<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 41826, 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 seven Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
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 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY AFFILIATES
OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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 JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY JAPANESE LATIN
GROWTH MARKETS EQUITY ALLOCATION INTERNATIONAL EQUITY AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND MAGNUM FUND FUND FUND
- ----------------------------------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <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) 5.75%(1)
Class B........................ None None None None None None None
Class C........................ None 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 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) 1.00%(2)
Class B........................ 5.00%(3) 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) 1.00%(4)
Maximum Sales Load Imposed on
Reinvested Dividends
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None None None None None None None
Redemption Fees
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None None None None None None None
Exchange Fees
Class A........................ None None None None None None None
Class B........................ None None None None None None None
Class C........................ None 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 $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>
GLOBAL
ANNUAL FUND OPERATING EXPENSES ASIAN EMERGING GLOBAL EQUITY JAPANESE LATIN
(AS A PERCENTAGE OF AVERAGE NET GROWTH MARKETS EQUITY ALLOCATION INTERNATIONAL EQUITY AMERICAN
ASSETS) FUND FUND FUND FUND MAGNUM FUND FUND FUND
---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee (after
expense reimbursement and/or
fee waiver) (5)
Class A..................... 1.00% 0.84% 1.00% 0.64% 0.80% 0.80% 0.07%
Class B..................... 1.00% 0.84% 1.00% 0.64% 0.80% 0.80% 0.07%
Class C..................... 1.00% 0.84% 1.00% 0.64% 0.80% 0.80% 0.07%
12b-1/Service Fees
Class A (6)................. 0.25% 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% 1.00%
Class C (6)................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense
reimbursement and/or fee
waiver) (5)
Class A..................... 0.63% 1.06% 0.55% 0.81% 0.60% 0.65% 1.78%
Class B..................... 0.63% 1.06% 0.55% 0.81% 0.60% 0.65% 1.78%
Class C..................... 0.63% 1.06% 0.55% 0.81% 0.60% 0.65% 1.78%
Total Operating Expenses (after
expense reimbursement and/or
fee waiver) (5)
Class A..................... 1.88% 2.15% 1.80% 1.70% 1.65% 1.70% 2.10%
Class B..................... 2.63% 2.90% 2.55% 2.45% 2.40% 2.45% 2.85%
Class C..................... 2.63% 2.90% 2.55% 2.45% 2.40% 2.45% 2.85%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds, if necessary, if such fees would cause the total
annual operating expenses of the Funds, as a percentage of average daily net
assets, to exceed the percentages set forth in the table above. The
following sets forth, for each Fund investment advisory fees and expected
total operating expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
INVESTMENT TOTAL
ADVISORY FEES OPERATING EXPENSES
----------------- -------------------------------------
(ALL CLASSES) CLASS A CLASS B CLASS C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Asian Growth Fund.................. 1.00% 1.88% 2.61% 2.63%
Emerging Markets Fund.............. 1.25% 2.56% 3.31% 3.34%
Global Equity Fund................. 1.00% 1.80% 2.55% 2.55%
Global Equity Allocation Fund...... 1.00% 2.06% 2.81% 2.81%
International Magnum Fund.......... .80% 1.70% 2.45% 2.45%
Japanese Equity Fund............... 1.00% 1.90% 2.65% 2.65%
Latin American Fund................ 1.25% 3.28% 3.89% 4.06%
</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
Company 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 a Fund will bear directly or
indirectly. The expenses and fees for the Asian Growth, Emerging Markets, Global
Equity Allocation and Latin American Funds are based on actual figures for the
period ended June 30, 1996. The expenses and fees for the Global Equity,
International Magnum and Japanese Equity Funds are based on estimates. For
purposes of calculating the estimated expenses and fees set forth above, the
table assumes that the Funds' 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>
GLOBAL
ASIAN EMERGING GLOBAL EQUITY JAPANESE LATIN
GROWTH MARKETS EQUITY ALLOCATION INTERNATIONAL EQUITY AMERICAN
SHAREHOLDER TRANSACTION EXPENSES FUND FUND FUND FUND MAGNUM FUND FUND FUND
- -------------------------------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no
redemptions, the expenses are
the same)
1 Year...................... $ 75(1) $ 78(1) $ 75(1) $ 74(1) $ 73(1) $ 74(1) $ 78(1)
3 Years..................... 113 121 111 108 107 108 120
5 Years..................... 153 166 * 144 * * 164
10 Years.................... 265 291 * 247 * * 287
Class B shares
(Assuming complete redemption
at end of period)
1 Year...................... 77 79 76 75 74 75 79
3 Years..................... 112 120 109 106 105 106 118
5 Years..................... 155 168 * 146 * * 165
10 Years (2)................ 279 306 * 261 * * 301
(Assuming no redemption)
1 Year...................... 27 29 26 25 24 25 29
3 Years..................... 82 90 79 76 75 76 88
5 Years..................... 140 153 * 131 * * 150
10 Years (2)................ 279 306 * 261 * * 301
Class C shares
(Assuming complete redemption
immediately prior to the end of
period)
1 Year...................... 37 39 36 35 34 35 39
3 Years..................... 82 90 78 76 75 76 88
5 Years..................... 140 153 * 131 * * 150
10 Years.................... 296 322 * 279 * * 318
Class C shares
(Assuming no redemption)
1 Year...................... 27 29 26 25 24 25 29
3 Years..................... 82 90 79 76 75 76 88
5 Years..................... 140 153 * 131 * * 150
10 Years.................... 296 322 * 279 * * 318
</TABLE>
- ------------------
* Because the Global Equity, International Magnum and Japanese Equity Funds
were either not operational or had recently become operational as of the date
of this Prospectus, the Funds have not projected expenses beyond the
three-year period shown.
(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds listed above which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of
these Funds, aggregate $1 million or more are not subject to an initial
sales charge. A CDSC of 1.00% will be imposed, however, on shares from any
such purchase that are redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Asian Growth, Emerging Markets, Global Equity
Allocation and Latin American 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 highlights for the Class A, Class B and Class C
Shares of the International Magnum Fund are unaudited. The financial statements
are included in the Company's Statement of Additional Information. The foregoing
Funds' financial highlights for the periods presented have been audited by Price
Waterhouse LLP, whose report thereon (which was unqualified) is also included in
the Statement of Additional Information. Additional performance information
about the Company is contained in the Company's Annual Report. The Annual Report
and the financial statements contained therein, along with the Statement of
Additional Information, are available at no cost from the Company at the address
and telephone number noted on the cover page of this Prospectus. The following
information should be read in conjunction with the financial statements and
notes thereto. Financial highlights are not presented for the Global Equity and
Japanese Equity Funds because they had not commenced operations as of June 30,
1996.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
--------------------------------------------------- ----------
JUNE 23, AUGUST 1,
1993* YEAR ENDED YEAR ENDED YEAR ENDED 1995
TO JUNE JUNE 30, JUNE 30, JUNE 30, TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996 30, 1996
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 12.00 $ 12.00 $ 15.50 $ 16.42 $ 16.51
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss....................................... -- (0.03) -- (0.04) (0.03)
Net Realized and Unrealized Gain (Loss)................... -- 3.53 1.43 0.77 0.33
---------- ---------- ---------- ---------- ----------
Total From Investment Operations.......................... -- 3.50 1.43 0.73 0.30
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Realized Gain......................................... -- -- (0.49) -- --
In Excess of Net Realized Gain............................ -- -- (0.02) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions....................................... -- -- (0.51) -- --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.............................. $ 12.00 $ 15.50 $ 16.42 $ 17.15 $ 16.81
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1)............................................ 0.00% 29.17% 9.50% 4.45% 1.82%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)............................ $ 11,770 $ 138,212 $ 178,667 $ 248,009 $ 52,853
Ratio of Expenses to Average Net Assets (2)................. 1.90%** 1.90% 1.90% 1.88% 2.61%**
Ratio of Net Investment Income (Loss) to Average Net Assets
(2)........................................................ (0.81)%** (0.24)% 0.04% (0.16)% (0.52)%**
Portfolio Turnover Rate..................................... 0% 34% 34% 38% 38%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Loss.................. $ 0.01 $ 0.03 -- -- --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 11.83%** 2.17% 1.90% 1.88% 2.61%**
Net Investment Income (Loss) to Average Net Assets........ (10.74)%** (0.51)% 0.04% (0.16)% (0.52)%**
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
-------------------------------------------------------
JUNE 23,
1993* YEAR ENDED YEAR ENDED YEAR ENDED
TO JUNE JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------ -------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 12.00 $ 12.00 $ 15.40 $ 16.19
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss....................................... -- (0.10) (0.12) (0.13)
Net Realized and Unrealized Gain (Loss)................... -- 3.50 1.42 0.72
---------- ---------- ---------- ----------
Total From Investment Operations.......................... -- 3.40 1.30 0.59
---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Realized Gain......................................... -- -- (0.49) --
In Excess of Net Realized Gain............................ -- -- (0.02) --
---------- ---------- ---------- ----------
Total Distributions....................................... -- -- (0.51) --
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.............................. $ 12.00 $ 15.40 $ 16.19 $ 16.78
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN (1)............................................ 0.00% 28.33% 8.71% 3.64%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)............................ $ 8,491 $ 116,889 $ 139,497 $ 168,070
Ratio of Expenses to Average Net Assets (2)................. 2.65%** 2.65% 2.63% 2.63%
Ratio of Net Investment Income (Loss) to Average Net Assets
(2)........................................................ (1.56)%** (0.99)% (0.77)% (0.94)%
Portfolio Turnover Rate..................................... 0% 34% 34% 38%
- ------------------------------------------------------------ -------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Loss.................. $ 0.02 $ 0.03 -- --
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 12.64%** 2.92% 2.65% 2.63%
Net Investment Income (Loss) to Average Net Assets........ (11.55)%** (1.26)% (0.77)% (0.94)%
- ------------------------------------------------------------ -------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Asian Growth 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 1.00%
of the average daily net assets of the Asian Growth Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the Asian
Growth Fund to the extent that the total operating expenses of the Fund
exceed 1.88% of the average daily net assets relating to the Class A shares
and 2.63% of the average daily net assets relating to the Class B and Class
C shares. For the fiscal periods ended June 30, 1994, June 30, 1995 and June
30, 1996, the Adviser waived advisory fees and/or reimbursed expenses
totaling approximately $464,000, $0 and $0, respectively, for the Asian
Growth Fund.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
------------------------ ---------- ------------------------
JULY 6, AUGUST 1, JULY 6,
1994* YEAR ENDED 1995 1994* YEAR ENDED
TO JUNE JUNE 30, TO JUNE TO JUNE JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 30, 1995 1996 30, 1996 30, 1995 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $12.00 $ 10.61 $10.91 $12.00 $10.53
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).................... 0.05 0.05 0.01 -- (0.01)
Net Realized and Unrealized Loss................ (1.44) 1.44 1.02 (1.47) 1.41
---------- ---------- ---------- ---------- ----------
Total From Investment Operations................ (1.39) 1.49 1.03 (1.47) 1.40
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income........................... -- (0.04) -- -- --
In Excess of Net Realized Gain.................. -- --# --# -- --#
---------- ---------- ---------- ---------- ----------
Total Distributions............................. -- (0.04) -- -- --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.................... $10.61 $ 12.06 $11.94 $10.53 $11.93
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1).................................. (11.58)% 14.16% 9.45% (12.25)% 13.30%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s).................. $26,091 $114,850 $10,416 $22,245 $43,601
Ratio of Expenses to Average Net Assets (2)....... 2.33%** 2.16% 2.91%** 3.08%** 2.91%**
Ratio of Net Investment Income (Loss) to Average
Net Assets (2)................................... 0.81%** 0.93% 0.30%** 0.06%** (0.11)%
Portfolio Turnover Rate........................... 32% 42% 42% 32% 42%
- ---------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Income
(Loss)........................................ $ 0.04 $ 0.02 $ 0.02 $ 0.04 $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 3.10%** 2.56% 3.31%** 3.90%** 3.34%
Net Investment Income (Loss) to Average Net
Assets........................................ 0.04%** 0.53% (0.10)%** (0.76)%** (0.54)%
Ratio of Expenses to Average Net Assets Excluding
Country Tax Expense.............................. 2.15%** 2.15% 2.90%** 2.90%** 2.90%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
# Amount less than $0.01 per share.
* Commencement of operations.
** Annualized.
+ The Emerging Markets 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 1.25%
of the average daily net assets of the Emerging Markets Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Emerging Markets Fund to the extent that the total operating expenses of the
Fund exceed 2.15% of the average daily net assets relating to the Class A
shares and 2.90% of the average daily net assets relating to the Class B and
Class C shares. For the fiscal periods ended June 30, 1995 and June 30,
1996, the Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $197,000 and $355,000, respectively for the Emerging Markets
Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
--------------------------------------------------- ----------
JANUARY 4, AUGUST 1,
1993* TO YEAR ENDED YEAR ENDED YEAR ENDED 1995 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1995 1996 1996
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00 $ 11.09 $ 11.99 $ 12.60 $ 13.01
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).............................. 0.04 0.10 0.12 0.19 0.30
Net Realized and Unrealized Gain.......................... 1.05 0.90 0.67 2.82 1.98
---------- ---------- ---------- ---------- ----------
Total From Investment Operations.......................... 1.09 1.00 0.79 3.01 2.28
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income..................................... -- (0.03) -- (0.39) (0.35)
In Excess of Net Investment Income........................ -- -- (0.05) -- --
Net Realized Gain......................................... -- (0.07) (0.13) (0.47) (0.48)
---------- ---------- ---------- ---------- ----------
Total Distributions....................................... -- (0.10) (0.18) (0.86) (0.83)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.09 $ 11.99 $ 12.60 $ 14.75 $ 14.46
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1)............................................ 10.90% 9.02% 6.69% 24.62% 18.08%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)............................ $ 10,434 $ 33,425 $ 42,586 $ 63,706 $ 14,786
Ratio of Expenses to Average Net Assets (2)................. 1.70%** 1.70% 1.70% 1.70% 2.45%**
Ratio of Net Investment Income (Loss) to Average Net Assets
(2)........................................................ 1.04%** 0.98% 1.01% 0.71% 0.45%**
Portfolio Turnover Rate..................................... 14% 30% 39% 44% 44%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income (Loss)......... $ 0.08 $ 0.09 $ 0.04 $ 0.10 $ 0.22
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 3.65%** 2.58% 2.03% 2.06% 2.81%**
Net Investment Income (Loss) to Average Net Assets........ (0.91)%** 0.10% 0.68% 0.35% 0.09%**
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------
JANUARY 4,
1993* TO YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1995 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00 $ 11.05 $ 11.90 $ 12.43
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).............................. 0.01 0.06 0.04 0.12
Net Realized and Unrealized Gain.......................... 1.04 0.86 0.65 2.75
---------- ---------- ---------- ----------
Total From Investment Operations.......................... 1.05 0.92 0.69 2.87
---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income..................................... -- -- -- (0.33)
In Excess of Net Investment Income........................ -- -- (0.03) --
Net Realized Gain......................................... -- (0.07) (0.13) (0.48)
---------- ---------- ---------- ----------
Total Distributions....................................... -- (0.07) (0.16) (0.81)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.05 $ 11.90 $ 12.43 $ 14.49
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN (1)............................................ 10.50% 8.34% 5.84% 23.65%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)............................ $ 6,995 $ 29,892 $ 40,460 $ 63,025
Ratio of Expenses to Average Net Assets (2)................. 2.45%** 2.45% 2.45% 2.45%
Ratio of Net Investment Income (Loss) to Average Net Assets
(2)........................................................ 0.29%** 0.23% 0.25% (0.04)%
Portfolio Turnover Rate..................................... 14% 30% 39% 44%
- ------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income (Loss)......... $ 0.07 $ 0.12 $ 0.05 $ 1.16
Ratios Before Expense Limitation:
Expenses to Average Net Assets............................ 4.40%** 3.34% 2.78% 2.81%
Net Investment Income (Loss) to Average Net Assets........ (1.66)%** (0.66)% (0.08)% (0.40)%
- ------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Global Equity Allocation 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 1.00%
of the average daily net assets of the Global Equity Allocation Fund. The
Adviser has agreed to waive a portion of this fee and/or reimburse expenses
of the Global Equity Allocation Fund to the extent that the total operating
expenses of the Fund exceed 1.70% of the average daily net assets relating
to the Class A shares and 2.45% of the average daily net assets relating to
the Class B and Class C shares. For the fiscal periods ended June 30, 1994,
June 30, 1995 and June 30, 1996, the Adviser waived advisory fees and/or
reimbursed expenses totaling approximately $353,000, $247,000 and $371,000,
respectively, for the Global Equity Allocation Fund.
8
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
INTERNATIONAL MAGNUM FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JULY 1, 1996 TO* JULY 1, 1996 TO* JULY 1, 1996 TO*
SELECTED PER SHARE DATA AND RATIOS NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 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 (Loss)......................... 0.01 (0.02) (0.02)
Net Realized and Unrealized Gain on Investments...... 0.25 0.25 0.24
------- ------- -------
Total From Investment Operations..................... 0.26 0.23 0.22
------- ------- -------
NET ASSET VALUE, END OF PERIOD......................... $ 12.26 $ 12.23 $ 12.22
------- ------- -------
------- ------- -------
TOTAL RETURN (1)....................................... 2.17% 1.92% 1.83%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA...........................
Net Assets, End of Period (000's)...................... $ 4,673 $ 4,906 $ 5,458
Ratio of Expenses to Average Net Assets................ 1.64%** 2.39%** 2.40%
Ratio of Net Investment Income (Loss) to Average Net
Assets................................................ 0.21%** (0.54)%** (0.55)%
Portfolio Turnover Rate................................ 6% 6% 6%
- ---------------------------------------------------------------------------------------------------------------------------------
Average Commission Rate................................ $0.0412 $0.0412 $0.0412
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the
Period
Per Share Benefit to Net Investment Loss............. $ 0.06 $ 0.05 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets....................... 2.98%** 3.73%** 3.73%
Net Investment Loss to Average Net Assets............ (1.13)%** (1.88)%** (1.88)%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations.
** Annualized.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total return for periods of less than one year are not annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
------------------------- ---------- -------------------------
JULY 6, AUGUST 1, JULY 6,
1994* YEAR ENDED 1995 1994* YEAR ENDED
TO JUNE JUNE 30, TO JUNE TO JUNE JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 30, 1995 1996 30, 1996 30, 1995 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 12.00 $ 9.08 $ 9.58 $ 12.00 $ 8.99
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)........................... (0.02) 0.10 0.03 (0.08) 0.04
Net Realized and Unrealized Gain (Loss)................ (2.70) 3.47 2.84 (2.73) 3.40
---------- ---------- ---------- ---------- ----------
Total From Investment Operations....................... (2.72) 3.57 2.87 (2.81) 3.44
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income.................................. -- (0.02) -- -- --
Paid in Capital........................................ (0.20) -- -- (0.20) --
---------- ---------- ---------- ---------- ----------
Total Distributions.................................... (0.20) (0.02) -- (0.20) --
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD........................... $ 9.08 $ 12.63 $ 12.45 $ 8.99 $ 12.43
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1)......................................... (23.07)% 39.35% 29.26% (23.83)% 38.26%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)......................... $ 7,658 $ 18,701 $ 2,041 $ 4,085 $ 6,780
Ratio of Expenses to Average Net Assets (2).............. 2.46%** 2.11% 2.87%** 3.20%** 2.86%
Ratio of Net Investment Income (Loss) to Average Net
Assets (2).............................................. (0.44)%** 1.18% 0.88%** (1.16)%** 0.42%
Portfolio Turnover Rate.................................. 107% 131% 131% 107% 131%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income (Loss)...... $ 0.13 $ 0.09 $ 0.04 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets......................... 4.30%** 3.28% 3.89% 5.20%** 4.06%
Net Investment Income (Loss) to Average Net Assets..... (2.26)%** 0.01% (0.14)%** (3.16)%** (0.78)%
Ratio of Expenses to Average Net Assets Excluding Country
Tax Expense............................................. 2.10%** 2.10% 2.85%** 2.85%** 2.85%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Latin American 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 1.25%
of the average daily net assets of the Latin American Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the Latin
American Fund to the extent that the total operating expenses of the Fund
exceed 2.10% of the average daily net assets relating to the Class A shares
and 2.85% of the average daily net assets relating to the Class B and Class
C shares. For the fiscal periods ended June 30, 1995 and June 30, 1996, the
Adviser waived advisory fees and/or reimbursed expenses totaling
approximately $165,000 and $206,000, respectively, for the Latin American
Fund.
10
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two Funds which are designed to
offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, are not included in the Funds named below. The investment
objective of each Fund described in this Prospectus is as follows:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including
U.S. issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
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 the Company's other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
11
<PAGE>
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH FUND seeks to achieve long-term capital growth by
investing primarily in common stocks and other equity securities of
smaller and medium size companies which are deemed by the Adviser to offer
long-term growth potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
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.
12
<PAGE>
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal taxes as is consistent with
maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI") which, together with its affiliated asset management companies, had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." On October 31, 1996,
MSGI purchased the parent company of Van Kampen American Capital, Inc., which in
turn is the parent company of VKAC Distributors. Van Kampen American Capital,
Inc. is the fourth largest non-proprietary mutual fund provider in the United
States with approximately $59 billion in assets under management or supervision
as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers. Securities of foreign issuers are subject to
certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Asian Growth, Emerging Markets, Latin American and
International Magnum Funds invest in securities of issuers located in developing
or emerging market countries, which may impose greater liquidity risks and other
risks not typically associated with investing in the more established markets of
developed countries. Investments in such emerging markets may be in small- to
medium-sized companies, which are more vulnerable to risks than larger
corporations, including a higher degree of liquidity, financial, price
volatility and other risks than investments in the securities of larger
corporations. The Emerging Markets and Latin American Funds may invest in lower
rated and unrated debt securities (including in the case of the Latin American
Fund, sovereign debt) which are considered speculative in nature and involve a
high degree of risk. The Emerging Markets Fund may invest in equity securities
of Russian companies. The registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally associated
with securities transactions in the United States and other more developed
markets. See "Additional Investment Information -- Russian Securities
Transactions." The Funds may invest in forward foreign currency exchange
contracts, and the Emerging Markets, Global Equity, Latin American and
International Magnum Funds may invest in foreign currency
13
<PAGE>
exchange futures and options. The Emerging Markets, Global Equity, Latin
American and International Magnum Funds may invest in options. The Emerging
Markets and Latin American Funds may engage in short selling. The Latin American
Fund may borrow money for leverage purposes. In addition, each Fund may invest
in repurchase agreements, borrow money, lend its portfolio securities, and
purchase securities on a when-issued or delayed delivery basis. Each Fund may
invest in securities that are neither listed on a stock exchange nor traded
over-the-counter, including private placement securities. Such securities may be
less liquid than publicly traded securities. There are also risks associated
with the non-diversified status of the Emerging Markets, International Magnum
and Latin American Funds. Each of these investment strategies involves specific
risks which are described under "Investment Objectives and Policies" and
"Additional Investment Information" herein and under "Investment Objectives and
Policies" in the Statement of Additional Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value plus an initial sales charge of up to
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 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 the Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $25, except that there is no minimum for automatic reinvestment
of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
14
<PAGE>
INVESTMENT OBJECTIVE 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 Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE ASIAN GROWTH FUND
The investment objective of the Asian Growth Fund is long-term capital
appreciation through investment primarily in equity securities of Asian issuers,
excluding Japan. The production of any current income is incidental to this
objective. The Fund seeks to achieve its objective by investing, under normal
market conditions, at least 65% of the value of its total assets in equity
securities which are traded on recognized stock exchanges of the countries in
Asia described below and in equity securities of companies organized under the
laws of an Asian country whose business is conducted principally in Asia. The
Fund does not intend to invest in securities which are primarily traded in
markets in Japan or in companies organized under the laws of Japan. The Fund may
also invest in sponsored or unsponsored depositary receipts, including American
Depositary Receipts ("ADRs") of Asian issuers that are traded on stock exchanges
in the United States.
The Asian Growth Fund will invest in countries having more established
markets in the Asian region. The Asian countries to be represented in the Fund
will consist of three or more of the following countries: Hong Kong, Singapore,
Malaysia, Thailand, the Philippines and Indonesia. The Fund may also invest in
common stocks traded on markets in China, Taiwan, South Korea, India, Pakistan,
Sri Lanka and other developing markets that are open to foreign investment.
There is no requirement that the Fund, at any given time, invest in any one
particular country or in all of the countries listed above or in any other Asian
countries. The Fund has no set policy for allocating investments among the Asian
countries in which it will invest. Allocation of investments among the various
countries will depend on the relative attractiveness of the stocks of issuers in
the respective countries. Government regulation and restrictions in many of the
countries of interest may limit the amount, mode and extent of investment in
companies in such countries.
Under normal circumstances, at least 65% of the total assets of the Asian
Growth Fund will be invested in equity securities of issuers in Asian countries,
excluding Japan. Any remaining assets of the Fund will be kept in any
combination of debt instruments, bills and bonds of governmental entities in
Asia and the U.S., in notes, debentures, and bonds of companies in Asia and in
money market instruments in the U.S. With respect to the Fund, equity securities
include common and preferred stocks, convertible securities, and rights and
warrants to purchase common stocks. Debt securities convertible into common
stocks will be investment grade (rated in one of the four highest rating
categories by an internationally recognized statistical rating organization (an
"NRSRO") or, if unrated will be of comparable quality as determined by the
Adviser under the supervision of the Board of Directors.
The Adviser's approach in selecting investments for the Asian Growth Fund is
oriented to individual stock selection and is value driven. In selecting stocks
for the Fund, the Adviser initially identifies those stocks which it believes to
be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues, and then
15
<PAGE>
evaluates the future value of such stocks by running the results of an in-depth
study of the issuer through a dividend discount model. The Adviser utilizes the
research of a number of sources, including its affiliate in Geneva, Switzerland,
Morgan Stanley Capital International ("MSCI"), in identifying attractive
securities, and applies a number of proprietary screening criteria to identify
those securities it believes to be undervalued. Fund holdings are regularly
reviewed and subjected to fundamental analysis to determine whether they
continue to conform to the Adviser's value criteria. Those which no longer
conform are sold. The Adviser will analyze assets, revenues and earnings of an
issuer. In selecting industries and particular issuers, the Adviser will
evaluate costs of labor and raw materials, access to technology, export of
products and government regulation. Although the Fund seeks to invest in larger
companies, it may invest in small- and medium-sized companies that, in the
Adviser's view, have potential for growth. The Fund may 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 Fund's investments will include
securities of issuers located in developing countries and traded in emerging
markets. These securities pose greater liquidity risks and other risks than
securities of companies located in developed countries and traded in more
established markets.
