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MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Fund") is an open-end management
investment company. The Fund currently consists of ten investment portfolios
(the "Investment Funds") offering a range of investment choices. The Fund is
designed to provide clients with attractive alternatives for meeting their
investment needs. This Statement of Additional Information addresses information
of the Fund applicable to each of the ten Investment Funds and to the Class A
shares, Class B shares and Class C shares of nine of such Investment Funds.
This Statement is not a prospectus but should be read in conjunction with
the Fund's prospectus (the "Prospectus"). To obtain the Prospectus, please call
the Morgan Stanley Fund, Inc. Services Group:
1-800-282-4404
TABLE OF CONTENTS
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Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Tax Treatment of Forward Currency Contracts and Exchange Rate Changes.10
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .11
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Money Market Fund Net Asset Value. . . . . . . . . . . . . . . . . . . . . . .23
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .40
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Statement of Additional Information dated August 1, 1995, relating to the
Prospectus dated August 1, 1995 for:
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley European Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley Growth and Income Fund
Morgan Stanley Money Market Fund (currently not offering shares)
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INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectus with respect to the Fund's ten Investment
Funds: the Morgan Stanley Global Equity Allocation Fund, Morgan Stanley Global
Fixed Income Fund, Morgan Stanley
Asian Growth Fund, Morgan Stanley Emerging
Markets Fund, Morgan Stanley Latin American Fund, Morgan Stanley European Equity
Fund, Morgan Stanley American Value Fund, Morgan Stanley Worldwide High Income
Fund, Morgan Stanley Growth and Income Fund and Morgan Stanley Money Market Fund
(referred to herein respectively as the "Global Equity Allocation Fund," "Global
Fixed Income Fund," "Asian Growth Fund," "Emerging Markets Fund," "Latin
American Fund," "European Equity Fund," "American Value Fund," "Worldwide High
Income Fund", "Growth and Income Fund" and "Money Market Fund").
GLOBAL INVESTING
Global investment diversification can lower the risk that occurs from
fluctuations in any one market. Global stock and bond markets often do not
parallel the performance of each other which means that, over time, diversifying
investments across several countries can help reduce portfolio volatility while
increasing returns.
U.S. stock and bond markets now comprise less than half of the total
securities available worldwide and investors who limit their investments to the
U.S. ignore over 80% of the world's blue chip companies. Participating in global
markets helps the astute investor take advantage of opportunities worldwide.
Over the past 10 years, through 1994, the U.S. ranked in the top five performing
stock markets only two times according to Morgan Stanley Capital International.
SECURITIES LENDING
Each Investment Fund may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, an Investment Fund attempts to increase its net investment income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Investment Fund. Each Investment Fund may lend
its investment securities to qualified brokers, dealers, domestic and foreign
banks or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the Investment Company
Act of 1940, as amended (the "1940 Act"), or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "SEC")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Investment Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. Government having a value at all times not less than 100% of the value of
the securities loaned, including accrued interest, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Investment Fund at any time, and (d) the Investment Fund
receive reasonable interest on the loan (which may include the Investment Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by Morgan Stanley Asset
Management Inc. (the "Adviser" or "MSAM") to be of good standing and when, in
the judgment of the Adviser, the consideration which can be earned currently
from such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
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EQUITY-LINKED SECURITIES
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. It is not possible to predict how equity-linked securities
will trade in the secondary market or whether such market will be liquid or
illiquid. The following are three examples of equity-linked securities. The
Investment Fund may invest in the securities described below or other similar
equity-linked securities.
There are certain risks of loss of principal in connection with investing
in equity-linked securities, as described in the following examples of certain
equity-linked securities. Preferred Equity Redemption Cumulative Stock
("PERCS") as described in "Additional Investment Information" in the Prospectus
will convert into common stock within three years no matter at what price the
common stock trades. If the common stock is trading at a price that is at or
below the cap, the Investment Fund receives one share of common stock for each
PERCS share. If the common stock is trading at a price that is above the cap,
the Investment Fund receives less than one share, with the conversion ratio
adjusted so that the market value of the common stock received by the Investment
Fund equals the cap. Accordingly, the Investment Fund is subject to the risk
that if the price of the common stock is below the cap price at the maturity of
the PERCS, the Investment Fund will lose the amount of the difference between
the price of the common stock and the cap. Such a loss could substantially
reduce the Investment Fund's initial investment in the PERCS and any dividends
that were paid on the PERCS. PERCS also present risks based on payment
expectations. If a PERCS issuer redeems the PERCS, the Investment Fund may have
to replace the PERCS with a lower yielding security, resulting in a decreased
return for investors.
The principal amount that Equity-Linked Securities ("ELKS") holders
receive at maturity, as described in "Additional Investment Information" in the
Prospectus, is based on the price of underlying common stock. If the common
stock is trading at a price that is at or below the cap, the Investment Fund
receives for each ELKS share an amount equal to the average price of the common
stock. If the common stock is trading at a price that is above the cap, the
Investment Fund receives the cap amount. Accordingly, the Investment Fund is
subject to the risk that if the price of the common stock is below the cap price
at the maturity of the ELKS, the Investment Fund will lose the amount of the
difference between the price of the common stock and the cap. Such a loss could
substantially reduce the Investment Fund's initial investment in the ELKS and
any dividends that were paid on the ELKS. An additional risk is that the issuer
may "reopen" the issue of ELKS and issue additional ELKS at a later time or
issue additional debt securities or other securities with terms similar to those
of the ELKS, and such issuances may affect the trading value of the ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-marked yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based on
the price of underlying common stock. If the common stock is trading at a price
that is at or below the purchase price of the LYONs plus accrued original issue
discount, the Investment Fund receives only the lower-than-market yield,
assuming the LYONs are not in default. If the common stock is trading at a
price that is above the purchased price of the LYONs plus accrued original issue
discount, the Investment Fund will receive an amount above the lower-than-market
yield on the LYONs, based on how well the underlying common stock does. LYONs
also present risks based on payment expectations. If a LYONs issuer redeems the
LYONs, the Investment Fund may have to replace the LYONs with a lower yielding
security, resulting in a decreased return for investors.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the Global Equity Allocation,
Global Fixed Income, Asian Growth, Emerging Markets, Latin American, European
Equity, and to the extent they invest in foreign currencies, the American Value,
Growth and Income and Worldwide High Income Funds (the "Non-Money Funds") may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Investment Funds may incur costs in
connection with conversions between various currencies. The Investment Funds
will conduct their foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract (a "forward contract")
involves an obligation to purchase or sell a specific currency
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at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for such trades.
The Investment Funds may enter into forward contracts in several
circumstances. When an Investment Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when an Investment
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Investment Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for a fixed amount of dollars, for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the
Investment Fund will be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Investment Funds anticipates that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value of
some or all of such Investment Fund's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. An Investment Fund will not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate such Investment Fund to
deliver an amount of foreign currency in excess of the value of such Investment
Fund securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Investment Fund will thereby be served. Except in circumstances where
segregated accounts are not required by the 1940 Act and the rules adopted
thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
high-grade debt securities into a segregated account of an Investment Fund in an
amount equal to the value of such Investment Fund's total assets committed to
the consummation of forward contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities 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 Investment Fund's commitments with respect to such
contracts.
The Investment Funds generally will not enter into a forward contract
with a term of greater than one year. At the maturity of a forward contract, an
Investment Fund may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
a particular portfolio security at the expiration of the contract. Accordingly,
it may be necessary for an Investment Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency that
such Investment Fund is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency.
If an Investment Fund retains the portfolio security and engages in an
offsetting transaction, such Investment Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in forward contract
prices. Should forward prices decline during the period between an Investment
Fund entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, such Investment Fund will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, such Investment Fund
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would suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
The Investment Funds are not required to enter into such transactions
with regard to their foreign currency-denominated securities. It also should be
realized that this method of protecting the value of portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
FUTURES CONTRACTS
The Emerging Markets, Latin American, American Value, Growth and Income
and Worldwide High Income Funds may enter into securities index futures
contracts and options on securities index futures contracts to a limited extent
and the Latin American Fund may utilize appropriate interest rate futures
contracts and options on interest rate futures contracts to a limited extent. In
addition, the American Value, Emerging Markets, Latin American and Worldwide
High Income Funds may enter into foreign currency futures contracts and options
thereon. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specific security or a
specific currency at a specified future time and at a specified price. Futures
contracts, which are standardized as to maturity date and underlying financial
instrument, index or currency, traded in the United States are traded on
national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
The American Value, Emerging Markets, Latin American and Worldwide High
Income Funds may purchase and sell indexed financial futures contracts. An
index 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 index futures will be
subject to the Adviser's ability to predict correctly movements in the direction
of the relevant securities market. No assurance can be given that the Adviser's
judgment in this respect will be correct.
The American Value, Emerging Markets, Latin American and Worldwide High
Income 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. If the Adviser
believes that a portion of the Investment Fund assets should be invested in
emerging country securities but such investments have not been fully made and
the Adviser anticipates a significant market advance, the Investment Fund may
purchase 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 Investment 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.
Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required
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margin, resulting in a repayment of excess margin to the contract holder.
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. The Investment Fund expects to earn interest income
on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Investment Funds intend to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Investment Funds require that
all futures transactions constitute bona fide hedging transactions or
transactions for other purposes so long as the aggregate initial margin and
premiums required for such transaction will not exceed 5% of the liquidation
value of the Investment Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into. The
Investment Funds will only sell futures contracts to protect securities owned
against declines in price or purchase contracts to protect against an increase
in the price of securities intended for purchase. As evidence of this hedging
interest, the Investment Funds expect that approximately 75% of their respective
futures contracts will be "completed"; that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Investment
Fund upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Investment Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Investment Funds will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The American Value, Emerging
Markets, Latin American, Growth and Income and Worldwide High Income Funds will
not enter into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the market value of its total assets. In addition, the Investment Fund will
not enter into futures contracts to the extent that its outstanding obligations
to purchase securities under futures contracts and options would exceed 20% of
its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, an Investment Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if an Investment
Fund has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, the Investment Fund may be required to make delivery of the
instruments underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the
Investment Fund's ability to effectively hedge.
Each Investment Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures for which there
appears to be a liquid secondary market.
The risk of loss in trading 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. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Investment
Funds engage in futures strategies only for hedging purposes, the Adviser does
not believe that the Investment Funds are subject to the risks of loss
frequently associated with futures transactions. The Investment Fund would
presumably have sustained comparable losses if, instead of the futures contract,
the Investment Fund had invested in the underlying security or currency and sold
it after the decline.
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Utilization of futures transactions by the Investment Fund does involve
the risk of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the portfolio securities or currencies
being hedged. It is also possible that an Investment Fund could both lose money
on futures contracts and also experience a decline in value of its portfolio
securities. There is also the risk of loss by an Investment Fund of margin
deposits in the event of bankruptcy of a broker with whom the Investment Fund
has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
OPTIONS ON FOREIGN CURRENCIES
The Emerging Markets, Latin American, European Equity, Growth and Income
and Worldwide High Income Funds may attempt to accomplish objectives similar to
those described above with respect to forward foreign currency exchange
contracts and futures contracts for currency by means of purchasing put or call
options on foreign currencies on exchanges. A put option gives the Investment
Fund the right to sell a currency at the exercise price until the expiration of
the option. A call option gives the Investment Fund the right to purchase a
currency at the exercise price until the expiration of the option.
OPTIONS TRANSACTIONS
The Emerging Markets, Latin American, European Equity, Growth and Income
and Worldwide High Income Funds may write (i.e., sell) covered call options
which give the purchaser the right to buy the underlying security covered by the
option from the Investment Fund at the stated exercise price. A "covered" call
option means that so long as the Investment Fund is obligated as the writer of
the option, it will own (i) the underlying securities subject to the option, or
(ii) securities convertible or exchangeable without the payment of any
consideration into the securities subject to the option. 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
Investment Fund. In addition, as a matter of operating policy, the Investment
Fund will neither purchase or write put options on securities nor purchase call
options on securities (except in connection with closing purchase transactions).
The Investment Fund will receive a premium from writing call options,
which increases the Investment 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, the Investment 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 Investment Fund's obligation as writer of the option
continues. Thus, in some periods the Investment Fund will receive less total
return and in other periods greater total return from writing covered call
options than it would have received from its underlying securities had it not
written call options.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Worldwide High Income Fund may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions ("Lenders").
The Investment Fund's 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. The Investment 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 Participation 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, the Investment 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. Certain Participations may be structured
in a manner designed to avoid purchasers of the Participation being subject to
the credit risk of the Lender with respect to the Participation, but even under
such a structure, in the event of the Lender's
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insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation impaired. The Investment Fund will acquire a
Participation only if the Lender interpositioned between the Investment Fund and
the borrower is determined by the Adviser to be creditworthy.
When the Investment 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 the Investment 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 Investment Fund anticipates 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
the Investment Fund's ability to dispose of particular Assignments or
Participation when necessary to meet the Investment 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 Participation also may make it more difficult for the Investment
Fund to assign a value to these securities for purposes of valuing the
Investment Fund's portfolio and calculating its net asset value.
PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rate for each of the
Investment Funds, except the Growth and Income Fund will not exceed 100%,
although in any particular year, market conditions could result in portfolio
activity at a greater or lesser rate than anticipated. The portfolio turnover
rate for a year is the lesser of the value of the purchases or sales for the
year divided by the average monthly market value of the Investment Fund for the
year, excluding U.S. Government securities and securities with maturities of one
year or less. The portfolio turnover rate for a year is calculated by dividing
the lesser of sales or the average monthly value of the Investment Fund's
portfolio purchases of portfolio securities during that year by securities,
excluding money market instruments. The rate of portfolio turnover will not be
a limiting factor when the Investment Fund deems it appropriate to purchase or
sell securities for the portfolio. However, the U.S. federal tax requirement
that the Investment Fund derive less than 30% of its gross income from the sale
or disposition of securities held less than three months may limit the
Investment Fund's ability to dispose of its securities. See "Federal Income
Tax."
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to
provide long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of United States and
non-United States issuers. The Adviser determines country allocations for the
Investment Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Investment Fund will invest
in the United States and industrialized countries throughout the world that
comprise the Morgan Stanley Capital International World Index (the "World
Index"). The World Index is one of seven International Indices, twenty National
Indices and thirty-eight International Industry Indices making up the Morgan
Stanley Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of 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.
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Legislation and administrative changes or court decisions may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
8
<PAGE>
In order to qualify for the special tax treatment afforded to regulated
investment companies ("RIC's") under Subchapter M of the Code, each Investment
Fund must, among other things, (a) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, and certain other related income, including, generally, gains from
options, futures and forward contracts (the "90% Gross Income Test"); (b) derive
less than 30% of its gross income each taxable year from the sale or other
disposition of (i) stocks or securities, (ii) options, futures or forward
contracts (other than options, futures or forward contracts on foreign
currencies) and (iii) foreign currencies (or options, futures or forward
contracts on foreign currencies), but only if not directly related to the
Investment Fund's principal business of investing in stocks or securities (or
options and futures with respect to stocks or securities) held less than three
months (the "Short-Short Gain Test"), and (c) diversify its holdings so that, at
the end of each fiscal quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Investment Fund's total assets is represented by cash,
United States Government securities, securities of other RIC's, and other
securities and cash items, with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of the Investment
Fund's total assets or 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer or two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or businesses (other
than U.S. Government securities or the securities of other RIC's). For purposes
of the 90% gross income requirement described above, foreign currency gains may
be excluded by regulation from income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, an Investment Fund must distribute at least 90% of its net investment
income (which generally includes dividends, taxable interest, and net short-term
capital gains less operating expenses) to shareholders. If an Investment Fund
meets all of the RIC requirements, it will not be subject to federal income tax
on any of its net investment income or capital gains that it distributes to
shareholders.
Each Investment Fund will decide whether to distribute or to retain all
or part of any net capital gains (the excess of net long-term capital gains over
net short-term capital losses) in any year for reinvestment. If any such gains
are retained, the Investment Fund will pay federal income tax thereon, and, if
the Investment Fund makes an election, the shareholders will include such
undistributed gains in their income and shareholders subject to tax will be able
to claim their share of the tax paid by the Investment Fund as a credit against
their federal income tax liability.
A gain or loss realized by a shareholder on the sale or exchange of
shares of an Investment Fund held as a capital asset will be capital gain or
loss, and such gain or loss will be long-term if the holding period for the
shares exceeds one year, and otherwise will be short-term. Any loss realized on
a sale or exchange will be disallowed to the extent the shares disposed of are
replaced within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of. Any loss realized by a shareholder on the
disposition of shares held 6 months or less is treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains received
by the shareholder with respect to such shares or any inclusion of undistributed
capital gain with respect to such shares.
Each Investment Fund will generally be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income and 98% of its capital gain
net income (the excess of short and long-term capital gains over short and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
Each Investment Fund is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital gains distributions,
and redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Investment Fund, that
the Social Security or Taxpayer Identification Number provided is correct and
that the shareholder is exempt from backup withholding or is not currently
subject to backup withholding.
FOREIGN INCOME TAX
It is expected that each Investment Fund will be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, and the Investment Fund may be subject to foreign income or other
taxes with respect to other income. So long as more than 50% in value of each
Investment Fund's total assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Investment Fund may elect to
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<PAGE>
treat certain foreign income taxes imposed on it under U.S. federal income tax
law as paid directly by its shareholders. An Investment Fund will make such an
election only if it deems it to be in the best interest of its shareholders and
will notify shareholders in writing each year if it makes an election and of the
amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If an Investment Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Investment Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if they itemize deductions, a deduction for their shares of the foreign
income taxes in computing their federal income tax liability. (No deductions
will be allowed in computing alternative minimum tax liability.)
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determine without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by an Investment Fund from its
foreign source income will be treated as foreign source income. An Investment
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income," such as the portion of
dividends received from an Investment Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations as individuals. Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income taxes paid by an Investment
Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES
Except for certain hedging transactions, each Investment Fund is required
for Federal income tax purposes to recognize as gain or loss for each taxable
year its net unrealized gains and losses on certain forward currency and futures
contracts as of the end of each taxable year, as well as those actually realized
during the year. In most cases, any such gain or loss recognized with respect to
a regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Gain or loss attributable to a foreign currency forward
contract is treated as 100% ordinary income. Furthermore, forward currency
futures contracts which are intended to hedge against a change in the value of
securities held by an Investment Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, the Investment Fund will
have to avoid realizing gains on futures contracts and certain forward contracts
held less than three months and may be required to defer the closing out of
futures contracts beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains of such contracts that have been
open for less than three months as of the end of the Investment Fund's taxable
year and which are treated as recognized for tax purposes at the end of the
taxable year will not be considered gains on securities held less than three
months for purposes of the Short-Short Gain test.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Investment Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Investment Fund actually
collects such receivables or pays such liabilities are treated as ordinary
income or ordinary loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the security
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses increase or decrease the amount of an Investment Fund's net
investment income, if any, available to be distributed to its shareholders as
ordinary income.
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<PAGE>
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, foreign corporation, or foreign
partnership ("Foreign Shareholder") depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of ordinary
income will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, Foreign
Shareholders will generally be exempt from United States federal income tax on
gains realized on the sale of shares of the Fund, distributions of net long-term
capital gains, and amounts retained by the Fund which are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, then distributions of net
investment income and net long-term capital gains, and any gains realized upon
the sale of shares of the Fund, will be subject to U.S. federal income tax at
the rates applicable to United States citizens and residents or domestic
corporations.
The Fund may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.
PURCHASE OF SHARES
For Class A shares of the Non-Money Funds, the purchase price of shares
is based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Investment Funds an order received prior to the regular close of the New
York Stock Exchange (the "NYSE") will be executed at the price computed on the
date of receipt; and an order received after the regular close of the NYSE will
be executed at the price computed on the next day the NYSE is open. The purchase
price of shares of the Non-Money Funds is based on such price as further
described in the Prospectus under "Purchase of Shares." Class A shares of the
Non-Money Funds purchased without an initial sales charge that are redeemed
within one year of purchase are subject to a 1.00% contingent deferred sales
charge ("CDSC"), certain Class B shares of the Non-Money Funds that are redeemed
within six years of purchase are subject to a CDSC of up to 5.00% and certain
Class C shares of the Non-Money Funds that are redeemed within one year of
purchase are subject to a 1.00% CDSC, as described in the Prospectus under
"Purchase of Shares." The initial sales charge and CDSC are not applicable to
shares of any class of any Investment Fund purchased through the automatic
reinvestment of dividends or distributions paid by any Investment Fund. The
price of shares of the Money Market Fund is the net asset value per share next
determined after Federal Funds are available to such Investment Fund. A purchase
of Money Market Fund shares by check is ordinarily credited to the shareholder's
account at the price next determined on the day of receipt and will begin
receiving dividends the following day. Shares of the Fund may be purchased on
any day the NYSE is open. The NYSE is closed on the following days: New Year's
Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving Day; and Christmas Day.
Each Investment Fund reserves the right in its sole discretion (i) to
suspend the offering of its shares, (ii) to reject purchase orders when in the
judgment of management such rejection is in the best interest of the Fund, and
(iii) to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts such as employee benefit plans or under circumstances
where certain economies can be achieved in sales of an Investment Fund's shares.
REDEMPTION OF SHARES
Each Investment Fund may suspend redemption privileges or postpone the
date of payment (i) during any period that the NYSE is closed, or trading on the
NYSE is restricted as determined by the SEC, (ii) during any period when an
emergency exists as defined by the rules of the SEC as a result of which it is
not reasonably practicable for an
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<PAGE>
Investment Fund to dispose of securities owned by it, or fairly to determine the
value of its assets, and (iii) for such other periods as the SEC may permit.
Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the
Investment Fund. Class A shares of the Non- Money Funds purchased without an
initial sales charge due to the size of the purchase that are redeemed within
one year of purchase are subject to a 1.00% CDSC, certain Class B shares of the
Non-Money Funds that are redeemed within six years of purchase are subject to a
CDSC of up to 5.00% that decreases to 0% after six years, and certain Class C
shares of the Non-Money Funds that are redeemed within one year of purchase are
subject to a 1.00% CDSC as described in the Prospectus under "Purchase of
Shares." Such initial sales charge and CDSC are not applicable to shares of any
class of any Investment Fund purchased through the automatic reinvestment of
dividends or distributions paid by any Investment Fund.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with: (1) all redemptions,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (2) share
transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request
for redemption; (2) on a separate instrument for assignment ("stock power")
which should specify the total number of shares to be redeemed; or (3) on all
stock certificates tendered for redemption and, if shares held by the Fund are
also being redeemed, on the letter or stock power.
Redemption of shares held in broker street name may not be accomplished
by mail or telephone as described above. Shares held in broker street name may
be redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
INVESTMENT LIMITATIONS
Each current Investment Fund of the Fund has adopted the following
restrictions which are fundamental policies and may not be changed without the
approval of the lesser of: (1) at least 67% of the voting securities of the
Investment Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Investment Fund are present or represented
by proxy, or (2) more than 50% of the outstanding voting securities of the
Investment Fund. Each current Investment Fund of the Fund will not:
(1) invest in commodities, except that each of the Emerging Markets
Fund, Latin American Fund, European Equity Fund, American Value Fund, Growth and
Income and Worldwide High Income Fund may invest in futures contracts and
options to the extent that not more than 5% of its total assets are required as
deposits to secure obligations under futures contracts and not more than 20% of
its total assets are invested in futures contracts and options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (11) below) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
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<PAGE>
(4) purchase on margin or sell short except as specified above in (1)
and except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund and Worldwide High Income Fund may enter into short sales in accordance
with its investment objectives and policies;
(5) with respect to all of the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund and Latin American Fund, purchase more than
10% of any class of the outstanding securities of any issuer;
(6) with respect to all the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund, Latin American Fund and Money Market Fund,
purchase securities of an issuer (except obligations of the U.S. Government and
its instrumentalities) if as the result, with respect to 75% of its total
assets, more than 5% of the Investment Fund's total assets, at market, would be
invested in the securities of such issuer;
(7) purchase or retain securities of an issuer if those officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(8) borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 10% of
the Investment Fund's total assets valued at the lower of market or cost and an
Investment Fund may not purchase additional securities when borrowings exceed 5%
of total assets except that the Worldwide High Income Fund, Latin American Fund,
Growth and Income Fund and Money Market Fund may enter into reverse repurchase
agreements in accordance with their investment objectives and policies and each
of the Latin American Fund and Worldwide High Income Fund 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;
(9) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except that each of
the Latin American and Worldwide High Income Funds may pledge, mortgage or
hypothecate its assets to secure borrowings in amounts up to 33 1/3% of its
assets (including the amount borrowed);
(10) underwrite the securities of other issuers;
(11) invest more than an aggregate of 15% of the total assets of the
Investment Fund (10% of the net assets of the Money Market Fund), determined at
the time of investment, in illiquid assets, including repurchase agreements
having maturities of more than seven days; provided, however, that no Investment
Fund shall invest more than 10% of its total assets in securities subject to
legal or contractual restrictions on resale;
(12) invest for the purpose of exercising control over management of any
company;
(13) invest its assets in securities of any investment company, except
by purchase in the open market involving only customary brokers' commissions or
in connection with mergers, acquisitions of assets or consolidations and except
as may otherwise be permitted by the 1940 Act;
(14) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(15) with respect to all the Investment Funds, except the Latin American
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Investment Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or (in the case of the Money Market Fund) instruments issued
by U.S. banks;
(16) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases; or
(17) issue senior securities.
The Money Market Fund will not purchase securities of an issuer (except
obligations of the U.S. Government and instrumentalities) if more than 5% of its
total assets, at market, would be invested in the securities of one issuer,
except as permitted under applicable law.
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Each of the Global Fixed Income, Emerging Markets and Latin American
Funds will diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the market value of the Investment Fund's
total assets is represented by cash (including cash items and receivables), U.S.
Government securities, and other securities, with such other securities limited,
in respect of any one issuer, for purposes of this calculation to an amount not
greater than 5% of the value of the Investment Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities);
In addition, the Fund has adopted the following limitations which are not
fundamental policies and may be changed without shareholder approval:
(1) no Investment Fund will purchase puts, calls, straddles, spreads
and any combination thereof if by reason thereof the value of its aggregate
investment in such derivative securities will exceed 5% of its respective total
assets except that the Emerging Markets, Latin American, European Equity, Growth
and Income and Worldwide High Income Funds may purchase puts and calls on
foreign currencies and may write covered call options in accordance with its
investment objective and policies;
(2) no Investment Fund may purchase warrants if, by reason of such
purchase, more than 5% of the value of the Investment Fund's net assets would be
invested in warrants valued at the lower of cost or market. Included in this
amount, but not to exceed 2% of the value of the Investment Fund's net assets
may be warrants that are not listed on a recognized stock exchange; and
(3) no Investment Fund will invest in oil, gas or other mineral leases;
and
(4) the Emerging Markets Fund may invest up to 25% of its total assets
in privately placed securities, provided that it may not invest more than 15% of
its total assets in illiquid securities, including securities for which there is
no readily available market, and provided further that it will not invest more
than 10% of its total assets in securities which are restricted from sale to the
public without registration under the Securities Act of 1933, except securities
that are not registered under the Securities Act of 1933 but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future Investment Funds of the Fund may adopt
different limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be
the period remaining until the date noted on the face of the instrument as the
date on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a Government
Obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
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<PAGE>
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. The other Directors have no
affiliation with the Fund's adviser, distributor or administrative services
provider. Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised or
distributed by Morgan Stanley Asset Management Inc. or its affiliates. A list of
the Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past 5 years is set forth below:
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
Barton M. Biggs* Chairman and Chairman and Director
1221 Avenue of the Director of Morgan Stanley Asset
Americas Management Inc. and
New York, NY 10020 Morgan Stanley Asset
Management Limited;
Managing Director of
Morgan Stanley & Co.,
Inc.; Director of
Morgan Stanley Group
Inc.; Member of
International Advisory
Counsel of the Thailand
Fund; Chairman and
Director of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Warren J. Olsen* Director and President Principal of Morgan
1221 Avenue of the Stanley & Co., Inc.;
Americas Vice President of
New York, NY 10020 Morgan Stanley Asset
Management Inc.;
President and Director
of The Brazilian
Investment Fund, Inc.,
The Latin American
Discovery Fund, Inc.,
The Malaysia Fund,
Inc., Morgan Stanley
Africa Investment Fund,
Inc., Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc., and The Turkish
Investment Fund, Inc.
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Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
John D. Barrett, II Director Chairman and Director
521 Fifth Avenue of Barrett Associates,
New York, NY 10135 Inc. (Investment
counseling); Director
of the Ashforth Company
(real estate); Director
of the Morgan Stanley
Fund, Inc., Morgan
Stanley Institutional
Fund, Inc. and PCS Cash
Fund, Inc.
Gerard E. Jones Director Partner in Richards &
43 Arch Street O'Neil L.L.P. (law
Greenwich, CT 06830 firm); Director of the
Morgan Stanley Fund,
Inc., Morgan Stanley
Institutional Fund,
Inc. and PCS Cash Fund,
Inc.
Andrew McNally IV Director Chairman and Chief
8255 North Central Executive Officer of
Park Avenue Rand McNally
Skokie, IL 60076 (Publication); Director
of Allendale Insurance
Co., Mercury Finance
(consumer finance);
Zenith Electronics,
Hubbell, Inc.
(industrial
electronics); Director
of the Morgan Stanley
Fund, Inc., Morgan
Stanley Institutional
Fund, Inc. and PCS Cash
Fund, Inc.; Director of
the Morgan Stanley
Fund, Inc., Morgan
Stanley Institutional
Fund, Inc. and PCS Cash
Fund, Inc.
Samuel T. Reeves Director Chairman of the Board
8211 North and CEO, Pinacle L.L.C.
Fresno Street (investment firm);
Fresno, CA 93720 Director, Pacific Gas
and Electric and PG&E
Enterprises
(utilities); Director
of the Morgan Stanley
Fund, Inc., Morgan
Stanley Institutional
Fund, Inc. and PCS Cash
Fund, Inc.
Fergus Reid Director Chairman and Chief
85 Charles Colman Blvd Executive Officer of
Pawling, NY 12564 LumeLite Corporation
(injection molding
firm); Trustee and
Director of Vista
Mutual Fund Group;
Director of the Morgan
Stanley Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc. and PCS Cash Fund,
Inc.
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave
2800 North Central Avenue (law firm); Previously
Phoenix, AZ 85004 associated with Copple,
Chamberlin & Boehm,
P.C. and Rake, Copple,
Downey & Black, P.C.
(law firms); Director
of the Morgan Stanley
Fund, Inc., Morgan
Stanley Institutional
Fund, Inc. and PCS Cash
Fund, Inc.
16
<PAGE>
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
Frederick B. Whittemore* Director Advisory Director of
1251 Avenue of the Morgan Stanley & Co.,
Americas, 30th Flr. Inc.; Vice-Chairman and
New York, NY 10020 Director of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund,Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
James W. Grisham Vice President Principal of Morgan
1221 Avenue of the Stanley & Co., Inc.;
Americas Vice President of
New York, NY 10020 Morgan Stanley Asset
Management Inc.; Vice
President of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
17
<PAGE>
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
Harold J. Schaaff, Jr. Vice President Principal of Morgan
1221 Avenue of the Stanley & Co.; General
Americas Counsel and Secretary
New York, NY 10020 of Morgan Stanley Asset
Management Inc.; Vice
President of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Joseph P. Stadler Vice President Vice President of
1221 Avenue of the Morgan Stanley Asset
Americas Management Inc.;
New York, NY 10020 Previously with Price
Waterhouse
(accounting); Vice
President of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
18
<PAGE>
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
Valerie Y. Lewis Secretary Vice President of
1221 Avenue of the Morgan Stanley Asset
Americas Management Inc.;
New York, NY 10020 Previously with
Citicorp (banking);
Secretary of The
Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The
Malaysia Fund, Inc.,
Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The PCS Cash Fund,
Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Karl O. Hartmann Assistant Secretary Senior Vice President,
73 Tremont Street Secretary and General
Boston, MA 02108-3913 Counsel of Mutual Funds
Service Company; Senior
Vice President,
Secretary and General
Counsel, Leland,
O'Brien, Rubinstein
Associates, Inc. (an
investment adviser)
from November 1990 to
November 1991.
James R. Rooney Treasurer Assistant Vice
73 Tremont Street President, Mutual Funds
Boston, MA 02108-3913 Service Company;
Manager of Fund
Administration; Officer
various investment
companies managed by
Morgan Stanley Asset
Management Inc.;
Previously with
Scudder, Stevens &
Clark, Inc.
(Investment); Treasurer
of The Brazilian
Investment Fund, Inc.,
The Latin American
Discovery Fund, Inc.,
The Malaysia Fund,
Inc., Morgan Stanley
Africa Investment Fund,
Inc., Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The Thai Fund, Inc. and
The Turkish Investment
Fund, Inc.
19
<PAGE>
Principal Occupation
Name and Address Position with Fund During Past Five Years
- ---------------- ------------------ ----------------------
Joanna Haigney Assistant Treasurer Supervisor of Fund
Administration and
Compliance, Mutual
Funds Service Company;
Previously with Coopers
& Lybrand L.L.P.;
Assistant Treasurer of
The Brazilian
Investment Fund, Inc.,
The Latin American
Discovery Fund, Inc.,
The Malaysia Fund,
Inc., Morgan Stanley
Africa Investment Fund,
Inc., Morgan Stanley
Asia-Pacific Fund,
Inc., Morgan Stanley
Emerging Markets Debt
Fund, Inc., Morgan
Stanley Emerging
Markets Fund, Inc.,
Morgan Stanley Fund,
Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan
Stanley High Yield
Fund, Inc., Morgan
Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund,
Inc., The Pakistan
Investment Fund, Inc.,
The Thai Fund, Inc. and
The Turkish Investment
Fund, Inc.
_______
* "Interested Person" within the meaning of the 1940 Act.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director who is not also an officer or affiliated
person an annual fee and reimburses all the Directors, including those who are
officers or affiliated persons, travel and other expenses incurred in attending
Board meetings. For the fiscal period ended June 30, 1994, the Fund paid
approximately $39,000 in Directors' fees and expenses. Directors who are also
officers or affiliated persons receive no remuneration for their services as
Directors. The Fund's officers and employees are paid by the Adviser or its
agents. As of June 30, 1994, to Fund management's knowledge, the Directors and
officers of the Fund, as a group, owned less than 1% of the outstanding common
stock of each Investment Fund of the Fund. The following table shows aggregate
compensation paid to each of the Fund's Directors by the Fund and the Fund
Complex, respectively, for the period from January 1, 1994 to December 31, 1994.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position From Benefits Accrued Benefits From Registrant
Registrant as Part of Fund Upon and Fund Complex
Expenses Retirement Paid to Directors
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick B. Whittemore,* $ 8,250 $0 $0 $57,400
Director and Chairman of
the Board
John E. Eckleberry,** 7,500 0 0 7,500
Director
Gerard E. Jones,* 8,700 0 0 75,485
20
<PAGE>
Director
Warren J. Olsen,* 0 0 0 0
Director and President
Frederick O. Robertshaw,* 7,500 0 0 30,580
Director
- ----------------------------------------------------------------------------
<FN>
* As of June 28, 1995, the following persons were elected Directors of the
Fund: Barton M. Biggs, John D. Barrett II, Gerard E. Jones, Andrew McNally
IV, Warren J. Olsen, Samuel T. Reeves, Fergus Reid, Frederick O. Robertshaw
and Frederick B. Whittemore.
** Resigned effective June 28, 1995.
</TABLE>
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
The Adviser is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020.
The Group, a renowned global financial services firm, is distinguished by
quality, service and a commitment to excellence. Tracing its roots to the
founding of the U.S. securities industry, the Group remains a leader in the
field. The Group's premier list of clients includes some of the largest
multinational corporations and institutions, governments, nation-states, royal
households and very high-net-worth individuals.
The Group with its subsidiaries ("Morgan Stanley") maintains a major
global presence with offices in Chicago, Frankfurt, Hong Kong, London, Los
Angeles, Luxembourg, Melbourne, Milan, New York, Paris, San Francisco, Seoul,
Singapore, Taipei, Tokyo, Toronto and Zurich. With over 9,800 employees,
approximately 35% of which are located outside the U.S., and members of the
portfolio management teams which are native to the countries in which they are
investing, Morgan Stanley is in an exceptional position to interpret the forces
that will impact the world's capital markets today, over the next decade and
beyond.
The investment management division of Morgan Stanley was formed in 1975
under the leadership of Barton Biggs and incorporated as a wholly-owned
subsidiary of the Group in 1981. MSAM was formed to offer investment management
and fiduciary services to institutions and high-net-worth individuals. MSAM
offers its clients the same superior service and high standards of integrity
that have been the hallmark of Morgan Stanley since its founding in 1935.
As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with Morgan
Stanley's long-standing tradition of integrity and prudence, puts MSAM in a
unique position to offer investment management services. As compensation for
advisory services for the fiscal year ended June 30, 1994, the Adviser earned
fees of approximately $2,322,000 and voluntarily waived a portion of such fees
equal to approximately $1,026,000.
Pursuant to the Administration Agreement between the Adviser and the
Fund, the Adviser provides Administrative Services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.25% of the average daily net assets of each Investment
Fund. For the fiscal year ended June 30, 1994, the Fund paid administrative fees
to MSAM of approximately $852,000.
Under the Agreement between the Adviser and United States Trust Company
of New York ("United States Trust"), MFSC, a United States Trust subsidiary,
provides certain administrative services to the Fund. MFSC provides operational
and administrative services to investment companies with approximately $56
billion in assets and having approximately 245,090 shareholder accounts as of
December 31, 1994. MFSC's business address is 73 Tremont Street, Boston,
Massachusetts 02108-3913.
