<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
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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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DATED JANUARY 2, 1997
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").
3
<PAGE>
The following examples illustrate the expenses that you would pay on a
$1,000 investment, assuming a 5% annual rate of return and redemption at the end
of each time period as indicated, in (i) Class A shares of each listed Fund,
including the maximum 5.75% sales charge, (ii) Class B shares of each such Fund,
which have a CDSC, but no initial sales charge and (iii) Class C shares of each
such Fund, which have a CDSC, but no initial sales charge.
<TABLE>
<CAPTION>
AGGRESSIVE AMERICAN EQUITY 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 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 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 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 Sub-Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY FUNDS:
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
GLOBAL FIXED INCOME FUNDS:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four
highest rating categories of the recognized rating services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
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- 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
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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."
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is described below, together with the
policies the Fund employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. There is no assurance that a Fund will attain its objective. The
investment policies described below are not fundamental policies and may be
changed without shareholder approval. For more information about certain
investment practices of the Funds, see "Additional Information" below and
"Investment Objectives and Policies" in the Statement of Additional Information.
THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund's investment objective is to provide capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity-linked securities. With respect to the Fund, equity and
equity-linked securities include common and preferred stock, convertible
securities, rights and warrants to purchase common stock, equity related options
and futures, and specialty securities, such as ELKS, LYONs and PERCS, of U.S.
and foreign issuers. As a non-diversified portfolio, the Fund can be more
heavily weighted in fewer stocks than a diversified portfolio. See "Investment
Limitations." Under normal circumstances, the Fund will invest at least 65% of
the value of its total assets in equity and equity-linked securities.
Equity-linked securities are derivatives, which are financial instruments that
derive their value from the value of an underlying asset, reference rate or
index.
The 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
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the form of depositary receipts. Investors should recognize that investing in
foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies. The Fund may from time to
time and consistent with applicable legal requirements sell securities short
that it owns (i.e., "against the box") or borrows. The Fund may, to a limited
extent, invest in non-publicly traded securities, private placements and
restricted securities.
The Aggressive Equity Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the 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
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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
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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
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stock, preferred stock, convertible securities, depositary receipts, foreign
equity securities, and rights and warrants to purchase stock. Up to 5% of the
Fund's assets may be invested in foreign equity securities, excluding American
Depositary Receipts ("ADRs").
The 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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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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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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assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing. See "Investment Objectives and Policies -- The
Aggressive Growth Fund" for further information.
The Equity Growth, Mid Cap Growth and Value Funds may borrow money (i) as a
temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of such Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings). These Funds may not
purchase additional securities when borrowings exceed 5% of total assets.
CONVERTIBLE SECURITIES, WARRANTS AND EQUITY-LINKED SECURITIES
Each Fund may invest in convertible securities, preferred stock, warrants or
other securities exchangeable under certain circumstances for shares of common
stock. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
The Aggressive Equity, Equity Growth, Mid Cap Growth and Value Funds may
invest in equity-linked securities, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. It is impossible to predict whether the price of the underlying common
stock will rise or fall. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital markets,
the stock exchanges on which the underlying common stock is traded and the
market segment of which the issuer is a part. In addition, it is not possible to
predict how equity-linked securities will trade in the secondary market which is
fairly developed and liquid. The market for such securities may be shallow,
however, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other Lender. The
creditworthiness of such third party issuer of equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
DEPOSITARY RECEIPTS
Depositary receipts include ADRs, Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such receipts become available. ADRs are securities, typically
issued by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer (the
"underlying issuer") and deposited with the depositary. Each of the Funds, other
than the U.S. Real Estate Fund, may invest in ADRs and the Funds, other than the
American Value and U.S. Real Estate Funds may invest in other depository
receipts. ADRs include American Depositary Shares and New York Shares and may be
"sponsored" or "unsponsored." Sponsored ADRs are established jointly by a
depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts
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are typically issued by foreign depositaries, although they may also be issued
by U.S. depositaries, and evidence ownership interests in a security or pool of
securities issued by either a foreign or a U.S. corporation.
FOREIGN BONDS
The Value and Mid Cap Growth Funds may invest in foreign bonds. Foreign
bonds are fixed income securities denominated in foreign currency and issued and
traded primarily outside the United States, including: (1) obligations issued or
guaranteed by foreign national governments, their agencies, instrumentalities,
or political subdivisions; (2) fixed income securities issued, guaranteed or
sponsored by supranational organizations established or supported by several
national governments, including the World Bank, the European Community, the
Asian Development Bank and others; and (3) non-government foreign corporate debt
securities. Investing in foreign companies involves certain special
considerations that are not typically associated with investing in U.S.
companies. See "Foreign Investment" below.
