MORGAN STANLEY FUND INC, 497, 1997-09-04

MORGAN STANLEY FUND INC
497, 1997-09-04

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<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
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MORGAN STANLEY EMERGING MARKETS DEBT FUND
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY HIGH YIELD FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------

Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each, a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the four Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").

THE MORGAN STANLEY EMERGING MARKETS DEBT FUND, MORGAN STANLEY HIGH YIELD
FUND AND MORGAN STANLEY WORLDWIDE HIGH INCOME FUND NORMALLY INVEST BETWEEN 80%
AND 100% OF THEIR RESPECTIVE TOTAL ASSETS IN LOWER RATED AND UNRATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE SUBJECT TO GREATER
RISKS THAN THOSE INVOLVED IN HIGHER RATED BONDS, INCLUDING THE RISK OF DEFAULT.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THESE FUNDS. SEE "ADDITIONAL INVESTMENT INFORMATION -- LOWER RATED AND UNRATED
DEBT SECURITIES."

The Morgan Stanley Worldwide High Income Fund and Global Fixed Income Fund
may invest in equity securities of Russian companies. Russia's system of share
registration and custody involves certain risks of loss that are not normally
associated with investments in other securities markets. See "Additional
Investment Information -- Russian Securities Transactions."

This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.

THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY
AFFILIATES OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THE DATE OF THIS PROSPECTUS IS JANUARY 2, 1997
AS SUPPLEMENTED THROUGH JUNE 19, 1997.
<PAGE>
FUND EXPENSES

The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:

<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
SHAREHOLDER TRANSACTION EXPENSES DEBT FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1)
Class B.................................. None None None None
Class C.................................. None None None None
Maximum Deferred Sales Load (as a percentage
of the lesser of initial purchase price or
current market value)
Class A
For Purchases up to $999,999........... None None None None
For Purchases of $1,000,000 or more.... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B.................................. 4.00%(3) 4.00%(3) 4.00%(3) 4.00%(3)
Class C.................................. 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Redemption Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Exchange Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
</TABLE>

- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load.

(2) Purchases of Class A shares of the Funds listed above which, when combined
with the net asset value of the purchaser's existing investments in Class A
shares of the Funds, aggregate $1 million or more are not subject to a sales
load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Any such CDSC
will be paid to the Distributor. Certain other purchases are not subject to
an initial sales charge. See "Purchase of Shares."

(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 4.00% which decreases in
steps to 0% after five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.

(4) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.

2
<PAGE>

<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
ANNUAL FUND OPERATING EXPENSES EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
(AS A PERCENTAGE OF AVERAGE NET ASSETS) DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.25% 0.04% 0.42% 0.61%
Class B.................................. 1.25% 0.04% 0.42% 0.61%
Class C.................................. 1.25% 0.04% 0.42% 0.61%
12b-1/Service Fees
Class A (6).............................. 0.25% 0.25% 0.25% 0.25%
Class B (6).............................. 1.00% 1.00% 1.00% 1.00%
Class C (6).............................. 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursement
and/or fee waiver) (5)
Class A.................................. 0.55% 1.16% 0.58% 0.69%
Class B.................................. 0.55% 1.16% 0.58% 0.69%
Class C.................................. 0.55% 1.16% 0.58% 0.69%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 2.05% 1.45% 1.25% 1.55%
Class B.................................. 2.80% 2.20% 2.00% 2.30%
Class C.................................. 2.80% 2.20% 2.00% 2.30%
</TABLE>

- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds, if necessary, if such fees would cause the total
annual operating expenses of the Funds, as a percentage of average daily net
assets, to exceed the percentages set forth in the table above. The
following sets forth, for each Fund investment advisory fees and expected
total operating expenses absent fee waivers and/or expense reimbursements.

<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Operating Expenses
Class A.................................. 2.05% 2.16% 1.58% 1.69%
Class B.................................. 2.80% 3.57% 2.33% 2.47%
Class C.................................. 2.80% 2.87% 2.33% 2.44%
Investment Advisory Fees
(All Classes)............................ 1.25% 0.75% 0.75% 0.75%
</TABLE>

The Adviser reserves the right to terminate any of its fee waivers and/or
expense reimbursements at any time in its sole discretion. For further
information on Fund expenses, see "Management of the Company."

(6) Of the 12b-1/Service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.

The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The expenses and fees for the Global Fixed Income and Worldwide High
Income Funds are based on actual figures for the period ended June 30, 1996. The
expenses and fees for the Emerging Markets Debt and High Yield Funds are based
on estimates. For purposes of calculating the estimated expenses and fees set
forth above, the table assumes that a Fund's average daily net assets will be
$50,000,000. Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders may pay more than the equivalent of the maximum front-end sales
charges otherwise permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").

<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the
expenses are the same.)
1 Year............................................. $ 67(1) $ 62(1) $ 60(1) $ 63(1)
3 Years............................................ 109 91 85 94
5 Years............................................ * 123 * 128
10 Years........................................... * 213 * 223
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................. 68 62 60 63
3 Years............................................ 117 99 93 102
5 Years............................................ * 133 * 138
10 Years (2)....................................... * 235 * 246
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years (2)....................................... * 235 * 246
Class C shares
(Assuming complete redemption immediately prior
to the end of period)
1 Year............................................. 38 32 30 33
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
Class C shares
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
</TABLE>

- ------------------
* Because the Emerging Markets Debt Fund and High Yield Fund were either not
operational or had just recently become operational as of the date of this
Prospectus, the Funds have not projected expenses beyond the three-year
period shown.

(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds listed above which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Funds, aggregate $1 million or more are not subject to an initial sales
charge. A CDSC of 1.00% will be imposed, however, on shares from any such
purchase that are redeemed within one year following such purchase.

(2) Class B shares automatically convert to Class A shares after eight years.

THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.

4
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Fixed Income, High Yield and Worldwide High
Income Funds for each of the respective periods presented. The audited financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1996 Annual Report to Shareholders. The financial statements
are included in the Funds' Statement of Additional Information. The foregoing
Funds' financial highlights for each of the periods presented have been audited
by Price Waterhouse LLP, whose report thereon (which was unqualified) is also
included in the Statement of Additional Information. Additional performance
information about the Company is contained in the Company's Annual Report. The
Annual Report and the financial statements contained therein, along with the
Statement of Additional Information, are available at no cost from the Company
at the address and telephone number noted on the cover page of this Prospectus.
The following information should be read in conjunction with the financial
statements and notes thereto. Financial highlights are not presented for the
Emerging Markets Debt Fund because it had not commenced operations as of June
30, 1996.

5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
-------------------------------------------------- ----------
JANUARY 4, AUGUST 1,
1993* YEAR ENDED YEAR ENDED YEAR ENDED 1995
TO JUNE JUNE 30, JUNE 30, JUNE 30, TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996 30, 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.00 $ 10.55 $ 9.53 $ 10.23 $ 10.24
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.25 0.52 0.56 0.53 0.64
Net Realized and Unrealized Gain
(Loss)............................... 0.55 (0.42) 0.50 (0.01) (0.26)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations...... 0.80 0.10 1.06 0.52 0.38
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income................. (0.25) (0.50) (0.36) (0.79) (0.69)
In Excess of Net Investment Income.... (0.12) (0.02) (0.02)
Net Realized Gain..................... (0.47)
In Excess of Realized Gain............ (0.03)
---------- ---------- ---------- ---------- ----------
Total Distributions................... (0.25) (1.12) (0.36) (0.81) (0.71)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.......... $ 10.55 $ 9.53 $ 10.23 $ 9.94 $ 9.91
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1)........................ 8.02% 0.41% 11.41% 5.20% 3.76%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........ $ 6,633 $ 10,369 $ 11,092 $ 7,432 $ 1,440
Ratio of Expenses to Average Net
Assets (2)............................. 1.45%** 1.45% 1.45% 1.45% 2.20%**
Ratio of Net Investment Income to
Average Net Assets (2)................. 5.00%** 4.70% 5.84% 5.02% 3.38%**
Portfolio Turnover Rate................. 55% 168% 169% 223% 223%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period

Per Share Benefit to Net Investment
Income............................... $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 2.88%** 2.48% 2.22% 2.16% 3.57%**
Net Investment Income to Average Net
Assets............................... 3.57%** 3.67% 5.07% 4.31% 2.01%**
- ---------------------------------------------------------------------------------------------------------

<CAPTION>
CLASS C
--------------------------------------------------
JANUARY 4,
1993* YEAR ENDED YEAR ENDED YEAR ENDED
TO JUNE JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996
<S> <C> <C> <C> <C>
- ---------------------------------------- --------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.00 $ 10.56 $ 9.54 $ 10.20
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.21 0.43 0.49 0.37
Net Realized and Unrealized Gain
(Loss)............................... 0.55 (0.40) 0.47 0.08
---------- ---------- ---------- ----------
Total From Investment Operations...... 0.76 0.03 0.96 0.45
---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income................. (0.20) (0.44) (0.30) (0.73)
In Excess of Net Investment Income.... (0.11) (0.02)
Net Realized Gain..................... (0.47)
In Excess of Realized Gain............ (0.03)
---------- ---------- ---------- ----------
Total Distributions................... (0.20) (1.05) (0.30) (0.75)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.......... $ 10.56 $ 9.54 $ 10.20 $ 9.90
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN (1)........................ 7.61% (0.25)% 10.24% 4.47%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........ $ 6,120 $ 5,407 $ 5,965 $ 2,844
Ratio of Expenses to Average Net
Assets (2)............................. 2.20%** 2.20% 2.20% 2.20%
Ratio of Net Investment Income to
Average Net Assets (2)................. 4.25%** 3.95% 5.09% 4.35%
Portfolio Turnover Rate................. 55% 168% 169% 223%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income............................... $ 0.07 $ 0.12 $ 0.08 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 3.63%** 3.29% 2.97% 2.87%
Net Investment Income to Average Net
Assets............................... 2.82%** 2.86% 4.32% 3.68%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.
** Annualized.

+ The Global Fixed Income Fund began offering the current Class B shares on
August 1, 1995.

(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.

(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.75%
of the average daily net assets of the Global Fixed Income Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Global Fixed Income Fund to the extent that the total operating expenses of
the Fund exceed 1.45% of the average daily net assets relating to the Class
A shares and 2.20% of the average daily net assets relating to the Class B
and Class C shares. For the fiscal periods ended June 30, 1994, June 30,
1995 and June 30, 1996, the Adviser waived advisory fees and/or reimbursed
expenses totaling approximately $150,000, $121,000 and $112,000,
respectively, for the Global Fixed Income Fund.

6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD FUND

<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
------------- ------------- -------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
TO JUNE 30, TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1996 1996 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................. $12.00 $12.00 $12.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.......................................... 0.13 0.12 0.12
Net Realized and Unrealized Loss............................... (0.09) (0.09) (0.09)
------ ------ ------
Total From Investment Operations............................... 0.04 0.03 0.03
------ ------ ------
DISTRIBUTION:
Net Investment Income.......................................... (0.12) (0.10) (0.10)
------ ------ ------
NET ASSET VALUE, END OF PERIOD................................... $11.92 $11.93 $11.93
------ ------ ------
TOTAL RETURN (1)................................................. 0.29% 0.21% 0.21%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................................ $3,907 $3,421 $3,316
Ratio of Expenses to Average Net Assets.......................... 1.25%** 2.00%** 2.00%**
Ratio of Net Investment Income to Average Net Assets............. 6.85%** 6.08%** 6.07%**
Portfolio Turnover Rate.......................................... 10% 10% 10%
- ----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income..................... $ 0.04 $ 0.04 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets................................. 3.51%** 4.25%** 4.25%**
Net Investment Income to Average Net Assets.................... 4.59%** 3.83%** 3.82%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.
** Annualized.
+ The Global Fixed Income Fund began offering the current Class B shares on
August 1, 1995.

(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.

(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.75%
of the average daily net assets of the High Yield Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the High
Yield Fund to the extent that the total operating expenses of the Fund
exceed 1.25% of the average daily net assets relating to the Class A shares
and 2.00% of the average daily net assets relating to the Class B and Class
C shares. For the fiscal period ended June 30, 1996, the Adviser waived
advisory fees and/or reimbursed expenses totaling approximately $38,000 for
the High Yield Fund.

7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------- CLASS B+ -------------------------------------
APRIL 21, ------------- APRIL 21,
1994* YEAR ENDED YEAR ENDED AUGUST 1, 1994* YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND TO JUNE JUNE 30, JUNE 30, 1995 TO TO JUNE JUNE 30, JUNE 30,
RATIOS 30, 1994 1995 1996 JUNE 30, 1996 30, 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 12.17 $ 11.57 $ 11.63 $ 12.00 $ 12.16 $ 11.58
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.18 1.26 1.36 1.18 0.17 1.17 1.30
Net Realized and Unrealized
Gain (Loss).................. 0.16 (0.52) 0.80 0.72 0.15 (0.50) 0.77
---------- ---------- ---------- ------------- ---------- ---------- ----------
Total From Investment
Operations................... 0.34 0.74 2.16 1.90 0.32 0.67 2.07
---------- ---------- ---------- ------------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income......... (0.17) (1.22) (1.26) (1.09) (0.16) (1.13) (1.20)
Net Realized Gain............. (0.12) (0.12)
---------- ---------- ---------- ------------- ---------- ---------- ----------
Total Distributions........... (0.17) (1.34) (1.26) (1.09) (0.16) (1.25) (1.20)
---------- ---------- ---------- ------------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD......................... $ 12.17 $ 11.57 $ 12.47 $ 12.44 $ 12.16 $ 11.58 $ 12.45
---------- ---------- ---------- ------------- ---------- ---------- ----------
---------- ---------- ---------- ------------- ---------- ---------- ----------
TOTAL RETURN (1)................ 2.86% 6.87% 19.61% 17.07% 2.62% 6.20% 18.71%
---------- ---------- ---------- ------------- ---------- ---------- ----------
---------- ---------- ---------- ------------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 6,857 $ 14,819 $ 41,493 26,174 $ 6,081 $ 11,880 $ 28,094
Ratio of Expenses to Average Net
Assets (2)..................... 1.55%** 1.55% 1.55% 2.30%** 2.30%** 2.30% 2.30%
Ratio of Net Investment Income
to Average Net Assets (2)...... 8.29%** 11.53% 11.95% 12.06%** 7.54%** 10.72% 11.40%
Portfolio Turnover Rate......... 19% 178% 220% 220% 19% 178% 220%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.02 $ 0.05 $ 0.02 $ 0.02 $ 0.06 $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 3.23%** 1.97% 1.69% 2.47%** 4.00%** 2.74% 2.44%
Net Investment Income to
Average Net Assets........... 6.61%** 11.11% 11.81% 11.89%** 5.84%** 10.28% 11.26%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.

** Annualized.

+ The Worldwide High Income Fund began offering the current Class B shares on
August 1, 1995.

(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.

(2) Under the terms of an investment advisory agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 0.75% of the average daily net assets of the Worldwide High Income Fund.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Worldwide High Income Fund to the extent that the total
operating expenses of the Fund exceed 1.55% of the average daily net assets
relating to the Class A shares and 2.30% of the average daily net assets
relating to the Class B and Class C shares. For the fiscal periods ended
June 30, 1994, June 30, 1995 and June 30, 1996, the Adviser waived advisory
fees and/or reimbursed expenses totaling approximately $39,000, $88,000 and
$97,000, respectively, for the Worldwide High Income Fund.

8
<PAGE>
PROSPECTUS SUMMARY

THE COMPANY

The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, have not been included in the Funds named below. The
investment objective of each Fund described in this Prospectus is as follows:

- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.

- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield income securities that offer a yield
above that generally available on debt securities in the four highest
rating categories of the recognized rating services.

- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.

The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The investment objectives of the other Funds are listed below:

GLOBAL AND INTERNATIONAL EQUITY FUNDS:

- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.

- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.

- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.

- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.

9
<PAGE>
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located throughout the world,
including U.S. issuers.

- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.

- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.

- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.

U.S. EQUITY FUNDS:

- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.

- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.

- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.

- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.

- The MID CAP GROWTH FUND seeks long-term capital growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential.

- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.

- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.

MONEY MARKET FUNDS:

- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.

- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.

10
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.

THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY, EMERGING MARKETS
DEBT, GLOBAL EQUITY, EQUITY GROWTH, MID CAP GROWTH, VALUE AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.

INVESTMENT MANAGEMENT

Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), which, together with its affiliated asset management companies
had approximately $103.5 billion in assets under management as an investment
manager or as a fiduciary adviser at September 30, 1996, acts as investment
adviser to each of the Funds, except the Mid Cap Growth and Value Funds. See
"Management of the Company -- Investment Adviser" and "-- Administrator." On
October 31, 1996, Morgan Stanley Group Inc. ("MSGI") purchased the parent
company of Van Kampen American Capital, Inc., which in turn is the parent
company of VKAC Distributors. Van Kampen American Capital, Inc. is the fourth
largest non-proprietary mutual fund provider in the United States with
approximately $59 billion in assets under management or supervision as of
September 30, 1996. On May 31, 1997, MSGI and Dean Witter, Discover & Co. merged
to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto, MSGI was the
parent of the Adviser and the Distributor. The Adviser and the Distributor are
now subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.

RISK FACTORS

The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers, including emerging country securities. Securities
of foreign issuers and, in particular, emerging country securities, are subject
to certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Emerging Markets Debt and Worldwide High Income Funds invest
in securities of issuers located in developing countries and emerging markets,
which may impose greater liquidity risks and other risks not typically
associated with investing in the more established markets of developed
countries. The Emerging Markets Debt and Worldwide High Income Funds'
investments in emerging markets may be in small- to medium-sized companies. The
Funds may also invest in sovereign debt that is considered to be speculative in
nature and involves a high degree of risk. The Funds may invest in forward
foreign currency exchange contracts, and the Emerging Markets Debt and Worldwide
High Income Funds may invest in foreign currency exchange futures and options.
Each Fund may invest in securities that are neither listed on a stock exchange
nor traded over-the-counter, including private placement securities. Such
securities may be less liquid than publicly traded securities. The Emerging
Markets Debt, Worldwide High Income and High Yield Funds may invest in lower
rated and unrated debt securities which are considered speculative with regard
to the payment of interest and return of principal. In addition, the Emerging
Markets Debt and Worldwide High Income Funds may invest in derivatives, which
include options,

11
<PAGE>
futures and options on futures. The Emerging Markets Debt and Global Fixed
Income Funds are non-diversified portfolios which may invest a greater portion
of their assets in the securities of a smaller number of issuers and, as a
result, will be subject to a greater risk resulting from such concentration of
its portfolio securities. Each Fund may invest in repurchase agreements, lend
its portfolio securities, purchase securities on a when-issued or delayed
delivery basis, and borrow money in an amount not in excess of 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than borrowing. Each of these investment strategies involves
specific risks which are described under "Investment Objectives and Policies"
and "Additional Investment Information" herein and under "Investment Objectives
and Policies" in the Statement of Additional Information.

HOW TO INVEST

The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value plus an initial sales charge of up to
4.75% in graduated percentages based on the investor's aggregate investments in
the Funds. Shares of the Class B shares and Class C shares of the Funds are
offered at net asset value. Class B shares are subject to a contingent deferred
sales charge ("CDSC") for redemptions within five years of purchase and are
subject to higher annual distribution-related expenses than the Class A shares.
Class C shares are subject to a CDSC for redemptions within one year of purchase
and are subject to higher annual distribution-related expenses than the Class A
shares. See "Purchase of Shares" for a discussion of reduction of waiver of
sales charges, which are available for certain investors. Share purchases may be
made through VKAC Distributors, through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $500 for
each class of a Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $25, except that there is no minimum for automatic reinvestment
of dividends and distributions. See "Purchase of Shares."

HOW TO REDEEM

Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."

12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each Fund is described below, together with the
policies it employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. There is no assurance that a
Fund will attain its investment objective. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.

THE EMERGING MARKETS DEBT FUND

The investment objective of the Fund is to seek high total return. In
seeking to achieve this objective, the Fund will seek to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. In addition, the Fund may invest
up to 35% of its total assets in debt securities of corporate issuers located in
or organized under the laws of emerging countries. As used in this Prospectus,
the term "emerging country" applies to any country which, in the opinion of the
Adviser, is generally considered to be an emerging or developing country by the
international financial community, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. Government, government-related and
restructured debt securities in emerging markets will consist of (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in emerging
countries (including participations in loans between governments and financial
institutions), (ii) debt securities or obligations issued by government owned,
controlled or sponsored entities located in emerging countries, and (iii)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the entities
described above.

The Adviser intends to invest the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. The Fund will
focus its investments on those emerging market countries in which it believes
the economies are developing strongly and in which the markets are becoming more
sophisticated. Initially, the Fund expects that its investments in emerging
country debt securities will be made primarily in some or all of the following
emerging countries:

13
<PAGE>
Algeria
Argentina
Brazil
Bulgaria
Chile
China
Colombia
Costa Rica
Czech Republic
Democratic Republic
of Congo
Dominican Republic
Ecuador
Egypt
Greece
Hungary
India
Indonesia
Ivory Coast
Jamaica
Jordan
Malaysia
Mexico
Morocco
Nicaragua
Nigeria
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Russia
Slovakia
South Africa
Thailand
Trinidad & Tobago
Tunisia
Turkey
Uruguay
Venezuela

In selecting emerging country debt securities for investment by the Fund,
the Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. As opportunities to invest in debt securities in
other countries develop, the Fund expects to expand and further diversify the
emerging countries in which it invests. While the Fund generally is not
restricted in the portion of its assets which may be invested in a single
country or region, it is anticipated that, under normal conditions, the Fund's
assets will be invested in issuers in at least three countries.