DISTRIBUTION OF FUND SHARES
Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Group, serves as the Distributor of the Fund's shares pursuant to
a Distribution Agreement for the Fund and a Plan of Distribution for the
21
<PAGE>
Money Market Fund and each class of the Non-Money Funds pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan" and together, the "Plans"). Under each Plan
the Distributor is entitled to receive from these Investment Funds a
distribution fee, which is accrued daily and paid quarterly, of up to 0.25% for
the Money Market Fund and the Class A shares of each of the Non-Money Funds, and
up to 0.75% of the Class B shares and Class C shares of each of the Non-Money
Funds, on an annualized basis, of the average daily net assets of such
Investment Fund or classes. The Distributor expects to allocate most of its fee
to investment dealers, banks or financial service firms that provide
distribution, administrative or shareholder services ("Participating Dealer").
The actual amount of such compensation is agreed upon by the Fund's Board of
Directors and by the Distributor. 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.
The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do
not obligate the Investment 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 Investment Funds will not be
obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee. The Plans for the Money Market Fund, the Class A shares and the Class
C shares were most recently approved by the Fund's Board of Directors, including
those directors who are not "interested persons" of the Fund as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of a Plan or in any agreements related thereto, on September 22,
1994. The Plan for the Class B shares was most recently approved by the
Fund's Board of Directors, including those directors who are not "interested
persons" of the Fund as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of a Plan or in any
agreements related thereto, on June 1, 1995.
As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1994, the Distributor received aggregate fees of
approximately $1,383,000, which were attributable approximately as follows:
Fiscal Year
Ended
June 30, 1994
-------------
Global Equity Allocation Fund-Class A $ 58,000
Global Equity Allocation Fund-Class B+ N/A
Global Equity Allocation Fund-Class C+ 18,000
Global Fixed Income Fund-Class A 15,000
Global Fixed Income Fund-Class B+ N/A
Global Fixed Income Fund-Class C+ 17,000
Asian Growth Fund-Class A 281,000
Asian Growth Fund-Class B+ N/A
Asian Growth Fund-Class C+ 141,000
American Value Fund-Class A* 5,000
American Value Fund-Class B*+ N/A
American Value Fund-Class C*+ 1,000
Worldwide High Income Fund-Class A** 2,000
Worldwide High Income Fund-Class B**+ N/A
Worldwide High Income Fund-Class C**+ ----
Neither of the classes of the Emerging Markets, Latin American, European
Equity and Growth and Income Funds were in operation in the fiscal year ended
June 30, 1994.
________________________
* The American Value Fund commenced operations on October 18, 1993.
** The Worldwide High Income Fund commenced operations on April 21, 1994.
22
<PAGE>
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of June 30, 1995 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
GLOBAL EQUITY ALLOCATION FUND: FTC & Co., Attn: Datalynx #162, P.O. Box
173736, Denver, CO 80217-3736, owned 6% of the total outstanding Class A shares
of such Investment Fund.
GLOBAL FIXED INCOME FUND: Morgan Stanley Group, Inc. (the "Group"),
1221 Avenue of the Americas, New York, NY 10020, owned 49% of the total
outstanding Class C shares of such Investment Fund.
EMERGING MARKETS FUND: FTC & Co., Attn: Datalynx #118, P.O. Box 173736,
Denver, CO 80217-3736, owned 16% of the total outstanding Class A shares of
such Investment Fund; Crestar Bank Trust Department, Sheltering Arms Foundation,
a/c #10091700, P.O. Box 26246, Richmond, VA 23260, owned 7% of the total
outstanding Class A shares of such Investment Fund; and Advest, Inc. ("Advest"),
280 Trumbull Street, Hartford, CT 06103, owned 6% of the total outstanding
Class A shares of such Investment Fund.
LATIN AMERICAN FUND: The Group owned 18% of the total outstanding Class
C shares of such Investment Fund; and Prudential Securities FBO J.P. Barger, 600
W. Cummings Park, Suite 3500, Woburn, MA 01801-6349, owned 13% of the total
outstanding Class C shares of such Investment Fund.
AMERICAN VALUE FUND: The Group owned 26% of the total outstanding Class
A shares and 39% of the total outstanding Class C shares of such Investment
Fund; and Smith Barney Inc., a/c/ #00122517815, 388 Greenwich Street, New York,
NY 10013, owned 5% of the total outstanding Class A shares and a/c #00122517779
owned 5% of the total outstanding Class A shares of such Investment Fund.
WORLDWIDE HIGH INCOME FUND: The Group owned 33% of the total
outstanding Class A shares of such Investment Fund; Advest, 280 Trumbull Street,
Hartford, CT 06103, owned 6% of the total outstanding Class A shares of such
Investment Fund; and Prudential Securities FBO John P. Dobson, 140 Christie Hill
Road, Darien, CT 06820-3016, owned 5% of the total outstanding Class A shares of
such Investment Fund.
The Group may be deemed a "controlling person" of the Fund by virtue of
its power to control the voting or disposition of the shares it owns. As a
result of its ownership position, the Group may be able to control the outcome
of matters voted on by shareholders of the Funds.
MONEY MARKET FUND NET ASSET VALUE
The Money Market Fund seeks to maintain a stable net asset value per
share of $1.00. The Investment Fund uses the amortized cost method of valuing
its securities, which does not take into account unrealized gains or losses. The
use of amortized cost and the maintenance of the Investment Fund's per share net
asset value at $1.00 is based on the Investment Fund's election to operate under
the provisions of Rule 2a-7 under the 1940 Act. As a condition of operating
under that Rule, the Money Market Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less, and invest only in securities which
are of "eligible quality" as determined in accordance with regulations of the
SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Investment Fund's investment objectives, to stabilize the net asset value per
share as computed for the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem appropriate and at
such intervals as are reasonable in light of current market conditions, of the
relationship between the amortized cost value per share and a net asset value
per share based upon available indications of market value. In such review,
investments for which market quotations are readily available are valued at the
most recent bid price or quoted yield available for such securities or for
securities of comparable maturity, quality and type as obtained from one or more
of
23
<PAGE>
the major market makers for the securities to be valued. Other investments and
assets are valued at fair value, as determined in good faith by, or under
procedures adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between the Investment
Fund's net asset value based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost, the Directors will
promptly consider what action, if any, should be taken. The Directors will also
take such action as they deem appropriate to eliminate or to reduce to the
extent reasonably practicable any material dilution or other unfair results
which might arise from differences between the two. Such action may include
redemption in kind, selling instruments prior to maturity to realize capital
gains or losses or to shorten the average maturity, withholding dividends,
paying distributions from capital or capital gains or utilizing a net asset
value per share as determined by using available market quotations.
There are various methods of valuing the assets and of paying dividends
and distributions from a money market fund. The Money Market Fund values its
assets at amortized cost while also monitoring the available market bid price,
or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of the Investment
Fund will ordinarily remain at $1.00, but the Investment Fund's daily dividends
will vary in amount. Net realized short-term capital gains, if any, less any
capital loss carryforwards, will be distributed whenever the Directors determine
that such distributions would be in the best interest of shareholders, but in
any event, at least once a year. The Money Market Fund does not expect to
realize any long-term capital gains. Should any such gains be realized, they
will be distributed annually, less any capital loss carryforwards.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Investment Fund and directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Investment Fund. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage services which, in
the opinion of the Adviser, are necessary for the achievement of better
execution, provided the Adviser believes this to be in the best interest of the
Fund.
In purchasing and selling securities for the Investment Fund, it is the
Fund's policy to seek to obtain quality execution at the most favorable prices,
through responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Investment Fund, consideration will be given to
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker- dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Investment Fund may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Investment Fund and
one or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Investment Fund and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Directors.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Fund's portfolio
brokerage transactions to Morgan Stanley or broker affiliates of Morgan Stanley.
In order for Morgan Stanley or its affiliates to effect any portfolio
transactions for the Fund, 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 in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. Furthermore, the
Directors of the Fund, including a majority of the Directors who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Morgan Stanley
or such affiliates are consistent with the foregoing standard. For the two
fiscal years ended June 30, 1993 and June 30, 1994, the Fund paid brokerage
commissions of approximately $36,558 and $2,060,894, respectively. During the
same period, the Fund paid brokerage commissions of approximately $2,497 and
$618,000, respectively, to the Distributor, an affiliated broker-dealer. For
the fiscal year ended June 30, 1994 commissions paid to the Distributor
24
<PAGE>
represented approximately 30% of the total amount of brokerage commissions paid
in such period and which were paid on transactions that represented 21% of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund during such period.
Investment Fund securities will not be purchased from, or through, or
sold to or through, the Adviser or Morgan Stanley or any "affiliated persons,"
as defined in the 1940 Act, of Morgan Stanley when such entities are acting as
principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the Investment Funds' past performance.
Performance quotations by investment companies are subject to rules
adopted by the SEC, which require the use of standardized performance
quotations. In the case of total return, non-standardized performance quotations
may be furnished by the Fund but must be accompanied by certain standardized
performance information computed as required by the SEC. Current yield and
average annual compounded total return quotations used by the Fund are based on
the standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Fund to compute or express
performance follows.
TOTAL RETURN
From time to time the Investment Funds may advertise total return. Total
return figures are based on historical earnings and are not intended to indicate
future performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Investment Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assumes that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1-, 5-, and 10- year
period (or over the life of the Investment Fund) and the deduction of all
applicable Fund expenses on an annual basis.
Total return figures are calculated according to the following formula:
n
P(1 + T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year periods at
the end of the 1-, 5-, or 10-year periods (or fractional
portion thereof).
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Investment
Funds for the six-month period ended December 31, 1994, the one-year period
ended December 31, 1994 and for the period from inception through December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Six-Month One-Year Period
Period Ended Ended Since
December 31, 1994 December 31, 1994 Inception
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Global Equity Allocation Fund
(commenced operations on January 4, 1993)
Class A Shares......................... 1.78% 0.27% 10.99%
Class B Shares......................... N/A N/A N/A
Class C Shares......................... 1.24% (0.51)% 10.15%
25
<PAGE>
Global Fixed Income Fund
(commenced operations on January 4, 1993)
Class A Shares......................... 0.11% (5.53)% 4.23%
Class B Shares......................... N/A N/A N/A
Class C Shares......................... (0.47)% (6.37)% 3.38%
0
Asian Growth Fund
(commenced operations on June 23, 1993)
Class A Shares........................ 1.77% (14.22)% 19.66%
Class B. Shares....................... N/A N/A N/A
Class C Shares........................ 1.46% (14.72)% 18.92%
American Value Fund
(commenced operations on Oct. 18, 1993)
Class A Shares....................... 3.39% 2.01% 1.85%
Class B Shares....................... N/A N/A N/A
Class C Shares....................... 2.95% 1.22% 0.99%
Worldwide High Income Fund
(commenced operations on April 21, 1994)
Class A Shares......................... (1.49)% --- 1.24%
Class B Shares......................... N/A N/A N/A
Class C Shares......................... (1.90)% --- 0.67%
Emerging Markets Fund
(commenced operations on July 6, 1994)
Class A Shares......................... --- --- (7.92)%
Class B Shares......................... N/A N/A N/A
Class C Shares......................... --- --- (8.25)%
Latin American Fund
(commenced operations on July 6, 1994)
Class A Shares......................... --- --- 0.48%
Class B Shares......................... N/A N/A N/A
Class C Shares......................... --- --- (0.02)%
</TABLE>
The European Equity and Growth and Income Funds had not commenced
operations in the period ended December 31, 1994.
YIELD FOR NON-MONEY FUNDS
From time to time certain of the Investment Funds may advertise yield.
Current yield reflects the income per share earned by an Investment
Fund's investments.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
6
Yield = 2[(a - b + 1) - 1]
-----
cd
where:
a = dividends and interest earned during the period
26
<PAGE>
b = expenses accrued for the period
(net of reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive income
distributions
d = the maximum offering price per share on the last day
of the period
The 30-day yield for the Global Fixed Income Fund as of December 31, 1994
was 6.19% for Class A shares and 5.75% for Class B shares.
CALCULATION OF YIELD FOR THE MONEY MARKET FUND
The current yield of the Money Market Fund is calculated daily on a base
period return for a hypothetical account having a beginning balance of one share
for a particular period of time (generally 7 days). The return is determined by
dividing the net change (exclusive of any capital changes in such account) by
its average net asset value for the period, and then multiplying it by 365/7 to
determine the annualized current yield. The calculation of net change reflects
the value of additional shares purchased with the dividends by the Money Market
Fund, including dividends on both the original share and on such additional
shares. An effective yield, which reflects the effects of compounding and
represents an annualization of the current yield with all dividends reinvested,
may also be calculated for the Money Market Fund by dividing the base period
return by 7, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the result.
The yield of the Money Market Fund will fluctuate. The annualization of a
week's dividend is not a representation by the Money Market Fund as to what an
investment in the Money Market Fund will actually yield in the future. Actual
yields will depend on such variables as investment quality, average maturity,
the type of instruments the Money Market Fund invests in, changes in interest
rates on instruments, changes in the expenses of the Money Market Fund and other
factors. Yields are one basis investors may use to analyze the Money Market
Fund, and other investment vehicles; however, yields of other investment
vehicles may not be comparable because of the factors set forth in the preceding
sentence, differences in the time periods compared, and differences in the
methods used in valuing portfolio instruments, computing net asset value and
calculating yield.
The Money Market Fund is not currently in operation.
COMPARISONS
To help investors better evaluate how an investment in an Investment Fund
of Morgan Stanley Fund, Inc. might satisfy their investment objective,
advertisements regarding the Fund may discuss various measures of Fund
performance as reported by various financial publications. Advertisements may
also compare performance (as calculated above) to performance as reported by
other investments, indices and averages. The following publications, indices and
averages may be used:
(a) Dow Jones Composite Average or its component averages - an
unmanaged index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks and 20 transportation
stocks. Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities company stocks and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -
unmanaged indices of all industrial, utilities, transportation and finance
company stocks listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices - represents
the return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund
27
<PAGE>
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
(f) Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(g) Goldman Sachs 100 Convertible Bond Index - currently includes 67
bonds and 33 preferred. The original list of names was generated by screening
for convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(h) Salomon Brothers GNMA Index - includes pools of mortgages
originated by private lenders and guaranteed by the mortgage pools of the
Government National Association.
(i) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(j) Salomon Brothers Broad Investment Grade Bond - is a market-weighted
index that contains approximately 4700 individually priced investment grade
corporate bonds rated BBB or better, United States Treasury/agency issues and
mortgage pass-through securities.
(k) Salomon Brothers World Bond Index - measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(m) Lehman LONG-TERM Treasury Bond - is composed of all bonds covered
by the Lehman Treasury Bond Index with maturities of 10 years or greater.
(n) Lehman Aggregate Bond Index - is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(o) NASDAQ Industrial Index - is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and does
not include income.
(p) Composite Indices - 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(q) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc. - analyzes price, current yield, risk, total return and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.
(r) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.
(s) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,
28
<PAGE>
Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal and
Weisenberger Investment Companies Service - publications that rate fund
performance over specified time periods.
(t) Consumer Price Index (or cost of Living Index), published by the
United States Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.
(u) Stocks, Bonds, Bills and Inflation, published by Hobson Associates
- - historical measure of yield, price and total return for common and small
company stock, long-term government bonds, Treasury bills and inflation.
(v) Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.
(w) Historical data supplied by the research departments of First
Boston Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch,
Pierce, Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(x) The MSCI Combined Far East Free ex-Japan Index, a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in the
MSCI Combined Far East Free ex Japan Index at 20% of its market capitalization.
(y) First Boston High Yield Index - generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(z) Russell 2500 Small Company Index - is comprised of the bottom 500
stocks in the Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the stocks in the
Russell 2000 Index. The largest security in the index has a market
capitalization of approximately 1.3 billion.
(aa) Morgan Stanley Capital International World Index - An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.
(bb) Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina,
Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Investment Funds, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance. In addition, there can be
no assurance that the Fund will continue this performance as compared to such
other averages.
AMERICAN VALUE FUND
The American Value Fund's portfolio managers are "value" investors, and
as such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value. This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.
Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized. Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.
Wilshire Associates reports small cap value stocks (an index made up of
the lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap growth stock during the period of 1978 to 1994, and with
less risk than the average small cap growth stock (an index made up of small
capitalization stocks with the highest earnings growth, highest price-to-book
and highest price-to-earnings ratios as shown in the chart below).
[THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES
29
<PAGE>
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Small Cap Value Has Provided A Favorable Risk/Return Profile"
indicates returns from 14.3% to 19.5% on the vertical axis and risk (standard
deviation) from 14.9% to 24.3% on the horizontal axis. The following points are
indicated on the graph:
For Small Cap Value Portfolio: Return of 19.5% at risk (standard deviation)
of 15.9%
For Small Cap Mean Between Value and Growth: Return of 15.9% at risk
(standard deviation) of 20.6%
Small Cap Growth Portfolio: Return of 15.6% at risk (standard deviation)
of 24.3%
For S&P 500: Return of 14.3% at risk (standard deviation) of 14.9%
Source: Wilshire Associates style performance data 1978-1994
[END OF NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. The S&P 500 and the Style
Portfolio Data are unmanaged indices of securities. The risk factor is an
annualized standard deviation of the annual returns. The Small Cap Value Index
is a straightforward composite benchmark. It is the average of three separate
indices: Low Price/Book Index ("Low P/B"), High Yield Index, and Low
Price/Earnings Index ("Low P/E"). Each index is computed by sorting the
companies of stocks ranked 501-2000 by market capitalization by the fundamental
measure. The universe is then split into equally weighted deciles based on the
sorted fundamental measure. The Low P/B and the Low P/E indices are simply the
unweighted returns from the 8th and 9th decile. The High Yield Index is the
unweighted return from the 2nd and 3rd decile. The process is a repetitive,
rigid algorithm which is not subject to manager selectivity. The Small Cap
Index is the Decile 6-8 index of the Center for Research in Security Prices of
the University of Chicago ("CRSP"). The CRSP indices are composed of nearly all
common stocks traded on the NYSE, AMEX, and NASDAQ within a given market-cap
range. The size cutoffs are determined by ranking all NYSE stocks by market
cap, forming deciles, and then adding all the issues that fit the size range
from the other deciles. The CRSP Decile 6-8 represents the sixth through eighth
deciles. The market capitalization ranges characterized by both indices are
consistent with each other and represent the MSAM/Chicago definition of the
small capitalization universe.
$10,000 invested 20 years ago in an unmanaged basket of small cap value stocks
would have significantly outperformed the other investments shown in the chart
below:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Growth of a $10,000 investment on January 1, 1971 through
September 30, 1994" indicates returns of $10,000 to $610,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1994 on the horizontal axis. Every sixth quarter is presented instead of
lines covering each quarter.
30
<PAGE>
In Thousands (except last column)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
70Q4 72Q2 73Q4 75Q2 76Q4 78Q2 79Q4 81Q2 82Q4 84Q2 85Q4 87Q2 88Q4 90Q2 91Q4 93Q2 9/30/94
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $566,834
Value
$10
- ------------------------------------------------------------------------------------------------------------
Small Cap 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $242,539
10
- ------------------------------------------------------------------------------------------------------------
Large Cap 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130,513
10
- ------------------------------------------------------------------------------------------------------------
10 Year 10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $74,520
Govt Bond
10
- ------------------------------------------------------------------------------------------------------------
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $58,820
10
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[END OF TABULAR REPRESENTATION THAT REPLACES GRAPHIC
MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. Small cap securities are
generally more volatile than T-Bills, 10-year government bonds or the S&P 500.
The returns shown assume the reinvestment of all distributions of income and
capital gains and do not reflect the deduction of sales charges or management
fees and expenses that would be applicable to a managed basket of equity
securities. The deduction of such sales charges and management fees and
expenses would reduce the returns shown. It is not possible to invest directly
in an index of equity securities, including any of the MSCI indices. An
investment strategy may be designed to replicate an index of equity securities
and may be more or less successful in achieving such a replication.
THE AMERICAN VALUE FUND'S PORTFOLIO. The portfolio universe consists of
the next 2,000 companies that rank in size following the 500 largest U.S.
corporations. The portfolio consists of approximately 100 companies, many of
which have been in business for over one hundred years and meet the stringent
criteria set forth by Morgan Stanley's portfolio management team. Companies in
the portfolio must be bargain-priced, with quality products and a dominant
market niche. They must demonstrate a sustainable growth rate, a healthy
financial position and have a history of paying dividends.
Careful analysis, using this criteria, helps Morgan Stanley portfolio
managers distinguish an underpriced stock that is in a position to recover, from
one that will continue to decline.
THE MORGAN STANLEY DISTINCTION. The portfolio managers' goal is to
capitalize on the market's tendency to overreact to bad news. Often a single
negative event that has been exaggerated in the stock market can cause a stock's
price to decline much more than is justified by the company's actual prospects.
This type of discrepancy between a company's market price and its intrinsic
worth (based on its earnings, cash flow, and/or asset values) is viewed by the
portfolio managers as an opportunity.
The managers of the American Value Fund are long-term investors, not
short-term traders. They recognize that the potentially higher rate of return
available from small stocks cannot be achieved overnight. Value takes time to
be realized.
The Fund's portfolio managers seek companies paying high, sustainable
dividends. Dividends are important because they provide a good indication that
a company has not only quality, shareholder-oriented management, but also
financial strength.
THE ASIAN GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 5.3% in Asia as compared with 2% in both North America and
Europe, according to the World Bank Atlas. According to Morgan Stanley
research, the economies in this region are less mature and are expected to have
a higher rate of sustainable growth well into the next century.
According to research conducted by J. Walter Thompson, by the year 2000,
Asia will have two-thirds of the world's population; only four of the world's
largest cities will be non-Asian; affluent Asian households will rise by 50% to
51 million; and per capita Gross Domestic Product ("GDP") will double. In
addition, 240 million Asian households will have televisions (a 70% increase in
the past 5 years, as compared with a 4.3% increase in Britain and a 6.7%
increase in the U.S.). China currently has one-quarter of the world's
population and is projected to have 200 million middle-class consumers by the
year 2000. By 2012, China, alone, is projected to have the world's largest
economy.
31
<PAGE>
Annualized returns of stock markets in this region are, in some cases,
twice that of the U.S., according to Morgan Stanley Capital International (MSCI)
Indices. On a relative basis, stock prices in this region are less than many
countries in the world, according to MSCI.
MORGAN STANLEY: THE ASIAN AUTHORITY. Morgan Stanley has a strong
commitment to the Asian region. The portfolio team is based in Morgan Stanley's
Singapore office, with managers who are native to the region and the markets
they analyze, offering local insights that have contributed to a superior
performance record. Morgan Stanley has over 1,250 employees located in the Far
East and has offices in Singapore, Shanghai, Taipei and Seoul.
ESTIMATED GNP GROWTH
1990-2000
Asia 5.3%
North America 2.0%
South America 2.2%
Europe 2.0%
Middle East 1.6%
Africa 0.3%
Source: World Bank Atlas
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates percentage returns on the
vertical axis and countries on the horizontal axis:
SUPERIOR HISTORIC MARKET RETURNS
1990-1994 ANNUALIZED RETURNS* (US DOLLARS)
Hong Kong 27.18%
Philippines 21.44
CFEFxJ 20.14
Thailand 17.47
Singapore 16.02
Malaysia 13.86
USA 9.16
World 4.24
EAFE 1.82
Korea 0.26
Indonesia -2.15
Taiwan -2.98
Japan -3.43
Past performance of Asian markets is not a guarantee of their future
performance and is not indicative of the Fund's future performance.
*Gross Dividends
Sources: MSCI Indices
32
<PAGE>
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past Performance is no guarantee of future results. The MSCI indices represent
an unmanaged basket of equity securities. The returns shown assume the
reinvestment of all distributions of income and capital gains and do not reflect
the deduction of sales charges or management fees and expenses that would be
applicable to a managed basket of equity securities. The deduction of such
sales charges and management fees and expenses would reduce the returns shown.
It is not possible to invest directly in an index of equity securities,
including any of the MSCI indices. An investment strategy may be designed to
replicate an index of equity securities and may be more or less successful in
achieving such a replication.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentages from 0-100% on the vertical axis and countries on the horizontal
axis:
PRICE EARNINGS/RATIO
Japan 70.5%
Taiwan (E) 27.0
World 23.2(1)
Philippines 21.7
Malaysia 21.3
Korea (E) 20.0
Singapore 19.7
CFEFxJ(E) 19.4(2)
India (E) 17.0
USA 16.7
Indonesia 16.6
Thailand 15.5
China (E) 11.0
Hong Kong 10.1
1994 P/E Ratios; Source Morgan Stanley Research
(1) Source: MSCI
(2) Source: MSCI Estimate
(E) Estimate, not from MSCI, 12/31/94
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
EMERGING MARKETS' GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 6.5% in emerging markets as compared with 2.5% in industrial
countries, according to the World Bank. According to Morgan Stanley research,
the economies in this region are less mature and are expected to have a
higher rate of sustainable growth well into the next century. If the high
savings in the emerging markets countries as of 1991 are sustained, the
savings will provide much of the needed capital for economic growth:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
33
<PAGE>
The following replaces a bar graph that indicates percentage of growth from
0-50% on the vertical axis and countries on the horizontal axis:
GROWTH - HIGH SAVINGS RATE (1991)
Singapore 45%
China 43
Korea 37
Indonesia 37
Thailand 34
Japan 34
Hong Kong 33
Malaysia 33
Taiwan 30
EEC(1) 22
India(1) 20
Mexico 20
Chile 18
Philippines 16
Brazil 16
Argentina 16
USA 15
Source: World Bank
Note: (1) 1989 data.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Morgan Stanley believes that population growth projected by the World Bank for
the 1990s, particularly among the middle class, will create buying power and
fuel demand for products, leading to economic growth and industrial
sophistication:
Total Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will greatly increase consumption of
goods and services.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates the percentages of population
under the age of 15 ranging from 0-50% on the horizontal axis and countries on
the vertical axis.
YOUNG POPULATION (1991)
Source: The Economist
Note:(1) 1990 data.
34
<PAGE>
USA 22%
Argentina(1) 30
Brazil(1) 35
Chile(1) 31
Mexico(1) 37
Venezuela(1) 38
Indonesia 37
S. Korea 27
Malaysia 37
Philippines 39
Taiwan 27
Thailand 35
India 36
Turkey(1) 35
Jordan(1) 44
Nigeria(1) 47
A large percentage of the population is under the age of 15 in
emerging countries. As these children mature, they will have a
tremendous impact on consumption of goods and services.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, the average annual total return of emerging markets has
exceeded that of developed countries, and other indicators point to significant
future growth in the emerging markets:
<TABLE>
<CAPTION>
THE CASE FOR EMERGING MARKETS
- --------------------------------------------------------------------------------------
| | | |
RETURNS | GROWTH | VALUE | UNDER- | DIVERSI-
| | | REPRESEN- | FICATION
| | | TATION |
- --------------------------------------------------------------------------------------
Annual | Real | | |
Returns| GNP Real | |Foreign Inv. |
(1940- |Growth EPS | Mkt | % of |
1993) |(1994- Growth | P/E Cap/ |Institutional| Average
| 2000) (1994) | 1994E GNP | Assets | Correlation
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging 17% | 6.5% 15% | 24.0x 30% | 0.6% | 0.07
Markets | | | |
| | | |
Developed 13% | 2.5% 5% | 26.5x 70% | 99.4% | 0.51%
Markets | | | |
</TABLE>
SOURCE: MORGAN STANLEY RESEARCH
THE RETURNS DO NOT REFLECT ANY ASSET-BASED CHARGES FOR INVESTMENT MANAGEMENT
OR OTHER EXPENSES.
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS.
THE PAST PERFORMANCE OF EMERGING MARKETS, HOWEVER, IS NO GUARANTEE OF
THE EMERGING MARKETS FUND'S FUTURE PERFORMANCE.
35
<PAGE>
MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS
Over one-third of Morgan Stanley's 9,800 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.
At December 31, 1994, MSAM, together with its affiliated asset management
companies, had approximately $48.7 billion in assets under management and
fiduciary advice, including over $1 billion in Latin America markets and over $7
billion in equities and fixed income in emerging markets, making it one of the
largest investment managers in emerging markets.
Morgan Stanley portfolio managers have access to proprietary research
through Morgan Stanley Capital International (MSCI), the generally recognized
standard for measuring the performance of international securities worldwide.
MSCI monitors approximately 4,000 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.
GROWTH POTENTIAL IN LATIN AMERICA
An economic transformation is occurring in Latin America today, which we
believe is creating a positive environment for investors. Old (protected)
economies are being transformed into new (open) free market economies, as
evidenced by many changes, including:
Old (Protected) New (Open)
--------------- ----------
High import tariffs Low tariffs
Regulated exchange rates Free exchange rates
Regulated interest rates Market interest rates
Investment restrictions Open foreign investment
High tax rates Competitive tax rates
Command economy Market economy
Employment priority Efficiency priority
Subsidies Competitive market prices
State-owned industry Privatization
Deficit spending Fiscal austerity
Capital flight Return capital
High inflation Lower inflation
According to Morgan Stanley research, the economies in this region are
less mature and are expected to have higher rates of sustainable growth well
into the next century. We believe the greatest potential for gain is when
situations are improving and not when they are mature.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bell curve line graph that indicates development
increasing upward in the vertical axis and time of maturity increasing to the
right in the horizontal axis:
36
<PAGE>
EMERGING MARKET LIFE CYCLE
- --------------------------------------------------------------------------------
BEHIND-THE- EMERGING ESTABLISHED MATURE
COUNTRIES SCENES MARKETS GROWTH ECONOMIES
- --------------------------------------------------------------------------------
Germany X
- --------------------------------------------------------------------------------
U.S. X
- --------------------------------------------------------------------------------
Japan X
- --------------------------------------------------------------------------------
U.K. X
- --------------------------------------------------------------------------------
Spain X
- --------------------------------------------------------------------------------
Hong Kong X
- --------------------------------------------------------------------------------
Singapore X
- --------------------------------------------------------------------------------
Portugal X
- --------------------------------------------------------------------------------
Taiwan X
- --------------------------------------------------------------------------------
Greece X
- --------------------------------------------------------------------------------
Korea X
- --------------------------------------------------------------------------------
Malaysia X
- --------------------------------------------------------------------------------
Turkey X
- --------------------------------------------------------------------------------
Thailand X
- --------------------------------------------------------------------------------
Mexico X
- --------------------------------------------------------------------------------
Chile X
- --------------------------------------------------------------------------------
Argentina X
- --------------------------------------------------------------------------------
Venezuela X
- --------------------------------------------------------------------------------
Indonesia X
- --------------------------------------------------------------------------------
Philippines X
- --------------------------------------------------------------------------------
India X
- --------------------------------------------------------------------------------
Brazil X
- --------------------------------------------------------------------------------
Pakistan X
- --------------------------------------------------------------------------------
Sri Lanka X
- --------------------------------------------------------------------------------
Peru X
- --------------------------------------------------------------------------------
Egypt X
- --------------------------------------------------------------------------------
Sub-Saharan
Africa X
- --------------------------------------------------------------------------------
Eastern Europe X
- --------------------------------------------------------------------------------
Cuba X
- --------------------------------------------------------------------------------
Vietnam X
- --------------------------------------------------------------------------------
Iran X
- --------------------------------------------------------------------------------
Source: Morgan Stanley Research
37
<PAGE>
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, this region's economy has grown faster than the industrial
countries, as measured by Gross Domestic Product, and the World Bank projects it
to grow twice as fast as the industrial countries by the year 2000.
Real GDP Growth
1993-2000
1965-93 Forecast
Latin America 4.3% 5.0%
Industrial Countries 3.1% 2.5%
SOURCE: WORLD BANK
PAST PERFORMANCE OF LATIN AMERICAN MARKETS, HOWEVER, IS NO GUARANTEE OF THE
LATIN AMERICAN FUND'S FUTURE PERFORMANCE.
Morgan Stanley believes that the population growth projected by the World
Bank for the 1990s in these developing countries, particularly among the middle
class, will create buying power and fuel demand for products, leading to
economic growth and industrial sophistication:
Growth of Growth of
Total Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
According to Morgan Stanley research, historically, annualized returns of
stock markets in this region have been superior, and on a relative basis, stock
prices in this region are significantly lower than developed markets as well as
other emerging markets, as measured by price/earnings ratios.
1988-93 1993
Annualized Return Return
S & P 500 14.5% 10.0%
T-Bills 5.7% 3.1%
Emerging Growth Stocks 18.4% 21.0%
U.S. Government Bonds 10.7% 8.2%
EAFE 2.0% 32.6%
Japanese Stocks -7.0% 25.5%
Emerging Market Equities 16.5% 67.5%
MSCI LATIN AMERICA 42.4% 49.1%
SOURCE: MORGAN STANLEY RESEARCH
The returns do not reflect any asset-based charges for investment
management or other expenses. Assumes reinvestment of all dividends/
distribution. Past Performance is no guarantee of the Latin American Fund's
future performance.
Price/Earnings Ratio
Developed Markets* 28.4X
38
<PAGE>
Emerging Markets* 13.9X
LATIN AMERICA** 17.2X
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX,
DEVELOPED MARKETS BY MSCI WORLD
* Prospective 1995
** Trailing as of December 31, 1994
Market Cap/GNP
(As of March 3, 1994)
Developed Markets .7
Emerging Markets .3
LATIN AMERICA .3
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX,
DEVELOPED MARKETS BY MSCI WORLD
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Articles of Incorporation permit the Directors to issue
7,750,000,000 shares of common stock, par value $.001 per share, from an
unlimited number of Investment Funds. Currently the Fund is authorized to offer
shares of ten Investment Funds, nine of which have Class A and Class B shares.
The shares of each Investment Fund of the Fund are fully paid and
non-assessable, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Investment Fund of the Fund
have no pre-emptive rights. The shares of the Fund 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. A shareholder is entitled to one vote for each full share owned (and a
fractional vote for each fractional share owned), then standing in his name on
the books of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each Investment
Fund's net investment income, if any. Each Investment Fund may choose to make
sufficient distributions of net capital gains to avoid liability for federal
excise tax. An Investment Fund will not be subject to federal income tax on
capital gains or ordinary income distributed to shareholders so long as it
qualifies as a RIC (see discussion under "Dividends and Distributions" and
"Taxes" in the Prospectus). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or distributions cannot be predicted.
Any dividend or distribution paid shortly after an investor purchases
shares of an Investment Fund will reduce the per share net asset value of that
Investment Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes to shareholders subject to taxes as set
forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of an Investment Fund are automatically
reinvested in additional shares of that Investment Fund at net asset value as of
the business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales
39
<PAGE>
charge or CDSC is imposed on shares of any of the Investment Funds, including
the Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of an Investment Fund.
Each Investment Fund generally will be treated as a separate corporation
(and hence as a separate "regulated investment company") for federal tax
purposes. Any net capital gains of any Investment Fund, whether or not
distributed to investors, can not be offset against net capital losses of any
other Investment Fund.
CUSTODY ARRANGEMENTS
United States Trust Company of New York serves as the Fund's domestic
custodian. United States Trust Company of New York is not affiliated with Morgan
Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn, NY, acts as
the Fund's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Fund in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley
Trust Company is an affiliate of Morgan Stanley & Co. Incorporated. In the
selection of foreign subcustodians, the Directors consider a number of factors,
including, but not limited to, the reliability and financial stability of the
institution, the ability of the institution to provide efficiently the custodial
services required for the Fund, and the reputation of the institution in the
particular country or region.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
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 contact 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 -
40
<PAGE>
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.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF 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.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- - best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 - high quality with margins of protection ample
although not so large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") -
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ - very strong
capacity to pay principal and interest; SP-1 - strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ - this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 - this designation indicates the degree of safety regarding
timely payment is very strong.
WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
II. DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and
credit" of the United States. Securities issued or guaranteed by Federal
agencies and United States Government sponsored instrumentalities may or may not
be backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United
41
<PAGE>
States itself in the event the agency or instrumentality does not meet its
commitment. Agencies which are backed by the full faith and credit of the United
States include the Export-Import Bank, Farmers Home Administration, Federal
Financing Bank, and others. Certain agencies and instrumentalities, such as the
Government National Mortgage Associates, are, in effect, backed by the full
faith and credit of the United States through provisions in their charters that
they may make "indefinite and unlimited" drawings on the Treasury, if needed to
service debt. Debt from certain other agencies and instrumentalities, including
the Federal Home Loan Bank and Federal National Mortgage Association, are not
guaranteed by the United States, but those institutions are protected by the
discretionary authority for the United States Treasury to purchase certain
amounts of their securities to assist the institution in meeting its debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the United
States Government.
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
III. FOREIGN INVESTMENTS
The Investment Funds may invest in securities of foreign issuers.
Investors should recognize that investing in such foreign securities involves
certain special considerations which are not typically associated with investing
in United States issuers. For a description of the effect on the Investment
Funds of currency exchange rate fluctuations, see "Investment Objectives and
Policies - Forward Foreign Currency Exchange Contracts" above. As foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards and may have policies that are not comparable to those of
domestic issuers, there may be less information available about certain foreign
companies than about domestic issuers. Securities of some foreign issuers are
generally less liquid and more volatile than securities of comparable domestic
issuers. There is generally less government supervision and regulation of stock
exchanges, brokers and listed issuers than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States investments in those
countries. Foreign securities not listed on a recognized domestic or foreign
exchange are regarded as not readily marketable and therefore such investments
will be limited to 15% of an Investment Fund's net asset value at the time of
purchase.
Although the Investment Funds will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
United States exchanges.
Certain foreign governments levy withholding or other taxes on dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund and
Worldwide High Income Fund, it is not expected that an Investment Fund or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. However, these foreign withholding taxes may not have
a significant impact on any such Investment Fund because its investment
objective is to seek long-term capital appreciation and any dividend or interest
income should be considered incidental.
42
<PAGE>
IV. EMERGING COUNTRY EQUITY AND DEBT SECURITIES
The definition of emerging country equity or debt securities of each of
the Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging
Markets, Latin American, European Equity and Worldwide High Income Funds
includes securities of companies that may have characteristics and business
relationships common to companies in a country or countries other than an
emerging country. As a result, the value of the securities of such companies may
reflect economic and market forces applicable to other countries, as well as to
an emerging country. The Adviser believes, however, that investment in such
companies will be appropriate because the Investment Fund will invest only in
those companies which, in its view, have sufficiently strong exposure to
economic and market forces in an emerging country such that their value will
tend to reflect developments in such emerging country to a greater extent than
developments in another country or countries. The Investment Fund may invest in
companies organized and located in countries other than an emerging country,
including companies having their entire production facilities outside of an
emerging country, when securities of such companies meet one or more elements of
the Investment Fund's definition of an emerging country debt security and so
long as the Adviser believes at the time of investment that the value of the
company's securities will reflect principally conditions in such emerging
country.
