<PAGE>
MORGAN STANLEY FUNDS
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MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
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MORGAN STANLEY GLOBAL FIXED INCOME FUND
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MORGAN STANLEY ASIAN GROWTH FUND
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MORGAN STANLEY AMERICAN VALUE FUND
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MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
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MORGAN STANLEY LATIN AMERICAN FUND
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MORGAN STANLEY EMERGING MARKETS FUND
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ANNUAL REPORT
JUNE 30, 1995
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<PAGE>
PRESIDENT'S LETTER
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Dear Shareholders,
We are pleased to present to you the third annual report of the Morgan
Stanley Funds. The Funds seek to meet the investment needs of discerning
individual investors who place a premium on quality and service.
The Morgan Stanley Funds now offer clients seven separate investment
portfolios, each with distinct, but clearly defined investment objectives and
approaches. A client can select an individual portfolio to meet a specific
investment need or allocate assets in appropriate amounts to different
portfolios within the Funds as part of implementing an overall investment
strategy.
Although many of our portfolios invest in high growth, very volatile
emerging markets, our cautious investment approach to each of the portfolios
remains the same. To quote Barton Biggs, the Chairman of Morgan Stanley Asset
Management, the Fund's investment advisor, "We believe that diversification is
the first rule of prudence, and we always act as investors and not speculators.
We like to believe that we fulfill Benjamin Graham's credo of being intelligent
investors. We instill a doctrine of buying value and being conscious of growth
at a fair price."
The enclosed annual report discusses the specific results for each of the
Funds, along with a commentary from each portfolio manager explaining the
strategy behind the results.
We hope you find the report useful and informative.
Sincerely,
[SIGNATURE]
Warren J. Olsen
President
August 21, 1995
<PAGE>
MORGAN STANLEY FUNDS
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Overview and Portfolio of Investments by
Portfolio:
Global Equity Allocation Fund............. 1
Global Fixed Income Fund.................. 11
Asian Growth Fund......................... 16
American Value Fund....................... 21
Worldwide High Income Fund................ 26
Latin American Fund....................... 31
Emerging Markets Fund..................... 36
Statement of Assets and Liabilities......... 41
Statement of Operations..................... 42
Statement of Changes in Net Assets.......... 43
Financial Highlights ....................... 50
Notes to Financial Statements............... 54
Report of Independent Accountants........... 58
Additional Information...................... 59
</TABLE>
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
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INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 4.5%
Belgium 2.0%
Canada 5.1%
France 4.0%
Germany 2.0%
Hong Kong 5.1%
Italy 2.1%
Japan 17.7%
Netherlands 4.0%
Singapore 3.9%
Spain 3.4%
Switzerland 2.0%
United Kingdom 8.8%
United States 32.8%
Other 2.6%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY COUNTRY (000)
- ---------------------------- --------- ---------
Royal Dutch Petroleum Co. Netherlands $ 1,148
United
General Electric Co. States 958
United
Exxon Corp. States 925
American Telephone & United
Telegraph Co. States 845
United
Coca-Cola Co. States 720
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
<S> <C> <C>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------- --------- ------------
Finance $ 17,388 21.0%
Services 15,425 18.6%
Consumer Goods 15,364 18.5%
Energy 10,849 13.1%
Capital Equipment 9,650 11.6%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
--------------------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------------------- --------------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
<S> <C> <C> <C> <C>
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- ------------------------------------------------------------
Class A Shares 1.62% 6.69% 8.64% 10.79%
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Class C Shares+ 4.84% 5.84% N/A 9.99%
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MSCI World Index N/A 10.67 % N/A 14.66 %
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</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
The Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index which includes securities listed on the stock exchanges of the U.S.,
Europe, Canada, Australia, New Zealand and the Far East and assumes dividends
are reinvested net of withholding tax.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Global Equity Allocation Fund Class A Global Equity Allocation Fund Class C+ MSCI World Index
1/4/93 9,525 10,000 10,000
6/30/93 10,563 10,939 11,515
6/30/94 11,516 11,972 12,696
6/30/95 12286 12671 14050
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Equity Allocation Fund commenced operations on
January 4, 1993. It invests in global equity markets, with
emphasis placed upon country rather than stock selection.
This approach reflects an investment philosophy that a
diversified selection of securities representing exposure to
each country that we find attractive is, we believe, an
effective way to maximize the return and reduce the risk
associated with global investing.
For the year ended June 30, 1995, the Fund had a total return
exclusive of sales charge of 6.69% for the Class A shares and
5.84% for the Class C shares, and a total return with sales
charge of 1.62% for the Class A shares and 4.84% for the
Class C shares, as compared to a total return of 10.67% for
the Morgan Stanley Capital International (MSCI) World Index.
For the period since inception on January 4, 1993 through
June 30, 1995, the average annual total return of the Fund
exclusive of sales charge was 10.79% for the Class A shares
and 9.99% for the Class C shares, and 8.64% for the Class A
shares with sales charge, as compared to the average annual
total return of 14.66% for the Index.
The regional total returns for the year ended June 30, 1995,
as measured by the MSCI country indices, in U.S. dollars,
with net dividends reinvested, were the United States 26.24%,
Japan -26.30%, Europe 18.78%, and the Pacific ex-Japan 7.50%.
However, the weak U.S. dollar contributed significantly to
these returns for unhedged U.S. dollar investors,
particularly in Europe. Returns in local currencies were:
Japan -14.35%, Europe 8.80% and the Pacific ex-Japan 6.08%.
As evidenced by these returns, the Fund's underweight
position in Japan and overweight positions in Europe and the
Pacific ex-Japan contributed to performance relative to the
benchmark, but performance was hurt by the underweighting in
the United States and our currency hedge on the
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI WORLD INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTITUTED AS A GUARANTEE OF THE FUND'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
1
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
Japanese yen. Within Europe, our overweight positions in
Belgium and the Netherlands added to performance, but we were
hurt by our underweight positions in the Nordic countries and
the U.K.. Within the Pacific, our overweight positions in New
Zealand and our weighting shifts in Hong Kong added to
performance. In total, country selection added to our
performance return for the year, but currency movements and
currency hedging detracted.
In June and early July, we increased our positions in the
U.S. to only slightly underweight and we brought the Fund's
Japan weighting up to neutral versus the benchmark. Though
the Dow Jones Industrial Average has soared past century
marks this year, with barely a wink, we believe there is more
appreciation potential in the market. The easing we've seen
from most of the major central banks during the quarter,
including the U.S., Germany, France, and Japan reduces the
recession odds and increases the probability for a long,
slow-growth cycle. We calculate that the U.S. equity market
is slightly undervalued even at a 7.0% long-bond and second
quarter earnings have been coming in showing 20% year over
year gains.
Regarding Japan, we view the government's admission of
serious bank and economic growth problems as an indication
that Japanese political paralysis is nearing an end. This,
along with the weakening yen, puts the potential for an
earnings recovery in a more positive light and leads us to
believe that the Japanese market could rally off its bottom.
Though the lack of a concrete Japanese policy response is
frankly disappointing, we believe that in the great scheme of
history, the yen and the Japanese bond market have made
secular bull market highs, and the stock market is tracing
out a huge bottom formation. We will watch the government's
reaction to any stock market rally carefully, however, as a
sharp rise in equity values could mistakenly lull the
Japanese authorities into a false sense of security.
"WE BELIEVE THE SECOND HALF MARKET TRENDS WILL BE UPWARDS..."
We are slightly underweight in Europe relative to the
benchmark. We have reduced our exposure in France, and have
taken profits in Belgium, the Netherlands and Spain. In
France, we are disappointed with the macroeconomic policies
of the new government and we do not believe equities can
rally strongly without sharp reductions in short-term
interest rates. With the continuation of the FRANC FORT
policy, we believe interest rate cuts will be subdued and
gradual.
Recent evidence shows that the European economies slowed down
in the second quarter, but we do not believe they will dip
back into a recession. We believe the second half market
trends will be upwards, based on attractive valuations, good
corporate fundamentals, a less demanding supply/ demand
balance than at the beginning of the year and the positive
attributes of the long cycle.
The core European economies have been laboring under the yoke
of strong currencies for the second quarter, eroding their
competitiveness and profitability. Though Germany and
Switzerland were able to take advantage of the strength of
investment spending worldwide, and the overvaluation of the
yen, consumer spending (accounting for over 60% of European
GNP) is being held back by high levels of unemployment and
continued pressure on labor markets to trim costs. During the
second quarter Germany, France, the Netherlands, Belgium and
Denmark all had gradual easings, more of which we may see if
the Bundesbank eases policy in the autumn.
By contrast, the peripheral countries in Europe continue to
tighten policies in order to counter the stimulating effects
of their weak currencies on their export sectors. With
industrial capacity being stretched and import prices for raw
materials rising, inflationary pressures have prompted
tighter policies in the past couple of months in Italy, Spain
and Sweden.
With regard to fiscal policy, the markets have been very
forgiving over the past four months, giving European budget
officials and finance ministers the benefit of the doubt on
any reasonable attempt at deficit reduction. This was easy
during a period when growth in most of the industrial
countries was downshifting and the fixed income markets were
rallying. The test will come in the late summer or early
fall, when signs of a re-acceleration in economic activity
begin to surface in many countries. Then valuation levels and
credible budget deficit reductions will be key to
performance.
2
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
We remain overweight in Asian equities, with overweight
positions in Hong Kong, Singapore and Australia. Though an
increase in U.S. rates may spook these markets in the short
run, the U.S. Federal Reserve Bank has been vigilant against
inflation. A strong U.S. tends to be good for Asian economies
and a recovering Japan should attract Asian imports.
In the aftermath of the Mexican crisis, critics disparaged
many of the Asian countries citing account deficits and
vulnerable currencies. Since then, the rating agencies have
upgraded the credit ratings of all five ASEAN countries, and
their currencies are now appreciating. Fresh capital inflows
are putting downward pressure on interest rates, external
debt is falling in relative terms and in some cases, even
absolutely, and growth continues to be the strongest and most
consistent in the world. The only flaw in this story has been
rising inflation caused by this growth and the earlier
declines in the real effective exchange rates.
3
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
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PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
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COMMON STOCKS (96.9%)
AUSTRALIA (4.2%)
21,500 Amcor Ltd. ....................................... $ 159
9,500 Ampolex Ltd. ..................................... 22
17,500 Australian National Industries Ltd. .............. 15
40,100 Boral Ltd. ....................................... 100
7,400 Brambles Industries Ltd. ......................... 70
56,401 Broken Hill Proprietary Ltd. ..................... 694
18,472 Burns, Philip & Co. Ltd. ......................... 39
10,876 Coca-Cola Amatil Ltd. ............................ 67
47,800 Coles Myer Ltd. .................................. 150
18,300 CRA Ltd. ......................................... 249
32,600 CSR Ltd. ......................................... 102
103,500 Foster Brewing Group Ltd. ........................ 92
23,930 General Property Trust ........................... 40
43,400 Goodman Fielder Ltd. ............................. 36
11,800 ICI Australia Ltd. ............................... 77
7,548 Lend Lease Corp. Ltd. ............................ 96
43,712 MIM Holdings Ltd. ................................ 54
43,500 National Australia Bank Ltd. ..................... 344
+8,700 Newcrest Mining Ltd. ............................. 37
53,795 News Corp. Ltd. .................................. 300
23,400 North Broken Hill Peko Ltd. ...................... 57
35,300 Pacific Dunlop Ltd. .............................. 74
30,400 Pioneer International Ltd. ....................... 76
10,486 Renison Goldfields Consolidated Ltd. ............. 33
2,432 Renison Goldfields Consolidated Ltd. (New) ....... 6
26,600 Santos Ltd. ...................................... 64
20,700 Southcorp Holdings Ltd. .......................... 41
+12,700 TNT Ltd. ......................................... 17
29,700 Western Mining Corp. ............................. 163
60,000 Westpac Banking Corp. Ltd. ....................... 217
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3,491
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BELGIUM (2.0%)
70 Bekaert S.A. ..................................... 55
125 CBR .............................................. 51
1,600 Delhaize Freres et Cie 'Le Lion' S.A. ............ 72
1,350 Electrabel S.A. .................................. 285
300 Electrabel S.A. (New) ............................ 64
1,130 Fortis AG ........................................ 120
450 Generale de Banque ............................... 145
775 Gevaert Photo-Production N.V. .................... 42
156 Glaverbel S.A. ................................... 21
700 Groupe Bruxelles Lambert S.A. .................... 94
400 Kredietbank N.V. ................................. 95
720 Petrofina S.A. ................................... 217
400 Reunies Electrobel & Tractebel S.A. .............. 145
400 Royale Belge ..................................... 75
250 Solvay et Cie .................................... 138
+800 Union Miniere S.A. ............................... 52
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1,671
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CANADA (5.1%)
5,600 Alcan Aluminum Ltd. .............................. 169
9,712 American Barrick Resources Corp. ................. 246
6,300 Bank of Montreal ................................. 132
5,900 Bank of Nova Scotia .............................. 127
8,100 BCE, Inc. ........................................ 260
4,100 Bombardier, Inc. 'B' ............................. 100
2,600 Brascan Ltd. 'A' ................................. 41
5,600 Canadian Imperial Bank of Commerce ............... 135
2,200 Canadian Occidental Petroleum Ltd. ............... 68
9,600 Canadian Pacific Ltd. ............................ 165
2,700 Canadian Tire Corp. 'A' .......................... 29
VALUE
SHARES (000)
- ---------------------------------------------------------------------
2,800 Cominco Ltd. ..................................... $ 51
1,500 Cott Corp. ....................................... 18
2,800 Dofasco, Inc. .................................... 35
1,200 Du Pont Canada, Inc. 'A' ......................... 17
3,200 Echo Bay Mines Ltd. .............................. 29
2,000 George Weston Ltd. ............................... 67
5,200 Gulf Canada Resources Ltd. ....................... 21
7,600 Imasco Ltd. ...................................... 135
6,000 Imperial Oil Ltd. ................................ 223
2,600 Inco Ltd. ........................................ 73
1,100 Interprovincial Pipeline ADR ..................... 24
5,600 Laidlaw, Inc. 'B' ................................ 54
5,200 MacMillan Bloedel Ltd. ........................... 73
1,200 Magna International, Inc. 'A' .................... 53
3,600 Moore Corp. Ltd. ................................. 79
2,200 Newbridge Networks Corp. ......................... 77
+5,200 Noranda, Inc. .................................... 102
2,400 Norcen Energy Resources Ltd. ..................... 32
6,500 Northern Telecom Ltd. ............................ 235
13,800 Nova Corp. of Alberta ............................ 117
5,800 Placer Dome, Inc. ................................ 152
1,100 Potash Corp. of Saskatchewan, Inc. ............... 61
4,000 Ranger Oil Ltd. .................................. 25
+2,300 Renaissance Energy Ltd. .......................... 48
+4,200 Rogers Communications ............................ 49
7,700 Royal Bank of Canada ............................. 172
10,500 Seagram Co. Ltd. ................................. 361
+1,600 Talisman Energy, Inc. ............................ 30
2,400 Teck Corp. 'B' ................................... 47
16,400 Thomson Corp. .................................... 224
6,300 Transcanada Pipelines Ltd. ....................... 84
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4,240
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FRANCE (4.0%)
300 Accor S.A. ....................................... 40
1,850 Alcatel Alsthom................................... 167
1,845 AXA S.A. ......................................... 100
105 AXA S.A. RFD...................................... 6
2,300 Banque Nationale de Paris ........................ 111
100 BIC .............................................. 16
350 Bouygues ......................................... 42
300 Carrefour S.A. ................................... 154
85 Chargeurs S.A. ................................... 17
249 Cie Bancaire S.A. ................................ 30
1,350 Cie Generale des Eaux ............................ 150
1,350 Cie de Financiere de Paribas 'A' ................. 81
1,000 Cie de Saint-Gobain .............................. 121
1,950 Cie de Suez S.A. ................................. 108
3,000 Elf Aquitaine .................................... 222
1,000 Elf Sanofi S.A. .................................. 55
400 Eridania Beghin-Say S.A. ......................... 62
950 Etablissements Economiques du Casion
Guichard-Perrachon ............................. 28
950 Groupe Danone RFD ................................ 160
650 Havas S.A. ....................................... 51
850 L'Air Liquide .................................... 136
1,100 Lafarge Coppee S.A. .............................. 86
400 Legrand S.A. ..................................... 63
750 L'Oreal .......................................... 188
950 LVMH Moet Hennessy Louis Vuitton ................. 171
850 Lyonnaise des Eaux S.A. .......................... 80
+1,350 Michelin (C.G.D.E.) 'B' .......................... 60
135 Paribas S.A. RFD ................................. 8
650 Pernod-Ricard .................................... 43
+225 Pinault S.A. ..................................... 48
250 Promodes ......................................... 57
4
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
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PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
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FRANCE (CONT.)