Emerging country debt securities held by the Fund will take the form of
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage and other asset-backed securities,
loans, loan participations, loan assignments and interests issued by entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by emerging country issuers. U.S.
Dollar-denominated emerging country debt securities held by the Fund will
generally be listed but not traded on a securities exchange, and non-U.S.
Dollar-denominated securities held by the Fund may or may not be listed or
traded on a securities exchange. Investments in emerging country debt securities
entail special investment risks. The Fund will be subject to no restrictions on
the maturities of the emerging country debt securities it holds; those
maturities may range from overnight to 30 years.

The Fund is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Fund's assets may be invested in non-U.S. Dollar-denominated
securities. The portion of the Fund's assets invested in securities denominated
in currencies other than the U.S. Dollar will vary depending on market
conditions. Although the Fund is permitted to engage in a wide variety of
investment practices designed to hedge against currency exchange rate risks with
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks.

14
<PAGE>
Emerging country debt securities in which the Fund may invest will be
subject to high risk and will not be required to meet a minimum rating standard
and may not be rated for creditworthiness by any internationally recognized
credit rating organization. The Fund's investments are expected to be rated in
the lower and lowest rating categories of internationally recognized credit
rating organizations or are expected to be unrated securities of comparable
quality. These types of debt obligations are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and of volatility in
price than securities in higher rating categories.

The Fund is authorized to borrow up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, for investment purposes to increase the opportunity for
greater return and for payment of dividends. Such borrowings would constitute
leverage, which is a speculative characteristic. Leveraging will magnify
declines as well as increases in the net asset value of the Fund's shares and
increases in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.

The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The Fund may also
enter into reverse repurchase agreements.

The Fund's investments in government, government-related and restructured
debt instruments are subject to special risks, including the issuer's inability
or unwillingness to repay principal and interest, requests to reschedule or
restructure outstanding debt and requests to extend additional loan amounts. The
Fund may have limited recourse in the event of default on such debt instruments.

The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may also invest in zero coupon, pay-in-kind or
deferred payment securities and in securities that may be collateralized by zero
coupon securities (such as Brady Bonds).

For temporary defensive purposes, the Fund may invest in money market
instruments and short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.

THE GLOBAL FIXED INCOME FUND

The investment objective of the Global Fixed Income Fund is to produce an
attractive real rate of return while preserving capital by investing in fixed
income securities of issuers located throughout the world, including U.S.
issuers. The Fund will, under normal market conditions, invest at least 65% of
the value of its total assets in fixed income securities of issuers in at least
three different countries. The Fund seeks to achieve its objective by investing
in United States government securities, foreign government securities,
securities of

15
<PAGE>
supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics, with varying maturities denominated in
various currencies. In selecting portfolio securities, the Adviser evaluates the
currency, market, and individual features of the securities being considered for
investment.

The Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO") or, if unrated, will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors. U.S.
Government securities in which the Global Fixed Income Fund may invest include
obligations issued or guaranteed by the U.S. Government, such as U.S. Treasury
securities, as well as those backed by the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association and
The Export-Import Bank. The Fund may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Fund must
look principally to the issuing or guaranteeing agency for ultimate repayment.
The Fund may invest in obligations issued or guaranteed by foreign governments
and their political subdivisions, authorities, agencies or instrumentalities,
and by supranational entities (such as the World Bank, The European Economic
Community, The Asian Development Bank and the European Coal and Steel
Community). Investment in foreign government securities will be limited to those
of developed nations which the Adviser believes to pose limited credit risk.
These countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland and The United Kingdom.
Corporate and supranational obligations in which the Fund will invest will be
limited to those rated "A" or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("Standard & Poor's") or IBCA Ltd.,
or if unrated, of comparable quality as determined by the Adviser under the
supervision of the Company's Board of Directors.

The Adviser's approach to multi-currency, fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.

Under normal circumstances, the Global Fixed Income Fund will have a neutral
investment position in medium-term securities (i.e., those with a remaining
maturity of between three and seven years) and will respond to changing interest
rate levels by shortening or lengthening portfolio maturity through investment
in longer- or shorter-term instruments. For example, the Fund will respond to
high levels of real interest rates through a lengthening in portfolio maturity.
Current and historical yield spreads among the three main market segments -- the
Government, Foreign and Euro markets -- guide the Adviser's selection of markets
and particular securities within those markets. The analysis of currencies is
made independent of the analysis of markets. Value in foreign exchange is
determined by relative purchasing power parity of a given currency. The Fund
seeks to invest in currencies currently undervalued based on purchasing power
parity. The Adviser analyzes current account and capital account performance and
real interest rates to adjust for shorter-term currency flows.

The Global Fixed Income Fund may invest in non-publicly traded securities,
private placements and restricted securities. The Global Fixed Income Fund will
occasionally enter into forward foreign currency exchange contracts. These are
used to hedge foreign currency exchange exposures when required.

16
<PAGE>
For temporary defensive purposes, the Global Fixed Income Fund may invest in
money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the Global Fixed Income Fund, see "Additional Investment
Information" below.

THE HIGH YIELD FUND

The Fund seeks to maximize total return by investing in a diversified
portfolio of high yield fixed income securities that offer a yield above that
generally available on debt securities in the four highest rating categories of
the NRSROs. The Fund normally invests between 80% and 100% of its total assets
in these higher yielding securities, (commonly referred to as high yield bonds
or junk bonds) which generally entails increased credit and market risk. To
mitigate these risks the Fund will diversify its holdings by issuer, industry
and credit quality, but investors should carefully review the section below
entitled "Additional Investment Information -- Lower Rated and Unrated Debt
Securities."

Appendix A to this Prospectus sets forth a description of the corporate bond
rating categories of Moody's and Standard & Poor's. Corporate bonds rated below
Baa by Moody's or BBB by Standard & Poor's are considered speculative.
Securities in the lowest rating categories may have predominantly speculative
characteristics or may be in default. Ratings of Standard & Poor's and Moody's
represent their opinions of the quality of bonds and other debt securities they
undertake to rate at the time of issuance. However, ratings are not absolute
standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, although the Adviser will consider ratings, it
will perform its own analysis and will not rely principally on ratings. The
Adviser will consider, among other things, the price of the security, and the
financial history and condition, the prospects and the management of an issuer
in selecting securities for the Fund. The Fund may buy unrated securities that
the Adviser believes are comparable to rated securities and are consistent with
the Fund's objective and policies. The Adviser may vary the average maturity of
the securities in the Fund without limit and there is no restriction on the
maturity of any individual security.

The table below provides a summary of ratings assigned by S&P to debt
obligations in the High Yield Fund. These figures are dollar-weighted averages
of month-end portfolio holdings during the period ended June 30, 1996, and are
presented as a percentage of total investments. These percentages are historical
and are not necessarily indicative of the quality of current or future portfolio
holdings, which may vary.

<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ------------------------------------------------------------ ----------
<S> <C>
BBB......................................................... 2.28%
BB.......................................................... 45.11%
B........................................................... 41.09%
Unrated..................................................... 11.52%
</TABLE>

The High Yield Fund may acquire fixed income securities of both U.S. and
foreign issuers, including debt obligations (e.g., bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sales
contracts, commercial paper and obligations issued or guaranteed by the U.S.
Government, any foreign government with which the United States maintains
relations or any of their respective political subdivisions, agencies or
instrumentalities) and preferred stock. The Fund may not invest more than 5% of
its total assets at time of acquisition in either (1) equipment lease
certificates, equipment trust certificates and

17
<PAGE>
conditional sales contracts or (2) limited partnership interests. The Fund may
neither invest more than 20% of its total assets in foreign securities nor
invest more than 5% of its total assets in foreign governmental issuers in any
one country. The Fund's fixed income securities may have equity features, such
as conversion rights or warrants, and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock (common stocks, warrants
and rights and limited partnership interests). The Fund may invest up to 20% of
its total assets in fixed income securities that are investment grade (i.e.,
rated in one of the top four categories by an NRSRO or determined to be of
comparable quality) and have maturities of one year or less. For temporary
defensive purposes, the Fund may invest in money market instruments and short-
and medium-term debt securities that the Adviser believes to be of high quality,
or hold cash. The Fund may invest in or own securities of companies in various
stages of financial restructuring, bankruptcy or reorganization which are not
currently paying interest or dividends. Such securities may be rated C by
Moody's or D by Standard & Poor's or may be unrated but determined to be of
comparable quality by the Adviser. The total value, at time of purchase, of the
sum of all such securities will not exceed 10% of the value of the Fund's total
assets. Securities that are rated above C by Moody's or above D by Standard &
Poor's (or are unrated but determined to be of comparable quality by the
Adviser) when purchased by the Fund that are later downgraded may continue to be
held by the Fund at the discretion of the Adviser.

The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities.

For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.

THE WORLDWIDE HIGH INCOME FUND

The investment objective of the Worldwide High Income Fund is high current
income consistent with relative stability of principal and, secondarily, capital
appreciation, by investing primarily in a portfolio of high yielding fixed
income securities of issuers located throughout the world. The Fund seeks to
achieve its investment objective by allocating its assets among any or all of
three investment sectors: U.S. corporate lower rated and unrated debt
securities, emerging country debt securities and global fixed income securities
offering high real yields. The types of securities in each of these investment
sectors in which the Fund may invest are described below. In selecting U.S.
corporate lower rated and unrated debt securities for the Fund's portfolio, the
Adviser will consider, among other things, the price of the security, and the
financial history, condition, prospects and management of an issuer. The Adviser
intends to invest a portion of the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. In addition,
the Adviser will attempt to invest a portion of the Fund's assets in fixed
income securities of issuers in global fixed income markets displaying high real
(inflation adjusted) yields. Under normal conditions, the Fund invests between
80% and 100% of its total assets in some or all of three categories of higher
yielding securities, some of which may entail increased credit and market risk.
Some or all of such higher yielding securities will be lower rated or unrated
debt securities, commonly referred to as "junk bonds."

The Adviser's approach to multi-currency fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and

18
<PAGE>
currencies is based on an analysis of real interest rates. Current nominal
yields of securities are adjusted for inflation prevailing in each currency
sector using an analysis of past and projected inflation rates. The Fund's aim
is to invest in bond markets which offer the most attractive real returns
relative to inflation.

From time to time, a portion of the Worldwide High Income Fund's
investments, which may be up to 100% of the Fund's investments, may be in "junk
bonds." For a discussion of the risks associated with junk bonds, see "The High
Yield Fund" above. Emerging country debt securities in which the Fund may invest
will be subject to high risk and will not be required to meet a minimum rating
standard and may not be rated for creditworthiness by any internationally
recognized credit rating organization. The Fund's investments in U.S. corporate
lower rated and unrated debt securities and emerging country debt securities are
expected to be rated in the lower and lowest rating categories of
internationally recognized credit rating organizations or to be unrated
securities of comparable quality. To mitigate the risks associated with
investments in such lower rated securities, the Fund will diversify its holdings
by market, issuer, industry and credit quality. Investors should carefully
review the section below entitled "Additional Investment Information -- Risk
Factors Relating to Investing in Lower Rated Debt Securities."

The chart below indicates the Worldwide High Income Fund's weighted average
composition of debt securities graded by Standard & Poor's for the fiscal year
ended June 30, 1996.

<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
A........................................................... 8.93%
BBB......................................................... 2.54%
BB.......................................................... 24.17%
B........................................................... 16.08%
CCC......................................................... 0.17%
Unrated..................................................... 48.10%
</TABLE>

The weighted average indicated above was calculated on a dollar weighted
basis and was computed as at the end of each month through June 30, 1996. These
percentages are historical and are not necessarily indicative of the quality of
current or future portfolio holdings, which may vary. For a description of
Standard & Poor's ratings of fixed income securities, see Appendix A to this
Prospectus.

The Worldwide High Income Fund may invest in or own securities of companies
in various stages of financial restructuring, bankruptcy or reorganization which
are not currently paying interest or dividends, provided that the total value,
at the time of purchase, of all such securities will not exceed 10% of the value
of the Fund's total assets. The Fund may have limited recourse in the event of
default on such debt instruments. The Fund may invest in loans, assignments of
loans and participation in loans. The Fund may also invest in depositary
receipts issued by U.S. or foreign financial institutions.

The Worldwide High Income Fund is not restricted in the portion of its
assets which may be invested in securities denominated in a particular currency
and a substantial portion of the Fund's assets may be invested in non-U.S.
Dollar-denominated securities. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. Dollar will vary
depending on market conditions. Although the Fund is permitted to engage in a
wide variety of investment practices designed to hedge against currency exchange
rate risks with

19
<PAGE>
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks. The Fund may also
buy and sell options and may enter into futures contracts and options on
futures, including indexed financial futures contracts.

The Worldwide High Income Fund may invest in zero coupon, pay-in-kind or
deferred payment securities, and in securities that may be collateralized by
zero coupon securities (such as Brady Bonds). The Worldwide High Income Fund may
invest in non-publicly traded securities, private placements and restricted
securities.

The Worldwide High Income Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.

The average time to maturity of the Worldwide High Income Fund's securities
will vary depending upon the Adviser's perception of market conditions. The
Adviser invests primarily in medium-term securities (i.e., those with a
remaining maturity of approximately five years) in a market neutral environment.
When the Adviser believes that real yields are high, the Adviser lengthens the
remaining maturities of securities held by the Fund and, conversely, when the
Adviser believes real yields are low, it shortens the remaining maturities.
Thus, the Fund is not subject to any restrictions on the maturities of the debt
securities it holds, and the Adviser may vary the average maturity of the
securities held in the Fund's portfolio without limit.

For temporary defensive purposes, the Worldwide High Income Fund may invest
in money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality, or hold cash.

U.S. CORPORATE HIGH YIELD FIXED INCOME SECURITIES. A portion of the
Worldwide High Income Fund's assets will be invested in U.S. corporate high
yield fixed income securities, which are commonly referred to as "junk bonds."
The Fund may acquire fixed income securities of U.S. issuers, including debt
obligations (e.g., bonds, debentures, notes, equipment lease certificates,
equipment trust certificates, conditional sales contracts, commercial paper and
obligations issued or guaranteed by the U.S. Government or any of its political
subdivisions, agencies or instrumentalities) and preferred stock. These fixed
income securities may have equity features, such as conversion rights or
warrants and the Fund may invest up to 10% of its total assets in equity

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securities other than preferred stock (e.g., common stocks, warrants and rights
and limited partnership interests). The Fund may not invest more than 5% of its
total assets at the time of acquisition in either of (1) equipment lease
certificates, equipment trust certificates and conditional sales contracts or
(2) limited partnership interests.

EMERGING COUNTRY FIXED INCOME SECURITIES. A portion of the Worldwide High
Income Fund's assets will be invested in emerging country fixed income
securities. For a discussion of emerging country fixed income securities, see
"Emerging Markets Debt Fund" above.

GLOBAL FIXED INCOME SECURITIES. A portion of the Worldwide High Income
Fund's assets will be invested in global fixed income securities. For a
discussion of global fixed income securities, see "Global Fixed Income Fund"
above.

For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.

ADDITIONAL INVESTMENT INFORMATION

BORROWING AND OTHER FORMS OF LEVERAGE

The Global Fixed Income and High Yield Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets. The Worldwide High Income Fund may enter into reverse repurchase
agreements in accordance with its investment objective and policies and may
borrow amounts up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing. The
Emerging Markets Debt Fund may borrow money (i) as a temporary measure for
extraordinary or emergency purposes, and (ii) in connection with reverse
repurchase agreements, provided that (i) and (ii) in combination do not exceed
33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings).

DEPOSITARY RECEIPTS

The Emerging Markets Debt and Worldwide High Income Funds may invest in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such depositary receipts become available. ADRs are securities,
typically issued by a U.S. financial institution (a "depositary"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer (the "underlying issuer") and deposited with the depositary. ADRs include
American Depositary Shares and New York Shares and may be "sponsored" or
"unsponsored." Sponsored ADRs are established jointly by a depositary and the
underlying issuer, whereas unsponsored ADRs may be established by a depositary
without participation by the underlying issuer. GDRs, EDRs and other types of
depositary receipts are typically issued by foreign depositaries, although they
may also be issued by U.S. depositaries, and evidence ownership interests in a
security or pool of securities issued by either a foreign or a U.S. corporation.

FOREIGN CURRENCY HEDGING TRANSACTIONS

Each Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S.

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<PAGE>
Dollar between the trade date and settlement date when a Fund purchases or sells
securities, locking in the U.S. Dollar value of dividends declared on securities
held by the Fund and generally protecting the U.S. Dollar value of securities
held by the Fund against exchange rate fluctuations. While such forward
contracts may limit losses to a Fund as a result of exchange rate fluctuations,
they will also limit any exchange rate gains that might otherwise have been
realized.

The Worldwide High Income Fund may also enter into foreign currency futures
contracts. A foreign currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Foreign currency futures contracts
traded in the U.S. are traded on regulated exchanges. Parties to a futures
contract must make initial "margin" deposits to secure performance of the
contract, which generally range from 2% to 5% of the contract price. There also
are requirements to make "variation" margin deposits as the value of the futures
contract fluctuates. The Funds may not enter into foreign currency futures
contracts if the aggregate amount of initial margin deposits on the Fund's
futures positions, including stock index futures contracts (which are discussed
below), would exceed 5% of the value of the Fund's total assets. The Funds also
will be required to segregate assets to cover its futures contracts obligations.

At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. A Fund will only enter into such
a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case the Fund may suffer a loss.

The Worldwide High Income Fund may attempt to accomplish objectives similar
to those described above with respect to forward and futures contracts for
currency by means of purchasing put or call options on foreign currencies on
exchanges. A put option gives the Fund the right to sell a currency at the
exercise price until the expiration of the option. A call option gives the Fund
the right to purchase a currency at the exercise price until the expiration of
the option.

The Custodian of each Fund will place cash or other liquid assets into a
segregated account of a Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts.

FOREIGN INVESTMENT

Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in

22
<PAGE>
foreign countries than in the United States. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Many foreign securities markets have
substantially less volume than U.S. national securities exchanges, and
securities of some foreign issuers are less liquid and subject to greater price
volatility than securities of comparable domestic issuers. Brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Funds by domestic companies. Additional risks include future adverse political
and economic developments, the possibility that a foreign jurisdiction might
impose or change withholding taxes on income payable with respect to foreign
securities, possible seizure, nationalization or expropriation of the foreign
issuer or foreign deposits, and the possible adoption of foreign governmental
restrictions such as exchange controls. Emerging countries may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.

The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.

Investments in securities of foreign issuers are generally denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.

INVESTMENT FUNDS

A Fund may invest in securities of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commission or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the 1940 Act.

Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Emerging Markets Debt Fund, Global Fixed Income Fund and Worldwide High Income
Fund may invest in these investment funds subject to applicable provisions of
the 1940 Act, and other applicable laws. If a Fund invests in such investment
funds, the Fund's shareholders will bear not only their proportionate share of
the expenses of the Fund (including operating expenses and the fees of the
Adviser), but also will indirectly bear similar expenses of the underlying
investment funds.

Certain of the investment funds referred to in the preceding paragraph are
advised by the Adviser. The Emerging Markets Debt Fund, Global Fixed Income Fund
and Worldwide High Income Fund may, to the extent

23
<PAGE>
permitted under the 1940 Act and other applicable law, invest in these
investment funds. If the Fund does elect to make an investment in such an
investment fund, it will only purchase the securities of such investment fund in
the secondary market.

LOANS OF PORTFOLIO SECURITIES

Each Fund may lend its securities to brokers, dealers, domestic and foreign
banks or other financial institutions for the purpose of increasing its net
investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. A Fund will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.

LOAN PARTICIPATIONS AND ASSIGNMENTS

The Emerging Markets Debt and Worldwide High Income Funds may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of sovereign or corporate debt obligations and one or more
financial institutions ("Lenders"). Such Funds' investments in Loans are
expected in most instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans ("Assignments")
from third parties. In the case of Participations, a Fund will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participations and only upon receipt by the
Lender of the payments from the borrower. In the event of the insolvency of the
Lender selling a Participation, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. A Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy. When a Fund purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by a Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Funds anticipate that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.

LOWER RATED AND UNRATED DEBT SECURITIES

The Emerging Markets Debt, Worldwide High Income and High Yield Funds may
invest in lower rated or unrated debt securities, commonly referred to as "junk
bonds." In addition, the emerging country debt securities in which such Funds
may invest are subject to additional risks and will not be required to meet a
minimum rating standard and may not be rated. Fixed income securities are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated securities are more likely to react to

24
<PAGE>
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The market values of fixed income securities tend to vary inversely with
the level of interest rates. Yields and market values of lower rated and unrated
debt securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Fluctuations in the value of a
Fund's investments will be reflected in the Fund's net asset value per share.
The Adviser considers both credit risk and market risk in making investment
decisions for the Funds. Investors should carefully consider the relative risks
of investing in lower rated and unrated debt securities and understand that such
securities are not generally meant for short-term investing.

The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for emerging country debt securities. Such
disruptions may severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for lower rated and
unrated debt securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities.
As a result, the Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower rated
or unrated securities, under these circumstances, may be less than the prices
used in calculating the Fund's net asset value.

Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect the
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.

Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated; instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer. In addition, there
may be limited trading markets for debt securities of issuers located in
emerging countries.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be

25
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forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of lower rated and unrated debt securities.

