<PAGE>
SUPPLEMENT DATED JULY 1, 1997
TO THE PROSPECTUS DATED JANUARY 2, 1997
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC. (THE "COMPANY")
P.O. BOX 418256
KANSAS CITY, MISSOURI
64141
-------------
The Prospectus is being amended and supplemented to: (i) reflect changes to
the parent of the investment adviser, administrator and the distributor; and
(ii) supersede all prior supplements. The Prospectus is amended and supplemented
as follows:
On May 31, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto, Morgan
Stanley Group Inc. was the parent of Morgan Stanley Asset Management Inc. (the
"Adviser") and Van Kampen American Capital Distributors, Inc. (the
"Distributor"). The Adviser and the Distributor are now subsidiaries of Morgan
Stanley, Dean Witter, Discover & Co.
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED JULY 1, 1997
TO THE PROSPECTUS DATED JANUARY 2, 1997
AS SUPPLEMENTED JUNE 19, 1997
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. (THE "COMPANY")
P.O. BOX 418256
KANSAS CITY, MISSOURI
64141
-------------
The Prospectus is being amended and supplemented to detail the Funds'
revised investment policies with respect to certain derivative instruments. The
Prospectus is amended and supplemented as follows:
--------------
The section entitled "FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS" on
pages 23-24 is deleted.
The section entitled "OPTIONS TRANSACTIONS" on pages 27-28 is deleted.
The section entitled "STRUCTURED INVESTMENTS" on page 29 is deleted.
After the section entitled "ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT
SECURITIES" on page 30, the following sections are inserted:
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 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, other than the Emerging Markets Debt Fund (as described
below), will limit its use of the foregoing derivative instruments for
non-hedging purposes to 33 1/3% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments. In
addition, no Fund, other than the Emerging Markets Debt Fund, will enter
into futures contracts and options on futures contracts to the extent
that the notional value of its outstanding obligations to purchase
securities under such contracts would exceed 20% of its total assets.
The Emerging Markets Debt Fund will limit its use of the foregoing
derivative instruments to 50% of its total assets measured by the
aggregate notional amount of outstanding derivative instruments,
provided that no more than 33 1/3% of its total assets are invested, for
non-hedging purposes, in derivatives other than futures and options on
futures. The Funds' investments in forward foreign currency contracts
and derivatives used for hedging purposes are not subject to the limits
described above.
<PAGE>
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
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
<PAGE>
Adviser, and the extent to which those strategies are used, may depend
on the development of such markets.
The Funds may engage in transactions involving foreign currency
exchange futures contracts. Such contracts involve an obligation to
purchase or sell a specific currency at a specified future date and at a
specified price. The Funds may engage in such transactions to hedge
their respective holdings and commitments against changes in the level
of future currency rates or to adjust their exposure to a particular
currency.
The Funds may engage in transactions in interest rate futures
transactions. Interest rate futures contracts involve an obligation to
purchase or sell a specific debt security, instrument or basket thereof
at a specified future date at a specified price. The value of the
contract rises and falls inversely with changes in interest rates. The
Funds may engage in such transactions to hedge their holdings of debt
instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial
instruments, such as U.S. Government securities, foreign currencies and
certificates of deposit. Such contracts involve an obligation to
purchase or sell a specific security, instrument or basket thereof at a
specified future date at a specified price. Like interest rate futures
contracts, the value of financial futures contracts rises and falls
inversely with changes in interest rates. The Funds may engage in
financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission,
each Fund may enter into futures contracts and options thereon for both
hedging and non-hedging purposes, provided that not more than 5% of such
Fund's total assets at the time of entering the transaction are required
as margin and option premiums to secure obligations under such contracts
relating to non-hedging activities.
Gains and losses on futures contracts and options thereon depend on
the 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 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.
<PAGE>
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 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 options 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, Global Fixed Income 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.
<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 wishes to accept while avoiding or reducing certain
other risks.
SWAPS -- SWAP CONTRACTS
Swaps and Swap Contracts are derivatives in the form of a contract
or other similar instrument in which two parties agree to exchange the
returns generated by a security, instrument, basket thereof or index for
the returns generated by another security, instrument, basket thereof or
index. The payment streams are calculated by reference to a specific
security, 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.
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
<PAGE>
documentation has not yet been fully developed and, accordingly, they
are less liquid than "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.