The value of debt securities held by the Investment Fund generally will
vary inversely to changes in prevailing interest rates. The Investment Fund's
investments in fixed-rated debt securities with longer terms to maturity are
subject to greater volatility than the Investment Fund's investments in
shorter-term obligations. Debt obligations acquired at a discount are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which are not subject to such
discount.
Investments in emerging country government debt securities involve
special risks. Certain emerging countries have historically experienced, and
may continue to experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt, balance of payments
and trade difficulties and extreme poverty and unemployment. The issuer or
governmental authority that controls the repayment of an emerging country's debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. As a result of the foregoing, a
government obligor may default on its obligations. If such an event occurs, the
Investment Fund may have limited legal recourse against the issuer and/or
guarantor. Remedies must, in some cases, be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign government
debt securities to obtain recourse may be subject to the political climate in
the relevant country. In addition, no assurance can be given that the holders
of commercial bank debt will not contest payments to the holders of other
foreign government debt obligations in the event of default under their
commercial bank loan agreements.
The Investment Fund may invest in certain debt obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market. The Investment Fund may purchase Brady Bonds
either in the primary or secondary markets. The price and yield of Brady Bonds
purchased in the secondary market will reflect the market conditions at the time
of purchase, regardless of the stated face amount and the stated interest rate.
With respect to Brady Bonds with no or limited collateralization, the Investment
Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular
43
<PAGE>
intervals thereafter. Certain Brady Bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held to the scheduled maturity of the defaulted Brady Bonds by the
collateral agent, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds should be viewed as speculative.
Brady Plan debt restructurings totaling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil and Poland have
announced plans to issue Brady Bonds aggregating approximately $52 billion,
based on current estimates. There can be no assurance that the circumstances
regarding the issuance of Brady Bonds by these countries will not change.
44
<PAGE>
FINANCIAL STATEMENTS
The Fund's audited financial statements and notes thereto for the fiscal
year ended June 30, 1994, which appear in the June 30, 1994 Annual Report to
Shareholders and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are on the following pages. The Fund's
unaudited financial statements for the six-month period ended December 31, 1994
are also on the following pages. The Emerging Markets Fund, Latin American
Fund, European Equity Fund and Growth and Income Fund were not operational as of
the date of the Annual Report and the European Equity Fund and Growth and Income
Fund were not operational as of December 31, 1994. The Money Market Fund ceased
offering shares as of August 6, 1993.
45
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
COMMON STOCKS (98.5%)
AUSTRALIA (7.9%)
30,535 Amcor Ltd. ....................................... $ 201
13,300 Ampol Exploration Ltd. ........................... 40
23,600 Australian National Industries Ltd. .............. 31
57,011 Boral Ltd. ....................................... 139
10,500 Brambles Industries .............................. 100
71,013 Broken Hill Proprietary Ltd. ..................... 931
24,400 Burns, Phillip & Co. Ltd. ........................ 62
15,128 Coca-Cola Amatil Ltd. ............................ 95
67,700 Coles Myer Ltd. .................................. 209
26,100 CRA Ltd. ......................................... 339
43,700 CSR Ltd. ......................................... 153
147,300 Fosters Brewing Corp. ............................ 114
31,083 General Property Trust ........................... 56
58,739 Goodman Fielder Ltd. ............................. 55
16,800 ICI Australia Ltd. ............................... 131
10,109 Lend Lease Corp. Ltd. ............................ 120
61,100 MIM Holdings Ltd. ................................ 128
57,600 National Australia Bank Ltd. ..................... 460
12,400 Newcrest Mining Ltd. ............................. 59
76,137 News Corp. Ltd. .................................. 464
32,000 North Broken Hill Peko Ltd. ...................... 80
47,500 Pacific Dunlop Ltd. .............................. 149
43,200 Pioneer International Ltd. ....................... 90
+14,600 Renison Goldfields Consolidated Ltd. ............. 48
36,712 Santos Ltd. ...................................... 102
28,567 Southcorp Holdings Ltd. .......................... 58
18,100 TNT Ltd. ......................................... 30
42,250 Western Mining Corp. ............................. 222
35,000 Westfield Trust .................................. 60
83,800 Westpac Banking Corp. ............................ 273
---------
4,999
---------
BELGIUM (3.9%)
1,700 AG Fin ........................................... 130
110 Beksert SA ....................................... 81
2,700 Delhaize Freres et Cie 'Le Lion' SA .............. 109
2,350 Electrabel ....................................... 408
550 Electrabel, Series 1 ............................. 96
820 Generale de Banque ............................... 204
*37 Generale de Banque (New) ......................... 8
200 Gevaert Photo-Production NV ...................... 55
300 Glaverbel SA ..................................... 41
1,250 Groupe Bruxelles Lambert ......................... 157
125 Kredietbank (AVF1 Shares) ........................ 25
750 Kredietbank ...................................... 149
1,220 Petrofina SA ..................................... 378
750 Reunies Electrobel & Tractebel SA ................ 226
750 Royale Belge ..................................... 116
450 Solvay et Cie .................................... 196
1,350 Union Miniere SA ................................. 109
---------
2,488
---------
CANADA (4.2%)
4,700 Alcan Aluminum Ltd. .............................. 106
6,100 American Barrick Resources Corp. ................. 146
5,200 Bank of Montreal ................................. 88
4,300 Bank of Nova Scotia .............................. 78
5,900 BCE, Inc. ........................................ 192
3,000 Bombardier, Inc. "B" ............................. 43
1,900 Brascan Ltd "A" .................................. 26
4,100 Canadian Imperial Bank of Commerce ............... 88
1,300 Canadian Occidental Petroleum Ltd. ............... 23
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
7,100 Canadian Pacific Ltd. ............................ $ 105
2,000 Canadian Tire Corp. "A" .......................... 16
2,000 Cominco Ltd. ..................................... 30
2,000 Dofasco, Inc. .................................... 27
2,700 Dupont Canada "A" ................................ 30
2,300 Echo Bay Mines, Ltd. ............................. 25
1,500 George Weston Ltd. ............................... 40
+3,800 Gulf Canada Resource Ltd. ........................ 12
2,800 Imasco Ltd. ...................................... 68
4,400 Imperial Oil Ltd. ................................ 129
1,900 Inco Ltd. ........................................ 46
800 Interprovincial Pipeline ......................... 17
2,900 Lac Minerals Ltd. ................................ 24
4,100 Laidlaw Inc., "B" ................................ 27
3,800 MacMillan Bloedel Ltd. ........................... 48
900 Magna International "A" .......................... 36
2,600 Moore Corp. ...................................... 44
1,600 Newbridge Networks Corp. ......................... 55
3,800 Noranda, Inc. .................................... 65
1,700 Norcen Energy Resources Ltd. ..................... 17
4,800 Northern Telecom Ltd. ............................ 133
12,600 Nova Corp. of Alberta ............................ 98
4,900 Placer Dome, Inc. ................................ 105
1,200 Potash Corp. of Saskatchewan, Inc. ............... 33
2,900 Ranger Oil Ltd. .................................. 19
1,700 Renaissance Energy Ltd. .......................... 36
6,100 Royal Bank of Canada ............................. 118
7,700 Seagram Co. Ltd. ................................. 232
+1,200 Talisman Energy, Inc. ............................ 24
1,700 Teck Corp. "B" ................................... 28
1,000 The Oshawa Group "A" ............................. 14
12,000 Thomson Corp. .................................... 131
4,600 Transcanada Pipeline Ltd. ........................ 54
4,000 Trizec Corp. "A" ................................. 1
---------
2,677
---------
FRANCE (7.6%)
550 Accor S.A. ....................................... 62
1,400 Air Liquide ...................................... 189
3,000 Alcatel Alsthom .................................. 326
3,000 AXA S.A. ......................................... 124
4,050 Banque Nationale de Paris ........................ 173
200 BIC Corp. ........................................ 43
500 Bouygues ......................................... 53
1,400 B.S.N. S.A. ...................................... 202
500 Carrefour Supermarch S.A. ........................ 166
125 Chargeurs ........................................ 30
2,100 Cie de Financiere de Paribas "A" ................. 133
1,650 Cie de Saint Gobain .............................. 193
3,550 Cie de Suez ...................................... 173
525 Cie Generale des Eaux ............................ 212
500 Compagnie Bancaire S.A. .......................... 45
5,000 Elf Aquitaine .................................... 349
450 Elf Sanofi S.A. .................................. 71
600 Eridania Beghin--Say S.A. ........................ 95
1,450 Estabissments Economiques du Casino Guichard
Perrachon ...................................... 36
1,200 Havas S.A. ....................................... 94
1,800 Lafarge Coppee S.A. .............................. 135
60 Legrand .......................................... 61
1,200 L'Oreal .......................................... 236
1,500 LVMH Moet Hennessy Louis Vuitton ................. 230
1,350 Lyonnaise des Eaux Demez ......................... 124
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
FRANCE (CONT.)
2,100 Michelin (C.G.D.E.) "B" .......................... $ 87
+1,000 Pernod-Ricard .................................... 68
350 Pinault S.A. ..................................... 55
400 Promodes ......................................... 63
950 PSA Peugeot Citroen S.A. ......................... 135
5,400 Rhone Poulenc S.A. ............................... 123
100 Sagem ............................................ 49
1,000 Schneider S.A. ................................... 65
500 SIMCO ............................................ 47
80 Societe Eurofrance S.A. .......................... 29
1,800 Societe Generale ................................. 184
200 St. Louis ........................................ 60
2,900 Thomson CSF S.A. ................................. 82
4,000 Total Francaise Petrol S.A. "B" .................. 230
---------
4,832
---------
HONG KONG (3.7%)
10,400 Bank of East Asia ................................ 45
50,000 Cathay Pacific Airways Ltd. ...................... 74
36,000 Cheung Kong Holdings Ltd. ........................ 157
31,000 China Light & Power Ltd. ......................... 158
28,561 Dairy Farm International Holdings ................ 40
29,070 Hang Seng Bank Ltd. .............................. 192
24,520 Hong Kong & China Gas Co. ........................ 47
32,500 Hong Kong Electric Holdings ...................... 98
46,662 Hong Kong Land Holdings .......................... 118
172,400 Hong Kong Telecom ................................ 326
50,000 Hopewell Holdings Ltd. ........................... 40
56,000 Hutchison Whampoa ................................ 230
10,000 Hysan Development Co. ............................ 27
11,200 Jardine Matheson Ltd. ............................ 86
17,338 Mandarin Oriental ................................ 24
25,191 New World Development Co. Ltd. ................... 70
66,000 Regal Hotel International ........................ 16
35,000 South China Morning Post ......................... 20
34,100 Sun Hung Kai Properties .......................... 197
24,500 Swire Pacific Ltd. Class A ....................... 177
8,000 Television Broadcasting Ltd. ..................... 32
37,000 Wharf Holdings Ltd. .............................. 136
1,700 Wing Lung Bank ................................... 12
---------
2,322
---------
ITALY (2.1%)
10,250 Assicurazioni Generali SPA ....................... 263
14,000 Banca Commerciale Italiana ....................... 41
4,500 Banca Nazionale Dell'Agricoltura SPA ............. 9
10,000 Banco Ambrosiano Veneto .......................... 27
2,500 Benetton Group SPA ............................... 37
+2,000 Cogefar Italian .................................. 3
17,500 Credit Italiano .................................. 23
9,000 Edison SPA ....................................... 43
+2,000 Falck Italian .................................... 6
34,000 Fiat SPA ......................................... 136
9,000 Fiat SPA Risp .................................... 22
5,000 Fidis Italian .................................... 18
10,800 Finanziaria Cirio Bertolli Rica .................. 7
9,000 Finanziaria Italgel SPA .......................... 9
+5,000 Gilardini Industrial SPA ......................... 13
8,500 Istituto Bancario San Paolo di Torina SPA ........ 53
3,000 Italcable ........................................ 18
3,500 Italcementi Fabbriche Riunit SPA ................. 27
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
10,000 Italgas .......................................... $ 33
6,800 Mediobanca ....................................... 63
80,000 Montedison SPA ................................... 74
10,000 Montedison SPA NCS ............................... 8
20,000 Olivetti Group ................................... 30
+15,000 Pirelli SPA ...................................... 23
2,565 Rinascente ....................................... 16
2,750 Riunione Adriatica di Sicurti .................... 44
1,500 Riunione Adriatica di Sicurti Risp Non
Convertible .................................... 15
70,000 SIP .............................................. 174
15,000 SIP Risp NCS ..................................... 31
4,500 Sirti SPA ........................................ 33
10,000 SME Meridonale Finance ........................... 25
+10,000 Snia BPO SPA ..................................... 16
1,500 Societe Assicuratrice Industriale SPA ............ 19
---------
1,359
---------
JAPAN (23.4%)
11,000 Ajinomoto Cos., Inc. ............................. 151
3,000 Aoki Corp. ....................................... 16
18,000 Asahi Bank Ltd. .................................. 228
3,000 Asahi Breweries .................................. 33
21,000 Asahi Chemical Industries ........................ 158
14,000 Asahi Glass Co. .................................. 173
14,000 Bank of Tokyo .................................... 227
10,000 Bank of Yokohama ................................. 94
7,000 Bridgestone Co. .................................. 114
7,000 Canon, Inc. ...................................... 123
7,000 Chiba Bank ....................................... 65
1,000 Chiyoda Corp. .................................... 13
3,000 Chugai Pharmaceutical Ltd. ....................... 37
3,000 Cosmo Oil ........................................ 26
24,000 Dai Ichi Kangyo Bank ............................. 477
11,000 Dai Nippon Printing Co., Ltd. .................... 218
3,000 Daikin Industries Ltd. ........................... 29
+2,000 Daishowa Paper Manufacturing Co., Ltd. ........... 20
5,000 Daiwa Housing Industries ......................... 78
11,000 Daiwa Securities Co., Ltd. ....................... 193
3,000 Fanuc Co. ........................................ 144
22,000 Fuji Bank ........................................ 505
6,000 Fuji Photo Film Ltd. ............................. 134
20,000 Fujitsu .......................................... 229
7,000 Furukawa Electric ................................ 51
7,000 Hankyu Corp. ..................................... 41
3,000 Hazama-Gumi ...................................... 15
28,000 Hitachi .......................................... 293
18,000 Industrial Bank of Japan ......................... 592
2,000 Ito Yokado Ltd. .................................. 111
+17,000 Japan Air Lines Co. .............................. 123
7,000 Jujo Paper Co. ................................... 52
4,000 Jusco Ltd. ....................................... 93
11,000 Kajima Corp. ..................................... 111
6,400 Kansai Electric Power ............................ 172
11,000 KAO Corp. ........................................ 134
+38,000 Kawasaki Steel Corp. ............................. 161
10,000 Kinki Nippon Railway ............................. 86
11,000 Kirin Brewery Co. ................................ 131
+31,000 Kobe Steel Ltd. .................................. 99
7,000 Komatsu .......................................... 68
17,000 Kubota Corp. ..................................... 127
9,000 Kumagai Gumi Co. ................................. 45
47 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
JAPAN (CONT.)
3,000 Kyowa Hakko Kogyo ................................ $ 28
20,000 Marubeni Corp. ................................... 110
4,000 Marui Co. ........................................ 75
15,000 Matsushita Electric Industries Ltd. .............. 275
20,000 Mitsubishi Corp. ................................. 252
26,000 Mitsubishi Electric .............................. 176
10,000 Mitsubishi Estate Co. Ltd. ....................... 124
39,000 Mitsubishi Heavy Industries ...................... 312
10,000 Mitsubishi Kasel ................................. 53
11,000 Mitsubishi Trust and Banking ..................... 183
10,000 Mitsui & Co. ..................................... 85
7,000 Mitsui Fudosan ................................... 85
11,000 Mitsui Trust & Banking Co. ....................... 136
7,000 Mitsukoshi ....................................... 73
1,200 Mochida Pharmaceutical ........................... 25
13,000 NEC Corp. ........................................ 161
3,000 NGK Insulators ................................... 32
7,000 Nippon Denso Co., Ltd. ........................... 147
11,000 Nippon Express ................................... 117
3,000 Nippon Fire & Marine Insurance Co. ............... 23
3,000 Nippon Meat Packers .............................. 46
16,000 Nippon Oil Co. ................................... 124
49,000 Nippon Steel Corp. ............................... 171
10,000 Nippon Yusen ..................................... 64
14,000 Nissan Motors .................................... 124
+39,000 NKK Corp. ........................................ 105
14,000 Nomura Securities ................................ 338
7,000 Obayashi Corp. ................................... 48
17,000 Odakyu Electric Railway Co. ...................... 126
7,000 Oji Paper Ltd. ................................... 75
21,000 Osaka Gas Co. .................................... 99
3,000 Penta-Ocean Construction ......................... 20
2,000 Pioneer Electronic Corp. ......................... 57
24,000 Sakura Bank ...................................... 341
3,000 Sankyo Co. Ltd. .................................. 67
16,000 Sanyo Electric Co. Ltd. .......................... 90
8,000 Sekisui Chemical ................................. 93
7,000 Sekisui House .................................... 90
3,000 Seven-Eleven Japan ............................... 239
9,000 Sharp Corp. ...................................... 163
3,000 Shin-Etau Chemical Co. ........................... 64
7,000 Shizuoka Bank .................................... 96
+7,000 Showa Denko ...................................... 25
2,000 Sony Corp. ....................................... 123
23,000 Sumitomo Bank .................................... 506
24,000 Sumitomo Chemical Co. ............................ 130
10,000 Sumitomo Corp. ................................... 105
7,000 Sumitomo Electric Industries ..................... 107
+32,000 Sumitomo Metal Industries ........................ 96
13,000 Taisei Corp. ..................................... 90
11,000 Takeda Chemical Industries ....................... 133
7,000 Teijin Ltd. ...................................... 38
7,210 Tobu Railway Co. ................................. 49
18,000 Tokai Bank ....................................... 240
14,000 Tokio Marine & Fire Industries ................... 180
3,000 Tokyo Dome Corp. ................................. 61
10,900 Tokyo Electric Power ............................. 355
1,000 Tokyo Electron Ltd. .............................. 33
28,000 Tokyo Gas ........................................ 142
7,000 Tokyu Corp. ...................................... 54
3,000 Toppan Printing .................................. 46
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
17,000 Toray Industries ................................. $ 128
3,000 Toto Ltd. ........................................ 53
7,000 Toyoba Co. ....................................... 32
3,000 Toyoda Automatic Loom ............................ 60
28,000 Toyota Motor Corp. ............................... 629
+7,000 Ube Industries Ltd. .............................. 28
7,000 Yamaichi Securities .............................. 66
4,000 Yamanouchi Pharmaceuticals ....................... 76
3,000 Yamato Transport Co., Ltd. ....................... 40
10,000 Yasuda Trust & Banking ........................... 97
---------
14,824
---------
NETHERLANDS (7.7%)
10,700 ABN-Amro Holdings N.V. ........................... 354
5,000 Ahold N.V. ....................................... 126
2,000 Akzo N.V. ........................................ 215
2,600 Elsevier ......................................... 224
1,600 Heineken N.V. .................................... 194
9,850 Internationale Nederlanden Groep N.V. ............ 423
2,100 KLM Airlines ..................................... 59
2,600 Koninklijke KNP .................................. 63
850 Konink Ned Hoogovens Sico ........................ 34
+850 Nedlloyd Groep N.V. .............................. 30
12,000 Phillips Electronics N.V. ........................ 347
19,500 Royal Dutch Petroleum Co. ........................ 2,055
1,119 Stork N.V. ....................................... 28
5,900 Unilever N.V. .................................... 601
2,282 Wolters Kluwer N.V. .............................. 135
---------
4,888
---------
NEW ZEALAND (5.2%)
527,370 Brierly Investments Ltd. ......................... 386
342,100 Carter Holt Harvey Ltd. .......................... 763
9,800 Ceramco Corp. Ltd. ............................... 27
21,200 Fisher & Paykel Industries ....................... 52
292,200 Fletcher Challenge Ltd. .......................... 638
73,100 Fletcher Challenge Ltd. (Forestry Shares) ........ 94
99,300 Lion Nathan Ltd. ................................. 182
382,500 Telecom Corp. of New Zealand Ltd. ................ 1,032
19,900 Wilson & Horton Ltd. ............................. 92
---------
3,266
---------
SPAIN (5.5%)
950 Alba Finance S.A. ................................ 40
5,800 Argentaria S.A. .................................. 226
8,950 Autopistas Acesa ................................. 83
10,600 Banco Bilbao Vizcaya ............................. 233
8,050 Banco Central Hispano Americano .................. 157
5,250 Banco de Santander ............................... 190
6,600 Banco Espanol de Credito ......................... 47
650 Carburos Metalicos ............................... 22
3,350 Dragados y Construccion S.A. ..................... 53
2,550 Ebro Agricolas Compania de Allmentacion .......... 27
12,100 Empresa Nacional de Electricdad S.A. ............. 547
6,100 Ercros S.A. ...................................... 11
1,100 Fabricacion de Automobiles Renault de Espana
S.A. ........................................... 62
650 Fomento Construccion ............................. 68
1,700 Gas Natural SDG .................................. 134
39,700 Iberdrola S.A. ................................... 279
150 Immobilaria Metropolitana Vasco Central .......... 5
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
SPAIN (CONT.)
1,250 Mapfre Corporacion ............................... $ 48
500 Portland Valderrivas ............................. 40
14,350 Repsol B.A. ...................................... 414
+1,900 Sarrio S.A. ...................................... 8
1,700 Tabacalera S.A. "A" .............................. 44
42,600 Telefonica de Espana S.A. ........................ 576
13,800 Union Electrica Fenosa ........................... 67
+1,850 Uralita S.A. ..................................... 21
1,800 Vallehermosa S.A. ................................ 33
183 Vallehermosa S.A. ................................ 3
350 Zardoya Otis ..................................... 42
---------
3,480
---------
UNITED KINGDOM (6.4%)
10,900 Abbey National plc ............................... 66
7,900 Argyll Group plc ................................. 28
7,650 Arjo Wiggins Appleton plc ........................ 32
3,100 Associated British Foods plc ..................... 24
12,391 Barclays plc ..................................... 100
5,700 Bass plc ......................................... 44
18,550 BAT Industries plc ............................... 115
3,650 BICC plc ......................................... 22
6,862 Blue Circle Industries plc ....................... 30
3,450 BOC Group plc .................................... 37
6,700 Boots Co. plc .................................... 55
3,050 Bowater plc ...................................... 21
4,600 BPB Industries plc ............................... 22
2,668 British Aerospace plc ............................ 19
6,250 British Airways plc .............................. 36
30,500 British Gas plc .................................. 127
36,209 British Petroleum Co. plc ........................ 218
18,500 British Steel plc ................................ 41
38,300 British Telecommunications plc ................... 218
22,600 BTR plc .......................................... 124
1,550 Burmah Castrol plc ............................... 21
14,350 Cable & Wireless plc ............................. 90
6,450 Cadbury Schweppes plc ............................ 42
4,272 Caradon plc ...................................... 20
4,600 Coats Viyella plc ................................ 15
2,779 Commercial Union plc ............................. 22
2,650 Courtaulds plc ................................... 19
1,900 De La Rue plc .................................... 26
3,250 Eastern Electricity plc .......................... 31
6,750 Forte plc ........................................ 24
3,750 General Accident plc ............................. 31
20,450 General Electric plc ............................. 89
2,913 GKN plc .......................................... 25
17,450 Glaxo Holdings plc ............................... 147
14,700 Grand Metropolitan plc ........................... 93
7,150 Great Universal Stores plc ....................... 62
8,700 Guardian Royal Exchange plc ...................... 23
11,100 Guinness plc ..................................... 75
13,027 HSBC Holdings plc ................................ 142
32,633 Hanson plc ....................................... 122
6,500 Harrisons & Crossfields plc ...................... 17
4,600 Imperial Chemical Industries plc ................. 55
9,000 Ladbroke Group plc ............................... 21
4,125 Land Securities plc .............................. 39
5,750 Lasmo plc ........................................ 12
8,401 Lloyds Bank plc .................................. 68
8,800 Lonrho plc ....................................... 17
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
18,500 Marks and Spencer plc ............................ $ 112
3,050 MEPC plc ......................................... 20
8,200 National Power plc ............................... 55
3,450 North West Water Group plc ....................... 25
5,550 Peninsular & Oriental Steam Navigation Co. ....... 54
7,650 Pilkington plc ................................... 20
15,676 Prudential Corp. plc ............................. 70
7,125 Rank Organisation plc ............................ 41
4,327 Redland plc ...................................... 33
5,050 Reed International plc ........................... 59
11,600 Reuters Holdings plc ............................. 77
7,914 Rio Tinto Zinc plc (Registered) .................. 101
1,700 RMC Group plc .................................... 22
5,803 Royal Bank of Scotland Group plc ................. 38
4,845 Royal Insurance Holdings plc ..................... 19
10,700 Sainsbury (J) plc ................................ 66
4,800 Scottish Power plc ............................... 27
9,950 Sears plc ........................................ 18
4,450 Sedgwick Group plc ............................... 12
2,300 Slough Estates plc ............................... 8
6,100 Smithkline Beecham plc "A" ....................... 38
6,700 Smithkline Beecham plc units (5 "B" shares common
plus 1 preferred share) ........................ 38
2,050 Southern Electricity plc ......................... 19
7,210 Tarmac plc ....................................... 16
3,822 Taylor Woodrow plc ............................... 8
10,352 Tesco plc ........................................ 36
3,650 Thames Water plc ................................. 25
3,250 Thorn EMI plc .................................... 51
2,650 TI Group plc ..................................... 15
6,922 Trafalgar House plc .............................. 9
4,100 Unilever plc ..................................... 61
6,700 Vodafone Group plc ............................... 51
4,600 Zeneca Group plc ................................. 52
---------
4,023
---------
UNITED STATES (20.9%)
5,400 Abbott Laboratories .............................. 157
1,500 Aluminum Co. of America .......................... 110
3,100 American Express Co. ............................. 80
3,000 American International Group, Inc. ............... 260
+1,500 American Medical Response Corp. .................. 89
10,600 American Telephone & Telegraph Co. ............... 576
3,300 Amoco Co. ........................................ 188
1,100 Atlantic Richfield Co. ........................... 112
1,500 Automatic Data Processing, Inc. .................. 80
2,992 Banc One Corp. ................................... 102
3,000 BankAmerica Corp. ................................ 137
4,100 Bell Atlantic Corp. .............................. 230
3,300 Bellsouth Corp. .................................. 204
3,000 Boeing Co. ....................................... 139
3,700 Bristol-Myers Squibb Co. ......................... 198
4,500 Campbell Soup Co. ................................ 155
1,000 Capital Cities ABC, Inc. ......................... 71
1,500 Caterpillar, Inc. ................................ 150
4,000 Chevron Corp. .................................... 168
2,500 Chrysler Corp. ................................... 118
1,500 Chubb Corp. ...................................... 115
3,000 Citicorp ......................................... 120
9,100 Coca Cola Co. .................................... 370
2,700 Columbia/HCA Healthcare Corp. .................... 101
49 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
UNITED STATES (CONT.)