FOREIGN INVESTMENT
The Funds may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in foreign countries than in the United
States. There may also be less government supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the United States.
Many foreign securities markets have substantially less volume than United
States national securities exchanges, and securities of some foreign issuers are
less liquid and subject to greater price volatility than securities of
comparable domestic issuers. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher than in the United States.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Emerging countries may have less stable political environment than
more developed countries. Also, it may be more difficult to obtain a judgment in
a court outside the United States.
Investments in securities of foreign issuers are frequently denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Funds, other than the U.S. Real Estate Fund, may enter into forward
foreign currency exchange contracts ("forward contracts"). Forward contracts
provide for the purchase or sale of an amount of a specified foreign currency at
a future date. Purposes for which such contracts may be used include protecting
against a
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decline in a foreign currency against the U.S. Dollar between the trade date and
settlement date when a Fund purchases or sells securities, locking in the U.S.
Dollar value of dividends declared on securities held by the Fund and generally
protecting the U.S. Dollar value of securities held by the Fund against exchange
rate fluctuations. While such forward contracts may limit losses to a Fund as a
result of exchange rate fluctuations, they will also limit any exchange rate
gains that might otherwise have been realized.
The Funds, other than the American Value and U.S. Real Estate Funds, may
attempt to accomplish objectives similar to those described above with respect
to forward contracts for currency by means of purchasing put or call options on
foreign currencies on exchanges. A put option gives such Funds the right to sell
a currency at the exercise price until the expiration of the option. A call
option gives the Funds the right to purchase a currency at the exercise price
until the expiration of the option. The Funds may also write covered call
options on foreign currencies for hedging purposes. See "Investment Objectives
and Policies -- Forward Foreign Currency Exchange Contracts" in the Statement of
Additional Information.
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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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
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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
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. It is the current policy of the Aggressive Equity, American
Value and U.S. Real Estate Funds not to enter into when-issued commitments or
delayed delivery securities exceeding, in the aggregate, 15% of the Fund's net
assets other than obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of
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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
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
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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 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 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 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
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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 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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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.
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.
28
<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
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<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.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for each Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each Plan, the Distributor is entitled to receive from these
Funds a distribution fee, which is accrued daily and paid quarterly, at a
maximum rate of 0.75% of the Class B shares and Class C
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
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimum may be waived by the Distributor for plans involving periodic
investments. Shares of the Company may be sold in foreign countries where
permissible. The Company and the Distributor reserve the right to refuse any
order for the purchase of shares. The Company also reserves the right to suspend
the sale of the Company's shares in response to conditions in the securities
markets or for other reasons.
Shares of the Company may be purchased on any business day through
Participating Dealers. Shares may also be purchased by completing the
application accompanying this Prospectus and forwarding the application, through
the Participating Dealer, to the shareholder service agent, ACCESS Investor
Services, Inc., a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("ACCESS"). When purchasing shares of the Company, investors must specify
whether the purchase is for Class A shares, Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class is determined once daily as of the close of trading on the New
York Stock Exchange (the "NYSE") (currently 4:00 p.m., Eastern Time) each day
the NYSE is open. Net asset value per share for each class is determined by
dividing the value of the Fund's securities, cash and other assets (including
accrued interest) attributable to such class less all liabilities (including
accrued expenses) attributable to such class by the total number of shares of
the class outstanding.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the distribution and the higher
transfer agency fees applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order is received by a
Participating Dealer provided such order is transmitted to the Distributor prior
to the Distributor's close of business on such day. Orders received by
Participating Dealers after the close of the NYSE are priced based on the net
asset value calculated after the next day's close provided they are received by
the Distributor prior to the Distributor's close of business on such day. It is
the responsibility of Participating Dealers to transmit orders received by them
to the Distributor so they will be received prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the
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.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contigent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of
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."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth herein.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO
DEALERS
AS % OF AS % OF NET (AS % OF
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- ------------------------------ --------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000............. 5.75 6.10 5.00
$50,000 but less than
$100,000..................... 4.75 4.99 4.00
$100,000 but less than
$250,000..................... 3.75 3.90 3.00
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00 % on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "Purchase of
Shares -- Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or
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.