MONEY MARKET INSTRUMENTS

The Funds are permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties and
other debt securities, including high grade commercial paper, repurchase
agreements and bank obligations, such as bankers' acceptances and certificates
of deposit (including Eurodollar certificates of deposit).

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES

Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than what may be considered the fair
value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, a Fund may be
required to bear the expenses of registration. A Fund may not invest more than
15% of its net assets in illiquid securities nor, except as set forth below,
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale. The Emerging Markets Debt Fund is not subject to the
foregoing 10% limitation. Securities that are restricted from sale to the public
without registration ("Restricted Securities") under the Securities Act of 1933,
as amended, (the "1933 Act"), which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") may
be determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors. The High Yield Fund may not invest more
than 10% of its total assets in Restricted Securities, except that it may invest
up to 20% of its total assets in 144A Securities. 144A securities may become
illiquid if qualified institutional buyers are not interested in acquiring the
securities.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The Funds always receive
securities as collateral with a market value at least equal to the purchase
price, including accrued interest, and this value is maintained during the term
of the agreement. If the seller defaults and the collateral value declines, a
Fund might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Fund's realization upon the collateral may be delayed or
limited. Repurchase agreements with durations (or maturities) over seven days in
length are considered to be illiquid securities.

26
<PAGE>
REVERSE REPURCHASE AGREEMENTS

The Emerging Markets Debt and Worldwide High Income Funds may enter into
reverse repurchase agreements with brokers, dealers, domestic and foreign banks
or other financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with the Custodian a separate
account with a segregated portfolio of cash or liquid assets in an amount at
least equal to its purchase obligations under these agreements (including
accrued interest). If interest rates rise during a reverse repurchase agreement,
it may adversely affect a Fund's net asset value. In the event that the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Fund's repurchase obligation, and the Fund's
use of proceeds of the agreement may effectively be restricted pending such
decision.

SHORT SALES

The Emerging Markets Debt and Worldwide High Income Funds may from time to
time sell securities short without limitation. A short sale is a transaction in
which a Fund would sell securities it does not own (but has borrowed) in
anticipation of a decline in the market price of the securities. When a Fund
makes a short sale, the proceeds it receives from the sale will be held on
behalf of a broker until the Fund replaces the borrowed securities. To deliver
the securities to the buyer, a Fund will need to arrange through a broker to
borrow the securities and, in so doing, the Fund will become obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever that price may be. The Funds may have to pay a premium to
borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.

Each Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash, or U.S. Government securities or other liquid assets. In
addition, each Fund will place in a segregated account with its Custodian an
amount of cash or liquid assets equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by a Fund involve certain
risks and special considerations. Possible losses from short sales differ from
losses that could be incurred from a purchase of a security, because losses from
short sales may be unlimited, whereas losses from purchases can equal only the
total amount invested.

TEMPORARY INVESTMENTS

For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies," above for further information about each Fund's policies.

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<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Each Fund will
maintain with the appropriate Custodian a separate account with a segregated
portfolio of cash or liquid assets in an amount at least equal to these
commitments. The payment obligation and the interest rates that will be received
are each fixed at the time a Fund enters into the commitment, and no interest
accrues to the Fund until settlement. It is a current policy of each of the
Funds, other than the Emerging Markets Debt Fund, not to enter into when-issued
commitments or delayed delivery securities exceeding, in the aggregate, 15% of
the Fund's net assets other than the obligations created by these commitments.

ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES

The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.

DERIVATIVE INSTRUMENTS

The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivatives instruments include options,
futures and options on futures, structured instruments and structured notes,
caps, floors, collars and swaps. Additionally, the Funds may invest in other
derivative instruments that are developed over time if their use would be
consistent with the objectives of the Funds. Each Fund will limit its use of the
foregoing derivative instruments for non-hedging purposes to 25% of its total
assets measured by the aggregate notional amount of outstanding derivative
instruments. In addition, the Funds, other than the Emerging Markets Debt Fund,
will not enter into futures contracts to the extent that the notional value of
its outstanding obligations to purchase securities under such contracts, in
combination with its outstanding obligations with respect to options
transactions (including options to purchase securities or instruments) would
exceed 20% of its total assets. The Funds' investments in forward foreign
currency contracts are not subject to the limits described above.

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<PAGE>
investable cash when the derivative provides greater liquidity than the
underlying securities market. A Fund may also use derivatives when it is
restricted from directly owning the underlying securities due to foreign
investment restrictions or other reasons or when doing so provides a price
advantage over purchasing the underlying securities directly, either because of
a pricing differential between the derivatives and securities markets or because
of lower transaction costs associated with the derivatives transaction.
Derivatives may also be used by a Fund for hedging purposes and under other
circumstances in which a Fund's portfolio managers believe it advantageous to do
so consistent with the Fund's investment objective. The Funds will not, however,
use derivatives in a manner that creates leverage, except to the extent that the
use of leverage is expressly permitted by a particular Fund's investment
policies, and then only in a manner consistent with such policies.

Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS

The Funds may invest in caps, floors and collars, which are instruments
analogous to options. In particular, a cap is the right to receive the excess of
a reference rate over a given rate and is analogous to a put option. A floor is
the right to receive the excess of a given rate over a reference rate and is
analogous to a call option. Finally, a collar is an instrument that combines a
cap and a floor. That is, the buyer of a collar buys a cap and writes a floor,
and the writer of a collar writes a cap and buys a floor. The risks associated
with caps, floors and collars are similar to those associated with options. In
addition, caps, floors and collars are subject to risk of default by the
counterparty because they are privately negotiated instruments.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may purchase and sell futures contracts and options on futures
contracts, including but not limited to securities index futures, foreign
currency exchange futures, interest rate futures contracts and other financial
futures. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specific security, instrument or basket
thereof, at a specific future date and at a specified price. An option on a
futures contract is a legal contract that gives the holder the right to buy or
sell a specified amount of futures contracts at a fixed or determinable price
upon the exercise of the option.

The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging countries. The nature of the strategies
adopted by the Adviser, and the extent to which those strategies are used, may
depend on the development of such markets.

The Funds may engage in transactions involving foreign currency exchange
futures contracts. Such contracts involve an obligation to purchase or sell a
specific currency at a specified future date and at a specified price. The Funds
may engage in such transactions to hedge their respective holdings and
commitments against changes in the level of future currency rates or to adjust
their exposure to a particular currency.

29
<PAGE>
The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.

Financial futures are futures contracts relating to financial instruments,
such as U.S. Government securities, foreign currencies and certificates of
deposit. Such contracts involve an obligation to purchase or sell a specific
security, instrument or basket thereof at a specified future date at a specified
price. Like interest rate futures contracts, the value of financial futures
contracts rises and falls inversely with changes in interest rates. The Funds
may engage in financial futures contracts for hedging and non-hedging purposes.

Under rules adopted by the Commodity Futures Trading Commission, each Fund
may enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Fund's total assets
at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-hedging
activities.

Gains and losses on futures contracts and options thereon depend on the
Adviser's ability to predict correctly the direction of securities prices,
interest rates and other economic factors. Other risks associated with the use
of futures and options are (i) imperfect correlation between the change in
market value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by only entering into
futures contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the extremely high degree of leverage involved in futures pricing.

OPTIONS TRANSACTIONS

The Funds may seek to increase their returns or may hedge their portfolio
investments through options transactions with respect to securities,
instruments, indices or baskets thereof in which such Funds may invest, as well
as with respect to foreign currency. Purchasing a put option gives a Fund the
right to sell a specified security, currency or basket of securities or
currencies at the exercise price until the expiration of the option. Purchasing
a call option gives a Fund the right to purchase a specified security, currency
or basket of securities or currencies at the exercise price until the expiration
of the option.

Each Fund also may write (i.e., sell) put and call options on investments
held in its portfolio, as well as with respect to foreign currency. A Fund that
has written an option receives a premium, which increases the Fund's return on
the underlying security or instrument in the event the option expires
unexercised or is closed out at a profit. However, by writing a call option, a
Fund will limit its opportunity to profit from an increase in the market value
of the underlying security or instrument above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. The
Funds may only write options that are "covered." A covered call option means
that so long as the Fund is obligated as the writer of the option, it will
earmark or segregate sufficient liquid assets to cover its obligations under the
option or own (i) the underlying security or instrument subject to the option,
(ii) securities or instruments convertible or exchangeable without the payment
of any

30
<PAGE>
consideration into the security or instrument subject to the option, or (iii) a
call option on the same underlying security with a strike price no higher than
the price at which the underlying instrument was sold pursuant to a short option
position.

By writing (or selling) a put option, a Fund incurs an obligation to buy the
security or instrument underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election. The Funds may also write options that may be exercisable
by the purchaser only on a specific date. A Fund that has written a put option
will earmark or segregate sufficient liquid assets to cover its obligations
under the option or will own a put option on the same underlying security with
an equal or higher strike price.

The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets. The primary risks associated with the use of options are
(i) imperfect correlation between the change in market value of investments
held, purchased or sold by a Fund and the prices of options relating to such
investments; and (ii) possible lack of a liquid secondary market for an option.

STRUCTURED INVESTMENTS

The Emerging Markets Debt and Worldwide High Income Funds may invest a
portion of their assets in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
Structured Securities is dependent on the extent of the payments made with
respect to Structured Securities of the type in which each Fund anticipates it
will invest typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments. Each Fund is permitted
to invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated Structured
Securities typically have higher yields and present greater risks than
subordinated Structured Securities. Structured Securities are typically sold in
private placement transactions, and there currently is no active trading market
for Structured Securities.

STRUCTURED NOTES

Structured Notes are derivatives on which the amount of principal repayment
and/or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators. The use of
structured notes allows a Fund to tailor its investments to the specific risks
and returns the Adviser wishes to accept while avoiding or reducing certain
other risks.

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<PAGE>
SWAPS -- SWAP CONTRACTS

Swaps and Swap Contracts are derivatives in the form of a contract or other
similar instrument in which two parties agree to exchange the returns generated
by a security, instrument, basket thereof or index for the returns generated by
another security, instrument, basket thereof or index. The payment streams are
calculated by reference to a specific security, index or instrument and an
agreed upon notional amount. The relevant indices include but are not limited
to, currencies, fixed interest rates, prices and total return on interest rate
indices, fixed income indeces, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Fund may agree to swap the return generated by a fixed income index for the
return generated by a second fixed income index. The currency swaps in which the
Funds may enter will generally involve an agreement to pay interest streams in
one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.

A Fund will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two returns. A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued, but unpaid, net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities. A Fund will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Company's Board of Directors.

Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to an interest rate or total rate of return swap defaults, a Fund's
risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. In contrast, currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap may be subject to the risk that the other party to the swap will
default on its contractual delivery obligations. If there is a default by the
counterparty, a Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swaps market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swaps market has become relatively liquid. Swaps that include caps, floors
and collars are more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less liquid that
"traditional" swaps.

The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment performance
of the Funds would be less favorable than it would have been if this investment
technique were not used.

INVESTMENT LIMITATIONS

Each Fund, except the Emerging Markets Debt and Global Fixed Income Funds,
is a diversified investment company under the 1940 Act, and is subject to the
following limitations: (a) the Fund may not invest more

32
<PAGE>
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (b)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. The Emerging Markets Debt and Global Fixed Income Funds are
non-diversified investment companies under the 1940 Act, which means that each
such Fund is not limited by the 1940 Act in the proportion of its total assets
that may be invested in the obligations of a single issuer. Thus, the Emerging
Markets Debt and Global Fixed Income Funds may invest a greater proportion of
their total assets in the securities of a smaller number of issuers and, as a
result, will be subject to greater risk resulting from such concentration of its
portfolio securities. The Emerging Markets Debt and Global Fixed Income Funds,
however, intend to comply with the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended, for qualification as a regulated
investment company.

MANAGEMENT OF THE COMPANY

INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (an "Investment Advisory
Agreement") and, subject to the supervision of the Company's Board of Directors,
makes each of the Fund's investment decisions, arranges for the execution of
portfolio transactions and generally manages each of the Fund's investments. The
Adviser is entitled to receive an advisory fee computed daily and paid quarterly
at the following annual rates for each of the following Funds:

<TABLE>
<S> <C>
Emerging Markets Debt Fund............................................ 1.25%
Global Fixed Income Fund.............................................. 0.75%
High Yield Fund....................................................... 0.75%
Worldwide High Income Fund............................................ 0.75%
</TABLE>

The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause the total annual operating expenses of the Fund to exceed
the maximums set forth in "Fund Expenses."

The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.5 billion under active management and $17
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.

On October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996. On
May 31, 1997, MSGI and Dean Witter, Discover & Co. merged to form Morgan
Stanley, Dean Witter, Discover & Co. Prior thereto, MSGI was the parent of the
Adviser and the Distributor. The Adviser and the Distributor are now
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.

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<PAGE>
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:

EMERGING MARKETS DEBT FUND -- PAUL GHAFFARI. Paul Ghaffari is a Managing
Director of Morgan Stanley. He joined the Adviser in June 1993 as a Vice
President and Portfolio Manager for the Morgan Stanley Emerging Markets Debt
Fund (a closed-end investment company). Prior to joining the Adviser, Mr.
Ghaffari was a Vice President in the Fixed Income Division of the Emerging
Markets Sales and Trading Department at Morgan Stanley. From 1983 to 1992, he
worked in LDC Sales and Trading Department and the Mortgage-Backed Securities
Department at J.P. Morgan & Co. Inc. and worked in the Treasury Department at
the Morgan Guaranty Trust Co. He holds a B.A. in International Relations from
Pomona College and an M.S. in Foreign Service from Georgetown University. Mr.
Ghaffari has had primary responsibility for managing the Portfolio's assets
since the Fund commenced operations.

GLOBAL FIXED INCOME FUND -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F.
O'BRIEN, ROBERT M. SMITH AND RICHARD B. WORLEY. J. David Germany shares primary
responsibility for managing the Fund's assets. He joined the Adviser in 1996 and
has been a portfolio manager with the Adviser's affiliate, Miller Anderson &
Sherrerd, LLP ("MAS") since 1991. He was Vice President & Senior Economist for
Morgan Stanley & Co. Incorporated ("Morgan Stanley") from 1989 to 1991. He
assumed responsibility for the Global Fixed Income and International Fixed
Income Portfolios of the MAS-advised MAS Funds in 1993 and the MAS Funds'
Multi-Asset-Class Portfolio in 1994. Mr. Germany was Senior Staff Economist
(International Finance and Macroeconomics) to the Council of Economic Advisors
- -- Executive Office of the President from 1986 through 1987 and an Economist
with the Board of Governors of the Federal Reserve System -- Division of
International Finance from 1983 through 1987. He holds an A.B. degree
(Valedictorian) from Princeton University and a Ph.D. in Economics from the
Massachusetts Institute of Technology. Michael B. Kushma, a Principal at Morgan
Stanley, joined the firm in 1987. He shares primary responsibility for managing
the Fund's assets. He was a member of Morgan Stanley's global fixed income
strategy group in the fixed income division from 1987-1995 where he became the
division's senior government bond strategist. He joined the Adviser in 1995
where he took responsibility for the global fixed income portfolios. Mr. Kushma
received an A.B. in economics from Princeton University in 1979, an M. Sc. in
economics from the London School of Economics in 1981 and an M.Phil. in
economics from Columbia University in 1983. Paul F. O'Brien shares primary
responsibility for managing the Fund's assets. He joined the Adviser and MAS in
1996. He was head of European Economics from 1993 through 1995 for JP Morgan and
as Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the
MAS-advised MAS Funds' Global Fixed Income and International Fixed Income
Portfolios in 1996. Mr. O'Brien holds a B.S. degree from the Massachusetts
Institute of Technology and a Ph.D. in Economics from the University of
Minnesota. Robert Smith, a Principal of Morgan Stanley, joined the Adviser in
June 1994 and has had or shared primary responsibility for managing the Fund's
assets since July 1994. Prior to joining the Adviser he spent eight years as
Senior Portfolio Manager -- Fixed Income at the State of Florida Pension Fund.
Mr. Smith's responsibilities included active total-rate-of-return management of
long term portfolios and supervision of other fixed income managers. A graduate
of Florida State University with a B.S. in Business, Mr. Smith also received an
M.B.A. -- Finance from Florida State and holds a Chartered Financial Analyst
(CFA) designation. Richard B. Worley, a Managing Director of Morgan Stanley,
joined MAS in 1978. He assumed responsibility for the MAS Funds' Fixed Income
Portfolio in 1984, the MAS Funds' Domestic Fixed Income Portfolio in 1987, the
MAS Funds' Fixed Income Portfolio II in 1990, the MAS Funds' Balanced and
Special Purpose Fixed Income Portfolios in 1992, the MAS

34
<PAGE>
Funds' Global Fixed Income and International Fixed Income Portfolios in 1993 and
the MAS Funds' Multi-Asset-Class Portfolio in 1994. Mr. Worley received a B.A.
in Economics from University of Tennessee and attended the Graduate School of
Economics at University of Texas.

HIGH YIELD FUND -- ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F. ESSER.
Robert Angevine is a Principal of the Adviser and the portfolio manager for high
yield investments. He has shared primary management responsibility for the Fund
since it commenced operations. Prior to joining the Adviser in October 1988, he
spent over eight years at Prudential Insurance, where he was responsible for the
largest open-end high yield mutual fund in the country. Mr. Angevine also
manages high yield assets for one of the largest corporate pension funds in the
country. His other experience includes international treasury operations at a
major pharmaceutical company and commercial banking. Mr. Angevine received an
M.B.A. from Fairleigh Dickinson University and a B.A. in Economics from
Lafayette College. Thomas L. Bennett shares responsibility for managing the
Fund's assets. He joined the Adviser in 1996 and has been a portfolio manager
with MAS since 1984. Mr. Bennett assumed responsibility for the MAS-advised MAS
Funds' Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio in
1987, the High Yield Portfolio in 1985, the Fixed Income Portfolio II in 1990,
the Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
Multi-Asset-Class Portfolio in 1994. Mr. Bennett also is the Chairman of the MAS
Funds and has a B.S. degree (Chemistry) and an M.B.A. from the University of
Cincinnati. Stephen F. Esser shares primary responsibility for managing the
Fund's assets. He joined the Adviser in 1996 and has been a portfolio manager
with MAS since 1988. He assumed responsibility for the MAS-advised MAS Funds'
High Yield Portfolio in 1989. Mr. Esser is a member of the New York Society of
Security Analysts and has a B.S. degree (Summa Cum Laude; Phi Beta Kappa) from
the University of Delaware.

WORLDWIDE HIGH INCOME FUND -- ROBERT ANGEVINE AND PAUL GHAFFARI. Information
about Messrs. Angevine and Ghaffari is included under Emerging Markets Debt Fund
and High Yield Fund, respectively, above. Messrs. Angevine and Ghaffari have
shared primary management responsibility for the Fund since it commenced
operations.

ADMINISTRATOR. Morgan Stanley Asset Management Inc. (the "Administrator")
also provides the Company with administrative services pursuant to a separate
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Company dividend disbursing and transfer agent services. For
its services under the Administration Agreement, the Company pays the
Administrator a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of each Fund.

Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the Administration Agreement as being in the best
interests of

35
<PAGE>
the Company. CGFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913. For additional information on the Administration
Agreement, see "Management of the Company" in the Statement of Additional
Information.

DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.

The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.

The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each applicable Plan, the Distributor is entitled to receive
from the Funds a distribution fee, which is accrued daily and paid quarterly, at
a maximum rate of 0.75% of the Class B shares and Class C shares of each Fund,
on an annualized basis of the average daily net assets of such classes. The
actual amount of such compensation is agreed upon by the Company's Board of
Directors and by the Distributor. With respect to Class B Shares, the
Distributor expects to utilize substantially all of its fee to reimburse itself
for commissions paid to investment dealers, banks or financial services firms
that provide distribution services (each, a "Participating Dealer"). With
respect to Class C Shares, the Distributor expects to reallocate substantially
all of its fee to such Participating Dealers. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares. Class A shares, Class B
shares and Class C shares are subject to a shareholder servicing fee at an
annual rate of 0.25% on an annualized basis of the average daily net assets of
such class of shares of a Fund. In addition to such payments, the Adviser may
use its advisory fees or other resources to pay expenses associated with
activities which might be construed to be financing the sale of the Funds'
shares including payments to third parties that provide assistance in the
distribution effort (in addition to selling shares and providing shareholder
services).

The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.

36
<PAGE>
"interested persons" of the Company as that term is defined in the 1940 Act and
who have no direct or indirect financial interest in the operation of a Plan or
in any agreements related thereto ("12b-1 Directors"). Each Plan may be
terminated at any time by a vote of a majority of the 12b-1 Directors or by a
vote of a majority of the outstanding voting securities of the applicable class
of the Fund. The fee set forth above will be paid by the appropriate class to
the Distributor unless and until a Plan is terminated or not renewed. The
Company intends to operate each Plan in accordance with its terms and the NASD
Conduct Rules concerning sales charges.

PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.

EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.

PURCHASE OF SHARES

GENERAL

The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."

Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.

Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.

37
<PAGE>
class is determined by dividing the value of the Fund's securities, cash and
other assets (including accrued interest) attributable to such class less all
liabilities (including accrued expenses) attributable to such class by the total
number of shares of the class outstanding.

Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time.

Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.

In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares--Class A Shares." For these reasons,
it is presently the policy of the Distributor not to accept any order of
$500,000 or more for Class B Shares or any order of $1 million or more for Class
C shares as it ordinarily would be more beneficial for such an investor to
purchase Class A shares.