+600 PSA Peugeot Citroen S.A. ......................... $ 83
3,000 Rhone-Poulenc S.A. 'A' ........................... 68
60 Sagem ............................................ 34
130 Saint Louis ...................................... 40
650 Schneider S.A. ................................... 51
350 Simco (Registered) ............................... 30
60 Societe Eurafrance S.A. .......................... 20
1,000 Societe Generale ................................. 117
+1,700 Thomson CSF S.A. ................................. 38
2,500 Total S.A. 'B' ................................... 150
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3,292
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GERMANY (2.0%)
30 Agiv AG .......................................... 10
110 Allianz AG Holding ............................... 197
20 AMB Aachener & Muenchener Beteiligungs AG ........ 14
20 Asko Deutsche Kaufhaus AG ........................ 12
330 BASF AG .......................................... 70
360 Bayer AG ......................................... 89
120 Bayer Hypotheken-und Wechsel-Bank AG ............. 33
130 Bayer Vereinsbank AG ............................. 39
25 Beiersdorf AG .................................... 20
20 Brau und Brunnen AG .............................. 4
270 Daimler-Benz AG .................................. 124
50 Degussa AG ....................................... 16
2,420 Deutsche Bank AG ................................. 118
+180 Deutsche Lufthansa AG ............................ 26
2,230 Dresdner Bank AG ................................. 64
20 Heidelberger Zement AG ........................... 17
60 Hochtief AG ...................................... 34
50 Karstadt AG ...................................... 22
30 Kaufhof Holding AG ............................... 11
+90 Kloeckner-Humboldt-Deutz AG ...................... 3
50 Linde AG ......................................... 30
70 MAN AG ........................................... 18
210 Mannesmann AG .................................... 64
40 Muenchener Rueckversicherungs-Gesellschaft
(Registered) ................................... 88
80 Preussag AG ...................................... 24
180 RWE AG ........................................... 62
30 SAP AG ........................................... 40
350 Schering AG ...................................... 24
290 Siemens AG ....................................... 144
+170 Thyssen AG ....................................... 32
250 Veba AG .......................................... 98
110 Viag AG .......................................... 43
150 Volkswagen AG .................................... 43
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1,633
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HONG KONG (5.1%)
18,000 Applied International Holdings Ltd................ 2
22,257 Bank of East Asia................................. 67
84,000 Cathay Pacific Airways Ltd........................ 123
63,000 Cheung Kong Holdings Ltd.......................... 312
56,500 China Light and Power Co. Ltd..................... 291
46,000 Chinese Estate Holdings Ltd....................... 33
22,000 Dickson Concepts International Ltd................ 13
6,000 Giordano Holdings Ltd............................. 4
12,000 Giordano International Ltd........................ 9
36,000 Hang Lung Development Corp........................ 57
54,600 Hang Seng Bank Ltd................................ 416
55,400 Hong Kong & China Gas Co.......................... 88
36,000 Hong Kong & Shanghai Hotels....................... 44
5,600 Hong Kong Aircraft Engineering Co. Ltd............ 15
VALUE
SHARES (000)
- ---------------------------------------------------------------------
308,400 Hong Kong Telecommunications Ltd.................. $ 610
121,420 Hopewell Holdings Ltd............................. 103
102,000 Hutchison Whampoa Ltd............................. 493
30,000 Hysan Development Co.............................. 69
12,000 Johnson Electric Holdings Ltd..................... 24
17,000 Miramar Hotel Investment Ltd...................... 35
44,335 New World Development Co. Ltd..................... 148
40,000 Oriental Press Group.............................. 16
11,300 Peregrine Investment Holdings..................... 16
30,905 Shangri-La Asia Ltd............................... 37
46,000 Shun Tak Holdings Ltd............................. 37
52,000 South China Morning Post.......................... 31
30,000 Stelux Holdings Ltd............................... 9
65,000 Sun Hung Kai Properties Ltd....................... 481
46,000 Swire Pacific Ltd. 'A'............................ 351
12,000 Television Broadcasting Ltd....................... 42
62,000 Wharf Holdings Ltd................................ 202
10,000 Windsor Industrial................................ 13
4,280 Wing Lung Bank.................................... 24
-------
4,215
-------
ITALY (2.0%)
+10,000 Alitalia S.p.A.................................... 5
12,975 Assicurazioni Generali S.p.A...................... 305
27,000 Banca Commerciale Italiana........................ 61
+6,500 Banca Nazionale dell'Agricoltura S.p.A............ 5
8,000 Banco Ambrosiano Veneto........................... 26
3,000 Benetton Group S.p.A.............................. 30
2,000 Burgo Cartiere S.p.A.............................. 13
36,500 Credito Italiano S.p.A............................ 42
10,000 Edison S.p.A...................................... 45
+1,000 Falck Acciaierie & Ferriere Lombarde.............. 1
+52,000 Fiat S.p.A........................................ 183
12,000 Fiat S.p.A. Di Risp (NCS)......................... 26
4,000 Fidis Finanziaria di Sviluppo S.p.A............... 9
3,000 Impreglio S.p.A................................... 3
12,000 Istituto Bancario San Paolo di Torina S.p.A....... 65
+3,500 Italcementi Fabbriche Riunit S.p.A................ 24
+1,500 Italcementi S.p.A................................. 5
11,000 Italgas........................................... 29
2,565 La Rinascente S.p.A............................... 15
9,500 Magneti Marelli S.p.A............................. 18
7,800 Mediobanca S.p.A.................................. 57
+90,000 Montedison S.p.A.................................. 64
+15,000.. Montedison S.p.A. Di Risp (NCS)................... 9
+20,000 Olivetti Group.................................... 20
19,200 Parmalat Finanziaria S.p.A........................ 17
+25,000 Pirelli S.p.A..................................... 33
4,410 R.A.S............................................. 47
1,690 R.A.S. di Risp.................................... 11
300 Risanamento Di Napoli S.p.A....................... 4
+1,000 Saffa S.p.A. 'A'.................................. 3
1,500 S.A.I............................................. 16
7,500 Saipem S.p.A...................................... 15
2,000 Sasib S.p.A....................................... 9
4,000 Sirti S.p.A....................................... 30
7,000 SME Meridionale................................... 17
+10,000.. Snia BPD S.p.A.................................... 11
107,200 Telecom Italia S.p.A.............................. 291
25,000 Telecom Italia Di Risp S.p.A...................... 53
-------
1,617
-------
JAPAN (17.7%)
1,000 Advantest Corp.................................... 38
11,000 Ajinomoto Co., Inc................................ 113
6,000 Aoki Corp......................................... 22
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
JAPAN (CONT.)
1,000 Aoyama Trading Co. Ltd............................ $ 17
22,000 Asahi Bank Ltd.................................... 235
5,000 Asahi Breweries Ltd............................... 58
16,000 Asahi Chemical Industry Co. Ltd................... 105
16,000 Asahi Glass Co.................................... 177
17,000 Bank of Tokyo..................................... 273
5,000 Bridgestone Co.................................... 74
10,000 Canon, Inc........................................ 163
3,000 Casio Computer Co. Ltd............................ 27
11,000 Chiba Bank........................................ 100
2,000 Chiyoda Corp...................................... 17
5,000 Chugai Pharmaceutical Ltd......................... 51
25,000 Dai Ichi Kangyo Bank.............................. 451
11,000 Dai Nippon Printing Co. Ltd....................... 175
6,000 Daikin Industries Ltd............................. 48
+2,000 Daishowa Paper Manufacturing Co. Ltd.............. 9
5,000 Daiwa House Industry.............................. 77
11,000 Daiwa Securities Co., Ltd......................... 116
4,000 Ebara Corp........................................ 49
3,200 Fanuc Co.......................................... 138
25,000 Fuji Bank......................................... 504
5,000 Fuji Photo Film Ltd............................... 118
18,000 Fujitsu Ltd....................................... 179
9,000 Furukawa Electric................................. 42
11,000 Hankyu Corp....................................... 66
6,000 Hazama-Gumi....................................... 25
33,000 Hitachi Ltd....................................... 329
9,000 Honda Motor Co.................................... 138
19,000 Industrial Bank of Japan.......................... 495
4,000 Ito-Yokado Co. Ltd................................ 211
+22,000 Japan Airlines Co................................. 146
14,000 Japan Energy Corp................................. 45
6,000 Joyo Bank......................................... 51
6,000 Jusco Co.......................................... 124
11,000 Kajima Corp....................................... 109
3,600 Kansai Electric Power Co.......................... 97
11,000 KAO Corp.......................................... 132
+28,000 Kawasaki Steel Corp............................... 92
16,000 Kinki Nippon Railway.............................. 140
11,000 Kirin Brewery Co. Ltd............................. 117
+33,000 Kobe Steel Ltd.................................... 78
11,000 Komatsu Ltd....................................... 84
16,000 Kubota Corp....................................... 102
11,000 Kumagai Gumi Co. Ltd.............................. 46
6,000 Kyowa Hakko Kogyo................................. 58
16,000 Marubeni Corp..................................... 81
5,000 Marui Co.......................................... 80
17,000 Matsushita Electric Industries Ltd................ 265
15,000 Mitsubishi Corp................................... 171
20,000 Mitsubishi Electric Corp.......................... 141
12,000 Mitsubishi Estate Co. Ltd......................... 135
44,000 Mitsubishi Heavy Industries Ltd................... 299
16,000 Mitsubishi Kasei Co............................... 68
11,000 Mitsubishi Materials Corp......................... 49
11,000 Mitsubishi Trust and Banking Corp................. 156
16,000 Mitsui & Co....................................... 125
+11,000 Mitsui Engineering & Shipbuilding Co. Ltd......... 24
9,000 Mitsui Fudosan Co. Ltd............................ 103
11,000 Mitsukoshi........................................ 79
1,200 Mochida Pharmaceutical Co. Ltd.................... 18
16,000 NEC Corp.......................................... 175
6,000 NGK Insulators Ltd................................ 54
5,000 Nippon Denso Co. Ltd.............................. 91
11,000 Nippon Express Co. Ltd............................ 100
VALUE
SHARES (000)
- ---------------------------------------------------------------------
6,000 Nippon Fire & Marine Insurance Co................. $ 38
5,000 Nippon Light Metal Co............................. 23
5,000 Nippon Meat Packers............................... 73
16,000 Nippon Oil Co..................................... 101
11,000 Nippon Paper Industries Co........................ 71
41,000 Nippon Steel Corp................................. 133
16,000 Nippon Yusen Kabushiki Kaisha..................... 90
21,000 Nissan Motor Co. Ltd.............................. 134
+32,000 NKK Corp.......................................... 75
17,000 Nomura Securities Co. Ltd......................... 297
11,000 Obayashi Corp..................................... 85
11,000 Odakyu Electric Railway Co........................ 80
11,000 Oji Paper Ltd..................................... 106
33,000 Osaka Gas Co...................................... 122
6,000 Penta-Ocean Construction.......................... 38
1,000 Rohm Co........................................... 52
27,000 Sakura Bank....................................... 282
4,600 Sankyo Co. Ltd.................................... 107
16,000 Sanyo Electric Co. Ltd............................ 79
1,000 Secom Co.......................................... 63
1,300 Sega Enterprises.................................. 46
5,000 Sekisui House Ltd................................. 62
3,000 Seven-Eleven Japan................................ 215
11,000 Sharp Corp........................................ 145
5,000 Shin-Etsu Chemical Co............................. 88
8,000 Shinizu Corp...................................... 77
2,000 Shiseido Co. Ltd.................................. 22
11,000 Shizuoka Bank..................................... 137
+11,000 Showa Denko K.K................................... 32
3,000 Sony Corp......................................... 144
28,000 Sumitomo Bank..................................... 485
22,000 Sumitomo Chemical Co.............................. 86
11,000 Sumitomo Corp..................................... 100
7,000 Sumitomo Electric Industries...................... 83
2,000 Sumitomo Forestry................................. 33
38,000 Sumitomo Metal Industries......................... 99
5,000 Sumitomo Metal Mining Co.......................... 37
6,000 Sumitomo Osaka Cement Co. Ltd..................... 22
11,000 Taisei Corp., Ltd................................. 65
11,000 Takeda Chemical Industries........................ 145
11,000 Teijin Ltd........................................ 53
11,000 Tobu Railway Co................................... 69
17,000 Tokai Bank........................................ 188
16,000 Tokio Marine & Fire Industries.................... 183
3,000 Tokyo Dome Corp................................... 46
12,100 Tokyo Electric Power Co........................... 371
2,000 Tokyo Electron Ltd................................ 68
33,000 Tokyo Gas Co...................................... 130
11,000 Tokyu Corp........................................ 70
8,000 Toppan Printing Co. Ltd........................... 105
16,000 Toray Industries, Inc............................. 99
5,000 Toto Ltd.......................................... 71
11,000 Toyobo Ltd........................................ 36
25,000 Toyota Motor Corp................................. 495
+11,000 Ube Industries Ltd................................ 38
11,000 Yamaichi Securities............................... 59
5,000 Yamanuchi Pharmaceutical Co....................... 112
11,000 Yasuda Trust & Banking............................ 72
-------
14,712
-------
NETHERLANDS (4.0%)
5,718 ABN-Amro Holdings N.V............................. 221
1,350 Akzo Nobel........................................ 161
11,500 Elsevier N.V...................................... 136
1,100 Heineken N.V...................................... 166
578 Hoogovens N.V..................................... 23
6
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
NETHERLANDS (CONT.)