Although the Asian Growth Fund intends to invest primarily in securities
listed on stock exchanges, it may also invest in securities traded in
over-the-counter markets and, to a limited extent, in non-publicly traded
securities. Securities traded in over-the-counter markets and non-publicly
traded securities pose liquidity risks.
Pending investment or settlement, and for liquidity purposes, the Fund may
invest in domestic, Eurodollar and foreign short-term money market instruments.
For temporary defensive purposes, the Fund may invest in money market
instruments and short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.
Because of the lack of hedging facilities in the currency markets of Asia,
no active currency hedging strategy is anticipated currently. Instead, each
investment will be considered on a total currency adjusted basis with the U.S.
Dollar as a base currency. The Fund may enter into foreign currency exchange
contracts.
For further information about the foregoing and certain additional
investment practices of the Asian Growth Fund, see "Additional Investment
Information" below.
THE EMERGING MARKETS FUND
The investment objective of the Emerging Markets Fund is to provide
long-term capital appreciation by investing primarily in equity securities of
emerging country issuers. Under normal conditions, at least 65% of the Fund's
total assets will be invested in emerging country equity securities. With
respect to the Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. As
used in this Prospectus, the term "emerging country" applies to any country
which, in the opinion of the Adviser, is generally considered to be an emerging
or developing country by the international financial community, including the
International Bank for Reconstruction and Development (more commonly known as
The World Bank) and the International Finance Corporation. There are currently
over 130 countries which, in the opinion of the Adviser, are generally
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most nations located in Western
Europe. Currently, investing in many emerging countries is not feasible or may
16
<PAGE>
involve unacceptable political risks. The Fund will focus its investments on
those emerging market countries in which it believes the economics are
developing strongly and in which the markets are becoming more sophisticated.
The Fund intends to invest primarily in some or all of the following countries:
Argentina
Botswana
Brazil
Chile
China
Colombia
Ghana
Greece
Hong Kong
Hungary
India
Indonesia
Israel
Jamaica
Jordan
Kenya
Malaysia
Mexico
Morocco
Nigeria
Pakistan
Peru
Philippines
Poland
Portugal
Russia
South Africa
South Korea
Sri Lanka
Taiwan
Thailand
Turkey
Venezuela
Zimbabwe
As markets in other countries develop, the Emerging Markets Fund expects to
expand and further diversify the emerging countries in which it invests. The
Fund does not intend to invest in any security in a country where the currency
is not freely convertible to U.S. Dollars, unless the Fund has obtained the
necessary governmental licensing to convert such currency or other appropriately
licensed or sanctioned contractual guarantee to protect such investment against
loss of that currency's external value, or the Fund has a reasonable expectation
at the time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
An emerging country security is one issued by a company that, in the opinion
of the Adviser, has one or more of the following characteristics: (i) its
principal securities trading market is in an emerging country; (ii) alone or on
a consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging countries; or (iii)
it is organized under the laws of, and has a principal office in, an emerging
country. The Adviser will base determinations as to eligibility on publicly
available information and inquiries made to the companies.
To the extent that the Emerging Markets Fund's assets are not invested in
emerging country equity securities, the remainder of the assets may be invested
in (i) debt securities denominated in the currency of an emerging country or
issued or guaranteed by an emerging country company or the government of an
emerging country; (ii) equity or debt securities of corporate or governmental
issuers located in industrialized countries; and (iii) short-term and
medium-term debt securities of the type described below under "Additional
Investment Information -- Temporary Investments." The Fund's assets may be
invested in debt securities when the Fund believes that, based upon factors such
as relative interest rate levels and foreign exchange rates, such debt
securities offer opportunities for long-term capital appreciation. It is likely
that many of the debt securities in which the Fund will invest will be unrated,
and whether or not rated, such securities may have speculative characteristics.
When deemed appropriate by the Adviser, the Fund may invest up to 10% of its
total assets (measured at the time of the investment) in lower quality debt
securities. Lower quality debt securities, also known as "junk bonds," are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than those of higher quality securities and
may decline significantly in periods of general economic
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difficulty, which may follow periods of rising interest rates. Securities in the
lowest quality category may present the risk of default, or may be in default.
For temporary defensive purposes, the Fund may invest in money market
instruments and short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.
The Emerging Markets Fund may invest indirectly in securities of emerging
country issuers through sponsored or unsponsored depositary receipts, including
ADRs. The Fund may also invest in non-publicly traded securities, private
placements and restricted securities.
For further information about the foregoing and certain additional
investment practices of the Emerging Markets Fund, including the particular
risks associated with Russian Securities, see "Additional Investment
Information" below.
THE GLOBAL EQUITY FUND
The Global Equity Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers throughout the world, including U.S.
issuers. Equity securities for this Fund include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. The
Fund may invest in American, global or other types of depositary receipts. The
Fund also may invest in equity-linked securities, such as PERCS, ELKS and LYONs.
The Adviser expects that, under normal circumstances, at least 20% of the Fund's
total assets will be invested in the common stocks of U.S. issuers. The
remainder of the Fund will be invested in issuers located throughout the world,
including those located in emerging markets. At least 65% of the total assets of
the Fund will be invested in equity securities under normal circumstances.
Securities in emerging markets may not be as liquid as those in developed
markets and pose greater risks. See "The Emerging Markets Fund," above for a
discussion of emerging markets. Although the Fund intends to invest primarily in
securities listed on stock exchanges, it will also invest in securities traded
in over-the-counter markets. The 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 Fund invests in money market instruments and short-term and medium-term debt
securities as described below under "Additional Investment Information --
Temporary Investments."
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection, and is value driven. The Adviser initially
identifies those stocks which it believes to be undervalued in relation to the
issuer's assets, cash flow, earnings and revenues, and then evaluates the future
value of such stocks by running the results of an in-depth study of the issuer
through a dividend discount model. The Adviser utilizes the research from a
number of sources, including MSCI, in identifying attractive securities, and
applies a number of proprietary screening criteria to identify those securities
it believes to be undervalued. Fund holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to conform
to the Adviser's value criteria. Securities which no longer conform to such
value criteria are sold.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE GLOBAL EQUITY ALLOCATION FUND
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in equity securities of U.S. and
non-U.S. issuers in accordance with country weightings determined
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by the Adviser and with stock selection within each country designed to
replicate a broad market index. The Fund will, under normal market conditions,
invest at least 65% of the value of its total assets in equity securities of
issuers in at least three different countries. The Adviser utilizes a "top-down"
approach in selecting investments for the Fund that emphasizes country selection
and weighting rather than individual stock selection. This approach reflects the
Adviser's philosophy that a diversified selection of securities representing
exposure to world markets based upon the economic outlook and current valuation
levels for each country is an effective way to maximize the return and minimize
the risk associated with global investment.
The Adviser determines country allocations for the Global Equity Allocation
Fund on an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
other industrialized countries throughout the world that comprise the Morgan
Stanley Capital International World Index. These countries currently are
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, the Netherlands, New Zealand, Norway, Singapore/ Malaysia,
Spain, Sweden, Switzerland, the United Kingdom and the United States. In
addition, the Fund may invest a portion of its assets in emerging country equity
securities, which are described in detail in the discussion of the Emerging
Markets Fund, above. The Adviser intends to use the same criteria as used for
the Emerging Markets Fund in selecting emerging market securities for
investment. The Fund currently intends to invest in some or all of the following
countries: Argentina, Indonesia, Portugal, South Africa, Brazil, Malaysia,
Philippines, Thailand, India, Mexico, South Korea and Turkey.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what the Adviser believes to be a fair value for the stock
market of each country. Discrepancies between actual value and fair value, as
determined by the Adviser, provide an expected return for each stock market. The
expected return is adjusted by currency return expectations derived from the
Adviser's purchasing-power parity exchange rate model to arrive at an expected
total return in U.S. Dollars. The final country allocation decision is then
reached by considering the expected total return in light of various country
specific considerations such as market size, volatility, liquidity and country
risk.
Within a particular country, investments are made through the purchase of
common stocks which, in the aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International ("MSCI") Index for
the particular country. The MSCI Indices measure the performance of stock
markets worldwide. The various MSCI Indices are based on the share prices of
companies listed on the local stock exchange of the specified country or
countries within a specified region. The combined market capitalization of
companies in these indices represent approximately 60 percent of the aggregate
market value of the covered stock exchanges. Companies included in the MSCI
country index replicate the industry composition of the local market and are a
representative sampling of large, medium and small companies, subject to
liquidity. Non-domiciled companies traded on the local exchange and companies
with restricted float due to dominant shareholders or cross-ownership are
avoided. The Adviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Fund. With
respect to the Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. Debt
securities convertible into common stocks will be investment grade (rated in one
of the four highest rating categories by an NRSRO) or, if unrated, will be of
comparable quality as determined by the Adviser under the supervision of the
Board of Directors. Indexation of the Fund's stock selection reduces stock-
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specific risk through diversification and minimizes transaction costs, which can
be substantial in foreign markets.
The Global Equity Allocation Fund will normally purchase common stocks
listed on a major stock exchange in the subject country. The Global Equity
Allocation Fund may 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 as
described below under "Additional Investment Information -- Temporary
Investments."
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE INTERNATIONAL MAGNUM FUND
The investment objective of the International Magnum Fund is to provide
long-term capital appreciation. The production of any current income is
incidental to this objective. The Fund seeks to achieve its objective by
investing primarily in equity securities of non-U.S. issuers in accordance with
the EAFE country (defined below) weightings determined by the Adviser. With
respect to the Fund, equity securities include common and preferred stocks,
convertible securities, and rights and warrants to purchase common stocks. The
equity securities in which the Fund may invest may be denominated in any
currency.
The countries in which the International Magnum Fund will invest are those
comprising the MSCI EAFE Index (the "Index"), which includes Australia, Japan,
New Zealand, most nations located in Western Europe and certain developed
countries in Asia, such as Hong Kong and Singapore (each an "EAFE country," and
collectively the "EAFE countries"). At least 65% of the total assets of the Fund
will be invested in equity securities of issuers in at least three different
EAFE countries under normal circumstances.
By analyzing a variety of macroeconomic and political factors, the Adviser
develops fundamental projections on comparative interest rates, currencies,
corporate profits and economic growth among the various regions represented in
the Index. These projections will be used to establish regional allocation
strategies. Within these regional allocations, the Adviser then selects equity
securities among issuers of a region.
The Adviser's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented to individual stock selection and is
value driven. The Adviser identifies those equity securities which it believes
to be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. In selecting investments, the Adviser utilizes the research of a
number of sources, including MSCI. Fund holdings are regularly reviewed and
subjected to fundamental analysis to determine whether they continue to conform
to the Adviser's investment criteria. Equity securities which no longer conform
to such investment criteria will be sold.
Although the International Magnum Fund intends to invest primarily in equity
securities listed on a stock exchange in an EAFE country, the Fund may invest in
equity securities that are traded over the counter or that are not admitted to
listing on a stock exchange or dealt in on a regulated market. As a result of
the absence of a public trading market, such securities may pose liquidity
risks. The Fund may also invest in private placements or initial public
offerings in the form of oversubscriptions. Such investments generally entail
short-term liquidity risks.
The International Magnum Fund may invest up to 10% of its total assets in
(i) investment funds with investment objectives similar to that of the Fund and
(ii) for temporary purposes, money market funds and
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pooled investment vehicles. If the Fund invests in other investment funds,
stockholders will bear not only their proportionate share of the expenses of the
Fund (including operating expenses and fees of the Investment Adviser), but also
will indirectly bear similar expenses of the underlying investment fund.
Although the International Magnum Fund anticipates being fully invested in
equity securities of EAFE countries, the Fund may invest, under normal
circumstances for cash management purposes, up to 35% of its total assets in
certain short-term (less than twelve months to maturity) and medium-term (not
greater than five years to maturity) debt securities or hold cash. For temporary
defensive purposes, the Fund may invest in money market instruments and short
and medium-term debt securities described below under "Additional Investment
Information -- Temporary Investments."
For further information about the foregoing and certain additional
investment practices of the International Magnum Fund, see "Additional
Investment Information" below.
THE JAPANESE EQUITY FUND
The investment objective of the Japanese Equity Fund is to provide long-term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in equity securities of Japanese issuers. With respect to the Fund,
equity securities include common and preferred stocks, convertible securities,
and rights and warrants to purchase common stocks and depositary receipts.
Under normal conditions, the Japanese Equity Fund will invest at least 80%
of its total assets in securities issued by entities that are organized under
the laws of Japan, entities for which the principal securities trading market is
in Japan, and entities not organized under the laws of Japan but deriving 50% or
more of their revenues or profits from goods produced or sold, investments made,
or services performed in Japan or which have at least 50% of their assets
situated in Japan. These securities may include debt securities (issued by the
Japanese government or by Japanese companies) when the Adviser believes that the
potential for capital appreciation from investment in debt securities equals or
exceeds that available from investment in equity securities. In making
investment decisions, the Adviser will consider, among other factors, the size
of the company, its financial condition, its marketing and technical strengths
and its competitiveness in its industry. All debt securities in which the Fund
may invest will be rated no lower than BBB by Standard & Poor's Ratings Group
("S&P"), Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by Mikuni
Inc. ("Mikuni") (a Japanese rating agency) or, if unrated, of comparable quality
as determined by the Adviser. Securities rated BBB by S&P, Baa by Moody's or BBB
by Mikuni have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments on such securities than would be the case with
higher rated securities. The convertible securities in which the Fund may invest
include bonds, notes, debentures, preferred stocks and other securities
convertible into common stocks and may be fixed-income or zero coupon debt
securities. Prior to their conversion, convertible securities may have
characteristics similar to nonconvertible debt securities.
The Japanese Equity Fund currently intends to focus its investments in
Japanese companies that have an active market for their shares and that the
Adviser believes show a potential for better than average growth. The Fund
anticipates that most equity securities of Japanese companies in which it
invests, either directly or indirectly by means of ADRs or convertible
debentures, will be listed on securities exchanges in Japan. The Fund may also
invest in equity securities of Japanese companies that are traded in an
over-the-counter market.
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The Japanese Equity Fund may also invest up to 20% of its total assets in
cash or short-term government or other short-term prime obligations or
repurchase agreements so that funds may be readily available for general
corporate purposes, including the payment of dividends, redemptions and
operating expenses, for investment in securities through exercise of rights or
otherwise. For temporary defensive purposes, the Fund may invest in money market
instruments and medium-term debt securities as described below under "Additional
Investment Information -- Temporary Investments" below.
For further information about the foregoing and certain additional
investment practices of the Japanese Equity Fund, see "Additional Investment
Information" below.
Investors should consider the following factors inherent in investment in
Japan.
TRADE ISSUES. Because of the concentration of Japanese exports in highly
visible products such as automobiles, machine tools and semiconductors, and the
large trade surpluses ensuing therefrom, Japan is in a difficult phase in its
relation with its trading partners, particularly the U.S., where the trade
imbalance is the greatest. Retaliatory action taken by such trading partners
could affect the ability of Japanese companies to export goods to these
countries, which could negatively impact the value of securities in the Fund.
CURRENCY FACTORS. Over a long period of years, the yen has generally
appreciated in relation to the dollar. The yen's appreciation would add to the
returns of dollars invested through the Fund in Japan. A decline in the value of
the yen would have the opposite effect, adversely affecting the value of the
Fund in dollar terms.
THE JAPANESE STOCK MARKET. Like other stock markets, the Japanese stock
market can be volatile. A decline in the market may have an adverse effect on
the availability of credit and on the value of the substantial stock holdings of
Japanese companies in particular, Japanese banks, insurance companies and other
financial institutions. A decline in the market may contribute to weakness in
Japan's economy. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States. In general, however, reported
net income in Japan is understated relative to U.S. accounting standards. In
addition, Japanese companies have tended historically to have higher growth
rates than U.S. companies, and Japanese interest rates have generally been lower
than in the U.S., both of which factors tend to result in lower discount rates
and higher price-earnings ratios in Japan than in the United States.
THE LATIN AMERICAN FUND
The investment objective of the Latin American Fund is long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily in
equity securities (i) of companies organized in or for which the principal
securities trading market is in Latin America, (ii) denominated in a Latin
American currency issued by companies to finance operations in Latin America, or
(iii) of companies that alone or on a consolidated basis derive 50% or more of
their annual revenues from either goods produced, sales made or services
performed in Latin America (collectively, "Latin American issuers") and by
investing, from time to time, in debt securities issued or guaranteed by a Latin
American government or governmental entity ("Sovereign Debt"). With respect to
the Fund, unless otherwise indicated, Latin America consists of Argentina,
Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic,
Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay,
Peru, Uruguay and Venezuela. Income is not an investment objective or a
consideration in selecting investments.
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Under normal conditions, substantially all, but not less than 80%, of the
Latin American Fund's total assets are invested in equity securities of Latin
American issuers and in Sovereign Debt. With respect to the Fund, equity
securities include common or preferred stocks (including convertible preferred
stock), bonds, notes or debentures convertible into common or preferred stock,
stock purchase warrants or rights, equity interests in trusts or partnerships or
American, global or other types of depositary receipts. Securities in which the
Latin American Fund may invest include those that are neither listed on a stock
exchange nor traded over-the-counter. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities.
The Latin American Fund focuses its investments in listed equity securities
in Argentina, Brazil, Chile and Mexico, the most developed capital markets in
Latin America. The Fund expects, under normal market conditions, to have at
least 55% of its total assets invested in listed equity securities of issuers in
these four countries. In addition, the Fund actively invests in markets in other
Latin American countries such as Colombia, Peru and Venezuela. The Fund is not
limited in the extent to which it may invest in any Latin American country and
intends to invest opportunistically as markets develop. The portion of the
Fund's holdings in any Latin American country will vary from time to time,
although the portion of the Fund's assets invested in Chile may tend to vary
less than the portions invested in other Latin American countries because, with
limited exceptions, capital invested in Chile currently cannot be repatriated
for one year.
The securities markets of Latin American countries are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many Latin American issuers
may be held by a limited number of persons, which may limit the number of shares
available for investment by the Fund. A limited number of issuers in most, if
not all, Latin American securities markets may represent a disproportionately
large percentage of market capitalization and trading value. The limited
liquidity of Latin American securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. In addition, certain Latin American securities markets, including those
of Argentina, Brazil, Chile and Mexico, are susceptible to being influenced by
large investors trading significant blocks of securities or by large
dispositions of securities resulting from the failure to meet margin calls when
due.
In addition to their smaller size, lesser liquidity and greater volatility,
Latin American securities markets are less developed than U.S. securities
markets. Disclosure and regulatory standards are in many respects less stringent
than U.S. standards. Furthermore, there is a low level of monitoring and
regulation of the markets and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited. Consequently,
the prices at which the Fund may acquire investments may be affected by other
market participants' anticipation of the Fund's investing, by trading by persons
with material non-public information and by securities transactions by brokers
in anticipation of transactions by the Fund in particular securities.
Commissions and other transaction costs on most, if not all, Latin American
securities exchanges are generally higher than in the United States, although
the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions.
The governments of some Latin American countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatization"). The Adviser believes that
privatization may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Fund in privatization in
appropriate circumstances. In certain Latin American countries, the ability of
foreign entities, such as the Fund, to participate in privatization may be
limited by local law, or the terms on which the Fund may
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be permitted to participate may be less advantageous than those for local
investors. There can be no assurance that Latin American governments will
continue to sell companies currently owned or controlled by them or that any
privatization programs in which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use Sovereign Debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Adviser
will evaluate opportunities to enter into debt conversion transactions as they
arise.
To the extent that the Latin American Fund's assets are not invested in
equity securities of Latin American issuers or in Sovereign Debt, the remainder
of the assets may be invested in (i) debt securities of Latin American corporate
issuers, (ii) equity or debt securities of corporate or governmental issuers
located in countries outside Latin America, and (iii) short-term and medium-term
debt securities of the type described below under "Temporary Investments." The
Fund's assets may be invested in debt securities when the Fund believes that,
based upon factors such as relative interest rate levels and foreign exchange
rates, such debt securities offer opportunities for long-term capital
appreciation. It is likely that many of the debt securities in which the Fund
will invest will be unrated. The Fund may invest up to 20% of its total assets
in securities that are determined by the Adviser to be comparable to securities
rated below investment grade by S&P or Moody's. Such lower-quality securities
are regarded as being predominantly speculative and involve significant risks.
The Latin American Fund's holdings of lower-quality debt securities will
consist predominantly of Sovereign Debt, much of which trades at substantial
discounts from face value and which may include Sovereign Debt comparable to
securities rated as low as D by S&P or C by Moody's. The Fund may invest in
Sovereign Debt to hold and trade in appropriate circumstances, as well as to use
to participate in debt for equity conversion programs. The Fund will invest in
Sovereign Debt only when the Fund believes such investments offer opportunities
for long-term capital appreciation. Investment in Sovereign Debt involves a high
degree of risk and such securities are generally considered to be speculative in
nature.
For temporary defensive purposes, the Latin American Fund may invest less
than 80% of its total assets in Latin American equity securities and Sovereign
Debt, in which case the Fund may invest in other equity or debt securities or
may invest in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities or hold
cash. The Fund may enter into forward foreign currency exchange contracts and
foreign currency futures contracts, may purchase and write (sell) put and call
options on securities, foreign currency and on foreign currency futures
contracts, and may enter into stock index and interest rate futures contracts
and options thereon. There currently are limited options and futures markets for
Latin American currencies, securities and indexes, and the nature of the
strategies adopted by the Adviser and the extent to which those strategies are
used depends on the development of those markets. The Fund may also from time to
time lend securities (but not in excess of 20% of its total assets) from its
portfolio to brokers, dealers and financial institutions.
The Latin American Fund will not invest more than 25% of its total assets in
one industry except and to the extent, and only for such period of time as, the
Board of Directors determines in view of the considerations discussed below that
it is appropriate and in the best interest of the Fund and its shareholders to
invest more
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than 25% of the Fund's total assets in companies involved in the
telecommunications industry. Since the securities markets of Latin American
countries are emerging markets characterized by a relatively small number of
issues, it is possible that one or more markets may on occasion be dominated by
issues of companies engaged in the telecommunications industry. In addition, it
is possible that government privatization in certain Latin American countries,
which currently represent a primary source of new issues in many Latin American
markets and often represent attractive investment opportunities, will occur in
that industry. As a result, the Fund has adopted a policy under which it may
invest more than 25% of its total assets in securities of issuers in the
telecommunications industry. The Fund would only take this action if the Board
of Directors determines that the Latin American markets are dominated by
securities of issuers in such industry and that, in light of the anticipated
return, investment quality, availability and liquidity of the issues in the
industry, the Fund's ability to achieve its investment objective would, in light
of its investment policies and limitations, be materially adversely affected if
the Fund were not able to invest greater than 25% of its total assets in the
telecommunications industry. In the event that the Board of Directors permits
greater than 25% of the Fund's total assets to be invested in the
telecommunications industry, the Fund may be exposed to increased investment
risks peculiar to that industry. The Fund will notify its shareholders of any
decision by the Board of Directors to permit (or cease) investments of more than
25% of the Fund's total assets in the telecommunications industry. Such notice
will, to the extent applicable, include a discussion of any increased investment
risks peculiar to such industry to which the Fund may be exposed.
The Latin American Fund is authorized to borrow up to 33 1/3% of its total
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing, for investment purposes to increase the opportunity
for greater return and for payment of dividends. Such borrowings would
constitute leverage, which is a speculative characteristic. Leveraging will
magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.
The Latin American 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.
The Latin American Fund may also enter into reverse repurchase agreements.
For further information about the foregoing and certain additional
investment practices of the Latin American Fund, see "Additional Investment
Information" below.
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ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Equity Allocation, Asian Growth, Emerging Markets, International
Magnum, and Japanese Equity 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
Latin American Fund may enter into reverse repurchase agreements in accordance
with its investment objective and policies and borrow amounts up to 33 1/3% of
its total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing. The Global Equity Fund may borrow money
(i) as a temporary measure for extraordinary or emergency purposes, and (ii) in
connection with reverse repurchase agreements, provided that (i) and (ii) in
combination do not exceed 33 1/3% of the Fund's total assets (including the
amount borrowed) less liabilities (exclusive of borrowings) and, further, that
the Fund may not purchase additional securities when borrowings exceed 5% of its
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 Global Equity Fund 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
The Asian Growth, Emerging Markets, Global Equity, Japanese Equity and Latin
American Funds may invest in depositary receipts, including ADRs, Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") and other
depositary receipts, to the extent that such depositary receipts become
available. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer (the "underlying issuer") and deposited
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with the depositary. ADRs include American Depositary Shares and New York Shares
and may be "sponsored" or "unsponsored." Sponsored ADRs are established jointly
by a depositary and the underlying issuer, whereas unsponsored ADRs may be
established by a depositary without participation by the underlying issuer.
GDRs, EDRs and other types of depositary receipts are typically issued by
foreign depositaries, although they may also be issued by U.S. depositaries, and
evidence ownership interests in a security or pool of securities issued by
either a foreign or a U.S. corporation.
Holders of unsponsored depositary receipts generally bear all the costs
associated with establishing the unsponsored depositary receipt. The depositary
of an unsponsored depositary receipt is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through to the holders of the unsponsored depositary receipt voting rights with
respect to the deposited securities or pool of securities. Depositary receipts
are not necessarily denominated in the same currency as the underlying
securities to which they may be connected. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the United States. The Funds may invest in sponsored and unsponsored
depositary receipts. For purposes of the Funds' investment policies, a Fund's
investments in depositary receipts will be deemed to be investments in the
underlying securities.
FOREIGN CURRENCY HEDGING TRANSACTIONS
The Funds may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S. Dollar between the trade date and settlement date when a Fund
purchases or sells securities, locking in the U.S. Dollar value of dividends
declared on securities held by the Fund and generally protecting the U.S. Dollar
value of securities held by the Fund against exchange rate fluctuations. While
such forward contracts may limit losses to a Fund as a result of exchange rate
fluctuations, they will also limit any exchange rate gains that might otherwise
have been realized.
The Emerging Markets, Latin American and International Magnum Funds may also
enter into foreign currency futures contracts. A foreign currency futures
contract is a standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at the time of the
contract. Foreign currency futures contracts traded in the U.S. are traded on
regulated exchanges. Parties to a futures contract must make initial "margin"
deposits to secure performance of the contract, which generally range from 2% to
5% of the contract price. There also are requirements to make "variation" margin
deposits as the value of the futures contract fluctuates. Such Funds may not
enter into foreign currency futures contracts if the aggregate amount of initial
margin deposits on a Fund's futures positions, including stock index futures
contracts and, in the case of the Latin American Fund, interest rate futures
contracts (which are discussed below), would exceed 5% of the value of the
Fund's total assets. The Funds also will be required to segregate assets to
cover their futures contracts obligations.