38
<PAGE>
Class B shares or Class C shares and have all their funds invested initially,
although remaining subject to a contingent deferred sales charge. Ongoing
distribution fees on Class B shares and Class C shares will be offset to the
extent of the additional funds originally invested and any return realized on
those funds. However, there can be no assurance as to the return, if any, which
will be realized on such additional funds. For investments held for ten years or
more, the relative value upon liquidation of the three classes tends to favor
Class A or Class B shares, rather than Class C shares.

Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.

The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."

The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.

39
<PAGE>
CLASS A SHARES

The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED PRICE)
- ------------------------------ --------------- ----------------- -----------------------
<S> <C> <C> <C>
Less than $100,000............ 4.75 4.99 4.25
$100,000 but less than
$250,000..................... 3.75 3.90 3.25
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>

- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Funds impose a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00% on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "-- Purchase of
Shares Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.

The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.

QUANTITY DISCOUNTS

Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.

Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.

40
<PAGE>
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.

As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc.

VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.

41
<PAGE>
The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.

As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.

NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund by:

(1) Current or retired Trustees/Directors of funds advised by an Adviser and
such persons' families and their beneficial accounts.

(2) Current or retired directors, officers and employees of MSGI or VK/AC
Holding, Inc. and any of their subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.

(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age when purchasing for any
accounts they beneficially own, or, in the case of any such financial
institution, when purchasing for retirement plans for such institution's
employees.

(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12-month period following such
transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.

(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.

(7) Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.

42
<PAGE>
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and sponsored
by non-profit organizations defined under Section 501(c)(3) of the Code and
assets held by an employer or trustee in connection with an eligible
deferred compensation plan under Section 457 of the Code. Such plans will
qualify for purchases at net asset value provided, for plans initially
establishing accounts with the Distributor in the Participating Funds after
February 1, 1997, that (1) the initial amount invested in the Participating
Funds is at least $500,000 or (2) such shares are purchased by an employer
sponsored plan with more than 100 eligible employees. Such plans that have
been established with a Participating Fund or have received proposals from
the Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen American Capital Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment
made by the plan or the number of eligible employees, except under certain
uniform criteria established by the Distributor from time to time. Prior to
February 1, 1997, a commission will be paid to dealers who initiate and are
responsible for such purchases within a rolling twelve month period as
follows: 1.00% on sales up to $5 million, plus 0.50% on the next $5
million, plus $0.25 on the excess over $10 million. For purchases on
February 1, 1997 and thereafter, a commission will be paid as follows:
1.00% on sales up to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million, plus 0.25% on the excess over $50 million

(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment advisor or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege
will be subject to a contingent deferred sales charge of one percent in the
event of redemption within one year of purchase, and a commission will be
paid to authorized dealers who initiate and are responsible for such sales
to each individual as follows: 1.00% on sales to $2 million, plus 0.80% on
the next million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.

43
<PAGE>
acceptance of the order. An authorized dealer may charge a transaction fee for
placing an order with respect to such shares. Authorized dealers will be paid a
service fee as described herein under "Distribution Plans" on purchases made as
described in (3) through (9) above.

The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.

RETIREMENT PLANS

Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs. This
includes Simplified Employee Pension Plan ("SEP") and IRA accounts. Brochures
describing such plans and materials for establishing them are available from VK
Trust upon request. The brochures for custodial accounts with VK Trust describe
the current fees payable to VK Trust for its services as custodian. Investors
should consult with their own tax advisers before establishing a retirement
plan.

PURCHASE OF CLASS B SHARES

Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.

In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.

CONTINGENT DEFERRED SALES CHARGE

<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 4.00%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.50%
Fifth....................................................... 1.50%
Thereafter.................................................. None*
</TABLE>

- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.

44
<PAGE>
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. Additionally, the Distributor
may pay additional promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell Class B shares of the Funds. The
combination of the CDSC and the distribution/service fee facilitates the ability
of the Company to sell the Class B shares without a sales charge being deducted
at the time of purchase.

AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.

Class B shares may also be purchased through an Automatic Investment Plan as
described below.

PURCHASE OF CLASS C SHARES

Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.

WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) certain distributions from an
IRA or other retirement plan; (iii) to the extent that shares redeemed have been
withdrawn from a Systematic Withdrawal Plan, up to a maximum amount of 12% per
year from a shareholder account based on the value of the account at the time
the Withdrawal Plan is established; or (iv) effected pursuant to the right of
the Company to liquidate a shareholder's account as described herein under
"Redemption of Shares." A shareholder, or his or her representative, must notify
the Company's Transfer Agent prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver. The
shareholder is responsible for providing sufficient documentation to the
Transfer Agent to verify the existence of such circumstances. For information on
the imposition and waiver of the CDSC, contact Investor Services at
1-800-282-4404.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

No initial sales charge or CDSC will be payable on the shares of the Funds
or class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.

45
<PAGE>
REINSTATEMENT PRIVILEGE OF EACH CLASS

A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value at the time of the
reinvestment in Class A shares of the Funds without payment of a sales charge. A
shareholder who has redeemed Class B shares of a Fund and paid a CDSC upon such
redemption may reinvest up to the full amount received upon redemption in Class
A shares at net asset value with no initial sales charge. A Class C shareholder
who has redeemed shares of a Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C shares of that Fund with credit given for
any CDSC paid upon such redemption. The reinstatement privilege as to any
specific Class A, Class B or Class C shares must be exercised within 180 days of
the redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the redemption proceeds. The written
request must state that the reinvestment is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinvestment may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans. See the Statement of Additional Information
for further discussion of waiver provisions.

SHAREHOLDER SERVICES

The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra costs to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.

INVESTMENT ACCOUNT. ACCESS, transfer agent for the Company and a
wholly-owned subsidiary of Van Kampen American Capital, Inc. performs
bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
which shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.

SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 419256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.

46
<PAGE>
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Funds. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any other Fund
so long as pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans are available from the Distributor.

EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.

To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.

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<PAGE>
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund.

No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the fund from which such shares
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such share originally was purchased.

Exchange of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. The
exchange will take place at the relative net asset values of the shares next
determined after receipt of such request with adjustment for any additional
sales charge. Any shares exchanged begin earning dividends on the next business
day after the exchange is affected. Van Kampen American Capital, Inc. and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Company's employ
procedure considered by them to be reasonable to confirm their instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recordings, telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither VKAC nor the Company will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the Fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification options) and
broker, dealer or financial intermediary of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or dividend
diversification options for the new account, an exchanging shareholder must file
a specific written request. The Company reserves the right to reject any order
to acquire its shares through exchange. In addition, the Company may restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual or annual checks in any amount not less than
$25.

48
<PAGE>
shareholder's account. Under this CDSC waiver policy, amounts withdrawn each
month will be paid by redeeming first Class B shares not subject to a CDSC
because the shares were purchased by the reinvestment of dividends or capital
gains distributions, the CDSC period has elapsed or some other waiver of the
CDSC applies. If no Class B shares not subject to the CDSC are available, or not
enough such shares are available, Class B shares having a CDSC will be redeemed
next, beginning with such shares held for the longest period of time (having the
lowest CDSC payable upon redemption) and continuing with shares held the next
longest period of time until shares held the shortest period of time are
redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.

Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS or by
calling 1-800-282-4404. A shareholder's bank may charge a fee for this transfer.

REDEMPTION OF SHARES

Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to the Fund c/o ACCESS, P.O. Box 419256, Kansas City,
Missouri 64141-9256, by placing the redemption request through a Participating
Dealer or by calling the Company.

The Company will redeem shares of each Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of the Funds
that were purchased without payment of the initial sales charge due to the size
of the purchase and are redeemed within one year of purchase. A maximum CDSC of
4.00% which decreases in steps to 0% after five years, will be imposed on
certain Class B shares of the Funds that are redeemed within five years of
purchase. A CDSC of 1.00% will be imposed on certain Class C shares of the Funds
that are redeemed within one year of purchase. See "Purchase of Shares." Any
CDSC will be imposed on the lesser of the current market value or the total cost
of the shares being redeemed. In determining whether a CDSC is payable, and, if
so, the amount of the charge, it is assumed that shares not subject to such
charge are the first redeemed followed by other shares held for the longest
period of time.

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<PAGE>
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, additional documents may be necessary. The redemption
price is the net asset value per share next determined after the request is
received by ACCESS in proper form. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within seven
business days after acceptance by ACCESS of the request and any other necessary
documents in proper order. Such payments may be postponed or the right of
redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.

DEALER REDEMPTION REQUEST. Shareholders may sell shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received, less any applicable CDSC, by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time. Any change in the redemption price due to failure of the
Distributor to receive a sell order prior to such time must be settled between
the shareholder and dealer. Shareholders must submit a written redemption
request in proper form (as described above under "Written Redemption Request")
to the dealer within three business days after calling the dealer with the sell
order. Payment for shares redeemed (less any sales charge, if applicable) will
ordinarily be made by check mailed within three business days to the dealer.

50
<PAGE>
reach ACCESS by telephone, whether because all telephone lines are busy or for
any other reason, in such case, a shareholder would have to use the Company's
other redemption procedures previously described. Requests received by ACCESS
prior to 4:00 p.m., Eastern Time, on a regular business day will be processed at
the net asset value per share determined that day. These privileges are
available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily of the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address or record. proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.

REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemption following the disability of holders of Class B shares
and Class C shares. An individual will be considered disabled for this purpose
of he or she meets the definition thereof in Section 72(m)(7) of the Code, which
in pertinent part defines a person as disabled of such person "is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.

In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.

GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.

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<PAGE>
As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition a CDSC of 1.00% may be imposed on certain redemptions of Class A shares
made within one year of purchase for investments of $1 million or more. The CDSC
incurred upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses,. A custodian of a retirement plan account may
charge fees based on the custodian's fee schedule.

IRA redemption requests should be sent to the IRA custodian to be fowarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
custodian, special IRA, 403(b)(7), or Keogh redemption forms must be obtained
from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box
944, Houston, Texas 77001-0944. Contact the custodian for information.

Reinstatement privileges (as otherwise described under "Reinstatement
Privilege of Each Class" above) also extend to participants in eligible
retirement plans held or administered by Van Kampen American Capital Trust
Company who repay the principal and interest on borrowings from such plans.

FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER.

TRANSFER OF REGISTRATION

You may transfer the registration of any of your Company shares to another
person by writing to the Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256. As in the case of redemptions, the written request must be received
in "good order" before any transfer can be made. Shares held in broker street
name may be transferred only by contacting your Participating Dealer.

VALUATION OF SHARES

Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.

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<PAGE>
stock exchange valuations are used, at the latest quoted sale price on the day
of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.

The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.

Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.

PORTFOLIO TRANSACTIONS

The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Funds. The Adviser may,
consistent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the Fund to their clients or who act as agents in the purchase of
shares of the Funds for their clients.

Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
the commissions, fees or other remuneration received by Morgan Stanley or such
affiliates must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.

Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Funds' objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Emerging Markets Debt and High Yield Funds each
anticipate that its annual portfolio turnover rate will not exceed 100% under
normal circumstances. Market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. For the annual turnover rates for the
other Funds, see "Financial

53
<PAGE>
Highlights" above. High portfolio turnover involves correspondingly greater
transaction costs which will be borne directly by the Fund. In addition, high
portfolio turnover may result in more capital gains which would be taxable to
the shareholders of the Fund.

PERFORMANCE INFORMATION

The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.

The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the distribution fee and larger shareholder services fee charged to
Class B shares and Class C shares.

PERFORMANCE OF INVESTMENT ADVISER -- EMERGING MARKETS DEBT FUND

The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Emerging Markets Debt Fund. The
portfolio of MSIF (the "MSIF Portfolio") has substantially the same investment
objective and policies as the Emerging Markets Debt Fund. In addition, the
Adviser intends the Emerging Markets Debt Fund and the corresponding MSIF
Portfolio to be managed by the same personnel and to continue to have closely
similar investment strategies, techniques and characteristics. Past investment
performance of the MSIF Portfolio, as shown in the table below, may be relevant
to your consideration of investment in the Emerging Markets Debt Fund. The
investment performance of the MSIF Portfolio is not necessarily indicative of
future performance of the Emerging Markets Debt Fund. Also, the operating
expenses of the Emerging Markets Debt Fund will be different from, and may be
higher than, the operating expenses of the MSIF Portfolio. The investment
performance of the MSIF Portfolio is provided merely to indicate the experience
of the Adviser in managing similar investment portfolios.

The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 4.75%
sales charge applicable to purchases of Class A shares of the Emerging Markets
Debt Fund; (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Emerging Markets Debt
Fund are redeemed within the year of their purchase indicated; and (iii) with
respect to the Class C shares, to take into account a 1.00% CDSC that is imposed
if Class C shares of the Emerging Markets Debt Fund are redeemed within one year
of their purchase. The data set forth below under the heading "Return Without
Sales Charge" is not adjusted to take into account such sales charges.

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<PAGE>
TOTAL RETURN FOR THE MSIF EMERGING MARKETS DEBT PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM EMERGING MARKETS DEBT FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE EMERGING MARKETS DEBT FUND)

<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR INCEPTION (1)
- ------------------------------------------------------------------ --------- ------------
<S> <C> <C>
Class A (of 4.75%)................................................ 43.21% 12.32%
Class B (of 4.00%)................................................ 43.96% 13.07%
Class C (of 1.00%)................................................ 46.96% 17.07%
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
Class A........................................................... 47.96% 17.07%
Class B........................................................... 47.96% 17.07%
Class C........................................................... 47.96% 17.07%
</TABLE>

- --------------
(1) Commenced operations on February 1, 1994.

The past performance of the MSIF Emerging Markets Debt Portfolio is no
guarantee of the future performance of the Emerging Markets Debt Fund.

DIVIDENDS AND DISTRIBUTIONS

Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.

The Emerging Markets Debt Fund expects to distribute substantially all of
its net investment income in the form of annual dividends. Each of the Global
Fixed Income, High Yield and Worldwide High Income Funds expects to distribute
net investment income monthly. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of the Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.

Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.

Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of a Fund, the net income attributable to and the

55
<PAGE>
dividends payable on Class B shares and Class C shares of a Fund will be lower
than the net income attributable to and the dividends payable on Class A shares
of the Funds. As a result, the net asset value per share of the classes of a
Fund will differ at times. Expenses of the Company allocated to a particular
class of shares of a Fund will be borne on a pro rata basis by each outstanding
share of that class.

TAXES

TAX STATUS OF THE FUNDS

The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.

No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.

Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.

The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available loss carryforward) which is
distributed to its shareholders.

TAX STATUS OF DISTRIBUTIONS

Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
generally will not qualify for the dividends-received deduction to corporations.

Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions.

Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.

Dividends and other Distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.

56
<PAGE>
less than the Shareholder's adjusted basis in the redeemed, exchanged or sold
shares. If capital gain distributions have been made with respect to shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Shareholders may also be subject to state and local taxes on
distributions from the Fund.

THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.

The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund. As of December 11, 1996, Morgan Stanley Group Inc., 1221 Avenue of
the Americas, New York, NY 10020, was presumed to "control" the High Yield Fund
based solely on its ownership of 25% or more of the outstanding voting shares of
such Fund.

REPORTS TO SHAREHOLDERS

The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.

In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.

CUSTODIAN

57
<PAGE>
Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.

58
<PAGE>
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<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:

Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:

AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.

AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.

A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.

BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C -- The rating C is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

A-2
<PAGE>
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.

--------------------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
-----
Fund Expenses......................................................... 2
Prospectus Summary.................................................... 9
Investment Objectives and Policies.................................... 13
Additional Investment Information..................................... 21
Investment Limitations................................................ 32
Management of the Company............................................. 33
Purchase of Shares.................................................... 37
Shareholder Services.................................................. 46
Redemption of Shares.................................................. 49
Valuation of Shares................................................... 52
Portfolio Transactions................................................ 53
Performance Information............................................... 54
Dividends and Distributions........................................... 55
Taxes................................................................. 56
General Information................................................... 57
Appendix A............................................................ A-1
</TABLE>

MORGAN STANLEY
EMERGING MARKETS DEBT FUND
GLOBAL FIXED INCOME FUND
HIGH YIELD FUND
WORLDWIDE HIGH INCOME FUND

PORTFOLIOS OF THE

MORGAN STANLEY
FUND, INC.

---------------
PROSPECTUS
---------------

INVESTMENT ADVISER

MORGAN STANLEY
ASSET MANAGEMENT INC.

DISTRIBUTOR

VAN KAMPEN AMERICAN

CAPITAL DISTRIBUTORS, INC.

- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------

MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY EQUITY GROWTH FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.

P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------

Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the six Funds listed above. The Company is designed to make
available to retail investors the expertise of Van Kampen American Capital
Investment Advisory Corp., the adviser (the "Adviser") and administrator (the
"Administrator") and its affiliates, Morgan Stanley Asset Management Inc., a
sub-adviser (a "Sub-Adviser") and Miller Andersen & Sherrerd, LLP, a sub-adviser
(a "Sub-Adviser") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
through investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").

This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 2, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds are available
upon request and without charge by writing or calling the Company at the address
and telephone number set forth above.

THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY OF ITS
AFFILIATES OR CORRESPONDENTS. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

THE DATE OF THIS PROSPECTUS IS DATED JANUARY 2, 1997
AS SUPPLEMENTED THROUGH JULY 7, 1997.
<PAGE>
FUND EXPENSES

The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:

<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY MID CAP U.S. REAL
SHAREHOLDER TRANSACTION EXPENSES EQUITY FUND VALUE FUND GROWTH FUND GROWTH FUND ESTATE FUND VALUE FUND
- -------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)
Class A..................... 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1)
Class B..................... None None None None None None
Class C..................... None None None None None None
Maximum Deferred Sales Load (as
a percentage of the lesser of
initial purchase price or
current market value)
Class A
For Purchases up to
$999,999................ None None None None None None
For Purchases of
$1,000,000 or more...... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B..................... 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3) 5.00%(3)
Class C..................... 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Redemption Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
Exchange Fees
Class A..................... None None None None None None
Class B..................... None None None None None None
Class C..................... None None None None None None
</TABLE>

- ------------------

(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load.

(2) Purchases of Class A shares of the Funds listed above which, when combined
with the net asset value of the purchaser's existing investments in Class A
shares of the Funds, aggregate to $1 million or more are not subject to a
sales load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Any such CDSC
will be paid to the Distributor. Certain other purchases are not subject to
an initial sales charge. See "Purchase of Shares."

(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 5.00% which decreases in
steps to 0% after five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.

(4) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.

2
<PAGE>

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES AGGRESSIVE AMERICAN EQUITY MID CAP U.S. REAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) EQUITY FUND VALUE FUND GROWTH FUND GROWTH FUND ESTATE FUND VALUE FUND
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.50% 0.54% 0.68% 0.67% 0.70% 0.74%
Class B............................... 0.50% 0.54% 0.68% 0.67% 0.70% 0.74%
Class C............................... 0.50% 0.54% 0.68% 0.67% 0.70% 0.74%
12b-1/Service Fees
Class A (6)........................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Class B (6)........................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Class C (6)........................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 0.75% 0.71% 0.47% 0.48% 0.60% 0.46%
Class B............................... 0.75% 0.71% 0.47% 0.48% 0.60% 0.46%
Class C............................... 0.75% 0.71% 0.47% 0.48% 0.60% 0.46%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A............................... 1.50% 1.50% 1.40% 1.40% 1.55% 1.45%
Class B............................... 2.25% 2.25% 2.15% 2.15% 2.30% 2.20%
Class C............................... 2.25% 2.25% 2.15% 2.15% 2.30% 2.20%
</TABLE>

- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds listed above, if necessary, if such fees would cause
the total annual operating expenses of the Funds, as a percentage of average
daily net assets, to exceed the percentages set forth in the table above.
The following sets forth, for each such Fund, investment advisory fees and
expected total operating expenses absent fee waivers and/or expense
reimbursements.

<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY MID CAP U.S. REAL
EQUITY FUND VALUE FUND GROWTH FUND GROWTH FUND ESTATE FUND VALUE FUND
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees
(All Classes)......................... 0.90% 0.85% 0.70% 0.75% 1.00% 0.80%
Total Operating Expenses
Class A............................... 1.90% 1.81% 1.42% 1.48% 1.85% 1.51%
Class B............................... 2.65% 2.61% 2.17% 2.23% 2.60% 2.26%
Class C............................... 2.65% 2.58% 2.17% 2.23% 2.60% 2.26%
</TABLE>

The Adviser reserves the right to terminate any of its fee waivers and/or
reimbursements at any time in its sole discretion. For further information
on Fund expenses, see "Management of the Company."
(6) Of the 12b-1/service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.

The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in any of the Funds listed above will bear
directly or indirectly. The expenses and fees for the American Value Fund are
based on actual figures for the period ended June 30, 1996. The expenses and
fees for the Aggressive Equity, Equity Growth, Mid Cap Growth, U.S. Real Estate
and Value Funds are based on estimates. For purposes of calculating the
estimated expenses and fees set forth above, the table assumes that each Fund's
average daily net assets will be $50,000,000. Due to the continuous nature of
Rule 12b-1 fees, long-term shareholders may pay more than the equivalent of the
maximum front-end sales charges otherwise permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").