5,058 Internationale Nederlanden Groep N.V.............. $ 280
+1,450 KLM Royal Dutch Airlines N.V...................... 47
2,200 Koninklijke Ahold N.V............................. 79
8,700 Koninklijke PTT Nederland N.V..................... 313
400 Nedlloyd Groep N.V................................ 14
1,800 N.V. Koninklijke KNP BT........................... 54
5,800 Phillips Electronics N.V.......................... 246
9,400 Royal Dutch Petroleum Co.......................... 1,148
531 Stork N.V......................................... 14
2,800 Unilever N.V...................................... 364
1,233 Wolters Kluwer N.V................................ 109
-------
3,375
-------
SINGAPORE (3.9%)
13,000 Amcol Holdings Ltd................................ 38
35,000 City Developments Ltd............................. 214
10,000 Cycle & Carriage Ltd.............................. 89
37,000 DBS Land Ltd...................................... 116
29,000 Development Bank of Singapore..................... 330
9,000 First Capital Corp................................ 28
11,000 Fraser & Neave Ltd................................ 127
28,000 Hai Sun Hup Group Ltd............................. 17
19,000 Hotel Properties Ltd.............................. 34
8,000 Inchcape Bhd...................................... 26
5,000 Jurong Shipyard Ltd............................... 36
23,000 Keppel Corp....................................... 188
12,000 NatSteel Ltd...................................... 25
36,000 Neptune Orient Lines Ltd.......................... 42
39,000 Oversea-Chinese Banking Corp...................... 432
7,000 Overseas Union Enterprise Ltd..................... 43
14,000 Parkway Holdings Ltd.............................. 34
2,000 Robinson & Co. Ltd................................ 8
8,000 Shangri-La Hotel Ltd.............................. 32
58,000 Singapore Airlines Ltd. (Foreign)................. 535
15,600 Singapore Press Holdings (Foreign)................ 233
27,000 Straits Steamship Land Ltd........................ 94
18,000 Straits Trading Co. Ltd........................... 45
71,000 United Industrial Corp. Ltd....................... 68
40,000 United Overseas Bank Ltd.......................... 378
-------
3,212
-------
SPAIN (3.4%)
400 Acerinox S.A...................................... 49
4,200 Argentaria S.A.................................... 155
6,800 Autopistas Concesionaria Espanola S.A............. 66
8,100 Banco Bilbao Vizcaya (Registered)................. 234
5,300 Banco Central Hispanoamericano S.A................ 112
+3,466 Banco Espanol de Credito S.A...................... 24
5,200 Banco Santander S.A............................... 205
700 Corporacion Financiera Alba S.A................... 36
900 Corporacion Mapfre CIA Internacional de Reaseguros
S.A............................................. 45
2,600 Dragados & Construcciones S.A..................... 38
1,950 Ebro Agricolas, Compania de Alimentacion S.A...... 20
8,900 Empresa Nacional de Electricidad S.A.............. 440
+317 Energia e Indsutrias Aragonesas................... 2
3,500 Ercros S.A........................................ 4
850 Fabricacion de Automoviles Renault de Espana
S.A............................................. 25
500 Fomento de Construcciones y Contratas S.A......... 43
1,300 Gas Natural SDG 'E'............................... 155
200 Gines Navarro Construction Co..................... 3
30,300 Iberdrola S.A..................................... 228
125 Inmobiliaria Metropolitana Vasco Central S.A...... 4
VALUE
SHARES (000)
- ---------------------------------------------------------------------
400 Portland Vaderrivas S.A........................... $ 27
10,800 Repsol S.A........................................ 340
1,300 Tabacalera S.A. 'A'............................... 49
31,800 Telefonica de Espana.............................. 410
10,500 Union Electrica Fenosa S.A........................ 49
+1,400 Uralita S.A....................................... 17
1,550 Vallehermoso S.A.................................. 26
1,000 Viscofan Industria Navarra De Envolturas
Celulosicas S.A................................. 15
300 Zardoya-Otis S.A.................................. 31
-------
2,852
-------
SWITZERLAND (2.0%)
+25 Adia S.A. (Bearer)................................ 5
25 Alusuisse-Lonza Holding AG (Bearer)............... 16
50 Alusuisse-Lonza Holding AG (Registered)........... 31
60 BBC Brown Boveri AG (Bearer)...................... 62
30 Ciba-Geigy AG (Bearer)............................ 22
160 Ciba-Geigy AG (Registered)........................ 117
800 CS Holding AG (Registered)........................ 73
10 Georg Fischer AG (Bearer)......................... 14
45 Holderbank Financiere Glaris AG (Bearer).......... 37
30 Merkur Holding AG (Registered).................... 9
250 Nestle S.A. (Registered).......................... 260
10 Roche Holding AG (Bearer)......................... 111
45 Roche Holding AG-Genusshein....................... 290
10 SGS Societe Generale de Surveillance Holding S.A.
(Bearer)........................................ 18
25 SMH AG (Bearer)................................... 16
100 SMH AG (Registered)............................... 14
225 Sandoz AG (Registered)............................ 155
100 Schweizerische Rueckversicherungs-Gesellschaft
(Registered).................................... 77
25 Sulzer AG (Registered)............................ 17
150 Swiss Bank Corp. (Bearer)......................... 53
250 Swiss Bank Corp. (Registered)..................... 44
+25 SwissAir AG (Registered).......................... 17
140 Union Bank of Switzerland (Bearer)................ 145
150 Union Bank of Switzerland (Registered)............ 33
50 Zurich Versicherungs-Gesellschaft (Registered).... 63
-------
1,699
-------
UNITED KINGDOM (8.7%)
17,900 Abbey National plc ............................... 133
13,000 Argyll Group plc ................................. 69
12,600 Arjo Wiggins Appleton plc ........................ 52
5,100 Associated British Foods plc ..................... 54
14,900 Barclays plc ..................................... 160
9,400 Bass plc ......................................... 90
30,675 BAT Industries plc ............................... 235
6,000 BICC plc ......................................... 28
11,000 Blue Circle Industries plc ....................... 49
5,400 BOC Group plc .................................... 69
11,000 Boots Co. plc .................................... 89
5,000 Bowater plc ...................................... 38
7,600 BPB Industries plc ............................... 38
4,400 British Aerospace plc ............................ 39
10,300 British Airways plc .............................. 68
50,300 British Gas plc .................................. 232
54,900 British Petroleum Co. plc ........................ 393
19,500 British Steel plc ................................ 53
59,600 British Telecommunications plc ................... 372
37,200 BTR plc .......................................... 189
2,518 Burmah Castrol plc ............................... 36
22,300 Cable & Wireless plc ............................. 153
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
UNITED KINGDOM (CONT.)
10,600 Cadbury Schweppes plc ............................ $ 77
6,900 Caradon plc ...................................... 26
7,714 Coats Viyella plc ................................ 23
4,585 Commercial Union plc ............................. 43
4,400 Courtaulds plc ................................... 31
3,100 De La Rue plc .................................... 46
4,800 Eastern Group plc ................................ 50
11,100 Forte plc ........................................ 40
6,200 General Accident plc ............................. 57
33,600 General Electric plc ............................. 164
4,764 GKN plc .......................................... 49
30,900 Glaxo Holdings plc ............................... 372
24,200 Grand Metropolitan plc ........................... 151
10,700 Great Universal Stores plc ....................... 100
14,575 Guardian Royal Exchange plc ...................... 48
18,300 Guinness plc ..................................... 138
53,526 Hanson plc ....................................... 187
10,700 Harrisons & Crosfield plc ........................ 24
21,151 HSBC Holdings plc ................................ 273
7,600 Imperial Chemical Industries plc ................. 93
14,991 Ladbroke Group plc ............................... 40
6,600 Land Securities plc .............................. 64
9,400 Lasmo plc ........................................ 26
12,674 Lloyds Bank plc .................................. 126
7,788 Lonrho plc ....................................... 18
30,500 Marks & Spencer plc .............................. 211
5,000 MEPC plc ......................................... 30
13,500 National Power plc ............................... 96
5,700 North West Water plc ............................. 50
9,100 Peninsular & Oriental Steam Navigation Co. ....... 84
12,600 Pilkington plc ................................... 35
22,677 Prudential Corp. plc ............................. 121
4,700 Rank Organisation plc ............................ 30
7,017 Redland plc ...................................... 46
8,300 Reed International plc ........................... 117
16,500 Reuters Holdings plc ............................. 138
2,800 RMC Group plc .................................... 47
9,400 Royal Bank of Scotland Group plc ................. 64
7,642 Royal Insurance Holdings plc ..................... 38
12,900 RTZ Corp. plc (Registered) ....................... 168
17,600 Sainsbury (J) plc ................................ 124
7,900 Scottish Power plc ............................... 41
16,400 Sears plc ........................................ 26
5,200 Sedgwick Group plc ............................... 11
2,800 S.G. Warburg Group plc ........................... 32
3,800 Slough Estates plc ............................... 13
12,800 SmithKline Beecham plc 'A' ....................... 116
3,400 Southern Electricity plc ......................... 35
11,860 Tarmac plc ....................................... 21
6,349 Taylor Woodrow plc ............................... 12
16,825 Tesco plc ........................................ 78
6,000 Thames Water plc ................................. 45
5,300 Thorne EMI plc ................................... 110
4,462 TI Group plc ..................................... 28
11,300 Trafalgar House plc .............................. 8
6,800 Unilever plc ..................................... 138
11,000 Vodafone Group plc ............................... 41
8,900 Zeneca Group plc ................................. 150
-------
7,209
-------
UNITED STATES (32.8%)
8,400 Abbott Laboratories .............................. 340
2,700 Aluminum Co. of America .......................... 135
5,400 American Express Co. ............................. 190
3,700 American Home Products Corp. ..................... 286
VALUE
SHARES (000)
- ---------------------------------------------------------------------
4,100 American International Group, Inc. ............... $ 467
15,900 American Telephone & Telegraph Co. ............... 845
5,700 Amoco Corp. ...................................... 380
+2,700 AMR Corp. ........................................ 201
2,000 Atlantic Richfield Co. ........................... 220
2,700 Automatic Data Processing, Inc. .................. 170
5,300 Banc One Corp. ................................... 171
5,300 BankAmerica Corp. ................................ 279
4,900 Bell Atlantic Corp. .............................. 274
5,700 BellSouth Corp. .................................. 362
5,300 Boeing Co. ....................................... 332
5,200 Bristol-Myers Squibb Co. ......................... 354
4,500 Campbell Soup Co. ................................ 221
200 Capital Cities/ABC, Inc. ......................... 22
2,700 Caterpillar, Inc. ................................ 173
3,600 Chevron Corp. .................................... 168
4,400 Chrysler Corp. ................................... 211
2,700 Chubb Corp. ...................................... 216
+3,600 Cisco Systems, Inc. .............................. 182
4,300 Citicorp ......................................... 249
11,300 Coca-Cola Co. .................................... 720
4,800 Columbia/HCA Healthcare Corp. .................... 208
2,700 Computer Associates International, Inc. .......... 183
5,300 Consolidated Edison Co. of New York, Inc. ........ 156
2,700 Cooper Industries, Inc. .......................... 107
2,700 Corning, Inc. .................................... 88
1,900 CSX Corp. ........................................ 143
1,300 Deere & Co. ...................................... 111
3,900 Dow Chemical Co. ................................. 280
7,800 Du Pont (EI) de Nemours Co. ...................... 536
5,300 Duke Power Co. ................................... 220
5,300 Eastman Kodak Co. ................................ 321
3,200 Eli Lilly & Co. .................................. 251
3,500 Enron Corp. ...................................... 123
5,600 Entergy Corp. .................................... 135
13,100 Exxon Corp. ...................................... 925
5,300 Federal National Mortgage Association ............ 500
5,300 FPL Group, Inc. .................................. 205
2,000 Gannett Co., Inc. ................................ 109
17,000 General Electric Co. ............................. 958
8,500 General Motors Corp. ............................. 399
2,700 General Motors Corp. 'E' ......................... 118
1,600 General RE Corp. ................................. 214
2,700 Goodyear Tire & Rubber Co. ....................... 111
5,300 Hewlett-Packard Co. .............................. 395
4,900 H.J. Heinz Co. ................................... 218
5,200 Home Depot, Inc. ................................. 211
7,900 Intel Corp. ...................................... 500
6,000 International Business Machines Corp. ............ 576
1,800 International Game Technology .................... 28
2,700 International Paper Co. .......................... 232
1,500 ITT Corp. ........................................ 176
3,100 J.C. Penney Co., Inc. ............................ 149
6,000 Johnson & Johnson ................................ 406
8,000 Kmart Corp. ...................................... 117
2,700 May Department Stores Co. ........................ 112
6,600 McDonald's Corp. ................................. 258
2,700 Melville Corp. ................................... 93
13,200 Merck & Co., Inc. ................................ 647
+5,300 Microsoft Corp. .................................. 479
5,300 Minnesota Mining & Manufacturing Co. ............. 303
4,600 Mobil Corp. ...................................... 442
1,600 Monsanto ......................................... 144
2,700 Morgan (J.P.) & Co., Inc. ........................ 189
8
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
SHARES VALUE)
(000
- ---------------------------------------------------------------------
UNITED STATES (CONT.)