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED JULY 1, 1997
TO THE PROSPECTUS DATED JANUARY 2, 1997
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC. (THE "COMPANY")
P.O. BOX 418256
KANSAS CITY, MISSOURI
64141
-------------
The Prospectus is being amended and supplemented to: (i) reflect changes to
the parent of the investment adviser, administrator and the distributor; (ii)
clarify descriptions of certain shareholder services; (iii) detail the Funds'
investment policies with respect to certain derivative instruments; (iv) update
the descriptions of the portfolio managers of the Latin American Fund; and (v)
supersede all previous supplements. The Prospectus is amended and supplemented
as follows:
--------------
On May 31, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto, Morgan
Stanley Group Inc. was the parent of Morgan Stanley Asset Management Inc. (the
"Adviser") and Van Kampen American Capital Distributors, Inc. (the
"Distributor"). The Adviser and the Distributor are now subsidiaries of Morgan
Stanley, Dean Witter, Discover & Co.
--------------
The Date of the Prospectuses delivered on or after April 9, 1997 is January
2, 1997, as amended and supplemented April 9, 1997.
--------------
<PAGE>
Under the heading "SHAREHOLDER SERVICES -- SYSTEMATIC WITHDRAWAL PLAN" on
page 53, the first sentence of the second paragraph is deleted and replaced with
the following:
The CDSC on Class B and Class C shares is waived for withdrawals
under the Systematic Withdrawal Plan of a maximum 1% per month, 3% per
quarter, 6% semiannually or 12% annually, of the initial value of a
shareholder's account.
--------------
Under the heading "REDEMPTION OF SHARES -- GENERAL REDEMPTION INFORMATION"
on pages 56-57, the fourth paragraph is deleted and replaced with the following:
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.
--------------
The first paragraph on page 25 is supplemented as follows:
The Board of Directors has determined that, in light of the
increased presence of telecommunications companies in the Latin American
markets, the Fund's ability to achieve its investment objective would be
materially adversely affected if it were not permitted to invest more
than 25% of its assets in securities of companies in the
telecommunications industries of the Latin American countries in which
the Fund invests. In accordance with the Fund's investment restrictions
and as a result of the Board's action, the Fund is required to invest at
least 25% of its total assets in securities of Latin American issuers
engaged in the telecommunications industry. The Fund will remain so
invested until the Board determines that the Fund should invest less
than 25% of its assets in that industry. Because the Fund will have a
more concentrated position in the securities of a single sector within
the Latin American securities markets, the Fund will be subject to
certain risks with respect to these portfolio securities. Market price
movements affecting telecommunications companies and their securities
will have a greater impact on the Fund's performance because of the more
concentrated position in such securities. Telecommunications may be
subject to greater government regulation than many other industries.
Changes in government policies and the need to obtain regulatory
approvals may have a material effect on products and services offered by
telecommunications companies. Technological and structural developments
may adversely affect the profitability of telecommunications companies.
To better control the Fund's exposure to such risks, the Board has
limited investments in telecommunications securities to not more than
40% of the Fund's assets.
--------------
The section entitled "FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS" on
pages 29-30 is deleted.
The section entitled "OPTIONS TRANSACTIONS" on pages 32-33 is deleted.
The section entitled "SWAPS" on page 35 is deleted.
After the section entitled "ZERO COUPONS: PAY-IN-KIND; DEFERRED PAYMENT
SECURITIES" on page 36, the following sections are inserted:
<PAGE>
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 Fund, other than
the Global Equity Fund (as described below), will limit its use of the
foregoing derivative instruments for non-hedging purposes to 33 1/3% of
its total assets measured by the aggregate notional amount of
outstanding derivative instruments. In addition, no Fund, other than the
Global Equity Fund, will enter into futures contracts and options on
futures contracts to the extent that the notional value of its
outstanding obligations to purchase securities under such contracts
would exceed 20% of its total assets. The Global Equity Fund will limit
its use of the foregoing derivative instruments to 50% of its total
assets measured by the aggregate notional amount of outstanding
derivative instruments, provided that no more than 33 1/3% of its total
assets are invested, for non-hedging purposes, in derivatives other than
futures and options on futures. The Funds' investments in forward
foreign currency contracts and derivatives used for hedging purposes are
not subject to the limits described above.
The Funds may use derivatives instruments under a number of
different circumstances to further their investment objectives. The
Funds may use derivatives when doing so provides more liquidity than the
direct purchase of the securities underlying such derivatives. For
example, a Fund may purchase derivatives to quickly gain exposure to a
market in response to changes in the Fund's 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
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.
<PAGE>
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.