At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. The Funds will only enter into
such a forward or futures
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contract if it is expected that there will be a liquid market in which to close
out such contract. There can, however, be no assurance that such a liquid market
will exist in which to close a forward or futures contract, in which case a Fund
may suffer a loss.
The Emerging Markets, Latin American and International Magnum Funds may
attempt to accomplish objectives similar to those described above with respect
to forward and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges. A put option gives such Funds the
right to sell a currency at the exercise price until the expiration of the
option. A call option gives the Fund the right to purchase a currency at the
exercise price until the expiration of the option.
Each Fund's custodian will place cash or other liquid assets into a
segregated account of the Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts.
FOREIGN INVESTMENT
Each of 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 U.S.
national securities exchanges, and securities of some foreign issuers are less
liquid and subject to greater price volatility than securities of comparable
domestic issuers. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. Dividends
and interest paid by foreign issuers may be subject to withholding and other
foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Funds by domestic companies.
Additional risks include future adverse political and economic developments, the
possibility that a foreign jurisdiction might impose or change withholding taxes
on income payable with respect to foreign securities, possible seizure,
nationalization or expropriation of the foreign issuer or foreign deposits, and
the possible adoption of foreign governmental restrictions such as exchange
controls. Also, it may be more difficult to obtain a judgment in a court outside
the United States. Emerging countries may have less stable political
environments than more developed countries.
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.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Emerging Markets, Global Equity, International Magnum and Latin American Funds
may utilize appropriate securities index futures contracts and options on
futures contracts, including securities index futures contracts and options on
securities index futures contracts and the Latin American Fund may utilize
appropriate interest rate futures contracts and options on interest rate futures
contracts. Because transaction costs associated with futures and options may be
lower than the costs of investing in securities directly, it is expected that
the use of index futures and options to facilitate cash flows may reduce each
Fund's overall transaction costs. The Funds may sell indexed financial futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When a Fund is not fully invested and the Adviser anticipates a
significant market advance, it may purchase stock index futures in order to gain
rapid market exposure that may in part or entirely offset increases in the cost
of securities that it intends to purchase. In a substantial majority of these
transactions, the Fund will purchase such securities upon termination of the
futures position but, under unusual market conditions, a futures position may be
terminated without the corresponding purchase of securities. The Funds will
engage in futures and options on futures transactions only for hedging purposes.
The Global Equity and International Magnum Funds will engage only in
transactions in securities index futures contracts, interest rate futures
contracts and options thereon which are traded on a recognized securities or
futures exchange. There currently are limited securities index futures, interest
rate futures and options on such futures markets in many countries, particularly
emerging countries such as Latin American countries, and the nature of the
strategies adopted by the Adviser, and the extent to which those strategies are
used, will depend on the development of such markets.
The Emerging Markets, Latin American and International Magnum Funds may
enter into futures contracts and options thereon provided that not more than 5%
of such Funds' total assets at the time of entering the transaction are required
as deposits to secure obligations under such contracts. Furthermore, no more
than 20% of the Emerging Markets, International Magnum or Latin American Fund's
total assets, in the aggregate, may be invested in futures contracts and options
on futures contracts. The Global Equity Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under such contracts, in combination with its outstanding obligations with
respect to options transactions, would exceed 50% of its total assets.
Gains and losses on futures and options depend on the Adviser's ability to
predict correctly the direction of securities prices, interest rates and other
economic factors. Other risks associated with the use of futures and options are
(i) imperfect correlation between the change in market value of the securities
held by a Fund and the prices of futures and options relating to the stocks
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 which could have an adverse impact on the Fund's ability to hedge. The
risk of loss in trading on futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. In the opinion of the Directors,
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 secondary market.
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INVESTMENT COMPANIES
A Fund may invest in securities of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the 1940 Act.
Some emerging market countries have laws and regulations that currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging market countries through investment funds which have been specifically
authorized. Certain of the Funds may invest in these as well as other investment
companies, subject to applicable provisions of the Investment Company Act of
1940, as amended, (the "1940 Act") and other applicable laws. If a Fund invests
in such investment companies, the Fund's shareholders will bear not only their
proportionate share of the expenses of the Fund (including operating expenses
and the fees of the Adviser), but also will indirectly bear similar expenses of
the underlying investment funds.
Certain of the investment companies referred to in the preceding paragraph
are advised by the Adviser. A Fund may, to the extent permitted under the 1940
Act and other applicable law, invest in these investment companies. If the Fund
does elect to make an investment in such an investment company, it will only
purchase the securities of such investment company in the secondary market.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio 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 Funds will not enter
into securities loan transactions exceeding in the aggregate 33 1/3% of the
market value of a Fund's total assets (exceeding in the aggregate 20% of such
value with respect to the Latin American Fund). 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.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets and Latin American Funds may invest in lower rated or
unrated debt securities, commonly referred to as "junk bonds." In addition, the
emerging country debt securities in which such Funds may invest are subject to
risk and will not be required to meet a minimum rating standard and may not be
rated. Fixed income securities are subject to the risk of an issuer's inability
to meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates. The market values of fixed-income securities tend to vary
inversely with the level of interest rates. Yields and market values of lower
rated and unrated debt securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Fluctuations in the value of a Fund's investments will be reflected in the
Fund's net asset value per share. The Adviser considers both credit risk and
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market risk in making investment decisions for a Fund. Investors should
carefully consider the relative risks of investing in lower rated and unrated
debt securities and understand that such securities are not generally meant for
short-term investing.
The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for international and emerging country
debt securities. Such disruptions may severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity. In addition, the secondary market for
lower rated and unrated debt securities, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market for more highly
rated securities. As a result, the Adviser could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. In addition, there may be limited trading
markets for debt securities of issuers located in emerging countries. Prices
realized upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating a Fund's net
asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect a
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, a Fund may have
to replace the security with a lower yielding security, resulting in a decreased
return for investors. If a Fund experiences unexpected net redemptions, it may
be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of lower rated and unrated debt securities.
MONEY MARKET INSTRUMENTS
Each Fund is permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective to the extent
practical. The Funds may make money market investments pending other investment
or settlement for liquidity or in adverse market conditions. The money market
investments permitted for the Funds include obligations of the U.S. Government,
its agencies and instrumentalities, obligations of foreign sovereignties and
other debt securities, including high-grade commercial paper, repurchase
agreements and bank obligations, such as bankers' acceptances and certificates
of deposit (including Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund, except the Japanese Equity Fund, may invest in securities that
are neither listed on a stock exchange nor traded over the counter. Such
unlisted securities may involve a higher degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in
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privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Funds or less than what may be considered
the fair value of such securities. Furthermore, companies whose securities are
not publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, a Fund may be
required to bear the expenses of registration. A Fund may not invest more than
15% of its net assets in illiquid securities nor, with the exception of the
Global Equity Fund, 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 ("Rule
144A Securities") may be determined to be liquid under guidelines adopted by,
and subject to the supervision of, the Board of Directors. Rule 144A securities
may become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
OPTIONS TRANSACTIONS
Each of the Emerging Markets, Global Equity, Latin American and
International Magnum Funds may seek to increase their return or may hedge all or
a portion of their portfolio investments through options with respect to
securities in which such Funds may invest. A Fund may also purchase put or call
options on individual securities or baskets of securities. When a Fund purchases
a call option it acquires the right to buy a designated security at a designated
price (the "exercise price"), and when the Fund purchases a put option it
acquires the right to sell a designated security at the exercise price, in each
case on or before a specified date (the "termination date"), usually not more
than nine months from the date the option is issued.
A Fund may write (i.e., sell) covered call options which give the purchaser
the right to buy the underlying security covered by the option from the Fund at
the stated exercise price. A Fund will receive a premium from writing call
options, which increases the Fund's return on the underlying security in the
event the option expires unexercised or is closed out at a profit. By writing a
call option, a Fund will limit its opportunity to profit from an increase in the
market value of the underlying security above the exercise price of the option
for as long as the Fund's obligation as writer of the option continues. A Fund
may also write (i.e., sell) covered put options. By selling a covered put
option, the Fund incurs an obligation to buy the security 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 (certain options written by the
Fund will be exercisable by the purchaser only on a specific date).
The Funds will engage in transactions in options only which are traded on a
recognized securities or futures exchange. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets. The Global Equity Fund may also engage in over-the-counter
options ("OTC Options") transactions. OTC Options are purchased from or sold to
securities dealers, financial institutions or other parties ("Counterparties")
through direct bilateral agreement with the Counterparty.
The Global Equity Fund may invest in options to the extent that their
outstanding obligations to purchase securities under such options in combination
with their outstanding obligations with respect to futures transactions do not
exceed 50% of their total assets, and will maintain assets sufficient to meet
their obligations under such contracts in a segregated account with the
custodian or will otherwise comply with the SEC's position on
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asset coverage. As a matter of operating policy, the value of the underlying
securities on which options will be written at any one time will not exceed 5%
of the total assets of the Funds other than the Global Equity Fund.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with investment dealers or
financial institutions that meet the credit guidelines of the Company's Board of
Directors. In a repurchase agreement, a Fund buys a security from a seller that
has agreed to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. The term of these
agreements is usually from overnight to one week and never exceeds one year. A
repurchase agreement may be viewed as a fully collateralized loan of money by a
Fund to the seller. The Funds always receive securities as collateral with a
market value at least equal to the purchase price, including accrued interest,
and this value is maintained during the term of the agreement. If the seller
defaults and the collateral value declines, a Fund might incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, the Fund's
realization upon the collateral may be delayed or limited. Repurchase agreements
with durations (or maturities) over seven days in length are considered to be
illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Latin American and Global Equity 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 the Fund. The Fund's investment of the proceeds of a reverse
repurchase agreement is the speculative factor known as leverage. The 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. The Fund will maintain with the appropriate custodian a
separate account with a segregated portfolio of cash or liquid assets in an
amount at least equal to its purchase obligations under these agreements
(including accrued interest). If interest rates rise during a reverse repurchase
agreement, it may adversely affect the 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.
RUSSIAN SECURITIES TRANSACTIONS
The Emerging Markets Fund may invest in equity securities of Russian
companies. The registration, clearing and settlement of securities transactions
in Russia are subject to significant risks not normally associated with
securities transactions in the United States and other more developed markets.
Ownership of shares in Russian companies is evidenced by entries in a company's
share register (except where shares are held through depositories that meet the
requirements of the 1940 Act) and the issuance of extracts from the register or,
in certain limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable
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and the Fund could possibly lose its registration through oversight, negligence
or fraud. Moreover, Russia lacks a centralized registry to record securities
transactions and registrars located throughout Russia or the companies
themselves maintain share registers. Registrars are under no obligation to
provide extracts to potential purchasers in a timely manner or at all and are
not necessarily subject to effective state supervision. In addition, while
registrars are liable under law for losses resulting from their errors, it may
be difficult for the Fund to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration. Although Russian companies with more than 1,000 shareholders are
required by law to employ an independent company to maintain share registers, in
practice, such companies have not always followed this law. Because of this lack
of independence of registrars, management of a Russian company may be able to
exert considerable influence over who can purchase and sell the company's shares
by illegally instructing the registrar to refuse to record transactions on the
share register. Furthermore, these practices may prevent the Fund from investing
in the securities of certain Russian companies deemed suitable by the Adviser
and could cause a delay in the sale of Russian securities by the Fund if the
company deems a purchaser unsuitable, which may expose the Fund to potential
loss on its investment.
In light of the risks described above, the Board of Directors of the
Emerging Markets Fund has approved certain procedures concerning the Fund's
investments in Russian securities. Among these procedures is a requirement that
the Fund will not invest in the securities of a Russian company unless that
issuer's registrar has entered into a contract with the Fund's sub-custodian
containing certain protective conditions, including, among other things, the
sub-custodian's right to conduct regular share confirmations on behalf of the
Fund. This requirement will likely have the effect of precluding investments in
certain Russian companies that the Fund would otherwise make.
SHORT SALES
The Emerging Markets and Latin American Funds may from time to time sell
securities short without limitation, although neither of such Funds intends 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 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, the Fund will place in a segregated
account with the appropriate 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.
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SWAPS
Swaps are derivatives in the form of a contract or other similar instrument
which is an agreement to exchange the return generated by one instrument for the
return generated by another instrument. The payment streams are calculated by
reference to a specified index and agreed upon notional amount. The term
"specified index" includes, but is 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). The currency swaps in which a Fund 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.
Funds 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, with the Funds
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 other liquid assets. 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 interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps usually 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 is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique was not used.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies" above for further information about each Fund's policies.
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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. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment but will take place no more than 120 days after the
trade date. Each Fund will maintain with the appropriate Custodian a separate
account with a segregated portfolio of cash or liquid securities in an amount at
least equal to these commitments. The payment obligation and the interest rates
that will be received are each fixed at the time a Fund enters into the
commitment, and no interest accrues to the Fund until settlement. Thus, it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. It is a current policy of each of the Funds, other than the Global
Equity Fund, not to enter into when-issued commitments or delayed delivery
securities exceeding, in the aggregate, 15% of a Fund's net assets other than
the obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because the 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. The Fund
accrues income with respect to these securities prior to the receipt of cash
payments. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Deferred payment securities
are securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
INVESTMENT LIMITATIONS
Each Fund, except the Emerging Markets, Latin American and International
Magnum Funds, is a diversified investment company under the 1940 Act, and is
subject to the following limitations as to 75% of its total assets: (a) the Fund
may not invest more than 5% of its total assets in the securities of any one
issuer, except obligations of the U.S. Government, and its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. The Emerging Markets, Latin American and
International Magnum Funds are non-diversified investment companies under the
1940 Act, which means that each of such Funds 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 of such Funds 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 of such Funds, however, intends to comply with the
diversification
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<PAGE>
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company.
MANAGEMENT OF THE COMPANY
INVESTMENT ADVISER. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") and, subject to the supervision of the Company's Board of Directors,
makes each of the Fund's investment decisions, arranges for the execution of
portfolio transactions and generally manages each of the Fund's investments. The
Adviser is contractually entitled to receive an advisory fee computed daily and
paid quarterly at the following annual rates for each of the following Funds.
<TABLE>
<S> <C>
Asian Growth Fund.................................................... 1.00%
Emerging Markets Fund................................................ 1.25%
Global Equity Fund................................................... 1.00%
Global Equity Allocation Fund........................................ 1.00%
International Magnum Fund............................................ .80%
Japanese Equity Fund................................................. 1.00%
Latin American Fund.................................................. 1.25%
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause total annual operating expenses of the Fund to exceed the
maximum set forth in "Fund Expenses."
The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.5 billion under active management and $17
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
On October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
ASIAN GROWTH FUND -- EAN WAH CHIN AND SEAH KIAT SENG. Ean Wah Chin is a
Managing Director of the Adviser and Morgan Stanley and is responsible for the
Adviser's regional Asia ex-Japan operations based in Singapore. She has shared
primary management responsibility for the Fund since it commenced operations.
Prior to joining Morgan Stanley in 1986, Ms. Chin spent eight years with the
Monetary Authority of Singapore and the Government of Singapore Investment
Corporation, where she was a portfolio manager on one of the
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<PAGE>
largest portfolios in Asia. Ms. Chin was an ASEAN scholar educated at the
University of Singapore. Seah Kiat Seng joined the Adviser's Singapore office in
1990 as a portfolio manager/analyst specializing in the Southeast Asian markets.
He is currently a Vice President, responsible for investments in Thailand. He
has shared primary management responsibility for the Fund since it commenced
operations. Previously, Kiat Seng worked at Barclays de Zoete Wedd (BZW), where
he was a senior investment analyst who helped pioneer BZW's research effort in
Singapore. Kiat Seng is a Chartered Financial Analyst and a qualified real
estate valuer who has worked for the Singapore Ministry of Finance. He was a
Colombo Plan Scholar educated in New Zealand.
EMERGING MARKETS FUND -- MADHAV DHAR AND MARIANNE L. HAY. Madhav Dhar is a
Managing Director of the Adviser and Morgan Stanley & Co. Incorporated ("Morgan
Stanley"). He joined the Adviser in 1984 to focus on global asset allocation and
investment strategy and now is a co-head of the Adviser's emerging markets
group. Mr. Dhar has been involved in the launching of the Adviser's country
funds. He is a portfolio manager of the Emerging Markets Fund of the Company,
the Emerging Markets and Active Country Allocation Portfolios of Morgan Stanley
Institutional Fund, Inc., and Morgan Stanley Emerging Markets Fund, Inc. (a
closed-end investment company listed on the New York Stock Exchange). He holds a
B.S. (honors) from St. Stephens College, Delhi University (India), and an M.B.A.
from Carnegie - Mellon University. Mr. Dhar has shared primary responsibility
for managing the Fund's assets since it commenced operations. Marianne L. Hay, a
Managing Director of Morgan Stanley, is a co-head of the Adviser's emerging
markets group and joined the Adviser in June 1993 to work with the Adviser's
senior management covering all emerging markets asset allocation, product
development and client services. Ms. Hay has 17 years of investment experience.
Prior to joining the Adviser, she was a director of Martin Currie Investment
Management, Ltd. ("Martin Currie") where her responsibilities included
geographic asset allocation and portfolio management for global and emerging
markets funds, as well as being director in charge of the company's North
American clients. Prior to her tenure at Martin Currie, she worked for the Bank
of Scotland and the investment management firm of Ivory and Sime plc. She
graduated with an honors degree in genetics from Edinburgh University and holds
a Diploma in Education and the qualification of the Association of the Institute
of Bankers in Scotland. Ms. Hay has shared primary responsibility for managing
the Fund since it commenced operations.
GLOBAL EQUITY FUND - FRANCES CAMPION. Frances Campion joined the Adviser in
January 1990 as a Global Equity Fund Manager and is now a Principal of Morgan
Stanley. Her responsibilities include day to day management of the Global Equity
product. Prior to joining the Adviser, Ms. Campion was a U.S. equity analyst
with Lombard Odier Limited where she had responsibility for the management of
global portfolios. Ms. Campion has ten years global investment experience. She
is a graduate of University College, Dublin.
GLOBAL EQUITY ALLOCATION FUND -- BARTON M. BIGGS, MADHAV DHAR, FRANCINE J.
BOVICH AND ANN D. THIVIERGE. Barton Biggs has been Chairman and a director of
the Adviser since 1980 and a Managing Director of Morgan Stanley since 1975. He
is also a director of Morgan Stanley Group Inc. and a director and chairman of
various registered investment companies to which the Adviser and certain of its
affiliates provide investment advisory services. Mr. Biggs holds a B.A. from
Yale University and an M.B.A. from New York University. Information about Madhav
Dhar is included under the Emerging Markets Fund above. Francine Bovich joined
the Adviser as a Principal in 1993. She is responsible for portfolio management
and communication of the Adviser's asset allocation strategy to institutional
investor clients. Previously, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp. ("Westwood"), a registered investment
adviser. Before joining Westwood, she was a Managing Director of Citicorp
Investment Management, Inc. (now
38
<PAGE>
Chancellor Capital Management), where she was responsible for the Institutional
Investment Management group. Ms. Bovich began her investment career with
Banker's Trust Company. She holds a B.A. in Economics from Connecticut College
and an M.B.A. in Finance from New York University. Ann Thivierge is a Principal
of the Adviser. She is a member of the Adviser's asset allocation committee,
primarily representing the Total Fund Management team since its inception in
1991. Prior to joining the Adviser in 1986, she spent two years at Edgewood
Management Company, a privately held investment management firm. Ms. Thivierge
holds a B.A. in International Relations from James Madison College, Michigan
State University, and an M.B.A. in Finance from New York University. Mr. Biggs,
Mr. Dhar, Ms. Bovich and Ms. Thivierge have had primary responsibility for
managing the Fund since it commenced operations.
INTERNATIONAL MAGNUM FUND -- FRANCINE J. BOVICH. Information about Francine
Bovich is included under the Global Equity Allocation Fund above. Ms. Bovich has
had primary responsibility for managing the Fund since it commenced operations.
JAPANESE EQUITY FUND -- DOMINIC CALDECOTT AND KUNIHIKO SUGIO. Mr. Caldecott
is responsible for research and stock selection in the Pacific Basin and has
been primarily responsible for managing the Fund's assets since it commenced
operations. He has ten years professional experience, primarily in Tokyo, Hong
Kong and Seoul. Prior to joining the Adviser and Morgan Stanley, he worked with
GT Management Group in Tokyo and Hong Kong, specializing in Pacific Basin
investment management. He became a Vice President of the Adviser and Morgan
Stanley in 1987, a principal in 1989, and a Managing Director in 1991. He is
responsible for a number of Pacific Basin investment programs for clients of
Morgan Stanley. Mr. Caldecott is a graduate of New College, Oxford, England.
Kunihiko Sugio joined the Adviser in December 1993 as a Vice President and
manages dedicated Japanese equity portfolios. He has been primarily responsible
for managing the Fund's assets since it commenced operations. Prior to joining
Morgan Stanley, he worked with Baring International Investment Management,
Tokyo, where he was a Director and fund manager. He graduated from Wakayama
Kokuritsu University.
LATIN AMERICAN FUND -- ROBERT L. MEYER. Robert Meyer joined the Adviser in
1989 and is now a Managing Director of the Adviser and Morgan Stanley. Born in
Argentina, Mr. Meyer received a B.A. in Economics and Political Science from
Yale University and a J.D. from Harvard Law School. Mr. Meyer is also a
Chartered Financial Analyst. He is responsible for all of the Adviser's equity
investments in Latin America and has had primary responsibility for managing the
Fund since it commenced operations.
ADMINISTRATOR. 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 Funds.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain
39
<PAGE>
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.
ADMINISTRATORS FOR THE LATIN AMERICAN FUND. The Latin American Fund has
entered into an administration agreement (the "Chilean Administration
Agreement") with Bice Chileconsult Agente de Valores S.A. (the "Chilean
Administrator"), a Chilean corporation, pursuant to which the Chilean
Administrator acts as the Fund's legal representative in Chile. Under the
Chilean Administration Agreement, the Chilean Administrator performs various
services for the Fund, including making and obtaining all exchange control
filings and approvals required for the Fund to effect investment and other
transactions in Chile and to remit moneys and other assets outside of Chile,
obtaining from the relevant authorities in Chile all confirmations or consents
relating to the tax status of the Fund and all tax rebates and other payments
which may be due to the Fund, and performing all other administrative duties in
Chile required by Chilean law or Chilean authorities through instructions or
regulations to be performed. For its services, the Chilean Administrator is paid
an annual fee by the Fund equal to the greater of 0.125% of the Fund's average
weekly net assets invested in Chile or $20,000, paid monthly. Unless terminated
by the Company's Board of Directors upon 60 days' prior written notice, or by
the Chilean Administrator upon 90 days' prior written notice, the Chilean
Administration Agreement will continue automatically from year to year.
The Latin American Fund is required under Brazilian law to have a local
administrator in Brazil. Unibanco-Uniao (the "Brazilian Administrator"), a
Brazilian corporation, acts as the Fund's Brazilian administrator pursuant to an
agreement with the Fund (the "Brazilian Administration Agreement"). Under the
Brazilian Administration Agreement, the Brazilian Administrator performs various
services for the Fund, including effecting the registration of the Fund's
foreign capital with the Central Bank of Brazil, effecting all foreign exchange
transactions related to the Fund's investments in Brazil and obtaining all
approvals required for the Fund to make remittances of income and capital gains
and for the repatriation of the Company's investments pursuant to Brazilian law.
For its services, the Brazilian Administrator is paid an annual fee equal to
0.115% of the Fund's average weekly net assets invested in Brazil, paid monthly.
The principal office of the Brazilian Administrator is located at Avenida
Eusebio Matoso, 891, Sao Paulo, S.P., Brazil. The Brazilian Administration
Agreement is terminable upon six months' notice by either party. The Brazilian
Administrator may be replaced only by an entity authorized to act as a joint
manager of a managed portfolio of bonds and securities under Brazilian law.
The Latin American Fund is required under Colombian law to have a local
administrator in Colombia. CitiTrust S.A. (the "Colombian Administrator"), a
Colombian Trust Company, acts as the Fund's Colombian administrator pursuant to
an agreement with the Fund (the "Colombian Agreement"). Under the Colombian
Agreement, the Colombian Administrator performs various services for the Fund,
including effecting the registration of the Fund's foreign capital with the
Central Bank of Colombia, effecting all foreign exchange transactions related to
the Fund's investments in Colombia and obtaining all approvals required for the
Fund to make remittances of income and capital gains and for the repatriation of
the Fund's investments pursuant to
40
<PAGE>
Colombian law. For its services, the Colombian Administrator is paid an annual
fee of $1,000 plus .20% per transaction. The principal office of the Colombian
Administrator is located at Sociedad Fiduciaria International S.A., 8-89, Piso
2, Santa Fe de Bogota, Colombia. The Colombian Agreement is terminable upon 30
days' notice by either party. The Colombian Administrator may be replaced only
by an entity authorized to act as a joint manager of a managed portfolio of
bonds and securities under Colombian law.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Funds 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 each Fund
a distribution fee, which is accrued daily and paid quarterly, at a maximum rate
of 0.75% of the Class B shares and Class C shares of the Fund, on an annualized
basis of the average daily net assets of such classes. The actual amount of such
compensation is agreed upon by the Company's Board of Directors and by the
Distributor. With respect to Class B shares, the Distributor expects to utilize
substantially all of its fee to reimburse itself for commissions paid to
investment dealers, banks or financial services firms that provide distribution
services (each, a "Participating Dealer"). With respect to the 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 authorize the
payment of 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 the Funds as
compensation the Distributor for shareholder services. In addition to such
payments, the Adviser may use its advisory fees or other resources to pay
expenses associated with activities which might be construed to be financing the
sale of the Fund's 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 actual
expenses are less than the fee it receives, the Distributor will retain the full
amount of the fee.