1,500 Computer Associates International, Inc. .......... $ 60
3,000 Consolidated Edison Co. of New York, Inc. ........ 80
1,500 Cooper Industries, Inc. .......................... 54
1,500 Corning, Inc. .................................... 49
1,500 CSX Corp. ........................................ 113
800 Deere & Co. ...................................... 54
2,200 Dow Chemical Co. ................................. 144
3,000 Duke Power Co. ................................... 107
4,500 DuPont (EI) de Nemours Co. ....................... 263
3,000 Eastman Kodak Co. ................................ 144
2,000 Enron Corp. ...................................... 65
7,500 Exxon Corp. ...................................... 425
3,000 Federal National Mortgage Association ............ 251
3,000 FPL Group, Inc. .................................. 90
1,500 Gannett Co., Inc. ................................ 74
6,100 General Electric Co. ............................. 284
4,900 General Motors Corp. ............................. 246
1,500 General Motors Corp., Class 'E' .................. 52
1,500 General RE Corp. ................................. 164
1,500 Goodyear Tire & Rubber Co. ....................... 54
4,500 Heinz H.J. Co. ................................... 143
3,000 Hewlett Packard .................................. 226
3,000 Home Depot, Inc. ................................. 126
1,500 Intel Corp. ...................................... 88
3,400 International Business Machines Corp. ............ 200
1,500 International Paper Co. .......................... 99
1,500 ITT Corp. ........................................ 122
1,800 J.C. Penney, Co. Inc. ............................ 98
4,000 Johnson & Johnson ................................ 172
4,500 K-Mart Corp. ..................................... 70
1,480 Lehman Brothers Holdings Inc. .................... 22
2,200 Lilly, Eli & Co. ................................. 125
1,500 May Department Stores Co. ........................ 59
6,000 McDonalds Corp. .................................. 173
1,500 Melville Corp. ................................... 58
7,500 Merck & Co., Inc. ................................ 223
+2,500 Microsoft Corp. .................................. 129
3,000 Minnesota Mining & Manufacturing Co. ............. 149
2,600 Mobil Corp. ...................................... 212
1,500 Morgan (J.P.) & Co., Inc. ........................ 93
3,700 Motorola, Inc. ................................... 165
3,000 Nationsbank Corp. ................................ 154
1,500 Norfolk Southern Corp. ........................... 95
3,300 Norwest Corp. .................................... 86
+2,300 Novell, Inc. ..................................... 39
1,500 Oracle Systems Corp. ............................. 56
4,500 Pacific Gas & Electric Co. ....................... 107
6,100 Pepsico, Inc. .................................... 187
3,000 Pfizer, Inc. ..................................... 189
5,200 Philip Morris Cos., Inc. ......................... 268
1,800 PPG Industries, Inc. ............................. 68
6,900 Procter & Gamble Co. ............................. 368
4,500 Public Service Enterprise Group, Inc. ............ 117
3,000 Rockwell International Corp. ..................... 112
3,000 SCE Corp. ........................................ 39
3,000 Sears Roebuck & Co. .............................. 144
4,500 Southern Co. ..................................... 84
3,000 Southwestern Bell Corp. .......................... 131
1,500 Suntrust Banks, Inc. ............................. 73
3,000 Texas Utilities Co. .............................. 94
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
1,500 The Dun & Bradstreet Corp. ....................... $ 83
3,000 The Limited, Inc. ................................ 52
4,500 Time Warner, Inc. ................................ 158
+3,000 Toys "R" Us, Inc. ................................ 98
2,400 Travelers, Inc. .................................. 77
800 U.S. Healthcare, Inc. ............................ 30
9,100 Wal-Mart Stores, Inc. ............................ 220
4,500 Walt Disney Co. .................................. 186
500 Wells Fargo & Co. ................................ 75
4,500 Westinghouse Electric Corp. ...................... 52
3,000 Weyerhaeuser Co. ................................. 120
3,200 WMX Technologies, Inc. ........................... 85
---------
13,202
---------
TOTAL COMMON STOCKS
(COST $60,388)................................................... 62,360
---------
PREFERRED STOCKS (0.1%)
ITALY (0.1%)
14,000 Fiat SPA ......................................... 35
---------
NETHERLANDS (0.0%)
156 Koninklijke KNP .................................. 1
---------
TOTAL PREFERRED STOCKS
(COST $15)....................................................... 36
---------
RIGHTS (0.1%)
BELGIUM (0.0%)
* 1,220 Petrofina SA ..................................... --
---------
FRANCE (0.0%)
* 1,225 Cie de Financiere de Paribas, expiring 5/6/96 .... 8
---------
ITALY (0.0%)
* 3,500 Italcementi Fabbriche Riunit SPA, expiring
7/18/94......................................... 8
* 15,000 Pirelli SPA, expiring 7/18/94 .................... --
---------
8
---------
SPAIN (0.1%)
* 5,250 Banco de Santander ............................... 33
* 1,250 Mapfre Corporacion, expiring 7/8/94 .............. --
---------
33
---------
TOTAL RIGHTS
(COST $52)....................................................... 49
---------
WARRANTS (0.0%)
FRANCE (0.0%)
*1,200 Lagardere Group, expiring 6/30/97 ................ --
---------
HONG KONG (0.0%)
*1,460 Hong Kong & China Gas Co., expiring 12/31/95 ..... 2
---------
ITALY (0.0%)
*10,000 Fiat SPA, expiring 12/31/94 ...................... 17
*45,000 Montedison SPA, expiring 12/31/95 ................ 5
*45,000 Montedison SPA, expiring 1/19/97 ................. 11
---------
33
---------
TOTAL WARRANTS
(COST $0)........................................................ 35
---------
TOTAL FOREIGN & US EQUITY SECURITIES (98.7%)
(COST $60,455)................................................... 62,480
---------
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (5.1%)
REPURCHASE AGREEMENT
UNITED STATES
$3,205 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $3,205, collateralized by $3,315
U.S. Treasury Notes 4.625%, due 11/30/94, valued
at $3,314 (COST $3,205)......................... $ 3,205
---------
FOREIGN CURRENCY (0.7%)
A$ 19 Australian Dollar................................. 14
BF 2,414 Belgian Franc..................................... 74
L 28 British Pound..................................... 44
C$ 115 Canadian Dollar................................... 83
DK 14 Danish Krone...................................... 2
DM 4 German Deutsche Mark.............................. 3
FF 31 French Franc...................................... 6
HK$ 215 Hong Kong Dollar.................................. 28
IL 24,803 Italian Lira...................................... 16
Y 1,871 Japanese Yen...................................... 19
MYR 12 Malaysian Ringgit................................. 4
NG 116 Netherland Guilder................................ 65
NZ$ 89 New Zealand Dollar................................ 53
S$ 4 Singapore Dollar.................................. 3
SP 4,766 Spanish Peseta.................................... 36
---------
TOTAL FOREIGN CURRENCY (COST $440)............................... 450
---------
TOTAL INVESTMENTS (104.5%) (COST $64,100)........................ 66,135
LIABILITIES IN EXCESS OF OTHER ASSETS (-4.5%).................... (2,818)
---------
NET ASSETS (100%)................................................ $ 63,317
---------
---------
SUMMARY OF FOREIGN & US EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -----------------------------------------------------------------
Finance................................ $ 13,605 21.5%
Services............................... 11,842 18.7
Energy................................. 10,095 15.9
Consumer Goods......................... 9,280 14.7
Materials.............................. 8,358 13.2
Capital Equipment...................... 6,427 10.1
Multi-Industry......................... 2,501 4.0
Mining................................. 372 0.6
--------- -------
$ 62,480 98.7%
--------- -------
--------- -------
- ---------------
NCS Non Convertible Shares
+ Non-income producing securities
* Fair valued securities. -- See Note A-1
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- ----------- --------- ----------- ----------- --------- -----------------
FF 12,199 $ 2,240 09/14/94 $ 2,100 $ 2,100 $ (140)
Y 944,888 9,858 04/28/95 $ 9,400 9,400 (458)
SP 329,046 2,488 10/31/94 $ 2,320 2,320 (168)
$ 2,549 2,549 07/29/94 FF13,782 2,533 (16)
--------- --------- -----
$ 17,135 $ 16,353 $ (782)
--------- --------- -----
--------- --------- -----
- --------------------------------------------------------------------------------
51 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
FIXED INCOME SECURITIES (94.8%)
BELGIAN FRANC (3.9%)
GOVERNMENT BOND
BF 21,000 Kingdom of Belgium 8.00%, 12/24/12................ $ 622
---------
CANADIAN DOLLAR (14.8%)
EUROBONDS
C$ 900 British Colombia Province 7.75%, 6/16/03.......... 577
1,000 Kingdom of Norway 8.375%, 1/27/03................. 664
1,000 The Export Import Bank Of Japan 7.75%, 10/8/02.... 646
---------
1,887
---------
GOVERNMENT BONDS
700 Government of Canada 7.50%, 12/1/03............... 455
---------
2,342
---------
DANISH KRONE (9.5%)
GOVERNMENT BOND
DK 10,250 Kingdom of Denmark 7.00%, 12/15/04................ 1,503
---------
FINNISH MARKKA (1.2%)
GOVERNMENT BOND
MK 1,000 Republic of Finland 9.50%, 3/15/04................ 188
---------
FRENCH FRANC (5.5%)
GOVERNMENT BOND
FF 6,150 Government of France O.A.T., 6.00%, 10/25/25...... 865
---------
GERMAN DEUTSCHE MARK (11.7%)
EUROBONDS
DM 1,200 LKB Baden-Wurttemberg 6.50%, 9/15/08.............. 693
1,000 Republic of Austria 6.50%, 1/10/24................ 540
---------
1,233
---------
GOVERNMENT BOND
1,150 Bundesrepublik 6.25%, 1/4/24...................... 609
---------
1,842
---------
ITALIAN LIRA (5.8%)
GOVERNMENT BONDS
IL 900,000 Republic of Italy (Treasury Bond) 11.50%,
3/1/03.......................................... 591
600,000 Republic of Italy (Treasury Bond) 9.00%,
11/1/23......................................... 323
---------
914
---------
JAPANESE YEN (4.9%)
EUROBOND
Y 70,000 KFW International Finance 6.00%, 11/29/99......... 773
---------
NETHERLAND GUILDER (6.7%)
GOVERNMENT BOND
NG 1,900 Government of Netherlands 7.50%,
1/15/23......................................... 1,057
---------
NEW ZEALAND DOLLAR (2.9%)
GOVERNMENT BOND
NZ$ 750 Government of New Zealand 8.00%, 4/15/04.......... 450
---------
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SPANISH PESETA (3.3%)
GOVERNMENT BOND
SP 80,000 Government of Spain 8.00%, 5/30/04................ $ 513
---------
SWEDISH KRONA (6.0%)
GOVERNMENT BOND
SK 7,900 Kingdom of Sweden 9.00%, 4/20/09.................. 941
---------
UNITED STATES DOLLAR (18.6%)
CORPORATE BOND
$ 200 Atlantic Richfield Co. 10.25%, 7/2/00............. 220
---------
EUROBOND
400 Republic of Italy 6.875%, 9/27/23................. 325
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
FEDERAL HOME LOAN BANK
500 Discount Note, 7/12/94............................ 499
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
471 Pool #337260 7.00%, 12/15/22...................... 433
---------
U.S. TREASURY BOND
30 8.125%, 8/15/19................................... 31
---------
U.S. TREASURY NOTES
400 7.875%, 2/15/96................................... 412
200 8.625%, 8/15/97................................... 211
100 8.75%, 10/15/97................................... 106
300 8.00%, 5/15/01.................................... 313
300 7.25%, 5/15/04.................................... 298
---------
1,340
---------
2,303
---------
YANKEE BONDS
100 LKB Baden-Wurttemberg 7.625%, 2/1/23.............. 93
---------
2,941
---------
TOTAL FIXED INCOME SECURITIES (COST $15,540)..................... 14,951
---------
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT
UNITED STATES
683 U.S. Trust, 4.10%, dated 6/30/94, due 7/1/94, to
be repurchased at $683, collateralized by $675
Government National Mortgage Association 9.50%,
with various maturity dates, valued at $714
(COST $683) .................................... 683
---------
FOREIGN CURRENCY (0.0%)
BF 1 Belgian Franc..................................... --
DM 3 German Deutsche Mark.............................. 2
IL 1 Italian Lira...................................... --
SP 2 Spanish Peseta.................................... --
SK 1 Swedish Krona..................................... --
---------
TOTAL FOREIGN CURRENCY (COST $2)................................. 2
---------
TOTAL INVESTMENTS (99.1%) (COST $16,225)......................... 15,636
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)..................... 140
---------
NET ASSETS (100%)................................................ $15,776
---------
---------
52 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars or foreign currency as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
BF 10,000 $ 307 7/7/94 SK 2,273 $ 297 $ (10)
SK 2,258 295 7/7/94 BF 10,000 307 12
$ 913 913 7/13/94 DM 1,500 946 33
DM 1,500 946 7/13/94 $ 874 874 (72)
NG 1,800 1,012 7/13/94 $ 936 936 (76)
SP 35,000 266 8/18/94 IL 406,228 256 (10)
DK 3,000 481 9/7/94 $ 444 444 (37)
BF 10,000 306 9/9/94 IL 473,380 298 (8)
SP 40,000 304 9/12/94 $ 291 290 (14)
--------- --------- ------
$ 4,830 $ 4,648 $ (182)
--------- --------- ------
--------- --------- ------
</TABLE>
- ---------------
DK -- Danish Krone
NG -- Netherland Guilder
The accompanying notes are an integral part of the financial statements. 53
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
COMMON STOCKS (86.2%)
CHINA (1.6%)
200,000 China International Marine Container "B" ......... $ 181
330,000 China Merchants Shokou Port Services "B" ......... 222
3,311,000 Maanshan Iron & Steel Co. Ltd. ................... 910
568,100 Shanghai Diesel Engine Co. Ltd. "B" .............. 517
315,000 Shanghai Erfangji Co. Ltd. "B" ................... 90
500,000 Shanghai Industries Sewing Machine "B" ........... 226
215,670 Shanghai Jin Jiang Tower "B" ..................... 145
546,000 Shanghai Jinqiao "B" ............................. 453
8,800 Shanghai Petrochemical Co. ADR ................... 202
608,000 Shanghai Phoenix Bicycle "B" ..................... 347
170,000 Shanghai Refrigerator Compressor Co., Ltd. "B" ... 50
250,000 Shanghai Shangling Electric "B" .................. 170
335,500 Shanghai Tire & Rubber "B" ....................... 174
75,000 Shanghai Yaohua Pilkington Glass "B" ............. 79
81,400 Shenzhen Chiwan Harbour "B" ...................... 41
820,000 Yizheng Chemical Fibre Co. ....................... 205
---------
4,012
---------
HONG KONG (23.2%)
3,070,000 Charoen Pokphand Co. ............................. 834
1,915,000 Cheung Kong Holdings Ltd. ........................ 8,362
593,000 China Light & Power Co. Ltd. ..................... 3,030
1,837,000 Citic Pacific Ltd. ............................... 4,967
7,890,000 Guangdong Investments Ltd. ....................... 4,542
699,000 Hong Kong Electric Holdings ...................... 2,107
1,813,800 Hong Kong Telecom ................................ 3,426
1,068,000 Hopewell Holdings Ltd. ........................... 864
612,400 HSBC Holdings .................................... 6,695
1,928,000 Hutchison Whampoa Ltd. ........................... 7,920
1,495,000 New World Development Co. Ltd. ................... 4,158
430,000 Peregrine Investment Holdings .................... 706
300,000 Sum Cheong International ......................... 190
601,100 Sun Hung Kai Properties .......................... 3,461
625,300 Swire Pacific "A" ................................ 4,490
552,000 Varitronix International Ltd. .................... 850
685,000 Wharf Holdings Ltd. .............................. 2,526
---------
59,128
---------
INDIA (0.5%)
38,000 Grasim Industries Ltd. GDR ....................... 893
50,000 Indian Aluminum Co. Ltd. GDR ..................... 506
---------
1,399
---------
INDONESIA (7.3%)
99,800 Astra International (Foreign) .................... 713
24,000 Astra International IDR .......................... 152
204,000 Bankbali (Foreign) ............................... 498
404,000 Bank International Indonesia (Foreign) ........... 1,280
385,000 Barito Pacific Timber (Foreign) .................. 1,446
277,000 Charoen Pokphand (Foreign) ....................... 1,200
82,750 Duta Anggada Realty (Foreign) .................... 194
140,000 Gudang Garam (Foreign) ........................... 606
226,000 Indocement Tunggal (Foreign) ..................... 1,698
+160,000 Jembo Cable Co. (Foreign) ........................ 472
483,000 Kalbe Farma (Foreign) ............................ 1,647
670,000 Modern Photo Film Co. (Foreign) .................. 2,933
481,200 Sona Topas Tourism (Foreign) ..................... 1,534
259,500 Sorini (Foreign) ................................. 1,016
16,000 Sumalindo Lestari Jaya (Foreign) ................. 63
88,000 Tempo Scan Pacific (Foreign) ..................... 331
550,000 Ultra Jaya Milk (Foreign) ........................ 1,445
739,000 United Tractors (Foreign) ........................ 1,550
---------
18,778
---------
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
KOREA (1.0%)
40,000 Korea Electric Power ............................. $ 1,332
20,000 Samsung Electronics Co. GDS ...................... 1,170
---------
2,502
---------
MALAYSIA (17.5%)
201,000 Ekran Bhd. ....................................... 1,351
428,000 Genting Bhd. ..................................... 5,095
24,999 Hong Leong Credit Bhd. ........................... 130
35,000 Hong Leong Industries Bhd. ....................... 159
24,250 Kim Hin Industries Bhd. .......................... 122
120,000 Magnum Corp. Bhd. ................................ 256
1,363,500 Malayan Banking .................................. 7,645
366,000 Malaysian International Shipping (Foreign) ....... 1,272
1,017,000 Malaysian Resources Corp. Bhd. ................... 1,898
219,000 Mulpha International Bhd. ........................ 308
500,000 Renong Bhd. ...................................... 607
895,000 Resorts World Bhd. ............................... 5,155
1,068,000 Tanjong plc ...................................... 4,634
1,062,000 Telekom Malaysia Bhd. ............................ 7,912
983,000 Tenaga Nasional Bhd. ............................. 5,511
634,000 United Engineers Bhd. ............................ 2,556
---------
44,611
---------
PAKISTAN (0.3%)
180,000 Dandot Cement Co. Ltd. ........................... 742
---------
PHILIPPINES (3.6%)
594,000 Ayala Corp. "B" .................................. 814
787,500 Ayala Land "B" ................................... 802
2,383,000 JG Summit Holding "B" ............................ 812
125,310 Manila Electric "B" .............................. 1,566
15,500 Philippines Long Distance Telephone "B" .......... 959
9,800 Philippines Long Distance Telephone ADR .......... 578
55,360 Philippine National Bank "B" ..................... 892
222,600 San Miguel "B" ................................... 1,113
3,311,000 SM Prime Holdings Inc. ........................... 656
1,200,000 Universal Robina Php ............................. 978
---------
9,170
---------
SINGAPORE (13.8%)
260,000 British-American Tobacco ......................... 1,142
494,000 City Development Ltd. ............................ 2,090
95,000 Cycle and Carriage ............................... 710
516,500 Development Bank of Singapore (Foreign) .......... 4,945
217,000 Fraser and Neave ................................. 2,391
1,125,000 IPC Corp. ........................................ 1,033
310,000 Jurong Cement .................................... 972
70,000 Jurong Engineering Ltd. .......................... 505
728,000 Keppel Corp. ..................................... 5,013
596,666 Overseas-Chinese Banking Corp (Foreign) .......... 5,282
165,000 Overseas Union Bank Ltd. ......................... 709
200,000 Resources Development Corp. Ltd. ................. 682
241,000 Sembawang Corp. .................................. 1,739
115,000 Singapore Airlines Ltd. (Foreign) ................ 950
177,000 Singapore Press Holdings (Foreign) ............... 2,960
1,964,000 Singapore Technologies Industrial Corp. .......... 2,396
200,000 Straits Steamship Land Ltd. ...................... 485
500,000 Straits Trading Co. Ltd. ......................... 1,213
---------
35,217
---------
54 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
TAIWAN (5.1%)
228,000 Asia Cement ...................................... $ 476
199,000 China Motor ...................................... 427
451,000 Hocheng Group Corp. .............................. 2,556
423,000 Merida Industry Co. Ltd. ......................... 706
1,848,000 Nan Ya Plastics .................................. 4,238
972,765 United Micro Electronics Corp. Ltd. .............. 4,516
---------
12,919
---------
THAILAND (12.3%)
53,000 Asia Credit Ltd. ................................. 529
741,100 Bangkok Bank Ltd. ................................ 5,268
41,000 Bangkok Bank Ltd. (Foreign) ...................... 311
21,152 Finance One Co. Ltd. ............................. 324
276,348 Finance One Co. Ltd. (Foreign) ................... 4,525
239,400 International Engineering Co. .................... 1,931
69,400 Land & House Co. Ltd. (Foreign) .................. 1,220
246,800 MDX Co. .......................................... 1,153
50,400 Phattra Thanakit Ltd. ............................ 1,626
16,900 Post Publishing Co. Ltd. ......................... 122
96,000 Shinawatra Computer Co. Ltd. (Foreign) ........... 2,147
44,200 Siam Cement Co. Ltd. ............................. 1,924
25,000 Siam Cement Co. Ltd. (Foreign) ................... 1,160
93,700 Siam Commercial Bank Co. Ltd. (Foreign) .......... 711
258,100 Somprasong Land (Foreign) ........................ 1,361
500,000 Telecomasia Co. Ltd. (Foreign) ................... 1,618
748,400 Thai Farmer's Bank Ltd. .......................... 3,497
70,000 Thai Farmer's Bank Ltd. (Foreign) ................ 369
92,000 Thai Telephone & Telecomm (Foreign) .............. 515
403,000 Wongpaitoon Footwear Co. Ltd. (Foreign) .......... 1,211
---------
31,522
---------
TOTAL COMMON STOCKS (COST $213,461).............................. 220,000
---------
RIGHTS (0.1%)
SINGAPORE (0.1%)
*+98,800 City Development Ltd. ............................ 230
*+30,000 Overseas Union Bank Ltd. (Foreign) ............... 37
---------
TOTAL RIGHTS (COST $0)........................................... 267
---------
WARRANTS (2.1%)
HONG KONG (1.9%)
+3,678,000 Citic Telecom, expiring 2/10/95 .................. 4,758
---------
SINGAPORE (0.1%)
+100,000 Keppel Corp., expiring 6/30/97 ................... 298
---------
THAILAND (0.1%)
+53,700 Finance One Co. Ltd., expiring 3/15/99 ........... 371
---------
TOTAL WARRANTS (COST $4,927)..................................... 5,427
---------
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (1.4%)
KOREA (0.2%)
$ #500 Daewoo Corp. 0.00%, 12/31/04 ..................... $ 500
---------
PHILIPPINES (1.0%)
*536 Benpres Holding Co. 4.20%, 11/26/49 .............. 2,546
---------
THAILAND (0.1%)
TB #537 Finance One Co. Ltd. 3.75%, 1/1/01 ............... 214
---------
UNITED STATES (0.1%)
$ 150 Sterlite Industries 3.50%, 6/30/99 ............... 149
---------
TOTAL CONVERTIBLE DEBENTURES (COST $1,669)....................... 3,409
---------
TOTAL FOREIGN SECURITIES (89.8%) (COST $220,057).................
229,103
---------
SHORT-TERM INVESTMENT (6.8%)
REPURCHASE AGREEMENT
UNITED STATES
17,425 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $17,627, collateralized by $3,470
U.S. Treasury Notes, 4.625% due 11/30/94, valued
at $3,469 and $14,610 U.S. Treasury Notes,
3.876% due 2/28/95, valued at $14,489 (COST
$17,425) ....................................... 17,425
---------
FOREIGN CURRENCY (4.2%)
HK$ 8,600 Hong Kong Dollar ................................. 1,113
IR 6,415,412 Indonesian Rupiah ................................ 2,956
MYR 7,661 Malaysian Ringgit ................................ 2,942
PH 40 Philippine Peso .................................. 2
S$ 168 Singapore Dollar ................................. 110
T$ 81,087 Taiwanese Dollar ................................. 3,023
TB 11,568 Thailand Baht .................................... 462
---------
TOTAL FOREIGN CURRENCY (COST $10,552)............................ 10,608
---------
TOTAL INVESTMENTS (100.8%) (COST $248,034)....................... 257,136
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.8%).................... (2,035)
---------
NET ASSETS (100%)................................................ $255,101
---------
---------
ADR -- American Depositary Receipt
GDS -- Global Depositary Shares
GDR -- Global Depositary Receipt
IDR -- International Depositary Receipt
+ -- Non-income producing securities
* -- Fair-valued securities -- See Note A-1
# -- Securities valued at cost -- See Note A-1
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------
<S> <C> <C>
Services............................. $ 56,566 22.2%
Finance.............................. 42,093 16.5
Banking.............................. 37,394 14.6
Materials............................ 24,123 9.5
Multi-Industry....................... 21,838 8.6
Capital Equipment.................... 19,232 7.5
Consumer Goods....................... 15,401 6.0
Energy............................... 12,456 4.9
--------- -------
$ 229,103 89.8%
--------- -------
--------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements. 55
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
COMMON STOCKS (91.3%)
AEROSPACE (1.6%)
11,100 AAR Corp. ........................................ $ 150
31,200 United Industrial Corp. .......................... 140
---------
290
---------
BANKING (8.4%)
5,900 BB&T Financial Corp. ............................. 184
6,500 Deposit Guaranty Corp. ........................... 192
5,800 First Security Corp. ............................. 170
4,500 First Tennessee National Corp. ................... 197
6,800 Fourth Financial Corp. ........................... 196
5,550 Mercantile Bancorp. .............................. 195
8,000 Summit Bancorp. .................................. 173
6,500 Union Bank of San Francisco ...................... 193
---------
1,500
---------
BUILDING (2.8%)
5,100 Ameron, Inc. ..................................... 181
10,400 Gilbert Associates, Inc. "A"...................... 161
10,500 Pratt & Lambert, Inc. ............................ 158
---------
500
---------
CAPITAL GOODS (3.1%)
8,200 Binks Manufacturing Corp. ........................ 170
9,700 Cascade Corp. .................................... 213
7,700 Starret (L.S.) Co. "A"............................ 166
---------
549
---------
CHEMICALS (4.3%)
11,500 Aceto Corp. ...................................... 175
7,700 Dexter Corp. ..................................... 187
11,700 LeaRonal, Inc. ................................... 199
11,300 Quaker Chemical Corp. ............................ 209
---------
770
---------
COMMUNICATIONS (1.2%)
9,300 Comsat Corp. ..................................... 216
---------
CONSUMER DURABLES (3.0%)
10,400 Knape & Vogt Manufacturing Co. ................... 200
12,300 Oneida Ltd. ...................................... 174
5,500 Springs Industries Inc. "A" ...................... 164
---------
538
---------
CONSUMER--RETAIL (5.0%)
12,500 CPI Corp. ........................................ 208
24,500 Deb Shops, Inc. .................................. 165
5,900 Edison Brothers Stores ........................... 149
8,000 Guilford Mills, Inc. ............................. 164
12,700 Purolator Products Co. ........................... 222
---------
908
---------
CONSUMER--STAPLES (5.3%)
9,600 American Maize Products Co. "A"................... 197
5,600 Block Drug Co. "A"................................ 178
11,300 Coors (Adolph) "B"................................ 198
11,700 International Multifoods Corp..................... 186
10,900 Nash Finch Co. ................................... 188
---------
947
---------
ENERGY (2.1%)
6,700 Diamond Shamrock, Inc. ........................... 170
8,100 Ultramar Corp. ................................... 213
---------
383
---------
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
FINANCIAL--DIVERSIFIED (2.2%)
4,900 GATX Corp. ....................................... $ 198
5,800 GFC Financial Corp. .............................. 194
---------
392
---------
HEALTH CARE (5.9%)
7,900 Beckman Instruments, Inc. ........................ 199
11,700 Bergen Brunswig Corp. "A"......................... 196
14,000 Bindley Western Industries, Inc................... 166
7,200 Diagnostic Products Corp. ........................ 156
15,000 Hooper Holmes, Inc. .............................. 165
45,800 Kinetic Concepts, Inc. ........................... 172
---------
1,054
---------
INDUSTRIAL (7.0%)
5,500 American Filtrona Corp. .......................... 154
5,900 Barnes Group, Inc. ............................... 208
8,400 Commercial Intertech Corp. ....................... 221
13,100 Gencorp, Inc. .................................... 151
19,600 Kaman Corp. "A"................................... 179
14,300 Zero Corp. ....................................... 177
8,500 Zurn Industries Inc. ............................. 172
---------
1,262
---------
INSURANCE (5.2%)
7,100 Argonaut Group, Inc. ............................. 197
10,600 Enhance Financial Services Group ................. 185
7,200 Provident Life & Accident Insurance Co. of America
"B"............................................. 184
7,600 Selective Insurance Group Inc..................... 191
4,900 US Life Corp. .................................... 174
---------
931
---------
METALS (2.3%)
3,100 Carpenter Technology Corp. ....................... 185
6,100 Cleveland-Cliffs Iron Co. ........................ 232
---------
417
---------
PAPER & PACKAGING (3.2%)
7,300 Ball Corp. ....................................... 190
5,000 Pentair, Inc. .................................... 179
13,600 Sealright Co., Inc. .............................. 207
---------
576
---------
SERVICES (10.3%)
10,700 ABM Industries, Inc. ............................. 217
7,500 Angelica Corp. ................................... 198
11,700 Cross A.T. Co. "A"................................ 187
10,500 Gibson Greetings, Inc. ........................... 168
16,800 Handleman Co. .................................... 170
6,700 National Service Industries, Inc. ................ 174
9,100 New England Business Services, Inc. .............. 170
16,500 Piccadilly Cafeterias, Inc........................ 161
13,500 Russ Berrie & Co., Inc. .......................... 206
6,400 Wallace Computer Services, Inc. .................. 205
---------
1,856
---------
TECHNOLOGY (9.0%)
34,600 American Software, Inc. .......................... 173
6,300 Avnet, Inc. ...................................... 198
8,100 CTS Corp. ........................................ 200
8,300 Cubic Corp. ...................................... 156
7,500 Joslyn Corp. ..................................... 191
9,000 Kuhlman Corp. .................................... 133
7,000 MTS Systems Corp. ................................ 198
15,600 National Computer Systems, Inc. .................. 183
7,900 Shared Medical Systems Corp. ..................... 190
---------
1,622
---------
The accompanying notes are an integral part of the financial statements. 56
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1994
SHARES VALUE
(000)
- ----------------------------------------------------------------------------
TRANSPORTATION (1.9%)
8,800 Overseas Shipholding Group, Inc. ................. $ 161
10,100 Yellow Corp. ..................................... 175
---------
336
---------
UTILITIES (7.5%)
6,500 Central Hudson Gas & Electric Corp................ 171
15,100 Central Maine Power Co. .......................... 174
4,100 Commonwealth Energy Systems ...................... 166
7,000 Eastern Enterprises .............................. 160
11,500 Oneok, Inc. ...................................... 197
5,200 Orange & Rockland Utilities, Inc. ................ 162
4,700 SJW Corp. ........................................ 169
10,600 Washington Water Power Co. ....................... 152
---------
1,351
---------
TOTAL COMMON STOCKS
(COST $17,080)................................................... 16,398
---------
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.1%)
REPURCHASE AGREEMENT (3.1%)
$557 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $557, collateralized by $545
Government National Mortgage Association,
9.50%-10.00%, with various maturities, valued at
$581 (COST $557) ............................... $ 557
---------
TOTAL INVESTMENTS (94.4%) (COST $17,637)......................... 16,955
OTHER ASSETS IN EXCESS OF LIABILITIES (5.6%)..................... 999
---------
NET ASSET VALUE (100%)........................................... $ 17,954
---------
---------
57 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1994
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
FIXED INCOME SECURITIES (91.0%)
CANADIAN DOLLAR (2.3%)
GOVERNMENT BOND
C$ 500 Government of Canada 6.50%, 6/1/04 ............... $ 297
---------
DANISH KRONE (2.7%)
GOVERNMENT BOND
DK 2,400 Kingdom of Denmark 7.00%, 12/15/04 ............... 352
---------
FINNISH MARKKA (2.9%)
GOVERNMENT BOND
MK 2,000 Republic of Finland 9.50%, 3/15/04 ............... 377
---------
ITALIAN LIRA (2.5%)
GOVERNMENT BOND
IL 500,000 Republic of Italy (Treasury Bond) 11.50%,
3/1/03 ......................................... 328
---------
SWEDISH KRONA (2.6%)
GOVERNMENT BOND
SK 2,800 Kingdom of Sweden 9.00%, 4/20/09 ................. 333
---------
UNITED STATES DOLLAR (78.0%)
CORPORATE BONDS
$ 500 Armco Inc. 9.375%, 11/1/00 ....................... 480
500 Charter Medical Corp. 11.25%, 4/15/04 ............ 509
500 Comcast Corp. 9.50%, 1/15/08 ..................... 464
500 Continental Cablevision, Inc. 11.00%, 6/1/07 ..... 516
225 Healthtrust Inc. 8.75%, 3/15/05 .................. 203
350 IMC Fertilizer Group, Inc. 9.25%, 10/1/00 ........ 336
500 Owens Illinois, Inc. 10.50%, 6/15/02 ............. 509
500 Penn Traffic Co. 9.625% 4/15/05 .................. 470
500 Reliance Group Holdings, Inc. 9.00%, 11/15/00 .... 452
200 Riverwood International Corp. 10.375%, 6/30/04 ... 199
175 Southland Corp. 5.00%, 12/15/03 .................. 116
500 Tracor, Inc. 10.875%, 8/15/01 .................... 511
508 Trump Taj Mahal PIK 11.35%, 11/15/99 ............. 412
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
$ 500 Westpoint Stevens, Inc. 9.375%, 12/15/05 ......... $ 452
---------
5,629
---------
EUROBONDS
**1,000 Federal Republic of Brazil "C" Bond 8.00%, 4/15/14 PIK . 406
**990 Federal Republic of Brazil "IDU" Bond 6.0625%, 1/1/01 .. 695
500 National Bank Of Hungary 8.875%, 11/1/13 ............... 402
*150 Polysindo Eka Perkasa 13.00%, 6/15/01 .................. 150
**800 Republic of Argentina 5.00%, 3/31/05 ................... 571
**300 Republic of Panama 5.9375%, 5/10/02 .................... 233
1,800 Republic of Venezuela Par "A" 6.75%, 3/31/20 ........... 875
---------
3,332
---------
LOAN AGREEMENT
**1,000 Morocco Restructuring and Consolidation Agreement
"A" 1990 ....................................... 721
---------
YANKEE BOND
500 Petroleos Mexicanos 8.625%, 12/1/23 .............. 406
---------
10,088
---------
TOTAL FIXED INCOME SECURITIES (COST $11,891).................... 11,775
---------
SHORT-TERM INVESTMENT (10.8%)
REPURCHASE AGREEMENT
UNITED STATES
$ 1,395 U.S. Trust 4.10%, dated 6/30/94, due 7/1/94, to be
repurchased at $1,395, collateralized by $1,480
U.S. Treasury Notes, 3.875%, due 10/31/95,
valued at $1,446
(COST $1,395) ................................... $ 1,395
---------
TOTAL INVESTMENTS (101.8%) (COST $13,286)....................... 13,170
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.8%)................... (232)
---------
NET ASSETS (100%)............................................... $ 12,938
---------
---------
- ---------------
* Security valued at cost -- See Note A-1
** Variable or floating rate security -- rate disclosed is as of June 30, 1994
PIK -- Payment-in-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF NET
INDUSTRY VALUE (000) ASSETS
- --------------------------------------------- ----------- -----------------
<S> <C> <C>
Foreign Government Bonds..................... $ 4,869 37.6%
Consumer Durables............................ 1,113 8.6
Communications............................... 980 7.6
Loan Agreements.............................. 721 5.6
Health Care.................................. 712 5.5
Paper & Packaging............................ 708 5.5
Consumer -- Retail........................... 586 4.5
Industrial................................... 480 3.7
Insurance.................................... 452 3.5
Entertainment................................ 412 3.2
Energy....................................... 406 3.1
Chemicals.................................... 336 2.6
----------- ---------
$ 11,775 91.0%
----------- ---------
----------- ---------
</TABLE>
58 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JUNE 30, 1994
<TABLE>
<CAPTION>
GLOBAL WORLDWIDE
GLOBAL EQUITY FIXED ASIAN AMERICAN HIGH
ALLOCATION INCOME GROWTH VALUE INCOME
FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in Securities, at Value* -- See
accompanying portfolios $ 65,685 $ 15,634 $ 246,528 $ 16,955 $ 13,170
Foreign Currency at Value 450 2 10,608 -- --
Cash 234 -- 8 1 1
Receivable for Investments Sold 48 1,194 -- 17 --
Receivable for Fund Shares Sold 539 35 1,587 1,042 220
Dividends Receivable 184 -- 430 40 --
Interest Receivable -- 464 16 -- 228
Foreign Withholding Tax Reclaim Receivable 39 4 6 -- --
Expense Reimbursement Receivable -- -- -- 10 22
Deferred Organization Costs 68 67 43 70 76
------------- --------- --------- --------- ---------
Total Assets 67,247 17,400 259,226 18,135 13,717
------------- --------- --------- --------- ---------
LIABILITIES:
Payable for Investments Purchased 2,581 550 593 55 641
Payable for Fund Shares Redeemed 213 97 2,373 -- 2
Bank Overdraft -- 690 -- -- --
Unrealized Loss on Forward Foreign Currency
Contracts 782 182 -- -- --
Dividends Payable 1 1 -- 49 7
Investment Advisory Fees Payable 94 17 244 -- --
Administrative Fees Payable 26 5 75 5 4
Custody Fees Payable 48 10 220 14 2
Professional Fees Payable 36 34 48 19 27
Distribution Fees Payable 92 20 371 24 14
Shareholder Reporting Expenses Payable 40 17 123 7 3
Directors' Fees and Expenses Payable 1 1 1 2 1
Filing and Registration Fees Payable 16 -- 77 6 4
Organizational Costs Payable -- -- -- -- 74
------------- --------- --------- --------- ---------
Total Liabilities 3,930 1,624 4,125 181 779
------------- --------- --------- --------- ---------
NET ASSETS $ 63,317 $ 15,776 $ 255,101 $ 17,954 $ 12,938
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Net Assets Consist Of:
Capital Stock at Par $ 5 $ 2 $ 17 $ 2 $ 1
Paid in Capital in Excess of Par 61,333 16,573 242,227 18,410 12,844
Undistributed (Distributions in Excess of) Net
Investment Income (104) (28) -- 16 15
Accumulated (Distributions in Excess of) Net
Realized Gain 820 (22) 3,756 208 193
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency 1,263 (749) 9,101 (682) (115)
------------- --------- --------- --------- ---------
NET ASSETS $ 63,317 $ 15,776 $ 255,101 $ 17,954 $ 12,938
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
CLASS A SHARES:
Net Assets $ 33,425 $ 10,369 $ 138,212 $ 10,717 $ 6,857
Shares Issued and Outstanding ($.001 par
value)** 2,787 1,087 8,916 916 564
Net Asset Value and Redemption Price Per Share $ 11.99 $ 9.53 $ 15.50 $ 11.70 $ 12.17
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Maximum Sales Charge 4.75% 4.75% 4.75% 4.75% 4.75%
Maximum Offering Price Per Share (Net Asset
Value Per Share x 100/95.25) $ 12.59 $ 10.01 $ 16.27 $ 12.28 $ 12.78
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
CLASS B SHARES:
Net Assets $ 29,892 $ 5,407 $ 116,889 $ 7,237 $ 6,081
Shares Issued and Outstanding ($.001 par
value)** 2,512 567 7,589 619 500
Net Asset Value and Offering Price Per Share $ 11.90 $ 9.54 $ 15.40 $ 11.69 $ 12.16
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Investments at Cost, Including Foreign Currency $ 64,100 $ 16,225 $ 248,034 $ 17,637 $ 13,286
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
</TABLE>
* Includes repurchase agreements valued at $3,205,000, $683,000, $17,425,000,
$557,000 and $1,395,000 for Global Equity Allocation Fund, Global Fixed
Income Fund, Asian Growth Fund, American Value Fund and Worldwide High
Income Fund, respectively.
** Shares authorized are 375,000,000 each for Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund and
Worldwide High Income Fund, respectively.