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
<PAGE>
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 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 options 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 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
<PAGE>
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 wishes to accept while avoiding or reducing certain
other risks.
SWAPS -- SWAP CONTRACTS
Swaps and Swap Contracts are derivatives in the form of a contract
or other similar instrument in which two parties agree to exchange the
returns generated by a security, instrument, basket thereof or index for
the returns generated by another security, instrument, basket thereof or
index. The payment streams are calculated by reference to a specific
security, 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.
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 than "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
<PAGE>
performance of the Funds would be less favorable than it would have been
if this investment technique were not used.
--------------
Under the heading "MANAGEMENT OF THE COMPANY," the third paragraph on page
39 is deleted and replaced with the following:
LATIN AMERICAN FUND -- ROBERT L. MEYER AND ANDY SKOV. Robert Meyer
and Andy Skov share primary responsibility for managing the Fund's
assets. Robert Meyer joined the Adviser in 1989 and is now a Managing
Director of the Adviser and Morgan Stanley. Born in Argentina, Mr. Meyer
received a B.A. in Economics and Political Science from Yale University
and a J.D. from Harvard Law School. Mr. Meyer is also a Chartered
Financial Analyst. Andy Skov joined the Adviser in 1994 as a Portfolio
Manager. Currently, he is a Vice President of the Adviser. Prior to
joining the Adviser, he worked in the Latin America group at Bankers
Trust in corporate finance, research and sales; two of those years he
spent in Argentina. He graduated from the University of California at
Berkeley with a B.A. (Phi Beta Kappa) in Political Science and Economics
Development.
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED JULY 1, 1997
TO THE PROSPECTUS DATED JANUARY 2, 1997
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY EQUITY GROWTH FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC. (THE "COMPANY")
P.O. BOX 418256
KANSAS CITY, MISSOURI
64141
-------------
The Prospectus is being amended and supplemented to: (i) reflect changes to
the parent of the investment advisers, administrators and the distributor; (ii)
detail the Funds' revised investment policies with respect to certain derivative
instruments; (iii) reflect changes in the portfolio managers of the American
Value and Value Funds; (iv) reflect a clarification in the market
capitalizations of those companies in which the American Value Fund primarily
intends to invest; and (v) supersede all prior supplements. The Prospectus is
amended and supplemented as follows:
--------------
On May 31, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
merged to form Morgan Stanley, Dean Witter, Discover & Co. Prior thereto, Morgan
Stanley Group Inc. was the parent of Morgan Stanley Asset Management Inc. and
Miller Anderson & Sherrerd, LLP (the "Advisers") and Van Kampen American Capital
Distributors, Inc. (the "Distributor). The Advisers and the Distributor are now
subsidiaries of Morgan Stanley, Dean Witter, Discover & Co.
--------------
The second and third sentences of the first paragraph under "THE AMERICAN
VALUE FUND" on page 14 are deleted and replaced with the following:
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 $70 million to
$1 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 section entitled "FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS" on
page 22 is deleted.
The section entitled "OPTIONS TRANSACTIONS" on pages 23-24 is deleted.
The section entitled "SWAPS" on page 26 is deleted.
<PAGE>
After the section entitled "ZERO COUPONS: PAY-IN-KIND; DEFERRED PAYMENT
SECURITIES" on page 27, the following sections are inserted:
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
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
<PAGE>
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 Advisers, and the extent to which those strategies are
used, may depend on the development of such markets.
The Funds may engage in transactions involving foreign currency
exchange futures contracts. Such contracts involve an obligation to
purchase or sell a specific currency at a specified future date and at a
specified price. The Funds may engage in such transactions to hedge
their respective holdings and commitments against changes in the level
of future currency rates or to adjust their exposure to a particular
currency.
The Funds may engage in transactions in interest rate futures
transactions. Interest rate futures contracts involve an obligation to
purchase or sell a specific debt security, instrument or basket thereof
at a specified future date at a specified price. The value of the
contract rises and falls inversely with changes in interest rates. The
Funds may engage in such transactions to hedge their holdings of debt
instruments against future changes in interest rates.
Financial futures are futures contracts relating to financial
instruments, such as U.S. Government securities, foreign currencies and
certificates of deposit. Such contracts involve an obligation to
purchase or sell a specific security, instrument or basket thereof at a
specified future date at a specified price. Like interest rate futures
contracts, the value of financial futures contracts rises and falls
inversely with changes in interest rates. The Funds may engage in
financial futures contracts for hedging and non-hedging purposes.