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<PAGE>
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Funds. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Funds pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. The $500
minimums 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
42
<PAGE>
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 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 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
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<PAGE>
contingent deferred sales charge. Ongoing distribution fees on Class B shares
and Class C shares will be offset to the extent of the additional funds
originally invested and any return realized on those funds. However, there can
be no assurance as to the return, if any, which will be realized on such
additional funds. For investments held for ten years or more, the relative value
upon liquidation of the three classes tends to favor Class A or Class B shares,
rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow to any
Participating Dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by the Distributor, an amount not exceeding the total
applicable sales charges on the sales generated by the Participating Dealer at
the public offering price during such programs. Other programs provide, among
other things and subject to certain conditions, for certain favorable
distribution arrangements for shares of the Company. Also, the Distributor in
its discretion may from time to time, pursuant to objective criteria established
by the Distributor, pay fees to, and sponsor business seminars for, qualifying
authorized dealers for certain services or activities which are primarily
intended to result in sales of shares of the Company. Fees may include payment
for travel expenses, including lodging, incurred in connection with trips taken
by invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Such fees paid for such services and activities with respect to a Fund
will not exceed in the aggregate 1.25% of the average total daily net assets of
the Fund on an annual basis. All of the foregoing payments are made by the
Distributor out of its own assets. These programs will not change the price an
investor will pay for shares or the amount that a Fund will receive from such
sale.
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.
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SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED TO DEALERS
AS % OF AS % OF NET AMOUNT (AS % OF OFFERING
SIZE OF INVESTMENT OFFERING PRICE INVESTED 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 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
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<PAGE>
combination, by any of the foregoing; a trustee or other fiduciary purchasing
for a single trust estate or single fiduciary account, or a "company" as defined
in Section 2(a)(8) of the 1940 Act.
As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding tables
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
tables 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 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 tables also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales
charges in connection with unit trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Company or the Distributor. The Company reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Company permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A shares of the Company at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Company and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the Participating Dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their Participating Dealer or the Distributor.
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
46
<PAGE>
investments in a Fund during each distribution period by all investors who
choose to invest in the Fund through the program and (2) provide ACCESS with
appropriate backup data for each participating investor in a computerized format
fully compatible with ACCESS' processing system.
As further requirements for obtaining these special benefits, the Company
also requires that all dividends and other distributions by a Fund be reinvested
in additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Company will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Company reserves the right to
modify or terminate this program at any time.
NAV PURCHASE OPTIONS. Class A shares of a Fund may be purchased at net
asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
(1) Current or retired Trustees/Directors of funds advised by an Adviser
and such persons' families and their beneficial accounts.
(2) Current or retired directors, officers and employees of MSGI or
VK/AC Holding, Inc. and any of their subsidiaries, employees of an
investment subadviser to any fund described in (1) above or an affiliate of
such subadviser, and such persons' families and their beneficial accounts.
(3) Directors, officers, employees and registered representatives of
financial institutions that have a selling group agreement with the
Distributor and their spouses and children under 21 years of age when
purchasing for any accounts they beneficially own, or, in the case of any
such financial institution, when purchasing for retirement plans for such
institution's employees.
(4) Registered investments advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients
provided that the aggregate amount invested in a Fund alone, or in any
combination of shares of the Fund and shares of other Participating Funds as
described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to 0.50%
of the amount invested, over a 12-month period following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement
plans of organizations with retirement plan assets of $3 million or more and
which invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.
(6) Accounts as to which a broker, dealer or financial intermediary
charges an account management fee ("wrap accounts"), provided the broker,
dealer or financial intermediary has a separate agreement with the
Distributor.
(7) Investors purchasing shares of a Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(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
47
<PAGE>
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 employee,
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 0.25% on the excess over $10 million. For purchases on February 1, 1997
and thereafter, a commission will be paid as follows: 1.00% on sales up to
$2 million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million, plus 0.25% on the excess over $50 million.
(9) Individuals who are members of a "qualified group". For this
purpose, a qualified group is one which (i) has been in existence for more
than six months, (ii) has a purpose other than to acquire shares of the Fund
or similar investments, (iii) has given and continues to give its
endorsement or authorization, on behalf of the group, for purchase of shares
of the Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in distributing such shares. A qualified group
does not include one whose sole organizational nexus, for example, is that
its participants are credit card holders of the same institution, policy
holders of an insurance company, customers of a bank or broker-dealer,
clients of an investment 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 to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. Authorized dealers will
be paid a service fee as described herein under "Distribution Plans" on
purchases made as described in (3) through (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.
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<PAGE>
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.
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
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO 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
49
<PAGE>
combination of the CDSC and the distribution/service fee facilitates the ability
of the Company to sell the Class B shares without a sales charge being deducted
at the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) certain distributions from an
IRA or other retirement plan; (iii) to the extent that shares redeemed have been
withdrawn from a Systematic Withdrawal Plan, up to a maximum 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 the Funds
or class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of the Funds may reinvest up
to the full amount received at net asset value at the time of the reinvestment
in Class A shares of the Funds without payment of a sales charge. A shareholder
who has redeemed Class B shares of a Fund and paid a CDSC upon such redemption
may reinvest up to the full amount received upon redemption in Class A shares at
net asset value with no initial sales charge. A Class C shareholder who has
redeemed shares of a Fund may reinstate any portion or all of the net proceeds
of such redemption in Class C shares of that Fund with credit given for any CDSC
paid upon such redemption. The reinstatement privilege as to any specific Class
A, Class B or Class C shares must be exercised within 180 days of the
redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the
50
<PAGE>
redemption proceeds. The written request must state that the reinstatement is
made pursuant to this reinstatement privilege. If a loss is realized on the
redemption of Class A shares, the reinstatement 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. 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 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."
51
<PAGE>
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 distributions paid on a class of
shares of the Company invested into 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.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information regarding these plans are available from the Distributor. Van Kampen
American Capital Trust Company serves as custodian under the IRA, 403(b)(7) and
Keogh plans. Details regarding fees, as well as full plan administration for
profit sharing, pension and 401(k) plans, are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Funds.
52
<PAGE>
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 options for the new account, an exchanging shareholder must file
a specific written request. The Company reserves the right to reject any order
to acquire its shares through exchange. In addition, the Company may restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares 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 the Funds 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
53
<PAGE>
capital gains distributions, the CDSC period has elapsed or some other waiver of
the CDSC applies. If no Class B shares not subject to the CDSC are available, or
not enough such shares are available, Class B shares having a CDSC will be
redeemed next, beginning with such shares held for the longest period of time
(having the lowest CDSC payable upon redemption) and continuing with shares held
the next longest period of time until shares held the shortest period of time
are redeemed. Under this policy, the least amount of CDSC will be waived by
withdrawals under the Systematic Withdrawal Plan.
Under the plan, sufficient shares of the Company are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Company reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A shares can
use ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing to ACCESS or by
calling 1-800-282-4404. A shareholder's bank may charge a fee for this transfer.
REDEMPTION OF SHARES
Shareholders may redeem for cash some or all of their shares without charge
by the Company (other than, any applicable contingent deferred sales charge) at
any time by sending a written request in proper form directly to the Fund c/o
ACCESS, P.O. Box 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 and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
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<PAGE>
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) 287-4404
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 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.
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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 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.
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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 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 a Fund. The net
asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the closing price, or if that is
unavailable, 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.
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<PAGE>
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for the Funds. The Adviser may, consistent
with NASD rules, place portfolio orders with qualified broker-dealers who
recommend the Funds to their clients or who act as agents in the purchase of
shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Adviser, or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
the commissions, fees or other remuneration received by Morgan Stanley or such
affiliates must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
a 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, other than the Latin American 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 to the shareholders of the particular Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing
58
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the Funds' 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
a Fund will generally be lower than those for Class A shares because of the
larger distribution fee charged to Class B shares and Class C shares.
PERFORMANCE OF INVESTMENT ADVISER
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Global Equity Fund. The portfolio of
MSIF (the "MSIF Portfolio") has substantially the same investment objective and
policies as the Global Equity Fund. In addition, the Adviser intends the Global
Equity Fund and the corresponding MSIF Portfolio to be managed by the same
personnel and to continue to have closely similar investment strategies,
techniques and characteristics. Past investment performance of the MSIF
Portfolio, as shown in the table below, may be relevant to your consideration of
investment in the Global Equity Fund. The investment performance of the MSIF
Portfolio is not necessarily indicative of future performance of the Global
Equity Fund. Also, the operating expenses of the Global Equity Fund will be
different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 5.75%
sales charge applicable to purchases of Class A shares of the Global Equity
Fund; (ii) with respect to Class B shares, to take into account the applicable
CDSC that is imposed if Class B shares of the Global Equity Fund are redeemed
within the year of their purchase indicated; and (iii) with respect to the Class
C shares, to take into account a 1.00% CDSC that is imposed if Class C shares of
the Global Equity Fund are redeemed within one year of their purchase. The data
set forth below under the heading "Return Without Sales Charge" is not adjusted
to take into account such sales charges.
TOTAL RETURN FOR THE MSIF GLOBAL EQUITY PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM THE GLOBAL EQUITY FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE GLOBAL EQUITY FUND)
<TABLE>
<CAPTION>
RETURN WITH SALES CHARGE 1 YEAR SINCE INCEPTION(1)
- ------------------------------------------------------------------------------------- ---------- -------------------
<S> <C> <C>
Class A (of 5.75%)................................................................... 8.44% 12.34%
Class B (of 5.00%)................................................................... 9.19% 13.09%
Class C (of 1.00%)................................................................... 13.19% 18.09%
<CAPTION>
RETURN WITHOUT SALES CHARGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Class A.............................................................................. 14.19% 18.09%
Class B.............................................................................. 14.19% 18.09%
Class C.............................................................................. 14.19% 18.09%
</TABLE>
- ------------------
(1) Commenced Operations on July 15, 1992.
The past performance of the MSIF Global Equity Portfolio is no guarantee of
the future performance of the Global Equity Fund.
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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 Fund expects to distribute substantially all of its net investment
income in the form of annual 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 the Funds, the net income attributable to and the dividends payable
on Class B shares and Class C shares of the Funds will be lower than the net
income attributable to and the dividends payable on Class A shares of the Funds.
As a result, the net asset value per share of the classes of the Funds will
differ at times. Expenses of the Company allocated to a particular class of
shares of the 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.
Each Fund intends to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net
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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. The Funds 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 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 the Funds, 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
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other features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such Fund. As of December 11, 1996, Charles Schwab & Co., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, was presumed to
"control" the Emerging Markets Fund and Morgan Stanley Group Inc., 1221 Avenue
of the Americas, New York, NY 10020, was presumed to "control" the International
Magnum Fund based solely on its ownership of 25% or more of the outstanding
voting shares of such Funds.
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 Directors of the Company in accordance with regulations of the SEC for the
purpose of providing custodial services for such assets. Morgan Stanley Trust
may also hold certain domestic assets for the Company. Morgan Stanley Trust is
an affiliate of the Adviser and the Distributor. For more information on the
custodians, see "General Information--Custody Arrangements" in the Statement of
Additional Information.
DIVIDEND DISBURSING AND TRANSFER AGENT
ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, acts as dividend
disbursing and transfer agent for the Company.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, NY 10036,
serves as independent accountants for the Company and audits its annual
financial statements.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in the Aa and A rating
categories. The modifier 1 indicates that the security ranks at a higher end of
the rating category, modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
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STANDARD & POOR'S RATINGS GROUP -- CORPORATE BOND RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
A-2
<PAGE>
MORGAN STANLEY FUND, INC.
GLOBAL EQUITY, GLOBAL EQUITY ALLOCATION, ASIAN GROWTH, EMERGING
MARKETS,
LATIN AMERICAN AND INTERNATIONAL MAGNUM FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141 (800-282-4404) NEW
ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Asian
Growth Fund Class A (452) $ Class B (552) $ Class C (652) $
---------- ---------- ----------
Morgan Stanley Emerging
Markets Fund Class A (455) $ Class B (555) $ Class C (655) $
---------- ---------- ----------
Morgan Stanley Global
Equity Fund Class A (465) $ Class B (565) $ Class C (665) $
---------- ---------- ----------
Morgan Stanley Global Equity Allocation Fund Class A (450) $ Class B (550) $ Class C (650) $
---------- ---------- ----------
Morgan Stanley International Magnum Fund Class A (461) $ Class B (561) $ Class C (661) $
---------- ---------- ----------
Morgan Stanley Latin American
Fund Class A (459) $ Class B (559) $ Class C (659) $
---------- ---------- ----------
Other Class A ( ) $ Class B ( ) $ Class C ( ) $
---------- ---------- ----------
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 -------------------------------------------
-------------------------------------------
Control Number Name of Bank Wire
</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 ACCESS 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. ("Funds") sold with an initial sales load. 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>
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
- --------------------------------------------------- Class : ---------- Code : ---------- $ ----------------
Recipient
Please make check payable to: ---------------------------------------------------------
(to be completed only if redemption proceeds to be Street Address ---------------------------------------------------
paid to other than account holder of record or City, State, Zip Code
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.
<CAPTION>
Fund Name %*
<S> <C>
- --------------------------------------------------- --------%
- --------------------------------------------------- --------%
- --------------------------------------------------- --------%
Please make check payable to:
(to be completed only if redemption proceeds to be
paid to other than account holder of record or
mailed to address other than address of record)
*With the systematic withdrawal plan, a maximum of 1
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Start ----------------------------------------------
(month, day, year)
<CAPTION>
Start ----------------------------------------------
<CAPTION>
(month, day, year)
</TABLE>
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>
- --------------------------------------------------------------- ---------------------------------------------------------------
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 Company 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.................................................... 11
Investment Objective and Policies..................................... 15
Additional Investment Information..................................... 26
Investment Limitations................................................ 36
Management of the Company............................................. 37
Purchase of Shares.................................................... 42
Shareholder Services.................................................. 51
Redemption of Shares.................................................. 54
Valuation of Shares................................................... 57
Portfolio Transactions................................................ 58
Performance Information............................................... 58
Dividends and Distributions........................................... 60
Taxes................................................................. 60
General Information................................................... 61
Appendix A............................................................ A-1
New Account Application
</TABLE>
MORGAN STANLEY
ASIAN GROWTH FUND
MORGAN STANLEY
EMERGING MARKETS FUND
MORGAN STANLEY
GLOBAL EQUITY FUND
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
MORGAN STANLEY
JAPANESE EQUITY FUND
MORGAN STANLEY
LATIN AMERICAN FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
- --------------------------------------------------------------------------------
P R O S P E C T U S
-----------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS DEBT FUND
MORGAN STANLEY GLOBAL FIXED INCOME FUND
MORGAN STANLEY HIGH YIELD FUND
MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
MORGAN STANLEY FUND, INC.
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141
FOR INFORMATION CALL 1-800-282-4404
------------------
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company, or mutual fund, which consists of twenty-two diversified and
non-diversified investment portfolios (each, a "Fund," and together, the
"Funds"). This prospectus (the "Prospectus") describes the Class A, Class B and
Class C shares of the four Funds listed above. The Company is designed to make
available to retail investors the expertise of Morgan Stanley Asset Management
Inc., the investment adviser (the "Adviser") and administrator (the
"Administrator") to the Funds. Shares are available through Van Kampen American
Capital Distributors, Inc. ("VKAC Distributors," or the "Distributor"), and
investment dealers, banks and financial services firms that provide
distribution, administrative or shareholder services ("Participating Dealers").
THE MORGAN STANLEY EMERGING MARKETS DEBT FUND, MORGAN STANLEY HIGH YIELD
FUND AND MORGAN STANLEY WORLDWIDE HIGH INCOME FUND NORMALLY INVEST BETWEEN 80%
AND 100% OF THEIR RESPECTIVE TOTAL ASSETS IN LOWER RATED AND UNRATED BONDS,
COMMONLY REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE SUBJECT TO GREATER
RISKS THAN THOSE INVOLVED IN HIGHER RATED BONDS, INCLUDING THE RISK OF DEFAULT.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THESE FUNDS. SEE "ADDITIONAL INVESTMENT INFORMATION -- LOWER RATED AND UNRATED
DEBT SECURITIES."
The Morgan Stanley Worldwide High Income Fund and Global Fixed Income Fund
may invest in equity securities of Russian companies. Russia's system of share
registration and custody involves certain risks of loss that are not normally
associated with investments in other securities markets. See "Additional
Investment Information -- Russian Securities Transactions."
This Prospectus is designed to set forth concisely the information about the
Funds that a prospective investor should know before investing and it should be
retained for future reference. The Company offers other Funds which are
described in other prospectuses and under "Prospectus Summary" below. The
Company currently offers the following Funds: (i) GLOBAL AND INTERNATIONAL
EQUITY -- Morgan Stanley Asian Growth, Morgan Stanley Emerging Markets, Morgan
Stanley Global Equity, Morgan Stanley Global Equity Allocation, Morgan Stanley
International Magnum and Morgan Stanley Latin American Funds; (ii) U.S. EQUITY
- -- Morgan Stanley Aggressive Equity, Morgan Stanley American Value, Morgan
Stanley Equity Growth, Morgan Stanley Mid Cap Growth, Morgan Stanley U.S. Real
Estate and Morgan Stanley Value Funds; (iii) GLOBAL FIXED INCOME -- Morgan
Stanley Emerging Markets Debt, Morgan Stanley Global Fixed Income, Morgan
Stanley High Yield and Morgan Stanley Worldwide High Income Funds; and (iv)
MONEY MARKET -- Morgan Stanley Government Obligations Money Market and Morgan
Stanley Money Market Funds. Additional information about the Company is
contained in a "Statement of Additional Information," dated January 1, 1997,
which is incorporated herein by reference. The Statement of Additional
Information and the prospectuses pertaining to the other Funds of the Company
are available upon request and without charge by writing or calling the Company
at the address and telephone number set forth above.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK OR DEPOSITORY INSTITUTION, OR ANY
AFFILIATES OR CORRESPONDENTS THEREOF. THE COMPANY'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE COMPANY INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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 JANUARY 2, 1997.
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
a Fund may incur:
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
SHAREHOLDER TRANSACTION EXPENSES DEBT FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)
Class A.................................. 4.75%(1) 4.75%(1) 4.75%(1) 4.75%(1)
Class B.................................. None None None None
Class C.................................. None None None None
Maximum Deferred Sales Load (as a percentage
of the lesser of initial purchase price or
current market value)
Class A
For Purchases up to $999,999........... None None None None
For Purchases of $1,000,000 or more.... 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Class B.................................. 4.00%(3) 4.00%(3) 4.00%(3) 4.00%(3)
Class C.................................. 1.00%(4) 1.00%(4) 1.00%(4) 1.00%(4)
Maximum Sales Load Imposed on Reinvested
Dividends
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Redemption Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
Exchange Fees
Class A.................................. None None None None
Class B.................................. None None None None
Class C.................................. None None None None
</TABLE>
- ------------------
(1) Percentage shown is the maximum sales load. Certain large purchases may be
subject to a reduced sales load.
(2) Purchases of Class A shares of the Funds listed above which, when combined
with the net asset value of the purchaser's existing investments in Class A
shares of the Funds, aggregate $1 million or more are not subject to a sales
load (an "initial sales charge"). A contingent deferred sales charge
("CDSC") of 1.00% will be imposed, however, on shares from any such purchase
that are redeemed within one year following such purchase. Any such CDSC
will be paid to the Distributor. Certain other purchases are not subject to
an initial sales charge. See "Purchase of Shares."
(3) Percentage shown is the maximum CDSC. Purchases of Class B shares of the
Funds listed above are subject to a maximum CDSC of 4.00% which decreases in
steps to 0% after five years. See "Purchase of Class B Shares." Any such
CDSC will be paid to the Distributor.
(4) Purchases of Class C shares of the Funds listed above are subject to a CDSC
of 1.00% for redemptions made within one year of purchase. Any such CDSC
will be paid to the Distributor.
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
ANNUAL FUND OPERATING EXPENSES EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
(AS A PERCENTAGE OF AVERAGE NET ASSETS) DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Advisory Fee (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 1.25% 0.04% 0.42% 0.61%
Class B.................................. 1.25% 0.04% 0.42% 0.61%
Class C.................................. 1.25% 0.04% 0.42% 0.61%
12b-1/Service Fees
Class A (6).............................. 0.25% 0.25% 0.25% 0.25%
Class B (6).............................. 1.00% 1.00% 1.00% 1.00%
Class C (6).............................. 1.00% 1.00% 1.00% 1.00%
Other Expenses (after expense reimbursement
and/or fee waiver) (5)
Class A.................................. 0.55% 1.16% 0.58% 0.69%
Class B.................................. 0.55% 1.16% 0.58% 0.69%
Class C.................................. 0.55% 1.16% 0.58% 0.69%
Total Operating Expenses (after expense
reimbursement and/or fee waiver) (5)
Class A.................................. 2.05% 1.45% 1.25% 1.55%
Class B.................................. 2.80% 2.20% 2.00% 2.30%
Class C.................................. 2.80% 2.20% 2.00% 2.30%
</TABLE>
- ------------------
(5) The Adviser has agreed to waive its advisory fees and/or to reimburse
expenses of the Funds, if necessary, if such fees would cause the total
annual operating expenses of the Funds, as a percentage of average daily net
assets, to exceed the percentages set forth in the table above. The
following sets forth, for each Fund investment advisory fees and expected
total operating expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Operating Expenses
Class A.................................. 2.05% 2.16% 1.58% 1.69%
Class B.................................. 2.80% 3.57% 2.33% 2.47%
Class C.................................. 2.80% 2.87% 2.33% 2.44%
Investment Advisory Fees
(All Classes)............................ 1.25% 0.75% 0.75% 0.75%
</TABLE>
The Adviser reserves the right to terminate any of its fee waivers and/or
expense reimbursements at any time in its sole discretion. For further
information on Fund expenses, see "Management of the Company."
(6) Of the 12b-1/Service fees for the Class A shares, 0.25% represents a
shareholder services fee, and for the Class B shares and the Class C shares,
0.75% represents a distribution fee and 0.25% represents a shareholder
services fee.
The purpose of the above table is to assist the investor in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly. The expenses and fees for the Global Fixed Income and Worldwide High
Income Funds are based on actual figures for the period ended June 30, 1996. The
expenses and fees for the Emerging Markets Debt and High Yield Funds are based
on estimates. For purposes of calculating the estimated expenses and fees set
forth above, the table assumes that a Fund's average daily net assets will be
$50,000,000. Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders may pay more than the equivalent of the maximum front-end sales
charges otherwise permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").
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 4.75% 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>
GLOBAL WORLDWIDE
EMERGING FIXED HIGH
MARKETS INCOME HIGH YIELD INCOME
DEBT FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A shares
(If it is assumed there are no redemptions, the
expenses are the same.)
1 Year............................................. $ 67(1) $ 62(1) $ 60(1) $ 63(1)
3 Years............................................ 109 91 85 94
5 Years............................................ * 123 * 128
10 Years........................................... * 213 * 223
Class B shares
(Assuming complete redemption at end of period)
1 Year............................................. 68 62 60 63
3 Years............................................ 117 99 93 102
5 Years............................................ * 133 * 138
10 Years (2)....................................... * 235 * 246
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years (2)....................................... * 235 * 246
Class C shares
(Assuming complete redemption immediately prior
to the end of period)
1 Year............................................. 38 32 30 33
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
Class C shares
(Assuming no redemption)
1 Year............................................. 28 22 20 23
3 Years............................................ 87 69 63 72
5 Years............................................ * 118 * 123
10 Years........................................... * 253 * 264
</TABLE>
- ------------------
* Because the Emerging Markets Debt Fund and High Yield Fund were either not
operational or had just recently become operational as of the date of this
Prospectus, the Funds have not projected expenses beyond the three-year
period shown.
(1) Certain large purchases may be subject to a reduced sales load. Purchases of
Class A shares of the Funds listed above which, when combined with the net
asset value of the purchaser's existing investments in Class A shares of the
Funds, aggregate $1 million or more are not subject to an initial sales
charge. A CDSC of 1.00% will be imposed, however, on shares from any such
purchase that are redeemed within one year following such purchase.
(2) Class B shares automatically convert to Class A shares after eight years.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Adviser in its discretion may terminate voluntary fee waivers
and/or reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide financial highlights for the Class A, Class B
and Class C shares of the Global Fixed Income, High Yield and Worldwide High
Income Funds for each of the respective periods presented. The audited financial
highlights are part of the Company's financial statements, which appear in the
Company's June 30, 1996 Annual Report to Shareholders. The financial statements
are included in the Funds' Statement of Additional Information. The foregoing
Funds' financial highlights for each of the periods presented have been audited
by Price Waterhouse LLP, whose report thereon (which was unqualified) is also
included in the Statement of Additional Information. Additional performance
information about the Company is contained in the Company's Annual Report. The
Annual Report and the financial statements contained therein, along with the
Statement of Additional Information, are available at no cost from the Company
at the address and telephone number noted on the cover page of this Prospectus.
The following information should be read in conjunction with the financial
statements and notes thereto. Financial highlights are not presented for the
Emerging Markets Debt Fund because it had not commenced operations as of June
30, 1996.