6,400 Motorola, Inc. ................................... $ 430
1,100 Nucor Corp. ...................................... 59
5,300 NationsBank Corp. ................................ 284
2,100 Norfolk Southern Corp. ........................... 141
5,700 Norwest Corp. .................................... 164
+4,100 Novell, Inc. ..................................... 82
+2,650 Oracle System Corp. .............................. 102
7,700 Pacific Gas & Electric Co. ....................... 223
8,900 PepsiCo, Inc. .................................... 406
2,800 Pfizer, Inc. ..................................... 259
8,400 Philip Morris Cos., Inc. ......................... 625
1,700 PPG Industries, Inc. ............................. 73
7,900 Procter & Gamble Co. ............................. 568
+1,400 Promus Co., Inc. ................................. 55
8,000 Public Service Enterprise Group, Inc. ............ 222
5,300 Rockwell International Corp. ..................... 242
2,700 SCE Corp. ........................................ 46
5,100 Schering-Plough Corp. ............................ 225
5,200 Sprint Corp. ..................................... 175
5,300 Sears, Roebuck & Co. ............................. 317
8,000 Southern Co. ..................................... 179
6,000 Southwestern Bell Corp. .......................... 286
2,700 Suntrust Banks, Inc. ............................. 157
5,300 Texas Utilities Co. .............................. 182
2,700 The Dun & Bradstreet Corp. ....................... 142
5,300 The Limited, Inc. ................................ 117
5,300 Time Warner, Inc. ................................ 218
+5,300 Toys 'R' Us, Inc. ................................ 155
4,100 Travelers, Inc. .................................. 179
2,600 Union Pacific Corp. .............................. 144
1,350 U.S. Healthcare, Inc. ............................ 41
338 U.S. Industries, Inc. ............................ 5
3,000 Viacom, Inc. 'B' ................................. 139
15,900 Wal-Mart Stores, Inc. ............................ 425
5,700 Walt Disney Co. .................................. 317
800 Wells Fargo & Co. ................................ 144
8,000 Westinghouse Electric Corp. ...................... 117
5,300 Weyerhaeuser Co. ................................. 250
4,800 WMX Technologies, Inc. ........................... 136
-------
27,275
-------
TOTAL COMMON STOCKS (COST $75,752).......................... 80,493
-------
PREFERRED STOCKS (0.3%)
AUSTRALIA (0.2%)
27,069 News Corp. Ltd. .................................. 134
-------
GERMANY (0.0%)
100 RWE AG ........................................... 27
20 SAP AG ........................................... 25
-------
52
-------
ITALY (0.1%)
+16,000 Fiat S.p.A. ...................................... 35
-------
TOTAL PREFERRED STOCKS (COST $202).......................... 221
-------
NO. OF VALUE
RIGHTS (000)
- ---------------------------------------------------------------------
RIGHTS (0.0%)
AUSTRALIA (0.0%)
*+2,719 Coca-Cola Amatil Ltd. ............................ $ 3
-------
FRANCE (0.0%)
*+664 Cie Bancaire S.A. ................................ 8
-------
SPAIN (0.0%)
+300 Zardoya-Otis S.A. ................................ 3
-------
TOTAL RIGHTS (COST $0)...................................... 14
-------
NO. OF
UNITS
- --------
UNITS (0.2%)
AUSTRALIA (0.1%)
+1,622 Westfield Trust .................................. 2
25,700 Westfield Trust .................................. 45
-------
47
-------
UNITED KINGDOM (0.1%)
119 British Aerospace (1 share cumulative loan stock
plus 1 warrant) ................................ 1
12,400 SmithKline Beecham plc (1 'B' share common plus 1
preferred share) ............................... 110
-------
111
-------
TOTAL UNITS (COST $139)..................................... 158
-------
NO. OF
WARRANTS
- --------
WARRANTS (0.0%)
BELGIUM (0.0%)
+61 Petrofina S.A., expiring 6/3/97 .................. 1
-------
CANADA (0.0%)
+121 Trizec Corp., expiring 7/25/99 ................... --
-------
HONG KONG (0.0%)
+2,000 Applied International Holdings Ltd., expiring
12/30/99 ....................................... --
-------
ITALY (0.0%)
+420 R.A.S. S.p.A. Savings Shares, expiring
12/31/97 ....................................... 1
+880 R.A.S. S.p.A., expiring 11/30/97 ................. 4
-------
5
-------
TOTAL WARRANTS (COST $4).................................... 6
-------
FACE
AMOUNT
(000)
- --------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
$ 29 Sanofi 4.00%, 1/1/00 (COST $18)................... 18
-------
TOTAL FOREIGN & U.S. SECURITIES (97.4%) (COST $76,115)...... 80,910
-------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENTS (5.4%)
REPURCHASE AGREEMENT
UNITED STATES
$4,465 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $4,467, collateralized by $4,630
United States Treasury Bills, due 7/27/95,
valued at $4,612 (COST $4,465).................. $ 4,465
-------
TOTAL INVESTMENT IN SECURITIES (COST $80,580)............... 85,375
-------
FOREIGN CURRENCY (0.1%)
A$ 9 Australian Dollar................................. 6
BF 478 Belgian Franc..................................... 17
L 3 British Pound Sterling............................ 5
C$ 5 Canadian Dollar................................... 4
DM 1 Deutsche Mark..................................... 1
IL 22,189 Italian Lira...................................... 13
Y 2,002 Japanese Yen...................................... $ 24
S$ 6 Singapore Dollar.................................. 5
SP 842 Spanish Peseta.................................... 7
CHF 2 Swiss Franc....................................... 1
-------
TOTAL FOREIGN CURRENCY (COST $83)........................... 83
-------
TOTAL INVESTMENTS (102.9%) (COST $80,663)................... 85,458
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%)............... (2,412)
-------
Net Assets (100%)........................................... $83,046
-------
-------
<TABLE>
<S> <C> <C>
- ---------------
+ --
* --
ADR --
NCS --
RFD --
<CAPTION>
- ---------
<S> <C>
+ Non-income producing securities
* Fair valued securities -- See Note A-1
ADR American Depositary Receipt
NCS Non Convertible Shares
RFD Ranked for Dividends
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund is obligated to deliver or is to receive foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- ---------- --------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 2,616 $ 2,616 7/6/95 L 1,660 $ 2,642 $ 26
IL 2,385 1 7/31/95 $ 1 1 --
BF 126,707 4,485 4/30/96 $ 4,500 4,500 15
$ 2,900 2,900 4/30/96 BF 82,839 2,932 32
Y 796,000 9,781 4/30/96 $ 10,000 10,000 219
--------- --------- -----
$ 19,783 $ 20,075 $ 292
--------- --------- -----
--------- --------- -----
</TABLE>
BF -- Belgian Franc
IL -- Italian Lira
L -- British Pound Sterling
Y -- Japanese Yen
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. EQUITY SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------------------------------------------------- ------- -----------
<S> <C> <C>
Finance........................................... $17,388 21.0%
Services.......................................... 15,425 18.6
Consumer Goods.................................... 15,364 18.5
Energy............................................ 10,849 13.1
Capital Equipment................................. 9,650 11.6
Materials......................................... 8,243 9.9
Multi-Industry.................................... 3,528 4.2
Mining............................................ 463 0.5
------- ---
$80,910 97.4%
------- ---
------- ---
</TABLE>
10
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australian Dollar 2.5%
British Pound
Sterling 5.6%
Canadian Dollar 3.3%
Danish Krone 5.0%
Deutsche Mark 14.2%
Finnish Markka 1.4%
French Franc 5.5%
Italian Lira 3.9%
Japanese Yen 9.5%
Netherlands Guilder 5.1%
New Zealand Dollar 1.9%
Spanish Peseta 3.9%
Swedish Krona 1.6%
United States Dollar 32.2%
Other 4.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY CURRENCY (000)
- ----------------------- --------------- ---------
U.S. Treasury Notes United States
7.50%, 11/15/01 Dollar $ 2,001
U.S. Treasury Note United States
6.25%, 2/15/03 Dollar 1,213
Japan Development Bank
6.50%, 9/20/01 Japanese Yen 1,015
United Kingdom
Government British Pound
8.00%, 12/7/00 Sterling 946
Government of France
O.A.T.
6.75%, 10/25/03 French Franc 943
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE CURRENCY DENOMINATIONS
<S> <C> <C>
VALUE PERCENT OF
CURRENCY (000) NET ASSETS
- ------------------------------ --------- ------------
United States Dollar $ 5,499 32.2%
Deutsche Mark 2,414 14.2%
Japanese Yen 1,626 9.5%
British Pound Sterling 946 5.6%
French Franc 943 5.5%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
----------------------- -----------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ------------------------------------------------------------------------
Class A Shares 6.12% 11.41% 5.82% 7.92%
- ---------------------------------------------------------------------------------
Class C Shares+ 9.24% 10.24% N/A 7.01%
- ---------------------------------------------------------------------------------
J.P. Morgan Traded
Global Bond Index N/A 17.46% N/A 11.61%
- ---------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995.
The J.P. Morgan Traded Global Bond Index is an unmanaged index of government
bond issues that include Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom and the United
States excluding withholding tax.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Global Fixed Income Fund Class A Global Fixed Income Fund Class C+ MSCI World Index
1/4/93 9,525 10,000 10,000
6/30/93 10,289 10,653 10,760
6/30/94 10,331 10,733 11,187
6/30/95 11,509 11,833 13,139
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Fixed Income Fund commenced operations on January
4, 1993 and seeks to produce an attractive real rate of
return while preserving capital by investing in fixed income
securities of U.S. and foreign issuers denominated in U.S.
dollars and in other currencies. At June 30, 1995, the Fund
was 94.8% invested in fixed income securities in fourteen
countries.
For the year ended June 30, 1995, the Fund had a total return
exclusive of sales charge of 11.41% for the Class A shares
and 10.24% for the Class C shares, and a total return with
sales charge of 6.12% for the Class A shares and 9.24% for
the Class C shares, as compared to a total return of 17.46%
for the J.P. Morgan Traded Global Bond Index. For the period
since inception on January 4, 1993 through June 30, 1995, the
average annual total return of the Fund exclusive of sales
charge was 7.92% for the Class A shares and 7.01% for the
Class C shares, and 5.82% for the Class A shares with sales
charge, as compared to the average annual total return of
11.61% for the J.P. Morgan Traded Global Bond Index.
During the year ended June 30, 1995, all fixed income markets
produced a positive local currency return ranging from 6.5%
in Italy to 14.4% in Japan. At the beginning of the period
under review market conditions proved difficult and volatile.
Bond yields were under upward pressure as mounting evidence
of global economic expansion fostered worries about the
re-emergence of inflationary
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
11
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
pressures and the need for monetary tightening. In the U.S.
the Federal Reserve steadily increased the Fed Funds rate as
the economy continued to grow at rates above its long run
potential, causing the U.S. yield curve to flatten.
Surprisingly strong economic data across Europe hardened
perceptions that the Continent had reached the bottom of its
interest rate cycle. The Japanese market also suffered as the
economy appeared to be moving into a recovery phase.
Conditions stabilized around year end before markets began to
recover strongly in 1995. The rally was led by the U.S. where
the market was buoyed by indications of slower economic
activity coupled with subdued price and wage inflation. Fed
Funds reached a high of 6.0% in February but expectations of
further monetary tightening were then scaled back
considerably. Indeed the market increasingly discounted an
easing of monetary policy in the second half of 1995. By
early June, the yield on ten-year maturity U.S. Treasuries
had fallen to 6.0%, helped by solid retail participation from
Japanese accounts and central banks and the hedging of
mortgage bond exposure. The market produced an overall return
of around 11% for the period with longer maturities being the
most profitable. The Fund switched between a slightly long
and slightly short duration in its U.S. holdings and actively
moved between the U.S. Treasury, corporate and mortgage
sectors. Holdings were increased over the period but the Fund
remained underweight. An overweight position was maintained
in the other dollar bloc markets. The Canadian market was
volatile but offered a return of 16%, benefiting from high
real and nominal yields, a slowing economy and the Bank of
Canada lowering rates. Australian bonds returned around 12%
as the economy slowed from very strong 1994 levels and a
fiscal surplus was announced in the budget. The New Zealand
market did not perform as well, up 9%, due to a heavily
inverse yield curve, some political worries and the
likelihood of a temporary rise in inflation.
"THE FUND IS PRESENTLY STRUCTURED TO HAVE AN OVERALL DURATION SLIGHTLY LONGER
THAN THE BENCHMARK, REFLECTING A POSITIVE VIEW OF BOND MARKETS."