Under rules adopted by the Commodity Futures Trading Commission,
each Fund may enter into futures contracts and options thereon for both
hedging and non-hedging purposes, provided that not
<PAGE>
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 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 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 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 consideration into the security
or instrument subject to the option, or (iii) a call option on the same
underlying security with a strike price no higher than the price at
which the underlying instrument was sold pursuant to a short option
position.
By writing (or selling) a put option, a Fund incurs an obligation to
buy the security or instrument underlying the option from the purchaser
of the put at the option's exercise price at any time during the option
period, at the purchaser's election. The Funds may also write options
that may be exercisable by the purchaser only on a specific date. A Fund
that has written a put option will earmark or segregate sufficient
liquid assets to cover its obligations under the option or will own a
put option on the same underlying security with an equal or higher
strike price.
The Funds may engage in transactions in options which are traded on
recognized exchanges or over-the-counter. There currently are limited
options markets in many countries, particularly emerging countries, and
the nature of the strategies adopted by the Advisers and the extent to
which
<PAGE>
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 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 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.
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
<PAGE>
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
than "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 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.
--------------
Under the heading "MANAGEMENT OF THE COMPANY" the first paragraph on page 29
is deleted and replaced with the following:
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 Miller
Anderson & Sherrerd, LLP ("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 the Adviser 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.
--------------
On page 30, the first full paragraph is deleted and replaced with the following:
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 President for Merrill Lynch Economics
from 1987 through 1992. He assumed responsibility for the MAS Funds'
Value Portfolio in
<PAGE>
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.
--------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
SUPPLEMENT DATED JULY 1, 1997
TO THE STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 2, 1997
MORGAN STANLEY FUND, INC. (THE "COMPANY")
P.O. BOX 418256
KANSAS CITY, MISSOURI
64141
-------------
The Statement of Additional Information ("SAI") is being amended and
supplemented to: (i) reflect changes to the parent of the investment advisers,
administrators and distributor; (ii) reflect changes in the Company's policies
regarding investments in certain instruments; and (iii) reflect changes in the
Board of Directors and officers of the Company. The SAI is amended and
supplemented as follows:
--------------
Under the section entitled "FUTURES CONTRACTS" on pages 7-8, the first
paragraph is deleted and replaced with the following:
Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security
or a specific currency at a specified future time and at a specified
price. Futures contracts, which are standardized as to maturity date and
underlying financial instrument, index or currency, traded in the United
States are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"), a U.S. Government agency.
On page 7, the first sentence of the third paragraph is deleted and replaced
with the following:
The Funds may purchase and sell indexed financial futures contacts.
On page 7, the first sentence of the fourth paragraph is deleted and
replaced with the following:
The Funds may sell indexed financial futures contracts in
anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might
otherwise result.
--------------
The section entitled "RESTRICTIONS ON THE USE OF FUTURES CONTRACTS" on page
8, is deleted and replaced with the following:
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. None of the Funds will enter
into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds
5% of the market value of its total assets. In addition, none of the 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% (50% for the Mid Cap
Growth, Value, Equity Growth, Emerging Markets Debt and Global Equity Funds)
of its total assets. See also, "Investment Limitations" for further
restrictions applicable to the Funds.
--------------
<PAGE>
Under the section entitled "RISK FACTORS IN FUTURES TRANSACTIONS" on page 8,
the second paragraph is deleted and replaced with the following:
The Funds will minimize the risk that they will be unable to close
out a futures contract by generally entering into futures which are
traded on recognized international or national futures exchanges and for
which there appears to be a liquid secondary market, however, the Funds
may enter into over-the-counter futures transactions to the extent
permitted by applicable law.
--------------
Under the section entitled "OPTIONS ON FOREIGN CURRENCIES" on pages 9-10,
the first sentence of the first paragraph is deleted and replaced with the
following:
The Funds may attempt to accomplish objectives similar to those
described above with respect to forward foreign currency exchange
contracts and futures contracts for currency by means of purchasing put
or call options on foreign currencies on exchanges.
--------------
Under the section entitled "OPTIONS TRANSACTIONS" on page 10, the first
sentence of the first paragraph is deleted and replaced with the following:
The Non-Money Market Funds may write (i.e., sell) covered call
options which give the purchaser the right to buy the underlying
security covered by the option from the Fund at the stated exercise
price.
--------------
On page 21, Category I Funds' non-fundamental investment limitation
no. (1) is deleted and the remaining limitations are renumbered
accordingly.