5
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
-------------------------------------------------- ----------
JANUARY 4, AUGUST 1,
1993* YEAR ENDED YEAR ENDED YEAR ENDED 1995
TO JUNE JUNE 30, JUNE 30, JUNE 30, TO JUNE
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996 30, 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.00 $ 10.55 $ 9.53 $ 10.23 $ 10.24
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.25 0.52 0.56 0.53 0.64
Net Realized and Unrealized Gain
(Loss)............................... 0.55 (0.42) 0.50 (0.01) (0.26)
---------- ---------- ---------- ---------- ----------
Total From Investment Operations...... 0.80 0.10 1.06 0.52 0.38
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income................. (0.25) (0.50) (0.36) (0.79) (0.69)
In Excess of Net Investment Income.... (0.12) (0.02) (0.02)
Net Realized Gain..................... (0.47)
In Excess of Realized Gain............ (0.03)
---------- ---------- ---------- ---------- ----------
Total Distributions................... (0.25) (1.12) (0.36) (0.81) (0.71)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.......... $ 10.55 $ 9.53 $ 10.23 $ 9.94 $ 9.91
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (1)........................ 8.02% 0.41% 11.41% 5.20% 3.76%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........ $ 6,633 $ 10,369 $ 11,092 $ 7,432 $ 1,440
Ratio of Expenses to Average Net
Assets (2)............................. 1.45%** 1.45% 1.45% 1.45% 2.20%**
Ratio of Net Investment Income to
Average Net Assets (2)................. 5.00%** 4.70% 5.84% 5.02% 3.38%**
Portfolio Turnover Rate................. 55% 168% 169% 223% 223%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income............................... $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 2.88%** 2.48% 2.22% 2.16% 3.57%**
Net Investment Income to Average Net
Assets............................... 3.57%** 3.67% 5.07% 4.31% 2.01%**
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------
JANUARY 4,
1993* YEAR ENDED YEAR ENDED YEAR ENDED
TO JUNE JUNE 30, JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 30, 1993 1994 1995 1996
<S> <C> <C> <C> <C>
- ---------------------------------------- --------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.00 $ 10.56 $ 9.54 $ 10.20
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.21 0.43 0.49 0.37
Net Realized and Unrealized Gain
(Loss)............................... 0.55 (0.40) 0.47 0.08
---------- ---------- ---------- ----------
Total From Investment Operations...... 0.76 0.03 0.96 0.45
---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income................. (0.20) (0.44) (0.30) (0.73)
In Excess of Net Investment Income.... (0.11) (0.02)
Net Realized Gain..................... (0.47)
In Excess of Realized Gain............ (0.03)
---------- ---------- ---------- ----------
Total Distributions................... (0.20) (1.05) (0.30) (0.75)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.......... $ 10.56 $ 9.54 $ 10.20 $ 9.90
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN (1)........................ 7.61% (0.25)% 10.24% 4.47%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........ $ 6,120 $ 5,407 $ 5,965 $ 2,844
Ratio of Expenses to Average Net
Assets (2)............................. 2.20%** 2.20% 2.20% 2.20%
Ratio of Net Investment Income to
Average Net Assets (2)................. 4.25%** 3.95% 5.09% 4.35%
Portfolio Turnover Rate................. 55% 168% 169% 223%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income............................... $ 0.07 $ 0.12 $ 0.08 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets........ 3.63%** 3.29% 2.97% 2.87%
Net Investment Income to Average Net
Assets............................... 2.82%** 2.86% 4.32% 3.68%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Global Fixed Income Fund began offering the current Class B shares on
August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.75%
of the average daily net assets of the Global Fixed Income Fund. The Adviser
has agreed to waive a portion of this fee and/or reimburse expenses of the
Global Fixed Income Fund to the extent that the total operating expenses of
the Fund exceed 1.45% of the average daily net assets relating to the Class
A shares and 2.20% of the average daily net assets relating to the Class B
and Class C shares. For the fiscal periods ended June 30, 1994, June 30,
1995 and June 30, 1996, the Adviser waived advisory fees and/or reimbursed
expenses totaling approximately $150,000, $121,000 and $112,000,
respectively, for the Global Fixed Income Fund.
6
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
------------- ------------- -------------
MAY 1, 1996* MAY 1, 1996* MAY 1, 1996*
TO JUNE 30, TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1996 1996 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD............................. $12.00 $12.00 $12.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.......................................... 0.13 0.12 0.12
Net Realized and Unrealized Loss............................... (0.09) (0.09) (0.09)
------ ------ ------
Total From Investment Operations............................... 0.04 0.03 0.03
------ ------ ------
DISTRIBUTION:
Net Investment Income.......................................... (0.12) (0.10) (0.10)
------ ------ ------
NET ASSET VALUE, END OF PERIOD................................... $11.92 $11.93 $11.93
------ ------ ------
TOTAL RETURN (1)................................................. 0.29% 0.21% 0.21%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)................................ $3,907 $3,421 $3,316
Ratio of Expenses to Average Net Assets.......................... 1.25%** 2.00%** 2.00%**
Ratio of Net Investment Income to Average Net Assets............. 6.85%** 6.08%** 6.07%**
Portfolio Turnover Rate.......................................... 10% 10% 10%
- ----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income..................... $ 0.04 $ 0.04 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets................................. 3.51%** 4.25%** 4.25%**
Net Investment Income to Average Net Assets.................... 4.59%** 3.83%** 3.82%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Global Fixed Income Fund began offering the current Class B shares on
August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
(2) Under the terms of an investment advisory agreement, the Adviser is entitled
to receive an investment advisory fee calculated at an annual rate of 0.75%
of the average daily net assets of the High Yield Fund. The Adviser has
agreed to waive a portion of this fee and/or reimburse expenses of the High
Yield Fund to the extent that the total operating expenses of the Fund
exceed 1.25% of the average daily net assets relating to the Class A shares
and 2.00% of the average daily net assets relating to the Class B and Class
C shares. For the fiscal period ended June 30, 1996, the Adviser waived
advisory fees and/or reimbursed expenses totaling approximately $38,000 for
the High Yield Fund.
7
<PAGE>
FINANCIAL HIGHLIGHTS CONTINUED
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
------------------------------------- CLASS B+ -------------------------------------
APRIL 21, ------------- APRIL 21,
1994* YEAR ENDED YEAR ENDED AUGUST 1, 1994* YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND TO JUNE JUNE 30, JUNE 30, 1995 TO TO JUNE JUNE 30, JUNE 30,
RATIOS 30, 1994 1995 1996 JUNE 30, 1996 30, 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD......................... $ 12.00 $ 12.17 $ 11.57 $ 11.63 $ 12.00 $ 12.16 $ 11.58
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income......... 0.18 1.26 1.36 1.18 0.17 1.17 1.30
Net Realized and Unrealized
Gain (Loss).................. 0.16 (0.52) 0.80 0.72 0.15 (0.50) 0.77
---------- ---------- ---------- ------------- ---------- ---------- ----------
Total From Investment
Operations................... 0.34 0.74 2.16 1.90 0.32 0.67 2.07
---------- ---------- ---------- ------------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income......... (0.17) (1.22) (1.26) (1.09) (0.16) (1.13) (1.20)
Net Realized Gain............. (0.12) (0.12)
---------- ---------- ---------- ------------- ---------- ---------- ----------
Total Distributions........... (0.17) (1.34) (1.26) (1.09) (0.16) (1.25) (1.20)
---------- ---------- ---------- ------------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD......................... $ 12.17 $ 11.57 $ 12.47 $ 12.44 $ 12.16 $ 11.58 $ 12.45
---------- ---------- ---------- ------------- ---------- ---------- ----------
---------- ---------- ---------- ------------- ---------- ---------- ----------
TOTAL RETURN (1)................ 2.86% 6.87% 19.61% 17.07% 2.62% 6.20% 18.71%
---------- ---------- ---------- ------------- ---------- ---------- ----------
---------- ---------- ---------- ------------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s)......................... $ 6,857 $ 14,819 $ 41,493 26,174 $ 6,081 $ 11,880 $ 28,094
Ratio of Expenses to Average Net
Assets (2)..................... 1.55%** 1.55% 1.55% 2.30%** 2.30%** 2.30% 2.30%
Ratio of Net Investment Income
to Average Net Assets (2)...... 8.29%** 11.53% 11.95% 12.06%** 7.54%** 10.72% 11.40%
Portfolio Turnover Rate......... 19% 178% 220% 220% 19% 178% 220%
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income............ $ 0.02 $ 0.05 $ 0.02 $ 0.02 $ 0.06 $ 0.05 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets....................... 3.23%** 1.97% 1.69% 2.47%** 4.00%** 2.74% 2.44%
Net Investment Income to
Average Net Assets........... 6.61%** 11.11% 11.81% 11.89%** 5.84%** 10.28% 11.26%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized.
+ The Worldwide High Income Fund began offering the current Class B shares on
August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
(2) Under the terms of an investment advisory agreement, the Adviser is
entitled to receive an investment advisory fee calculated at an annual rate
of 0.75% of the average daily net assets of the Worldwide High Income Fund.
The Adviser has agreed to waive a portion of this fee and/or reimburse
expenses of the Worldwide High Income Fund to the extent that the total
operating expenses of the Fund exceed 1.55% of the average daily net assets
relating to the Class A shares and 2.30% of the average daily net assets
relating to the Class B and Class C shares. For the fiscal periods ended
June 30, 1994, June 30, 1995 and June 30, 1996, the Adviser waived advisory
fees and/or reimbursed expenses totaling approximately $39,000, $88,000 and
$97,000, respectively, for the Worldwide High Income Fund.
8
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
The Company currently consists of twenty-two portfolios which are designed
to offer investors a range of investment choices with Morgan Stanley Asset
Management Inc. ("MSAM") and its affiliate, Miller Anderson & Sherrerd, LLP
("MAS"), providing services as Advisers and Administrators and Van Kampen
American Capital Distributors, Inc. ("VKAC Distributors") providing services as
Distributor. MAS serves as the Adviser and Administrator for the Mid Cap Growth
Fund and the Value Fund, which are described in a separate prospectus. MSAM
serves as the Adviser and Administrator for all of the other Funds listed below.
Each Fund has its own investment objective and policies designed to meet its
specific goals. For ease of reference the words "Morgan Stanley," which begin
the name of each Fund, have not been included in the Funds named below. The
investment objective of each Fund described in this Prospectus is as follows:
- The EMERGING MARKETS DEBT FUND seeks high total return by investing
primarily in debt securities of government, government-related and
corporate issuers located in emerging countries.
- The GLOBAL FIXED INCOME FUND seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income securities of
issuers throughout the world, including U.S. issuers.
- The HIGH YIELD FUND seeks to maximize total return by investing in a
diversified portfolio of high yield income securities that offer a yield
above that generally available on debt securities in the four highest
rating categories of the recognized rating services.
- The WORLDWIDE HIGH INCOME FUND seeks high current income consistent with
relative stability of principal and, secondarily, capital appreciation, by
investing primarily in a portfolio of high yielding fixed income
securities of issuers located throughout the world.
The other Funds are described in other prospectuses which may be obtained
from the Company at the address and telephone number noted on the cover page of
this Prospectus. The investment objectives of the other Funds are listed below:
GLOBAL AND INTERNATIONAL EQUITY FUNDS:
- The ASIAN GROWTH FUND seeks long-term capital appreciation through
investment primarily in equity securities of Asian issuers, excluding
Japan.
- The EMERGING MARKETS FUND seeks long-term capital appreciation by
investing primarily in equity securities of emerging country issuers.
- The EUROPEAN EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of European issuers.
- The GLOBAL EQUITY ALLOCATION FUND seeks long-term capital appreciation by
investing in equity securities of U.S. and non-U.S. issuers in accordance
with country weightings determined by the Adviser and with stock selection
within each country designed to replicate a broad market index.
9
<PAGE>
- The GLOBAL EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of issuers located throughout the world,
including U.S. issuers.
- The INTERNATIONAL MAGNUM FUND seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance
with EAFE country weightings determined by the Adviser.
- The JAPANESE EQUITY FUND seeks long-term capital appreciation by investing
primarily in equity securities of Japanese issuers.
- The LATIN AMERICAN FUND seeks long-term capital appreciation by investing
primarily in equity securities of Latin American issuers and investing in
debt securities issued or guaranteed by Latin American governments or
governmental entities.
U.S. EQUITY FUNDS:
- The AGGRESSIVE EQUITY FUND seeks capital appreciation by investing
primarily in a non-diversified portfolio of corporate equity and
equity-linked securities.
- The AMERICAN VALUE FUND seeks high total return by investing in
undervalued equity securities of small-to medium-sized corporations.
- The EQUITY GROWTH FUND seeks long-term capital appreciation by investing
in growth-oriented equity securities of medium and large capitalization
companies.
- The GROWTH AND INCOME FUND seeks capital appreciation and current income
by investing primarily in equity and equity-linked securities.
- The MID CAP GROWTH seeks long-term capital growth by investing primarily
in common stocks and other equity securities of smaller and medium size
companies which are deemed by the Adviser to offer long-term growth
potential.
- The U.S. REAL ESTATE FUND seeks to provide above-average current income
and long-term capital appreciation by investing primarily in equity
securities of companies in the U.S. real estate industry, including real
estate investment trusts.
- The VALUE FUND seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks and other
equity securities which are deemed by the Adviser to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
MONEY MARKET FUNDS:
- The GOVERNMENT OBLIGATIONS MONEY MARKET FUND seeks to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal.
- The MONEY MARKET FUND seeks to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal.
10
<PAGE>
- The TAX-FREE MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income taxes as is consistent
with maintaining liquidity and stability of principal.
THE GROWTH AND INCOME, JAPANESE EQUITY, EUROPEAN EQUITY AND TAX-FREE MONEY
MARKET FUNDS ARE CURRENTLY NOT BEING OFFERED.
INVESTMENT MANAGEMENT
Morgan Stanley Asset Management Inc. ("MSAM," the "Adviser" and the
"Administrator"), a wholly-owned subsidiary of Morgan Stanley Group Inc.
("MSGI"), which, together with its affiliated asset management companies had
approximately $103.5 billion in assets under management as an investment manager
or as a fiduciary adviser at September 30, 1996, acts as investment adviser to
each of the Funds, except the Mid Cap Growth and Value Funds. See "Management of
the Company -- Investment Adviser" and "-- Administrator." On October 31, 1996,
MSGI purchased the parent company of Van Kampen American Capital, Inc., which in
turn is the parent company of VKAC Distributors. Van Kampen American Capital,
Inc. is the fourth largest non-proprietary mutual fund provider in the United
States with approximately $59 billion in assets under management or supervision
as of September 30, 1996.
RISK FACTORS
The investment policies of each Fund entail certain risks and considerations
of which an investor should be aware. The Funds described herein will invest in
securities of foreign issuers, including emerging country securities. Securities
of foreign issuers and, in particular, emerging country securities, are subject
to certain risks not typically associated with domestic securities, including,
among other risks, changes in currency rates and in exchange control
regulations, costs in connection with conversions between various currencies,
limited publicly available information regarding foreign issuers, lack of
uniformity in accounting, auditing and financial standards and requirements,
potential price volatility and lesser liquidity of shares traded on securities
markets, less government supervision and regulation of securities markets,
changes in taxes on income on securities, possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits, the risk of war and
potentially greater difficulty in obtaining a judgment in a court outside the
United States. The Emerging Markets Debt and Worldwide High Income Funds invest
in securities of issuers located in developing countries and emerging markets,
which may impose greater liquidity risks and other risks not typically
associated with investing in the more established markets of developed
countries. The Emerging Markets Debt and Worldwide High Income Funds'
investments in emerging markets may be in small- to medium-sized companies. The
Funds may also invest in sovereign debt that is considered to be speculative in
nature and involves a high degree of risk. The Funds may invest in forward
foreign currency exchange contracts, and the Emerging Markets Debt and Worldwide
High Income Funds may invest in foreign currency exchange futures and options.
Each Fund may invest in securities that are neither listed on a stock exchange
nor traded over-the-counter, including private placement securities. Such
securities may be less liquid than publicly traded securities. The Emerging
Markets Debt, Worldwide High Income and High Yield Funds may invest in lower
rated and unrated debt securities which are considered speculative with regard
to the payment of interest and return of principal. In addition, the Emerging
Markets Debt and Worldwide High Income Funds may invest in derivatives, which
include options, futures and options on futures. The Emerging Markets Debt and
Global Fixed Income Funds are non-diversified portfolios which may invest a
greater portion of their assets in the securities of a smaller number of
11
<PAGE>
issuers and, as a result, will be subject to a greater risk resulting from such
concentration of its portfolio securities. Each Fund may invest in repurchase
agreements, lend its portfolio securities, purchase securities on a when-issued
or delayed delivery basis, and borrow money in an amount not in excess of
33 1/3% of its total assets (including the amount borrowed), less all
liabilities and indebtedness other than borrowing. Each of these investment
strategies involves specific risks which are described under "Investment
Objectives and Policies" and "Additional Investment Information" herein and
under "Investment Objectives and Policies" in the Statement of Additional
Information.
HOW TO INVEST
The Class A, Class B and Class C shares of the Funds are designed to provide
investors a choice of three ways to pay distribution costs. Class A shares of
the Funds are offered at net asset value plus an initial sales charge of up to
4.75% in graduated percentages based on the investor's aggregate investments in
the Funds. Shares of the Class B shares and Class C shares of the Funds are
offered at net asset value. Class B shares are subject to a contingent deferred
sales charge ("CDSC") for redemptions within five years of purchase and are
subject to higher annual distribution-related expenses than the Class A shares.
Class C shares are subject to a CDSC for redemptions within one year of purchase
and are subject to higher annual distribution-related expenses than the Class A
shares. See "Purchase of Shares" for a discussion of reduction of waiver of
sales charges, which are available for certain investors. Share purchases may be
made through VKAC Distributors, through Participating Dealers or by sending
payments directly to the Company. The minimum initial investment is $500 for
each class of a Fund, except that the minimum initial investment amount is
reduced for certain categories of investors. The minimum for subsequent
investments is $25, except that there is no minimum for automatic reinvestment
of dividends and distributions. See "Purchase of Shares."
HOW TO REDEEM
Shares of each Fund may be redeemed at any time at the net asset value per
share (less any applicable CDSC) of the Fund next determined after receipt of
the redemption request. The redemption price may be more or less than the
purchase price. See "Redemption of Shares."
12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund is described below, together with the
policies it employs in its efforts to achieve its objective. Each Fund's
investment objective is a fundamental policy which may not be changed by the
Fund without the approval of a majority of the Fund's outstanding voting
securities. The investment policies described below are not fundamental policies
and may be changed without shareholder approval. There is no assurance that a
Fund will attain its investment objective. For more information about certain
investment practices of the Funds, see "Additional Investment Information" below
and "Investment Objectives and Policies" in the Statement of Additional
Information.
THE EMERGING MARKETS DEBT FUND
The investment objective of the Fund is to seek high total return. In
seeking to achieve this objective, the Fund will seek to invest at least 65% of
its total assets in debt securities of government and government-related issuers
located in emerging countries (including participations in loans between
governments and financial institutions), and of entities organized to
restructure outstanding debt of such issuers. In addition, the Fund may invest
up to 35% of its total assets in debt securities of corporate issuers located in
or organized under the laws of emerging countries. As used in this Prospectus,
the term "emerging country" applies to any country which, in the opinion of the
Adviser, is generally considered to be an emerging or developing country by the
international financial community, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. Government, government-related and
restructured debt securities in emerging markets will consist of (i) debt
securities or obligations issued or guaranteed by governments, governmental
agencies or instrumentalities and political subdivisions located in emerging
countries (including participations in loans between governments and financial
institutions), (ii) debt securities or obligations issued by government owned,
controlled or sponsored entities located in emerging countries, and (iii)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the entities
described above.
The Adviser intends to invest the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. The Fund will
focus its investments on those emerging market countries in which it believes
the economies are developing strongly and in which the markets are becoming more
sophisticated. Initially, the Fund expects that its investments in emerging
country debt securities will be made primarily in some or all of the following
emerging countries:
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<PAGE>
Algeria
Argentina
Brazil
Bulgaria
Chile
China
Colombia
Costa Rica
Czech Republic
Dominican Republic
Ecuador
Egypt
Greece
Hungary
India
Indonesia
Ivory Coast
Jamaica
Jordan
Malaysia
Mexico
Morocco
Nicaragua
Nigeria
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Russia
Slovakia
South Africa
Thailand
Trinidad & Tobago
Tunisia
Turkey
Uruguay
Venezuela
Zaire
In selecting emerging country debt securities for investment by the Fund,
the Adviser will apply a market risk analysis contemplating assessment of
factors such as liquidity, volatility, tax implications, interest rate
sensitivity, counterparty risks and technical market considerations. Currently,
investing in many emerging country securities is not feasible or may involve
unacceptable political risks. As opportunities to invest in debt securities in
other countries develop, the Fund expects to expand and further diversify the
emerging countries in which it invests. While the Fund generally is not
restricted in the portion of its assets which may be invested in a single
country or region, it is anticipated that, under normal conditions, the Fund's
assets will be invested in issuers in at least three countries.
Emerging country debt securities held by the Fund will take the form of
bonds, notes, bills, debentures, convertible securities, warrants, bank debt
obligations, short-term paper, mortgage and other asset-backed securities,
loans, loan participations, loan assignments and interests issued by entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by emerging country issuers. U.S.
Dollar-denominated emerging country debt securities held by the Fund will
generally be listed but not traded on a securities exchange, and non-U.S.
Dollar-denominated securities held by the Fund may or may not be listed or
traded on a securities exchange. Investments in emerging country debt securities
entail special investment risks. The Fund will be subject to no restrictions on
the maturities of the emerging country debt securities it holds; those
maturities may range from overnight to 30 years.
The Fund is not restricted in the portion of its assets which may be
invested in securities denominated in a particular currency and a substantial
portion of the Fund's assets may be invested in non-U.S. Dollar-denominated
securities. The portion of the Fund's assets invested in securities denominated
in currencies other than the U.S. Dollar will vary depending on market
conditions. Although the Fund is permitted to engage in a wide variety of
investment practices designed to hedge against currency exchange rate risks with
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks.
14
<PAGE>
Emerging country debt securities in which the Fund may invest will be
subject to high risk and will not be required to meet a minimum rating standard
and may not be rated for creditworthiness by any internationally recognized
credit rating organization. The Fund's investments are expected to be rated in
the lower and lowest rating categories of internationally recognized credit
rating organizations or are expected to be unrated securities of comparable
quality. These types of debt obligations are predominantly speculative with
respect to the capacity to pay interest and repay principal in accordance with
their terms and generally involve a greater risk of default and of volatility in
price than securities in higher rating categories.
The Fund is authorized to borrow up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing, for investment purposes to increase the opportunity for
greater return and for payment of dividends. Such borrowings would constitute
leverage, which is a speculative characteristic. Leveraging will magnify
declines as well as increases in the net asset value of the Fund's shares and
increases in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.
The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The Fund may also
enter into reverse repurchase agreements.
The Fund's investments in government, government-related and restructured
debt instruments are subject to special risks, including the issuer's inability
or unwillingness to repay principal and interest, requests to reschedule or
restructure outstanding debt and requests to extend additional loan amounts. The
Fund may have limited recourse in the event of default on such debt instruments.
The Fund may invest in derivatives, when-issued and delayed delivery
securities and non-publicly traded securities, including private placements and
restricted securities. The Fund may also invest in zero coupon, pay-in-kind or
deferred payment securities and in securities that may be collateralized by zero
coupon securities (such as Brady Bonds).
For temporary defensive purposes, the Fund may invest in money market
instruments and short- and medium-term debt securities that the Adviser believes
to be of high quality, or hold cash.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE GLOBAL FIXED INCOME FUND
The investment objective of the Global Fixed Income Fund is to produce an
attractive real rate of return while preserving capital by investing in fixed
income securities of issuers located throughout the world, including U.S.
issuers. The Fund will, under normal market conditions, invest at least 65% of
the value of its total assets in fixed income securities of issuers in at least
three different countries. The Fund seeks to achieve its objective by investing
in United States government securities, foreign government securities,
securities of
15
<PAGE>
supranational entities, Eurobonds, corporate bonds and structured investments
with fixed income characteristics, with varying maturities denominated in
various currencies. In selecting portfolio securities, the Adviser evaluates the
currency, market, and individual features of the securities being considered for
investment.
The Adviser seeks to minimize investment risk by investing in a high quality
portfolio of debt securities, the majority of which will be rated in one of the
two highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO") or, if unrated, will be of comparable quality as
determined by the Adviser under the supervision of the Board of Directors. U.S.
Government securities in which the Global Fixed Income Fund may invest include
obligations issued or guaranteed by the U.S. Government, such as U.S. Treasury
securities, as well as those backed by the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association and
The Export-Import Bank. The Fund may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Fund must
look principally to the issuing or guaranteeing agency for ultimate repayment.
The Fund may invest in obligations issued or guaranteed by foreign governments
and their political subdivisions, authorities, agencies or instrumentalities,
and by supranational entities (such as the World Bank, The European Economic
Community, The Asian Development Bank and the European Coal and Steel
Community). Investment in foreign government securities will be limited to those
of developed nations which the Adviser believes to pose limited credit risk.
These countries currently include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands,
New Zealand, Norway, Spain, Sweden, Switzerland and The United Kingdom.
Corporate and supranational obligations in which the Fund will invest will be
limited to those rated "A" or better by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("Standard & Poor's") or IBCA Ltd.,
or if unrated, of comparable quality as determined by the Adviser under the
supervision of the Company's Board of Directors.
The Adviser's approach to multi-currency, fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and currencies is based on
an analysis of real interest rates. Current nominal yields of securities are
adjusted for inflation prevailing in each currency sector using an analysis of
past and projected inflation rates. The Fund's aim is to invest in bond markets
which offer the most attractive real returns relative to inflation.
Under normal circumstances, the Global Fixed Income Fund will have a neutral
investment position in medium-term securities (i.e., those with a remaining
maturity of between three and seven years) and will respond to changing interest
rate levels by shortening or lengthening portfolio maturity through investment
in longer- or shorter-term instruments. For example, the Fund will respond to
high levels of real interest rates through a lengthening in portfolio maturity.
Current and historical yield spreads among the three main market segments -- the
Government, Foreign and Euro markets -- guide the Adviser's selection of markets
and particular securities within those markets. The analysis of currencies is
made independent of the analysis of markets. Value in foreign exchange is
determined by relative purchasing power parity of a given currency. The Fund
seeks to invest in currencies currently undervalued based on purchasing power
parity. The Adviser analyzes current account and capital account performance and
real interest rates to adjust for shorter-term currency flows.
The Global Fixed Income Fund may invest in non-publicly traded securities,
private placements and restricted securities. The Global Fixed Income Fund will
occasionally enter into forward foreign currency exchange contracts. These are
used to hedge foreign currency exchange exposures when required.
16
<PAGE>
For temporary defensive purposes, the Global Fixed Income Fund may invest in
money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality, or hold cash.
For further information about the foregoing and certain additional
investment practices of the Global Fixed Income Fund, see "Additional Investment
Information" below.
THE HIGH YIELD FUND
The Fund seeks to maximize total return by investing in a diversified
portfolio of high yield fixed income securities that offer a yield above that
generally available on debt securities in the four highest rating categories of
the NRSROs. The Fund normally invests between 80% and 100% of its total assets
in these higher yielding securities, (commonly referred to as high yield bonds
or junk bonds) which generally entails increased credit and market risk. To
mitigate these risks the Fund will diversify its holdings by issuer, industry
and credit quality, but investors should carefully review the section below
entitled "Additional Investment Information -- Lower Rated and Unrated Debt
Securities."
Appendix A to this Prospectus sets forth a description of the corporate bond
rating categories of Moody's and Standard & Poor's. Corporate bonds rated below
Baa by Moody's or BBB by Standard & Poor's are considered speculative.
Securities in the lowest rating categories may have predominantly speculative
characteristics or may be in default. Ratings of Standard & Poor's and Moody's
represent their opinions of the quality of bonds and other debt securities they
undertake to rate at the time of issuance. However, ratings are not absolute
standards of quality and may not reflect changes in an issuer's
creditworthiness. Accordingly, although the Adviser will consider ratings, it
will perform its own analysis and will not rely principally on ratings. The
Adviser will consider, among other things, the price of the security, and the
financial history and condition, the prospects and the management of an issuer
in selecting securities for the Fund. The Fund may buy unrated securities that
the Adviser believes are comparable to rated securities and are consistent with
the Fund's objective and policies. The Adviser may vary the average maturity of
the securities in the Fund without limit and there is no restriction on the
maturity of any individual security.