<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY MID CAP U.S. REAL
EQUITY FUND VALUE FUND GROWTH FUND GROWTH FUND ESTATE FUND VALUE FUND
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no
redemptions, the expenses are the same.)
1 Year................................ $ 72(1) $ 72(1) $ 71(1) $ 71(1) $ 72(1) $ 71(1)
3 Years............................... 102 102 99 99 104 101
5 Years............................... * 135 * * * *
10 Years.............................. * 226 * * * *
Class B shares
(Assuming complete redemption at end of
period)
1 Year................................ 73 73 72 72 73 72
3 Years............................... 100 100 97 97 102 99
5 Years............................... * 135 * * * *
10 Years (2).......................... * 241 * * * *
(Assuming no redemption)
1 Year................................ 23 23 22 22 23 22
3 Years............................... 70 70 67 67 72 69
5 Years............................... * 120 * * * *
10 Years (2).......................... * 241 * * * *
Class C shares
(Assuming complete redemption immediately
prior to the end of period)
1 Year................................ 33 33 32 32 33 32
3 Years............................... 70 70 67 67 72 69
5 Years............................... * 120 * * * *
10 Years.............................. * 258 * * * *
(Assuming no redemption)
1 Year................................ 23 23 22 22 23 22
3 Years............................... 70 70 67 67 72 69
5 Years............................... * 120 * * * *
10 Years.............................. * 258 * * * *
</TABLE>

- ------------------
* Because the Aggressive Equity, Equity Growth, Mid Cap Growth, U.S. Real
Estate and Value Funds were either not operational or had just recently
become operational as of the date of this Prospectus, the Company has not
projected expenses beyond the three-year period shown.
(1) Certain large purchases may be subject to a reduced sales load. Purchases
of Class A shares of the Funds listed above which, when combined with the
net asset value of the purchaser's existing investment in Class A shares of
the Funds, aggregate $1 million or more are not subject to a sales load (an
"initial sales charge"). A contingent deferred sales charge ("CDSC") of
1.00% will be imposed, however, on shares from any such purchase that are
redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.

4
<PAGE>
FINANCIAL HIGHLIGHTS

The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Aggressive Equity, American Value and U.S. Real Estate
Funds for each of the respective periods presented. The audited financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1996 Annual Report to Shareholders. The financial statements
are included in the Company's Statement of Additional Information. The foregoing
Funds' financial highlights for each of the periods presented have been audited
by Price Waterhouse LLP, whose report thereon (which was unqualified) is also
included in the Statement of Additional Information. Additional performance
information about the Company is contained in the Annual Report. The Annual
Report and the financial statements contained therein, along with the Statement
of Additional Information, are available at no cost from the Company at the
address and telephone number noted on the cover page of this Prospectus. The
following information should be read in conjunction with the financial
statements and notes thereto. Financial highlights are not presented for the
Equity Growth, Mid Cap Growth and Value Funds because they had not commenced
operations as of June 30, 1996.

5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AGGRESSIVE EQUITY FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
JANUARY 2, 1996* JANUARY 2, 1996* JANUARY 2, 1996*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996 TO JUNE 30, 1996 TO JUNE 30, 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 12.00 $ 12.00 $ 12.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.06 0.03 0.03
Net Realized and Unrealized Gain.............. 2.40 2.39 2.38
------ ------ ------
Total From Investment Operations.............. 2.46 2.42 2.41
------ ------ ------
DISTRIBUTIONS
Net Investment Income......................... (0.06) (0.04) (0.04)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................. $ 14.40 $ 14.38 $ 14.37
------ ------ ------
------ ------ ------
TOTAL RETURN (1)................................ 20.52% 20.18% 20.10%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA....................
Net Assets, End of Period (000s)................ $ 5,382 $ 2,426 $ 2,582
Ratio of Expenses to Average Net Assets (2)..... 2.03%** 2.67%** 2.67%**
Ratio of Net Investment Income to Average Net
Assets (2)..................................... 1.22%** 0.43%** 0.44%**
Portfolio Turnover Rate......................... 204% 204% 204%
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income.... $ 0.06 $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets................ 3.26%** 3.79%** 3.80%**
Net Investment Income (Loss) to Average Net
Assets...................................... (0.01)%** (0.69)%** (0.69)%**
Ratio of Expenses to Average Net Assets
Excluding Dividend
Expense on Securities Sold Short.............. 1.50%** 2.25%** 2.25%**
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations

** Annualized

(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.

(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of .90%
of the average daily net assets of Aggressive Equity Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
Aggressive Equity Fund to the extent that total operating expenses of the
Fund, excluding dividend expense of securities sold short, exceed 1.50% of
the average daily net assets relating to the Class A shares and 2.25% of the
average daily net assets relating to the Class B and Class C shares. For the
fiscal period ended June 30, 1996, the Fund's prior investment adviser,
MSAM, waived advisory fees and/or reimbursed expenses totaling approximately
$41,000 for the Aggressive Equity Fund.

6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
AMERICAN VALUE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
--------------------------------------- ---------- ---------------------------------------
OCTOBER AUGUST 1, OCTOBER
18, 1993* YEAR ENDED YEAR ENDED 1995 18, 1993* YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND TO JUNE JUNE 30, JUNE 30, TO JUNE TO JUNE JUNE 30, JUNE 30,
RATIOS 30, 1994 1995 1996 30, 1996 30, 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.00 $ 11.70 $ 12.89 $ 13.37 $ 12.00 $ 11.69 $ 12.89
---------- ----------- ---------- ---------- ---------- ----------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income....... 0.17 0.27 0.27 0.15 0.11 0.17 0.16
Net Realized and Unrealized
Gain (Loss)............... (0.30) 1.44 1.94 1.46 (0.31) 1.44 1.94
---------- ----------- ---------- ---------- ---------- ----------- ----------
Total from Investment
Operations................ (0.13) 1.71 2.21 1.61 (0.20) 1.61 2.10
---------- ----------- ---------- ---------- ---------- ----------- ----------
DISTRIBUTIONS
Net Investment Income....... (0.17) (0.28) (0.27) (0.15) (0.11) (0.17) (0.15)
In Excess of Net Investment
Income.................... -- -- (0.01) (0.01) -- -- (0.01)
Net Realized Gain........... -- (0.24) (0.19) (0.19) -- (0.24) (0.19)
---------- ----------- ---------- ---------- ---------- ----------- ----------
Total Distributions......... (0.17) (0.52) (0.47) (0.35) (0.11) (0.41) (0.35)
---------- ----------- ---------- ---------- ---------- ----------- ----------
NET ASSET VALUE, END OF
PERIOD....................... $ 11.70 $ 12.89 $ 14.63 $ 14.63 $ 11.69 $ 12.89 $ 14.64
---------- ----------- ---------- ---------- ---------- ----------- ----------
---------- ----------- ---------- ---------- ---------- ----------- ----------
TOTAL RETURN (1).............. (1.12)% 15.01% 17.41% 12.29% (1.70)% 14.13% 16.50%
---------- ----------- ---------- ---------- ---------- ----------- ----------
---------- ----------- ---------- ---------- ---------- ----------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)....................... $ 10,717 $ 20,675 $ 19,674 $ 2,485 $ 7,237 $ 13,867 $ 21,193
Ratio of Expenses to Average
Net Assets (2)............... 1.50%** 1.50% 1.50% 2.25%** 2.25%** 2.25% 2.25%
Ratio of Net Investment Income
to Average Net Assets (2).... 2.14%** 2.29% 1.90% 1.18%** 1.39%** 1.54% 1.17%
Portfolio Turnover Rate....... 17% %23 41% 41% 17% %23 41%
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income......... $ 0.08 $ 0.05 $ 0.04 $ 0.04 $ 0.08 $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to. Average Net
Assets 2.48%** 1.96% 1.81% 2.61%** 3.28%** 2.71% 2.58%
Net. Investment Income to
Average Net Assets 1.16%** 1.83% 1.59% 0.82%** 0.36%** 1.08% 0.84%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.
** Annualized.
+ The American Value Fund began offering the current Class B shares on August
1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.85%
of the average daily net assets of the American Value Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the
American Value Fund to the extent that the total operating expenses of the
Fund exceed 1.50% of the average daily net assets relating to the Class A
shares and 2.25% of the average daily net assets relating to the Class B and
Class C shares. For the fiscal periods ended June 30, 1994, June 30, 1995
and June 30, 1996, the Fund's prior investment adviser, MSAM, waived
advisory fees and/or reimbursed expenses totaling approximately $102,000,
$110,000 and $134,000, respectively, for the American Value Fund.

7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
U.S. REAL ESTATE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1996 TO JUNE 30, 1996 TO JUNE 30, 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 12.00 $ 12.00 $ 12.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.08 0.07 0.07
Net Realized and Unrealized Gain.............. 0.48 0.48 0.48
------ ------ ------
Total From Investment Operations.............. 0.56 0.55 0.55
------ ------ ------
DISTRIBUTIONS
Net Investment Income......................... (0.04) (0.03) (0.03)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................. $ 12.52 $ 12.52 $ 12.52
------ ------ ------
------ ------ ------
TOTAL RETURN (1)................................ 4.63% 4.54% 4.54%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)................ $ 1,829 $ 2,197 $ 1,782
Ratio of Expenses to Average Net Assets (2)..... 1.55%** 2.30%** 2.30%**
Ratio of Net Investment Income to Average Net
Assets (2)..................................... 4.11%** 3.35%** 3.39%**
Portfolio Turnover Rate......................... 0% 0% 0%
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income.... $ 0.08 $ 0.07 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets................ 5.58%** 6.34%** 6.32%**
Net Investment Income to Average Net Assets... 0.08%** (0.69)%** (0.63)%**
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.
** Annualized.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 1.00%
of the average daily net assets of the U.S. Real Estate Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
U.S. Real Estate Fund to the extent that the total operating expenses of the
Fund exceed 1.55% of the average daily net assets relating to the Class A
shares and 2.30% of the average daily net assets relating to the Class B and
Class C shares. For the fiscal period ended June 30, 1996, the Fund's prior
investment adviser, MSAM, waived advisory fees and/or reimbursed expenses
totaling approximately $35,000 for the U.S. Real Estate Fund.

8
<PAGE>
PROSPECTUS SUMMARY

THE COMPANY

The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Van Kampen American
Capital Investment Advisory Corp. ("VK Advisory" or the "Adviser") providing
services as adviser and administrator and its affiliates, Morgan Stanley Asset
Management Inc. ("MSAM" or a "Sub-Adviser") and Miller Andersen & Sherrerd, LLP
("MAS" or a "Sub-Adviser") providing services as sub-advisers and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Sub-Adviser for the Mid Cap Growth Fund and the
Value Fund. MSAM serves as the Sub-Adviser for all of the other Funds listed
below. Each Fund has its own investment objective and policies designed to meet
its specific goals. For ease of reference, the words "Morgan Stanley," which
begin the name of each Fund, have not been included in the Funds named below.
The investment objective of each Fund described in this Prospectus is as
follows:

- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.

- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.

- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
primarily in growth-oriented equity securities of medium and large
capitalization companies.

- The MID CAP GROWTH FUND seeks to achieve long-term growth by investing
primarily in common stocks and other equity securities of smaller and
medium size companies which are deemed by the Adviser to offer long-term
growth potential.

- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Sub-Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.

The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The objectives of these other Funds are listed below:

GLOBAL AND INTERNATIONAL EQUITY FUNDS:

- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.

- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.

9
<PAGE>
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.

- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Sub-Adviser and with stock
selection within each country designed to replicate a broad market index.

- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.

- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.

U.S. EQUITY FUNDS:

- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.

GLOBAL FIXED INCOME FUNDS:

- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.

- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.

MONEY MARKET FUNDS:

- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.

10
<PAGE>
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.

- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.

THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY, EMERGING MARKETS
DEBT, EQUITY GROWTH, GLOBAL EQUITY, JAPANESE EQUITY, MID CAP GROWTH AND TAX-FREE
MONEY MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.

INVESTMENT MANAGEMENT

Van Kampen American Capital Investment Advisory Corp. ("VK Advisory," the
"Adviser" and the "Administrator") acts as investment adviser to each of the
Funds. Morgan Stanley Asset Management Inc. ("MSAM," or a "Sub-Adviser") acts as
an investment sub-adviser to each of the Funds, except the Mid Cap Growth and
Value Funds. Miller Anderson & Sherrerd, LLP ("MAS," or a "Sub-Adviser") acts as
an investment sub-adviser to each of the Mid Cap Growth and Value Funds. See
"Management of the Company -- Investment Adviser,"
" -- Investment Sub-Advisers" and " -- Administrator".

On May 31, 1997, Morgan Stanley Group, Inc. ("MSGI") and Dean Witter,
Discover & Co. merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior
thereto, MSGI was the parent of the Adviser, the Sub-Advisers and the
Distributor. The Adviser, Sub-Advisers and Distributor are now subsidiaries of
Morgan Stanley, Dean Witter, Discover & Co.

RISK FACTORS

The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein invest in
common stocks, which are subject to market risks that may cause their prices to
fluctuate over time. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect a
Fund's net asset value. The Funds, and in particular, the Aggressive Equity,
American Value, Mid Cap Growth and Value Funds, invest in small- to medium-sized
corporations, which are more vulnerable to financial risks and other risks than
larger corporations, and therefore may involve a higher degree of risk and price
volatility than investments in the securities of larger corporations. Each Fund
described herein may invest in securities that are neither listed on stock
exchanges nor traded over-the-counter, including private placement securities.
Such securities may be less liquid than publicly traded securities. The
Aggressive Equity Fund may invest in PERCS, ELKS, LYONs and similar securities
which are convertible upon various terms and conditions into equity securities,
may borrow for purposes of leverage, invest in reverse repurchase agreements and
engage in short selling. Because the U.S. Real Estate Fund invests primarily in
the securities of companies principally engaged in the real estate industry, its
investments may be subject to the risks associated with the direct ownership of
real estate. Because it is expected that the U.S. Real Estate Fund will invest a
substantial portion of its assets in real estate investment trusts ("REITs"),
the U.S. Real Estate Fund may also be subject to certain risks and costs
associated with the direct investments of REITs. The Funds may invest in
securities of foreign issuers which are subject to certain risks not typically
associated with domestic securities, including, among other risks, changes in
currency rates and in exchange control regulations, limited publicly available
information regarding foreign issuers, lower accounting, auditing and financial
standards, potential price volatility and lesser liquidity of shares traded on
securities markets, less government

11
<PAGE>
regulation of securities markets, changes in taxes, possible seizure or
expropriation of the foreign issuer or foreign deposits, and potentially greater
difficulty in obtaining a judgment in a court outside the United States. Certain
of the Funds may invest in forward foreign currency exchange contracts, and may
invest in foreign currency exchange futures and options. In addition, the Funds
may invest in derivatives, which include options, futures and options on futures
and swaps and each Fund may invest in repurchase agreements, borrow money, lend
its portfolio securities, and purchase securities on a when-issued or delayed
delivery basis. Because the U.S. Real Estate Fund and Aggressive Equity Fund are
non-diversified portfolios, each of these Funds may invest a greater proportion
of its assets in the securities of a smaller number of issuers and, as a result,
will be subject to a greater risk resulting from such concentration of its
portfolio securities. Each Fund's share price and investment return fluctuate,
and a shareholder's investment when redeemed may be worth more or less than his
original cost. Each of these investment strategies involves specific risks which
are described under "Investment Objectives and Policies" and "Additional
Investment Information" herein and under "Investment Objectives and Policies" in
the Statement of Additional Information.

HOW TO INVEST

The Class A, Class B and Class C shares of the Funds described herein are
designed to provide investors a choice of three ways to pay distribution costs.
Class A shares of the Funds are offered at net asset value plus an initial sales
charge of up to 5.75% in graduated percentages based on the investor's aggregate
investments in the Funds. Shares of the Class B shares and Class C shares of the
Funds are offered at net asset value. Class B shares are subject to a contingent
deferred sales charge ("CDSC") for redemptions within five years of purchase and
are subject to higher annual distribution-related expenses than the Class A
shares. Class C shares are also subject to a CDSC for redemptions within one
year of purchase and are subject to higher annual distribution-related expenses
than the Class A shares. See "Purchase of Shares" for a discussion of reduction
or waiver of sales charges, which are available for certain investors. Share
purchases may be made through VKAC Distributors, through Participating Dealers
or by sending payments directly to the Company. The minimum initial investment
is $500 for each class of a Fund, except that the minimum initial investment
amount is reduced for certain categories of investors. The minimum for
subsequent investments is $25, except that there is no minimum for automatic
reinvestment of dividends and distributions. See "Purchase of Shares."

HOW TO REDEEM

Shares of each Fund may be redeemed at any time at the net asset value per
share price (less any applicable CDSC) of the Fund next determined after receipt
of the redemption request. The redemption price may be more or less than the
purchase. See "Redemption of Shares."

12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There is no assurance that a Fund will attain its objective. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval. For more information about certain
investment practices of the Funds, see "Additional Information" below and
"Investment Objectives and Policies" in the Statement of Additional Information.

THE AGGRESSIVE EQUITY FUND

The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to the Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities, rights and warrants to purchase common stock, equity related options
and futures, and specialty securities, such as ELKS, LYONs and PERCS, of U.S.
and foreign issuers. As a non-diversified portfolio, the Fund can be more
heavily weighted in fewer stocks than a diversified portfolio. See "Investment
Limitations." Under normal circumstances, the Fund will invest at least 65% of
the value of its total assets in equity and equity-linked securities.
Equity-linked securities are derivatives, which are financial instruments that
derive their value from the value of an underlying asset, reference rate or
index.

The Fund's Sub-Adviser employs a flexible and eclectic investment process in
pursuit of the Aggressive Equity Fund's investment objective. In selecting
securities for the Fund, the Sub-Adviser concentrates on a universe of rapidly
growing, high quality companies and on companies in lower, but accelerating,
earnings growth situations. The Sub-Adviser's universe of potential investments
generally comprises companies with market capitalizations of $500 million or
more but smaller market capitalization securities may be purchased from time to
time. The Fund is not restricted to investments in specific market sectors. The
Sub-Adviser uses its research capabilities, analytical resources and judgment to
assess economic, industry and market trends, as well as individual company
developments, to select promising investments for the Fund. The Sub-Adviser
concentrates on companies with strong, communicative management and clearly
defined strategies for growth. In addition, the Sub-Adviser rigorously assesses
earnings results. The Sub-Adviser seeks companies that will deliver surprisingly
strong earnings growth. Valuation is of secondary importance to the Sub-Adviser
and is viewed in the context of prospects for sustainable earnings growth and
the potential for positive earnings surprises in relation to consensus
expectations. The Fund is free to invest in any equity or equity-linked security
that, in the Sub-Adviser's judgment, provides above-average potential for
capital appreciation.

In selecting investments for the Aggressive Equity Fund, the Sub-Adviser
emphasizes individual security selection. Overweighted sector positions and
issuer positions may result from the investment process. The Fund has a
long-term investment perspective; however, the Sub-Adviser may take advantage of
short-term opportunities that are consistent with the Fund's objective by
selling recently purchased securities which have increased in value.

The Aggressive Equity Fund may invest in equity and equity-linked securities
of domestic and foreign corporations. However, the Fund does not expect to
invest more than 25% of its total assets at the time of purchase in securities
of foreign companies. The Fund may invest in securities of foreign issuers
directly or in

13
<PAGE>
the form of depositary receipts. Investors should recognize that investing in
foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies. The Fund may from time to
time and consistent with applicable legal requirements sell securities short
that it owns (i.e., "against the box") or borrows. The Fund may, to a limited
extent, invest in non-publicly traded securities, private placements and
restricted securities.

The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Sub-Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.

The Aggressive Equity Fund expects that any borrowing, for other than
temporary purposes, will be made on a secured basis. The Fund's Custodian will
either segregate the assets securing the borrowing for the benefit of the
lenders or arrangements will be made with a suitable sub-custodian. If assets
used to secure the borrowing decrease in value, the Fund may be required to
pledge additional collateral to the Lender in the form of cash or securities to
avoid liquidation of those assets.

For temporary defensive purposes, the Aggressive Equity Fund may invest in
money market instruments and short- and medium-term debt securities that the
Sub-Adviser believes to be of high quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the Aggressive Equity Fund, see "Additional Investment
Information" below.

THE AMERICAN VALUE FUND

The American Value Fund's investment objective is to provide high total
return by investing in equity securities of small- to medium-sized corporations
that the Fund's Sub-Adviser believes to be undervalued relative to the stock
market in general at the time of purchase. The Fund invests primarily in
corporations domiciled in the United States with equity market capitalizations
in the range of the companies represented in the Russell 2500 Small Company
Index, but may invest in similar sized foreign companies. Such range is
currently $10 million to $5 billion, but the range fluctuates over time with the
equity market. Under normal circumstances, the Fund will invest at least 65% of
the value of its total assets in equity securities whose market capitalization
is up to the top of the range represented in the Index. The Fund may also invest
in equity securities of other corporations but will generally not invest in the
500 largest corporations in the United States. With respect to the Fund, equity
securities include common and preferred stocks, convertible securities, and
rights and warrants to purchase common stocks, and similar equity interests,
such as trusts or partnership interests. Debt securities convertible into common
stocks will be investment grade (rated in one of the four highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO")) or, if unrated, will be of comparable quality as determined by the
Sub-Adviser under the supervision of the Board of Directors. These investments
may or may not carry voting rights. The Fund may invest in non-publicly traded
securities, private placements and restricted securities. The Fund may on
occasion invest in equity securities of foreign

14
<PAGE>
issuers that trade on a United States exchange or over-the-counter either
directly or in the form of depositary receipts. The Fund also may invest in
certain types of futures contracts and options thereon.