The accompanying notes are an integral part of the financial statements. 59
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN WORLDWIDE
GLOBAL VALUE HIGH INCOME
EQUITY GLOBAL ASIAN FUND FUND
ALLOCATION FIXED GROWTH PERIOD FROM PERIOD FROM
FUND INCOME FUND FUND OCTOBER 18, APRIL 21,
YEAR ENDED YEAR ENDED YEAR ENDED 1993* 1994*
JUNE 30, JUNE 30, JUNE 30, TO JUNE 30, TO JUNE 30,
1994 1994 1994 1994 1994
(000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,032 $ -- $ 2,462 $ 335 $ --
Interest 133 886 615 33 227
Less Foreign Taxes Withheld (97) (16) (230) -- --
----------- ----------- ----------- ----------- --------
Total Income 1,068 870 2,847 368 227
----------- ----------- ----------- ----------- --------
EXPENSES:
Investment Advisory Fees
Basic Fee 398 106 1,715 86 17
Less: Fees Waived (353) (106) (464) (86) (17)
----------- ----------- ----------- ----------- --------
Investment Advisory Fees -- Net 45 -- 1,251 -- --
Administrative Fees 197 46 571 31 7
Custodian Fees 128 26 523 24 2
Filing and Registration Fees 16 -- 77 6 4
Directors' Fees and Expenses 11 10 9 7 2
Professional Fees 51 43 98 21 27
Shareholder Reports 72 32 231 15 3
Distribution Fees
Class A 56 20 238 14 3
Class B 172 61 764 44 11
Blue Sky Fees
Class A 16 16 29 13 2
Class B 15 16 21 12 2
Amortization of Organizational Costs 24 24 16 12 3
Other 3 1 3 2 --
Expenses Reimbursed by Adviser -- (44) -- (16) (22)
----------- ----------- ----------- ----------- --------
Net Expenses 806 251 3,831 185 44
----------- ----------- ----------- ----------- --------
Net Investment Income (Loss) 262 619 (984) 183 183
----------- ----------- ----------- ----------- --------
NET REALIZED GAIN (LOSS) ON INVESTMENTS
Securities Sold 966 440 4,352 208 193
Foreign Currency Transactions (334) 64 371 -- (1)
----------- ----------- ----------- ----------- --------
Total Net Realized Gain 632 504 4,723 208 192
----------- ----------- ----------- ----------- --------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 86 (1,219) 9,101 (682) (115)
----------- ----------- ----------- ----------- --------
Total Net Realized Gain and Change in Unrealized
Appreciation (Depreciation) 718 (715) 13,824 (474) 77
----------- ----------- ----------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 980 ($ 96) $ 12,840 ($ 291) $ 260
----------- ----------- ----------- ----------- --------
----------- ----------- ----------- ----------- --------
</TABLE>
- ---------------
*Commencement of operations
60 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
JANUARY 4,
1993*
TO JUNE 30, YEAR ENDED
1993 JUNE 30, 1994
(000) (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 46 $ 262
Net Realized Gain on Investments 2 632
Change in Unrealized Appreciation 1,177 86
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 1,225 980
--------------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (50)
Class B -- --
--------------- ---------------
-- (50)
--------------- ---------------
Realized Gains:
Class A -- (127)
Class B -- (85)
--------------- ---------------
-- (212)
--------------- ---------------
Net Decrease in Net Assets Resulting from
Distributions -- (262)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,109 59,445
Distributions Reinvested -- 243
Redeemed (4,907) (14,518)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 16,202 45,170
--------------- ---------------
Total Increase in Net Assets 17,427 45,888
NET ASSETS -- Beginning of Period 2 17,429
--------------- ---------------
NET ASSETS -- End of Period (including
undistributed (distributions in excess of) net
investment income of $46 and $(104),
respectively) $ 17,429 $ 63,317
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 1,170 2,528
Distributions Reinvested -- 14
Redeemed (229) (696)
--------------- ---------------
Net Increase in Class A Shares Outstanding 941 1,846
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 12,317 $ 30,362
Distributions Reinvested -- 164
Redeemed (2,523) (8,163)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 9,794 $ 22,363
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 849 2,421
Distributions Reinvested -- 6
Redeemed (216) (548)
--------------- ---------------
Net Increase in Class B Shares Outstanding 633 1,879
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 8,792 $ 29,083
Distributions Reinvested -- 79
Redeemed (2,384) (6,355)
--------------- ---------------
Net Increase in Class B Shares Outstanding $ 6,408 $ 22,807
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations
The accompanying notes are an integral part of the financial statements. 61
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
JANUARY 4,
1993*
TO JUNE 30,
1993 YEAR ENDED JUNE
(000) 30, 1994 (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 249 $ 619
Net Realized Gain on Investments 88 504
Change in Unrealized Appreciation (Depreciation) 470 (1,219)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 807 (96)
--------------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (137) (371)
Class B (104) (248)
In Excess of Net Investment Income:
Class A -- (93)
Class B -- (62)
--------------- ---------------
(241) (774)
--------------- ---------------
Realized Gains:
Class A -- (267)
Class B -- (237)
In Excess of Realized Gains:
Class A -- (14)
Class B -- (13)
--------------- ---------------
-- (531)
--------------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (241) (1,305)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 11,948 15,880
Distributions Reinvested 238 737
Redeemed (1) (12,193)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,185 4,424
--------------- ---------------
Total Increase in Net Assets 12,751 3,023
NET ASSETS -- Beginning of Period 2 12,753
--------------- ---------------
NET ASSETS -- End of Period (including
undistributed (distributions in excess of) net
investment income of $8 and ($28), respectively) $ 12,753 $ 15,776
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 586 989
Distributions Reinvested 43 41
Redeemed -- (572)
--------------- ---------------
Net Increase in Class A Shares Outstanding 629 458
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 6,218 $ 10,128
Distributions Reinvested 134 426
Redeemed (1) (5,980)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 6,351 $ 4,574
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 561 549
Distributions Reinvested 18 30
Redeemed -- (591)
--------------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding 579 (12)
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 5,730 $ 5,752
Distributions Reinvested 104 311
Redeemed -- (6,213)
--------------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding $ 5,834 ($ 150)
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
62 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
JUNE 23, 1993*
TO JUNE 30, YEAR ENDED
1993 JUNE 30, 1994
(000) (000)
- -------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Loss $ (4) $ (984)
Net Realized Gain on Investments -- 4,723
Change in Unrealized Appreciation -- 9,101
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (4) 12,840
--------------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 20,265 285,430
Redeemed -- (63,430)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 20,265 222,000
--------------- ---------------
Total Increase in Net Assets 20,261 234,840
NET ASSETS -- Beginning of Period -- 20,261
--------------- ---------------
NET ASSETS -- End of Period (including accumulated
net investment loss of $4 and $0, respectively.) $ 20,261 $ 255,101
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 981 10,025
Redeemed -- (2,090)
--------------- ---------------
Net Increase in Class A Shares Outstanding 981 7,935
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 11,771 $ 150,145
Redeemed -- (32,820)
--------------- ---------------
Net Increase in Class A Shares Outstanding $ 11,771 $ 117,325
--------------- ---------------
--------------- ---------------
CLASS B:
Shares:
Issued 708 8,840
Redeemed -- (1,959)
--------------- ---------------
Net Increase in Class B Shares Outstanding 708 6,881
--------------- ---------------
--------------- ---------------
Dollars:
Issued $ 8,494 $ 135,285
Redeemed -- (30,610)
--------------- ---------------
Net Increase in Class B Shares Outstanding $ 8,494 $ 104,675
--------------- ---------------
--------------- ---------------
- -------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements. 63
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
OCTOBER 18,
1993* TO
JUNE 30, 1994
(000)
- --------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Income $ 183
Net Realized Gain on Investments 208
Change in Unrealized Depreciation (682)
---------------
Net Decrease in Net Assets Resulting from
Operations (291)
---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (120)
Class B (59)
---------------
Net Decrease in Net Assets Resulting from
Distributions (179)
---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 18,925
Distributions Reinvested 55
Redeemed (556)
---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 18,424
---------------
Total Increase in Net Assets 17,954
NET ASSETS -- Beginning of Period --
---------------
NET ASSETS -- End of Period (including
undistributed net investment income of $16) $ 17,954
---------------
---------------
- -------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 940
Distributions Reinvested 4
Redeemed (28)
---------------
Net Increase in Class A Shares Outstanding 916
---------------
---------------
Dollars:
Issued $ 11,269
Distributions Reinvested 42
Redeemed (336)
---------------
Net Increase in Class A Shares Outstanding $ 10,975
---------------
---------------
CLASS B:
Shares:
Issued 636
Distributions Reinvested 1
Redeemed (18)
---------------
Net Increase in Class B Shares Outstanding 619
---------------
---------------
Dollars:
Issued $ 7,656
Distributions Reinvested 13
Redeemed (220)
---------------
Net Increase in Class B Shares Outstanding $ 7,449
---------------
---------------
- -------------------------------------------------------------------
</TABLE>
* Commencement of operations
64 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
APRIL 21, 1994*
TO
JUNE 30, 1994
(000)
- --------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Income $ 183
Net Realized Gain on Investments 192
Change in Unrealized Depreciation (115)
---------------
Net Increase in Net Assets Resulting from
Operations 260
---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (94)
Class B (76)
---------------
Net Decrease in Net Assets Resulting from
Distributions (170)
---------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 12,701
Distributions Reinvested 161
Redeemed (14)
---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,848
---------------
Total Increase in Net Assets 12,938
NET ASSETS -- Beginning of Period --
---------------
NET ASSETS -- End of Period (including
undistributed net investment income of $15) $ 12,938
---------------
---------------
- -------------------------------------------------------------------
(1) CLASS A:
Shares:
Issued 557
Distributions Reinvested 7
---------------
Net Increase in Class A Shares Outstanding 564
---------------
---------------
Dollars:
Issued $ 6,729
Distributions Reinvested 88
Redeemed (2)
---------------
Net Increase in Class A Shares Outstanding $ 6,815
---------------
---------------
CLASS B:
Shares:
Issued 495
Distributions Reinvested 6
Redeemed (1)
---------------
Net Increase in Class B Shares Outstanding 500
---------------
---------------
Dollars:
Issued $ 5,972
Distributions Reinvested 73
Redeemed (12)
---------------
Net Increase in Class B Shares Outstanding $ 6,033
---------------
---------------
- -------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements. 65
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JANUARY 4, JANUARY 4,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 11.09 $ 10.00 $ 11.05
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.10 0.01 0.06
Net Realized and Unrealized Gain On Investments 1.05 0.90 1.04 0.86
----------- ----------- ----------- -----------
Total From Investment Operations 1.09 1.00 1.05 0.92
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income -- (0.03) -- --
Realized Gains -- (0.07) -- (0.07)
----------- ----------- ----------- -----------
Total Distributions -- (0.10) -- (0.07)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.09 $ 11.99 $ 11.05 $ 11.90
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN(1) 10.90%*** 9.02% 10.50%*** 8.34%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 10,434 $ 33,425 $ 6,995 $ 29,892
Ratio of Net Expenses to Average Net Assets 1.70%* 1.70% 2.45%* 2.45%
Ratio of Net Investment Income to Average Net
Assets 1.04%* 0.98% 0.29%* 0.23%
Portfolio Turnover Rate 14%*** 30% 14%*** 30%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:
Ratio of Expenses to Average Net Assets 3.65%* 2.58% 4.40%* 3.34%
</TABLE>
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JANUARY 4, JANUARY 4,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.55 $ 10.00 $ 10.56
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.52 0.21 0.43
Net Realized and Unrealized Gain (Loss) On
Investments 0.55 (0.42) 0.55 (0.40)
----------- ----------- ----------- -----------
Total From Investment Operations 0.80 0.10 0.76 0.03
----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.20) (0.44)
In Excess of Net Investment Income -- (0.12) -- (0.11)
Realized Gains -- (0.47) -- (0.47)
In Excess of Realized Gains -- (0.03) -- (0.03)
----------- ----------- ----------- -----------
Total Distributions (0.25) (1.12) (0.20) (1.05)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.56 $ 9.54
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN(1) 8.02%*** 0.41% 7.61%*** (0.25)%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 6,633 $ 10,369 $ 6,120 $ 5,407
Ratio of Expenses to Average Net Assets 1.45%* 1.45% 2.20%* 2.20%
Ratio of Net Investment Income to Average Net
Assets 5.00%* 4.70% 4.25%* 3.95%
Portfolio Turnover Rate 55%*** 168% 55%*** 168%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.88%* 2.48% 3.63%* 3.29%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges
66 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
JUNE 23, JUNE 23,
1993** YEAR ENDED 1993** YEAR ENDED
TO JUNE 30, JUNE 30, TO JUNE 30, JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1993 1994 1993 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00 $ 12.00 $ 12.00
----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss -- (0.03) -- (0.10)
Net Realized and Unrealized Gain on Investments -- 3.53 -- 3.50
----------- ----------- ----------- -----------
Total From Investment Operations -- 3.50 -- 3.40
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.00 $ 15.50 $ 12.00 $ 15.40
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN (1) 0.00%*** 29.17% 0.00%*** 28.33%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $ 11,770 $ 138,212 $ 8,491 $ 116,889
Ratio of Expenses to Average Net Assets 1.90%* 1.90% 2.65%* 2.65%
Ratio of Net Investment Income (Loss) to Average
Net Assets (0.81)%* (0.24)% (1.56)%* (0.99)%
Portfolio Turnover Rate 0%*** 34% 0%*** 34%
- -------------------------------------------------------------------------------------------------------------------------
During the periods, various fees and expenses were waived and reimbursed. The ratios of expenses had such waivers and
reimbursements not occurred are as follows:
Ratio of Expenses to Average Net Assets 11.83%* 2.17% 12.64%* 2.92%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- ---------------
OCTOBER 18, OCTOBER 18,
1993** 1993**
TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1994 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00
--------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.11
Net Realized and Unrealized Loss On Investments (0.30) (0.31)
--------------- -------
Total From Investment Operations (0.13) (0.20)
--------------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (0.11)
--------------- -------
NET ASSET VALUE, END OF PERIOD $11.70 $11.69
--------------- -------
--------------- -------
TOTAL RETURN (1) (1.12)%*** (1.70)%***
--------------- -------
--------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $10,717 $ 7,237
Ratio of Expenses to Average Net Assets 1.50%* 2.25%*
Ratio of Net Investment Income to Average Net
Assets 2.14%* 1.39%*
Portfolio Turnover Rate 17%*** 17%***
- ---------------------------------------------------------------------------------------------
During the period, various fees and expenses were waived and reimbursed. The ratios of
expenses had such waiver and reimbursement not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.48%* 3.28%*
- ---------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges
The accompanying notes are an integral part of the financial statements. 67
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- ---------------
APRIL 21, APRIL 21,
1994** 1994**
TO JUNE 30, TO JUNE 30,
SELECTED PER SHARE DATA AND RATIOS 1994 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.17
Net Realized and Unrealized Gain On Investments 0.16 0.15
------- -------
Total From Investment Operations 0.34 0.32
------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (0.16)
------- -------
NET ASSET VALUE, END OF PERIOD $12.17 $12.16
------- -------
------- -------
TOTAL RETURN(1) 2.86%*** 2.62%***
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands) $6,857 $6,081
Ratio of Expenses to Average Net Assets 1.55%* 2.30%*
Ratio of Net Investment Income to Average Net
Assets 8.29%* 7.54%*
Portfolio Turnover Rate 19%*** 19%***
- ---------------------------------------------------------------------------------------------
During the period, various fees and expenses were waived and reimbursed. The ratios of
expenses had such waiver and reimbursement not occurred are as follows:
Ratio of Expenses to Average Net Assets 2.67%* 4.74%*
- ---------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Commencement of operations
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges
68 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. ("the Fund") was incorporated under the laws of
Maryland on August 14, 1992 and commenced operations on January 4, 1993. The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company which offers redeemable shares of
diversified and non-diversified investment portfolios. As of June 30, 1994, the
Fund had five separate investment portfolios: Morgan Stanley Global Equity
Allocation Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley Asian
Growth Fund, Morgan Stanley American Value Fund, and Morgan Stanley Worldwide
High Income Fund (referred to herein respectively as "Global Equity Allocation
Fund", "Global Fixed Income Fund", "Asian Growth Fund", "American Value Fund",
and "Worldwide High Income Fund" and collectively as the "Portfolios"). The Fund
currently offers Class A and Class B shares of each Portfolio. Prior to January
4, 1993, the Fund had no operations other than those relating to organizational
matters and the initial sale of shares of Global Equity Allocation Fund, Global
Fixed Income Fund and Money Market Fund to Morgan Stanley Asset Management Inc.
(the "Adviser" or "MSAM"). Effective August 6, 1993, Morgan Stanley Money Market
Fund was closed to new investors and became inactive.
A. ACCOUNTING POLICIES: The following is a summary of significant accounting
policies for the Fund. Such policies are in conformity with generally accepted
accounting principles for investment companies and are consistently followed by
the Fund in the preparation of the financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. 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, if any, of
reputable brokers. Bonds and other fixed income securities are valued according
to the broadest and most representative market. In addition, bonds and other
fixed income securities are valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value. All
other securities and assets for which market values are not readily available,
including restricted securities, are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done by
others.
2. INCOME TAXES: It is each Portfolio's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on either income earned or repatriated. The Fund
recognizes such taxes when the related income is accrued.
For the year ended June 30, 1994 Global Equity Allocation Fund, Global Fixed
Income Fund and Worldwide High Income Fund deferred to July 1, 1994 post October
currency losses of approximately $966,000, $115,000 and $1,000, respectively,
for Federal income tax purposes. Global Fixed Income Fund also deferred to July
1,1994 post October capital losses of approximately $16,000.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, the value of which is at least equal to the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in United States dollars. Foreign currency amounts
are translated into U.S. dollars at the bid prices of such currencies against
U.S. dollars last quoted by a major bank. Although the net assets of the Fund
are presented at the foreign exchange rates and market values at the close of
the period, the Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the
fluctuations arising from changes in the market prices of the securities held at
period end. Similarly, the Fund does not isolate the effect of changes in
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities sold during the period. Accordingly, realized and
unrealized foreign currency gains (losses) are included in the reported net
realized and unrealized gains (losses) on investment transactions and balances.
However, pursuant to U.S. Federal income tax regulations, gains and losses from
certain foreign currency transactions and sales of foreign denominated debt
securities are treated as ordinary income for U.S. Federal income tax purposes.
69
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference between
the amount of investment income and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amount actually received or paid,
and certain currency related amounts of realized gains or losses from the sale
of foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other emerging
countries. Foreign ownership limitations also may be imposed by the charters of
individual companies in emerging countries to prevent, among other concerns,
violation of foreign investment limitations. As a result, an additional class of
shares (identified as "foreign" in the Portfolio of Investments) may be created
and offered for investment. The "local" and "foreign" shares' market values may
vary.
5. FORWARD FOREIGN CURRENCY CONTRACTS: Each Portfolio, except American Value
Fund, may enter into forward foreign currency contracts to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A forward currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange rates.
The contract is marked-to-market daily using the forward rate and the change in
market value is recorded by the Portfolio as unrealized gain or loss. The
Portfolio records realized gains or losses when the contract is closed equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
6. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each Portfolio's commencement of operations. MSAM has agreed that in the event
any of its initial shares in a Portfolio are redeemed, the proceeds on
redemption will be reduced by the pro-rata portion of any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the initial shares held at time of redemption.
7. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis except where collection is in doubt. Discounts
and premiums on securities purchased are amortized according to the effective
yield method over their respective lives. Most expenses of the Fund can be
directly attributed to a particular Portfolio. Expenses which cannot be directly
attributed are apportioned among the Portfolios based upon relative net assets.
Income, expenses (other than class specific expenses) and realized and
unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions from the Portfolios are recorded on the
ex-distribution date.
Income and capital gain distributions are determined in accordance with U.S.
Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions and deferral of wash sale and
post-October losses. For the year ended June 30, 1994, the effects of certain
differences were reclassified from undistributed net investment income
(accumulated loss) and accumulated net realized gain to paid in capital in
excess of par as follows:
<TABLE>
<CAPTION>
UNDISTRIBUTED NET
INVESTMENT INCOME ACCUMULATED
(ACCUMULATED LOSS) NET REALIZED GAIN
(000) (000)
------------------- -----------------
<S> <C> <C>
Global Equity
Allocation Fund....... $ (264) $ 300
Global Fixed Income
Fund.................. 60 (24)
Asian Growth Fund...... 984 (967)
American Value Fund.... 12 --
Worldwide High Income
Fund.................. 2 1
</TABLE>
B. ADVISER: The Adviser provides the Fund with investment advisory services at a
fee paid quarterly and calculated at the annual rates of average daily net
assets indicated below. The Adviser has agreed to reduce fees
70
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------
payable to it and to reimburse the Portfolios, if necessary, if the annual
operating expenses, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated below.
<TABLE>
<CAPTION>
CLASS A CLASS B
MAXIMUM MAXIMUM
EXPENSE EXPENSE
FUND ADVISORY FEE RATIO RATIO
- -------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Global Equity Allocation Fund... 1.00% 1.70% 2.45%
Global Fixed Income Fund........ 0.75% 1.45% 2.20%
Asian Growth Fund............... 1.00% 1.90% 2.65%
American Value Fund............. 0.85% 1.50% 2.25%
Worldwide High Income Fund...... 0.75% 1.55% 2.30%
</TABLE>
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an Administrative Agreement for a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of each Portfolio. Under an
agreement between MSAM and U.S. Trust Company of New York ("U.S. Trust"), Mutual
Funds Service Company ("MFSC"), a subsidiary of U.S. Trust, provides certain
administrative services to the Fund. MFSC is compensated for such services by
MSAM from the fee it receives from the Fund, subject to certain fee minimums as
defined in the agreement, which for the year ended June 30, 1994, totaled
$130,000, $130,000, $130,000, $99,000 and $28,000 for Global Equity Allocation
Fund, Global Fixed Income Fund, Asian Growth Fund, American Value Fund and
Worldwide High Income Fund, respectively. Certain employees of MFSC are officers
of the Fund.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), an
affiliate of MSAM, serves as the distributor of the Fund and provides both
classes of each Portfolio with distribution services pursuant to a Distribution
Plan in accordance with Rule 12b-1 under the Investment Company Act of 1940. The
Distributor is entitled to receive from the Portfolios a distribution fee, which
is accrued daily and paid quarterly, of up to 0.25% for the Class A shares of
each Portfolio and up to 1.00% of the Class B shares of each Portfolio, on an
annualized basis, of the average daily net assets of such class. The amount of
distribution fees for the year ended June 30, 1994 is presented in each
Portfolio's Statement of Operations.
The Distributor may receive a maximum 4.75% sales charge from the sale of Class
A shares of each Portfolio. For the year ended June 30, 1994, the Distributor
has advised the Fund that it has earned sales charges of $58,000, $15,000,
$281,000, $5,000 and $2,000 for Global Equity Allocation Fund, Global Fixed
Income Fund, Asian Growth Fund, American Value Fund and Worldwide High Income
Fund, respectively.
The Distributor may receive a deferred sales charge for certain purchases of
Class A and Class B shares of each Portfolio redeemed within one year following
such purchase. For the year ended June 30, 1994, the Distributor has advised the
Fund that it earned deferred sales charges of $18,000, $17,000, $141,000 and
$1,000 for Global Equity Allocation Fund, Global Fixed Income Fund, Asian Growth
Fund and American Value Fund, respectively.
E. PURCHASES AND SALES: During the year ended June 30, 1994, purchases and sales
of investment securities other than U.S. Government securities and short-term
investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- --------------------------------- ------------- -----------
<S> <C> <C>
Global Equity Allocation Fund.... $ 55,848 $ 10,607
Global Fixed Income Fund......... 14,993 10,620
Asian Growth Fund................ 265,942 50,237
American Value Fund.............. 19,089 2,217
Worldwide High Income Fund....... 13,668 1,991
</TABLE>
Purchases and sales during the year ended June 30, 1994 of U.S. Government
securities, other than short-term U.S. Government securities, occurred in Global
Equity Allocation Fund and Global Fixed Income Fund and totaled $168,000 and $0,
and $9,234,000 and $10,269,000, respectively.
F. CUSTODIANS: Morgan Stanley Trust Company ("MSTC") acts as custodian for the
Fund's non-U.S. assets held outside the United States in accordance with a
custodian agreement. U.S. Trust acts as custodian for the Fund's domestic assets
in accordance with a custodian agreement. Custodian fees are computed and
payable monthly based on investment purchases and sales activity, an account
maintenance fee, plus reimbursement for certain out-of-pocket expenses. MSTC,
the Adviser and the Distributor are wholly owned subsidiaries of Morgan Stanley
Group, Inc. Fees incurred for custody services provided by MSTC for the year
ended June 30, 1994, totaled $119,000, $14,000, $513,000 and $1,000 for Global
Equity Allocation Fund, Global Fixed Income Fund, Asian Growth Fund and
Worldwide High Income Fund, respectively, of which $44,000, $6,000, $216,000 and
$1,000 were payable at June 30, 1994.
G. OTHER: At June 30, 1994, the following Portfolios' net assets were comprised
of foreign denominated securities and currency as indicated below. Changes in
currency rates will affect the value of and investment income from such
securities.
<TABLE>
<CAPTION>
FUND PERCENTAGE
- --------------------------------------------- -------------
<S> <C>
Global Equity Allocation Fund................ 78.5%
Global Fixed Income Fund..................... 76.2%
Asian Growth Fund............................ 93.9%
Worldwide High Income Fund................... 13.0%
</TABLE>
71
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994 (CONT.)
- --------------------------------------------------------------------------------
Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of June 30, 1994:
<TABLE>
<S> <C> <C> <C>
Australian Dollar................. 1.3709 = $1.00
Belgian Franc..................... 32.6325 = $1.00
British Pound Sterling............ .6456 = $1.00
Canadian Dollar................... 1.3824 = $1.00
Danish Krone...................... 6.2272 = $1.00
Finnish Markka.................... 5.2852 = $1.00
French Franc...................... 5.4412 = $1.00
German Deutsche Mark.............. 1.5850 = $1.00
Hong Kong Dollar.................. 7.7295 = $1.00
Indonesian Rupiah................. 2,169.9750 = $1.00
Italian Lira...................... 1,578.0000 = $1.00
Japanese Yen...................... 98.5500 = $1.00
Korean Won........................ 805.0500 = $1.00
Malaysian Ringgit................. 2.6040 = $1.00
Netherland Guilder................ 1.7785 = $1.00
New Zealand Dollar................ 1.6800 = $1.00
Pakistani Rupee................... 30.5794 = $1.00
Philippine Peso................... 27.0000 = $1.00
Singapore Dollar.................. 1.5248 = $1.00
Spanish Peseta.................... 131.0750 = $1.00
Swedish Krona..................... 7.6539 = $1.00
Taiwanese Dollar.................. 26.8190 = $1.00
Thai Baht......................... 25.0400 = $1.00
</TABLE>
The Global Equity Allocation Fund and Asian Growth Fund incurred approximately
$12,000 and $606,000, respectively, as brokerage commissions to Morgan Stanley &
Co. Incorporated, an affiliated broker/dealer.
At June 30, 1994, cost and unrealized appreciation (depreciation) for Federal
income tax purposes of the securities of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- ---------------------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Global Equity
Allocation Fund...... $ 63,676 $ 4,472 $ (2,463) $ 2,009
Global Fixed Income
Fund................. 16,229 152 (747) (595)
Asian Growth Fund..... 238,297 19,319 (11,088) 8,231
American Value Fund... 17,637 575 (1,257) (682)
Worldwide High Income
Fund................. 13,286 136 (252) (116)
</TABLE>
H. STATEMENT OF POSITION 93-2: During the current year, the Fund adopted
Statement of Position 93-2: DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT
PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES. Accordingly, permanent book and tax differences relating
to shareholder distributions have been reclassified to additional paid-in
capital. As of July 1, 1993, the cumulative effect of such differences of
$(98,000) and $98,000 for Global Equity Allocation Fund; $59,000 and $(59,000)
for Global Fixed Income Fund and $4,000 and $0 for Asian Growth Fund were
reclassified from undistributed net investment income and accumulated net
realized gain, respectively, to paid in capital in excess of par. Net investment
income, net realized gains, and net assets were not affected by this change.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION: (UNAUDITED)
For the year ended June 30, 1994, the percentage of dividends that qualify for
the 70% dividend received deduction for corporate shareholders for Global Equity
Allocation Fund and American Value Fund are 27.11% and 83.15%, respectively.
Global Equity Allocation Fund has designated approximately $336,000 as long-term
capital gain for the fiscal year ended June 30, 1994. Foreign taxes accrued
during the fiscal year ended June 30, 1994 amounting to $97,000 and $16,000 for
Global Equity Allocation Fund and Global Fixed Income Fund, respectively, are
expected to be passed through to shareholders as foreign tax credits on Form
1099-DIV for the year ending December 31, 1994, which shareholders of the funds
will receive in late January 1995.
72
<PAGE>
MORGAN STANLEY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund and Worldwide
High Income Fund (constituting the Morgan Stanley Fund, Inc., hereafter referred
to as the "Fund") at June 30, 1994, and the results of each of their operations,
the changes in each of their net assets and the financial highlights for each of
the Funds for each of the respective periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1994 by
correspondence with the custodians and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 19, 1994
73
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.8%)
AUSTRALIA (6.6%)
30,535 Amcor Ltd. ................... $ 221
13,486 Ampol Exploration Ltd. ....... 36
24,969 Australian National Industries
Ltd. ....................... 28
57,011 Boral Ltd. ................... 150
10,500 Brambles Industries .......... 100
71,936 Broken Hill Proprietary
Ltd. ....................... 1,092
25,138 Burns, Phillip & Co. Ltd. .... 60
15,292 Coca Cola Amatil Ltd. ........ 97
68,055 Coles Myer Ltd. .............. 231
26,100 CRA Ltd. ..................... 360
44,940 CSR Ltd. ..................... 155
147,300 Fosters Brewing Corp. ........ 128
32,508 General Property Trust ....... 57
61,803 Goodman Fielder Ltd. ......... 55
16,800 ICI Australia Ltd. ........... 141
10,416 Lend Lease Corp. Ltd. ........ 129
61,100 MIM Holdings Ltd. ............ 102
59,580 National Australia Bank
Ltd. ....................... 478
12,400 Newcrest Mining Ltd. ......... 55
76,286 News Corp. Ltd. .............. 299
33,302 North Broken Hill Peko
Ltd. ....................... 88
50,248 Pacific Dunlop Ltd. .......... 134
43,200 Pioneer International Ltd. ... 107
14,600 Renison Goldfields
Consolidated Ltd. .......... 56
37,814 Santos Ltd. .................. 102
29,402 Southcorp Holdings Ltd. ...... 66
+18,100 TNT Ltd. ..................... 31
42,250 Western Mining Corp. ......... 245
1,572 Westfield Trust (New)......... 3
85,431 Westpac Banking Corp. ........ 288
-------
5,094
-------
BELGIUM (5.1%)
2,800 AG Fin ....................... 237
190 Beksert SA ................... 135
325 CBR .......................... 124
4,300 Delhaize Freres et Cie 'Le
Lion' S.A. ................. 175
3,800 Electrabel ................... 676
700 Electrabel, Series 1 ......... 125
1,250 Generale de Banque ........... 318
37 Generale de Banque (New) ..... 9
2,100 Gevaert Photo-Production
NV ......................... 99
456 Glaverbel S.A. ............... 61
1,950 Groupe Bruxelles Lambert ..... 230
1,150 Kredietbank .................. 241
1,900 Petrofina S.A. ............... 562
1,050 Reunies Electrobel & Tractebel
SA ......................... 317
1,100 Royale Belge ................. 173
700 Solvay et Cie ................ 333
+2,100 Union Miniere S.A. ........... 163
-------
3,978
-------
CANADA (4.9%)
5,600 Alcan Aluminum Ltd. .......... 142
9,712 American Barrick Resources
Corp. ...................... 217
6,300 Bank of Montreal ............. 117
5,900 Bank of Nova Scotia .......... 112
8,100 BCE, Inc. .................... 261
4,100 Bombardier, Inc. 'B' ......... 73
2,600 Brascan Ltd. 'A' ............. 38
5,600 Canadian Imperial Bank of
Commerce ................... 135
2,200 Canadian Occidental Petroleum
Ltd. ....................... 50
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
9,600 Canadian Pacific Ltd. ........ $ 143
2,700 Canadian Tire Corp. 'A' ...... 24
2,800 Cominco Ltd. ................. 50
1,500 Cott Corp. ................... 15
2,800 Dofasco, Inc. ................ 38
1,200 Dupont Canada 'A' ............ 16
3,200 Echo Bay Mines, Ltd. ......... 35
2,000 George Weston Ltd. ........... 60
+5,200 Gulf Canada Resource Ltd. .... 16
3,800 Imasco Ltd. .................. 108
6,000 Imperial Oil Ltd. ............ 198
2,600 Inco Ltd. .................... 74
1,100 Interprovincial Pipeline
ADR ........................ 22
5,600 Laidlaw Inc. 'B' ............. 45
5,200 MacMillan Bloedel Ltd. ....... 65
1,200 Magna International 'A' ...... 46
3,600 Moore Corp. .................. 69
+2,200 Newbridge Networks Corp. ..... 85
5,200 Noranda, Inc. ................ 98
2,400 Norcen Energy Resources
Ltd. ....................... 28
6,500 Northern Telecom Ltd. ........ 217
13,800 Nova Corp. of Alberta ........ 128
5,800 Placer Dome, Inc. ............ 126
1,100 Potash Corp. of Saskatchewan,
Inc. ....................... 37
4,000 Ranger Oil Ltd. .............. 24
+2,300 Renaissance Energy Ltd. ...... 44
+4,200 Rogers Communications 'B' .... 56
7,700 Royal Bank of Canada ......... 154
10,500 Seagram Co. Ltd. ............. 314
+1,600 Talisman Energy, Inc. ........ 27
2,400 Teck Corp. 'B' ............... 43
16,400 Thomson Corp. ................ 202
6,300 Transcanada Pipeline Ltd. .... 77
-------
3,829
-------
FRANCE (8.8%)
750 Accor S.A. ................... 81
4,200 Alcatel Alsthom .............. 359
4,400 AXA S.A. ..................... 204
5,200 Banque Nationale de Paris .... 239
230 BIC Corp. .................... 29
770 Bouygues ..................... 74
2,150 B.S.N. S.A. .................. 302
750 Carrefour Supermarch S.A. .... 311
150 Chargeurs .................... 33
3,100 Cie de Financiere de Paribas
'A' ........................ 206
2,300 Cie de Saint Gobain .......... 265
4,500 Cie de Suez .................. 207
3,100 Cie Generale des Eaux ........ 301
650 Compagnie Bancaire S.A. ...... 63
7,000 Elf Aquitaine ................ 493
2,300 Elf Sanofi S.A. .............. 106
900 Eridania Beghin-Say S.A. ..... 118
2,200 Estabissments Economiques du
Casino Guichard
Perrachon .................. 62
130 Eurofrance ................... 40
1,550 Havas S.A. ................... 121
2,528 Lafarge Coppee S.A. .......... 180
2,000 L'Air Liquide ................ 268
90 Legrand ...................... 109
1,750 L'Oreal ...................... 357
2,150 LVMH Moet Hennessy Louis
Vuitton .................... 340
1,905 Lyonnaise des Eaux Demez ..... 167
3,100 Michelin (C.G.D.E.) 'B' ...... 113
</TABLE>
74 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<S> <C>
FRANCE (CONT.)
1,450 Pernod-Ricard ................ $ 85
504 Pinault S.A. ................. 90
550 Promodes ..................... 102
1,400 PSA Peugeot Citroen S.A. ..... 192
7,000 Rhone Poulenc S.A. ........... 162
150 Sagem ........................ 75
1,500 Schneider S.A. ............... 99
750 SIMCO ........................ 65
2,400 Societe Generale ............. 252
300 St. Louis .................... 77
4,000 Thomson CSF S.A. ............. 120
5,800 Total Francaise Petrol S.A.
'B' ........................ 337
-------
6,804
-------
HONG KONG (2.8%)
10,000 Applied International Holdings
Ltd. ....................... 1
12,890 Bank of East Asia ............ 52
51,000 Cathay Pacific Airways
Ltd. ....................... 74
36,000 Cheung Kong Holdings Ltd. .... 147
34,500 China Light and Power Co.
Ltd. ....................... 147
26,000 Chinese Estate Holdings
Ltd. ....................... 21
13,000 Dickson Concepts
International .............. 8
21,000 Hang Lung Development
Corp. ...................... 30
31,870 Hang Seng Bank Ltd. .......... 229
3,200 Hong Kong Aircraft
Engineering ................ 11
31,520 Hong Kong & China Gas Co. .... 51
21,000 Hong Kong & Shanghai Hotel ... 24
182,800 Hong Kong Telecommunications
Ltd. ....................... 348
71,261 Hopewell Holdings Ltd. ....... 59
59,000 Hutchison Whampoa Ltd. ....... 239
15,000 Hysan Development Co. ........ 30
6,000 Johnson Electric ............. 14
10,000 Miramar Hotel ................ 22
25,191 New World Development Co.
Ltd. ....................... 67
18,300 Shangri-La Asia Ltd. ......... 26
26,000 Shun Tak Holdings Ltd. ....... 18
29,000 South China Morning Post ..... 17
18,000 Stelux Holdings Ltd. ......... 5
38,100 Sun Hung Kai Properties
Ltd. ....................... 227
26,500 Swire Pacific Ltd. 'A' ....... 165
7,000 Television Broadcasting
Ltd. ....................... 28
36,000 Wharf Holdings Ltd. .......... 121
2,600 Wing Lung Bank ............... 19
-------
2,200
-------
ITALY (6.2%)
+30,000 Alitalia ..................... 19
39,475 Assicurazioni Generali SPA ... 929
90,000 Banca Commerciale Italiana ... 193
16,500 Banca Nazionale
Dell'Agricoltura SPA ....... 30
30,000 Banco Ambrosiano Veneto ...... 79
10,000 Benetton Group SPA ........... 117
+5,000 Burgo Cartiere SPA ........... 33
+9,000 Cogefar Italian .............. 9
114,000 Credit Italiano .............. 118
34,000 Edison SPA ................... 149
+3,000 Falck Italian ................ 7
125,000 Fiat SPA ..................... 464
38,000 Fiat SPA Risp ................ 85
13,000 Fidis Italian ................ 28
12,500 Gilardini Industrial SPA ..... 30
37,000 Istituto Bancario San Paolo di
Torina SPA ................. 217
4,500 Italcementi Fabbriche Riunit
SPA ........................ 16
10,250 Italcementi Risp ............. 72
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
37,000 Italgas ...................... $ 102
24,800 Mediobanca ................... 202
+265,000 Montedison SPA ............... 200
+45,000 Montedison SPA NCS ........... 29
+62,500 Olivetti Group ............... 79
64,000 Parmalat Finanziaria SPA ..... 67
+80,000 Pirelli SPA .................. 106
7,565 Rinascente ................... 42
900 Risanamento Di Napoli ........ 13
13,660 Riunione Adriatica di
Sicurti .................... 139
5,190 Riunione Adriatica di Sicurti
Risp NCS ................... 31
3,000 SAFFA ........................ 9
+22,500 Saipan ....................... 41
5,000 SASIB ........................ 25
272,200 SIP .......................... 709
80,000 SIP Risp NCS ................. 160
12,000 Sirti SPA .................... 78
20,000 SME Meridonale Finance ....... 49
+30,000 Snia BPO SPA ................. 34
6,500 Societe Assicuratrice
Industriale SPA ............ 73
-------
4,783
-------
JAPAN (21.2%)
11,000 Ajinomoto Cos., Inc. ......... 141
5,000 Aoki Corp. ................... 22
1,000 Aoyama Trading Co. Ltd. ...... 23
22,000 Asahi Bank Ltd. .............. 256
6,000 Asahi Breweries .............. 66
16,000 Asahi Chemical Industries .... 123
16,000 Asahi Glass Co. .............. 198
17,000 Bank of Tokyo ................ 263
11,000 Bank of Yokohama ............. 93
4,000 Banyu Pharmacy ............... 41
5,000 Bridgestone Co. .............. 78
10,000 Canon, Inc. .................. 170
3,000 Casio Computer ............... 38
11,000 Chiba Bank ................... 100
2,000 Chiyoda Corp. ................ 27
5,000 Chugai Pharmaceutical Ltd. ... 53
6,000 Cosmo Oil .................... 45
25,000 Dai Ichi Kangyo Bank ......... 472
6,000 Daikin Industries Ltd. ....... 53
11,000 Dai Nippon Printing Co.,
Ltd. ....................... 188
+2,000 Daishowa Paper Manufacturing
Co., Ltd. .................. 14
5,000 Daiwa Housing Industries ..... 71
11,000 Daiwa Securities Co., Ltd. ... 159
4,000 EBARA ........................ 67
3,200 Fanuc Co. .................... 151
25,000 Fuji Bank .................... 552
5,000 Fuji Photo Film Ltd. ......... 116
18,000 Fujitsu ...................... 183
9,000 Furukawa Electric ............ 58
11,000 Hankyu Corp. ................. 64
6,000 Hazama-Gumi .................. 26
33,000 Hitachi ...................... 328
9,000 Honda Motor Co. .............. 160
19,000 Industrial Bank of Japan ..... 563
4,000 Ito Yokado Ltd. .............. 214
22,000 Japan Air Lines Co. .......... 155
14,000 Japan Energy Corp. ........... 55
5,000 Jusco Ltd. ................... 111
11,000 Kajima Corp. ................. 94
3,800 Kansai Electric Power ........ 92
11,000 KAO Corp. .................... 125
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<S> <C> <C>
JAPAN (CONT.)
28,000 Kawasaki Steel Corp. ......... $ 117
16,000 Kinki Nippon Railway ......... 132
11,000 Kirin Brewery Co. ............ 123
33,000 Kobe Steel Ltd. .............. 103
11,000 Komatsu ...................... 99
16,000 Kubota Corp. ................. 115
11,000 Kumagai Gumi Co. ............. 57
6,000 Kyowa Hakko Kogyo ............ 59
16,000 Marubeni Corp. ............... 88
5,000 Marui Co. .................... 91
15,000 Matsushita Electric Industries
Ltd. ....................... 247
15,000 Mitsubishi Corp. ............. 197
20,000 Mitsubishi Electric .......... 142
16,000 Mitsubishi Estate Co. Ltd. ... 172
44,000 Mitsubishi Heavy
Industries ................. 336
16,000 Mitsubishi Kasel ............. 88
13,000 Mitsubishi Materials Corp. ... 69
11,000 Mitsubishi Trust and
Banking .................... 165
16,000 Mitsui & Co. ................. 137
11,000 Mitsukoshi ................... 116
1,000 Mochida Pharmaceutical ....... 20
3,000 Murata Manufacturing ......... 116
16,000 NEC Corp. .................... 183
6,000 NGK Insulators ............... 61
5,000 Nippon Denso Co., Ltd. ....... 105
11,000 Nippon Express ............... 110
6,000 Nippon Fire & Marine Insurance
Co. ........................ 42
5,000 Nippon Meat Packers .......... 66
16,000 Nippon Oil Co. ............... 107
11,000 Nippon Paper Industries
Co. ........................ 81
61,000 Nippon Steel Corp. ........... 230
16,000 Nippon Yusen ................. 105
22,000 Nissan Motors ................ 182
32,000 NKK Corp. .................... 89
17,000 Nomura Securities ............ 353
11,000 Obayashi Corp. ............... 71
11,000 Odakyu Electric Railway
Co. ........................ 81
11,000 Oji Paper Ltd. ............... 116
33,000 Osaka Gas Co. ................ 133
6,000 Penta-Ocean Construction ..... 33
2,000 Pioneer Electric Corp. ....... 48
28,000 Sakura Bank .................. 377
5,000 Sankyo Co. Ltd. .............. 124
16,000 Sanyo Electric Co. Ltd. ...... 92
1,000 Secom Co. .................... 62
1,300 Sega Enterprises ............. 75
6,000 Sekisui Chemical ............. 60
5,000 Sekisui House ................ 56
3,000 Seven-Eleven Japan ........... 241
11,000 Sharp Corp. .................. 199
5,000 Shin - Etau Chemical Co. ..... 99
8,000 Shinizu Corp. ................ 79
5,000 Shiseido Co. Ltd. ............ 59
11,000 Shizuoka Bank ................ 136
+11,000 Showa Denko .................. 38
3,000 Sony Corp. ................... 170
28,000 Sumitomo Bank ................ 534
22,000 Sumitomo Chemical Co. ........ 126
11,000 Sumitomo Corp. ............... 113
7,000 Sumitomo Electric
Industries ................. 100
2,000 Sumitomo Forestry ............ 32
38,000 Sumitomo Metal Industries .... 123
11,000 Taisei Corp. ................. 68
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
11,000 Takeda Chemical Industries ... $ 134
11,000 Teijin Ltd. .................. 58
11,000 Tobu Railway Co. ............. 64
17,000 Tokai Bank ................... 205
16,000 Tokio Marine & Fire
Industries ................. 196
3,000 Tokyo Dome Corp. ............. 55
12,100 Tokyo Electric Power ......... 338
2,000 Tokyo Electron Ltd. .......... 62
33,000 Tokyo Gas .................... 143
11,000 Tokyu Corp. .................. 73
8,000 Toppan Printing .............. 112
16,000 Toray Industries ............. 116
5,000 Toto Ltd. .................... 82
11,000 Toyoba Co. ................... 44
3,000 Toyoda Automatic Loom ........ 62
25,000 Toyota Motor Corp. ........... 527
+11,000 Ube Industries Ltd. .......... 43
11,000 Yamaichi Securities .......... 83
5,000 Yamanouchi Pharmaceuticals ... 103
3,000 Yamazaki Baking Co. .......... 60
11,000 Yasuda Trust & Banking ....... 88
-------
16,404
-------
NETHERLANDS (6.9%)
11,132 ABN-Amro Holdings N.V. ....... 387
5,151 Ahold N.V. ................... 159
2,000 Akzo N.V. .................... 231
26,000 Elsevier ..................... 271
1,600 Heineken N.V. ................ 241
850 Hoogovens N.V. ............... 39
10,348 Internationale Nederlanden
Groep N.V. ................. 489
+2,100 KLM Airlines ................. 52
2,600 Koninklijke KNP .............. 74
+850 Nedlloyd Groep N.V. .......... 28
12,000 Phillips Electronics N.V. .... 356
19,500 Royal Dutch Petroleum Co. .... 2,125
1,119 Stork N.V. ................... 29
5,900 Unilever N.V. ................ 693
2,282 Wolters Kluwer N.V. .......... 169
-------
5,343
-------
NEW ZEALAND (4.5%)
549,343 Brierly Investments Ltd. ..... 397
342,100 Carter Holt Harvey Ltd. ...... 701
9,800 Ceramco Corp. Ltd. ........... 21
22,126 Fisher & Paykel Industries ... 64
292,200 Fletcher Challenge Ltd. ...... 687
73,100 Fletcher Challenge Ltd.