The table below provides a summary of ratings assigned by S&P to debt
obligations in the High Yield Fund. These figures are dollar-weighted averages
of month-end portfolio holdings during the period ended June 30, 1996, and are
presented as a percentage of total investments. These percentages are historical
and are not necessarily indicative of the quality of current or future portfolio
holdings, which may vary.
<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ------------------------------------------------------------ ----------
<S> <C>
BBB......................................................... 2.28%
BB.......................................................... 45.11%
B........................................................... 41.09%
Unrated..................................................... 11.52%
</TABLE>
The High Yield Fund may acquire fixed income securities of both U.S. and
foreign issuers, including debt obligations (e.g., bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sales
contracts, commercial paper and obligations issued or guaranteed by the U.S.
Government, any foreign government with which the United States maintains
relations or any of their respective political subdivisions, agencies or
instrumentalities) and preferred stock. The Fund may not invest more than 5% of
its total assets at time of acquisition in either (1) equipment lease
certificates, equipment trust certificates and
17
<PAGE>
conditional sales contracts or (2) limited partnership interests. The Fund may
neither invest more than 20% of its total assets in foreign securities nor
invest more than 5% of its total assets in foreign governmental issuers in any
one country. The Fund's fixed income securities may have equity features, such
as conversion rights or warrants, and the Fund may invest up to 10% of its total
assets in equity securities other than preferred stock (common stocks, warrants
and rights and limited partnership interests). The Fund may invest up to 20% of
its total assets in fixed income securities that are investment grade (i.e.,
rated in one of the top four categories by an NRSRO or determined to be of
comparable quality) and have maturities of one year or less. For temporary
defensive purposes, the Fund may invest in money market instruments and short-
and medium-term debt securities that the Adviser believes to be of high quality,
or hold cash. The Fund may invest in or own securities of companies in various
stages of financial restructuring, bankruptcy or reorganization which are not
currently paying interest or dividends. Such securities may be rated C by
Moody's or D by Standard & Poor's or may be unrated but determined to be of
comparable quality by the Adviser. The total value, at time of purchase, of the
sum of all such securities will not exceed 10% of the value of the Fund's total
assets. Securities that are rated above C by Moody's or above D by Standard &
Poor's (or are unrated but determined to be of comparable quality by the
Adviser) when purchased by the Fund that are later downgraded may continue to be
held by the Fund at the discretion of the Adviser.
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities.
For further information about the foregoing and certain additional
investment practices of the Fund, see "Additional Investment Information" below.
THE WORLDWIDE HIGH INCOME FUND
The investment objective of the Worldwide High Income Fund is high current
income consistent with relative stability of principal and, secondarily, capital
appreciation, by investing primarily in a portfolio of high yielding fixed
income securities of issuers located throughout the world. The Fund seeks to
achieve its investment objective by allocating its assets among any or all of
three investment sectors: U.S. corporate lower rated and unrated debt
securities, emerging country debt securities and global fixed income securities
offering high real yields. The types of securities in each of these investment
sectors in which the Fund may invest are described below. In selecting U.S.
corporate lower rated and unrated debt securities for the Fund's portfolio, the
Adviser will consider, among other things, the price of the security, and the
financial history, condition, prospects and management of an issuer. The Adviser
intends to invest a portion of the Fund's assets in emerging country debt
securities that provide a high level of current income, while at the same time
holding the potential for capital appreciation if the perceived creditworthiness
of the issuer improves due to improving economic, financial, political, social
or other conditions in the country in which the issuer is located. In addition,
the Adviser will attempt to invest a portion of the Fund's assets in fixed
income securities of issuers in global fixed income markets displaying high real
(inflation adjusted) yields. Under normal conditions, the Fund invests between
80% and 100% of its total assets in some or all of three categories of higher
yielding securities, some of which may entail increased credit and market risk.
Some or all of such higher yielding securities will be lower rated or unrated
debt securities, commonly referred to as "junk bonds."
The Adviser's approach to multi-currency fixed-income management is
strategic and value-based and designed to produce an attractive real rate of
return. The Adviser's assessment of the bond markets and
18
<PAGE>
currencies is based on an analysis of real interest rates. Current nominal
yields of securities are adjusted for inflation prevailing in each currency
sector using an analysis of past and projected inflation rates. The Fund's aim
is to invest in bond markets which offer the most attractive real returns
relative to inflation.
From time to time, a portion of the Worldwide High Income Fund's
investments, which may be up to 100% of the Fund's investments, may be in "junk
bonds." For a discussion of the risks associated with junk bonds, see "The High
Yield Fund" above. Emerging country debt securities in which the Fund may invest
will be subject to high risk and will not be required to meet a minimum rating
standard and may not be rated for creditworthiness by any internationally
recognized credit rating organization. The Fund's investments in U.S. corporate
lower rated and unrated debt securities and emerging country debt securities are
expected to be rated in the lower and lowest rating categories of
internationally recognized credit rating organizations or to be unrated
securities of comparable quality. To mitigate the risks associated with
investments in such lower rated securities, the Fund will diversify its holdings
by market, issuer, industry and credit quality. Investors should carefully
review the section below entitled "Additional Investment Information -- Risk
Factors Relating to Investing in Lower Rated Debt Securities."
The chart below indicates the Worldwide High Income Fund's weighted average
composition of debt securities graded by Standard & Poor's for the fiscal year
ended June 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
DEBT SECURITIES RATINGS OF
(STANDARD & POOR'S) NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
A........................................................... 8.93%
BBB......................................................... 2.54%
BB.......................................................... 24.17%
B........................................................... 16.08%
CCC......................................................... 0.17%
Unrated..................................................... 48.10%
</TABLE>
The weighted average indicated above was calculated on a dollar weighted
basis and was computed as at the end of each month through June 30, 1996. These
percentages are historical and are not necessarily indicative of the quality of
current or future portfolio holdings, which may vary. For a description of
Standard & Poor's ratings of fixed income securities, see Appendix A to this
Prospectus.
The Worldwide High Income Fund may invest in or own securities of companies
in various stages of financial restructuring, bankruptcy or reorganization which
are not currently paying interest or dividends, provided that the total value,
at the time of purchase, of all such securities will not exceed 10% of the value
of the Fund's total assets. The Fund may have limited recourse in the event of
default on such debt instruments. The Fund may invest in loans, assignments of
loans and participation in loans. The Fund may also invest in depositary
receipts issued by U.S. or foreign financial institutions.
The Worldwide High Income Fund is not restricted in the portion of its
assets which may be invested in securities denominated in a particular currency
and a substantial portion of the Fund's assets may be invested in non-U.S.
Dollar-denominated securities. The portion of the Fund's assets invested in
securities denominated in currencies other than the U.S. Dollar will vary
depending on market conditions. Although the Fund is permitted to engage in a
wide variety of investment practices designed to hedge against currency exchange
rate risks with
19
<PAGE>
respect to its holdings of non-U.S. Dollar-denominated debt securities, the Fund
may be limited in its ability to hedge against these risks. The Fund may also
buy and sell options and may enter into futures contracts and options on
futures, including indexed financial futures contracts.
The Worldwide High Income Fund may invest in zero coupon, pay-in-kind or
deferred payment securities, and in securities that may be collateralized by
zero coupon securities (such as Brady Bonds). The Worldwide High Income Fund may
invest in non-publicly traded securities, private placements and restricted
securities.
The Worldwide High Income Fund is authorized to borrow up to 33 1/3% of its
total assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing, for investment purposes to increase the
opportunity for greater return and for payment of dividends. Such borrowings
would constitute leverage, which is a speculative characteristic. Leveraging
will magnify declines as well as increases in the net asset value of the Fund's
shares and in the yield on the Fund's investments. Although the Fund is
authorized to borrow, it will do so only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of borrowing and the likely investment returns on securities purchased
with borrowed monies. Borrowing by the Fund will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations.
The Fund expects that all of its borrowing will be made on a secured basis.
The Fund's custodian will either segregate the assets securing the borrowing for
the benefit of the lenders or arrangements will be made with a suitable
sub-custodian. If assets used to secure the borrowing decrease in value, the
Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. The Fund may also
enter into reverse repurchase agreements.
The average time to maturity of the Worldwide High Income Fund's securities
will vary depending upon the Adviser's perception of market conditions. The
Adviser invests primarily in medium-term securities (i.e., those with a
remaining maturity of approximately five years) in a market neutral environment.
When the Adviser believes that real yields are high, the Adviser lengthens the
remaining maturities of securities held by the Fund and, conversely, when the
Adviser believes real yields are low, it shortens the remaining maturities.
Thus, the Fund is not subject to any restrictions on the maturities of the debt
securities it holds, and the Adviser may vary the average maturity of the
securities held in the Fund's portfolio without limit.
For temporary defensive purposes, the Worldwide High Income Fund may invest
in money market instruments and short- and medium-term debt securities that the
Adviser believes to be of high quality, or hold cash.
U.S. CORPORATE HIGH YIELD FIXED INCOME SECURITIES. A portion of the
Worldwide High Income Fund's assets will be invested in U.S. corporate high
yield fixed income securities, which are commonly referred to as "junk bonds."
The Fund may acquire fixed income securities of U.S. issuers, including debt
obligations (e.g., bonds, debentures, notes, equipment lease certificates,
equipment trust certificates, conditional sales contracts, commercial paper and
obligations issued or guaranteed by the U.S. Government or any of its political
subdivisions, agencies or instrumentalities) and preferred stock. These fixed
income securities may have equity features, such as conversion rights or
warrants and the Fund may invest up to 10% of its total assets in equity
20
<PAGE>
securities other than preferred stock (e.g., common stocks, warrants and rights
and limited partnership interests). The Fund may not invest more than 5% of its
total assets at the time of acquisition in either of (1) equipment lease
certificates, equipment trust certificates and conditional sales contracts or
(2) limited partnership interests.
EMERGING COUNTRY FIXED INCOME SECURITIES. A portion of the Worldwide High
Income Fund's assets will be invested in emerging country fixed income
securities. For a discussion of emerging country fixed income securities, see
"Emerging Markets Debt Fund" above.
GLOBAL FIXED INCOME SECURITIES. A portion of the Worldwide High Income
Fund's assets will be invested in global fixed income securities. For a
discussion of global fixed income securities, see "Global Fixed Income Fund"
above.
For further information about the foregoing and certain additional
investment practices of the Fund, including investment in derivative securities,
see "Additional Investment Information" below.
ADDITIONAL INVESTMENT INFORMATION
BORROWING AND OTHER FORMS OF LEVERAGE
The Global Fixed Income and High Yield Funds may borrow up to 10% of their
total assets as a temporary measure for extraordinary or emergency purposes.
These Funds may not purchase additional securities when borrowings exceed 5% of
total assets. The Worldwide High Income Fund may enter into reverse repurchase
agreements in accordance with its investment objective and policies and may
borrow amounts up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowing. The
Emerging Markets Debt Fund may borrow money (i) as a temporary measure for
extraordinary or emergency purposes, and (ii) in connection with reverse
repurchase agreements, provided that (i) and (ii) in combination do not exceed
33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings).
DEPOSITARY RECEIPTS
The Emerging Markets Debt and Worldwide High Income Funds may invest in
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"),
European Depositary Receipts ("EDRs") and other depositary receipts, to the
extent that such depositary receipts become available. ADRs are securities,
typically issued by a U.S. financial institution (a "depositary"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer (the "underlying issuer") and deposited with the depositary. ADRs include
American Depositary Shares and New York Shares and may be "sponsored" or
"unsponsored." Sponsored ADRs are established jointly by a depositary and the
underlying issuer, whereas unsponsored ADRs may be established by a depositary
without participation by the underlying issuer. GDRs, EDRs and other types of
depositary receipts are typically issued by foreign depositaries, although they
may also be issued by U.S. depositaries, and evidence ownership interests in a
security or pool of securities issued by either a foreign or a U.S. corporation.
FOREIGN CURRENCY HEDGING TRANSACTIONS
Each Fund may enter into forward foreign currency exchange contracts
("forward contracts"). Forward contracts provide for the purchase or sale of an
amount of a specified foreign currency at a future date. Purposes for which such
contracts may be used include protecting against a decline in a foreign currency
against the U.S.
21
<PAGE>
Dollar between the trade date and settlement date when a Fund purchases or sells
securities, locking in the U.S. Dollar value of dividends declared on securities
held by the Fund and generally protecting the U.S. Dollar value of securities
held by the Fund against exchange rate fluctuations. While such forward
contracts may limit losses to a Fund as a result of exchange rate fluctuations,
they will also limit any exchange rate gains that might otherwise have been
realized.
The Worldwide High Income Fund may also enter into foreign currency futures
contracts. A foreign currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Foreign currency futures contracts
traded in the U.S. are traded on regulated exchanges. Parties to a futures
contract must make initial "margin" deposits to secure performance of the
contract, which generally range from 2% to 5% of the contract price. There also
are requirements to make "variation" margin deposits as the value of the futures
contract fluctuates. The Funds may not enter into foreign currency futures
contracts if the aggregate amount of initial margin deposits on the Fund's
futures positions, including stock index futures contracts (which are discussed
below), would exceed 5% of the value of the Fund's total assets. The Funds also
will be required to segregate assets to cover its futures contracts obligations.
At the maturity of a forward or futures contract, a Fund may either accept
or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. Closing purchase transactions with respect to
futures contracts are effected on an exchange. A Fund will only enter into such
a forward or futures contract if it is expected that there will be a liquid
market in which to close out such contract. There can, however, be no assurance
that such a liquid market will exist in which to close a forward or futures
contract, in which case the Fund may suffer a loss.
The Worldwide High Income Fund may attempt to accomplish objectives similar
to those described above with respect to forward and futures contracts for
currency by means of purchasing put or call options on foreign currencies on
exchanges. A put option gives the Fund the right to sell a currency at the
exercise price until the expiration of the option. A call option gives the Fund
the right to purchase a currency at the exercise price until the expiration of
the option.
The Custodian of each Fund will place cash or other liquid assets into a
segregated account of a Fund in an amount equal to the value of such Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will be at least equal to the
amount of such Fund's commitments with respect to such contracts.
FOREIGN INVESTMENT
Each Fund may invest in securities of foreign issuers. Investment in
securities of foreign issuers, especially in securities of issuers in emerging
countries, involves somewhat different investment risks from those affecting
securities of U.S. issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing, and financial and other reporting standards and
requirements comparable to those applicable to domestic companies. Therefore,
disclosure of certain material information may not be made and less information
may be available to investors investing in
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foreign countries than in the United States. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and listed
companies than in the United States. Many foreign securities markets have
substantially less volume than U.S. national securities exchanges, and
securities of some foreign issuers are less liquid and subject to greater price
volatility than securities of comparable domestic issuers. Brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Funds by domestic companies. Additional risks include future adverse political
and economic developments, the possibility that a foreign jurisdiction might
impose or change withholding taxes on income payable with respect to foreign
securities, possible seizure, nationalization or expropriation of the foreign
issuer or foreign deposits, and the possible adoption of foreign governmental
restrictions such as exchange controls. Emerging countries may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Investments in securities of foreign issuers are generally denominated in
foreign currencies, and a Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies. Therefore, the value of a Fund's assets measured
in U.S. Dollars may be affected favorably or unfavorably by changes in currency
exchange rates and exchange control regulations. Each Fund will also incur
certain costs in connection with conversions between various currencies.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
In order to remain fully invested and to reduce transaction costs, the
Emerging Markets Debt, Worldwide High Income and High Yield Funds may utilize
appropriate futures contracts and options on futures contracts, including
securities index futures contracts and options on securities index futures
contracts. An indexed futures contract is an agreement to take or make delivery
of an amount of cash equal to the difference between the value of the index at
the beginning and at the end of the contract period. Successful use of indexed
futures will be subject to the Adviser's ability to predict correctly movements
in the direction of the relevant debt market. No assurance can be given that the
Adviser's judgment in this respect will be correct.
The Emerging Markets Debt, Worldwide High Income and High Yield Funds will
engage in transactions in securities index futures contracts, interest rate
futures contracts and options thereon which are traded on a recognized
securities or futures exchange. There currently are limited securities index
futures, interest rate futures and options on such futures markets in many
countries, particularly emerging countries such as Latin American countries, and
the nature of the strategies adopted by the Adviser, and the extent to which
those strategies are used, will depend on the development of such markets.
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<PAGE>
The Funds may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result. When a Fund is not
fully invested and anticipates a significant market advance, it may purchase
indexed futures in order to gain rapid market exposure that may in part or
entirely offset, increase in the cost of securities that it intends to purchase.
In a substantial majority of these transactions, a Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of debt securities.
The Funds may enter into futures contracts and options thereon provided that
not more than 5% of each such Fund's total assets at the time of entering the
transaction are required as deposits to secure obligations under such contracts.
Furthermore, no more than 20% of the Worldwide High Income and High Yield Fund's
total assets, in the aggregate, may be invested in futures contracts and options
on futures contracts. The Emerging Markets Debt Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under such contracts, in combination with its outstanding obligations with
respect to options transactions, would exceed 50% of its total assets.
The primary risks associated with the use of futures and options thereon are
(i) imperfect correlation between the change in market value of the stocks held
by a Fund and the prices of futures and options relating to the stocks 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 which
could have an adverse impact on the Fund's ability to hedge.
INVESTMENT FUNDS
A Fund may invest in securities of another open-end or closed-end investment
company, by purchase in the open market involving only customary brokers'
commission or in connection with mergers, acquisitions of assets or
consolidations and as may otherwise be permitted by the 1940 Act.
Some emerging countries have laws and regulations that currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Emerging Markets Debt Fund and Worldwide High Income Fund may invest in these
investment funds subject to applicable provisions of the 1940 Act, and other
applicable laws. If the Fund invests in such investment funds, the Fund's
shareholders will bear not only their proportionate share of the expenses of the
Fund (including operating expenses and the fees of the Adviser), but also will
indirectly bear similar expenses of the underlying investment funds.
Certain of the investment funds referred to in the preceding paragraph are
advised by the Adviser. The Emerging Markets Debt Fund and Worldwide High Income
Fund may, to the extent permitted under the 1940 Act and other applicable law,
invest in these investment funds. If the Fund does elect to make an investment
in such an investment fund, it will only purchase the securities of such
investment fund in the secondary market.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its securities to brokers, dealers, domestic and foreign
banks or other financial institutions for the purpose of increasing its net
investment income. These loans must be secured continuously by cash or
equivalent collateral or by a letter of credit at least equal to the market
value of the securities loaned
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<PAGE>
plus accrued interest. A Fund will not enter into securities loan transactions
exceeding in the aggregate 33 1/3% of the market value of the Fund's total
assets. As with other extensions of credit, there are risks of delay in recovery
or even loss of rights in collateral should the borrower of the portfolio
securities fail financially.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Emerging Markets Debt and Worldwide High Income Funds may invest in
fixed and floating rate loans ("Loans") arranged through private negotiations
between an issuer of sovereign or corporate debt obligations and one or more
financial institutions ("Lenders"). Such Funds' investments in Loans are
expected in most instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans ("Assignments")
from third parties. In the case of Participations, a Fund will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participations and only upon receipt by the
Lender of the payments from the borrower. In the event of the insolvency of the
Lender selling a Participation, a Fund may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
borrower. A Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy. When a Fund purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by a Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Funds anticipate that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
LOWER RATED AND UNRATED DEBT SECURITIES
The Emerging Markets Debt, Worldwide High Income and High Yield Funds may
invest in lower rated or unrated debt securities, commonly referred to as "junk
bonds." In addition, the emerging country debt securities in which such Funds
may invest are subject to additional risks and will not be required to meet a
minimum rating standard and may not be rated. Fixed income securities are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The market values of fixed income securities tend to vary inversely with
the level of interest rates. Yields and market values of lower rated and unrated
debt securities will fluctuate over time, reflecting not only changing interest
rates but the market's perception of credit quality and the outlook for economic
growth. When economic conditions appear to be deteriorating, medium to lower
rated securities may decline in value due to heightened concern over credit
quality, regardless of prevailing interest rates. Fluctuations in the value of a
Fund's investments will be reflected in the Fund's net asset value per share.
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<PAGE>
The Adviser considers both credit risk and market risk in making investment
decisions for the Funds. Investors should carefully consider the relative risks
of investing in lower rated and unrated debt securities and understand that such
securities are not generally meant for short-term investing.
The U.S. corporate lower rated and unrated debt securities market is
relatively new and its recent growth paralleled a long period of economic
expansion and an increase in merger, acquisition and leveraged buyout activity.
Adverse economic developments may disrupt the market for U.S. corporate lower
rated and unrated debt securities and for emerging country debt securities. Such
disruptions may severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity. In addition, the secondary market for lower rated and
unrated debt securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated securities.
As a result, the Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower rated
or unrated securities, under these circumstances, may be less than the prices
used in calculating the Fund's net asset value.
Prices for lower rated and unrated debt securities may be affected by
legislative and regulatory developments. These laws could adversely affect the
Fund's net asset value and investment practices, the secondary market for lower
rated and unrated debt securities, the financial condition of issuers of such
securities and the value of outstanding lower rated and unrated debt securities.
For example, U.S. federal legislation requiring the divestiture by federally
insured savings and loan associations of their investments in lower rated and
unrated debt securities and limiting the deductibility of interest by certain
corporate issuers of lower rated and unrated debt securities adversely affected
the market in recent years.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated; instruments issued by a foreign
government in other than the local currency, for example, typically have a lower
rating than local currency instruments due to the existence of an additional
risk that the government will be unable to obtain the required foreign currency
to service its foreign currency-denominated debt. In general, the ratings of
debt securities or obligations issued by a non-U.S. public or private entity
will not be higher than the rating of the currency or the foreign currency debt
of the central government of the country in which the issuer is located,
regardless of the intrinsic creditworthiness of the issuer. In addition, there
may be limited trading markets for debt securities of issuers located in
emerging countries.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of lower rated and unrated debt
securities.
MONEY MARKET INSTRUMENTS
The Funds are permitted to invest in money market instruments for liquidity
and temporary defensive purposes, although the Funds intend to stay invested in
securities satisfying their primary investment objective
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<PAGE>
to the extent practical. The Funds may make money market investments pending
other investment or settlement for liquidity or in adverse market conditions.
The money market investments permitted for the Funds include obligations of the
U.S. Government, its agencies and instrumentalities, obligations of foreign
sovereignties and other debt securities, including high grade commercial paper,
repurchase agreements and bank obligations, such as bankers' acceptances and
certificates of deposit (including Eurodollar certificates of deposit).
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
Each Fund may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter. Such unlisted securities may involve a
higher degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than what may be considered the fair
value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, a Fund may be
required to bear the expenses of registration. A Fund may not invest more than
15% of its net assets in illiquid securities nor, except as set forth below,
more than 10% of its total assets in securities subject to legal or contractual
restrictions on resale. The Emerging Markets Debt Fund is not subject to the
foregoing 10% limitation. Securities that are restricted from sale to the public
without registration ("Restricted Securities") under the Securities Act of 1933,
as amended, (the "1933 Act"), which can be offered and sold to qualified
institutional buyers under Rule 144A under the 1933 Act ("144A Securities") may
be determined to be liquid under guidelines adopted by, and subject to the
supervision of, the Board of Directors. The High Yield Fund may not invest more
than 10% of its total assets in Restricted Securities, except that it may invest
up to 20% of its total assets in 144A Securities. 144A securities may become
illiquid if qualified institutional buyers are not interested in acquiring the
securities.
OPTIONS TRANSACTIONS
The Emerging Markets Debt and Worldwide High Income Funds may seek to
increase their returns or may hedge all or a portion of their portfolio
investments through stock options with respect to securities in which such Funds
may invest. The Funds may purchase put or call options on individual securities
or baskets of securities. When a Fund purchases a call option it acquires the
right to buy a designated security at a designated price (the "exercise price"),
and when a Fund purchases a put option it acquires the right to sell a
designated security at the exercise price, in each case on or before a specified
date (the "termination date"), usually not more than nine months from the date
the option is issued. A Fund may not purchase call and put options to the extent
that the value of its aggregate investment in such derivative securities exceeds
5% of its total assets.
The Emerging Markets Debt and Worldwide High Income Funds may write (i.e.,
sell) covered call options on securities and loan participations and assignments
held in its portfolio which give the purchaser the right to buy the underlying
security, loan participation or assignment covered by the option from the Fund
at the stated exercise price. Each Fund will receive a premium from writing call
options, which increases the Fund's return on the underlying security, loan
participation or assignment in the event the option expires unexercised or is
closed out at a profit. By writing a call, a Fund will limit its opportunity to
profit from an increase in the market value of the underlying security, loan
participation or assignment above the exercise price of the option for as long
as the Fund's obligation as writer of the option continues.
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<PAGE>
The Funds may also write (i.e., sell) covered put options. By selling a
covered put option, a Fund incurs an obligation to buy the security 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 (certain options
written by the Fund will be exercisable by the purchaser only on a specific
date).
The Funds will engage only in transactions in options which are traded on a
recognized securities or futures exchange. There currently are limited options
markets in many countries, particularly emerging countries such as Latin
American countries, and the nature of the strategies adopted by the Adviser and
the extent to which those strategies are used will depend on the development of
such option markets.
The primary risks associated with the use of options are (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) possible lack of a liquid secondary market for an option.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines of the Company's Board of Directors. In a
repurchase agreement, a Fund buys a security from a seller that has agreed to
repurchase it at a mutually agreed upon date and price, reflecting the interest
rate effective for the term of the agreement. The Funds always receive
securities as collateral with a market value at least equal to the purchase
price, including accrued interest, and this value is maintained during the term
of the agreement. If the seller defaults and the collateral value declines, a
Fund might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Fund's realization upon the collateral may be delayed or
limited. Repurchase agreements with durations (or maturities) over seven days in
length are considered to be illiquid securities.
REVERSE REPURCHASE AGREEMENTS
The Emerging Markets Debt and Worldwide High Income Funds may enter into
reverse repurchase agreements with brokers, dealers, domestic and foreign banks
or other financial institutions that have been determined by the Adviser to be
creditworthy. In a reverse repurchase agreement, a Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. It may also be viewed as
the borrowing of money by a Fund. A Fund's investment of the proceeds of a
reverse repurchase agreement is the speculative factor known as leverage. A Fund
will enter into a reverse repurchase agreement only if the interest income from
investment of the proceeds is expected to be greater than the interest expense
of the transaction and the proceeds are invested for a period no longer than the
term of the agreement. A Fund will maintain with the Custodian a separate
account with a segregated portfolio of cash or liquid assets in an amount at
least equal to its purchase obligations under these agreements (including
accrued interest). If interest rates rise during a reverse repurchase agreement,
it may adversely affect a Fund's net asset value. In the event that the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the buyer or its trustee or receiver may receive an extension of time
to determine whether to enforce the Fund's repurchase obligation, and the Fund's
use of proceeds of the agreement may effectively be restricted pending such
decision.