The Distributor may also pay financial institutions (which may include
banks) and other industry professionals that provide services to facilitate
transactions in shares of the Company for their clients a transaction fee up to
the level of the reallowance allowable to Participating Dealers described
herein. Such financial institutions, other industry professionals and
Participating Dealers are hereinafter referred to as "Service Organizations."
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Company. State
securities laws regarding registration of banks and other financial institutions
may differ from the interpretations of federal law expressed herein and banks
and other financial institutions may be required to register as dealers pursuant
to certain state laws.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.
Investors or their Participating Dealers must notify the Company whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their Participating Dealer or the
Distributor.
A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age, and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account, or a "company" as defined in Section 2(a)(8)
of the 1940 Act.
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.
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
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
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.
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.
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
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.
41
<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.
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
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.
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.
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.
TELEPHONE REDEMPTION REQUESTS. The Company permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Company at (800) 282-4404
or (800) 772-8889 for the hearing impaired, to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. 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
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.
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
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.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the
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.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
substantially similar, the different expenses borne by each class will result in
different net asset values and dividends. Dividends will differ by approximately
the amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
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
50
<PAGE>
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.
51
<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%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------
<S> <C> <C> <C>
Class A..................................................... 27.85% 17.07% 16.25%
Class B..................................................... 27.85% 17.07% 16.25%
Class C..................................................... 27.85% 17.07% 16.25%
</TABLE>
- --------------
(1) Commenced Operations on April 2, 1991.
The past performance of the MSIF Equity Growth Portfolio is no guarantee of
the future performance of the Equity Growth Fund.
TOTAL RETURN FOR THE MAS FUNDS VALUE PORTFOLIO'S INSTITUTIONAL CLASS
(A SEPARATE MUTUAL FUND FROM THE VALUE FUND)
FOR THE PERIOD ENDED NOVEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOAD OF THE FUND)
<TABLE>
<CAPTION>
RETURN WITH 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%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- --------------------------------------------------
<S> <C> <C> <C> <C>
Class A........................................... 28.71% 21.55% 15.58% 17.70%
Class B........................................... 28.71% 21.55% 15.58% 17.70%
Class C........................................... 28.71% 21.55% 15.58% 17.70%
</TABLE>
- --------------
(1) Commenced Operations on November 5, 1984.
The past performance of the MAS Funds Value Portfolio is no guarantee of the
future performance of the Value Fund.
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%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------
<S> <C> <C> <C> <C>
Class A......................................... 22.77% 16.84% N/A 19.80%
Class B......................................... 22.77% 16.84% N/A 19.80%
Class C......................................... 22.77% 16.84% N/A 19.80%
</TABLE>
- --------------
(1) Commenced Operations on March 30, 1990.
The past performance of the MAS Funds Mid Cap Growth Portfolio is no
guarantee of the future performance of the Mid Cap Growth Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
Each of the Equity Growth and Mid Cap Growth Funds expects to distribute
substantially all of its net investment income in the form of annual dividends
and each of the Aggressive Equity, American Value, U.S. Real Estate and Value
Funds expects to distribute substantially all of its net investment income in
the form of quarterly dividends. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of a Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of each Fund, the net income attributable to and the
53
<PAGE>
dividends payable on Class B shares and Class C shares of a Fund will be lower
than the net income attributable to and the dividends payable on Class A shares
of the Fund. As a result, the net asset value per share of the classes of a Fund
will differ at times. Expenses of the Company allocated to a particular class of
shares of a Fund will be borne on a pro rata basis by each outstanding share of
that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
each will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available capital loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable to the
shareholders of the Fund as ordinary income, whether received in cash or in
additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
will qualify for the dividends-received deduction for corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is
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.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUNDS.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund.
As of 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.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
Domestic securities and cash are held by Chase, which is not an affiliate of
the Adviser or the Distributor. Morgan Stanley Trust Company, Brooklyn, New York
("Morgan Stanley Trust"), acts as the Company's custodian for foreign assets
held outside the United States and employs subcustodians who were approved by
the
55
<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.
56
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
AGGRESSIVE EQUITY, AMERICAN VALUE, EQUITY GROWTH, MID CAP GROWTH, U.S.