(Forestry Shares) .......... 88
99,300 Lion Nathan Ltd. ............. 189
382,500 Telecom Corp. of New Zealand
Ltd. ....................... 1,249
19,900 Wilson & Horton Ltd. ......... 114
-------
3,510
-------
SPAIN (6.5%)
825 Acerinox S.A. ................ 86
1,400 Alba Finance S.A. ............ 59
8,300 Argentaria S.A. .............. 294
14,047 Autopistas Acesa ............. 108
16,200 Banco Bilbao Vizcaya ......... 402
10,500 Banco Central Hispano
Americano .................. 251
10,400 Banco de Santander ........... 398
700 Carburos Metalicos ........... 25
5,100 Dragados y Construccion
S.A. ....................... 72
3,850 Ebro Agricolas Compania de
Allmentacion ............... 43
</TABLE>
76 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<S> <C> <C>
SPAIN (CONT.)
17,700 Empresa Nacional de
Electricdad S.A. ........... $ 721
+7,000 Ercros S.A. .................. 7
1,100 Fabricacion de Automobiles
Renault de Espana S.A. ..... 37
1,050 Fomento Construccion ......... 103
2,600 Gas Natural SDG .............. 224
200 Gines Navarro Construction
Co. ........................ 3
60,500 Iberdrola S.A. ............... 373
250 Immobilaria Metro Politana
Vasco Central .............. 8
75 Mapfre Corporacion ........... 3
1,850 Mapfre S.A. .................. 77
750 Portland Valderrivas ......... 55
21,500 Repsol B.A. .................. 583
2,550 Tabacalera S.A. 'A' .......... 68
63,600 Telefonica de Espana S.A. .... 751
21,100 Union Electrica Fenosa ....... 88
+2,850 Uralita S.A. ................. 28
3,283 Vallehermosa S.A. ............ 57
2,000 Viscofan Envolturas
Celulosicas ................ 30
500 Zardoya Otis S.A. ............ 52
50 Zardoya Otis S.A. (New) ...... 5
-------
5,011
-------
UNITED KINGDOM (5.5%)
10,900 Abbey National plc ........... 74
8,154 Argyll Group plc ............. 34
7,650 Arjo Wiggins Appleton plc .... 28
3,100 Associated British Foods
plc ........................ 27
12,569 Barclays plc ................. 120
5,700 Bass plc ..................... 46
18,921 BAT Industries plc ........... 128
3,650 BICC plc ..................... 21
6,955 Blue Circle Industries plc ... 31
3,504 BOC Group plc ................ 39
6,700 Boots Co. plc ................ 53
4,600 BPB Industries plc ........... 21
22,600 BTR plc ...................... 104
3,050 Bowater plc .................. 21
2,987 British Aerospace plc ........ 20
6,250 British Airways plc .......... 35
30,500 British Gas plc .............. 150
36,768 British Petroleum Co. plc .... 245
18,500 British Steel plc ............ 45
38,300 British Telecommunications
plc ........................ 226
1,599 Burmah Castrol plc ........... 20
14,542 Cable & Wireless plc ......... 86
6,517 Cadbury Schweppes plc ........ 44
4,272 Caradon plc .................. 17
4,600 Coats Viyella plc ............ 14
2,831 Commercial Union plc ......... 23
2,650 Courtaulds plc ............... 19
1,930 De La Rue plc ................ 28
3,250 Eastern Electricity plc ...... 40
6,750 Forte plc .................... 25
3,750 General Accident plc ......... 30
20,450 General Electric Co. plc ..... 88
2,913 GKN plc ...................... 27
17,450 Glaxo Holdings plc ........... 181
14,872 Grand Metropolitan plc ....... 95
7,150 Great Universal Stores plc ... 61
8,831 Guardian Royal Exchange
plc ........................ 23
11,100 Guinness plc ................. 78
33,473 Hanson plc ................... 121
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
6,643 Harrisons & Crossfields
plc ........................ $ 14
13,163 HSBC Holdings plc ............ 143
4,600 Imperial Chemical Industries
plc ........................ 54
9,140 Ladbroke Group plc ........... 24
4,125 Land Securities plc .......... 39
+5,750 Lasmo plc .................... 13
8,514 Lloyds Bank plc .............. 74
8,933 Lonrho plc ................... 21
18,500 Marks & Spencer plc .......... 115
3,050 MEPC plc ..................... 18
8,200 National Power plc ........... 63
3,560 North West Water Group plc ... 30
5,550 Peninsular & Oriental Steam
Navigation Co. ............. 53
7,766 Pilkington plc ............... 20
15,933 Prudential Corp. plc ......... 79
7,125 Rank Organisation plc ........ 47
4,403 Redland plc .................. 32
5,050 Reed International plc ....... 63
11,600 Reuters Holdings plc ......... 85
1,700 RMC Group plc ................ 25
5,803 Royal Bank of Scotland Group
plc ........................ 36
4,845 Royal Insurance Holdings
plc ........................ 21
7,914 RTZ Corp. plc (Registered) ... 103
10,992 Sainsbury (J) plc ............ 71
4,800 Scottish Power plc ........... 26
9,950 Sears plc .................... 17
4,450 Sedgwick Group plc ........... 10
2,300 Slough Estates plc ........... 8
6,100 Smithkline Beecham plc 'A' ... 43
2,050 Southern Electricity plc ..... 26
7,385 Tarmac plc ................... 14
3,845 Taylor Woodrow plc ........... 8
10,472 Tesco plc .................... 41
3,771 Thames Water plc ............. 29
3,328 Thorn EMI plc ................ 54
2,677 TI Group plc ................. 16
6,922 Trafalgar House plc .......... 8
4,100 Unilever plc ................. 74
20,271 Vodafone Group plc ........... 67
4,600 Zeneca Group plc ............. 63
-------
4,235
-------
UNITED STATES (19.8%)
6,100 Abbott Laboratories .......... 199
1,700 Aluminum Co. of America ...... 147
3,500 American Express Co. ......... 103
2,400 American Home Products
Corp. ...................... 151
3,400 American International Group,
Inc. ....................... 333
1,700 American Medical Response
Corp ....................... 91
12,000 American Telephone & Telegraph
Co. ........................ 603
3,700 Amoco Co. .................... 219
1,300 Atlantic Richfield Co. ....... 132
1,700 Automatic Data Processing,
Inc. ....................... 99
3,400 Banc One Corp. ............... 86
3,400 BankAmerica Corp ............. 134
4,600 Bell Atlantic Corp. .......... 229
3,700 Bellsouth Corp. .............. 200
3,400 Boeing Co. ................... 159
4,200 Bristol-Myers Squibb Co. ..... 243
5,200 Campbell Soup Co. ............ 229
1,700 Caterpillar, Inc. ............ 94
2,300 Chevron Corp. ................ 103
2,800 Chrysler Corp. ............... 137
1,700 Chubb Corp. .................. 132
</TABLE>
The accompanying notes are an integral part of the financial statements.
77
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
+2,300 Cisco Systems Inc. ........... $ 81
3,400 Citicorp ..................... 141
8,400 Coca Cola Co. ................ 433
2,700 Columbia/HCA Healthcare
Corp. ...................... 99
1,700 Computer Associates
International, Inc. ........ 82
3,400 Consolidated Edison Co. of New
York, Inc. ................. 88
1,700 Cooper Industries Inc. ....... 58
1,700 Corning Inc. ................. 51
1,700 CSX Corp. .................... 118
900 Deere & Co. .................. 60
2,200 Dow Chemical Co. ............. 148
3,400 Duke Power Co. ............... 130
5,100 DuPont (EI) de Nemours Co. ... 287
3,400 Eastman Kodak Co. ............ 162
2,300 Enron Corp. .................. 70
8,500 Exxon Corp. .................. 516
3,400 Federal National Mortgage
Association ................ 248
3,400 FPL Group, Inc. .............. 119
1,700 Gannett Co., Inc. ............ 91
11,000 General Electric Co. ......... 561
5,500 General Motors Corp. ......... 232
1,700 General Motors Corp., 'E' .... 65
1,500 General RE Corp. ............. 186
1,700 Goodyear Tire & Rubber Co. ... 57
5,200 Heinz H.J. Co. ............... 191
3,400 Hewlett Packard .............. 340
3,400 Home Depot, Inc. ............. 156
1,700 Intel Corp. .................. 108
3,900 International Business
Machines Corp. ............. 287
1,700 International Paper Co. ...... 128
1,700 ITT Corp. .................... 151
2,000 J.C. Penney, Co, Inc. ........ 89
2,800 Johnson & Johnson ............ 153
5,200 K-Mart Corp. ................. 68
2,500 Lilly, Eli & Co. ............. 164
1,700 May Department Stores Co. .... 57
3,400 McDonalds Corp. .............. 99
1,700 Melville Corp. ............... 52
8,500 Merck & Co., Inc. ............ 324
+3,900 Microsoft Corp. .............. 238
3,400 Minnesota Mining &
Manufacturing Co. .......... 181
3,000 Mobil Corp. .................. 253
1,100 Monsanto ..................... 78
1,700 Morgan (J.P.) & Co., Inc. .... 95
4,200 Motorola, Inc. ............... 243
3,400 NationsBank Corp. ............ 153
1,700 Norfolk Southern Corp. ....... 103
3,700 Norwest Corp. ................ 86
+2,700 Novell, Inc. ................. 46
+1,700 Oracle System Corp. .......... 75
5,200 Pacific Gas & Electric Co. ... 127
6,900 Pepsico, Inc. ................ 250
1,800 Pfizer, Inc. ................. 139
5,900 Philip Morris Cos., Inc. ..... 339
1,100 PPG Industries, Inc. ......... 41
5,100 Procter & Gamble Co. ......... 316
5,200 Public Service Enterprise
Group, Inc. ................ 138
3,400 Rockwell International
Corp. ...................... 122
1,800 SCE Corp. .................... 26
3,000 Sears, Roebuck & Co. ......... 138
5,200 Southern Co. ................. 104
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------
<C> <S> <C>
3,400 Southwestern Bell Corp. ...... $ 137
1,700 Suntrust Banks, Inc. ......... 81
3,400 Texas Utilities Co. .......... 109
1,700 The Dun & Bradstreet Corp. ... 94
3,400 The Limited, Inc. ............ 62
5,200 Time Warner, Inc. ............ 183
+3,400 Toys 'R' Us, Inc. ............ 104
2,400 Travelers, Inc. .............. 78
850 U.S. Healthcare, Inc. ........ 35
1,950 Viacom Inc. 'B' .............. 79
10,300 Wal-Mart Stores, Inc. ........ 219
5,200 Walt Disney Co. .............. 240
500 Wells Fargo & Co. ............ 73
5,200 Westinghouse Electric
Corp. ...................... 64
3,400 Weyerhaeuser Co. ............. 128
3,200 WMX Technologies, Inc. ....... 84
-------
15,334
-------
TOTAL COMMON STOCKS
(COST $74,257)......................... 76,525
-------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
38,143 News Corp Ltd. ............... 132
-------
ITALY (0.1%)
48,000 Fiat SPA ..................... 110
-------
NETHERLANDS (0.0%)
+156 Koninklijke KNP .............. 1
-------
TOTAL PREFERRED STOCKS
(COST $256)............................ 243
-------
RIGHTS (0.1%)
SPAIN (0.1%)
*+10,400 Banco de Santander (COST
$119) ...................... 112
-------
UNITS (0.1%)
AUSTRALIA (0.1%)
+35,000 Westfield Trust .............. 61
-------
UNITED KINGDOM (0.0%)
+6,700 Smithkline Beecham plc (1 'B'
share common plus 1
preferred share) ........... 44
-------
TOTAL UNITS
(COST $103)............................ 105
-------
WARRANTS (0.0%)
BELGIUM (0.0%)
*+61 Petrofina, expiring 6/3/97 ... 1
-------
CANADA (0.0%)
+121 Trizec Corp., expiring
7/25/99 .................... --
-------
HONG KONG (0.0%)
*+2,000 Applied International
Holdings, expiring
12/30/99 ................... --
-------
ITALY (0.0%)
*+7,000 Credit Italiano, expiring
12/31/97 ................... --
*+1,300 RAS SPA, expiring 12/31/97 ... --
-------
TOTAL WARRANTS
(COST $4).............................. 1
-------
TOTAL FOREIGN & U.S. EQUITY SECURITIES
(99.3%)
(COST $74,739)......................... 76,986
-------
</TABLE>
78 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.3%)
UNITED STATES
REPURCHASE AGREEMENT
$1,755 U.S. Trust, 5.50%, dated 12/30/94, due
1/3/95, to be repurchased at $1,756,
collateralized by $1,825 U.S. Treasury
Note 3.875%, due 3/31/95, valued at
$1,818 (COST $1,755).................. $ 1,755
---------
TOTAL INVESTMENT IN SECURITIES (COST $76,494)...... 78,741
---------
FOREIGN CURRENCY (1.2%)
A$ 68 Australian Dollar....................... 53
BF 2,493 Belgian Franc........................... 78
L 63 British Pound........................... 99
C$ 157 Canadian Dollar......................... 112
FF 40 French Franc............................ 8
HK$ 408 Hong Kong Dollar........................ 53
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------
<C> <S> <C>
IL 4,588 Italian Lira............................ $ 3
Y 10,355 Japanese Yen............................ 104
NG 216 Netherlands Guilder..................... 124
NZ$ 259 New Zealand Dollar...................... 166
S$ 1 Singapore Dollar........................ 1
SP 14,115 Spanish Peseta.......................... 107
---------
TOTAL FOREIGN CURRENCY (COST $896)................. 908
---------
TOTAL INVESTMENTS (102.8%) (COST $77,390).......... 79,649
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.8%)...... (2,166)
---------
NET ASSETS (100%).................................. $77,483
---------
---------
<FN>
- ---------------
+ -- Non-income producing securities
* -- Fair valued securities -- See Note A-1
ADR -- American Depositary Receipt
NCS -- Non-Convertible Shares
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY
TO DELIVER VALUE SETTLEMENT IN EXCHANGE VALUE NET UNREALIZED
(000) (000) DATE FOR (000) (000) GAIN (LOSS) (000)
- ----------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 7 $ 7 1/3/95 IL 11,492 $ 7 $ --
$ 3 3 1/4/95 IL 4,755 3 --
$ 2,470 2,470 1/31/95 IL 4,084,506 2,515 45
Y 944,888 9,637 4/28/95 $ 9,400 9,400 (237)
FF 11,241 2,101 4/28/95 $ 2,100 2,100 (1)
SP 631,600 4,765 4/28/95 $ 5,000 5,000 235
--------- --------- ---
$ 18,983 $ 19,025 $ 42
--------- --------- ---
--------- --------- ---
<FN>
FF -- French Franc
Y -- Japanese Yen
IL -- Italian Lira
SP -- Spanish Peseta
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Finance.................................................................. $ 16,938 21.9%
Services................................................................. 14,072 18.2
Energy................................................................... 12,591 16.2
Consumer Goods........................................................... 12,087 15.6
Materials................................................................ 9,912 12.8
Capital Equipment........................................................ 8,149 10.5
Multi-Industry........................................................... 2,751 3.5
Mining................................................................... 486 0.6
--------- -----------
$ 76,986 99.3%
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
79
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (83.3%)
AUSTRALIAN DOLLAR (2.6%)
GOVERNMENT BOND
A$ 500 Government of Australia
10.00%, 10/15/02............ $ 387
-------
BRITISH POUND (3.1%)
GOVERNMENT BOND
L 300 United Kingdom 8.00%,
6/10/03..................... 448
-------
CANADIAN DOLLAR (10.9%)
EUROBONDS
C$ 900 British Columbia Province
7.75%, 6/16/03.............. 583
750 Kingdom of Norway 8.375%,
1/27/03..................... 500
800 The Export-Import Bank of
Japan 7.75%, 10/8/02........ 517
-------
1,600
-------
DANISH KRONE (6.5%)
GOVERNMENT BOND
DK 6,750 Kingdom of Denmark 7.00%,
12/15/04.................... 962
-------
DEUTSCHE MARK (13.3%)
EUROBONDS
DM 1,200 LKB Baden-Wurttemberg 6.50%,
9/15/08..................... 674
1,000 Republic of Austria 6.50%,
1/10/24..................... 529
450 Treuhandanstalt 6.75%,
5/13/04..................... 273
-------
1,476
-------
GOVERNMENT BOND
900 Bundesrepublik 6.25%,
1/4/24...................... 469
-------
1,945
-------
FINNISH MARKKA (1.4%)
GOVERNMENT BOND
FM 1,000 Republic of Finland 9.50%,
3/15/04..................... 206
-------
FRENCH FRANC (5.5%)
GOVERNMENT BONDS
FF 2,600 Government of France O.A.T.
8.50%, 12/26/12............. 489
2,400 Government of France O.A.T.
6.00%, 10/25/25............. 323
-------
812
-------
ITALIAN LIRA (3.7%)
GOVERNMENT BOND
IL 1,000,000 Republic of Italy 8.50%,
8/1/99...................... 543
-------
JAPANESE YEN (5.2%)
EUROBOND
Y 70,000 KFW International Finance
6.00%, 11/29/99............. 760
-------
NETHERLANDS GUILDER (6.3%)
GOVERNMENT BOND
NG 1,700 Government of Netherlands
7.50%, 1/15/23.............. 922
-------
NEW ZEALAND DOLLAR (3.2%)
GOVERNMENT BOND
NZ$ 750 Government of New Zealand
8.00%, 4/15/04.............. 466
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------
<C> <S> <C>
SPANISH PESETA (3.4%)
GOVERNMENT BOND
SP 70,000 Government of Spain 10.90%,
8/30/03..................... $ 505
-------
UNITED STATES DOLLAR (18.2%)
EUROBOND
$ 400 Republic of Italy 6.875%,
9/27/23..................... 314
-------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
618 Pools, 7.00%,
12/15/22-8/15/23............ 554
350 TBA ARM's 7.00%-7.50%,
1/15/25..................... 346
-------
900
-------
U.S. TREASURY BONDS
200 8.125%, 8/15/19............... 203
20 8.00%, 11/15/21............... 20
-------
223
-------
U.S. TREASURY STRIPS
/\ 400 2/15/98, Principal Only....... 315
/\ 450 5/15/03, Principal Only....... 235
-------
550
-------
U.S. TREASURY NOTES
475 7.875%, 2/15/96............... 477
200 8.625%, 8/15/97............... 204
-------
681
-------
2,354
-------
2,668
-------
TOTAL FIXED INCOME SECURITIES (COST
$12,720)............................... 12,224
-------
SHORT-TERM INVESTMENTS (13.9%)
BRITISH POUND (2.4%)
TIME DEPOSIT
L 226 Bank of Austria 5.25%,
1/3/95...................... 354
-------
DEUTSCHE MARK (3.5%)
TIME DEPOSIT
DM 800 Bank of Austria 5.125%,
1/6/95...................... 517
-------
UNITED STATES DOLLAR (8.0%)
REPURCHASE AGREEMENT
$ 926 U.S. Trust, 5.50%, dated
12/30/94, due 1/3/95, to be
repurchased at $927,
collateralized by $930
Government National Mortgage
Association Obligations with
various rates and maturity
dates, valued at $961....... 926
-------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS
250 United States Treasury Bill,
1/19/95..................... 249
-------
TOTAL SHORT-TERM INVESTMENTS (COST
$2,041)................................ 2,046
-------
TOTAL INVESTMENTS (97.2%) (COST
$14,761)............................... 14,270
OTHER ASSETS IN EXCESS OF LIABILITIES
(2.8%)................................. 408
-------
NET ASSETS (100%)...................... $14,678
-------
-------
<FN>
- ---------------
ARM's -- Adjustable Rate Mortgages
/\ -- Stripped securities represent the splitting of
cash flows into several classes which vary by the
proportion of principal and interest paid. Holders
are entitled to the portion of the payments on the
certificate representing interest only or
principal only.
</TABLE>
80 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars or foreign currency as indicated below:
<TABLE>
<CAPTION>
CURRENCY
TO DELIVER VALUE SETTLEMENT IN EXCHANGE FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN(LOSS) (000)
- ----------- --------- ----------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
NG 1,800 $ 1,039 1/13/95 $ 1,041 $ 1,041 $ 2
DM 1,200 776 2/17/95 $ 765 765 (11)
SP 30,000 227 2/21/95 IL 370,245 228 1
DK 4,000 658 3/7/95 $ 649 649 (9)
A$ 505 390 3/20/95 NZ$ 613 389 (1)
SP 35,000 263 6/1/95 $ 264 264 1
DM 1,000 650 6/6/95 $ 638 638 (12)
--------- --------- ---
$ 4,003 $ 3,974 $ (29)
--------- --------- ---
--------- --------- ---
<FN>
A$ -- Australian Dollar
DK -- Danish Krone
DM -- Deutsche Mark
IL -- Italian Lira
NG -- Netherlands Guilder
NZ$ -- New Zealand Dollar
SP -- Spanish Peseta
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 81
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.3%)
AUSTRALIA (0.0%)
79,500 Odin Mining & Investment Co.,
Ltd. ............................. $ 23
---------
CHINA (1.6%)
114,000 China International Marine Container
Ltd. ............................. 116
396,000 China Merchants Shokou Port Services
'B' .............................. 218
4,211,000 Maanshan Iron & Steel Co. Ltd. ..... 887
568,100 Shanghai Diesel Engine Co. Ltd.
'B' .............................. 454
315,000 Shanghai Erfanji Co., Ltd. 'B' ..... 63
500,000 Shanghai Industrial Sewing Machine
Co. Ltd. 'B' ..................... 200
215,670 Shanghai Jin Jiang Tower 'B' ....... 112
709,800 Shanghai Jinqiao Export 'B' ........ 497
1,000,000 Shanghai Marcissus Electric ........ 228
8,800 Shanghai Petrochemical Co. ADR ..... 253
608,000 Shanghai Phoenix Bicycle 'B' ....... 313
170,000 Shanghai Refrigerator Compressor
Co., Ltd. 'B' .................... 59
250,000 Shanghai Shangling Electric
Appliances Co. Ltd. 'B' .......... 215
335,500 Shanghai Tire & Rubber 'B' ......... 127
75,000 Shanghai Yaohua Pilkington Glass
'B' .............................. 73
81,400 Shenzhen Chiwan Wharf Holdings
'B' .............................. 32
1,920,000 Yizheng Chemical Fibre Co. 'H' ..... 713
---------
4,560
---------
HONG KONG (22.9%)
3,070,000 Charoen Pokphand Co. Ltd. .......... 718
1,915,000 Cheung Kong Holdings Ltd. .......... 7,796
593,000 China Light & Power Co. Ltd. ....... 2,529
1,837,000 Citic Pacific Ltd. ................. 4,428
10,446,000 Guangdong Investments Ltd. ......... 5,164
2,130,000 Harbin Power Equipment Co. ......... 716
861,000 Hong Kong Electric Holdings ........ 2,353
612,400 Hong Kong & Shanghai Bank .......... 6,609
5,491,800 Hong Kong Telecommunications
Ltd. ............................. 10,469
1,518,000 Hopewell Holdings .................. 1,255
1,928,000 Hutchison Whampoa Ltd. ............. 7,799
1,495,000 New World Development Co. Ltd. ..... 3,990
430,000 Peregrine Investment Holdings ...... 506
59,000 Shandong Huaneng Power Co. Ltd. .... 568
300,000 Sum Cheong International ........... 167
601,100 Sun Hung Kai Properties Ltd. ....... 3,589
625,300 Swire Pacific Ltd. 'A' ............. 3,895
552,000 Varitronix International Ltd. ...... 785
685,000 Wharf Holdings Ltd. ................ 2,311
---------
65,647
---------
INDIA (1.1%)
38,000 Grasim Industries Ltd. GDR ......... 912
49,000 Hindalco Industries Ltd. ........... 1,654
34,000 SIV Industries GDR ................. 612
---------
3,178
---------
INDONESIA (7.0%)
404,000 Bank International Indonesia
(Foreign)......................... 1,287
770,000 Barito Pacific Timber (Foreign) .... 1,217
297,000 Charoen Pokphand (Foreign) ......... 1,216
375,000 Duta Pertiwi (Foreign) ............. 542
262,000 Indocement Tunggal (Foreign) ....... 1,073
763,500 Indosat (Foreign) .................. 2,735
288,000 Jembo Cable Co. (Foreign) .......... 459
393,000 Kalbe Farma (Foreign) .............. 1,618
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------
378,500 Kermika Indonesia Association
(Foreign) ........................ $ 491
626,500 Modern Photo Film Co. (Foreign) .... 2,651
500,000 Ometraco (Foreign) ................. 785
300,000 PT Asiana Industries (Foreign) ..... 287
481,200 Sona Topas Tourism Industry
(Foreign)......................... 1,554
224,500 Sorini Corp. (Foreign) ............. 919
16,000 Sumalindo Lestari Jaya (Foreign) ... 34
88,000 Tempo Scan Pacific (Foreign) ....... 422
*1,375,000 Ultra Jaya Milk IDR (Foreign) ...... 1,301
679,000 United Tractors (Foreign) .......... 1,452
---------
20,043
---------
KOREA (2.9%)
78,000 Hyundai Engineering & Construction
Co. .............................. 3,907
40,000 Korea Electric Power ............... 1,380
69,600 Pohang Iron & Steel Ltd. ........... 2,036
20,828 Samsung Electronics Co. GDS ........ 1,021
---------
8,344
---------
MALAYSIA (21.5%)
776,000 Bandar Raya Developments ........... 1,313
772,000 Genting Bhd. ....................... 6,621
520,000 Granite Industries Bhd. ............ 1,100
10,000 Kim Hin Industries Bhd. ............ 50
618,000 Land & General Holdings Bhd. ....... 2,565
620,000 Magnum Corp., Bhd. ................. 1,112
1,648,500 Malayan Banking Bhd. ............... 9,942
788,000 Malaysian International Shipping
(Foreign) ........................ 2,253
1,317,000 Malaysian Resources Corp. Bhd. ..... 2,434
719,000 Mulpha International Bhd. .......... 918
970,000 Renong Bhd. ........................ 1,200
1,010,000 Resorts World Bhd. ................. 5,933
650,000 Sime Darby Bhd. .................... 1,489
1,158,000 Tanjong plc ........................ 3,447
840,000 Tan & Tan Development .............. 1,125
363,000 Technology Resources Industries .... 1,159
1,171,000 Telekom Malaysia Bhd. .............. 7,934
1,294,000 Tenaga Nasional Bhd. ............... 5,118
460,000 Time Engineering Bhd. .............. 1,144
944,000 United Engineers Bhd. .............. 4,658
---------
61,515
---------
PAKISTAN (0.3%)
7,200 Pakistan Telecommunications ........ 976
---------
PHILIPPINES (5.5%)
1,601,000 Aboitiz Equity Ventures ............ 374
594,000 Ayala Corp. 'B' .................... 974
974,500 Ayala Land Inc. 'B' ................ 1,517
289,440 Benpres Holdings Corp. IDR ......... 2,677
2,383,000 JG Summit Holding 'B'............... 879
125,310 Manila Electric 'B'................. 1,720
2,504,800 Petron Corp. ....................... 2,207
15,500 Philippines Long Distance Telephone
Co. 'B' .......................... 864
9,800 Philippines Long Distance Telephone
Co. ADR .......................... 540
59,678 Philippine National Bank 'B' ....... 844
222,600 San Miguel Corp. 'B' ............... 1,168
3,311,000 SM Prime Holdings, Inc. ............ 1,086
1,200,000 Universal Robina.................... 861
---------
15,711
---------
</TABLE>
82 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------
<C> <S> <C>
SINGAPORE (16.2%)
110,000 Acma Ltd. .......................... $ 361
260,000 British-American Tobacco ........... 1,231
846,800 City Development Ltd. .............. 4,735
470,000 DBS Land Ltd. ...................... 1,400
566,500 Development Bank of Singapore
(Foreign) ........................ 5,830
237,000 Fraser and Neave ................... 2,456
1,125,000 IPC Corp. .......................... 768
310,000 Jurong Cement ...................... 983
87,500 Jurong Engineering Ltd. ............ 601
728,000 Keppel Corp. ....................... 6,194
696,666 Oversea - Chinese Banking Corp.
(Foreign) ........................ 7,170
195,000 Overseas Union Bank Ltd. ........... 1,137
120,000 Resources Development Corp. Ltd. ... 473
241,000 Sembawang Corp. Ltd. ............... 1,802
115,000 Singapore Airlines Ltd.
(Foreign) ........................ 1,057
177,000 Singapore Press Holdings
(Foreign) ........................ 3,218
1,964,000 Singapore Technologies Industrial
Corp. ............................ 2,358
400,000 Straits Steamship Land Ltd. ........ 1,372
561,000 Straits Trading Co. Ltd. ........... 1,339
175,000 United Overseas Bank Ltd. .......... 1,849
---------
46,334
---------
TAIWAN (0.8%)
171,000 Hocheng Group Corp. ................ 823
265,000 Taiwan Semiconductor Co. ........... 1,572
---------
2,395
---------
THAILAND (14.5%)
67,100 Advanced Information Services Co.
Ltd. (Foreign) ................... 930
811,100 Bangkok Bank Co. Ltd. .............. 6,656
167,300 Bangkok Bank Co. Ltd. (Foreign) .... 1,786
16,300 Banpu Coal ......................... 357
144,300 Charoen Pokphand Feedmill Co.
Ltd............................... 902
13,800 Charoen Popkhand Feedmill Co. Ltd.
(Foreign) ........................ 93
276,348 Finance One Co. Ltd. (Foreign) ..... 4,293
239,400 International Engineering Co.
Ltd. ............................. 2,098
69,400 Land & House Co., Ltd. (Foreign) ... 1,238
246,800 MDX Co., Ltd. ...................... 683
31,200 National Finance & Securities Co.
Ltd. (Foreign) ................... 170
201,600 Phatra Thanakit Ltd. ............... 1,558
96,000 Shinawatra Computer Co. Ltd.
(Foreign) ........................ 2,096
44,200 Siam Cement Co. Ltd. ............... 2,521
25,000 Siam Cement Co. Ltd. (Foreign) ..... 1,498
109,000 Siam Commercial Bank Co. Ltd. ...... 886
126,700 Siam Commercial Bank Co. Ltd.
(Foreign) ........................ 1,161
211,200 Somprasong Land (Foreign) .......... 812
500,000 Telecomasia Co. Ltd. (Foreign) ..... 1,922
962,400 Thai Farmer's Bank Ltd. ............ 6,632
70,000 Thai Farmer's Bank Ltd.
(Foreign) ........................ 569
600,000 Thailand Petro Chemical ............ 1,314
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------
<C> <S> <C>
46,000 United Communications .............. $ 641
403,000 Wongpaitoon Footwear Co. Ltd.
(Foreign) ........................ 907
---------
41,723
---------
TOTAL COMMON STOCKS (COST $266,810)................ 270,449
---------
RIGHTS (0.8%)
INDONESIA (0.0%)
*+86,500 Sorini Corp. (Foreign) 1/18/95...... --
---------
THAILAND (0.8%)
*+303,000 National Finance & Securities Co.,
Ltd. 1/95 ........................ 1,315
*+93,600 National Finance & Securities Co.,
Ltd. (Foreign) 1/95 .............. 418
*+46,000 United Communications .............. 623
---------
2,356
---------
TOTAL RIGHTS (COST $1,881)......................... 2,356
---------
WARRANTS (0.3%)
SINGAPORE (0.1%)
+100,000 Keppel Corp., expiring 6/30/97 ..... 436
---------
THAILAND (0.2%)
+53,700 Finance One Co. Ltd., expiring
3/15/99 .......................... 449
---------
TOTAL WARRANTS (COST $277)......................... 885
---------
<CAPTION>
FACE
AMOUNT
(000)
- -------------
<C> <S> <C>
CONVERTIBLE DEBENTURES (0.5%)
KOREA (0.5%)
$ 1,900 Daewoo Corp. 0.00%, 12/31/04
(COST $1,927) .................... 1,349
---------
TOTAL FOREIGN SECURITIES (95.9%) (COST $270,895)... 275,039
---------
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT
UNITED STATES
9,717 U.S. Trust, 5.50%, dated 12/30/94,
due 1/3/95, to be repurchased at
$9,723, collateralized by $10,065
United States Treasury Notes
3.875%, dated 3/31/01, valued at
$10,024
(COST $9,717) .................... 9,717
---------
TOTAL INVESTMENT IN SECURITIES (COST $280,612)..... 284,756
---------
FOREIGN CURRENCY (1.4%)
HK$ 853 Hong Kong Dollar ................... 110
IN 3,950,314 Indonesian Rupiah .................. 1,798
MYR 49 Malaysian Ringgit .................. 19
S$ 1,210 Singapore Dollar ................... 830
T$ 16,330 Taiwan Dollar ...................... 621
TB 17,369 Thai Baht .......................... 692
---------
TOTAL FOREIGN CURRENCY (COST $4,077)............... 4,070
---------
TOTAL INVESTMENTS (100.7%) (COST $284,689)......... 288,826
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.7%)...... (1,975)
---------
NET ASSETS (100%).................................. $ 286,851
---------
---------
<FN>
- ---------------
+ -- Non income producing securities
* -- Fair-valued securities -- See Note A-1
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
GDS -- Global Depositary Share
IDR -- International Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the financial statements. 83
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1994,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- ------------- --------- ---------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 396 $ 396 1/3/95 HK$ 3,067 $ 396 $ --
IN 3,926,666 1,786 1/3/95 $ 1,784 1,784 (2)
--------- --------- ---
$ 2,182 $ 2,180 $ (2)
--------- --------- ---
--------- --------- ---
<FN>
HK$ -- Hong Kong Dollar
IN -- Indonesia Rupiah
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
Services................................................................ $ 69,004 24.1%
Banking................................................................. 52,618 18.3
Finance................................................................. 51,541 18.0
Materials............................................................... 25,894 9.0
Multi-Industry.......................................................... 24,323 8.5
Capital Equipment....................................................... 22,772 7.9
Energy.................................................................. 15,822 5.5
Consumer Goods.......................................................... 13,065 4.6
--------- -----------
$ 275,039 95.9%
--------- -----------
--------- -----------
</TABLE>
84 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.4%)
AEROSPACE (3.5%)
20,600 AAR Corp............................... $ 276
9,000 Thiokol Corp........................... 251
45,200 United Industrial Corp. ............... 220
---------
747
---------
BANKING (9.3%)
6,900 BB&T Financial Corp.................... 193
8,000 Deposit Guaranty Corp.................. 241
10,000 First Security Corp.................... 227
6,800 Fourth Financial Corp.................. 211
7,350 Mercantile Bancorp..................... 230
9,900 Onbankcorp., Inc....................... 230
9,000 Standard Federal Bank.................. 215
11,220 Summit Bancorp., Inc................... 217
9,000 Union Bank of San Francisco............ 241
---------
2,005
---------
BUILDING (3.2%)
7,700 Ameron, Inc............................ 224
16,000 Gilbert Associates, Inc. 'A'........... 228
13,000 Pratt & Lambert, Inc................... 244
---------
696
---------
CAPITAL GOODS (3.0%)
11,000 Binks Manufacturing Corp............... 203
9,700 Cascade Corp. ......................... 230
9,900 Starret (L.S.) Co. 'A'................. 222
---------
655
---------
CHEMICALS (4.2%)
16,000 Aceto Corp. ........................... 224
11,100 Dexter Corp............................ 242
11,700 LeaRonal, Inc.......................... 215
11,900 Quaker Chemical Corp................... 223
---------
904
---------
COMMUNICATIONS (1.1%)
12,900 Comsat Corp............................ 240
---------
CONSUMER--DURABLES (3.1%)
9,000 Arvin Industries, Inc.................. 209
12,320 Knape & Vogt Manufacturing Co.......... 240
16,800 Oneida Ltd. ........................... 218
---------
667
---------
CONSUMER--RETAIL (5.7%)
12,500 CPI Corp............................... 223
37,500 Deb Shops, Inc......................... 113
10,600 Edison Brothers Stores................. 196
12,300 Guilford Mills, Inc.................... 274
6,100 Springs Industries Inc. 'A'............ 226
18,000 Venture Stores, Inc.................... 209
---------
1,241
---------
CONSUMER--STAPLES (5.7%)
9,600 American Maize Products Co. 'A'........ 243
6,798 Block Drug Co., 'A'.................... 258
13,500 Coors (Adolph) 'B'..................... 226
14,300 International Multifoods Corp.......... 263
14,100 Nash Finch Co.......................... 233
---------
1,223
---------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
ENERGY (2.2%)
8,900 Diamond Shamrock, Inc.................. $ 230
9,700 Ultramar Corp.......................... 248
---------
478
---------
FINANCIAL--DIVERSIFIED (2.2%)
5,500 GATX Corp.............................. 242
7,600 GFC Financial Corp..................... 241
---------
483
---------
HEALTH CARE (6.5%)
7,900 Beckman Instruments, Inc............... 220
11,700 Bergen Brunswig Corp. 'A'.............. 244
17,000 Bindley Western Industries, Inc........ 264
9,900 Diagnostic Products Corp............... 260
27,700 Hooper Holmes, Inc..................... 177
35,800 Kinetic Concepts, Inc.................. 246
---------
1,411
---------
INDUSTRIAL (6.6%)
8,500 American Filtrona Corp. ............... 230
5,900 Barnes Group, Inc...................... 224
18,100 Gencorp, Inc........................... 215
24,700 Kaman Corp. 'A'........................ 272
17,100 Zero Corp.............................. 239
13,500 Zurn Industries, Inc................... 243
---------
1,423
---------
INSURANCE (5.1%)
8,100 Argonaut Group, Inc.................... 229
12,600 Enhance Financial Services Group....... 216
9,900 Provident Life & Accident Insurance Co.