SHORT SALES
The Emerging Markets Debt and Worldwide High Income Funds may from time to
time sell securities short without limitation. A short sale is a transaction in
which a Fund would sell securities it does not own (but
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has borrowed) in anticipation of a decline in the market price of the
securities. When a Fund makes a short sale, the proceeds it receives from the
sale will be held on behalf of a broker until the Fund replaces the borrowed
securities. To deliver the securities to the buyer, a Fund will need to arrange
through a broker to borrow the securities and, in so doing, the Fund will become
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Funds may have to pay a premium
to borrow the securities and must pay any dividends or interest payable on the
securities until they are replaced.
Each Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash, or U.S. Government securities or other liquid assets. In
addition, each Fund will place in a segregated account with its Custodian an
amount of cash or liquid assets equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. Government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by a Fund involve certain
risks and special considerations. Possible losses from short sales differ from
losses that could be incurred from a purchase of a security, because losses from
short sales may be unlimited, whereas losses from purchases can equal only the
total amount invested.
STRUCTURED INVESTMENTS
The Emerging Markets Debt and Worldwide High Income Funds may invest a
portion of their assets in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign debt
obligations. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured Securities to
create securities with different investment characteristics, such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because Structured
Securities of the type in which each Fund anticipates it will invest typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Each Fund is permitted to invest in a class
of Structured Securities that is either subordinated or unsubordinated to the
right of payment of another class. Subordinated Structured Securities typically
have higher yields and present greater risks than unsubordinated Structured
Securities. Structured Securities are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Securities.
TEMPORARY INVESTMENTS
For temporary defensive purposes, when the Adviser determines that market
conditions warrant, each Fund may invest up to 100% of its assets in money
market instruments and short- and medium-term debt securities that the Adviser
believes to be of high quality, or hold cash. See "Investment Objectives and
Policies," above for further information about each Fund's policies.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are bought with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Each Fund will
maintain with the
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appropriate Custodian a separate account with a segregated portfolio of cash or
liquid assets in an amount at least equal to these commitments. The payment
obligation and the interest rates that will be received are each fixed at the
time a Fund enters into the commitment, and no interest accrues to the Fund
until settlement. It is a current policy of each of the Funds, other than the
Emerging Markets Debt Fund, not to enter into when-issued commitments or delayed
delivery securities exceeding, in the aggregate, 15% of the Fund's net assets
other than the obligations created by these commitments.
ZERO COUPONS; PAY-IN-KIND; DEFERRED PAYMENT SECURITIES
The Funds may invest in zero coupon securities, which are securities that
are sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. While interest payments are not made on
such securities, holders of such securities are deemed to have received annually
"phantom income." Because a Fund will distribute its "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. A Fund accrues
income with respect to these securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes payable
at regular intervals. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.
INVESTMENT LIMITATIONS
Each Fund, except the Emerging Markets Debt and Global Fixed Income Funds,
is a diversified investment company under the 1940 Act, and is subject to the
following limitations: (a) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (b) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. The
Emerging Markets Debt and Global Fixed Income Funds are non-diversified
investment companies under the 1940 Act, which means that each such Fund is not
limited by the 1940 Act in the proportion of its total assets that may be
invested in the obligations of a single issuer. Thus, the Emerging Markets Debt
and Global Fixed Income Funds may invest a greater proportion of their total
assets in the securities of a smaller number of issuers and, as a result, will
be subject to greater risk resulting from such concentration of its portfolio
securities. The Emerging Markets Debt and Global Fixed Income Funds, however,
intend to comply with the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended, for qualification as a regulated investment
company.
MANAGEMENT OF THE COMPANY
Investment Adviser. Morgan Stanley Asset Management Inc. (the "Adviser") is
the investment adviser and administrator of the Company and each of the Funds
listed below. The Adviser provides investment advice and portfolio management
services pursuant to an investment advisory agreement (an "Investment Advisory
Agreement") and, subject to the supervision of the Company's Board of Directors,
makes each of the Fund's
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investment decisions, arranges for the execution of portfolio transactions and
generally manages each of the Fund's investments. The Adviser is entitled to
receive an advisory fee computed daily and paid quarterly at the following
annual rates for each of the following Funds:
<TABLE>
<S> <C>
Emerging Markets Debt Fund............................................ 1.25%
Global Fixed Income Fund.............................................. 0.75%
High Yield Fund....................................................... 0.75%
Worldwide High Income Fund............................................ 0.75%
</TABLE>
The Adviser has agreed to a reduction in the fees payable to it and to
reimburse expenses to the applicable Fund, if necessary, if such fees or
expenses would cause the total annual operating expenses of the Fund to exceed
the maximums set forth in "Fund Expenses."
The Adviser, with principal offices at 1221 Avenue of the Americas, New
York, NY 10020, conducts a worldwide portfolio management business. It provides
a broad range of portfolio management services to customers in the United States
and abroad. At September 30, 1996, the Adviser together with its affiliated
asset management companies managed investments totaling approximately $103.5
billion, including approximately $86.5 billion under active management and $17
billion as Named Fiduciary or Fiduciary Adviser. See "Management of the Company
- -- Investment Advisory and Administrative Agreements" in the Statement of
Additional Information.
On October 31, 1996, MSGI purchased the parent company of Van Kampen
American Capital, Inc., which in turn is the parent company of VKAC
Distributors. Van Kampen American Capital, Inc. is the fourth largest
non-proprietary mutual fund provider in the United States with approximately $59
billion in assets under management or supervision as of September 30, 1996.
PORTFOLIO MANAGERS -- The following individuals have primary portfolio
management responsibility for the Funds noted below:
EMERGING MARKETS DEBT FUND -- PAUL GHAFFARI. Paul Ghaffari is a Managing
Director of Morgan Stanley. He joined the Adviser in June 1993 as a Vice
President and Portfolio Manager for the Morgan Stanley Emerging Markets Debt
Fund (a closed-end investment company). Prior to joining the Adviser, Mr.
Ghaffari was a Vice President in the Fixed Income Division of the Emerging
Markets Sales and Trading Department at Morgan Stanley. From 1983 to 1992, he
worked in LDC Sales and Trading Department and the Mortgage-Backed Securities
Department at J.P. Morgan & Co. Inc. and worked in the Treasury Department at
the Morgan Guaranty Trust Co. He holds a B.A. in International Relations from
Pomona College and an M.S. in Foreign Service from Georgetown University. Mr.
Ghaffari has had primary responsibility for managing the Portfolio's assets
since the Fund commenced operations.
GLOBAL FIXED INCOME FUND -- J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F.
O'BRIEN AND ROBERT M. SMITH. J. David Germany shares primary responsibility for
managing the Fund's assets. He joined the Adviser in 1996 and has been a
portfolio manager with the Adviser's affiliate, Miller Anderson & Sherrerd, LLP
("MAS") since 1991. He was Vice President & Senior Economist for Morgan Stanley
& Co. Incorporated ("Morgan Stanley") from 1989 to 1991. He assumed
responsibility for the Global Fixed Income and International Fixed Income
Portfolios of the MAS-advised MAS Funds in 1993 and the MAS Funds'
Multi-Asset-Class Portfolio in 1994. Mr. Germany was Senior Staff Economist
(International Finance and Macroeconomics) to the Council of
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<PAGE>
Economic Advisors -- Executive Office of the President from 1986 through 1987
and an Economist with the Board of Governors of the Federal Reserve System --
Division of International Finance from 1983 through 1987. He holds an A.B.
degree (Valedictorian) from Princeton University and a Ph.D. in Economics from
the Massachusetts Institute of Technology. Michael B. Kushma, a Principal at
Morgan Stanley, joined the firm in 1987. He shares primary responsibility for
managing the Fund's assets. He was a member of Morgan Stanley's global fixed
income strategy group in the fixed income division from 1987-1995 where he
became the division's senior government bond strategist. He joined the Adviser
in 1995 where he took responsibility for the global fixed income portfolios. Mr.
Kushma received an A.B. in economics from Princeton University in 1979, an M.
Sc. in economics from the London School of Economics in 1981 and an M.Phil. in
economics from Columbia University in 1983. Paul F. O'Brien shares primary
responsibility for managing the Fund's assets. He joined the Adviser and MAS in
1996. He was head of European Economics from 1993 through 1995 for JP Morgan and
as Principal Administrator from 1991 through 1992 for the Organization for
Economic Cooperation and Development. He assumed responsibility for the
MAS-advised MAS Funds' Global Fixed Income and International Fixed Income
Portfolios in 1996. Mr. O'Brien holds a B.S. degree from the Massachusetts
Institute of Technology and a Ph.D. in Economics from the University of
Minnesota. Robert Smith, a Principal of Morgan Stanley, joined the Adviser in
June 1994 and has had or shared primary responsibility for managing the Fund's
assets since July 1994. Prior to joining the Adviser he spent eight years as
Senior Portfolio Manager -- Fixed Income at the State of Florida Pension Fund.
Mr. Smith's responsibilities included active total-rate-of-return management of
long term portfolios and supervision of other fixed income managers. A graduate
of Florida State University with a B.S. in Business, Mr. Smith also received an
M.B.A. -- Finance from Florida State and holds a Chartered Financial Analyst
(CFA) designation.
HIGH YIELD FUND -- ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F. ESSER.
Robert Angevine is a Principal of the Adviser and the portfolio manager for high
yield investments. He has shared primary management responsibility for the Fund
since it commenced operations. Prior to joining the Adviser in October 1988, he
spent over eight years at Prudential Insurance, where he was responsible for the
largest open-end high yield mutual fund in the country. Mr. Angevine also
manages high yield assets for one of the largest corporate pension funds in the
country. His other experience includes international treasury operations at a
major pharmaceutical company and commercial banking. Mr. Angevine received an
M.B.A. from Fairleigh Dickinson University and a B.A. in Economics from
Lafayette College. Thomas L. Bennett shares responsibility for managing the
Fund's assets. He joined the Adviser in 1996 and has been a portfolio manager
with MAS since 1984. Mr. Bennett assumed responsibility for the MAS-advised MAS
Funds' Fixed Income Portfolio in 1984, the Domestic Fixed Income Portfolio in
1987, the High Yield Portfolio in 1985, the Fixed Income Portfolio II in 1990,
the Special Purpose Fixed Income and Balanced Portfolios in 1992 and the
Multi-Asset-Class Portfolio in 1994. Mr. Bennett also is the Chairman of the MAS
Funds and has a B.S. degree (Chemistry) and an M.B.A. from the University of
Cincinnati. Stephen F. Esser shares primary responsibility for managing the
Fund's assets. He joined the Adviser in 1996 and has been a portfolio manager
with MAS since 1988. He assumed responsibility for the MAS-advised MAS Funds'
High Yield Portfolio in 1989. Mr. Esser is a member of the New York Society of
Security Analysts and has a B.S. degree (Summa Cum Laude; Phi Beta Kappa) from
the University of Delaware.
WORLDWIDE HIGH INCOME FUND -- ROBERT ANGEVINE AND PAUL GHAFFARI. Information
about Messrs. Angevine and Ghaffari is included under Emerging Markets Debt Fund
and High Yield Fund, respectively, above. Messrs. Angevine and Ghaffari have
shared primary management responsibility for the Fund since it commenced
operations.
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<PAGE>
ADMINISTRATOR. Morgan Stanley Asset Management Inc. (the "Administrator")
also provides the Company with administrative services pursuant to a separate
administration agreement (the "Administration Agreement"). The services provided
under the Administration Agreement are subject to the supervision of the
officers and Board of Directors of the Company and include day-to-day
administration of matters related to the corporate existence of the Company,
maintenance of its records, preparation of reports, supervision of the Company's
arrangements with its custodian and assistance in the preparation of the
Company's registration statements under federal and state laws. The
Administration Agreement also provides that the Administrator through its agents
will provide the Company dividend disbursing and transfer agent services. For
its services under the Administration Agreement, the Company pays the
Administrator a monthly fee which on an annual basis equals 0.25% of the average
daily net assets of each Fund.
Under a sub-administration agreement between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC"), a
corporate affiliate of Chase, provides certain administrative services to the
Company. The Administrator supervises and monitors such administrative services
provided by CGFSC. The services provided under the sub-administration agreement
are subject to the supervision of the Board of Directors of the Company. The
Board of Directors of the Company has approved the provision of services
described above pursuant to the Administration Agreement as being in the best
interests of the Company. CGFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913. For additional information on the Administration
Agreement, see "Management of the Company" in the Statement of Additional
Information.
DIRECTORS AND OFFICERS. Pursuant to the Company's Articles of
Incorporation, the Board of Directors decides upon matters of general policy and
reviews the actions of the Company's Adviser, Administrator and Distributor. The
Officers of the Company conduct and supervise its daily business operations.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. ("VKAC
Distributors," or the "Distributor") serves as the distributor of the shares of
the Company. Under its distribution agreement (the "Distribution Agreement")
with the Company, VKAC Distributors sells shares of the Company upon the terms
and at the current offering price described in this Prospectus. VKAC
Distributors is not obligated to sell any specific number of shares of the
Company.
The Company currently offers Class A shares, Class B shares and Class C
shares of the Funds other than the money market funds. The Funds that are money
market funds offer only a single class of shares. The Company may in the future
offer one or more classes of shares for the Fund that may have CDSCs or initial
sales charges or other distribution charges or a combination thereof different
from those of the classes currently offered.
The Board of Directors of the Company has approved and adopted the
Distribution Agreement for the Company and a Plan for each class of the Funds
pursuant to Rule 12b-1 under the 1940 Act (each a "Plan" and together, the
"Plans"). Under each applicable Plan, the Distributor is entitled to receive
from the Funds a distribution fee, which is accrued daily and paid quarterly, at
a maximum rate of 0.75% of the Class B shares and Class C shares of each Fund,
on an annualized basis of the average daily net assets of such classes. The
actual amount of such compensation is agreed upon by the Company's Board of
Directors and by the Distributor. With respect to Class B Shares, the
Distributor expects to utilize substantially all of its fee to reimburse itself
for commissions paid to investment dealers, banks or financial services firms
that provide distribution services
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<PAGE>
(each, a "Participating Dealer"). With respect to Class C Shares, the
Distributor expects to reallocate substantially all of its fee to such
Participating Dealers. The Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee and the Distributor
is free to make additional payments out of its own assets to promote the sale of
Fund shares. Class A shares, Class B shares and Class C shares are subject to a
shareholder servicing fee at an annual rate of 0.25% on an annualized basis of
the average daily net assets of such class of shares of a Fund. In addition to
such payments, the Adviser may use its advisory fees or other resources to pay
expenses associated with activities which might be construed to be financing the
sale of the Funds' shares including payments to third parties that provide
assistance in the distribution effort (in addition to selling shares and
providing shareholder services).
The Plans obligate the Fund to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Fund will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.
Each Plan for a class of Company shares, under the terms of Rule 12b-1, will
remain in effect only if approved at least annually by the Company's Board of
Directors, including those directors who are not "interested persons" of the
Company as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of a Plan or in any agreements
related thereto ("12b-1 Directors"). Each Plan may be terminated at any time by
a vote of a majority of the 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the applicable class of the Fund. The fee set
forth above will be paid by the appropriate class to the Distributor unless and
until a Plan is terminated or not renewed. The Company intends to operate each
Plan in accordance with its terms and the NASD Conduct Rules concerning sales
charges.
PAYMENTS TO FINANCIAL INSTITUTIONS. The Adviser or its affiliates may
compensate certain financial institutions for the continued investment of their
customers' assets in the Fund pursuant to the advice of such financial
institutions. These payments will be made directly by the Adviser or its
affiliates from their assets, and will not be made from the assets of the
Company or by the assessment of a sales charge on shares. Such financial
institutions may also perform certain shareholder or recordkeeping services that
would otherwise be performed by CGFSC. The Adviser may elect to enter into a
contract to pay the financial institutions for such services.
EXPENSES. The Fund is responsible for payment of certain other fees and
expenses (including professional fees, custodial fees and printing and mailing
costs) specified in the Administration and Distribution Agreements.
PURCHASE OF SHARES
GENERAL
The Company offers three classes of shares to the public on a continuous
basis through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the NASD who are acting as securities dealers ("dealers") and
NASD members or eligible non-NASD members who are acting as brokers or agents
for investors ("brokers"). The term "dealers" and "brokers" are sometimes
referred to herein as "Participating Dealers."
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<PAGE>
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 next
close provided they are received by the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of Participating Dealers
to transmit orders received by them to the Distributor so they will be received
prior to such time.
Each class of shares represents an interest in the same portfolio of
investments, has the same rights and is identical in all respects, except that
(i) Class B shares and Class C shares bear the expenses of the deferred sales
arrangement and any expenses (including the distribution fee and incremental
transfer agency costs) resulting from such sales arrangement, (ii) generally,
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan to which its distribution fee or service fee is paid and
(iii) Class B shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder service options
available. The net income attributable to Class B shares and Class C shares and
the dividends payable on Class B shares and Class C shares will be reduced by
the amount of the distribution fee and incremental transfer agency expenses
associated with such class of shares. Sales personnel of Participating Dealers
distributing the Company's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling Class A shares, Class B shares or Class C shares.
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<PAGE>
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 contingent deferred sales charge. Ongoing distribution
fees on Class B shares and Class C shares will be offset to the extent of the
additional funds originally invested and any return realized on those funds.
However, there can be no assurance as to the return, if any, which will be
realized on such additional funds. For investments held for ten years or more,
the relative value upon liquidation of the three classes tends to favor Class A
or Class B shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges and/or have a longer-term investment
horizon. Class B shares may be appropriate for investors who wish to avoid a
front-end sales charge, put 100% of their investment dollars to work
immediately, and/or have a longer-term investment horizon. Class C shares may be
appropriate for investors who wish to avoid a front-end sales charge, put 100%
of their investment dollars to work immediately, have a shorter-term investment
horizon and/or desire a short contingent deferred sales charge schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any
contingent deferred sales charge incurred upon redemption within five years or
one year, respectively, of purchase. Sales personnel of broker-dealers
distributing the Fund's shares and other persons entitled to receive
compensation for selling such shares may receive differing compensation for
selling such shares. Investors should understand that the purpose and function
of the contingent deferred sales charge and ongoing distribution fee with
respect to Class B shares and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. See "Distribution Plans."
The Distributor may from time to time implement programs under which a
Participating Dealer's sales force may be eligible to win nominal awards for
certain sales efforts or under which the Distributor will reallow
36
<PAGE>
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 OFFERING
SIZE OF INVESTMENT OFFERING PRICE AMOUNT INVESTED PRICE)
- ------------------------------ --------------- ----------------- -----------------------
<S> <C> <C> <C>
Less than $100,000............ 4.75 4.99 4.25
$100,000 but less than
$250,000..................... 3.75 3.90 3.25
$250,000 but less than
$500,000..................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000................... 2.00 2.04 1.75
$1,000,000 or more*........... * * *
</TABLE>
- --------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Funds impose a contingent
deferred sales charge of 1.00% in the event of certain redemptions within one
year of the purchase. A commission will be paid to brokers, dealers or
financial intermediaries who initiate and are responsible for purchases of $1
million or more as follows: 1.00% on sales to $2 million, plus 0.80% on the
next million, plus 0.50% on the excess over $3 million. See "-- Purchase of
Shares Purchase of Class B Shares" and "-- Purchase of Class C Shares" for
additional information with respect to contingent deferred sales charges.
In addition to the reallowances from the applicable public offering price
described herein, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation, to Participating Dealers that sell shares of the Company.
Participating Dealers which are reallowed all or substantially all of the sales
charges may be deemed to be underwriters for purposes of the 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
37
<PAGE>
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.
As used herein, "Participating Funds" refers to all Funds of Morgan Stanley
Fund, Inc.
VOLUME DISCOUNTS. The size of investment shown in the preceding table
applies to the total dollar amount being invested by any person in shares of a
Fund or in any combination of shares of the Fund and shares of other
Participating Funds, although other Participating Funds may have different sales
charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
table may also be determined by combining the amount being invested in shares of
the Participating Funds plus the current offering price of all shares of the
Participating Funds which have been previously purchased and are still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating the investments over a
13-month period to determine the sales charge as outlined in the preceding
table. The size of investment shown in the preceding table also includes
purchases of shares of the Participating Funds over a 13-month period based on
the total amount of intended purchases plus the value of all shares of the
Participating Funds previously purchased and still owned. An investor may elect
to compute the 13-month period starting up to 90 days before the date of
execution of a Letter of Intent. Each investment made during the period receives
the reduced sales charge applicable to the total amount of the investment goal.
If the goal is not achieved within the period, the investor must pay the
difference between the charges applicable to the purchases made and the charges
previously paid. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchased amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. Additional information is
contained in the application form accompanying this Prospectus.
38
<PAGE>
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.
(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
39
<PAGE>
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares -- Volume
Discounts," during the 13-month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Participating Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12-month period following such
transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs. The Distributor may pay commissions of up to 1.00% for such
purchases.
(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.
(7) Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.
(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and sponsored
by non-profit organizations defined under Section 501(c)(3) of the Code and
assets held by an employer or trustee in connection with an eligible
deferred compensation plan under Section 457 of the Code. Such plans will
qualify for purchases at net asset value provided, for plans initially
establishing accounts with the Distributor in the Participating Funds after
February 1, 1997, that (1) the initial amount invested in the Participating
Funds is at least $500,000 or (2) such shares are purchased by an employer
sponsored plan with more than 100 eligible employees. Such plans that have
been established with a Participating Fund or have received proposals from
the Distributor prior to February 1, 1997 based on net asset value purchase
privileges previously in effect will be qualified to purchase shares of the
Participating Funds at net asset value for accounts established on or
before May 1, 1997. Section 403(b) and similar accounts for which Van
Kampen American Capital Trust Company serves as custodian will not be
eligible for net asset value purchases based on the aggregate investment
made by the plan or the number of eligible employees, except under certain
uniform criteria established by the Distributor from time to time. Prior to
February 1, 1997, a commission will be paid to dealers who initiate and are
responsible for such purchases within a rolling twelve month period as
follows: 1.00% on sales up to $5 million, plus 0.50% on the next $5
million, plus $0.25 on the excess over $10 million. For purchases on
February 1, 1997 and thereafter, a commission will be paid as follows:
1.00% on sales up to $2 million, plus 0.80% on the next $1 million, plus
0.50% on the next $47 million, plus 0.25% on the excess over $50 million
(9) Individuals who are members of a "qualified group." For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economies of scale in
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distributing such shares. A qualified group does not include one whose sole
organizational nexus, for example, is that its participants are credit card
holders of the same institution, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment advisor or
other similar groups. Shares purchased in each group's participant's
account in connection with this privilege will be subject to a contingent
deferred sales charge of one percent in the event of redemption within one
year of purchase, and a commission will be paid to authorized dealers who
initiate and are responsible for such sales to each individual as follows:
1.00% on sales to $2 million, plus 0.80% on the next million and 0.50% on
the excess over $3 million.
The term "families" includes a person's spouse, children and grandchildren
under 21 years of age, parents and a person's spouse's parents.
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 Plan ("SEP") and IRA accounts. Brochures
describing such plans and materials for establishing them are available from VK
Trust upon request. The brochures for custodial accounts with VK Trust describe
the current fees payable to VK Trust for its services as custodian. Investors
should consult with their own tax advisers before establishing a retirement
plan.
PURCHASE OF CLASS B SHARES
Class B shares of the Funds may be purchased at net asset value without an
initial sales charge. However, a CDSC will be imposed on certain Class B shares
redeemed within five years of purchase. The charge is assessed on an amount
equal to the lesser of the then-current market value of the Class B shares
redeemed or the total cost of such shares. Accordingly, the CDSC will not be
applied to dollar amounts representing an increase in the net asset values above
the initial purchase price of the shares being redeemed. In addition, no charge
is assessed on redemptions of Class B shares derived from reinvestment of
dividends or capital gains distributions.
In determining whether the CDSC is applicable to a redemption, the
calculation is made in the manner that results in the lowest possible rate.
Therefore, it is assumed that the redemption is first of any Class B shares in
the shareholder's account that represent reinvested dividends and/or
distributions, and/or of Class B shares held longer than five years after
purchase, and next of Class B shares held the longest during the initial
five-year period after purchase. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
purchase of Class B shares until the redemption of such shares (the "holding
period"). The following table sets forth the rates of the CDSC.
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CONTINGENT DEFERRED SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS
PERCENTAGE OF
THE
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT WAS MADE CHARGE
- ------------------------------------------------------------ ----------------
<S> <C>
First....................................................... 4.00%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.50%
Fifth....................................................... 1.50%
Thereafter.................................................. None*
</TABLE>
- --------------
* As described more fully below, Class B shares automatically convert to Class A
shares after the eighth year following purchase.
Proceeds from any CDSC are paid to the Distributor and are used by the
Distributor to defray its expenses related to providing distribution-related
services to the Company in connection with the sale of the Class B shares. The
Distributor will make payments to the Participating Dealers that handle the
purchases of such shares at a rate not in excess of 4.00% of the purchase price
of such shares at the time of purchase and expects to pay to Participating
Dealers a portion of its distribution fee under the Plan as described under
"Management of the Company -- Distributor" above. Additionally, the Distributor
may pay additional promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell Class B shares of the Funds. The
combination of the CDSC and the distribution/service fee facilitates the ability
of the Company to sell the Class B shares without a sales charge being deducted
at the time of purchase.
AUTOMATIC CONVERSION TO CLASS A SHARES. After the eighth year following
purchase, Class B shares will automatically convert to Class A shares and will
no longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. Under
current tax law, the conversion is not a taxable event to the shareholder.
Class B shares may also be purchased through an Automatic Investment Plan as
described below.
PURCHASE OF CLASS C SHARES
Class C shares of the Funds may be purchased at the net asset value per
share and such shares are subject to a CDSC at the rate of 1.00% of the lesser
of the current market value of the shares redeemed or the total cost of such
shares for shares that are redeemed within one year of purchase. The Distributor
will make payments to the Participating Dealers that handle the purchases of
such shares at the rate of 1.00% of the purchase price of such shares at the
time of purchase and expects to pay to Participating Dealers most of its
distribution fee, with respect to such shares, under the Rule 12b-1 Plan for
such class of shares, as described under "Management of the Company --
Distributor" above. In determining whether a CDSC is payable, and, if so, the
amount of the fee or charge, it is assumed that shares not subject to such fee
or charge are the first redeemed.