Japanese bonds rallied throughout 1995 and by June benchmark
yields had fallen below 3.0%, the lowest level since 1987.
The Bank of Japan cut the discount rate by 0.75% to a record
low of 1.0% in April and overnight call rates dropped to
1.25%. The strong yen continued to threaten the economic
recovery while the financial system remained fragile and
deflation pressures mounted. Domestic investors, faced with a
falling stock market, low returns on cash and an aversion to
foreign exchange risk, gave strong support to the market.
Yields on benchmark euro-yen issues dropped below government
bonds due to relative supply pressures and custodial
uncertainties. During the period under review the Fund
increased both its allocation to euro-yen bonds and their
duration but stayed underweight to the detriment of relative
performance.
European bonds recovered their 1994 losses during the first
six months of 1995 and produced average total returns of over
8%. The German market was supported by a continuing downward
trend in inflationary pressures and below target money supply
growth. Although German exports held up well, strong deutsche
mark appreciation was seen as both threatening growth
prospects and dampening inflation. The Bundesbank cut the
discount rate by 0.5% in March and speculation of further
cuts resulted in a steeper German yield curve. Official rates
were also lowered in Denmark, Belgium and the Netherlands in
the second quarter of calendar 1995. Higher yielding markets
reversed part of their first quarter underperformance and
spreads to the core markets tightened. They were helped by
the general bond rally, progress on fiscal consolidation,
some currency stability and reallocations from underweight
investors. The U.K. market benefited from downward revisions
to economic activity, but political turmoil and the
associated potential risks of a more populist policy agenda
caused a sharp setback in June. Fund performance was aided by
an overall long duration position in European holdings. Some
long dated issues were shortened as the markets rallied.
Foreign exchange movements were dominated by the U.S.
dollar's heavy depreciation against most currencies. It ended
the period around 15% lower against the deutsche mark at
DM1.38 having touched all time lows of DM1.35 in March. It
hit new lows of below Y80 against the yen before recovering
slightly to end the period 16% weaker. The dollar remained
hostage to the familiar structural problems of the U.S.
current account deficit, budget deficit and low level of
national savings. In addition, the moderating pace of
economic growth caused the market to revise down its
expectations for the path of U.S. interest rates. Other
negatives were the shock of the Mexican peso
12
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
devaluation, a perception of limited concern among U.S.
policy makers and Central Bank diversification. However,
towards the end of the period, investors became increasingly
less inclined to take strong bets against the U.S. dollar and
large scale central bank intervention at the end of May was
successful at supporting the currency. The Fund maintained a
slightly overweight U.S. dollar position by hedging some
European currency exposure. The Australian dollar reversed
some of last year's gains, ending 3% lower against its U.S.
counterpart as the large current account deficit showed no
signs of improvement. Conversely, the New Zealand dollar rose
over 12% as the Central Bank kept interest rates high to
maintain inflation close to its target range. The Canadian
dollar recovered from record lows to end the period little
changed. The Fund reduced its weighting to the Canadian
dollar to neutral but successfully hedged the Australian bond
exposure into New Zealand dollars. The yen was supported by
the large current account surplus, capital repatriation and
the reluctance of Japanese investors to recycle their
surpluses overseas. Judging the yen to be very overvalued,
the Fund held an underweight yen currency position which was
the largest factor causing performance to lag the benchmark.
In Europe, deutsche mark strength against the dollar and
country specific problems led to turmoil on the cross rates
and significant falls in most peripheral currencies. These
were partially reversed in the second quarter of 1995 but
ended the period significantly weaker against the deutsche
mark. Sterling fell to new all-time lows on a trade weighted
basis. A more pessimistic view of sterling was warranted by a
deteriorating trade performance, quarter-end political
turmoil and the suspicion of a politicization of monetary
policy setting. The Fund was successfully positioned to be
overweight in the hard core European currencies but
maintained some exposure to the high yielding currencies. The
Finnish markka performed well.
The Fund is presently structured to have an overall duration
slightly longer than the benchmark, reflecting a positive
view of bond markets. In relative terms, it is slightly
underweight in the U.S. and dollar bloc markets since there
are risks of the market discounting much good news in respect
of a "soft landing" for the U.S. economy. An underweight
Japanese position is held in anticipation of a reversal of
the market's recent outperformance. Running yields are
un-competitive, it is vulnerable to fiscal stimulus and
increased supply and the yen is very overvalued. Real and
nominal yields are considered most attractive in the European
markets. Some hedging from European currencies brings the
dollar bloc exposure to slightly overweight reflecting a
positive bias to dollar appreciation.
The general global environment of stable short-term interest
rates, a structurally subdued inflation background and a
softening of economic growth forecasts remains broadly
constructive for fixed income investment during the remainder
of 1995 and into 1996. Markets risk setbacks if it becomes
apparent that they have taken an exaggerated view of the
current pause in global economic growth or have become overly
enthusiastic about rate cut prospects. The U.S. dollar
appears to be forming a base around current levels. Its
significant declines over the last eighteen months should
increasingly set in motion adjustments in the real economy
that generate a cyclical recovery in the currency. It remains
cheaply valued and competitive and a slower economy should
help the trade deficit. The improved tone of the U.S. debate
on fiscal policy is also a potential support and U.S.
monetary policy may prove to be tighter than presently
discounted.
13
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
FIXED INCOME SECURITIES (94.8%)
AUSTRALIAN DOLLAR (2.5%)
GOVERNMENT BOND (2.5%)
A$ 600 Government of Australia 9.00%, 9/15/04................. $ 422
---------
BRITISH POUND STERLING (5.6%)
GOVERNMENT BOND (5.6%)
L 600 United Kingdom 8.00%, 12/7/00.......................... 946
---------
CANADIAN DOLLAR (3.3%)
EUROBOND (3.3%)
C$ 800 The Export-Import Bank of Japan 7.75%, 10/8/02......... 566
---------
DANISH KRONE (5.0%)
GOVERNMENT BOND (5.0%)
DK 5,050 Kingdom of Denmark 7.00%, 12/15/04..................... 843
---------
DEUTSCHE MARK (13.4%)
EUROBONDS (10.9%)
DM 500 Treuhandanstalt 6.25%, 7/29/99......................... 364
850 Treuhandanstalt 6.875%, 6/11/03........................ 609
1,250 Treuhandanstalt 6.75%, 5/13/04......................... 886
---------
1,859
---------
GOVERNMENT BOND (2.5%)
600 Bundesrepublik 6.50%, 7/15/03.......................... 420
---------
TOTAL DEUTSCHE MARK............................................... 2,279
---------
FINNISH MARKKA (1.4%)
GOVERNMENT BOND (1.4%)
FM 1,000 Republic of Finland 9.50%, 3/15/04..................... 244
---------
FRENCH FRANC (5.5%)
GOVERNMENT BOND (5.5%)
FF 4,800 Government of France O.A.T. 6.75%, 10/25/03............ 943
---------
ITALIAN LIRA (3.9%)
GOVERNMENT BOND (3.9%)
IL 1,220,000 Republic of Italy 8.50%, 8/1/99........................ 661
---------
JAPANESE YEN (9.5%)
EUROBONDS (9.5%)
Y 70,000 Japan Development Bank 6.50%, 9/20/01.................. 1,015
45,000 Republic of Austria 4.75%, 12/20/04.................... 611
---------
TOTAL JAPANESE YEN................................................ 1,626
---------
NETHERLANDS GUILDER (5.1%)
GOVERNMENT BONDS (5.1%)
NG 650 Government of the Netherlands 7.25%, 10/1/04........... 427
690 Government of the Netherlands 7.00%, 6/15/05........... 444
---------
TOTAL NETHERLANDS GUILDER......................................... 871
---------
NEW ZEALAND DOLLAR (1.9%)
GOVERNMENT BONDS (1.9%)
NZ$ 250 Government of New Zealand 6.50%, 2/15/00............... 159
250 Government of New Zealand 8.00%, 4/15/04............... 171
---------
TOTAL NEW ZEALAND DOLLAR.......................................... 330
---------
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
SPANISH PESETA (3.9%)
GOVERNMENT BONDS (3.9%)
SP 65,000 Government of Spain 10.25%, 11/30/98................... $ 517
20,000 Government of Spain 10.30%, 6/15/02.................... 154
---------
TOTAL SPANISH PESETA.............................................. 671
---------
SWEDISH KRONA (1.6%)
GOVERNMENT BONDS (1.6%)
SK 2,000 Government of Sweden 10.25%, 5/5/00.................... 272
---------
UNITED STATES DOLLAR (32.2%)
EUROBOND (1.0%)
$ 200 Republic of Italy 6.875%, 9/27/23...................... 178
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (31.2%)
FEDERAL HOME LOAN MORTGAGE CORPORATION
497 Gold 9.00%, 3/1/25..................................... 517
350 Gold TBA 9.00%, 7/1/25................................. 365
---------
882
---------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
247 ARM 7.00%, 1/1/25...................................... 252
97 ARM 7.50%, 1/20/25..................................... 102
150 TBA 30 Yr 9.00%, 7/15/25............................... 157
---------
511
---------
U.S. TREASURY BONDS
140 8.875%, 8/15/17........................................ 175
30 8.125%, 8/15/19........................................ 35
20 8.00%, 11/15/21........................................ 23
---------
233
---------
U.S. TREASURY NOTES
475 7.875%, 2/15/96........................................ 481
1,865 7.50%, 11/15/01........................................ 2,001
1,210 6.25%, 2/15/03......................................... 1,213
---------
3,695
---------
5,321
---------
TOTAL UNITED STATES DOLLAR.......................................... 5,499
---------
TOTAL FIXED INCOME SECURITIES (COST $15,661)........................ 16,173
---------
SHORT-TERM INVESTMENTS (4.2%)
DEUTSCHE MARK (0.8%)
POOLED TIME DEPOSIT (0.8%)
DM 187 ING Bank 4.75%, 7/5/95................................. 135
---------
UNITED STATES DOLLAR (3.4%)
REPURCHASE AGREEMENT (3.4%)
$ 586 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $586, collateralized by $615 U.S.
Treasury Bills, due 7/27/95, valued at $613.......... 586
---------
TOTAL SHORT-TERM INVESTMENTS (COST $721)............................ 721
---------
TOTAL INVESTMENTS (99.0%) (COST $16,382)............................ 16,894
OTHER ASSETS IN EXCESS OF LIABILITIES (1.0%)........................ 163
---------
NET ASSETS (100%)................................................... $17,057
---------
---------
<TABLE>
<S> <C> <C>
- ---------------
ARM -- Adjustable Rate Mortgage
TBA -- Security is subject to delayed delivery.
</TABLE>
14
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, 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 IN EXCHANGE
DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN(LOSS) (000)
- --------- --------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C>
NG 1,300 $ 839 7/13/95 $ 821 $ 822 $ (17)
DM 1,000 725 9/6/95 $ 701 701 (24)
DK 2,800 518 9/7/95 $ 508 508 (10)
A$ 500 354 9/20/95 NZ$ 546 362 8
--------- --------- ---
$ 2,436 $ 2,393 $ (43)
--------- --------- ---
--------- --------- ---
</TABLE>
A$ -- Australian Dollar
DK -- Danish Krone
DM -- Deutsche Mark
NG -- Netherlands Guilder
NZ$ -- New Zealand Dollar
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
China 2.0%
Hong Kong 27.2%
India 0.9%
Indonesia 6.6%
Korea 3.6%
Malaysia 21.9%
Pakistan 0.2%
Philippines 5.9%
Singapore 14.8%
Taiwan 2.4%
Thailand 14.6%
Other -0.1%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY COUNTRY (000)
- ----------------------------- --------- ---------
Cheung Kong Holdings Ltd. Hong Kong $ 13,191
Hong Kong Telecommunications Hong Kong 11,925
Ltd.
Malayan Banking Bhd. Malaysia 11,839
Hutchison Whampoa Ltd. Hong Kong 10,189
Telekom Malaysia Bhd. Malaysia 8,886
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
<S> <C> <C>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------- --------- ------------
Banking $ 56,141 17.6%
Real Estate 51,417 16.2%
Telecommunications 40,699 12.8%
Services 39,294 12.3%
Multi-Industry 34,572 10.9%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
----------------------- -----------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
- ------------------------------------------------------------
Class A Shares 4.30% 9.50% 15.91% 18.73%
- ---------------------------------------------------------------------------------
Class C Shares+ 7.71% 8.71% N/A 17.93%
- ---------------------------------------------------------------------------------
MSCI CFEF
ex-Japan Index N/A 7.19% N/A 22.46%
- ---------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
The Morgan Stanley Capital International (MSCI) Combined Far East Free (CFEF)
ex-Japan Index is an unmanaged index of common stocks and includes Indonesia,
Hong Kong, Malaysia, the Philippines, Korea, Taiwan and Thailand (assumes
dividends are reinvested).
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C>
6/23/93 6/30/93 6/30/94 6/30/95
Asian Growth Fund Class A 9525 9525 12303 13472
Asian Growth Fund Class C+ 10000 10000 12705 13951
MSCI Combined Far East Free ex-Japan Index 10000 10000 13265 15055
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Asian Growth Fund is
long-term capital appreciation through investment in the
stock markets of Asia excluding Japan. The benchmark for
investment performance is the Morgan Stanley Capital
International (MSCI) Combined Far East Free ex-Japan Index.
For the year ended June 30, 1995, the Fund had a total return
exclusive of sales charge of 9.50% for the Class A shares and
8.71% for the Class C shares, and a total return with sales
charge of 4.30% for the Class A shares and 7.71% for the
Class C shares, as compared to a total return of 7.19% for
the Morgan Stanley Capital International (MSCI) Combined Far
East Free ex-Japan Index. For the period since inception on
June 23, 1993 through June 30, 1995, the average annual total
return of the Fund exclusive of sales charge was 18.73% for
the Class A shares and 17.93% for the Class C shares, and
15.91% for the Class A shares with sales charge, as compared
to the average annual total return of 22.46% for the Index.