of America 'B'....................... 215
7,600 Selective Insurance Group, Inc......... 192
6,900 US Life Corp. ......................... 240
---------
1,092
---------
METALS (2.1%)
4,100 Carpenter Technology Corp. ............ 229
6,100 Cleveland-Cliffs Iron Co............... 226
---------
455
---------
PAPER & PACKAGING (3.4%)
8,300 Ball Corp.............................. 262
6,200 Potlatch Corp. ........................ 231
13,600 Sealright Co., Inc..................... 248
---------
741
---------
SERVICES (10.7%)
11,300 ABM Industries, Inc.................... 263
9,200 Angelica Corp.......................... 254
1,100 Bowne & Co............................. 19
13,400 Cross A.T. Co. 'A'..................... 183
13,500 Gibson Greetings, Inc. ................ 199
20,400 Handleman Co........................... 232
8,800 National Service Industries, Inc....... 225
12,300 New England Business Services, Inc..... 231
27,900 Piccadilly Cafeterias, Inc............. 223
16,200 Russ Berrie & Co., Inc. ............... 223
9,200 Wallace Computer Services, Inc......... 267
---------
2,319
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
85
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------
<C> <S> <C>
TECHNOLOGY (7.5%)
46,600 American Software, Inc................. $ 140
6,300 Avnet, Inc............................. 233
2,800 CTS Corp............................... 78
12,300 Cubic Corp. ........................... 218
12,500 Gerber Scientific, Inc................. 162
8,500 Joslyn Corp............................ 216
9,000 Kuhlman Corp. ......................... 109
11,000 MTS Systems Corp....................... 242
14,100 National Computer Systems, Inc......... 219
---------
1,617
---------
TRANSPORTATION (2.4%)
10,800 Overseas Shipholding Group, Inc. ...... 248
10,700 Yellow Corp............................ 256
---------
504
---------
UTILITIES (7.9%)
9,600 Central Hudson Gas & Electric Corp..... 254
18,100 Central Maine Power Co................. 249
5,500 Commonwealth Energy Systems............ 200
8,000 Eastern Entreprises.................... 210
11,500 Oneok, Inc............................. 207
6,200 Orange & Rockland Utilities, Inc. ..... 201
5,600 SJW Corp............................... 181
15,600 Washington Water Power Co. ............ 213
---------
1,715
---------
TOTAL COMMON STOCKS
(COST $21,272).................................... 20,616
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (6.1%)
REPURCHASE AGREEMENT (6.1%)
$1,327 U.S. Trust, 5.50%, dated 12/30/94, due
1/3/95, to be repurchased at $1,328,
collateralized by $1,325 Government
National Mortgage Association with
various rates and maturity dates,
valued at $1,376 (COST $1,327)....... $ 1,327
---------
TOTAL INVESTMENTS (101.5%) (COST $22,599)......... 21,943
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.5%)..... (320)
---------
NET ASSETS (100%)................................. $21,623
---------
---------
</TABLE>
86 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (99.0%)
CORPORATE BONDS (35.2%)
UNITED STATES (35.2%)
$ 500 AES Corp. 9.75%, 6/15/00 .......... $ 478
500 Armco Inc. 9.375%, 11/1/00 ........ 452
1,000 Bell & Howell Co. 0% to 3/1/00,
11.50% to 3/1/05 ................ 488
500 Charter Medical Corp. 11.25%,
4/15/04 ......................... 501
500 Comcast Corp. 9.50%, 1/15/08 ...... 451
500 Moran Transportation Co. 11.75%,
7/15/04 ......................... 489
500 Owens Illinois, Inc. 10.50%,
6/15/02 ......................... 486
500 Penn Traffic Co. 9.625%,
4/15/05 ......................... 435
600 Pricellular Wire 0% to 11/15/97,
14% to 11/15/01 ................. 396
500 Sherritt, Inc. 10.50%, 3/31/14 .... 482
500 Stone Consolidated 10.25%,
12/15/00 ........................ 491
500 Tracor, Inc. 10.875%, 8/15/01 ..... 481
508 Trump Taj Mahal PIK 11.35%,
11/15/99 ........................ 338
500 Viacom International 8.00%,
7/7/06 .......................... 429
500 Westpoint Stevens, Inc. 9.375%,
12/15/05 ........................ 450
---------
TOTAL CORPORATE BONDS (COST $7,546)............. 6,847
---------
EUROBONDS (60.4%)
ARGENTINA (11.5%)
350 Bridas Corp. 12.50%, 11/15/99 ..... 334
+++2,300 Republic of Argentina 6.50%,
3/31/05 ......................... 1,468
250 Republic of Argentina Local Markets
Trust 13.375%, 8/15/01 .......... 211
250 Transport de Gas 7.75%,
12/23/98 ........................ 227
---------
2,240
---------
BRAZIL (15.6%)
980 Cia Brasil Projects 12.50%,
12/22/97 ........................ 955
+++765 Federal Republic of Brazil 'C' Bond
PIK 8.00%, 4/15/14 .............. 367
+++2,000 Federal Republic of Brazil New
Money Bond 6.75%, 4/15/09 ....... 1,235
500 Iochpe Maxion 12.375%, 11/8/02 .... 485
---------
3,042
---------
BULGARIA (2.2%)
1,000 Bulgaria IAB 6.0625%, 7/28/11 ..... 422
---------
COLOMBIA (4.9%)
950 Centragas 10.65%, 12/1/10 ......... 958
---------
HUNGARY (1.9%)
500 National Bank of Hungary 8.875%,
11/1/13 ......................... 372
---------
INDONESIA (1.3%)
250 Polysindo Eka Perkasa 13.00%,
6/15/01 ......................... 244
---------
MEXICO (5.7%)
200 Cemex 9.50%, 9/20/01 .............. 159
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<C> <S> <C>
$ 225 MC-Cuernavaca Trust 9.25%,
7/25/01 ......................... $ 189
750 Mexico Par Bond 'B' 6.25%,
12/31/19 ........................ 402
500 Petroleos Mexicanos 8.625%,
12/1/23 ......................... 353
---------
1,103
---------
PANAMA (3.4%)
+++800 Republic of Panama 7.125%,
5/10/02 ......................... 656
---------
PHILIPPINES (3.3%)
650 Philippine Long Distance Telephone
10.625%, 6/2/04 ................. 640
---------
VENEZUELA (10.6%)
+++1,000 Republic of Venezuela 'DL' 7.6875%,
12/18/07 ........................ 455
+++3,500 Republic of Venezuela Front-Loaded
Interest Reduction Bond 'A'
7.00%, 3/31/07 .................. 1,614
---------
2,069
---------
TOTAL EUROBONDS (COST $12,366).................. 11,746
---------
LOAN AGREEMENT (3.4%)
MOROCCO (3.4%)
p+++1,000 Kingdom of Morocco Restructuring
and Consolidation Agreement 'A'
1990 5.9375%, 1/1/09
(Participation: Salomon Brothers)
(COST $655)...................... 663
---------
TOTAL FIXED INCOME SECURITIES (COST $20,567) ..... 19,256
---------
<CAPTION>
NO. OF
RIGHTS
- -------------
<C> <S> <C>
RIGHTS (0.0%)
MEXICO (0.0%)
+750,000 Mexico Recovery, expiring 6/30/03
(COST $0) ....................... --
---------
TOTAL INVESTMENT IN SECURITIES (COST $20,567)..... 19,256
---------
<CAPTION>
FACE
AMOUNT
(000)
- -------------
<C> <S> <C>
FOREIGN CURRENCY (0.0%)
SP 52 Spanish Peseta (COST $0) .......... --
---------
TOTAL INVESTMENTS (99.0%) (COST $20,567).......... 19,256
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)...... 202
---------
NET ASSETS (100%)................................. $19,458
---------
---------
<FN>
- ---------------
+ -- Non-income producing securities.
+++ -- Variable or floating rate securities -- rate disclosed
is as of December 31, 1994.
PIK -- Payment-in-kind. Income may be received in additional
securities or cash at the discretion of the issuer.
p -- Participation interests were acquired through the
financial institutions indicated parenthetically.
</TABLE>
The accompanying notes are an integral part of the financial statements.
87
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
FORWARD FOREIGN CURRENCY CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at December 31,
1994, the Fund is obligated to deliver foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ----------- ----- ------------- ----------------- ----- ---------------
<S> <C> <C> <C> <C> <C>
SP 52 $ 1 1/3/95 $ 1 $ 1 $ --
-- -- -- --
-- -- -- --
<FN>
SP -- Spanish Peseta.
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- --------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Foreign Government Bonds............................................. $ 8,137 41.8%
Industrial........................................................... 4,836 24.9
Manufacturing........................................................ 931 4.8
Services............................................................. 839 4.3
Energy............................................................... 812 4.2
Finance.............................................................. 805 4.1
Transportation....................................................... 715 3.7
Loan Agreements...................................................... 663 3.4
Communication........................................................ 640 3.3
Chemicals............................................................ 482 2.5
Multi-Industry....................................................... 396 2.0
--------- ------
$ 19,256 99.0%
--------- ------
--------- ------
</TABLE>
88 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (51.1%)
ARGENTINA (8.4%)
1,242 Banco de Galicia y Buenos Aires
ADR ................................ $ 21
2,600 Banco del Sud Argentina .............. 20
10,700 Capex ADR ............................ 161
14,900 Capex ................................ 124
1,196 Central Costanera ADR ................ 32
11,110 CIADEA (Renault) ..................... 97
13,600 Compania Naviera Perez Companc 'B' ... 56
8,880 Quilmes Industrial ................... 204
+125,000 Siderca .............................. 92
4,635 YPF ADR .............................. 99
---------
906
---------
BRAZIL (15.0%)
2,530 Cemig ADR ............................ 61
235,294 Cia Energetica de Sao Paulo .......... 306
+1,440,000 Cia Paulista de Forca e Luz .......... 128
3,360,000 Cia Siderurgica Nacional ............. 114
530,000 Eletrobras ........................... 187
55,000 Light ................................ 20
22,000 Rhodia-Ster ADS ...................... 316
3,500 Souza Cruz ........................... 29
3,000,000 Telebras ............................. 129
+5,000 Telebras ADR ......................... 224
285,000 Telesp ............................... 47
3,900 Usiminas ADR ......................... 52
---------
1,613
---------
CHILE (3.3%)
10,700 Banco Osorno y La Union ADR .......... 115
3,800 Embotelladora Andina ADR ............. 99
13,600 Telex-Chile ADR ...................... 145
---------
359
---------
COLOMBIA (1.3%)
6,930 Cementos Paz Del Rio ADR ............. 139
---------
MEXICO (18.6%)
5,800 Apasco 'A' ........................... 29
56,700 Banacci 'L' .......................... 164
1,100 Bufete Industrial 'L' ADR ............ 32
19,400 Cemex ADR ............................ 96
2,640 FEMSA ADR ............................ 65
+19,300 Grupo Carso ADR S.A. 'A1' ............ 142
157,000 Grupo Financiero Bancomer 'C' ........ 85
2,400 Grupo Financiero Bancomer ADS ........ 27
30,000 Grupo Financiero Banorte 'C' ......... 73
107,000 Grupo Financiero Probursa 'C' ........ 52
1,380 Grupo Iusacell 'D' ADR ............... 22
3,600 Grupo Iusacell 'L' ADR ............... 67
5,430 Grupo Televisa S.A. ADR .............. 172
2,700 Hylsamex ADR ......................... 46
+28,500 Mexicano de Desarollo 'B' ADR ........ 217
2,300 Pan American Beverages Inc. 'A' ...... 73
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------
<C> <S> <C>
48,000 Sidek 'B' ............................ $ 106
5,660 Telefonos de Mexico 'L' ADR .......... 232
13,000 Tolmex 'B2' .......................... 110
+12,000 Tribasa ADR .......................... 199
---------
2,009
---------
PERU (4.5%)
29,575 Cementos Norte Pacasmay .............. 115
70,000 Ceveceria San Juan ................... 142
20,563 Cerveceria San Juan 'T' .............. 40
+97,482 Cia Peruana de Telefonos 'B' ......... 114
45,400 Industrias Pacocha ................... 59
2,600 Southern Peru Copper 'T' ............. 14
---------
484
---------
TOTAL COMMON STOCKS (COST $7,193).................. 5,510
---------
PREFERRED STOCKS (27.7%)
BRAZIL (27.7%)
17,000,000 Banco Bradesco ....................... 144
4,250,000 Banco do Brasil ...................... 84
2,330,000 Banco Nacional ....................... 59
164 Bardella ............................. 45
305,000 Brasmotor ............................ 123
+31,000 Centrais Eletricas de Santa Catarina
'B' ................................ 29
2,180 Cia Energetica de Sao Paulo .......... 3
+2,000,000 Cia Paulista de Forca e Luz .......... 137
20,000 Confab Industrial .................... 38
+29,000 Cosipa ............................... 84
+336,064 Dixie Lalekla ........................ 337
569,000 Eletrobras ........................... 198
6,500,000 Fertilizantes Fosfatados ............. 47
1,400,000 IAP .................................. 46
123,000 Iochpe Maxion ........................ 86
288,000 Itaubanco ............................ 81
+5,300,000 Lojas Renner ......................... 94
62,370,000 Manufacturera Brinquedos de
Estrela ............................ 158
1,402,000 Petrobras ............................ 177
720,000 Petrobras Distribuidora .............. 39
61,000,000 Refripar ............................. 202
226,000,000 Tec Toy Industrial ................... 235
5,625,383 Telebras ............................. 252
498,000 Telesp ............................... 71
70,000,000 Usiminas ............................. 95
630,000 Vale do Rio Doce ..................... 120
---------
TOTAL PREFERRED STOCKS (COST $2,945)............... 2,984
---------
OPTIONS PURCHASED (1.8%)
BRAZIL (1.8%)
+4,000,000 Cia Paulista de Forca e Luz call,
expiring 10/16/95, strike price BRR
70.00 .............................. 41
+1,320,000 Eletrobras call, expiring 6/19/95,
strike price BRR 49.59 ............. 150
---------
TOTAL OPTIONS PURCHASED (COST $96)................. 191
---------
</TABLE>
The accompanying notes are an integral part of the financial statements. 89
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE DEBENTURE (3.5%)
COLOMBIA (3.5%)
$ 390 Banco de Colombia 5.20%, 2/1/99 (COST
$412) ............................. $ 381
---------
TOTAL FOREIGN SECURITIES (84.1%) (COST $10,646)... 9,066
---------
SHORT-TERM INVESTMENT (12.0%)
UNITED STATES
REPURCHASE AGREEMENT
1,287 U.S. Trust, 5.50%, dated 12/30/94,
due 1/3/95 to be repurchased at
$1,288, collateralized by $1,350
United States Treasury Note 3.875%,
due 4/30/95, valued at $1,340 (COST
$1,287) ........................... 1,287
---------
TOTAL INVESTMENT IN SECURITIES (COST $11,933)..... 10,353
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
<C> <S> <C>
FOREIGN CURRENCY (0.3%)
APS 2 Argentine Peso ...................... $ 2
BRR 1 Brazilian Real ...................... 1
PS 75 Peruvian Sol ........................ 34
---------
TOTAL FOREIGN CURRENCY (COST $37)................. 37
---------
TOTAL INVESTMENTS (96.4%) (COST $11,970).......... 10,390
OTHER ASSETS IN EXCESS OF LIABILITIES (3.6%)...... 388
---------
NET ASSETS (100%)................................. $ 10,778
---------
---------
<FN>
- ---------------
+ -- Non-income producing securities
ADR -- American Depositary Receipts
ADS -- American Depositary Shares
</TABLE>
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Goods........................................................ $ 1,850 17.2%
Energy................................................................ 1,700 15.8
Services.............................................................. 1,475 13.7
Materials............................................................. 1,415 13.1
Finance............................................................... 1,306 12.1
Capital Equipment..................................................... 673 6.2
Multi-Industry........................................................ 647 6.0
--------- ------
$ 9,066 84.1%
--------- ---
--------- ---
</TABLE>
90 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (54.2%)
ARGENTINA (2.5%)
4,000 Banco de Galicia y Buenos Aires...... $ 16
6,232 Banco de Galicia y Buenos Aires
ADR................................ 108
3,000 Banco Frances del Rio de la Plata
'B'................................ 20
+8,500 Banco Frances del Rio de la Plata
ADR................................ 182
1,500 Capex 'A'............................ 13
1,075 Capex ADR............................ 16
2,175 Central Puerto 'B'................... 11
5,240 CIADEA (Renault)..................... 46
9,570 Compania Naviera Perez Companc 'B'... 39
5,840 Quilmes Industrial................... 134
70,000 Siderca.............................. 52
+3,195 YPF ADR.............................. 68
---------
705
---------
BRAZIL (6.4%)
6,370 Cemig ADR............................ 153
146,942 Cia Energetica de Sao Paulo.......... 191
+885,000 Cia Paulista de Forca e Luz.......... 78
3,750,000 Cia Siderurgica Nacional............. 128
1,228,000 Eletrobras........................... 433
64,000 Light................................ 23
3,260,000 Telebras............................. 140
+7,990 Telebras ADR......................... 358
570,000 Telesp............................... 94
15,100 Usiminas ADR......................... 200
---------
1,798
---------
CHILE (0.1%)
2,750 Banco Osorno y La Union ADR.......... 30
---------
CHINA (0.3%)
50,000 Maanshan Iron & Steel Co. Ltd........ 11
50,000 Shanghai Diesel Engine Co. Ltd.
'B'................................ 40
40,000 Zhuhai Pharmaceutical 'B'............ 21
---------
72
---------
COLOMBIA (0.0%)
600 Gran Cadena Almacenes Co. ADS........ 10
---------
GREECE (1.2%)
+6,000 Aegek................................ 113
2,220 Ergo Bank S.A........................ 91
3,500 Hellenic Bottling Co. S.A............ 124
---------
328
---------
HONG KONG (6.8%)
360,000 Charoen Pokphand Co. Ltd............. 84
29,000 Cheung Kong Holdings Ltd............. 118
60,000 Citic Pacific Ltd.................... 145
300,000 Guangdong Investments Ltd............ 148
20,000 Hang Seng Bank....................... 143
62,000 Harbin Power Equipment Co............ 21
82,800 Hong Kong Telecommunications Ltd..... 158
120,000 Hopewell Holdings.................... 99
55,000 Hutchison Whampoa Ltd................ 222
62,000 New World Development Co. Ltd........ 165
22,000 Sun Hung Kai Properties Ltd.......... 131
28,000 Swire Pacific Ltd. 'A'............... 174
90,000 Varitronix International Ltd......... 128
44,000 Wharf Holdings Ltd................... 148
---------
1,884
---------
HUNGARY (1.2%)
10,700 Gedeon Richter Ltd................... 166
850 Mol Magyar Olay-Es................... 95
7,000 Pannonplast Plastic.................. 77
---------
338
---------
INDIA (1.1%)
21,600 Indian Aluminum Co. GDR.............. 227
4,480 JCT Ltd. GDR......................... 71
---------
298
---------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
INDONESIA (3.4%)
30,000 Bank International Indonesia
(Foreign).......................... $ 96
10,000 Charoen Pokphand Indonesia
(Foreign).......................... 41
72,000 Duta Pertiwi (Foreign)............... 104
60,000 Indosat (Foreign).................... 215
30,000 Kalbe Farma (Foreign)................ 124
16,000 Kermika Indonesia Association
(Foreign).......................... 21
20,000 Modern Photo Film Co. (Foreign)...... 85
20,000 Sorini Corp. (Foreign)............... 82
80,000 United Tractors (Foreign)............ 171
---------
939
---------
ISRAEL (1.7%)
1,927 Elbit Ltd............................ 131
42,327 Israel Land Development Co. Ltd...... 150
440 Koor Industries Ltd.................. 34
10,638 Osem Investment Ltd.................. 68
5,651 Super Sol Ltd........................ 96
---------
479
---------
MEXICO (13.7%)
73,300 Banacci 'L'.......................... 212
37,500 Cemex ADR............................ 186
2,070 FEMSA ADR............................ 51
+12,900 Grupo Carso S.A. 'A1'................ 95
80,000 Grupo Financiero Bancomer S.A........ 236
5,000 Grupo Financiero Bancomer 'B'........ 2
209,000 Grupo Financiero Bancomer 'C'........ 113
13,750 Grupo Financiero Bancomer ADS........ 155
59,000 Grupo Financiero Probursa 'C'........ 28
1,800 Grupo Financiero Serfin ADS.......... 14
2,830 Grupo Iusacell 'D' ADR............... 45
+17,200 Grupo Mexicano de Desarollo 'B'
ADR................................ 131
5,700 Grupo Sidek.......................... 50
9,800 Grupo Televisa S.A. GDR.............. 311
3,320 Hylsamex ADR......................... 56
4,800 Internacional de Ceramica ADR........ 98
13,400 Pan American Beverages Inc. 'A'...... 424
7,200 Sidek 'A'............................ 16
21,000 Sidek 'B'............................ 46
+1,400 Sociedad de Fomento Industrial
S.A................................ 33
20,845 Telefonos de Mexico 'L' ADR.......... 855
26,100 Tolmex 'B2'.......................... 220
+26,420 Tribasa ADR.......................... 439
---------
3,816
---------
PAKISTAN (1.0%)
10,000 Dewan Salman Fibre................... 45
25,000 D.G. Khan Cement Ltd................. 50
55,000 Fauji Fertilizer Co. Ltd............. 147
270 Pakistan Telecommunication Co........ 36
---------
278
---------
PERU (0.5%)
33,900 Cementos Norte Pacasmayo............. 131
---------
PHILIPPINES (2.1%)
203,300 Ayala Land Inc. 'B'.................. 317
112,000 Petron Corp.......................... 99
600 Philippine Long Distance Telephone
ADR................................ 33
350,000 SM Prime Holdings, Inc............... 115
28,000 Universal Robina Corp................ 20
---------
584
---------
POLAND (0.3%)
7,000 Mostostal Exports 'A'................ 46
500 Zaklady Piwowarskie.................. 35
---------
81
---------
</TABLE>
The accompanying notes are an integral part of the financial statements. 91
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
SOUTH AFRICA (1.2%)
+1,300 Anglo American Industrial Corp.
Ltd................................ $ 67
25,500 Gencor Ltd........................... 91
3,200 Randcoal Ltd......................... 22
17,661 SASOL Ltd............................ 146
2,630 Trans-Natal Coal..................... 20
---------
346
---------
TAIWAN (2.8%)
70,000 Hocheng Group Corp................... 337
35,000 Taiwan Semiconductor Co.............. 207
49,000 United Micro Electronics Corp.
Ltd................................ 234
---------
778
---------
THAILAND (5.0%)
5,800 Advanced Information Services Co.
Ltd. (Foreign)..................... 80
63,400 Bangkok Bank Co. Ltd................. 520
2,500 Charoen Pokphand Feedmill Co. Ltd.... 16
7,900 Finance One Co. Ltd. (Foreign)....... 123
11,000 International Engineering Co.,
Ltd................................ 93
2,500 Land & House Co. Ltd................. 40
3,800 National Finance & Securities Co.,
Ltd. (Foreign)..................... 21
1,900 Siam Cement Co. Ltd. (Foreign)....... 114
56,000 Thai Farmers Bank Ltd. (Local)....... 386
---------
1,393
---------
TURKEY (2.9%)
76,000 Borusan Birmesik..................... 55
225,000 Ege Biracilik Ve Malt Sanayii........ 142
+81,000 Ege Seramik Co Inc................... 28
165,000 Koc Yatirim Ve Sanayii Mamulleri..... 128
20,000 Migros Turk.......................... 38
+335,000 Sarkuysan Elektrolitik Bakir......... 195
+60,000 Tat Konserve......................... 82
153,000 Tofas Turk Otomobil Fabrikasi........ 130
+255,000 Yapi Ve Kredi Bankasi................ 22
---------
820
---------
TOTAL COMMON STOCKS (COST $17,577)................ 15,108
---------
PREFERRED STOCKS (11.8%)
BRAZIL (11.8%)
300,000 Acesita.............................. 22
32,100,000 Banco Bradesco....................... 273
8,250,000 Banco do Brasil...................... 163
6,400,000 Banco do Estado...................... 92
8,400,000 Banco Nacional....................... 213
346,000 Brahma............................... 114
386,000 Brasmotor............................ 156
1,080,000 Cemig ADR............................ 98
+19,000 Centrais Eletricas de Santa Catarina
'B'................................ 18
52,000 Cia Energetica de Sao Paulo.......... 71
12,370 Cia Energetica de Sao Paulo ADR...... 164
+1,350,000 Cia Paulista de Forca e Luz.......... 92
+86,000 Cosipa............................... 250
400,000 Eletrobras........................... 139
729,000 Itaubanco............................ 204
2,860,000 Petrobras............................ 361
2,105,000 Petrobras Distribuidora.............. 113
11,698,390 Telebras............................. 523
711,000 Telesp............................... 101
35,200,000 Usiminas............................. 48
358,000 Vale do Rio Doce..................... 69
---------
TOTAL PREFERRED STOCKS (COST $3,534).............. 3,284
---------
RIGHTS (0.2%)
INDONESIA (0.0%)
*+6,666 Sorini Corp.......................... --
---------
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------
<C> <S> <C>
THAILAND (0.2%)
*+11,400 National Finance & Securities Co.,
Ltd. (Foreign)..................... $ 51
---------
TOTAL RIGHTS (COST $59)........................... 51
---------
OPTIONS PURCHASED (0.2%)
BRAZIL (0.2%)
+900,000 Cia Paulista de Forca e Luz call,
expiring 10/16/95, strike price BRR
70.00.............................. 10
+330,000 Eletrobras call, expiring 6/19/95,
strike price BRR 49.59............. 37
---------
TOTAL OPTIONS PURCHASED (COST $12).............. 47
---------
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------
CONVERTIBLE DEBENTURES (0.9%)
COLOMBIA (0.5%)
$ 140 Banco de Colombia 5.20%, 2/1/99...... 137
---------
INDIA (0.4%)
120 Tata Iron & Steel 2.25%, 4/1/99...... 108
---------
TOTAL CONVERTIBLE DEBENTURES (COST $279).......... 245
---------
TOTAL FOREIGN SECURITIES (67.3%)(COST $21,461).... 18,735
---------
SHORT-TERM INVESTMENT (28.2%)
UNITED STATES
REPURCHASE AGREEMENT
7,866 U.S. Trust, 5.50%, dated 12/30/94,
due 1/3/95, to be repurchased at
$7,871, collateralized by $345 U.S.
Treasury Note, 3.875%, due 4/30/95,
valued at $342, and $7,850 U.S.
Treasury Note, 4.125%, 5/31/95,
valued at $7,775, aggregate value
$8,117 (COST $7,866) .............. 7,866
---------
TOTAL INVESTMENT IN SECURITIES (COST $29,327)..... 26,601
FOREIGN CURRENCY (1.4%)
APS 1 Argentine Peso....................... 2
BRR 1 Brazilian Real....................... 1
HK$ 1 Hong Kong Dollar..................... --
IN 1,280 Indonesian Rupiah.................... 1
MXN 170 Mexican New Peso..................... 34
CR 1 South African Commercial Rand........ --
FR 321 South African Financial Rand......... 79
T$ 6,843 Taiwan Dollar........................ 260
TB 131 Thai Baht............................ 5
---------
TOTAL FOREIGN CURRENCY (COST $384)................ 382
---------
TOTAL INVESTMENTS (96.9%) (COST $29,711).......... 26,983
OTHER ASSETS IN EXCESS OF LIABILITIES (3.1%)...... 862
---------
NET ASSETS (100%)................................. $27,845
---------
---------
<FN>
- ------------
+ -- Non-income producing securities
* -- Fair valued security -- See Note A-1
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
92 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1994
(UNAUDITED)
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Finance.............................................................. $ 5,352 19.2%
Materials............................................................ 3,290 11.8
Services............................................................. 2,950 10.6
Energy............................................................... 2,346 8.4
Consumer Goods....................................................... 2,174 7.8
Capital Equipment.................................................... 1,766 6.4
Multi-Industry....................................................... 857 3.1
--------- ---
$ 18,735 67.3%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. 93
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL GLOBAL WORLDWIDE
EQUITY FIXED ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Securities, at
Value* (Note 1) -- See
accompanying portfolios $ 78,741 $ 14,270 $ 284,756 $ 21,943 $ 19,256 $ 10,353 $ 26,601
Foreign Currency at Value 908 -- 4,070 -- -- 37 382
Cash -- 525 1 -- 621 -- 224
Receivable for:
Investments Sold -- -- 666 252 -- 36 --
Fund Shares Sold 778 15 1,752 221 203 565 1,016
Dividends 120 -- 393 60 -- 2 10
Interest 1 347 3 1 390 9 8
Foreign Withholding Tax Reclaim 28 -- 11 -- -- -- --
Expense Reimbursement -- -- -- -- -- 41 --
Unrealized Gain on Forward
Foreign Currency Contracts 42 -- -- -- -- -- --
Deferred Organization Costs 58 58 37 62 80 66 65
Other 6 -- 28 -- -- 1 --
-------- -------- --------- -------- -------- -------- --------
Total Assets 80,682 15,215 291,717 22,539 20,550 11,110 28,306
-------- -------- --------- -------- -------- -------- --------
LIABILITIES:
Payable for:
Investments Purchased 2,535 347 506 433 655 -- 240
Fund Shares Redeemed 168 84 1,381 94 9 106 31
Bank Overdraft -- -- -- -- -- 36 --
Dividends 92 15 1,185 289 263 44 --
Investment Advisory Fees 129 -- 759 17 10 -- 16
Administrative Fees 23 3 72 5 5 17 20
Custody Fees 76 13 320 21 10 22 21
Professional Fees 19 17 28 10 17 18 18
Distribution Fees 117 20 442 28 29 12 32
Shareholder Reporting Expenses 35 8 131 9 7 4 4
Directors' Fees and Expenses 1 1 1 1 1 1 1
Filing and Registration Fees 2 -- 32 9 12 14 20
Organizational Costs -- -- -- -- 74 57 57
Unrealized Loss on Forward
Foreign Currency Contracts -- 29 2 -- -- -- --
Other 2 -- 7 -- -- 1 1
-------- -------- --------- -------- -------- -------- --------
Total Liabilities 3,199 537 4,866 916 1,092 332 461
-------- -------- --------- -------- -------- -------- --------
NET ASSETS $ 77,483 $ 14,678 $ 286,851 $ 21,623 $ 19,458 $ 10,778 $ 27,845
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Net Assets Consist Of:
Capital Stock at Par $ 6 $ 2 $ 19 $ 2 $ 2 $ 1 $ 3
Paid in Capital in Excess of Par 75,795 15,771 282,033 22,142 20,902 12,460 30,737
Undistributed (Distributions in
Excess of) Net Investment Income
(Accumulated Loss) (272) 111 (1,319) (5) 17 (69) (42)
Accumulated (Distributions in
Excess of) Net Realized Gain (258) (694) 1,982 140 (152) (34) (125)
Unrealized Appreciation
(Depreciation) on Investments
and Foreign Currency 2,212 (512) 4,136 (656) (1,311) (1,580) (2,728)
-------- -------- --------- -------- -------- -------- --------
NET ASSETS $ 77,483 $ 14,678 $ 286,851 $ 21,623 $ 19,458 $ 10,778 $ 27,845
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
CLASS A SHARES:
Net Assets $ 40,022 $ 9,063 $ 158,178 $ 13,090 $ 10,031 $ 7,522 $ 15,899
Shares Issued and Outstanding
$.001 par value (Authorized
2,625,000,000) 3,329 969 10,365 1,118 890 634 1,439
Net Asset Value and
Redemption Price Per Share $ 12.02 $ 9.35 $ 15.26 $ 11.71 $ 11.27 $ 11.86 $ 11.05
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Maximum Sales Charge 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share x
100/95.25) $ 12.62 $ 9.82 $ 16.02 $ 12.29 $ 11.83 $ 12.45 $ 11.60
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
CLASS B SHARES:
Net Assets $ 37,461 $ 5,615 $ 128,673 $ 8,533 $ 9,427 $ 3,256 $ 11,946
Shares Issued and Outstanding
$.001 par value (Authorized
2,625,000,000) 3,150 601 8,518 729 836 276 1,085
Net Asset Value and Offering
Price Per Share $ 11.89 $ 9.34 $ 15.11 $ 11.71 $ 11.27 $ 11.80 $ 11.01
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Investments at Cost,
including Foreign Currency $ 77,390 $ 14,761 $ 284,689 $ 22,599 $ 20,567 $ 11,970 $ 29,711
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
</TABLE>
* Includes repurchase agreements valued at $1,755,000, $926,000, $9,717,000,
$1,327,000, $0, $1,287,000 and $7,866,000 for Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide
High Income Fund, Latin American Fund and Emerging Markets Fund,
respectively.