--------------
On page 23, Category II Funds' non-fundamental policy nos. (1) and
(2) are deleted and the remaining limitations are renumbered
accordingly.
--------------
Under the section entitled "DISTRIBUTION OF FUND SHARES," the last sentence
of the second paragraph is hereby deleted and replaced with the following:
The Plans for the Class A, Class B and Class C shares of the
Non-Money Market Funds were most recently approved by the Company's
Board of Directors, including those directors who are not "interested
persons" of the Company as that term is defined in the 1940 Act and who
have no direct or indirect financial interest in the operation of a Plan
or in any agreements related thereto, on December 12, 1996 and the Plan
for the Money Market Funds was most recently approved at the same
meeting.
--------------
Under the heading "REDEMPTION OF SHARES" on page 20, the following
sub-sections are inserted:
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and
money purchase plans and qualified 401(k) retirement plans and for
investments in the amount of $1,000,000 or more of Class A shares of the
Fund ("Qualified Purchaser"), the front-end sales charge will be waived
and a contingent deferred sales charge ("CDSC -- Class A") of 1.00% is
imposed in the event of certain redemptions within one year of the
purchase. If a CDSC -- Class A is imposed upon redemption, the amount of
the
<PAGE>
CDSC -- Class A will be equal to the lesser of 1.00% of the net asset
value of the shares at the time of purchase or 1.00% of the net asset
value of the shares at the time of redemption.
The CDSC -- Class A will be imposed only if a Qualified Purchaser
redeems an amount which caused the value of the account to fall below
the total dollar amount of purchase payments made by the Qualified
Purchaser without an initial sales charge during the one year period
prior to the redemption. The CDSC -- Class A will be waived in
connection with redemptions by certain Qualified Purchasers (e.g., in
retirement plans qualified under Section 401(a) of the Code and deferred
compensation plans under Section 457 of the Code) required to obtain
funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement or separation from service. No CDSC -- Class A will be
imposed on exchanges between funds. For purposes of the CDSC -- Class A,
when shares of one fund are exchanged for shares of another fund, the
purchase date for the shares of the fund exchanged into will be assumed
to be the date on which shares were purchased in the fund from which the
exchange was made. If the exchanged shares themselves are acquired
through an exchange, the purchase date is assumed to carry over from the
date of the original election to purchase shares subject to a CDSC --
Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the
longest are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net
asset value privilege. Also, in order to establish an amount of
$1,000,000 or more, a Qualified Purchaser may aggregate shares of the
Participating Funds described in the Prospectus.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC --
CLASS B AND C")
As described in the Prospectus under "Redemption of Shares,"
redemptions of Class B shares and Class C shares will be subject to a
CDSC. The CDSC -- Class B and C may be waived on redemptions of Class B
shares and Class C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Fund will waive the CDSC -- Class B and C on redemptions
following the death or disability of a Class B shareholder and Class C
shareholder. An individual will be considered disabled for this purpose
if he or she meets the definition thereof in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (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 death or disability before it determines to waive
the CDSC -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be
waived where the decedent or 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 death
or initial determination of disability. This waiver of the CDSC --
<PAGE>
Class B and C applies to a total or partial redemption, but only to
redemptions of shares held at the time of the death or initial
determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Company will waive the CDSC -- Class B and C when a total or
partial redemption is made in connection with certain distributions from
retirement plans. The charge will be waived upon the tax-free rollover
or transfer of assets to another retirement plan invested in one or more
of the Van Kampen American Capital Funds; in such event, as described
below, the Fund will "tack" the period for which the original shares
were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC --
Class B and C is applicable in the event that such acquired shares are
redeemed following the transfer or rollover. The charge also will be
waived on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code, the
return of excess deferral amounts pursuant to Code Section 401(k)(8) or
402(g)(2), or from the death or disability of the employee (see Code
Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in
accordance with Code Section 401(a)(9).
The Company does not intend to waive the CDSC -- Class B and C for
any distributions from IRAs or other retirement plans not specifically
described above.
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At the Company's May 21, 1997 Board of Directors meeting, the Board
accepted, effective May 31, 1997, the resignation of Warren J. Olsen
and, effective May 21, 1997, the resignation of James R. Rooney.
Accordingly, under the section entitled "MANAGEMENT OF THE COMPANY"
on page 26, the information with respect to Warren J. Olsen is deleted
and on page 27, the information with respect to James R. Rooney is
deleted.
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Under the heading "INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS" on
page 28, the first sentence of the first paragraph is deleted and replaced as
follows:
MSAM is a wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.
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PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