REAL ESTATE AND VALUE FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
/ / Individual / / Joint Tenants / / Trust / / Gift/Transfer to
Minor / / Other________________________________
NOTE: Joint tenant registration will be as "joint tenants with right of
survivorship" and not as "tenants in common" unless specified. Trust
registrations should specify name of the trust, trustee(s), beneficiary(ies),
and date of trust instrument. Registration for Uniform Gifts/Transfers to Minors
should be in the name of one custodian and one minor and include the state under
which the custodianship is created (using the minor's Social Security Number
("SSN")). For an Individual Retirement Account ("IRA") a different application
is required. Please call ACCESS Investor Services, Inc. ("ACCESS") at
800-282-4404 or your investment dealer to obtain the IRA application.
<TABLE>
<S> <C>
- --------------------------------------------- --------------------------------------------------------------------------
Name(s) (PLEASE PRINT) Social Security Number(s) or Taxpayer Identification Number(s) ("TIN(s)")
- --------------------------------------------- --------------------------------------------------------------------------
Name Telephone Number
- ---------------------------------------------
Address
- ---------------------------------------------
City/State/Zip
</TABLE>
- --------------------------------------------------------------------------------
CONSOLIDATED MAILINGS: If you or your family members own multiple accounts in
the Morgan Stanley Fund, Inc., you can prevent duplicate mailings to your
address by completing this section.
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
FUND SELECTION
- --------------------------------------------------------------------------------
The minimum initial and subsequent investment is $500 and $25, respectively.
Attach a check payable to MORGAN STANLEY FUND, INC. -- Investment Fund name.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Morgan Stanley Aggressive Equity Fund Class A (474) $ Class B (574) $ Class C (674) $
---------- ---------- ----------
Morgan Stanley American Value Fund Class A (453) $ Class B (553) $ Class C (653) $
---------- ---------- ----------
Morgan Stanley Equity Growth Fund Class A (468) $ Class B (568) $ Class C (668) $
---------- ---------- ----------
Morgan Stanley Mid Cap Growth Fund Class A (469) $ Class B (569) $ Class C (669) $
---------- ---------- ----------
Morgan Stanley U.S. Real Estate Fund Class A (457) $ Class B (557) $ Class C (657) $
---------- ---------- ----------
Morgan Stanley Value Fund Class A (467) $ Class B (567) $ Class C (667) $
---------- ---------- ----------
Total Initial Investment: $__________________
</TABLE>
<TABLE>
<S> <C>
NOTE: IF INVESTING BY WIRE, YOU MUST OBTAIN A A. By Mail: Enclosed is a check in the amount of $ -----------------------
BANK WIRE CONTROL NUMBER. TO DO SO, PLEASE payable to Morgan Stanley Fund, Inc.
CALL 800-421-6714. B. By Wire: A bank wire in the amount of $ ----------------------- has been
sent to Morgan Stanley Fund, Inc.
from ------------------------------- -------------------------------
Name of Bank Wire Control Number
</TABLE>
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares of the same class unless
appropriate boxes below are checked:
<TABLE>
<S> <C> <C>
All Dividends are to be / / reinvested / / paid in cash
All Capital Gains are to be / / reinvested / / paid in cash
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT PRIVILEGES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED
You will automatically have telephone exchange and redemption ACCOUNT.
privileges for yourself and your investment dealer and appoint I/We hereby authorize CGFSC to act upon instructions received
ACCESS to act as your agent to act upon instructions received by telephone to withdraw $1,000 or more from my/our account in
by telephone in order to effect such privileges unless you Morgan Stanley Fund, Inc. and wire the amount withdrawn to the
mark one or more of the boxes below: following commercial bank account.
No, I/we do not want: Title on Bank Account
----------------------------------------------------
/ / telephone exchange privileges Name of Bank
/ / telephone redemption privileges -------------------------------------------------------
Bank A.B.A. Number ----------------- Account Number
-----------------
for myself/ourselves or my/our investment dealer.
City/State/Zip
------------------------------------------------------------
I/We further acknowledge that it is my/our responsibility to
read the Prospectus of any Fund into which I/we exchange.
Morgan Stanley Fund, Inc. will mail redemption proceeds to the
name and address in which my/our fund account is registered ATTACH A VOIDED CHECK HERE
unless I check the following box and complete the information
at right. / /
A corporation or partnership must also submit a "Corporate Resolution" or "Certificate of Partnership" indicating the names and
titles of officers authorized to act on its behalf.
The Company and the Company's Transfer Agent will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures include requiring the investor to provide certain personal identification information at
the time an account is opened and prior to effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to provide additional telecopying written instructions of
transaction requests. Neither the Company nor the Transfer Agent will be responsible for any loss, liability, cost or expenses
for following instructions received by telephone that it reasonably believes to be genuine.