WAIVER OF CDSC. The CDSC will be waived on the redemption of Class B or
Class C shares (i) following the death or initial determination of disability
(as defined in the Code) of a shareholder; (ii) certain distributions from an
IRA or other retirement plan; (iii) to the extent that shares redeemed have been
withdrawn from a Systematic Withdrawal Plan, up to a maximum amount of 12% per
year from a shareholder account based on the
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value of the account at the time the Withdrawal Plan is established; or (iv)
effected pursuant to the right of the Company to liquidate a shareholder's
account as described herein under "Redemption of Shares." A shareholder, or his
or her representative, must notify the Company's Transfer Agent prior to the
time of redemption if such circumstances exist and the shareholder is eligible
for this waiver. The shareholder is responsible for providing sufficient
documentation to the Transfer Agent to verify the existence of such
circumstances. For information on the imposition and waiver of the CDSC, contact
Investor Services at 1-800-282-4404.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
No initial sales charge or CDSC will be payable on the shares of the Funds
or class thereof purchased through the automatic reinvestment of dividends and
distributions on shares of the Funds.
REINSTATEMENT PRIVILEGE OF EACH CLASS
A shareholder who has redeemed Class A shares of a Participating Fund may
reinvest up to the full amount received at net asset value at the time of the
reinvestment in Class A shares of the Funds without payment of a sales charge. A
shareholder who has redeemed Class B shares of a Fund and paid a CDSC upon such
redemption may reinvest up to the full amount received upon redemption in Class
A shares at net asset value with no initial sales charge. A Class C shareholder
who has redeemed shares of a Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C shares of that Fund with credit given for
any CDSC paid upon such redemption. The reinstatement privilege as to any
specific Class A, Class B or Class C shares must be exercised within 180 days of
the redemption. The Transfer Agent must receive from the shareholder or the
shareholder's Participating Dealer both a written request for reinstatement and
a check or wire which does not exceed the redemption proceeds. The written
request must state that the reinvestment is made pursuant to this reinstatement
privilege. If a loss is realized on the redemption of Class A shares, the
reinvestment may be subject to the "wash sale" rules if made within 30 days of
the redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinstatement privilege may be terminated or
modified at any time. Reinstatement at net asset value is also offered to
participants in those eligible retirement plans held or administered by Van
Kampen American Capital Trust Company for repayment of principal (and interest)
on their borrowings on such plans. See the Statement of Additional Information
for further discussion of waiver provisions.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra costs to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Company at any time.
INVESTMENT ACCOUNT. ACCESS, transfer agent for the Company and a
wholly-owned subsidiary of Van Kampen American Capital, Inc. performs
bookkeeping, data processing and administration services related to the
maintenance of shareholder accounts. Each shareholder has an investment account
which shares are held by ACCESS. Except as described herein, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder will receive statements at least
quarterly from ACCESS showing any reinvestments of dividends and capital gains
distributions and any other activity in the account since the preceding
statement. Such shareholders also will receive separate confirmations for each
43
<PAGE>
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions and systematic purchases or redemptions. Additions to an
investment account may be made at any time by purchasing shares through
authorized brokers, dealers or financial intermediaries or by mailing a check
directly to ACCESS.
SHARE CERTIFICATES. Generally, the Company will not issue share
certificates. However, upon written or telephone request to the Company, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of the Company. A shareholder will be required to surrender
such certificates upon redemption or transfer thereof. In addition, if such
certificates are lost the shareholder must write to the Morgan Stanley Fund c/o
ACCESS, P.O. Box 419256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the applicable Fund. Such shares are acquired at net asset value (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 282-4404 or (800) 772-8889
for the hearing impaired, or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Dividends and Distributions."
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Funds. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 282-4404 or (800) 772-8889 for the hearing
impaired, elect to have all dividends and other distributions paid on a class of
shares of the Company invested into shares of the same class of any other Fund
so long as pre-existing account for such class of shares exists for such
shareholder. Both accounts must also be of the same type, either non-retirement
or retirement. Any two non-retirement accounts can be used. If the accounts are
retirement accounts, they must both be for the same class and of the same type
of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit of
the same individual.
If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the Fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-profit organizations. Documents and forms containing detailed
information
44
<PAGE>
regarding these plans are available from the Distributor. Van Kampen American
Capital Trust Company serves as custodian under the IRA, 403(b)(7) and Keogh
plans. Details regarding fees, as well as full plan administration for profit
sharing, pension and 401(k) plans are available from the Distributor.
EXCHANGE PRIVILEGE. Shares of the Company may be exchanged with shares of
the same class of another Participating Fund, subject to certain limitations.
Before effecting an exchange, shareholders in the Company should obtain and read
a current prospectus of the Participating Funds into which the exchange is to be
made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH OTHER PARTICIPATING FUNDS AS ARE
LEGALLY AVAILABLE FOR SALE IN THEIR STATE.
To be eligible for exchange, shares of a Fund generally must have been
registered in the shareholder's name for at least 30 days prior to an exchange.
Shares of a Fund registered in a shareholder's name for less than 30 days may
only be exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.
Class A shares of Funds that generally impose an initial sales charge are
not subject to any sales charge upon exchange into the Fund.
No sales charge is imposed upon the exchange of a Class B share or a Class C
share. The contingent deferred sales charge schedule and conversion schedule
applicable to a Class B share or a Class C share acquired through the exchange
privilege is determined by reference to the fund from which such shares
originally was purchased. The holding period of a Class B share or a Class C
share acquired through the exchange privilege is determined by reference to the
date such share originally was purchased.
Exchange of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.
A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanied by this Prospectus. The
exchange will take place at the relative net asset values of the shares next
determined after receipt of such request with adjustment for any additional
sales charge. Any shares exchanged begin earning dividends on the next business
day after the exchange is affected. Van Kampen American Capital, Inc. and its
subsidiaries, including ACCESS (collectively, "VKAC"), and the Company's employ
procedure considered by them to be reasonable to confirm their instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recordings, telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither VKAC nor the Company will be liable for
following telephone instructions which it reasonably believes to be genuine. If
the exchanging shareholder does not have an account in the Fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gains options (except dividend diversification options) and
broker, dealer or financial intermediary of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or dividend
diversification options for the new account, an exchanging shareholder must file
a specific written request. The Company reserves the right to reject any order
to acquire its shares through exchange. In addition, the Company may
45
<PAGE>
restrict or terminate the exchange privilege at any time on 60 days' notice to
its shareholders of any termination or material amendment. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more may establish a quarterly, semi-annual or annual withdrawal
plan. Investors whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions have the additional
option of establishing a monthly withdrawal plan. This plan provides for the
orderly use of the entire account, not only the income but also the principal,
if necessary. Each withdrawal constitutes a redemption of shares on which
taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual or annual checks in any amount not less than
$25.
The CDSC on Class B and Class C shares 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 the 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, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to the Fund c/o ACCESS, P.O. Box 419256, Kansas City,
Missouri 64141-9256, by placing the redemption request through a Participating
Dealer or by calling the Company.
The Company will redeem shares of each Fund at its next determined net asset
value. A CDSC of 1.00% will be imposed on certain Class A shares of the Funds
that were purchased without payment of the initial sales charge due to the size
of the purchase and are redeemed within one year of purchase. A maximum CDSC of
4.00% which decreases in steps to 0% after five years, will be imposed on
certain Class B shares of the Funds that are redeemed within five years of
purchase. A CDSC of 1.00% will be imposed on certain Class C shares of the Funds
that are redeemed within one year of purchase. See "Purchase of Shares." Any
CDSC will be imposed on the lesser of the current market value or the total cost
of the shares being redeemed. In determining whether a CDSC is payable, and, if
so, the amount of the charge, it is assumed that shares not subject to such
charge are the first redeemed followed by other shares held for the longest
period of time.
WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent
directly to ACCESS, the redemption request should indicate the number of shares
or dollars to be redeemed, the class designation of such shares, the account
number and be signed exactly as the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
would exceed $50,000, or if the proceeds are not to be paid to the record owner
at the record address, or if the record address has changed within the previous
30 days, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank. If certificates are held for the shares
being redeemed, such certificates must be endorsed for transfer or accompanied
by an endorsed stock power and sent with the redemption request. In the event
the redemption is requested by a corporation, partnership, trust, fiduciary,
executor or administrator, additional documents may be necessary. The redemption
price is the net asset value per share next determined after the request is
received by ACCESS in proper form. Payment for shares redeemed (less any sales
charge, if applicable) will ordinarily be made by check mailed within seven
business days after acceptance by ACCESS of the request and any other necessary
documents in proper order. Such payments may be postponed or the right of
redemption suspended as provided by the rules of the SEC. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms that the purchase check has cleared, usually
a period of up to 15 days. Any gain or loss realized on the redemption of shares
is a taxable event.
DEALER REDEMPTION REQUEST. Shareholders may sell shares through their
securities dealer, who will submit the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received, less any applicable CDSC, by a dealer
provided such order is transmitted to the Distributor prior to the Distributor's
close of business on such day. It is the responsibility of dealers to transmit
redemption requests received by them to the Distributor so they will be received
prior to such time. Any change in the redemption price due to failure of the
Distributor to receive a sell order prior to such time must be settled between
the shareholder and dealer. Shareholders must submit a written redemption
request in proper form (as
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<PAGE>
described above under "Written Redemption Request") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.
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 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 of the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address or record. proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address or bank account of record has been changed within 30 days prior to a
telephone redemption request. The Company reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.
REDEMPTION UPON DISABILITY. The Company will waive the contingent deferred
sales charge on redemption following the disability of holders of Class B shares
and Class C shares. An individual will be considered disabled for this purpose
of he or she meets the definition thereof in Section 72(m)(7) of the Code, which
in pertinent part defines a person as disabled of such person "is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration." While the Company
does not specifically adopt the balance
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<PAGE>
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of disability before it determines to waive the contingent
deferred sales charge on Class B shares and Class C shares.
In cases of disability, the contingent deferred sales charges on Class B
shares and Class C shares will be waived where the disabled person is either an
individual shareholder or owns the shares as a joint tenant with right of
survivorship or is the beneficial owner of a custodial or fiduciary account, and
where the redemption is made within one year of the initial determination of
disability. This waiver of the contingent deferred sales charge on Class B
shares and Class C shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.
GENERAL REDEMPTION INFORMATION. The Company may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Directors. At least 60 days' advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable contingent deferred sales charge will be deducted from the proceeds
of this redemption. Any involuntary redemption may only occur if the shareholder
account is less than the minimum investment due to shareholder redemptions.
As described herein under "Purchase of Shares," redemptions of Class B
shares or Class C shares are subject to a contingent deferred sales charge. In
addition a CDSC of 1.00% may be imposed on certain redemptions of Class A shares
made within one year of purchase for investments of $1 million or more. The CDSC
incurred upon redemption is paid to the Distributor in reimbursement for
distribution-related expenses,. A custodian of a retirement plan account may
charge fees based on the custodian's fee schedule.
IRA redemption requests should be sent to the IRA custodian to be fowarded
to ACCESS. Where Van Kampen American Capital Trust Company serves as IRA
custodian, special IRA, 403(b)(7), or Keogh redemption forms must be obtained
from and be forwarded to Van Kampen American Capital Trust Company, P.O. Box
944, Houston, Texas 77001-0944. Contact the custodian for information.
Reinstatement 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.
49
<PAGE>
VALUATION OF SHARES
Net asset value is calculated separately for each class of each Fund. The
net asset value per share of each class of shares of a Fund is determined by
dividing the total fair market value of the investments and other assets
attributable to such classes of shares, less all liabilities attributable to
such class of shares, by the total number of outstanding shares of such classes
of shares. Net asset value per share of a Fund is determined as of the regular
close of the NYSE (currently, 4:00 p.m. Eastern Time) on each day that the NYSE
is open for business. Securities listed on a securities exchange for which
market quotations are available are valued at their closing price. If no closing
price is available, such securities will be valued at the last quoted sale price
on the day the valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily traded. Unlisted
securities and listed securities not traded on the valuation date for which
market quotations are readily available are valued at the average of the mean
between the current bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last sale
prices but take into account institutional size trading in similar groups of
securities and any developments related to the specific securities. Securities
not priced in this manner are valued at the most recent quoted bid price, or,
when stock exchange valuations are used, at the latest quoted sale price on the
day of valuation. If there is no such reported sale, the latest quoted bid price
will be used. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, if it approximates market value. In the event
that amortized cost does not approximate market value, market prices as
determined above will be used. The "amortized cost" method of valuation does not
take into account unrealized gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price each Fund would
receive if it sold the instrument.
The value of other assets and securities for which no quotations are readily
available (including illiquid and unlisted foreign securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above procedures are determined in good faith at fair value using methods
determined by the Board of Directors. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. Dollars at the mean of the bid price and
asked price of such currencies against the U.S. Dollar as quoted by a major
bank.
Although the legal rights of Class A, Class B and Class C shares will be
identical, the different expenses borne by each class will result in different
net asset values and dividends. Dividends will differ by approximately the
amount of the distribution expenses that have accrued for each class. The
respective net asset values of Class B shares and Class C shares will generally
be lower than the net asset value of Class A shares as a result of the larger
distribution fee charged to Class B and Class C shares.
50
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser selects the brokers or dealers that will execute the purchases
and sales of investment securities for each of the Funds. The Adviser may,
consistent with NASD rules, place portfolio orders with qualified broker-dealers
who recommend the Fund to their clients or who act as agents in the purchase of
shares of the Funds for their clients.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley & Co. Incorporated ("Morgan Stanley"), an
affiliate of the Advisers or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For such portfolio transactions,
the commissions, fees or other remuneration received by Morgan Stanley or such
affiliates must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers for comparable transactions involving
similar securities being purchased or sold during a comparable period of time.
Although the objective of each Fund is not to invest for short-term trading,
each Fund will seek to take advantage of trading opportunities as they arise to
the extent they are consistent with the Funds' objectives. Accordingly,
investment securities may be sold from time to time without regard to the length
of time they have been held. The Emerging Markets Debt and High Yield Funds each
anticipate that its annual portfolio turnover rate will not exceed 100% under
normal circumstances. Market conditions could result in portfolio activity at a
greater or lesser rate than anticipated. For the annual turnover rates for the
other Funds, see "Financial Highlights" above. High portfolio turnover involves
correspondingly greater transaction costs which will be borne directly by the
Fund. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund.
PERFORMANCE INFORMATION
The Company may from time to time advertise total return of the Funds. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "total return" shows what an investment in a Fund would
have earned over a specified period of time (such as one, three, five or ten
years) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period. Total return does not take into
account any federal or state income taxes consequences to shareholders subject
to tax. The Company may also include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper Analytical Services, Inc. and Morgan Stanley Capital
International.
The respective performance figures for Class B shares and Class C shares of
the Funds will generally be lower than those for Class A shares of the Funds
because of the distribution fee and larger shareholder services fee charged to
Class B shares and Class C shares.
PERFORMANCE OF INVESTMENT ADVISER -- EMERGING MARKETS DEBT FUND
The Adviser manages a portfolio of Morgan Stanley Institutional Fund, Inc.
("MSIF") which served as the model for the Emerging Markets Debt Fund. The
portfolio of MSIF (the "MSIF Portfolio") has substantially the same investment
objective and policies as the Emerging Markets Debt Fund. In addition, the
Adviser intends the Emerging Markets Debt Fund and the corresponding MSIF
Portfolio to be managed by the same personnel
51
<PAGE>
and to continue to have closely similar investment strategies, techniques and
characteristics. Past investment performance of the MSIF Portfolio, as shown in
the table below, may be relevant to your consideration of investment in the
Emerging Markets Debt Fund. The investment performance of the MSIF Portfolio is
not necessarily indicative of future performance of the Emerging Markets Debt
Fund. Also, the operating expenses of the Emerging Markets Debt Fund will be
different from, and may be higher than, the operating expenses of the MSIF
Portfolio. The investment performance of the MSIF Portfolio is provided merely
to indicate the experience of the Adviser in managing similar investment
portfolios.
The data set forth below under the heading "Return With Sales Charge" is
adjusted, (i) with respect to the Class A shares, to take into account a 4.75%
sales charge applicable to purchases of Class A shares of the Emerging Markets
Debt Fund; (ii) with respect to Class B shares, to take into account the
applicable CDSC that is imposed if Class B shares of the Emerging Markets Debt
Fund are redeemed within the year of their purchase indicated; and (iii) with
respect to the Class C shares, to take into account a 1.00% CDSC that is imposed
if Class C shares of the Emerging Markets Debt Fund are redeemed within one year
of their purchase. The data set forth below under the heading "Return Without
Sales Charge" is not adjusted to take into account such sales charges.
TOTAL RETURN FOR THE MSIF EMERGING MARKETS DEBT PORTFOLIO'S CLASS A SHARES
(A SEPARATE MUTUAL FUND FROM EMERGING MARKETS DEBT FUND)
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(ADJUSTED TO REFLECT STATED SALES LOADS OF THE EMERGING MARKETS DEBT FUND)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE 1 YEAR INCEPTION (1)
- ------------------------------------------------------------------ --------- ------------
<S> <C> <C>
Class A (of 4.75%)................................................ 43.21% 12.32%
Class B (of 4.00%)................................................ 43.96% 13.07%
Class C (of 1.00%)................................................ 46.96% 17.07%
RETURN WITHOUT
SALES CHARGE
- ------------------------------------------------------------------
Class A........................................................... 47.96% 17.07%
Class B........................................................... 47.96% 17.07%
Class C........................................................... 47.96% 17.07%
</TABLE>
- --------------
(1) Commenced Operations on February 1, 1994.
The past performance of the MSIF Emerging Markets Debt Portfolio is no
guarantee of the future performance of the Emerging Markets Debt Fund.
DIVIDENDS AND DISTRIBUTIONS
Shareholders will automatically be credited with all dividends and
distributions in additional shares at net asset value, without payment of any
initial sales charge of the Funds, except that, upon written notice to the
Company or by checking off the appropriate box in the Distribution Option
Section on the New Account Application, a shareholder may elect to receive
dividends and/or distributions in cash. Shares received through reinvestment of
dividends and/or distributions will not be subject to any CDSC upon their
redemption.
52
<PAGE>
The Emerging Markets Debt Fund expects to distribute substantially all of
its net investment income in the form of annual dividends. Each of the Global
Fixed Income, High Yield and Worldwide High Income Funds expects to distribute
net investment income monthly. Net realized gains, if any, will be distributed
annually. Confirmations of the purchase of shares of the Fund through the
automatic reinvestment of income dividends and capital gains distributions will
be provided, pursuant to Rule 10b-10(b) under the Securities Exchange Act of
1934, as amended, on the next quarterly client statement following such purchase
of shares. Consequently, confirmations of such purchases will not be provided at
the time of completion of such purchases, as might otherwise be required by Rule
10b-10.
Any undistributed net investment income and undistributed realized gains
increase a Fund's net assets for the purpose of calculating net asset value per
share. Therefore, on the "ex-dividend" or "ex-distribution" date, the net asset
value per share excludes the dividend or distribution (i.e., is reduced by the
per share amount of the dividend or distribution). Dividends and distributions
paid shortly after the purchase of shares by an investor, although in effect a
return of capital, are taxable to shareholders subject to tax.
Because of the higher distribution fee, higher shareholder servicing fee,
and any other expenses that may be attributable to the Class B shares and Class
C shares of a Fund, the net income attributable to and the dividends payable on
Class B shares and Class C shares of a Fund will be lower than the net income
attributable to and the dividends payable on Class A shares of the Funds. As a
result, the net asset value per share of the classes of a Fund will differ at
times. Expenses of the Company allocated to a particular class of shares of a
Fund will be borne on a pro rata basis by each outstanding share of that class.
TAXES
TAX STATUS OF THE FUNDS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action. See also the tax sections in the Statement of
Additional Information.
No attempt has been made to present a detailed explanation of the federal,
state or local income tax treatment of the Funds or their shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
Each of the Funds is generally treated as a separate entity for federal
income tax purposes, and thus the provisions of the Internal Revenue Code of
1986, as amended (the "Code") generally will be applied to each Fund separately,
rather than to the Company as a whole. Net long-term and short-term capital
gains, net income and operating expenses therefore will be determined separately
for each Fund.
The Funds intend to qualify for the special tax treatment afforded
"regulated investment companies" ("RICs") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss less any available loss carryforward) which is
distributed to its shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain), to its shareholders.
Dividends paid by a Fund from its net investment income will be taxable
53
<PAGE>
to the shareholders of the Fund as ordinary income, whether received in cash or
in additional shares, if the shareholder is subject to tax. Dividends paid by a
Fund attributable to dividends received from shares of domestic corporations
generally will not qualify for the dividends-received deduction to corporations.
Distributions of net capital gains are taxable to shareholders subject to
tax as long-term capital gains, regardless of how long the shareholder has held
a Fund's shares. Capital gains distributions are not eligible for the corporate
dividends-received deduction. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and net capital gains prior to the end of each calendar
year to avoid liability for federal excise tax.
Dividends and other Distributions declared in October, November and December
by a Fund payable as of a record date in such month and paid at any time during
January of the following year are treated as having been paid by the Fund and
received by the shareholders on December 31 of the year declared.
The sale, exchange or redemption of shares may result in taxable gain or
loss to the selling, exchanging or redeeming shareholder, depending upon whether
the fair market value of the redemption proceeds exceeds or is less than the
Shareholder's adjusted basis in the redeemed, exchanged or sold shares. If
capital gain distributions have been made with respect to shares that are sold
at a loss after being held for six months or less, then the loss is treated as a
long-term capital loss to the extent of the capital gain distributions.
Shareholders may also be subject to state and local taxes on distributions from
the Fund.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
GENERAL INFORMATION
DESCRIPTION OF COMMON STOCK
The Company was organized as a Maryland corporation on August 14, 1992. The
Amended Articles of Incorporation currently permit the Company to issue 27.375
billion shares of common stock, par value $.001 per share. Pursuant to the
Company's By-Laws, the Board of Directors may increase the number of shares the
Company is authorized to issue without the approval of the shareholders of the
Company. The Board of Directors has the power to designate one or more classes
of shares of common stock and to classify and reclassify any unissued shares
with respect to such classes.
The shares of each Fund, when issued, will be fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. The shares have
no preference as to conversion, exchange, dividends, retirement or other
features and have no preemptive rights. The shares of the Funds have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Directors
if they choose to do so. Under Maryland law, the Company is not required to hold
an annual meeting of its shareholders unless required to do so under the 1940
Act. Any person or organization owning 25% or more of the outstanding shares of
a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
such
54
<PAGE>
Fund. As of December 11, 1996, Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, was presumed to "control" the High Yield Fund
based solely on its ownership of 25% or more of the outstanding voting shares of
such Fund.
REPORTS TO SHAREHOLDERS
The Company will send to its shareholders annual and semi-annual reports;
the financial statements appearing in annual reports are audited by independent
accountants.
In addition, the Company or the Transfer Agent, will send to each
shareholder having an account directly with the Company a quarterly statement
showing transactions in the account, the total number of shares owned, and any
dividends or distributions paid. In addition, when a transaction occurs in a
shareholder's account, the Company or the Transfer Agent will send the
shareholder a confirmation statement showing the same information.
CUSTODIAN
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 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.
55
<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.
EMERGING MARKETS DEBT, GLOBAL FIXED INCOME, HIGH YIELD AND WORLDWIDE
HIGH INCOME FUNDS
P.O. BOX 418256, KANSAS CITY, MISSOURI 64141 (800-282-4404) NEW
ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Emerging Markets Class A (466) $ Class B (566) $ Class C (666) $
Debt Fund ---------- ---------- ----------
Morgan Stanley Global Fixed Class A (451) $ Class B (551) $ Class C (651) $
Income Fund ---------- ---------- ----------
Morgan Stanley High Yield Class A (456) $ Class B (556) $ Class C (656) $
Fund ---------- ---------- ----------
Morgan Stanley Worldwide High Class A (454) $ Class B (554) $ Class C (654) $
Income Fund ---------- ---------- ----------
$
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 -------------------------------------------
-------------------------------------------
Control Number Name of Bank Wire
</TABLE>
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares 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 ACCESS 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 Investment 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>
Fund Name
<S> <C> <C> <C> <C>
- ------------------------------------------------------------ Class : ------------ Code : ------------
- ------------------------------------------------------------ Class : ------------ Code : ------------
- ------------------------------------------------------------ Class : ------------ Code : ------------
Recipient
-------------------------------------
Street Address
Please make check payable to:
(to be completed only if redemption proceeds to be paid to -------------------------------------
other than account holder of record or mailed to address City, State, Zip Code
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.
<CAPTION>
Amount of
<S> <C> <C> <C>
- ------------------------------------------------------------ $ ------------------ ----------%
- ------------------------------------------------------------ $ ------------------ ----------%
- ------------------------------------------------------------ $ ------------------ ----------%
Recipient
-------------------------------------
Street Address
Please make check payable to:
(to be completed only if redemption proceeds to be paid to -------------------------------------
other than account holder of record or mailed to address City, State, Zip Code
other than address of record)
-------------------------------------
*With the systematic withdrawal plan, a maximum of 12% per y
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>
- ------------------------------------------------ ------------------------------------------------
Bank Name Bank Address
<CAPTION>
- ------------------------------------------------ ------------------------------------------------
<S> <C>
Bank Name 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>
- -------------------------------------------------------------------------- --------------------------------------------------------
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 Objective and Policies..................................... 13
Additional Investment Information..................................... 21
Investment Limitations................................................ 30
Management of the Company............................................. 30
Purchase of Shares.................................................... 34
Shareholder Services.................................................. 43
Redemption of Shares.................................................. 47
Valuation of Shares................................................... 50
Portfolio Transactions................................................ 51
Performance Information............................................... 51
Dividends and Distributions........................................... 52
Taxes................................................................. 53
General Information................................................... 54
Appendix A............................................................ A-1
New Account Application
</TABLE>
MORGAN STANLEY
EMERGING MARKETS DEBT FUND
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
MORGAN STANLEY
HIGH YIELD FUND
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
PORTFOLIOS OF THE
MORGAN STANLEY
FUND, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------
PROSPECTUS
---------------
INVESTMENT ADVISER
MORGAN STANLEY
ASSET MANAGEMENT INC.
DISTRIBUTOR
VAN KAMPEN AMERICAN
CAPITAL DISTRIBUTORS, INC.
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
<PAGE>
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