The Sub-Adviser invests with the philosophy that a diversified portfolio of
undervalued, small- to medium-sized companies will provide high total return in
the long run. Companies considered attractive will have the following
characteristics:

1. Stocks will most often have yields distinctly above the average of
companies with similar capitalizations.

2. The market prices of the stocks will be undervalued relative to the
normal earning power of the companies.

3. Stock prices will be low relative to the intrinsic value of the
companies' assets.

4. Stocks will be of high quality, in the Sub-Adviser's judgment, as
evaluated by the companies' balance sheets, income statements,
franchises and product competitiveness.

The thrust of this approach is to seek investments in stocks for which
investor enthusiasm is currently low, as reflected in their valuation, but which
have the financial and fundamental features which, according to the
Sub-Adviser's assessment, will allow the stocks to achieve a higher valuation.
Value is achieved and exposure is reduced for the American Value Fund when the
investment community's perceptions improve and the stocks approach what the
Sub-Adviser believes is fair valuation. The Fund will invest in equity
securities of smaller capitalized companies, which are more vulnerable to
financial and other risks than larger companies. Investment in securities of
smaller companies may involve a higher degree of risk and price volatility than
in securities of larger companies.

The Sub-Adviser takes a long-term approach by placing a strong emphasis on
its ability to identify attractive values. The Sub-Adviser does not intend to
respond to short-term market fluctuations or to acquire securities for the
purpose of short-term trading. The Sub-Adviser may take advantage of short-term
opportunities, however, that are consistent with its objective of high total
return. The Fund will maintain diversity among industries and will not invest
more than 25% of its total assets in the stocks of issuers in any one industry.

For temporary defensive purposes, the American Value Fund may invest in
money market instruments and short- and medium-term debt securities that the
Sub-Adviser believes to be of high-quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the American Value Fund, see "Additional Investment
Information" below.

THE EQUITY GROWTH FUND

The Equity Growth Fund's investment objective is to provide long-term
capital appreciation by investing primarily in growth-oriented equity securities
of medium and large capitalization U.S. companies and, to a limited extent, as
described below, foreign corporations. Equity securities, for this purpose,
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Under normal circumstances, the Fund will
invest at least 65% of the value of its total assets in equity securities.

The Sub-Adviser employs a flexible and eclectic investment process in
pursuit of the Equity Growth Fund's investment objective. In selecting
securities for the Fund, the Sub-Adviser concentrates on a universe of rapidly

15
<PAGE>
growing, high quality companies and lower, but accelerating, earnings growth
situations. The Sub-Adviser's universe of potential investments generally
comprises companies with market capitalizations of $500 million or more. The
Fund is not restricted to investments in specific market sectors. The
Sub-Adviser uses its research capabilities, analytical resources and judgment to
assess economic, industry and market trends, as well as individual company
developments, to select promising growth investments for the Fund. The
Sub-Adviser concentrates on companies with strong, communicative management and
clearly defined strategies for growth. In addition, the Sub-Adviser rigorously
assesses company developments, including changes in strategic direction,
management focus and current and likely future earnings results. Valuation is
important to the Sub-Adviser but is viewed in the context of prospects for
sustainable earnings growth and the potential for positive earnings surprises
vis-a-vis consensus expectations. The Fund is free to invest in any equity
security that, in the Sub-Adviser's judgment, provides above average potential
for capital appreciation.

In selecting investments for the Equity Growth Fund, the Sub-Adviser
emphasizes individual security selection. The Fund's investments will generally
be diversified by number of issues but concentrated sector positions may result
from the investment process. The Fund has a long-term investment perspective;
however, the Sub-Adviser may take advantage of short-term opportunities that are
consistent with the Fund's objective by selling recently purchased securities
which have increased in value.

The Equity Growth Fund may invest up to 25% of its total assets at the time
of purchase in securities of foreign companies. The Fund may invest in
securities of foreign issuers directly or in the form of depositary receipts.
Investors should recognize that investing in foreign companies involves certain
special considerations which are not typically associated with investing in U.S.
companies.

The Equity Growth Fund may invest in convertible securities of domestic and,
subject to the above restrictions, foreign issuers on occasions when, due to
market conditions, it is more advantageous to purchase such securities than to
purchase common stock. Since the Fund invests in both common stocks and
convertible securities, the risks of investing in the general equity markets may
be tempered to a degree by the Fund's investments in convertible securities
which are often not as volatile as common stock.

The Equity Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.

For temporary defensive purposes, the Equity Growth Fund may invest in money
market instruments and short- and medium-term debt securities that the
Sub-Adviser believes to be of high quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.

THE MID CAP GROWTH FUND

The Mid Cap Growth Fund's investment objective is to achieve long-term
growth by investing primarily in common stocks and other equity securities of
small and medium size companies which are deemed by the Fund's Sub-Adviser to
offer long-term growth potential.

The Mid Cap Growth Fund generally will invest at least 65% of its total
assets in equity securities issued by companies offering long term growth
potential which have market capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index. Such range is currently $100 million
to $8 billion but the range fluctuates over time with changes in the equity
market. Equity securities for this purpose include common

16
<PAGE>
stock, preferred stock, convertible securities, depositary receipts, foreign
equity securities, and rights and warrants to purchase stock. Up to 5% of the
Fund's assets may be invested in foreign equity securities, excluding American
Depositary Receipts ("ADRs").

The Sub-Adviser manages the Mid Cap Growth Fund using a four-part process
combining quantitative, fundamental and valuation analysis with a strict sales
discipline. Stocks that pass an initial screen based on estimate revisions
undergo detailed fundamental research. The Sub-Adviser uses valuation analysis
to eliminate the most overvalued securities. The Fund sells holdings when the
Sub-Adviser's estimate revision scores fall to unacceptable levels, when its
fundamental research uncovers unfavorable trends or when the securities'
valuations exceed the level that the Sub-Adviser believes is reasonable given
their growth prospects.

The Mid Cap Growth Fund may invest in derivatives, when-issued and delayed
delivery securities and non-publicly traded securities, including private
placements and restricted securities.

For temporary defensive purposes, the Mid Cap Growth Fund may invest in
money market instruments and short- and medium-term debt securities that the
Sub-Adviser believes to be of high quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.

THE U.S. REAL ESTATE FUND

The investment objective of the U.S. Real Estate Fund is to provide
above-average current income and long-term capital appreciation by investing
primarily in equity securities of companies in the U.S. real estate industry,
including real estate investment trusts ("REITs"). With respect to this Fund,
equity securities include common stocks, shares or units of beneficial interest
of REITs, limited partnership interests in master limited partnerships, rights
or warrants to purchase common stocks, securities convertible into common
stocks, and preferred stock.

Under normal circumstances, at least 65% of the U.S. Real Estate Fund's
total assets will be invested in income producing equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry. For
purposes of the Fund's investment policies, a company is "principally engaged"
in the real estate industry if, as determined by the Sub-Adviser, (i) it derives
at least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies in the
real estate industry may include, among others: REITs, master limited
partnerships that invest in interests in real estate, real estate operating
companies, and companies with substantial real estate holdings, such as hotel
companies, residential builders and land-rich companies. The Fund seeks to
invest in equity securities of companies that provide a dividend yield that
exceeds the composite dividend yield of securities comprising the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500").

A substantial portion of the U.S. Real Estate Fund's total assets will be
invested in securities of REITs. REITs pool investors' funds for investment
primarily in income producing real estate or real estate related loans or
interests. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers,

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<PAGE>
office and industrial properties, hotels, health-care facilities, manufactured
housing and mixed-property types. Mortgage REITs invest the majority of their
assets in real estate mortgages and derive their income primarily from interest
payments. Hybrid REITs combine the characteristics of both Equity and Mortgage
REITs. The Fund will invest primarily in Equity REITs. A REIT is not taxed on
income distributed to its shareholders or unitholders if it complies with
regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its shareholders
or unitholders at least 95% of its taxable income for each taxable year. A
shareholder in the Fund should realize that by investing in REITs indirectly
through the Fund, he will bear not only his proportionate share of the expenses
of the Fund, but also indirectly, the management expenses of underlying REITs.

The U.S. Real Estate Fund will concentrate in the U.S. real estate industry,
but may not invest more than 25% of its total assets in securities of companies
in any one other industry (for these purposes the U.S. Government, its agencies
and instrumentalities are not considered an industry). Under normal
circumstances, the Fund may invest up to 35% of its total assets in debt
securities issued or guaranteed by real estate companies or secured by real
estate assets and rated, at time of purchase, in one of the four highest rating
categories by an NRSRO or determined by the Sub-Adviser to be of comparable
quality at the time of purchase; high quality money market instruments; or debt
securities rated in one of the two highest ratings categories by an NRSRO,
consisting of corporate debt securities and U.S. Government securities.
Securities rated in the lowest category of investment grade securities have
speculative characteristics. Investment grade securities are securities that are
rated in one of the four highest rating categories by an NRSRO. The Fund may
also, to a limited extent, invest in non-publicly traded securities, private
placements and restricted securities.

For temporary defensive purposes, the Fund may invest in money market
instruments and short- and medium-term debt securities that the Sub-Adviser
believes to be of high-quality, or hold cash.

For further information about the foregoing and certain additional
investment practices of the U.S. Real Estate Fund, see "Additional Investment
Information" below.

RISK FACTORS RELATING TO U.S. REAL ESTATE PORTFOLIO. The investment
policies of the U.S. Real Estate Fund entail certain risks and considerations of
which an investor should be aware. Because the Fund invests primarily in the
securities of companies principally engaged in the real estate industry, its
investments may be subject to the risks associated with the direct ownership of
real estate. These risks include: the cyclical nature of real estate values,
risks related to general and local economic conditions, overbuilding and
increased competition, increases in property taxes and operating expenses,
demographic trends and variations in rental income, changes in zoning laws,
casualty or condemnation losses, environmental risks, regulatory limitations on
rents, changes in neighborhood values, related party risks, changes in the
appeal of properties to tenants, increases in interest rates and other real
estate capital market influences. Generally, increases in interest rates will
increase the costs of obtaining financing, which could directly and indirectly
decrease the value of the Fund's investments. The Fund's share price and
investment return fluctuate, and a shareholder's investment when redeemed may be
worth more or less than his original cost.

Because the U.S. Real Estate Fund may invest a substantial portion of its
assets in REITs, the Fund may also be subject to certain risks associated with
the direct investments of REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management

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<PAGE>
skills. Some REITs may have limited diversification and may be subject to risks
inherent in investments in a limited number of properties, in a narrow
geographic area, or in a single property type. REITs depend generally on their
ability to generate cash flow to make distributions to shareholders or
unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), or its failure to maintain
exemption from registration under the Investment Company Act of 1940, as amended
(the "1940 Act"). Rising interest rates may cause the value of the debt
securities in which the Fund will invest to fall. Conversely, falling interest
rates may cause their value to rise. Changes in the value of portfolio
securities will not necessarily affect cash income derived from these securities
but will affect the Fund's net asset value.

THE VALUE FUND

The Value Fund's investment objective is to achieve above-average total
return over a market cycle of three to five years, consistent with reasonable
risk, by investing in a diversified portfolio of common stocks and other equity
securities that are deemed by the Fund's Sub-Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.

The Value Fund generally will invest at least 65% of its assets in equity
securities which are deemed to be undervalued. Equity securities, for this
purpose, include common stock, preferred stock, convertible securities,
depositary receipts and rights and warrants to purchase stock. Up to 5% of the
Fund's assets may be invested in foreign equity securities, excluding ADRs. The
Fund generally will invest in equity securities of companies with equity
capitalization greater than $300 million.

The Sub-Adviser selects common stocks which are deemed to be undervalued
relative to the stock market in general as measured by the S&P 500, based on the
value measures such as price/earnings ratios and price/ book ratios, as well as
fundamental research. While capital return will be emphasized somewhat more than
income return, the Value Fund's total return will consist of both capital and
income returns. Stocks which are deemed to be undervalued in the marketplace
have, under most market conditions, provided higher dividend income returns than
stocks which are deemed to have long-term earnings growth potential which
normally sell at higher price/earnings ratios. However, the Sub-Adviser may
select non-dividend paying stocks for their value characteristics. For temporary
defensive purposes, the Value Fund may invest without limit in money market
instruments and medium-term debt securities that the Sub-Adviser believes to be
of high quality, or hold cash.

The Value Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities.

For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.

ADDITIONAL INVESTMENT INFORMATION

BORROWING AND OTHER FORMS OF LEVERAGE

The American Value and U.S. Real Estate Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets. The Aggressive Equity Fund may borrow amounts up to 33 1/3% of its
total

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<PAGE>
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing. See "Investment Objectives and Policies -- The
Aggressive Growth Fund" for further information.

The Equity Growth, Mid Cap Growth and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.

CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES

Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.

The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. It is impossible to predict whether the price of the underlying common
stock will rise or fall. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market which is
fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other Lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.

DEPOSITARY RECEIPTS

Depositary receipts include ADRs, Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such receipts become available. ADRs are securities, typically
issued by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer (the
"underlying issuer") and deposited with the depositary. Each of the Funds, other
than the U.S. Real Estate Fund, may invest in ADRs and the Funds, other than the
American Value and U.S. Real Estate Funds may invest in other depository
receipts. ADRs include American Depositary Shares and New York Shares and may be
"sponsored" or "unsponsored." Sponsored ADRs are established jointly by a
depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts

20
<PAGE>
are typically issued by foreign depositaries, although they may also be issued
by U.S. depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation.

FOREIGN BONDS

The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.

FOREIGN INVESTMENT

The Funds may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic issuers. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environment than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.

Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.

FOREIGN CURRENCY HEDGING TRANSACTIONS

The Funds, other than the U.S. Real Estate Fund, may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a

21
<PAGE>
decline in a foreign currency against the U.S. Dollar between the trade date and
settlement date when a Fund purchases or sells securities, locking in the U.S.
Dollar value of dividends declared on securities held by the Fund and generally
protecting the U.S. Dollar value of securities held by the Fund against exchange
rate fluctuations. While such forward contracts may limit losses to a Fund as a
result of exchange rate fluctuations, they will also limit any exchange rate
gains that might otherwise have been realized.

The Funds, other than the American Value and U.S. Real Estate Funds, may
attempt to accomplish objectives similar to those described above with respect
to forward contracts for currency by means of purchasing put or call options on
foreign currencies on exchanges. A put option gives such Funds the right to sell
a currency at the exercise price until the expiration of the option. A call
option gives the Funds the right to purchase a currency at the exercise price
until the expiration of the option. The Funds may also write covered call
options on foreign currencies for hedging purposes. See "Investment Objectives
and Policies -- Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.

INVESTMENT COMPANY SECURITIES

The Funds may invest in securities of another open-end or closed-end
investment company, by purchase in the open market involving only customary
brokers' commissions or in connection with mergers, acquisitions of assets or
consolidations and except as may otherwise be permitted by the 1940 Act. To the
extent a Fund invests a portion of its assets in investment company securities,
those assets will be subject to the expenses of the purchased investment company
as well as to the expenses of the Fund itself.

LOANS OF PORTFOLIO SECURITIES

Each of the Funds may lend its securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing its
net investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned plus accrued interest. The Aggressive Equity,
American Value, Equity Growth and U.S Real Estate Funds will not enter into
securities loan transactions exceeding in the aggregate 33 1/3% of the market
value of the Fund's total assets. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral should the
borrower of the portfolio securities fail financially.

MONEY MARKET INSTRUMENTS

Each Fund is permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties, other
debt securities, including high-grade commercial paper, repurchase agreements
and bank obligations, such as bankers' acceptances and certificates of deposit
(including Eurodollar certificates of deposit).

NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES

The Funds may invest in securities that are neither listed on a stock
exchange nor traded over the counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities and
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were

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<PAGE>
publicly traded. A Fund may not invest more than 15% of its net assets in
illiquid securities nor, with respect to the Aggressive Equity, American Value
and U.S. Real Estate Funds, more than 10% of its total assets in securities
subject to legal or contractual restrictions on resale. Securities that are
restricted from sale to the public without registration ("Restricted
Securities") under the Securities Act of 1933, as amended (the "1933 Act"),
which can be offered and sold to qualified institutional buyers under Rule 144A
under the 1933 Act ("144A Securities") may be determined to be liquid under
guidelines adopted by, and subject to the supervision of, the Board of
Directors. 144A Securities may become illiquid if qualified institutional buyers
are not interested in acquiring the securities.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. A Fund always receives securities
as collateral with a market value at least equal to the purchase price,
including accrued interest, and this value is maintained during the term of the
agreement. If the seller defaults and the collateral value declines, a Fund
might incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Fund 's realization upon the collateral may be delayed or limited.
The aggregate of certain repurchase agreements and certain other investments is
limited as set forth under "Investment Limitations."

REVERSE REPURCHASE AGREEMENTS

The Equity Growth, Mid Cap Growth and Value Funds may enter into reverse
repurchase agreements with brokers, dealers, domestic and foreign banks or other
financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with the Custodian a separate
account with a segregated portfolio of cash or liquid assets in an amount at
least equal to its purchase obligations under these agreements (including
accrued interest). If interest rates rise during a reverse repurchase agreement,
it may adversely affect a Fund's net asset value. In the event that the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Fund's repurchase obligation, and the Fund's
use of proceeds of the agreement may effectively be restricted pending such
decision.

SHORT SALES

The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
from time to time sell securities short without limitation, although they do not
intend to sell securities short on a regular basis. A short sale is a
transaction in which a Fund sells securities it either owns or has the right to
acquire at no added cost (i.e., "against the box") or it does not own (but has
borrowed) in anticipation of a decline in the market price of the securities.
When a Fund makes a short sale of borrowed securities, the proceeds it receives
from the sale will be held on behalf of a broker until the Fund replaces the
borrowed securities. To deliver the securities to the

23
<PAGE>
buyer, a Fund will need to arrange through a broker to borrow the securities
and, in so doing, the Fund will become obligated to replace the securities
borrowed at their market price at the time of replacement, whatever that price
may be. A Fund may have to pay a premium to borrow the securities and must pay
any dividends or interest payable on the securities until they are replaced.

A Fund's obligation to replace the securities borrowed in connection with a
short sale will be secured by collateral deposited with the broker that consists
of cash or liquid assets. In addition if the short sale is not "against the
box," the Fund will place in a segregated account with its Custodian an amount
of cash or liquid assets equal to the difference, if any, between (1) the market
value of the securities sold at the time they were sold short and (2) any cash,
U.S. Government securities or other liquid high grade debt obligations deposited
as collateral with the broker in connection with the short sale (not including
the proceeds of the short sale). Short sales by a Fund involve certain risks and
special considerations. Possible losses from short sales differ from losses that
could be incurred from a purchase of a security, because losses from short sales
may be unlimited, whereas losses from purchases can equal only the total amount
invested.

TEMPORARY INVESTMENTS

For temporary defensive purposes, when the Adviser or a Sub-Adviser
determines that market conditions warrant, each Fund may invest up to 100% of
its assets in money market instruments and short- and medium-term debt
securities that the Adviser or Sub-Adviser believes to be of high quality, or
hold cash. See "Investment Objectives and Policies," above for further
information about each Fund's policies.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES

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<PAGE>
adverse market conditions than comparably rated securities paying cash interest
at regular interest payment periods.

DERIVATIVE INSTRUMENTS

The Funds are permitted to invest in various derivative instruments for both
hedging and non-hedging purposes. Derivative instruments include options,
futures and options on futures, structured notes, caps, floors, collars and
swaps. Additionally, the Funds may invest in other derivative instruments that
are developed over time if their use would be consistent with the objectives of
the Funds. Each of the Funds, other than (to the extent described below) the
Equity Growth, Mid Cap Growth and Value Funds, will limit its use of the
foregoing derivative instruments for non-hedging purposes to 33 1/3% of its
total assets measured by the aggregate notional amount of outstanding derivative
instruments. In addition, none of the Aggressive Equity, American Value and U.S.
Real Estate Funds will enter into futures contracts and options on futures
contracts to the extent that the notional value of its outstanding obligations
to purchase securities under such contracts would exceed 20% of its total
assets. The Equity Growth Fund will limit its use of derivative instruments to
50% of its total assets measured by the aggregate notional amount of outstanding
derivative instruments, provided that no more than 33 1/3% of its total assets
are invested, for non-hedging purposes, in derivatives other than futures and
options on futures. The Mid Cap Growth and Value Funds will not enter into
futures contracts to the extent that each Fund's outstanding obligations to
purchase securities under these contracts, in combination with its outstanding
obligations with respect to options transactions, would exceed 50% of its total
assets. The Funds' investments in forward foreign currency contracts and
derivatives used for hedging purposes are not subject to the limits described
above.

The Funds may use derivatives instruments under a number of different
circumstances to further their investment objectives. The Funds may use
derivatives when doing so provides more liquidity than the direct purchase of
the securities underlying such derivatives. For example, a Fund may purchase
derivatives to quickly gain exposure to a market in response to changes in the
Fund's asset allocation policy or upon the inflow of investable cash when the
derivative provides greater liquidity than the underlying securities market. A
Fund may also use derivatives when it is restricted from directly owning the
underlying securities due to foreign investment restrictions or other reasons or
when doing so provides a price advantage over purchasing the underlying
securities directly, either because of a pricing differential between the
derivatives and securities markets or because of lower transaction costs
associated with the derivatives transaction. Derivatives may also be used by a
Fund for hedging purposes and under other circumstances in which a Fund's
portfolio managers believe it advantageous to do so consistent with the Fund's
investment objective. The Funds will not, however, use derivatives in a manner
that creates leverage, except to the extent that the use of leverage is
expressly permitted by a particular Fund's investment policies, and then only in
a manner consistent with such policies.