</TABLE>
- --------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION (OPTIONAL)
- --------------------------------------------------------------------------------
Fund shareholders together with members of their families, may be entitled to
reduced sales charges with respect to their purchases of Class A shares of Funds
of Morgan Stanley Fund, Inc. sold with an initial sales load ("Funds"). You may
also receive a reduced sales charge by completing the Letter of Intent as set
forth below as provided in the Prospectus of the Morgan Stanley Fund, Inc. (the
"Prospectus"). See the Prospectus for details.
To qualify, you must complete this section, listing all of your accounts
including those in your spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a separate sheet.
I/We qualify for the Rights of Accumulation initial sales charge discount
described in the Prospectus and Statement of Additional Information of Morgan
Stanley Fund, Inc.
/ / I/We own Class A shares of more than one Fund of Morgan Stanley Fund, Inc.
/ / The registration of some of my/our Class A shares differs from that shown
on this application. Listed below are the account number(s) and full
registration(s) in each case.
LIST OF OTHER ACCOUNTS
<TABLE>
<S> <C>
ACCOUNT NUMBER(S) NAME(S) IN WHICH ACCOUNT IS REGISTERED
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
- ------------------------------------------------- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF INTENT (OPTIONAL)
- --------------------------------------------------------------------------------
I/we agree to the Letter of Intent Conditions on the last page of this
application.
I/we intend to invest, within a 13-month period beginning on the date hereof
(initial purchase date) in Class A shares of the Fund purchased hereunder and
the other Fund, an aggregate amount which, together with the value of Class A
shares of any of the Funds then owned by me/us, will equal or exceed the amount
indicated below:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) / / Yes / / No Not Available for
IRAs
- --------------------------------------------------------------------------------
Available to shareholders with account balances of $5,000 or more for
quarterly, semi-annual or annual withdrawals; $10,000 for monthly withdrawals.
I/We hereby authorize ACCESS to redeem the necessary number of shares from
my/our Morgan Stanley Fund, Inc. Account on the designated dates in order to
make the following periodic payments:
/ / Monthly / / Quarterly / / Semiannually / / Annually
(This request for participation in the Systematic Withdrawal Plan must be
received by the 18th day of the month in which you wish withdrawals to begin.
Redemptions of shares to make the payments elected above will occur on the 25th
day of the month prior to payment, or if such day is not a business day, then
the next preceding business day.)
Withdrawal ($25 minimum) from:
<TABLE>
<CAPTION>
Amount of
Fund Name Each Check Or %*
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
- ---------------------------------- Class : ---------- Code : ---------- $ ---------------- --------%
Please make check payable to: Recipient ---------------------------------------------------------
(to be completed only if Street Address ---------------------------------------------------
redemption proceeds to be paid to City, State, Zip Code ---------------------------------------------
other than account holder of
record or mailed to address other
than address of record)
*With the systematic withdrawal plan, a maximum of 12% per year may be withdrawn from Class B accounts
without being subject to a CDSC.
</TABLE>
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (OPTIONAL)
- --------------------------------------------------------------------------------
I/We hereby authorize ACCESS to debit my/our personal checking account on the
designated dates in order to purchase shares in the Funds indicated below at the
applicable public offering price determined on that day.
Start
- ----------------------------------------------
(month, day, year)
Amount of each debit (minimum $25) to be invested as follows:
<TABLE>
<CAPTION>
Fund Name
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
- ---------------------------------------- Class : ---------- Code : ---------- $ -------------------------------
</TABLE>
NOTE: A completed Bank Authorization Form (see below) and a voided personal
check MUST accompany this Automatic Investment Plan application.