Hong Kong garnered top honors as Asia's top performing
market, yielding 10.9% despite uncertainty surrounding
interest rates and the worsening of relations between the
U.S. and China over arms sales and the recent visit to the
U.S. of Taiwan's President. Tied to U.S. interest rates via
the exchange rate peg, Hong Kong benefited from the dramatic
drop in U.S. bond yields. Utility stocks led the rally. By
contrast, property stocks performed poorly as property sales
continued to be weak. At 11x 1995 estimated earnings Hong
Kong is still Asia's cheapest market.
Malaysia rivaled Hong Kong as one of Asia's best performing
markets, gaining 10.2% over the first six months. In January
and February, the market reeled as investors feared that the
ringgit would be devalued given the country's large current
account deficit. Eventually market sentiment improved as
investors recognized that because of Malaysia's strong
external reserves position, low debt service ratio and basic
account surplus, the Central Bank was well armed to defend
the ringgit. The market
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI COMBINED FAR EAST FREE EX-JAPAN INDEX AND ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
FUND'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
16
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
snapped back to life in the second quarter as foreign
investors returned in droves with the fall in U.S. bond
yields and as fears abated that tough anti-inflation measures
would be enacted. Concerns over Malaysia's trade deficit also
seemed to have subsided, thereby bolstering confidence
further. At 21x 1995 estimated earnings, the market is fully
valued.
The Thai market posted modest gains of 3.3% over the past two
quarters. The first quarter of calendar 1995 was particularly
trying for the Thai market as it was viewed by foreign
institutional investors as a submerging market whose currency
(the baht), like the Mexican peso several months before, was
overvalued and due for an adjustment. Fearing the worst,
foreign institutions reacted impulsively, selling
indiscriminately. The market's liquid blue-chips were the
hardest hit. After the initial wave of panic selling,
however, the market traded sideways on thin volume for
several months. Cautious foreign and local investors
preferred to remain on the sidelines as they found little to
cheer about. Finance stocks fared the worst as market
sentiment soured, as the technical picture worsened and as
evidence that service sector inflation was squeezing margins
surfaced. With the dramatic drop in U.S. bond yields in May
and the extended rally in U.S. markets, however, foreign
investors returned to the market in force, buying
aggressively in Thailand's most interest rate sensitive
sectors - banks, finance companies, and property developers -
which would benefit from wider margins. Uncertainty about the
direction of U.S. interest rates and the outcome of Thai
Parliamentary elections brought May's rally to an abrupt halt
in June, with the market once again trading sideways. At 20x
1995 estimated earnings, the market is fairly valued. It is
expected that the Thai economy will continue to grow robustly
because of substantial direct investments in infrastructure
and manufacturing projects.
Singapore lagged the Index and other regional markets during
the last six months of the fiscal year. In U.S. dollar terms,
Singapore rose by 4%, attributable entirely to the 4.1%
appreciation of the Singapore dollar (versus the U.S. dollar)
this year. Although capital inflows pushed the Singapore
dollar higher against the U.S. dollar, the market did not
benefit from improved liquidity for several reasons. First,
the system was already flush with liquidity as inter-bank
rates hovered below 2%. Second, the Singapore dollar weakened
slightly against regional currencies, suggesting that
investors believed that other markets afforded better
opportunities. Also contributing to the market's sluggishness
was the economy's slowdown; the GDP growth rate downshifted
to a sustainable 7.2% per annum level. At 21x 1995 estimated
earnings, the market's valuation is attractive both relative
to historical ranges and to local interest rates.
Notwithstanding lingering concerns over the strength of the
rupiah, liquidity draining IPOs and rising debt servicing
costs due to the appreciation of the yen, Indonesia managed
to gain 8.0% over the past two quarters. Lower U.S. bond
yields and the passage of further trade liberalization
measures resulted in a positive credit re-rating of the
archipelago, bolstering the confidence of overseas investors.
The Philippine market showed great resiliency during the last
half of the fiscal year. In the wake of the Mexican peso
crisis, foreign investors sold massively during the first
quarter of calendar 1995, driving the index down by 16%. To
defend the Philippine peso, the Central Bank raised interest
rates significantly. During the second quarter of calendar
1995, however, the market rebounded 17%, principally because
concerns over the peso subsided, bank reserve requirements
were lowered and strong corporate results were reported. With
inflation below 7%, we believe the market to be slightly
below fair market value at 20x 1995 estimated earnings and
feel further that the market is broadly representative of the
underlying growth story of the country.
Korea and Taiwan were Asia's worst performing markets over
the six months ended June 30, 1995, losing 3.3% and a
staggering 23.3%, respectively. Despite strong GDP growth
(9.9% in 1Q95) and persistent efforts by the Korean
authorities to support the market - the foreign shareholding
limit was increased from 12% to 15%, the Stockmarket
Stabilization Fund was reactivated and investment trusts were
directed to become net buyers of stocks - the market still
drifted into negative territory as the stubbornly high 3-year
corporate bond benchmark yield (15%) dampened investor
enthusiasm for equities. Taiwan plunged as the weakening real
estate market posed a
"LOOKING AHEAD, WE ARE RELATIVELY NEUTRAL ABOUT ASIAN MARKETS."
17
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
growing non-performing loan problem, thereby threatening the
well-being of the financial and banking systems. Only the
electronics sector remained impervious to selling pressures
as sales and earnings continued to exceed expectations.
Looking ahead, we are relatively neutral about Asian markets.
We expect that the Fund will slightly underweight Hong Kong
given our belief that the Hang Seng will remain trading range
bounded for the rest of the calendar year. In particular, the
Fund will steer clear of the property counter, which shows no
signs of staging a marked recovery from the bottom of its
cycle. Hong Kong's performance will be determined by the
outlook for China, whose macro picture is expected to improve
by year end. It is expected that the Fund will market weight
Malaysia, looking to capitalize on a possible further
re-rating of the market. Given the strong performance already
recorded by the big cap stocks, the Fund will increasingly
shift its orientation towards medium cap stocks which have
strong earnings growth potential. In Singapore, we expect the
Fund to maintain a benchmark weighting and will focus on
stocks with a strong regional presence, such as banks, as
well as large, diversified blue-chip property companies. The
Fund will likely assume a benchmark weighting towards
Thailand, with stock selection focusing on the banking and
communications sectors. Banks and communication companies are
expected to benefit from the lower interest rate environment
as well as the formation of a new coalition government. We
expect the Fund will market weight Indonesia, looking to
participate actively in the market's major IPOs and will
overweight the Philippines, investing primarily in the
blue-chip conglomerates with particular emphasis on those
with exposure to telecommunications and property. In Taiwan,
the Fund will invest selectively focusing exclusively on the
electronics sector. We expect the Fund will underweight Korea
and will concentrate its holdings in Samsung Electronics and
Korea Mobile Telecom, both of which are expected to exhibit
robust growth. We will also seek to identify Korean banks,
such as Shinhan Bank, which are trading below their book
values despite strong balance sheets and negligible
non-performing loans.
18
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- -------------------------------------------------------------------------
COMMON STOCKS (100.0%)
AUSTRALIA (0.0%)
+79,500 Odin Mining & Investment Co. Ltd. ................ $ 24
--------
CHINA (2.0%)
396,000 China Merchants Shokou Port Services 'B' ......... 215
*630,000 Chiwan Petroleum Supply 'B' ...................... 230
30,000 Jilin Chemical Industrial Co. ADR ................ 578
709,800 Jinqiao Export Processing Zone Development Co.
Ltd. 'B' ....................................... 341
5,519,000 Maanshan Iron & Steel Co. Ltd. ................... 1,155
59,000 Shandong Huaneng Power Co. Ltd. .................. 450
568,100 Shanghai Diesel Engine Co. Ltd. 'B' .............. 352
315,000 Shanghai Erfanji Co. Ltd. 'B' .................... 47
500,000 Shanghai Industrial Sewing Machine Co. Ltd. ...... 92
215,670 Shanghai Jin Jiang Tower 'B' ..................... 69
1,000,000 Shanghai Narcissus Electric Appliances Industrial
Co. Ltd. 'B' ................................... 260
8,800 Shanghai Petrochemical Co. ADR ................... 276
608,000 Shanghai Phoenix Bicycle 'B' ..................... 131
+221,000 Shanghai Refrigerator Compressor Co. Ltd. 'B' .... 79
335,500 Shanghai Tire & Rubber 'B' ....................... 101
75,000 Shanghai Yaohua Pilkington Glass 'B' ............. 75
81,400 Shenzhen Chiwan Wharf Holdings 'B' ............... 41
*1,100,000 Shenzhen North Jainshe Motorcycle ................ 533
3,670,000 Yizheng Chemical Fibre Co. 'H' ................... 1,281
--------
6,306
--------
HONG KONG (27.2%)
8,020,000 Charoen Pokphand Co. ............................. 2,824
2,665,000 Cheung Kong Holdings Ltd. ........................ 13,191
593,000 China Light & Power Co. Ltd. ..................... 3,050
1,769,000 Citic Pacific Ltd. ............................... 4,447
12,056,000 Guangdong Investments Ltd. ....................... 6,583
2,822,000 Harbin Power Equipment Co. ....................... 903
861,000 Hong Kong Electric Holdings ...................... 2,926
628,756 Hong Kong & Shanghai Bank ........................ 8,065
6,030,800 Hong Kong Telecommunications Ltd. ................ 11,925
2,698,000 Hopewell Holdings Ltd. ........................... 2,284
2,108,000 Hutchison Whampoa Ltd. ........................... 10,189
1,645,000 New World Development Co. Ltd. ................... 5,474
430,000 Peregrine Investment Holdings .................... 611
300,000 Sum Cheong International ......................... 171
601,100 Sun Hung Kai Properties Ltd. ..................... 4,447
795,300 Swire Pacific Ltd. 'A' ........................... 6,064
972,000 Varitronix International Ltd. .................... 1,702
554,000 Wharf Holdings Ltd. .............................. 1,808
--------
86,664
--------
INDIA (0.8%)
38,000 Grasim Industries Ltd. GDR ....................... 912
49,000 Hindalco Industries Ltd. ......................... 1,421
--------
2,333
--------
INDONESIA (6.6%)
*300,000 Asiana Imi Industries (Foreign) .................. 128
*504,000 Bank International Indonesia (Foreign) ........... 1,556
*770,000 Barito Pacific Timber (Foreign) .................. 1,106
*5,600,000 Bimantara Citra .................................. 3,143
*594,000 Charoen Pokphand Co. Ltd.(Foreign) ............... 1,294
*375,000 Duta Pertiwi (Foreign) ........................... 379
*462,000 Indocement Tunggal (Foreign) ..................... 1,815
*763,500 Indosat (Foreign) ................................ 2,897
*393,000 Kalbe Farma (Foreign) ............................ 1,800
VALUE
SHARES (000)
- -------------------------------------------------------------------------
*378,500 Kermika Indonesia Associasi (Foreign) ............ $ 510
*1,000,000 Ometraco (Foreign) ............................... 719
*962,400 Sona Topas Tourism Industry (Foreign) ............ 1,296
*311,000 Sorini Corp. (Foreign) ........................... 1,487
*1,375,000 Ultra Jaya Milk IDR (Foreign) .................... 1,235
*679,000 United Tractors (Foreign) ........................ 1,448
--------
20,813
--------
KOREA (3.6%)
49,560 Hyundai Engineering & Construction Co. ........... 2,307
40,000 Korea Electric Power ............................. 1,498
*+900 Korea Mobile Telecommunications Corp. ............ 949
69,600 Pohang Iron & Steel Ltd. ......................... 2,053
*11,870 Samsung Electronics Co. .......................... 2,445
#10,000 Samsung Electronics Co. GDR (New) ................ 962
#991 Samsung Electronics Co. GDS ...................... 71
#23,958 Samsung Electronics Co. GDS (Euro 1/2
non-voting)..................................... 1,264
--------
11,549
--------
MALAYSIA (21.9%)
758,000 Bandar Raya Developments Bhd. .................... 1,648
822,000 Genting Bhd. ..................................... 8,126
794,000 Land & General Bhd. .............................. 2,654
420,000 Magnum Corp. Bhd. ................................ 982
1,495,500 Malayan Banking Bhd. ............................. 11,839
1,038,000 Malaysian International Shipping (Foreign) ....... 3,044
1,317,000 Malaysian Resources Corp. Bhd. ................... 2,323
479,000 Mulpha International Bhd. ........................ 582
2,570,000 Renong Bhd. ...................................... 4,786
1,215,000 Resorts World Bhd. ............................... 7,127
650,000 Sime Darby Bhd. .................................. 1,813
1,024,000 Tan & Tan Development ............................ 1,277
233,000 Tanjong plc ...................................... 803
+564,000 Technology Resources Industries .................. 1,619
1,171,000 Telekom Malaysia Bhd. ............................ 8,886
1,264,000 Tenaga Nasional Bhd. ............................. 5,159
460,000 Time Engineering Bhd. ............................ 1,547
864,000 United Engineers Bhd. ............................ 5,493
--------
69,708
--------
PAKISTAN (0.2%)
7,200 Pakistan Telecommunications ...................... 731
--------
PHILIPPINES (5.9%)
+321,200 Aboitiz Equity Ventures .......................... 65
860,600 Ayala Corp. 'B' .................................. 960
1,408,125 Ayala Land, Inc. 'B' ............................. 1,626
#+289,440 Benpres Holdings Corp. GDR ....................... 2,460
7,638,000 JG Summit Holding 'B' ............................ 2,273
402,465 Manilla Electric 'B' ............................. 3,231
4,981,500 Petron Corp. ..................................... 3,218
15,500 Philippine Long Distance Telephone Co. ........... 1,108
9,800 Philippine Long Distance Telephone Co. ADR ....... 703
59,678 Philippine National Bank 'B' ..................... 695
*+228,000 Pilipino Telephone Corp. ......................... 179
289,380 San Miguel Corp. 'B' ............................. 1,201
+4,304,300 SM Prime Holdings, Inc. .......................... 1,180
--------
18,899
--------
SINGAPORE (14.8%)
260,000 British-American Tobacco ......................... 1,186
871,800 City Developments Ltd. ........................... 5,334
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<C> <S> <C>
VALUE
SHARES (000)
- -------------------------------------------------------------------------
SINGAPORE (CONT.)