Some of the derivative instruments in which the Funds may invest and the
risks related thereto are described in more detail below.

CAPS, FLOORS AND COLLARS

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<PAGE>
writes a floor, and the writer of a collar writes a cap and buys a floor. The
risks associated with caps, floors and collars are similar to those associated
with options. In addition, caps, floors and collars are subject to risk of
default by the counterparty because they are privately negotiated instruments.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may sell securities index futures contracts and/or options thereon
in anticipation of or during a market decline to attempt to offset the decrease
in market value of investments in its portfolio, or purchase securities index
futures in order to gain market exposure. Subject to applicable laws, the Funds
may engage in transactions in securities index futures contracts (and options
thereon) which are traded on a recognized securities or futures exchange, or may
purchase or sell such instruments in the over-the-counter market. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging countries. The nature of the strategies
adopted by the Adviser and Sub-Advisers and the extent to which those strategies
are used, may depend on the development of such markets.

The Funds may engage in transactions in interest rate futures transactions.
Interest rate futures contracts involve an obligation to purchase or sell a
specific debt security, instrument or basket thereof at a specified future date
at a specified price. The value of the contract rises and falls inversely with
changes in interest rates. The Funds may engage in such transactions to hedge
their holdings of debt instruments against future changes in interest rates.

Gains and losses on futures contracts and options thereon depend on the
Adviser's or the Sub-Advisers' ability to predict correctly the direction of
securities prices, interest rates and other economic factors. Other risks
associated with the use of futures and options are (i) imperfect correlation
between the change in market

26
<PAGE>
value of investments held by a Fund and the prices of futures and options
relating to investments purchased or sold by the Fund, and (ii) possible lack of
a liquid secondary market for a futures contract and the resulting inability to
close a futures position. The risk that a Fund will be unable to close out a
futures position or options contract will be minimized by only entering into
futures contracts or options transactions for which there appears to be a liquid
exchange or secondary market. The risk of loss in trading on futures contracts
in some strategies can be substantial, due both to the low margin deposits
required and the high degree of leverage involved in futures pricing.

OPTIONS TRANSACTIONS

The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited options
markets in many countries, particularly emerging countries and the nature of the
strategies adopted by the Adviser and Sub-Advisers and the extent to which those
strategies are used will depend on the development of such option markets. The
primary risks associated with the use of options are (i) imperfect correlation
between the change in market value of investments held, purchased or sold by a
Fund and the prices of options relating to such investments; and (ii) possible
lack of a liquid secondary market for an option.

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<PAGE>
STRUCTURED NOTES

Structured Notes are derivatives on which the amount of principal repayment
and/or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices such as the
S&P 500 Index. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators. The Funds may
use structured notes to tailor their investments to the specific risks and
returns the Adviser and Sub-Advisers wish to accept while avoiding or reducing
certain other risks.

SWAPS -- SWAP CONTRACTS

Swaps and Swap Contracts are derivatives in the form of a contract or other
similar instrument in which two parties agree to exchange the returns generated
by a security, instrument, basket thereof or index for the returns generated by
another security, instrument, basket thereof or index. The payment streams are
calculated by reference to a specific security, index or instrument and an
agreed upon notional amount. The relevant indices include but are not limited
to, currencies, fixed interest rates, prices and total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Fund may agree to swap the return generated by a fixed income index for the
return generated by a second fixed income index. The currency swaps in which the
Funds may enter will generally involve an agreement to pay interest streams in
one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.

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<PAGE>
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Sub-Advisers are incorrect in their forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the Funds would be less favorable than it would have been if this
investment technique were not used.

INVESTMENT LIMITATIONS

Each Fund, except the Aggressive Equity and U.S. Real Estate Funds, is a
diversified investment company under the 1940 Act, and, therefore, with respect
to 75% of its assets, may not (a) invest more than 5% of its total assets in the
securities of any one issuer, except obligations of the U.S. Government, its
agencies and instrumentalities, or (b) own more than 10% of the outstanding
voting securities of any one issuer. The Aggressive Equity and U.S. Real Estate
Funds are non-diversified investment companies under the 1940 Act, which means
that each such Fund is not limited by the 1940 Act in the proportion of its
total assets that may be invested in the obligations of a single issuer. Thus,
each such Fund may invest a greater proportion of its total assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk resulting from such concentration of its portfolio securities. Each
such Fund, however, intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. Each Fund also operates under
certain investment restrictions that are deemed fundamental policies and may be
changed only with the approval of the holders of a majority of the Fund's
outstanding shares. See "Investment Limitations" in the Statement of Additional
Information. In addition, each Fund operates under certain non-fundamental
investment limitations as described in the Statement of Additional Information.

MANAGEMENT OF THE COMPANY

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp.
("VK Advisory," or the "Adviser") is the investment adviser and administrator of
the Funds. The Adviser provides investment advice and portfolio management
services pursuant to an advisory agreement (the "Advisory Agreement") and
subject to the supervision of the Company's Board of Directors, makes the Funds'
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Funds' investments. The Advisory Agreement also provides
that VK Advisory may appoint sub-advisers to perform these portfolio management
responsibilities. See "The Sub-Advisers" below. The Adviser is entitled to
receive an aggregate advisory fee computed daily and paid monthly at the
following annual rates for each Fund:

<TABLE>
<S> <C> <C>
Aggressive Equity Fund..................................... 0.90%
American Value Fund........................................ 0.85%
Equity Growth Fund......................................... 0.70%
Mid Cap Growth Fund........................................ 0.75%
U.S. Real Estate Fund...................................... 1.00%
Value Fund................................................. 0.80% First $500
million
0.75% Next $500 million
0.70% Over $1 billion
</TABLE>

29
<PAGE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause total annual operating expenses of the Fund to exceed the
maximums set forth in "Fund Expenses."

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital,
Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $57 billion under management or supervision. Van Kampen American Capital's
more than 40 open-end and 38 closed-end funds and more than 2,500 unit
investment trust are professionally distributed by leading financial advisers
nationwide. The Distributor of the Company and the sponsor of the funds
mentioned above, is also a wholly-owned subsidiary of Van Kampen American
Capital.

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. The Adviser's principal office is located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.

On May 31, 1997, MSGI and Dean Witter, Discover & Co. merged to form Morgan
Stanley, Dean Witter, Discover & Co. Prior thereto, MSGI was the parent of the
Adviser, Sub-Advisers and Distributor. The Adviser, Sub-Advisers and Distributor
are now subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.

Morgan Stanley, Dean Witter, Discover & Co. and various of its directly or
indirectly owned subsidiaries, including Morgan Stanley & Co. Incorporated, a
registered broker-dealer and investment adviser, and Morgan Stanley
International are engaged in a wide range of financial services. Their principal
businesses include securities underwriting, distribution and trading, merger,
acquisition, restructuring and other corporate finance advisory activities;
merchant banking, stock brokerage and research services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and global custody, securities clearance services and
securities lending; and credit services.

INVESTMENT SUB-ADVISERS. Morgan Stanley Asset Management Inc. ("MSAM," or a
"Sub-Adviser") is the investment sub-adviser of the Aggressive Equity, American
Value, Equity Growth and U.S. Real Estate Funds and Miller Anderson & Sherrerd,
LLP ("MAS," or a "Sub-Adviser") is the investment sub-adviser of the Mid Cap
Growth and Value Funds. The Sub-Advisers provide investment advice and portfolio
management services pursuant to investment sub-advisory agreements (the
"Investment Advisory Agreements") and, subject to the supervision of the Adviser
and the Company's Board of Directors, make the Funds' investment decisions,
arrange for the execution of portfolio transactions and generally manage the
Funds' investments.

The Sub-Advisers are entitled to receive sub-advisory fees computed daily
and paid quarterly at the following rates for the Funds. If the average daily
net assets of a Fund during the monthly period are less than or equal to $500
million, VK Advisory shall pay MSAM or MAS, as appropriate, one-half of the
total investment advisory fee payable to VK Advisory by the Fund (after
application of any fee waivers in effect) for such monthly period. If a Fund's
average daily net assets for the monthly period are greater than $500 million,
VK Advisory shall pay MSAM or MAS, as appropriate, a fee for such monthly period
equal to the greater of (a) one-half of what the total investment advisory fee
payable to VK Advisory by the Fund (after application of any fee waivers in
effect) for such monthly period would have been had the Fund's average daily net
assets during such period

30
<PAGE>
been equal to $500 million, or (b) forty-five percent of the total investment
advisory fee payable to VK Advisory by the Fund (after application of any fee
waivers in effect) for such monthly period.

MSAM, with principal offices at 1221 Avenue of the Americas, New York, NY
10020, conducts a worldwide portfolio management business. It provides a broad
range of portfolio management services to customers in the United States and
abroad. At May 31, 1997, MSAM had approximately $75.1 billion in assets under
management as an investment adviser or as a Named Fiduciary or Fiduciary
Adviser. MAS is a Pennsylvania limited liability partnership founded in 1969
with its principal offices at One Tower Bridge, West Conshohocken, Pennsylvania
19428. MAS provides investment services to employee benefit plans, endowment
funds, foundations and other institutional investors and has served as an
investment adviser to several open-end investment companies since 1984. At May
31, 1997, MAS had approximately $44 billion in assets under management. See
"Management of the Company -- Investment Advisory and Administrative Agreements"
in the Statement of Additional Information.

PORTFOLIO MANAGERS. The following individuals have primary portfolio
management responsibility for the Funds noted below:

AGGRESSIVE EQUITY FUND -- KURT A. FEUERMAN. Kurt Feuerman is a Managing
Director of MSAM and has had primary management responsibility for the
Aggressive Equity Fund since it commenced operations. Prior to joining MSAM in
July 1993, he spent over three years in Morgan Stanley & Co. Incorporated's
("Morgan Stanley") research department where he was responsible for restaurant,
gaming and emerging growth stocks. Before joining Morgan Stanley, Mr. Feuerman
was a Managing Director at Drexel Burnham Lambert, where he had been an equity
analyst since 1984. From 1982 to 1984, Mr. Feuerman was at the Bank of New York,
following the auto and auto parts industries. Mr. Feuerman earned a B.A. degree
from McGill University, an M.A. from Syracuse University, and an M.B.A. from
Columbia University.

AMERICAN VALUE FUND -- GARY G. SCHLARBAUM, WILLIAM B. GERLACH AND BRADLEY S.
DANIELS. Messrs. Schlarbaum, Gerlach and Daniels share primary responsibility
for managing the American Value Fund. Gary G. Schlarbaum, a Managing Director of
Morgan Stanley, joined MAS in 1987. He assumed responsibility for the MAS Funds'
Equity and Small Cap Value Portfolios in 1987, the MAS Funds' Balanced Portfolio
in 1992 and the MAS Funds' Multi-Asset-Class and Mid Cap Value Portfolios in
1994. Mr. Schlarbaum also is a Director of MAS Fund Distribution, Inc. He
previously was with First Chicago Investment Advisers and was a Professor at the
Krannert Graduate School at Purdue University. Mr. Schlarbaum holds a B.A. in
Economics from Coe College and a Ph.D. in Applied Economics from University of
Pennsylvania. Mr. Schlarbaum assumed primary responsibility for managing the
Fund's assets in January, 1997. Mr. Gerlach joined MSAM in July, 1996 and has
worked with the Adviser's affiliate, MAS for the past five years. He became a
portfolio manager of the Fund in November, 1996. Mr. Gerlach also became a
portfolio manager of the MAS Funds' Small Cap Value and Mid Cap Value Portfolios
in 1996. Previously, he was with Alphametrics Corporation and Wharton
Econometric Forecasting Associates. Mr. Gerlach holds a B.A. in Economics from
Haverford College. Bradley S. Daniels, a Vice President of Morgan Stanley,
joined MAS in 1985. He assumed responsibility for the MAS Funds' Small Cap Value
Portfolio in 1986 and the MAS Funds' Mid Cap Value Portfolio in 1994.

EQUITY GROWTH FUND -- KURT A. FEUERMAN AND MARGARET K. JOHNSON. For a
description of Mr. Feuerman's experience, see "Aggressive Equity Fund" above.
Margaret Johnson is a Principal of MSAM and a Portfolio Manager in the
Institutional Equity Group. She joined MSAM in 1984 and worked as an Analyst in
the Marketing and Fiduciary Advisor areas. Ms. Johnson became an Equity Analyst
in 1986 and a Portfolio Manager

31
<PAGE>
in 1989. Prior to joining Morgan Stanley, she worked for the New York City PBS
affiliate, WNET, Channel 13. She holds a B.A. degree from Yale College and is a
Chartered Financial Analyst. Mr. Feuerman and Ms. Johnson have had primary
responsibility for managing the Fund's assets since its inception.

MID CAP GROWTH FUND -- ARDEN C. ARMSTRONG AND ABHI Y. KANITKAR. Arden
Armstrong, a Managing Director of Morgan Stanley, joined MAS in 1986. She
assumed responsibility for the MAS Funds Mid Cap Growth Portfolio in 1990, the
MAS Funds Growth Portfolio in 1993 and the MAS Funds Equity Portfolio in 1994.
Prior to joining MAS, Ms. Armstrong was a research analyst for American
Management Systems and for Evans Economics. Ms. Armstrong holds a B.A. (Magna
Cum Laude) in Economics from Brown University, an M.B.A. from the University of
Pennsylvania -- Wharton School and is a Chartered Financial Analyst. Abhi
Kanitkar, a Vice President of Morgan Stanley, joined MAS in 1994. He served as
an Investment Analyst from 1993 through 1994 for Newbold's Asset Management and
as Director & Investment Analyst from 1990 through 1993 for Kanitkar Investment
Services, Inc. He assumed responsibility for the MAS Funds Mid Cap Growth
Portfolio in 1996. Mr. Kanitkar holds a B.S. (Magna Cum Laude, Tau Beta Pi) in
Electrical Engineering from the University of Michigan and an M.B.A. from the
University of Pennsylvania -- Wharton School. Ms. Armstrong and Mr. Kanitkar
have shared primary responsibility for managing the Fund's assets since its
inception.

U.S. REAL ESTATE FUND -- RUSSELL PLATT AND THEODORE R. BIGMAN. Mr. Platt
joined MSAM and Morgan Stanley in 1982 and currently is a Managing Director of
the Firm. He has primary responsibility for managing the real estate securities
investment business for the Adviser and serves as a member of the Investment
Committee of The Morgan Stanley Real Estate Fund ("MSREF"). Previously, Mr.
Platt served as a Director of MSREF, where he was involved in capital raising,
acquisitions, oversight of investments and investor relations. From 1991 to
1993, Mr. Platt was head of Morgan Stanley's Transaction Development Group,
which was responsible for identifying and structuring real estate investment
opportunities for the Firm and its clients worldwide. From 1990 to 1991, Mr.
Platt was based in Morgan Stanley Realty's London office, where he was
responsible for European transaction development. Prior to this, he had
extensive transaction responsibilities involving portfolio, retail, office,
hotel and apartment sales and financings. Mr. Platt graduated from Williams
College in 1982 with a B.A. in Economics and received his M.B.A. from Harvard
Business School in 1986. Mr. Bigman joined MSAM and Morgan Stanley in 1995 and
currently is a Principal of the Firm. Together with Mr. Platt, he is responsible
for MSAM's real estate securities research. Prior to joining MSAM, he was a
Director at CS First Boston, where he worked for eight years in the Real Estate
Group. Since 1992, Mr. Bigman established and managed the REIT effort at CS
First Boston including primary responsibility for $2.5 billion of initial public
offerings by real estate investment trusts. Previously, Mr. Bigman had extensive
real estate experience in a wide variety of transactions involving the financing
and sale of both individual assets and portfolios of real estate assets as well
as the acquisition and sale of several real estate companies. Mr. Bigman
graduated from Brandeis University with a B.A. in Economics and received his
M.B.A. from Harvard University.

VALUE FUND -- ROBERT J. MARCIN, RICHARD M. BEHLER AND NICHOLAS J. KOVICH.
Messrs. Marcin, Behler and Kovich share primary responsibility for managing the
Value Fund. Robert J. Marcin, a Managing Director of Morgan Stanley, joined MAS
in 1988. He assumed responsibility for the MAS Funds' Value Portfolio in 1990
and the MAS Funds' Equity Portfolio in 1994. Prior to joining MAS, Mr. Marcin
was an Account Executive at Smith Barney Harris Upham and Company, Inc. Mr.
Marcin holds a B.A. (Cum Laude) from Dartmouth College and is a Chartered
Financial Analyst. Richard M. Behler, a Principal of Morgan Stanley, joined MAS
in 1995. He served as a Portfolio Manager from 1992 through 1995 for Moore
Capital Management and as a Senior Vice

32
<PAGE>
President for Merrill Lynch Economics from 1987 through 1992. He assumed
responsibility for the MAS Funds' Value Portfolio in 1996. Mr. Behler holds a
B.A. (Cum Laude) in Economics from Villanova University and an M.A. and Ph.D. in
Economics from University of Notre Dame. Nicholas J. Kovich, a Managing Director
of Morgan Stanley, joined MAS in 1988. He assumed responsibility for the MAS
Funds' Equity Portfolio in 1994 and the MAS Funds' Value Portfolio in 1997. Mr.
Kovich received a B.S. in Chemical Engineering and an M.B.A. from University of
Kansas.

ADMINISTRATORS. VK Advisory (the "Administrator") also provides the Company
with administrative services pursuant to an administration agreement (the
"Administration Agreement"). The services provided under the Administration
Agreement are subject to the supervision of the officers and Board of Directors
of the Company and include day-to-day administration of matters related to the
corporate existence of the Company, maintenance of its records, preparation of
reports, supervision of the Company's arrangements with its custodian and
assistance in the preparation of the Company's registration statements under
federal and state laws. The Administration Agreement also provides that the
Administrator through its agents will provide the Company dividend disbursing
and transfer agent services. For its services under the Administration
Agreement, the Company pays the Administrator a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of the applicable Funds.

Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the sub-administration agreement as being in the
best interests of the Company. CGFSC's business address is 73 Tremont Street,
Boston, Massachusetts 02108-3913. For additional information on the
Administration Agreement, see "Management of the Company" in the Statement of
Additional Information.

DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser, Sub-Advisers, Administrator and the
Company's Distributor. The Officers of the Company conduct and supervise its
daily business operations.

The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.

33
<PAGE>
shares of each Fund, on an annualized basis of the average daily net assets of
such classes. The actual amount of such compensation is agreed upon by the
Company's Board of Directors and by the Distributor. With respect to Class B
shares, the Distributor expects to utilize substantially all of its fee to
reimburse itself for commissions paid to investment dealers, banks or financial
services firms that provide distribution, administrative or shareholder services
("Participating Dealer"). With respect to Class C shares, the Distributor
expects to reallocate substantially all of its fee to such Participating
Dealers. The Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee and the Distributor is free to
make additional payments out of its own assets to promote the sale of Fund
shares. Class A shares, Class B shares and Class C shares are subject to a
service fee at an annual rate of 0.25% on an annualized basis of the average
daily net assets of such class of shares of a Fund. In addition to such
payments, the Advisers may use their advisory fees or other resources to pay
expenses associated with activities which might be construed to be financing the
sale of these Funds' shares including payments to third parties that provide
assistance in the distribution effort (in addition to selling shares and
providing shareholder services).

The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.

Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of a Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.

PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser, the Sub-Advisers or their
affiliates may compensate certain financial institutions for the continued
investment of their customers' assets in the Funds pursuant to the advice of
such financial institutions. These payments will be made directly by the
Adviser, the Sub-Advisers or their affiliates from their assets, and will not be
made from the assets of the Company or by the assessment of a sales charge on
shares. Such financial institutions may also perform certain shareholder or
recordkeeping services that would otherwise be performed by CGFSC. The Advisers
may elect to enter into a contract to pay the financial institutions for such
services.

EXPENSES. The Funds are responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.

34
<PAGE>
PURCHASE OF SHARES

GENERAL

Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.

Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the net
asset value calculated after the next day's close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of Participating Dealers to transmit orders received by them
to the Distributor so they will be received prior to such time.

35
<PAGE>
Rule 12b-1 distribution plan to which its distribution fee or service fee is
paid and (iii) Class B shares are subject to a conversion feature. Each class
has different exchange privileges and certain different shareholder service
options available. The net income attributable to Class B shares and Class C
shares and the dividends payable on Class B shares and Class C shares will be
reduced by the amount of the distribution fee and incremental transfer agency
expenses associated with such class of shares. Sales personnel of Participating
Dealers distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.

In deciding which class of shares to purchase, investors should take into
consideration their investment goals, present and anticipated purchase amounts,
time horizons and temperments. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated distribution
fees and contingent deferred sales charges on Class B shares prior to conversion
or Class C shares would be less than the initial sales charge on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher dividends per share on Class A shares. To assist investors in
making this determination, the table under the caption "Fund Expenses" sets
forth examples of the charges applicable to each class of shares. In this
regard, Class A shares may be more beneficial to the investor who qualifies for
reduced initial sales charges or purchases shares at net asset value, as
described herein under "Purchase of Shares -- Class A Shares." For these
reasons, it is presently the policy of the Distributor not to accept any order
of $500,000 or more for Class B Shares or any order of $1 million or more for
Class C shares as it ordinarily would be more beneficial for such an investor to
purchase Class A shares.

Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for most
accounts under $1 million, investors in Class A shares do not have all their
funds invested initially and, therefore, initially own fewer shares. Other
investors might determine that it is more advantageous to purchase either Class
B shares or Class C shares and have all their funds invested initially, although
remaining subject to a contigent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.