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN--BANK AUTHORIZATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- -----------------------------------------
Bank Name Bank Address Bank Account Number
</TABLE>
I/We authorize you, the above named bank, to debit my/our account for amounts
drawn by Access Investor Services, Inc., acting as my/our agent for the purchase
of Shares of Morgan Stanley Fund, Inc. I/We agree that your rights in respect to
each withdrawal shall be the same as if it were a check drawn upon you and
signed by me/us. This authority shall remain in effect until revoked in writing
and received by you. I/We agree that you shall incur no liability when honoring
debits, except a loss due to payments drawn against insufficient funds. I/We
further agree that you will incur no liability to me if you dishonor any such
withdrawal. This will be so even though such dishonor results in the
cancellation of that purchase.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------ ------------------------------------------
Account Holder's Name Joint Account Holder's Name
X ----------------------------------------- ------------- X ----------------------------------------- -------------
Signature Date Signature Date
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS APPLICATION, I/WE HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT
THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT AND THAT AS REQUIRED
BY FEDERAL LAW (PLEASE CHECK APPLICABLE BOXES BELOW):
/ / U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ABOVE ON THIS FORM IS/ARE THE
CORRECT SSN(S) OR TIN(S) AND (2) I/WE ARE NOT SUBJECT TO ANY BACKUP
WITHHOLDING EITHER BECAUSE (A) I/WE ARE EXEMPT FROM BACKUP WITHHOLDING, OR
(B) I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME/US THAT I
AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
/ / IF NO TIN(S) OR SSN(S) HAS/HAVE BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR
INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN
OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE EITHER NUMBER TO
ACCESS WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I/WE FAIL TO
FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A
31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE EITHER NUMBER ON IRS FORM W-9). YOU MAY REQUEST SUCH FORM BY
CALLING ACCESS AT 800-282-4404.
/ / NON-U.S. CITIZEN(S)/TAXPAYER(S):
INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES:_______________
UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT I/WE ARE NOT U.S. CITIZENS OR
RESIDENTS AND I/WE ARE EXEMPT FOREIGN PERSONS AS DEFINED BY THE INTERNAL REVENUE
SERVICE.
I/We represent that I am/we are of legal age and capacity to purchase shares of
the Morgan Stanley Fund, Inc. I/We understand that unless otherwise indicated in
this application, my/our investment dealer and I/we will automatically receive
telephone exchange and redemption privileges and that Morgan Stanley Fund, Inc.
and ACCESS and their directors, officers and employees will not be liable for
any loss, liability, cost or expense incurred for acting upon instructions
believed to be authentic and in accordance with the procedures set forth in the
Prospectus. I/We have received, read and carefully reviewed a copy of the Fund's
current Prospectus and agree to its terms and by signing below I/we acknowledge
that neither the Company nor the Distributor is a bank and that Fund shares are
not backed or guaranteed by any bank or insured by the FDIC.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C>
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
X --------------------------------------------------------------------------------- Date ---------------------
Owner Signature
</TABLE>
Sign exactly as name(s) of registered owner(s) appear(s) above (including legal
title if signing for a corporation, trust custodial account, etc.)
NOTE: THE FOLLOWING SECTION SHOULD BE COMPLETED ONLY IF YOU ARE INVESTING IN THE
MORGAN STANLEY FUND, INC. THROUGH A PARTICIPATING DEALER (AN INVESTMENT
DEALER).
FOR USE BY AUTHORIZED AGENT (PARTICIPATING DEALER) ONLY
We hereby submit this application for the purchase of shares in accordance with
the terms of our selling agreement with Morgan Stanley & Co. Incorporated or Van
Kampen American Capital Distributors, Inc. and with the Prospectus and Statement
of Additional Information of the Company. We agree to notify ACCESS of any
purchases made under the Letter of Intent or Rights of Accumulation.
<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
Investment Dealer's Name Representative's Name
- ------------------------------------------------------- -------------------------------------------------------
Branch Number Representative's Telephone Number
- -------------------------------------------------------
Branch Address
- -------------------------------------------------------
City/State/Zip Code
- ------------------------------------------------------- -------------------------------------------------------
Branch Telephone Number Investment Dealer's Authorized Signature
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE COMPANY OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
-----
Fund Expenses......................................................... 2
Prospectus Summary.................................................... 9
Investment Objectives and Policies.................................... 13
Additional Investment Information..................................... 19
Investment Limitations................................................ 29
Management of the Company............................................. 29
Purchase of Shares.................................................... 35
Shareholder Services.................................................. 43
Redemption of Shares.................................................. 47
Valuation of Shares................................................... 49
Portfolio Transactions................................................ 50
Performance Information............................................... 51
Dividends and Distributions........................................... 53
Taxes................................................................. 54
General Information................................................... 55
Appendix A............................................................ A-1
New Account Application
</TABLE>
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
MORGAN STANLEY
AMERICAN VALUE FUND
MORGAN STANLEY
EQUITY GROWTH FUND
MORGAN STANLEY
MID CAP GROWTH FUND
MORGAN STANLEY
U.S. REAL ESTATE FUND
MORGAN STANLEY
VALUE FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
VAN KAMPEN
AMERICAN
CAPITAL INVESTMENT
ADVISORY CORP.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