749,000 DBS Land Ltd. .................................... $ 2,347
421,500 Development Bank of Singapore .................... 4,796
237,000 Fraser & Neave Ltd. .............................. 2,730
87,500 Jurong Engineering Ltd. .......................... 513
658,000 Keppel Corp. ..................................... 5,368
696,666 Oversea-Chinese Banking Corp. .................... 7,727
195,000 Overseas Union Bank Ltd. ......................... 1,228
391,000 Sembawang Corp. Ltd. ............................. 2,378
115,000 Singapore Airlines Ltd. (Foreign) ................ 1,062
200,400 Singapore Press Holdings (Foreign) ............... 2,997
1,964,000 Singapore Technologies Industrial Corp. .......... 2,979
400,000 Straits Steamship Land Ltd. ...................... 1,385
561,000 Straits Trading Co. Ltd. ......................... 1,405
397,000 United Overseas Bank Ltd. ........................ 3,750
--------
47,185
--------
TAIWAN (2.4%)
+612,000 Advanced Semiconductor Engineering, Inc. ......... 1,777
+738,000 Taiwan Semiconductor Co. ......................... 3,586
+445,000 United Micro Electronics Corp. Ltd. .............. 2,283
--------
7,646
--------
THAILAND (14.6%)
24,300 Advanced Information Services Co. Ltd. ........... 360
69,800 Advanced Information Services Co. Ltd.
(Foreign) ...................................... 1,035
677,300 Bangkok Bank Co. Ltd. (Foreign) .................. 7,463
144,300 Charoen Pokphand Feedmill Co. Ltd. (Foreign) ..... 859
13,800 Charoen Popkhand Feedmill Co. Ltd. ............... 84
752,044 Finance One Co. Ltd. (Foreign) ................... 5,545
239,400 International Engineering Co. .................... 1,794
69,400 Land & House Co. Ltd. (Foreign) .................. 1,462
207,800 National Finance & Securities Co. Ltd.
(Foreign) ...................................... 1,027
201,600 Phatra Thanakit Co. Ltd. (Foreign) ............... 1,682
96,000 Shinawatra Computer Co. Ltd. ..................... 2,380
53,000 Siam Cement Co. Ltd. (Foreign) ................... 3,384
315,500 Siam Commercial Bank Co. Ltd. .................... 3,016
1,500,000 Telecomasia Co. Ltd. (Foreign) ................... 5,621
511,200 Thai Farmer's Bank Co. ........................... 4,887
466,400 Thai Telephone & Telecommunications .............. 3,817
92,000 United Communication Industry (Foreign) .......... 1,386
403,000 Wongpaitoon Footwear Co. Ltd. (Foreign) .......... 620
--------
46,422
--------
TOTAL COMMON STOCKS (COST $289,705)............................ 318,280
--------
NO. OF VALUE
RIGHTS (000)
- -------------------------------------------------------------------------
RIGHTS (0.0%)
INDONESIA (0.0%)
*+400,000 Ometraco, expiring 8/29/95 ....................... $ --
--------
*+1,924,800 Sona Topas Tourism Industry, expiring 7/13/95 .... --
--------
TOTAL RIGHTS (COST $0)......................................... --
--------
NO. OF
UNITS
- -----------
UNITS (0.1%)
INDIA (0.1%)
34,000 SIV Industries Ltd. (3 GDR's + 1 Warrant) (COST
$649) .......................................... 357
--------
NO. OF
WARRANTS
- -----------
WARRANTS (0.0%)
THAILAND (0.0%)
*+132,200 National Finance & Securities Co. Ltd., expiring
11/15/99 (COST $0) ............................. --
--------
TOTAL FOREIGN SECURITIES (100.1%) (COST $290,354).............. 318,637
--------
FACE
AMOUNT
(000)
- -----------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
UNITED STATES
$ 883 U.S. Trust, 5.90%, dated 6/30/95, due 7/3/95, to
be repurchased at $883, collateralized by $920
United States Treasury Bills, due 7/27/95,
valued at $916 (COST $883) ..................... 883
--------
TOTAL INVESTMENT IN SECURITIES (COST $291,237)................. 319,520
--------
FOREIGN CURRENCY (0.0%)
HK$ 213 Hong Kong Dollar ................................. 27
MYR 4 Malaysian Ringgit ................................ 2
S$ 70 Singapore Dollar ................................. 50
T$ 519 Taiwan Dollar .................................... 20
--------
TOTAL FOREIGN CURRENCY (COST $99).............................. 99
--------
TOTAL INVESTMENTS (100.4%) (COST $291,336)..................... 319,619
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.4%).................. (1,455)
--------
NET ASSETS (100%).............................................. $318,164
--------
--------
</TABLE>
- ---------------
+ -- Non income producing securities
* -- Fair valued securities -- See Note A-1
# -- 144A Security -- Certain conditions for public
sale may exist
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
IDR -- International Depositary Receipt
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
INDUSTRY VALUE PERCENTAGE OF
- ----------------------------------- (000) NET ASSETS
-------- ----------------
Banking............................ $ 56,141 17.6 %
Real Estate........................ 51,417 16.2
Telecommunications................. 40,699 12.8
Services........................... 39,294 12.3
Multi-Industry..................... 34,572 10.9
Capital Equipment.................. 30,291 9.5
Materials.......................... 21,128 6.6
Energy............................. 18,974 6.0
Consumer Goods..................... 15,244 4.8
Financial Services................. 10,877 3.4
-------- -----
$318,637 100.1 %
-------- -----
-------- -----
20
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace 3.1%
Banking 9.4%
Building 3.3%
Capital Goods 2.8%
Chemicals 3.8%
Communications 1.1%
Consumer Durables 3.1%
Consumer Retail 6.3%
Consumer Staples 4.0%
Energy 2.0%
Financial
Diversified 3.2%
Health Care 4.0%
Industrial 5.6%
Insurance 5.3%
Metals 2.2%
Paper & Packaging 3.0%
Services 11.0%
Technology 9.7%
Transportation 2.3%
Utilities 6.6%
Other 8.2%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY INDUSTRY (000)
- ---------------------------------------- ------------------------------ -----
AAR Corp. Aerospace $436
National Computer Systems, Inc. Technology 434
Zero Corp. Industrial 414
Gilbert Associates, Inc. 'A' Building 403
SkyWest, Inc. Transportation 403
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
<S> <C> <C>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------- --------- ------------
Services $ 3,807 11.0%
Technology 3,357 9.7%
Banking 3,242 9.4%
Utilities 2,263 6.6%
Consumer-Retail 2,178 6.3%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
------------------- -------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
- ------------------------------------------------------------
Class A Shares 9.55% 15.01% 4.81% 7.86%
- -----------------------------------------------------------------------------
Class C Shares+ 13.13% 14.13% N/A 7.00%
- -----------------------------------------------------------------------------
Russell 2500
Small Company Index N/A 22.86% N/A 8.91%
- -----------------------------------------------------------------------------
S&P 500 Index N/A 26.03% N/A 12.45%
- -----------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
The Russell 2500 Small Company Index and S&P 500 Index are unmanaged indices of
common stocks. The S&P 500 Index assumes dividends are reinvested.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C>
American Value Fund Class A American Value Fund Class C+ Russell 2500 Small Company Index S&P 500 Index
10/18/93 9,525 10,000 10,000 10,000
6/30/94 9,418 9,732 9,409 9,662
6/30/95 10,831 11,219 11,560 12,205
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The American Value Fund invests in domestic small- to
medium-sized companies that our research indicates are
undervalued, of high quality, and will reward the shareholder
through high current dividend income. The Fund's disciplined
value approach seeks to outperform the Russell 2500 Small
Company Index in the longer term. We believe our emphasis on
high quality companies and high yielding securities will help
the Fund perform particularly well in difficult markets.
The Fund selects companies that can be purchased at bargain
prices. Bargains mostly arise as a result of public
overreactions to temporary problems associated with an
otherwise healthy company, or because a company is neglected
and currently out-of-the-limelight of investors' interest.
Often, these companies operate as major players in very
focused markets and are not widely followed by the investment
community.
For the year ended June 30, 1995, the Fund had a total return
exclusive of sales charge of 15.01% for the Class A shares
and 14.13% for the Class C shares, and a total return with
sales charge of 9.55% for the Class A shares and 13.13% for
the Class C shares, as compared to a total return of 22.86%
for the Russell 2500 Small Company Index and 26.03% for the
S&P 500 Index. For the period since inception on October 18,
1993 through June 30, 1995, the average annual total return
of the Fund exclusive of sales charge was 7.86% for the Class
A shares and 7.00% for the Class C shares, and 4.81% for the
Class A shares with sales charge, as compared to the average
annual total return of 8.91% for the Russell 2500 Small
Company Index and 12.45% for the S&P 500 Index for the same
period.
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
21
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
The economic activity during the past twelve months changed
from "vigorous" in 1994 to "slow" growth in 1995. The Federal
Reserve Bank managed downward the economy's vibrant growth by
raising short-term interest rates several times until
February of 1995. The domestic stock markets - always
anticipating economic activity many months in advance -
reacted most favorably to the slowdown in growth by turning
the focus on the subsequent renewed pickup in economic
activity.
The last twelve months started with a brisk summer rally
which was very much appreciated after the weak equity market
performance during the first six months of 1994. The fall
quarter's market performance was consistent with the rest of
1994's volatile roller coaster experience. The market
displayed volatile intra-month performance but showed little
progress toward the end of the quarter.
Two investment themes dominated U.S. equity market returns
during the first six months of 1995. The first was the
decline of the U.S. dollar versus the Japanese yen and most
European currencies. The weakening U.S. dollar is credited
for the strong performance of large companies versus small
companies at the beginning of the period, as large companies
are thought to be more "global" players earning more
appreciating foreign currencies. As a result of an
increasingly global economy as well as our strategy to select
strong players in niche markets, the Fund's industrial
companies derive some 24% of sales from outside the United
States. So far however, currency effects on earnings for
these companies have been minor relative to the impact of
positive sales growth and gains in productivity. The second
dominant investment theme during the past six months was the
transition from strong economic growth to the anticipation
and realization of an economic "soft landing". This led to a
sharp drop in long-term interest rates. Equity markets
responded with enthusiasm - bidding up most sharply interest
rate sensitive "growth" companies. Most pronounced was the
rally in technology stocks as reflected in the 24.1% return
of these companies in our small company universe during the
spring quarter of 1995. We expect periods of such market
ebullience to produce high absolute portfolio returns,
however, they form the most difficult periods for the Fund's
out-of-the-limelight companies to better the small cap
market.
On a company fundamental basis, the most significant events
during the last twelve months were the companies' reports for
quarterly earnings. We are very pleased to have seen
substantial and consistent improvements in earnings for
companies in the Fund. These improvements often reflect
previously taken measures to restructure the company and gain
operating efficiencies. Increased efficiencies in operations
- leveraged by a strongly performing economy - have produced
excellent earnings increases of close to 30% quarter after
quarter. We would like to point out that a 30% year-over-year
increase in earnings is quite remarkable considering that the
Fund purchased companies at bargain prices because of low
investor confidence in these companies' earnings prospects.
In addition, increased efficiencies that drove large earnings
increases during the past year also bode well for earnings
progress in an anticipated scenario of slower economic
growth.
During the first six months of 1995, the Fund witnessed a
wide dispersion of performance by industry. The Fund's most
successful industry was aerospace (+30.0%) which followed the
rebound of the domestic commercial airline industry and its
spill-over effect for smaller airline service companies. The
weakest industry constituted consumer retail (-3.5%) as sales
growth for men's and women's apparel companies remains
anemic. The Fund's banking stocks averaged a 29% price
increase during the first half of calendar year 1995. We
attribute this good performance to the strong demand for
loans prompted by a growing U.S. economy, falling interest
rates helping to maintain a beneficial difference for banks'
lending and borrowing rates and a continuing increase in the
quality of assets held. Union Bank of San Francisco increased
57.8% in price following an earnings rebound as a result of a
substantial improvement in the quality of its loan portfolio.
The Fund's technology companies (9.7% of assets invested)
averaged a respectable 21.7% price increase during the past
six months. However, the industry's total portfolio return
contribution was limited by the availability of a larger
number of good quality technology stocks that fit our main
investment criteria of being a "bargain". (As of June 30,
1995, the average small cap technology company was trading at
a price-to-earnings multiple of 30.2 times, more than twice
as expensive as the average stock in the Fund.)
Additions to the Fund during the last six months included
Jackpot Enterprises, Inc. (gaming route operator; 1.4x
price-to-book, 4% dividend yield), Gerber Scientific, Inc.
(maker of computer-aided
"WE ARE VERY PLEASED TO HAVE SEEN SUBSTANTIAL AND CONSISTENT IMPROVEMENTS IN
EARNINGS FOR COMPANIES IN THE FUND."
22
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
design systems for the garment industry; 1.3x book value,
2.5% yield), Augat, Inc. (leading manufacturer of connector
products; 1.3x book value, 2% yield), Core Industries, Inc.
(specialized products for electronics, fluid control and farm
equipment industries; 1.4x book value, 2.2% yield),
Manufactured Home Communities, Inc. (owner of manufactured
housing communities, 7% yield), and SkyWest, Inc. (regional
commuter airline, 1.3x book value).
More recent Fund transactions included the sale of Southern
National Corp., Mercantile Bancorp, Deposit Guaranty Corp.
(Banking), and Yellow Corp (Transportation). Exceptionally
strong performance of banking stocks led us to turnover the
Fund at a higher rate in this area. We purchased Greenpoint
Financial Corp. (0.7x book value, 3.5% dividend yield), the
dominant savings institution in the New York metropolitan
area specializing in low documentation mortgage loans. We
also added Union Planters Corp. (1.4x book value, 4% yield),
a bank holding company in Tennessee. This company shows
strong profitable growth in assets and maintains a highly
conservative balance sheet. Washington Mutual, Inc. (1.2x
book value, 3.5% yield) - a further new purchase - is the
largest independently owned bank headquartered in Washington
State. We expect its expansion into neighboring states to
provide for solid loan growth. A recent purchase, Peoples
Heritage Financial Group, Inc. (1.0x book value, 3.6% yield),
is one of the least expensive banking companies east of the
Mississippi. Located in the attractive banking states of
Maine and New Hampshire, it shows a diversified loan
portfolio and has high loan demand.