36
<PAGE>
broker-dealers distributing the Fund's shares and other persons entitled to
receive compensation for selling such shares may receive differing compensation
for selling such shares. Investors should understand that the purpose and
function of the contingent deferred sales charge and ongoing distribution fee
with respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."

CLASS A SHARES

The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
REALLOWED TO
DEALERS
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>

- --------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00 % on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.

37
<PAGE>
other compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the Securities Act of
1933, as amended.

QUANTITY DISCOUNTS

A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.

Until August 1, 1997, the phrase "Participating Funds," as used herein,
refers to all Funds of Morgan Stanley Fund, Inc. On August 1, 1997,
"Participating Funds" will refer to certain open-end investment companies
advised by the Adviser or Van Kampen American Capital Asset Management Inc. and
distributed by the Distributor as determined from time to time by the Company's
Board of Directors.

38
<PAGE>
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receive the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the charges applicable to the purchases made and
the charges previously paid. The initial purchase must be for an amount equal to
at least 5% of the minimum total purchased amount of the level selected. If
trades not initially made under a Letter of Intent subsequently qualify for a
lower sales charge through the 90-day back-dating provisions, an adjustment will
be made at the expiration of the Letter of Intent to give effect to the lower
charge. Such adjustments in sales charge will be used to purchase additional
shares for the shareholder at the applicable discount category. Additional
information is contained in the application form accompanying this Prospectus.

OTHER PURCHASE PROGRAMS

The administrator of such a unit investment trust must have an agreement
with the Distributor pursuant to which the administrator will (1) submit a
single bulk order and make payment with a single remittance for all investments
in a Fund during each distribution period by all investors who choose to invest
in the Fund through the program and (2) provide ACCESS with appropriate backup
data for each participating investor in a computerized format fully compatible
with ACCESS' processing system.

(1) Current or retired Trustees/Directors of funds advised by an Adviser
and such persons' families and their beneficial accounts.

39
<PAGE>
(2) Current or retired directors, officers and employees of MSGI or
VK/AC Holding, Inc. and any of their subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an affiliate of
such subadviser, and such persons' families and their beneficial accounts.

(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.

(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds as
described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to 0.50%
of the amount invested, over a 12-month period following such transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement
plans of organizations with retirement plan assets of $3 million or more and
which invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.

(6) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary has a separate agreement with the
Distributor.

(7) Investors purchasing shares of a Fund with no redemption proceeds
from other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not paid,
if such redemption has occurred no more than 30 days prior to such purchase.
On August 1, 1997, this option will no longer be available.

(8) Trusts created under pension, profit sharing or other employee
benefit plans qualified under Section 401(a) of the Code, or custodial
accounts held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of the
Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased by
an employer sponsored plan with more than 100 eligible employees. Such plans
that have been established with a Participating Fund or have received
proposals from the Distributor prior to February 1, 1997 based on net asset
value purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value for accounts
established on or before May 1, 1997. Section 403(b) and similar accounts
for which Van Kampen American Capital Trust Company serves as custodian will
not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except
under certain uniform criteria established by the Distributor from time to
time. A commission will be paid to dealers who initiate and are responsible
for such purchases within a rolling twelve month period as follows: 1.00% on
sales up to $5 million, plus 0.50% on the next $5 million, plus

40
<PAGE>
0.25% on the excess over $10 million. For purchases on February 1, 1997 and
thereafter, a commission will be paid as follows: 1.00% on sales up to $2
million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.

(9) Individuals who are members of a "qualified group." For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of a Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of a Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups. Shares purchased
in each group's participant's account in connection with this privilege will
be subject to a contingent deferred sales charge of one percent in the event
of redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the next
million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS receives
federal funds for the purchase by the close of business on the next business day
following acceptance of the order. An authorized dealer may charge a transaction
fee for placing an order with respect to such shares. Authorized dealers will be
paid a service fee as described herein under "Distribution Plans" on purchases
made as described in (3) through (9) above.

The Company may terminate, or amend the terms of, offering shares of the
Fund at net asset value to the foregoing groups at any time.

RETIREMENT PLANS

Van Kampen American Capital Trust Company ("VK Trust") provides retirement
plan services and documents and can establish investor accounts in IRAs. This
includes Simplified Employee Pension ("SEP") Plan and IRA accounts. Brochures
describing such plans and materials for establishing them are available from VK
Trust upon request. The brochures for custodial accounts with VK Trust describe
the current fees payable to VK Trust for its services as custodian. Investors
should consult with their own tax advisers before establishing a retirement
plan.

PURCHASE OF CLASS B SHARES

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<PAGE>
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.

CONTINGENT DEFERRED SALES CHARGE

<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------ ----------------
<S> <C>
First......................... 5.00%
Second........................ 4.00%
Third......................... 3.00%
Fourth........................ 2.50%
Fifth......................... 1.50%
Thereafter.................... None*
</TABLE>

- --------------

* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.

Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. Additionally, the Distributor
may pay additional promotional incentives in the form of cash or other
compensation to authorized dealers that sell Class B shares of the Funds. The
combination of the CDSC and the distribution/service fee facilitates the ability
of the Company to sell the Class B shares without a sales charge being deducted
at the time of purchase.

Class B shares may also be purchased through an Automatic Investment Plan as
described below.

PURCHASE OF CLASS C SHARES

42
<PAGE>
respect to such shares, under the Rule 12b-1 Plan for such class of shares, as
described under "Management of the Company -- Distributor" above. In determining
whether a CDSC is payable, and, if so, the amount of the fee or charge, it is
assumed that shares not subject to such fee or charge are the first redeemed.

WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) certain distributions from an
IRA or other retirement plan; (iii) to the extent that shares redeemed have been
withdrawn from a Systematic Withdrawal Plan, up to a maximum amount of 12% per
year from a shareholder account based on the value of the account at the time
the Withdrawal Plan is established; or (iv) effected pursuant to the right of
the Company to liquidate a shareholder's account as described herein under
"Redemption of Shares". A shareholder, or his or her representative, must notify
the Transfer Agent prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. The shareholder is responsible
for providing sufficient documentation to the Transfer Agent to verify the
existence of such circumstances. For information on the imposition and waiver of
the CDSC, contact Investor Services at 1-800-282-4404.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

No initial sales charge or CDSC will be payable on the shares of a Fund or
class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Fund.

REINSTATEMENT PRIVILEGE OF EACH CLASS

A shareholder who has redeemed Class A shares of a Fund may reinvest up to
the full amount received at net asset value at the time of the reinvestment in
Class A shares of the Fund without payment of a sales charge. A shareholder who
has redeemed Class B shares of a Fund and paid a CDSC upon such redemption may
reinvest up to the full amount received upon redemption in Class A shares at net
asset value with no initial sales charge. A Class C shareholder who has redeemed
shares of a Fund may reinstate any portion or all of the net proceeds of such
redemption in Class C shares of that Fund with credit given for any CDSC paid
upon such redemption. The reinstatement privilege as to any specific Class A,
Class B or Class C shares must be exercised within 180 days of the redemption.
The Transfer Agent must receive from the shareholder or the shareholder's
Participating Dealer both a written request for reinstatement and a check or
wire which does not exceed the redemption proceeds. The written request must
state that the reinvestment is made pursuant to this reinstatement privilege. If
a loss is realized on the redemption of Class A shares, the reinvestment may be
subject to the "wash sale" rules if made within 30 days of the redemption,
resulting in a postponement of the recognition of such loss for federal income
tax purposes. The reinstatement privilege may be terminated or modified at any
time. Reinstatement at net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plan. See the Statement of Additional Information for further discussion of
waiver provisions.

SHAREHOLDER SERVICES

The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.

INVESTMENT ACCOUNT. ACCESS transfer agent for the Company and a
wholly-owned subsidiary of Van Kampen American Capital, Inc. performs
bookkeeping, data processing and administration services related to

43
<PAGE>
the maintenance of shareholder accounts. Each shareholder has an investment
account under which shares are held by ACCESS. Except as described herein, after
each share transaction in an account, the shareholder receives a statement
showing the activity in the account. Each shareholder will receive statements at
least quarterly from ACCESS showing any reinvestments of dividends and capital
gains distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.

SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distribution paid on a class of
shares of the Company invested in shares of the same class of any other Fund, so
long as a pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

44
<PAGE>
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.

EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. Shareholders may only exchange into such other Participating Funds as are
legally available for sale in their state.

To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days any
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.

Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund.

No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the Fund from which such share
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such exchanged share originally was purchased.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. The
exchange will take place at the relative net asset values of the shares next
determined after receipt of such request with adjustment for any additional
sales charge. Any shares exchanged begin earning dividends on the next business
day after the exchange is affected. Van Kampen American Capital, Inc. and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Company employ
procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither VKAC nor the Company will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the Fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification options) and
broker, dealer or financial intermediary of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or dividend
diversification

45
<PAGE>
options for the new account, an exchanging shareholder must file a specific
written request. The Company reserves the right to reject any order to acquire
its shares through exchange. In addition, the Company may restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment. If an account has multiple owners, ACCESS may
rely on the instructions of any one owner.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly, quarterly, semi-annual or annual withdrawal
plan. This plan provides for the orderly use of the entire account, not only the
income but also the principal, if necessary. Each withdrawal constitutes a
redemption of shares on which taxable gain or loss will be recognized. The plan
holder may arrange for monthly, quarterly, semi-annual, or annual checks in any
amount not less than $25.

The CDSC on Class B shares and Class C is waived for withdrawals under the
Systematic Withdrawal Plan of a maximum of 1% per month, 3% per quarter, 6%
semiannually or 12% annually, of a shareholder's investment in, and any
dividends or distributions on, Class B shares of a Fund at the time the
Systematic Withdrawal Plan commences. Under this CDSC waiver policy, amounts
withdrawn each month will be paid by redeeming first Class B shares not subject
to a CDSC because the shares were purchased by the reinvestment of dividends or
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.

46
<PAGE>
REDEMPTION OF SHARES

Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than any applicable CDSC) at any time by sending a written
request in proper form directly to the Fund c/o ACCESS, P.O. Box 418256, Kansas
City, Missouri 64141-9256, by placing the redemption request through a
Participating Dealer or by calling the Company. See "Purchase of Shares" for a
discussion of applicable CDSC levels.

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer, a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power an d sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, additional documents may be necessary. The redemption
price is the net asset value per share next determined after the request is
received by ACCESS in proper form. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within seven
business days after acceptance by ACCESS of the request and any other necessary
documents in proper order. Such payments may be postponed or the right of
redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.

DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received (less any applicable CDSC) by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time. Any change in the redemption price due to failure of the
Distributor to receive a sell order prior to such time must be settled between
the shareholder and dealer. Shareholders must submit a written redemption
request in proper form (as described above under "Written Redemption Requests")
to the dealer within three business days after calling the dealer with the sell
order. Payment for shares redeemed will ordinarily be made by check mailed
within three business days to the dealer.

47
<PAGE>
acting upon telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, a shareholder agrees that neither VKAC nor
the Company will be liable for following instructions which it reasonably
believes to be genuine. VKAC and the Company may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed. Telephone redemptions may not be available if the shareholder cannot
reach ACCESS by telephone, whether because all telephone lines are busy or for
any other reason, in such case, a shareholder would have to use the Company's
other redemption procedures previously described. Requests received by ACCESS
prior to 4:00 p.m., Eastern Time, on a regular business day will be processed at
the net asset value per share determined that day. These privileges are
available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.

REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemptions following the disability of holders of Class B
shares and Class C shares. An individual will be considered disabled for this
purpose if he or she meets the definition thereof in Section 72(m)(7) of the
Code, which in pertinent part defines a person as disabled if such person "is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance of the Code's definition which pertains
to furnishing the Secretary of Treasury with such proof as he or she may
require, the Distributor will require satisfactory proof of disability before it
determines to waive the contingent deferred sales charge on Class B shares and
Class C shares.

48
<PAGE>
redemption. Any involuntary redemption may only occur if the shareholder account
is less than the minimum investment due to shareholder redemptions.

As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition, a CDSC of 1.00% may be imposed on certain redemptions of Class A
shares made within one year of purchase for investments of $1 million or more.
The CDSC incurred upon redemption is paid to the Distributor in reimbursement
for distribution-related expenses. A custodian of a retirement plan account may
charge fees based on the custodian's fee schedule.

IRA redemption requests should be sent to the IRA custodian to be forwarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
custodian, special IRA, 403(b)(7), or Keogh redemption forms must be obtained
from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box
944, Houston, Texas 77001-0944. Contact the custodian for information.

Reinstatement of net asset value is also offered to participants in those
eligible retirement plans held or administered by Van Kampen American Capital
Trust Company for repayment of principal (and interest) on their borrowings on
such plans.

FOR SHARES THAT ARE HELD IN BROKER STREET NAME, YOU CANNOT REQUEST
REDEMPTION BY TELEPHONE OR BY MAIL; SUCH SHARES MAY BE REDEEMED ONLY BY
CONTACTING YOUR PARTICIPATING DEALER.

TRANSFER OF REGISTRATION

You may transfer the registration of any of your Company shares to another
person by writing to the
Fund c/o ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256. As in the
case of redemptions, the written request must be received in "good order" before
any transfer can be made. Shares held in broker street name may be transferred
only by contacting your Participating Dealer.

VALUATION OF SHARES

Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such class of shares, less all liabilities attributable to such
class of shares, by the total number of outstanding shares of such classes of
shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m., Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.

49
<PAGE>
specific securities. Securities not priced in this manner are valued at the most
recent quoted bid price, or, when stock exchange valuations are used, at the
latest quoted sale price on the day of valuation. If there is no such reported
sale, the latest quoted bid price will be used. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. In the event that amortized cost does not approximate
market value, market prices as determined above will be used. The "amortized
cost" method of valuation does not take into account unrealized gains or losses.
This method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price each Fund would receive if it sold the instrument.

Although the legal rights of Class A, Class B and Class C shares will be
substantially similar, the different expenses borne by each class will result in
different net asset values and dividends. Dividends will differ by approximately
the amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.

PORTFOLIO TRANSACTIONS

The Adviser and each Sub-Adviser selects the brokers or dealers that will
execute the purchases and sales of investment securities for the applicable
Fund. The Adviser and each Sub-Adviser may, consistent with NASD rules, place
portfolio orders with qualified broker-dealers who recommend the applicable Fund
to their clients or who act as agents in the purchase of shares of the Fund for
their clients.

Subject to the overriding objective of obtaining the best execution of
orders, the Adviser and each Sub-Adviser may allocate a portion of the Company's
portfolio brokerage transactions to Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and affiliates of the Adviser and the Sub-Advisers or broker
affiliates of Morgan Stanley under procedures adopted by the Board of Directors.
For such portfolio transactions, the commissions, fees or other remuneration
received by Morgan Stanley or such affiliates must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
for comparable transactions involving similar securities being purchased or sold
during a comparable period of time.

Although the objectives of each Fund described herein is not to invest for
short-term trading, each Fund will seek to take advantage of trading
opportunities as they arise to the extent they are consistent with the Fund's
objectives. Accordingly, investment securities may be sold from time to time
without regard to the length of time they have been held. Each Fund anticipates
that its annual portfolio turnover rate will not exceed 100% under normal
circumstances but market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. High portfolio turnover involves
correspondingly greater transaction costs which will be borne directly by a
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable

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to the shareholders of the Fund. See "Financial Highlights" above for the Fund's
historical portfolio turnover rates.

PERFORMANCE INFORMATION

The Company may from time to time advertise total return of the Funds
described herein. THESE FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" shows what an
investment in a Fund would have earned over a specified period of time (such as
one, three, five or ten years) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period. Total
return does not take into account any federal or state income taxes consequences
to shareholders subject to tax. The Company may also include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.
and Morgan Stanley Capital International.

The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the larger distribution fee charged to Class B shares and Class C
shares.

PERFORMANCE OF INVESTMENT SUB-ADVISERS

MSAM manages portfolios of Morgan Stanley Institutional Fund, Inc. ("MSIF")
which served as models for the Aggressive Equity and Equity Growth Funds.
Similarly, the Value and Mid Cap Growth Funds were modeled after portfolios of
MAS Funds, which are currently managed by MAS. Each portfolio of MSIF (the "MSIF
Portfolios") and MAS Funds (the "MAS Portfolios") has substantially the same
investment objective and policies as its corresponding Fund. In addition, the
Adviser and the Sub-Advisers intend each of the Funds to be managed by the same
personnel and to continue to have closely similar investment strategies,
techniques and characteristics as the corresponding MSIF or MAS Portfolio. Past
investment performance of the MSIF Portfolios and the MAS Portfolios, as shown
in the tables below, may be relevant to your consideration of investment in a
Fund. The investment performance of the MSIF Portfolios or the MAS Portfolios is
not necessarily indicative of future performance of the Funds. Also, the
operating expenses of the Funds will be different from, and may be higher than,
the operating expenses of the corresponding MSIF or MAS Portfolio. The
investment performance of the MSIF Portfolios and MAS Portfolios are provided
merely to indicate the experience of the respective Sub-Advisers in managing
similar investment portfolios.

The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 5.75%
sales charge applicable to purchases of Class A shares of the Funds, (ii) with
respect to Class B shares, to take into account the applicable CDSC that is
imposed if Class B shares of the Funds are redeemed within the year of their
purchase indicated and (iii) with respect to the Class C shares, to take into
account a 1.00% CDSC that is imposed if Class C shares of the Funds are redeemed
within one year of their purchase. The data set forth below under the heading
"Return Without Sales Charge" is not adjusted to take into account such sales
charges.

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<PAGE>
TOTAL RETURN FOR THE MSIF EQUITY GROWTH PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM THE EQUITY GROWTH FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 5 YEARS INCEPTION(1)
- ------------------------------------------------------------ --------- ----------- -----------------
<S> <C> <C> <C>
Class A (of 5.75%).......................................... 22.10% 11.32% 10.50%
Class B (of 5.00%).......................................... 22.85% 15.57% 16.25%
Class C (of 1.00%).......................................... 26.85% 17.07% 14.75%

RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------
<S> <C> <C> <C>
Class A..................................................... 27.85% 17.07% 16.25%
Class B..................................................... 27.85% 17.07% 16.25%
Class C..................................................... 27.85% 17.07% 16.25%
</TABLE>

- --------------

(1) Commenced Operations on April 2, 1991.

The past performance of the MSIF Equity Growth Portfolio is no guarantee of
the future performance of the Equity Growth Fund.

TOTAL RETURN FOR THE MAS FUNDS VALUE PORTFOLIO'S INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE VALUE FUND)
FOR THE PERIOD ENDED NOVEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS INCEPTION(1)
- -------------------------------------------------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Class A (of 5.75%)................................ 21.31% 20.12% 14.90% 17.12%
Class B (of 5.00%)................................ 23.71% 21.41% 15.58% 17.70%
Class C (of 1.00%)................................ 27.71% 21.55% 15.58% 17.70%

RETURN WITHOUT
SALES CHARGE
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................... 28.71% 21.55% 15.58% 17.70%
Class B........................................... 28.71% 21.55% 15.58% 17.70%
Class C........................................... 28.71% 21.55% 15.58% 17.70%
</TABLE>

- --------------

(1) Commenced Operations on November 5, 1984.

The past performance of the MAS Funds Value Portfolio is no guarantee of the
future performance of the Value Fund.

52
<PAGE>
TOTAL RETURN FOR THE MAS FUNDS MID CAP GROWTH PORTFOLIO'S INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE MID CAP FUND)
FOR THE PERIOD ENDED NOVEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH
SALES CHARGE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION(1)
- ------------------------------------------------ --------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Class A (of 5.75%).............................. 15.71% 15.47% N/A 18.75%
Class B (of 5.00%).............................. 17.77% 16.69% N/A 19.81%
Class C (of 1.00%).............................. 21.77% 16.85% N/A 19.81%

RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------
<S> <C> <C> <C> <C>
Class A......................................... 22.77% 16.84% N/A 19.80%
Class B......................................... 22.77% 16.84% N/A 19.80%
Class C......................................... 22.77% 16.84% N/A 19.80%
</TABLE>

- --------------

(1) Commenced Operations on March 30, 1990.

The past performance of the MAS Funds Mid Cap Growth Portfolio is no
guarantee of the future performance of the Mid Cap Growth Fund.

DIVIDENDS AND DISTRIBUTIONS

Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of a Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.

Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Fund, the net income attributable to and the

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<PAGE>
dividends payable on Class B shares and Class C shares of a Fund will be lower
than the net income attributable to and the dividends payable on Class A shares
of the Fund. As a result, the net asset value per share of the classes of a Fund
will differ at times. Expenses of the Company allocated to a particular class of
shares of a Fund will be borne on a pro rata basis by each outstanding share of
that class.

TAXES

TAX STATUS OF THE FUNDS

The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available capital loss carryforward) which is
distributed to its shareholders.

TAX STATUS OF DISTRIBUTIONS

Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.

54
<PAGE>
less than the shareholder's adjusted basis in the redeemed, exchanged or sold
shares. If capital gain distributions have been made with respect to shares that
are sold at a loss after being held for six months or less, then the loss is
treated as a long-term capital loss to the extent of the capital gain
distributions. Shareholders may also be subject to state and local taxes on
distributions from the Funds.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

As of July 7, 1997, the Distributor was presumed to "control" the Value Fund
based solely on its ownership of 25% or more of the outstanding voting shares of
such Fund.

REPORTS TO SHAREHOLDERS

The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.

CUSTODIAN

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Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information -- Custody Arrangements" in the Statement
of Additional Information.

DIVIDEND DISBURSING AND TRANSFER AGENT

ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.

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<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS