROPOSAL(S)
WHEN THE DULY EXECUTED PROXY IS RETURNED, SUCH SHARES WILL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS FOR THAT
PROPOSAL(S).
THE UNDERSIGNED ACKNOWLEDGES RECEIPT WITH THIS PROXY OF A COPY OF THE
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND THE PROXY STATEMENT OF THE BOARD
OF DIRECTORS.
Please date, sign and return promptly.
Dated: _______________________________, 1997
YOUR SIGNATURE(S) ON THIS PROXY SHOULD BE EXACTLY AS YOUR NAME OR NAMES APPEAR
ON THIS PROXY. IF THE SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN. IF
SIGNING IS BY ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
PRINT YOUR FULL TITLE BELOW YOUR SIGNATURE.
_____________________________________________
Signature
_____________________________________________
Signature
55