94 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY AMERICAN WORLDWIDE LATIN
ALLOCATION GLOBAL FIXED ASIAN GROWTH VALUE HIGH INCOME AMERICAN EMERGING
FUND INCOME FUND FUND FUND FUND FUND MARKETS FUND
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS PERIOD FROM PERIOD FROM
ENDED ENDED ENDED ENDED ENDED JULY 6, 1994* JULY 6, 1994*
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER TO DECEMBER
1994 1994 1994 1994 1994 31, 1994 31, 1994
(000) (000) (000) (000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 845 $ -- $ 1,882 $ 353 $ -- $ 23 $ 36
Interest 64 560 259 28 980 17 145
Less: Foreign Taxes
Withheld (77) (5) (194) -- (3) (1) (1)
----- ----- ------------- ----- ------------- ------------- -------------
Total Income 832 555 1,947 381 977 39 180
----- ----- ------------- ----- ------------- ------------- -------------
EXPENSES:
Investment Advisory Fees
Basic Fee 363 58 1,481 87 65 45 89
Less: Fees Waived (120) (54) -- (53) (47) (45) (73)
----- ----- ------------- ----- ------------- ------------- -------------
Investment Advisory Fees
-- Net 243 4 1,481 34 18 -- 16
Administrative Fees 134 24 441 33 30 16 24
Custodian Fees 68 13 277 17 13 22 22
Filing and Registration
Fees 4 2 11 1 3 5 10
Directors' Fees and
Expenses 3 3 3 3 3 3 3
Professional Fees 25 15 45 12 16 18 18
Shareholder Reports 21 4 89 6 5 4 5
Distribution Fees
Class A 47 12 202 16 12 6 10
Class B 175 27 677 40 39 12 32
Blue Sky Fees
Class A 8 8 13 6 8 8 8
Class B 8 8 13 6 8 8 8
Amortization of
Organizational Costs 10 10 6 8 8 7 7
Brazilian Tax Expense -- -- -- -- -- 24 43
Other 4 2 8 1 1 16 16
Expenses Reimbursed by
Adviser -- -- -- -- -- (41) --
----- ----- ------------- ----- ------------- ------------- -------------
Net Expenses 750 132 3,266 183 164 108 222
----- ----- ------------- ----- ------------- ------------- -------------
Net Investment Income
(Loss) 82 423 (1,319) 198 813 (69) (42)
----- ----- ------------- ----- ------------- ------------- -------------
NET REALIZED GAIN (LOSS) ON
INVESTMENTS
Securities Sold 272 (413) 7,563 359 (118) 164 (55)
Foreign Currency
Transactions (516) (259) 92 -- 24 (23) (70)
----- ----- ------------- ----- ------------- ------------- -------------
Total Net Realized Gain
(Loss) (244) (672) 7,655 359 (94) 141 (125)
----- ----- ------------- ----- ------------- ------------- -------------
CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) 949 237 (4,965) 26 (1,196) (1,580) (2,728)
----- ----- ------------- ----- ------------- ------------- -------------
Total Net Realized Gain
(Loss) and Change in
Unrealized Appreciation
(Depreciation) 705 (435) 2,690 385 (1,290) (1,439) (2,853)
----- ----- ------------- ----- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ 787 ($ 12) $ 1,371 $ 583 ($477) ($1,508) ($2,895)
----- ----- ------------- ----- ------------- ------------- -------------
----- ----- ------------- ----- ------------- ------------- -------------
</TABLE>
- ------------------------------
*Commencement of operations
The accompanying notes are an integral part of the financial statements. 95
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, 1994
1994 (UNAUDITED)
(000) (000)
- -----------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 262 $ 82
Net Realized Gain (Loss) 632 (244)
Change in Unrealized Appreciation 86 949
------------ ----------------
Net Increase in Net Assets from Operations 980 787
------------ ----------------
DISTRIBUTIONS:
Net Investment Income:
Class A (50) (168)
Class B -- (82)
------------ ----------------
(50) (250)
------------ ----------------
Net Realized Gain:
Class A (127) (431)
Class B (85) (403)
------------ ----------------
(212) (834)
------------ ----------------
Net Decrease in Net Assets Resulting from
Distributions (262) (1,084)
------------ ----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 59,445 21,431
Distributions Reinvested 243 994
Redeemed (14,518) (7,962)
------------ ----------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 45,170 14,463
------------ ----------------
Total Increase in Net Assets 45,888 14,166
NET ASSETS -- Beginning of Period 17,429 63,317
------------ ----------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $104 and $272, respectively) $ 63,317 $ 77,483
------------ ----------------
------------ ----------------
- -----------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 2,528 886
Distributions Reinvested 14 45
Redeemed (696) (389)
------------ ----------------
Net Increase in Class A Shares Outstanding 1,846 542
------------ ----------------
------------ ----------------
Dollars:
Issued $ 30,362 $ 10,927
Distributions Reinvested 164 542
Redeemed (8,163) (4,759)
------------ ----------------
Net Increase in Class A Shares Outstanding $ 22,363 $ 6,710
------------ ----------------
------------ ----------------
Class B:
----------------
Shares:
Issued 2,421 862
Distributions Reinvested 6 38
Redeemed (548) (262)
------------ ----------------
Net Increase in Class B Shares Outstanding 1,879 638
------------ ----------------
------------ ----------------
Dollars:
Issued $ 29,083 $ 10,504
Distributions Reinvested 79 452
Redeemed (6,355) (3,203)
------------ ----------------
Net Increase in Class B Shares Outstanding $ 22,807 $ 7,753
------------ ----------------
------------ ----------------
- -----------------------------------------------------------------------------------
</TABLE>
96 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, 1994
1994 (UNAUDITED)
(000) (000)
- -----------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 619 $ 423
Net Realized Gain (Loss) 504 (672)
Change in Unrealized Appreciation (Depreciation) (1,219) 237
------------ ----------------
Net Decrease in Net Assets Resulting from
Operations (96) (12)
------------ ----------------
DISTRIBUTIONS:
Net Investment Income:
Class A (371) (195)
Class B (248) (89)
In Excess of Net Investment Income:
Class A (93) --
Class B (62) --
------------ ----------------
(774) (284)
------------ ----------------
Net Realized Gain:
Class A (267) --
Class B (237) --
In Excess of Net Realized Gain:
Class A (14) --
Class B (13) --
------------ ----------------
(531) --
------------ ----------------
Net Decrease in Net Assets Resulting from
Distributions (1,305) (284)
------------ ----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 15,880 3,869
Distributions Reinvested 737 175
Redeemed (12,193) (4,846)
------------ ----------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 4,424 (802)
------------ ----------------
Total Increase (Decrease) in Net Assets 3,023 (1,098)
NET ASSETS -- Beginning of Period 12,753 15,776
------------ ----------------
NET ASSETS -- End of Period (Including
undistributed (distributions in excess of) net
investment income
of $(28) and $111, respectively) $ 15,776 $ 14,678
------------ ----------------
------------ ----------------
- -----------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 989 250
Distributions Reinvested 41 15
Redeemed (572) (383)
------------ ----------------
Net Increase (Decrease) in Class A Shares
Outstanding 458 (118)
------------ ----------------
------------ ----------------
Dollars:
Issued $ 10,128 $ 2,362
Distributions Reinvested 426 138
Redeemed (5,980) (3,625)
------------ ----------------
Net Increase (Decrease) in Class A Shares
Outstanding $ 4,574 $ (1,125)
------------ ----------------
------------ ----------------
Class B:
----------------
Shares:
Issued 549 160
Distributions Reinvested 30 4
Redeemed (591) (130)
------------ ----------------
Net Increase (Decrease) in Class B Shares
Outstanding (12) 34
------------ ----------------
------------ ----------------
Dollars:
Issued $ 5,752 $ 1,507
Distributions Reinvested 311 37
Redeemed (6,213) (1,221)
------------ ----------------
Net Increase (Decrease) in Class B Shares
Outstanding $ (150) $ 323
------------ ----------------
------------ ----------------
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 97
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, 1994
1994 (UNAUDITED)
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Loss $ (984) $ (1,319)
Net Realized Gain 4,723 7,655
Change in Unrealized Appreciation (Depreciation) 9,101 (4,965)
------------ ----------------
Net Increase in Net Assets Resulting from Operations 12,840 1,371
------------ ----------------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (5,199)
Class B -- (4,230)
------------ ----------------
Net Decrease in Net Assets Resulting from Distributions -- (9,429)
------------ ----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 285,430 66,801
Distributions Reinvested -- 8,244
Redeemed (63,430) (35,237)
------------ ----------------
Net Increase in Net Assets from Capital Share Transactions 222,000 39,808
------------ ----------------
Total Increase in Net Assets 234,840 31,750
NET ASSETS -- Beginning of Period 20,261 255,101
------------ ----------------
NET ASSETS -- End of Period (Including undistributed net
investment income and accumulated loss of $0 and ($1,319),
respectively) $255,101 $286,851
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 10,025 2,231
Distributions Reinvested -- 299
Redeemed (2,090) (1,081)
------------ ----------------
Net Increase in Class A Shares Outstanding 7,935 1,449
------------ ----------------
------------ ----------------
Dollars:
Issued $150,145 $ 38,132
Distributions Reinvested -- 4,554
Redeemed (32,820) (18,272)
------------ ----------------
Net Increase in Class A Shares Outstanding $117,325 $ 24,414
------------ ----------------
------------ ----------------
(1) Class B:
----------------
Shares:
Issued 8,840 1,694
Distributions Reinvested -- 245
Redeemed (1,959) (1,010)
------------ ----------------
Net Increase in Class B Shares Outstanding 6,881 929
------------ ----------------
------------ ----------------
Dollars:
Issued $135,285 $ 28,669
Distributions Reinvested -- 3,690
Redeemed (30,610) (16,965)
------------ ----------------
Net Increase in Class B Shares Outstanding $104,675 $ 15,394
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
</TABLE>
98 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
OCTOBER 18,
1993* TO SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
1994 1994 (UNAUDITED)
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 183 $ 198
Net Realized Gain 208 359
Change in Unrealized Appreciation (Depreciation) (682) 26
------------ ----------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (291) 583
------------ ----------------
DISTRIBUTIONS:
Net Investment Income:
Class A (120) (160)
Class B (59) (59)
------------ ----------------
(179) (219)
------------ ----------------
Net Realized Gain:
Class A -- (261)
Class B -- (166)
------------ ----------------
-- (427)
------------ ----------------
Net Decrease in Net Assets Resulting from Distributions (179) (646)
------------ ----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 18,925 4,439
Distributions Reinvested 55 309
Redeemed (556) (1,016)
------------ ----------------
Net Increase in Net Assets from Capital Share Transactions 18,424 3,732
------------ ----------------
Total Increase in Net Assets 17,954 3,669
NET ASSETS -- Beginning of Period -- 17,954
------------ ----------------
NET ASSETS -- End of Period (Including undistributed
(distributions in excess of)
net investment income of $16 and $(5), respectively) $ 17,954 $ 21,623
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 940 240
Distributions Reinvested 4 20
Redeemed (28) (58)
------------ ----------------
Net Increase in Class A Shares Outstanding 916 202
------------ ----------------
------------ ----------------
Dollars:
Issued $ 11,269 $ 2,891
Distributions Reinvested 42 229
Redeemed (336) (693)
------------ ----------------
Net Increase in Class A Shares Outstanding $ 10,975 $ 2,427
------------ ----------------
------------ ----------------
Class B:
----------------
Shares:
Issued 636 130
Distributions Reinvested 1 7
Redeemed (18) (27)
------------ ----------------
Net Increase in Class B Shares Outstanding 619 110
------------ ----------------
------------ ----------------
Dollars:
Issued $ 7,656 $ 1,548
Distributions Reinvested 13 80
Redeemed (220) (323)
------------ ----------------
Net Increase in Class B Shares Outstanding $ 7,449 $ 1,305
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements. 99
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
APRIL 21, SIX MONTHS ENDED
1994* TO DECEMBER 31,
JUNE 30, 1994
1994 (UNAUDITED)
(000) (000)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 183 $ 813
Net Realized Gain (Loss) on Investments 192 (94)
Change in Unrealized Depreciation (115) (1,196)
------------ ----------------
Net Increase (Decrease) in Net Assets Resulting from
Operations 260 (477)
------------ ----------------
DISTRIBUTIONS:
Net Investment Income:
Class A (94) (483)
Class B (76) (382)
------------ ----------------
(170) (865)
------------ ----------------
Net Realized Gain:
Class A -- (104)
Class B -- (97)
------------ ----------------
-- (201)
------------ ----------------
Net Decrease in Net Assets Resulting from Distributions (170) (1,066)
------------ ----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 12,701 8,499
Distributions Reinvested 161 347
Redeemed (14) (783)
------------ ----------------
Net Increase in Net Assets from Capital Share Transactions 12,848 8,063
------------ ----------------
Total Increase in Net Assets 12,938 6,520
NET ASSETS -- Beginning of Period -- 12,938
------------ ----------------
NET ASSETS -- End of Period (Including undistributed net
investment income of $15 and $17, respectively) $ 12,938 $ 19,458
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 557 366
Distributions Reinvested 7 14
Redeemed -- (54)
------------ ----------------
Net Increase in Class A Shares Outstanding 564 326
------------ ----------------
------------ ----------------
Dollars:
Issued $ 6,729 $ 4,489
Distributions Reinvested 88 166
Redeemed (2) (662)
------------ ----------------
Net Increase in Class A Shares Outstanding $ 6,815 $ 3,993
------------ ----------------
------------ ----------------
Class B:
----------------
Shares:
Issued 495 331
Distributions Reinvested 6 15
Redeemed (1) (10)
------------ ----------------
Net Increase in Class B Shares Outstanding 500 336
------------ ----------------
------------ ----------------
Dollars:
Issued $ 5,972 $ 4,010
Distributions Reinvested 73 181
Redeemed (12) (121)
------------ ----------------
Net Increase in Class B Shares Outstanding $ 6,033 $ 4,070
------------ ----------------
------------ ----------------
- ---------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
100 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
DECEMBER 31,
1994
(UNAUDITED)
(000)
- ------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Loss $ (69)
Net Realized Gain 141
Change in Unrealized Depreciation (1,580)
----------------
Net Decrease in Net Assets Resulting from Operations (1,508)
----------------
DISTRIBUTIONS:
Net Realized Gain
Class A (125)
Class B (50)
----------------
Net Decrease in Net Assets Resulting from Distributions (175)
----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 13,242
Distributions Reinvested 131
Redeemed (912)
----------------
Net Increase in Net Assets from Capital Share Transactions 12,461
----------------
Total Increase in Net Assets 10,778
NET ASSETS -- Beginning of Period --
----------------
NET ASSETS -- End of Period (Including accumulated net
investment loss of $69) $ 10,778
----------------
----------------
- ------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 664
Distributions Reinvested 8
Redeemed (38)
----------------
Net Increase in Class A Shares Outstanding 634
----------------
----------------
Dollars:
Issued $ 9,217
Distributions Reinvested 100
Redeemed (522)
----------------
Net Increase in Class A Shares Outstanding $ 8,795
----------------
----------------
Class B:
----------------
Shares:
Issued 300
Distributions Reinvested 3
Redeemed (27)
----------------
Net Increase in Class B Shares Outstanding 276
----------------
----------------
Dollars:
Issued $ 4,025
Distributions Reinvested 31
Redeemed (390)
----------------
Net Increase in Class B Shares Outstanding $ 3,666
----------------
----------------
- ------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
The accompanying notes are an integral part of the financial statements. 101
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
DECEMBER 31,
1994
(UNAUDITED)
(000)
- ------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net Investment Loss $ (42)
Net Realized Loss (125)
Change in Unrealized Depreciation (2,728)
----------------
Net Decrease in Net Assets Resulting from Operations (2,895)
----------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 33,491
Redeemed (2,751)
----------------
Net Increase in Net Assets from Capital Share Transactions 30,740
----------------
Total Increase in Net Assets 27,845
NET ASSETS -- Beginning of Period --
----------------
NET ASSETS -- End of Period (Including accumulated net
investment loss of $42) $ 27,845
----------------
----------------
- ------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
----------------
Shares:
Issued 1,556
Redeemed (117)
----------------
Net Increase in Class A Shares Outstanding 1,439
----------------
----------------
Dollars:
Issued $ 18,980
Redeemed (1,434)
----------------
Net Increase in Class A Shares Outstanding $ 17,546
----------------
----------------
Class B:
----------------
Shares:
Issued 1,191
Redeemed (106)
----------------
Net Increase in Class B Shares Outstanding 1,085
----------------
----------------
Dollars:
Issued $ 14,511
Redeemed (1,317)
----------------
Net Increase in Class B Shares Outstanding $ 13,194
----------------
----------------
- ------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
102 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- -----------------------------------------------
SIX MONTHS SIX MONTHS
JANUARY 4, ENDED JANUARY 4, ENDED
1993* DECEMBER 31, 1993* DECEMBER 31,
SELECTED PER SHARE DATA TO JUNE 30, YEAR ENDED 1994 TO JUNE 30, YEAR ENDED 1994
AND RATIOS 1993 JUNE 30, 1994 (UNAUDITED) 1993 JUNE 30, 1994 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00 $ 11.09 $ 11.99 $ 10.00 $ 11.05 $ 11.90
------------- ------------- ------------- ------ ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.04 0.10 0.03 0.01 0.06 0.00
Net Realized and
Unrealized Gain 1.05 0.90 0.18 1.04 0.86 0.15
------------- ------------- ------------- ------ ------------- -------------
Total From Investment
Operations 1.09 1.00 0.21 1.05 0.92 0.15
------------- ------------- ------------- ------ ------------- -------------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.05) -- -- (0.03)
Net Realized Gain -- (0.07) (0.13) -- (0.07) (0.13)
------------- ------------- ------------- ------ ------------- -------------
Total Distributions -- (0.10) (0.18) -- (0.07) (0.16)
------------- ------------- ------------- ------ ------------- -------------
NET ASSET VALUE, END OF
PERIOD $ 11.09 $ 11.99 $ 12.02 $ 11.05 $ 11.90 $ 11.89
------------- ------------- ------------- ------ ------------- -------------
------------- ------------- ------------- ------ ------------- -------------
TOTAL RETURN(1) 10.90%*** 9.02% 1.78%*** 10.50%*** 8.34% 1.24%***
------------- ------------- ------------- ------ ------------- -------------
------------- ------------- ------------- ------ ------------- -------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 10,434 $ 33,425 $ 40,022 $ 6,995 $ 29,892 $ 37,461
Ratio of Expenses to
Average Net Assets 1.70%** 1.70% 1.70%** 2.45%** 2.45% 2.45%**
Ratio of Net Investment
Income to Average Net
Assets 1.04%** 0.98% 0.59%** 0.29%** 0.23% (0.16)%**
Portfolio Turnover Rate 14% 30% 3% 14% 30% 3%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.08 $ 0.09 $ 0.02 $ 0.07 $ 0.23 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.65%** 2.58% 2.03%** 4.40%** 3.34% 2.78%**
Net Investment Income
(Loss) to Average Net
Assets (0.91)%** 0.10% 0.26%** (1.66)%** (0.66)% (0.49)%**
</TABLE>
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- -----------------------------------------------
SIX MONTHS SIX MONTHS
JANUARY 4, ENDED JANUARY 4, ENDED
1993* DECEMBER 31, 1993* DECEMBER 31,
SELECTED PER SHARE DATA TO JUNE 30, YEAR ENDED 1994 TO JUNE 30, YEAR ENDED 1994
AND RATIOS 1993 JUNE 30, 1994 (UNAUDITED) 1993 JUNE 30, 1994 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00 $ 10.55 $ 9.53 $ 10.00 $ 10.56 $ 9.54
------------- ------------- ------------- ------ ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.25 0.52 0.28 0.21 0.43 0.24
Net Realized and
Unrealized Gain (Loss) 0.55 (0.42) (0.27) 0.55 (0.40) (0.28)
------------- ------------- ------------- ------ ------------- -------------
Total From Investment
Operations 0.80 0.10 0.01 0.76 0.03 (0.04)
------------- ------------- ------------- ------ ------------- -------------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.19) (0.20) (0.44) (0.16)
In Excess of Net
Investment Income -- (0.12) -- -- (0.11) --
Net Realized Gain -- (0.47) -- -- (0.47) --
In Excess of Net
Realized Gain -- (0.03) -- -- (0.03) --
------------- ------------- ------------- ------ ------------- -------------
Total Distributions (0.25) (1.12) (0.19) (0.20) (1.05) (0.16)
------------- ------------- ------------- ------ ------------- -------------
NET ASSET VALUE, END OF
PERIOD $ 10.55 $ 9.53 $ 9.35 $ 10.56 $ 9.54 $ 9.34
------------- ------------- ------------- ------ ------------- -------------
------------- ------------- ------------- ------ ------------- -------------
TOTAL RETURN(1) 8.02%*** 0.41% 0.11%*** 7.61%*** -0.25% -0.47%***
------------- ------------- ------------- ------ ------------- -------------
------------- ------------- ------------- ------ ------------- -------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 6,633 $ 10,369 $ 9,063 $ 6,120 $ 5,407 $ 5,615
Ratio of Expenses to
Average Net Assets 1.45%** 1.45% 1.45%** 2.20%** 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 5.00%** 4.70% 5.79%** 4.25%** 3.95% 5.04%**
Portfolio Turnover Rate 55% 168% 45% 55% 168% 45%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.07 $ 0.11 $ 0.03 $ 0.07 $ 0.12 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88%** 2.48% 2.10%** 3.63%** 3.29% 3.00%**
Net Investment Income
to Average Net Assets 3.57%** 3.67% 5.14%** 2.82%** 2.86% 4.24%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
The accompanying notes are an integral part of the financial statements. 103
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------------------------- -----------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 23, DECEMBER 31, JUNE 23, DECEMBER 31,
SELECTED PER SHARE DATA 1993* TO JUNE YEAR ENDED 1994 1993* TO JUNE YEAR ENDED 1994
AND RATIOS 30, 1993 JUNE 30, 1994 (UNAUDITED) 30, 1993 JUNE 30, 1994 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.00 $ 12.00 $ 15.50 $ 12.00 $ 12.00 $ 15.40
------------- ------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss -- (0.03) (0.05) -- (0.10) (0.10)
Net Realized and
Unrealized Gain -- 3.53 0.32 -- 3.50 0.32
------------- ------------- ------------- ------------- ------------- -------------
Total From Investment
Operations -- 3.50 0.27 -- 3.40 0.22
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- (0.51) -- -- (0.51)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF
PERIOD $ 12.00 $ 15.50 $ 15.26 $ 12.00 $ 15.40 $ 15.11
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
TOTAL RETURN (1) 0.00%*** 29.17% 1.77%*** 0.00%*** 28.33% 1.46%***
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 11,770 $ 138,212 $ 158,178 $ 8,491 $ 116,889 $ 128,673
Ratio of Expenses to
Average Net Assets 1.90%** 1.90% 1.85%** 2.65%** 2.65% 2.61%**
Ratio of Net Investment
Loss to Average Net
Assets (0.81)%** (0.24)% (0.54)%** (1.56)%** (0.99)% (1.30)%**
Portfolio Turnover Rate 0% 34% 15% 0% 34% 15%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to
Net Investment Loss $ 0.01 $ 0.03 -- $ 0.02 $ 0.03 --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 11.83%** 2.17% 1.85%** 12.64%** 2.92% 2.61%**
Net Investment Loss to
Average Net Assets (10.74)%** (0.51)% (0.54)%** (11.55)%** (1.26)% (1.30)%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ --------------------------------------
OCTOBER 18, SIX MONTHS ENDED SIX MONTHS ENDED
1993* DECEMBER 31, 1994 OCTOBER 18, 1993* DECEMBER 31, 1994
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 (UNAUDITED) TO JUNE 30, 1994 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 11.70 $ 12.00 $ 11.69
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.13 0.11 0.08
Net Realized and Unrealized Gain (Loss) (0.30) 0.26 (0.31) 0.26
------- ------- ------ ------
Total From Investment Operations (0.13) 0.39 (0.20) 0.34
------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income (0.17) (0.15) (0.11) (0.09)
Net Realized Gain -- (0.23) -- (0.23)
------- ------- ------ ------
Total Distributions (0.17) (0.38) (0.11) (0.32)
------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 11.70 $ 11.71 $ 11.69 $ 11.71
------- ------- ------ ------
------- ------- ------ ------
TOTAL RETURN (1) -1.12%*** 3.39%*** -1.70%*** 2.95%***
------- ------- ------ ------
------- ------- ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 10,717 $ 13,090 $ 7,237 $ 8,533
Ratio of Expenses to Average Net Assets 1.50%** 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income to Average Net Assets 2.14%** 2.24%** 1.39%** 1.50%**
Portfolio Turnover Rate 17% 9% 17% 9%
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $ 0.08 $ 0.03 $ 0.08 $ 0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.48%** 2.00%** 3.28%** 2.80%**
Net Investment Income to Average Net Assets 1.16%** 1.74%** 0.36%** 0.95%**
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
*** Not Annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
104 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
SIX MONTHS SIX MONTHS
APRIL 21, ENDED APRIL 21, ENDED
1994* DECEMBER 31, 1994* DECEMBER 31,
TO JUNE 30, 1994 TO JUNE 30, 1994
SELECTED PER SHARE DATA AND RATIOS 1994 (UNAUDITED) 1994 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.17 $ 12.00 $ 12.16
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.57 0.17 0.52
Net Realized and Unrealized Gain
(Loss) 0.16 (0.74) 0.15 (0.73)
------------ ------------ ------------ ------------
Total From Investment Operations 0.34 (0.17) 0.32 (0.21)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.17) (0.61) (0.16) (0.56)
Net Realized Gain -- (0.12) -- (0.12)
------------ ------------ ------------ ------------
Total Distributions (0.17) (0.73) (0.16) (0.68)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $12.17 $11.27 $12.16 $11.27
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN(1) 2.86%*** -1.49%*** 2.62%*** -1.90%***
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $6,857 $10,031 $6,081 $9,427
Ratio of Expenses to Average Net Assets 1.55%** 1.55%** 2.30%** 2.30%**
Ratio of Net Investment Income to
Average Net Assets 8.29%** 9.72%** 7.54%** 8.96%**
Portfolio Turnover Rate 19% 74% 19% 74%
- -----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment
Income $0.02 $0.03 $0.06 $0.03
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.23%** 2.07%** 4.00%** 2.85%**
Net Investment Income to Average Net
Assets 6.61%** 9.20%** 5.84%** 8.41%**
- -----------------------------------------------------------------------------------------------------------
</TABLE>
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------- ----------------
JULY 6, 1994* TO JULY 6, 1994* TO
DECEMBER 31, DECEMBER 31,
1994 1994
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED)
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.00 $12.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.06) (0.10)
Net Realized and Unrealized Gain 0.12# 0.10#
------ ------
Total From Investment Operations 0.06 0.00
------ ------
DISTRIBUTIONS
Net Realized Gain (0.20) (0.20)
------ ------
NET ASSET VALUE, END OF PERIOD $11.86 $11.80
------ ------
------ ------
TOTAL RETURN(1) 0.48%*** -0.02%***
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 7,522 $ 3,256
Ratio of Expenses to Average Net Assets 2.77%**+ 3.52%**+
Ratio of Net Investment Loss to Average
Net Assets (1.68)%** (2.37)%**
Portfolio Turnover Rate 45% 45%
- -------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment
Loss $ 0.08 $ 0.11
Ratios Before Expense Limitation:
Expenses to Average Net Assets
(Including Brazilian Tax Expense) 5.04%** 6.11%**
Net Investment Loss to Average Net
Assets (3.95)%** (4.96)%**
+ The ratio of expenses to average net assets includes Brazilian tax expense.
Without the effect of the Brazilian tax expense, the ratio of expenses to
average net assets would have been 2.10%** and 2.85%**, for Class A and
Class B, respectively.
- -------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
*** Not annualized
# The amount shown for the period ended December 31, 1994 for a Fund share
outstanding throughout the period does not accord with the aggregate net loss
for the period because of the timing of sales and repurchases of Fund shares
in relation to fluctuating market value of investments of the Fund.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
The accompanying notes are an integral part of the financial statements. 105
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------- ----------------
JULY 6, 1994* JULY 6, 1994*
TO DECEMBER 31, TO DECEMBER 31,
SELECTED PER SHARE DATA AND 1994 1994
RATIOS (UNAUDITED) (UNAUDITED)
- ---------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $12.00 $12.00
------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.01) (0.03)
Net Realized and Unrealized
Loss (0.94) (0.96)
------- -------
Total From Investment
Operations (0.95) (0.99)
------- -------
NET ASSET VALUE, END OF PERIOD $ 11.05 $ 11.01
------- -------
------- -------
TOTAL RETURN(1) -7.92%*** -8.25%***
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 15,899 $ 11,946
Ratio of Expenses to Average
Net Assets 2.76%**+ 3.51%**+
Ratio of Net Investment Loss
to Average Net Assets (0.25)%** (1.00)%**
Portfolio Turnover Rate 8% 8%
- ---------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net
Investment Loss $ 0.03 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets (Including Brazilian
Tax Expense) 3.76%** 4.55%**
Net Investment Loss to
Average Net Assets (1.25)%** (2.04)%**
+ The ratio of expenses to average net assets includes Brazilian
tax expense. Without the effect of the Brazilian tax expense, the
ratio of expenses to average net assets would have been 2.15%**
and 2.90%**, for Class A and Class B, respectively.
- ---------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
*** Not annualized
(1) Total return is calculated exclusive of sales charges or deferred sales
charges.
106 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. ("the Fund") was incorporated under the laws
of Maryland on August 14, 1992 and commenced operations on January 4,
1993. The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company which offers redeemable
shares of diversified and non-diversified investment portfolios. As of December
31, 1994, the Fund had seven separate active investment portfolios: Morgan
Stanley Global Equity Allocation Fund, Morgan Stanley Global Fixed Income Fund,
Morgan Stanley Asian Growth Fund, Morgan Stanley American Value Fund, Morgan
Stanley Worldwide High Income Fund, Morgan Stanley Latin American Fund and
Morgan Stanley Emerging Markets Fund (referred to herein respectively as "Global
Equity Allocation Fund", "Global Fixed Income Fund", "Asian Growth Fund",
"American Value Fund", "Worldwide High Income Fund", "Latin American Fund", and
"Emerging Markets Fund", and collectively as the "Portfolios"). The Fund
currently offers Class A and Class B shares of each Portfolio. Prior to January
4, 1993, the Fund had no operations other than those relating to organizational
matters and the initial sale of shares of Global Equity Allocation Fund, Global
Fixed Income Fund and Money Market Fund to Morgan Stanley Asset Management, Inc.
(the "Adviser" or "MSAM"). Effective August 6, 1993, Morgan Stanley Money Market
Fund was closed to new investors and became inactive.
A. ACCOUNTING POLICIES: The following is a summary of significant accounting
policies for the Fund. Such policies are in conformity with generally accepted
accounting principles for investment companies and are consistently followed by
the Fund in the preparation of the financial statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. 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, if any, of
reputable brokers. Bonds and other fixed income securities are valued according
to the broadest and most representative market. In addition, bonds and other
fixed income securities are valued on the basis of prices provided by a pricing
service which are based primarily on institutional size trading in similar
groups of securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value. All
other securities and assets for which market values are not readily available,
including restricted securities, are valued at fair value as determined in good
faith by the Board of Directors, although the actual calculations may be done by
others.
2. INCOME TAXES: It is each Portfolio's intention to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on either income earned or repatriated. The Fund
accrues such taxes when the related income is earned. In addition, effective
January 1, 1994, the Brazilian government announced a 0.25% tax on banking
transaction debits (withdrawals). This tax was subsequently repealed on January
1, 1995. The Brazilian government also assesses a 1% tax on all settlements of
foreign currency used to purchase equity securities.
Paid in capital in excess of par, undistributed (distributions in excess of) net
investment income and accumulated (distributions in excess of) net realized gain
have been adjusted for permanent book-tax differences, if any, for the
Portfolios.
For the year ended June 30, 1994, Global Equity Allocation Fund and Global Fixed
Income Fund deferred for Federal income tax purposes to July 1, 1994, post
October currency losses of approximately $966,000 and $115,000, respectively.
Global Fixed Income Fund also deferred to July 1, 1994, post October capital
losses of approximately $16,000.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, the value of which is at least equal to the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in United States dollars. Foreign currency amounts
are translated into U.S. dollars at the mean of
107
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
the bid and asked prices of such currencies against U.S. dollars last quoted by
a major bank. Although the net assets of the Fund are presented at the foreign
exchange rates and market values at the close of the period, the Fund does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the fluctuations arising from changes in the
market prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on security
transactions and balances. However, pursuant to U.S. Federal income tax
regulations, gains and losses from certain foreign currency transactions and
sales of foreign denominated debt securities are treated as ordinary income for
U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference between
the amount of investment income and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent amount actually received or paid,
and certain currency related amounts of realized gains or losses from the sale
of foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibly lower level of
governmental supervision and regulation of foreign securities markets and the
possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other emerging
countries. Foreign ownership limitations also may be imposed by the charters of
individual companies in emerging countries to prevent, among other concerns,
violation of foreign investment limitations. As a result, an additional class of
shares (identified as "foreign" in the Portfolio of Investments) may be created
and offered for investment. The "local" and "foreign" shares' market values may
vary.
5. FORWARD FOREIGN CURRENCY CONTRACTS: Each Portfolio may enter into forward
foreign currency contracts to attempt to protect securities and related
receivables and payables against changes in future foreign exchange rates. A
forward currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily using the forward rate and the change in market value is
recorded by the Portfolio as unrealized gain or loss. The Portfolio records
realized gains or losses when the contract is closed equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
is generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
6. PURCHASED OPTIONS. Certain Portfolios may purchase call or put options which
are traded on a recognized securities or futures exchange. When a Portfolio
purchases a call option, it acquires the right to buy a designated security at a
designated price ("exercise price"); when a Portfolio purchases a put option, it
acquires the right to sell a designated security at the exercise price. A
Portfolio may purchase call options to close out a covered call position or to
protect against an increase in the price of a security it anticipates
purchasing. A Portfolio may purchase put options on securities which it holds to
protect against a decline in the value of the security. Risks may arise from
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
7. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis over a period of five years beginning with
each Portfolio's commencement of operations. MSAM has agreed that in the event
any of its initial shares in a Portfolio are redeemed, the proceeds on
redemption will be reduced by the pro-rata portion of any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the initial shares held at time of redemption.
8. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis
108
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
except where collection is in doubt. Discounts and premiums on securities
purchased are amortized according to the effective yield method over their
respective lives. Most expenses of the Fund can be directly attributed to a
particular Portfolio. Expenses which cannot be directly attributed are
apportioned among the Portfolios based upon relative net assets. Income,
expenses (other than class specific expenses) and realized and unrealized gains
or losses are allocated to each class of shares based upon their relative net
assets. Distributions from the Portfolios are recorded on the ex-distribution
date.
Income and capital gain distributions are determined in accordance with U.S.
Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions and deferral of wash sale and
post-October losses.
B. ADVISER: The Adviser, a wholly owned subsidiary of Morgan Stanley Group,
Inc., provides the Fund with investment advisory services at a fee paid
quarterly and calculated at the annual rates of average daily net assets
indicated below. The Adviser has agreed to reduce operating fees payable to it
and to reimburse the Portfolios, if necessary, if the annual operating expenses,
expressed as a percentage of average daily net assets, exceed the maximum ratios
indicated below.
<TABLE>
<CAPTION>
CLASS A CLASS B
MAXIMUM MAXIMUM
OPERATING OPERATING
EXPENSE EXPENSE
FUND ADVISORY FEE RATIO RATIO
- -------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Global Equity Allocation Fund... 1.00% 1.70% 2.45%
Global Fixed Income Fund........ 0.75% 1.45% 2.20%
Asian Growth Fund............... 1.00% 1.90% 2.65%
American Value Fund............. 0.85% 1.50% 2.25%
Worldwide High Income Fund...... 0.75% 1.55% 2.30%
Latin American Fund............. 1.25% 2.10% 2.85%
Emerging Markets Fund........... 1.25% 2.15% 2.90%
</TABLE>
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an Administrative Agreement for a monthly fee which on an annual
basis equals 0.25% of the average daily net assets of each Portfolio. Under an
agreement between MSAM and U.S. Trust Company of New York ("U.S. Trust"), Mutual
Funds Service Company ("MFSC"), a subsidiary of U.S. Trust, provides certain
administrative services to the Fund. MFSC is compensated for such services by
MSAM from the fee it receives from the Fund, subject to certain fee minimums as
defined in the agreement, which for the six months ended December 31, 1994,
totaled $89,000 for Global Equity Allocation Fund, Global Fixed Income Fund,
Asian Growth Fund, American Value Fund, and Worldwide High Income Fund, and
$86,000 for Latin American Fund and Emerging Markets Fund, respectively. Certain
employees of MFSC are officers of the Fund.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly
owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM, serves
as the distributor of the Fund and provides both classes of each Portfolio with
distribution services pursuant to a Distribution Plan in accordance with Rule
12b-1 under the Investment Company Act of 1940. The Distributor is entitled to
receive from the Portfolios a distribution fee, which is accrued daily and paid
quarterly, of up to 0.25% for the Class A shares of each Portfolio and up to
1.00% of the Class B shares of each Portfolio, on an annualized basis, of the
average daily net assets of such class.
The Distributor may receive a deferred sales charge for certain purchases of
Class A and Class B shares of each Portfolio redeemed within one year following
such purchase. For the six months ended December 31, 1994, the Distributor has
advised the Fund that it earned deferred sales charges of $15,000, $6,000,
$98,000, $1,000 and $5,000 for Global Equity Allocation Fund, Global Fixed
Income Fund, Asian Growth Fund, American Value Fund and Latin American Fund,
respectively.
E. PURCHASES AND SALES: For the six months ended December 31, 1994, purchases
and sales of investment securities other than U.S. Government securities and
short-term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ---------------------------------------- ----------- ---------
<S> <C> <C>
Global Equity Allocation Fund........... $ 16,382 $ 2,370
Global Fixed Income Fund................ 3,652 5,931
Asian Growth Fund....................... 84,009 40,732
American Value Fund..................... 5,606 1,773
Worldwide High Income Fund.............. 19,849 11,297
Latin American Fund..................... 13,515 3,031
Emerging Markets Fund................... 22,291 773
</TABLE>
Purchases and sales during the six months ended December 31, 1994 of U.S.
Government securities, other than short-term U.S. Government securities,
occurred in Global Fixed Income Fund and totaled $2,234,000 and $1,852,000,
respectively.
F. CUSTODIANS: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley Group, Inc., acts as custodian for the Fund's non-U.S. assets
held outside the United States in accordance with a custodian agreement. U.S.
Trust acts as custodian for the Fund's domestic assets in accordance with a
custodian agreement. Custodian fees are computed and payable monthly based on
assets held, investment purchases
109
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
and sales activity, an account maintenance fee, plus reimbursement for certain
out-of-pocket expenses. Fees incurred for custody services provided by MSTC for
the six months ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
MSTC
MSTC CUSTODIAN
CUSTODIAN FEES
FEES PAYABLE
FUND (000) (000)
- -------------------------------------- ------------- -------------
<S> <C> <C>
Global Equity Allocation Fund......... $ 62 $ 69
Global Fixed Income Fund.............. 7 7
Asian Growth Fund..................... 273 315
Worldwide High Income Fund............ 5 4
Latin American Fund................... 22 22
Emerging Markets Fund................. 21 21
</TABLE>
G. OTHER: At December 31, 1994, net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency rates will affect the value of and investment income from such
securities.
Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of December 31, 1994:
<TABLE>
<S> <C> <C> <C>
Argentine Peso..................... 1.0001 = $1.00
Australian Dollar.................. 1.2894 = $1.00
Belgian Franc...................... 31.8100 = $1.00
Brazilian Real..................... 0.8470 = $1.00
British Pound Sterling............. 0.6384 = $1.00
Canadian Dollar.................... 1.4025 = $1.00
Danish Krone....................... 6.0810 = $1.00
Deutsche Mark...................... 1.5490 = $1.00
French Franc....................... 5.3375 = $1.00
Hong Kong Dollar................... 7.7375 = $1.00
Hungarian Forint................... 113.1200 = $1.00
Indonesian Rupiah.................. 2,198.0000 = $1.00
Israeli Shekel..................... 3.0172 = $1.00
Italian Lira....................... 1,621.0000 = $1.00
Japanese Yen....................... 99.6000 = $1.00
Korean Won......................... 788.5000 = $1.00
Malaysian Ringgit.................. 2.5540 = $1.00
Mexican New Peso................... 4.9750 = $1.00
Netherlands Guilder................ 1.7348 = $1.00
New Zealand Dollar................. 1.5621 = $1.00
Pakistani Rupee.................... 30.7692 = $1.00
Peruvian Sol....................... 2.1840 = $1.00
Philippine Peso.................... 24.4000 = $1.00
Poland Zloty....................... 23,200.0000 = $1.00
Singapore Dollar................... 1.4580 = $1.00
South African Commercial Rand...... 3.5400 = $1.00
South African Financial Rand....... 4.0720 = $1.00
Spanish Peseta..................... 131.6250 = $1.00
Taiwan Dollar...................... 26.2880 = $1.00
Thai Baht.......................... 25.1050 = $1.00
Turkish Lira....................... 38,700.0000 = $1.00
</TABLE>
At December 31, 1994, Global Equity Allocation Fund, Asian Growth Fund and Latin
American Fund incurred approximately $6,000 and $71,000 and $1,000,
respectively, as brokerage commissions to Morgan Stanley & Co. Incorporated, an
affiliated broker/dealer.
At December 31, 1994, cost and unrealized appreciation (depreciation) for
Federal income tax purposes of the securities of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
FUND (000) (000) (000) (000)
- ----------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Global Equity
Allocation Fund....... $ 76,494 $ 4,854 $ (2,607) $ 2,247
Global Fixed Income
Fund.................. 14,761 159 (650) (491)
Asian Growth Fund...... 280,612 28,206 (24,062) 4,144
American Value Fund.... 22,599 1,109 (1,765) (656)
Worldwide High Income
Fund.................. 20,567 29 (1,340) (1,311)
Latin American Fund.... 11,933 595 (2,175) (1,580)
Emerging Markets Fund.. 29,327 309 (3,035) (2,726)
</TABLE>
110