We also took advantage of the currently weak investment
climate for retail companies. We purchased Ross Stores, Inc.
(1.0x book value, 2.5% yield). It operates as a discount
retail store mostly in California where the company shows a
dominant market presence. We also added Scitex Corp. - the
world's leading company in electronic prepress systems - at
1.2x book value and a 3% dividend yield. The company operates
as a leader in the mature electronic prepress systems markets
that provides ample cash flow to develop new products such as
digital video editing systems.
The American Value Fund offers the consistent application of
a disciplined value driven investment process to its
participants. As such, we will pursue our search for smaller
companies that our research shows are undervalued, are of
high quality and pay above-average dividend yield. We believe
these companies should be well positioned to achieve superior
total return for the longer term.
23
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
COMMON STOCKS (91.8%)
AEROSPACE (3.1%)
24,400 AAR Corp.......................................... $ 436
10,800 Thiokol Corp...................................... 327
45,200 United Industrial Corp............................ 322
-------
1,085
-------
BANKING (9.4%)
12,700 First Security Corp............................... 356
16,000 Greenpoint Financial Corp......................... 378
12,700 Onbankcorp., Inc.................................. 360
22,000 Peoples Heritage Financial Group, Inc............. 330
11,200 Standard Federal Bank............................. 377
18,120 Summit Bancorp., Inc.............................. 385
9,000 Union Bank of San Francisco....................... 380
13,000 Union Planters Corp............................... 348
14,000 Washington Mutual, Inc............................ 328
-------
3,242
-------
BUILDING (3.3%)
10,200 Ameron, Inc....................................... 370
31,000 Gilbert Associates, Inc. 'A'...................... 403
15,200 Pratt & Lambert, Inc.............................. 355
-------
1,128
-------
CAPITAL GOODS (2.8%)
13,600 Binks Manufacturing Corp.......................... 345
19,400 Cascade Corp...................................... 310
13,900 Starret (L.S.) Co. 'A'............................ 315
-------
970
-------
CHEMICALS (3.8%)
20,400 Aceto Corp........................................ 301
16,500 Dexter Corp....................................... 390
14,700 LeaRonal, Inc..................................... 310
18,400 Quaker Chemical Corp.............................. 299
-------
1,300
-------
COMMUNICATIONS (1.1%)
18,500 Comsat Corp....................................... 363
-------
CONSUMER--DURABLES (3.1%)
17,900 Arvin Industries, Inc............................. 400
23,320 Knape & Vogt Manufacturing Co..................... 350
21,000 Oneida Ltd........................................ 310
-------
1,060
-------
CONSUMER--RETAIL (6.3%)
19,200 CPI Corp.......................................... 367
4,620 Dave & Busters, Inc............................... 92
27,100 Deb Shops, Inc.................................... 88
23,100 Edison Brothers Stores............................ 277
14,300 Guilford Mills, Inc............................... 348
29,000 Ross Stores, Inc.................................. 341
9,100 Springs Industries, Inc. 'A'...................... 339
33,000 Venture Stores, Inc............................... 326
-------
2,178
-------
CONSUMER--STAPLES (4.0%)
9,798 Block Drug Co. 'A'................................ 331
19,000 Coors (Adolph) 'B'................................ 311
15,300 International Multifoods Corp..................... 344
23,400 Nash Finch Co..................................... 380
-------
1,366
-------
ENERGY (2.0%)
13,700 Diamond Shamrock, Inc............................. $ 353
13,800 Ultramar Corp..................................... 348
-------
701
-------
FINANCIAL--DIVERSIFIED (3.2%)
10,900 FINOVA Group, Inc................................. 381
8,100 GATX Corp......................................... 382
22,900 Manufactured Home Communities, Inc................ 352
-------
1,115
-------
HEALTH CARE (4.0%)
12,700 Beckman Instruments, Inc.......................... 354
19,000 Bindley Western Industries, Inc................... 301
52,600 Kinetic Concepts, Inc............................. 375
18,500 United Wisconsin Services, Inc.................... 370
-------
1,400
-------
INDUSTRIAL (5.6%)
9,500 American Filtrona Corp............................ 280
6,900 Barnes Group, Inc................................. 278
28,100 Gencorp, Inc...................................... 302
28,100 Kaman Corp. 'A'................................... 358
27,600 Zero Corp......................................... 414
15,700 Zurn Industries Inc............................... 314
-------
1,946
-------
INSURANCE (5.3%)
12,100 Argonaut Group, Inc............................... 384
20,000 Enhance Financial Services Group.................. 387
15,600 Provident Life & Accident Insurance Co............ 363
10,600 Selective Insurance Group, Inc.................... 350
8,900 US Life Corp...................................... 358
-------
1,842
-------
METALS (2.2%)
5,300 Carpenter Technology Corp......................... 361
10,300 Cleveland-Cliffs Iron Co.......................... 397
-------
758
-------
PAPER & PACKAGING (3.0%)
11,300 Ball Corp......................................... 394
7,700 Potlatch Corp..................................... 321
18,600 Sealright Co., Inc................................ 312
-------
1,027
-------
SERVICES (11.0%)
15,400 ABM Industries, Inc............................... 356
15,600 Angelica Corp..................................... 390
19,300 Bowne & Co........................................ 331
22,200 Cross A.T. Co. 'A'................................ 330
28,900 Handleman Co...................................... 278
37,500 Jackpot Enterprises, Inc.......................... 380
11,400 National Service Industries, Inc.................. 329
17,100 New England Business Services, Inc................ 338
40,500 Piccadilly Cafeterias, Inc........................ 354
26,500 Russ Berrie & Co., Inc............................ 368
9,200 Wallace Computer Services, Inc.................... 353
-------
3,807
-------
TECHNOLOGY (9.7%)
18,000 Augat, Inc........................................ 369
6,900 Avnet, Inc........................................ 334
35,000 Core Industries, Inc.............................. 376
24
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
TECHNOLOGY (CONT.)
15,400 Cubic Corp........................................ $ 346
21,000 Gerber Scientific, Inc............................ 352
15,000 Joslyn Corp....................................... 394
13,100 MTS Systems Corp.................................. 354
20,900 National Computer Systems, Inc.................... 434
18,500 Scitex Corp....................................... 398
-------
3,357
-------
TRANSPORTATION (2.3%)
18,600 Overseas Shipholding Group, Inc................... 386
17,800 SkyWest, Inc...................................... 403
-------
789
-------
UTILITIES (6.6%)
13,600 Central Hudson Gas & Electric Corp................ 367
8,500 Commonwealth Energy Systems....................... 321
11,000 Eastern Entreprises............................... 329
17,100 Oneok, Inc........................................ 366
9,400 Orange & Rockland Utilities, Inc.................. 317
6,500 SJW Corp.......................................... 233
20,600 Washington Water Power Co......................... 330
-------
2,263
-------
TOTAL COMMON STOCKS (COST $29,742).......................... 31,697
-------
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
SHORT-TERM INVESTMENT (7.7%)
REPURCHASE AGREEMENT
$ 2,677 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $2,678, collateralized by $2,695
United States Treasury Bills, due 7/20/95,
valued at $2,687 (COST $2,677).................. $ 2,677
-------
TOTAL INVESTMENTS (99.5%) (COST $32,419).................... 34,374
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%)................ 168
-------
NET ASSET VALUE (100%)...................................... $34,542
-------
-------
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 2.5%
Brazil 27.5%
Bulgaria 4.7%
Ecuador 4.2%
Indonesia 0.6%
Mexico 15.3%
Morocco 2.2%
Nigeria 5.0%
Russia 6.7%
Venezuela 5.7%
United States 26.0%
Other -0.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY COUNTRY (000)
- ------------------------------- --------- ---------
Bank for Foreign Economic
Affairs Russia $ 1,787
Republic of Venezuela `B'
(Warrants Attached) 6.75%,
3/31/20 Venezuela 1,511
Minas Gerais `B' 8.25%, 2/10/00 Brazil 1,365
Klabin Fabricadora Papel 1,357
10.00%, 12/20/01 Brazil
Central Bank of Nigeria
(Warrants Attached) 6.25%,
11/15/20 Nigeria 1,328
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
--------------------------------------------------
AVERAGE ANNUAL SINCE
ONE YEAR INCEPTION
------------------------ ------------------------
WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
- ----------------------------------------------------------
Class A Shares 1.80% 6.87% 3.93% 8.26%
- ------------------------------------------------------------------------
Class C Shares+ 5.20% 6.20% N/A 7.49%
- ------------------------------------------------------------------------
Lehman Aggregate
Bond Index N/A 12.55 % N/A 10.22 %
- ------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
<TABLE>
<CAPTION>
TOP FIVE SECTORS
<S> <C> <C>
VALUE PERCENT OF
SECTOR (000) NET ASSETS
- ------------------------------- --------- -----------
Foreign Government Bonds $ 7,146 26.8%
Consumer Goods 3,748 14.0%
Energy 3,343 12.5%
Materials 3,306 12.4%
Loan Agreements 2,376 8.9%
</TABLE>
The Lehman Aggregate Bond Index is an unmanaged index comprised of the
Government Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Worldwide High Income Fund Class A Worldwide High Income Fund Class C+ Lehman Aggregate Bond Index
04/21/94 $9,525 $10,000 $10,000
06/30/94 $9,797 $10,160 $9,976
06/30/95 $10,470 $10,899 $11,229
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Worldwide High Income Fund seeks to offer investors a
high current income consistent with relative stability of
principal and potential for capital appreciation. To achieve
this objective, the Fund will invest across three broad asset
classes, namely U.S. high yield, emerging country debt, and
global fixed income.
For the year ended June 30, 1995, the Fund had a total return
exclusive of sales charge of 6.87% for the Class A shares and
6.20% for the Class C shares, and a total return with sales
charge of 1.80% for the Class A shares and 5.20% for the
Class C shares, as compared to a total return of 12.55% for
the Lehman Aggregate Bond Index. For the period from
inception on April 21, 1994 through June 30, 1995, the Fund
had an average annual total return exclusive of sales charge
of 8.26% for the Class A shares and 7.49% for the Class C
shares, and an average annual total return with sales charge
of 3.93% for the Class A shares as compared to an average
annual total return of 10.22% for the Lehman Aggregate Bond
Index for the same period.
The last twelve months in the bond markets have been
tumultuous. Both emerging markets and the U.S. bond market
witnessed inflection points during this period. In the U.S.,
inflationary fears and high growth drove nominal yields to
8.20%. Changes in the bond markets of G-7 countries had
knock-on effects in emerging markets. In emerging markets,
political turbulence, elections in Mexico, euphoria and
leverage proved to be a heady cocktail. The Mexican
devaluation led to widespread re-thinking of the emerging
market phenomenon. The "tequila effect" tested policy makers
across the globe. However, policy responses and economic
performances since the crash of 1994 should allay the most
seasoned skeptics.
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
26
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
The Fund benefited from the hybrid nature of its investments.
Tactical shifts out of and into emerging markets had a
positive impact on performance. We increased the allocation
to emerging markets in the third quarter of calendar 1994,
decreased it in the first quarter of calendar 1995 and
increased it again during the second quarter of calendar
1995.
During the past two quarters of 1995 we increased our
exposure to emerging markets debt, as these markets returned
to normalcy and offered higher yields and prospective returns
than the U.S. high yield market. Currently our relative
allocation stands at 75:25 in favor of emerging markets debt.
Historically, the Fund has held a higher proportion of its
holdings in the larger Latin American countries, with smaller
holdings in countries such as the Philippines, Indonesia and
Hungary for diversification. During 1995 we reduced our
holdings outside Latin America to capture much greater value
and potential for capital appreciation in Mexico, Argentina
and Brazil, countries which had witnessed a larger increase
in spreads in the wake of Mexico's devaluation.
Our country allocations have remained relatively stable
except for changes in Mexico, Venezuela and Russia. We had
relatively small exposure to Mexico in 1994 as Mexican bonds
seemed rich compared to others in Latin America, and concerns
over political stability and the conduct of monetary policy
prompted us to be relatively underweight in Mexico. Following
the devaluation and the collapse in prices of Eurobonds in
the first quarter of calendar 1995, we increased our exposure
to Mexico to 15% of the Fund.
The Zedillo administration's orthodox program of tight fiscal
and monetary policy proved effective at reversing the trade
accounts from deficit to surplus and at keeping the inflation
bubble, sparked by the devaluation, from spiraling out of
control. The peso rose 8% from its first quarter level as
foreign capital flows resumed; however, the peso is down 31%
for the six months ended June 30, 1995. The peso stabilized
as the funding from the U.S. and International Monetary Fund
("IMF") allowed it to manage through the potential liquidity
crisis. Through the end of June, due to the success of the
stabilization effort, Mexico had drawn on substantially less
funding than originally committed from the U.S. Treasury
Emergency Stabilization Fund (approximately $12.5 billion out
of $20 billion) and had rebuilt international reserves to
$10.8 billion.
Venezuela's economic performance in 1995 has continued to
deteriorate and as a result we reduced our exposure to that
country to approximately 6%. We reduced our allocation to
Venezuela because of continued inaction of the government to
tackle the economy's problems of high fiscal deficits and the
liquidity overhang in the banking system. A continued
reliance on price and exchange controls has not resulted in
bringing down inflation and has negatively impacted growth
prospects.
We increased exposure to Russian non-performing loans as we
expect economic stabilization and relative political
stability to return after a long period of economic
transition. To finance deficits and attract foreign capital,
Russia would need to normalize relations with its external
creditors. A rescheduling of loans and resumption of debt
service should lift prices in 1995.
Argentine assets rallied strongly in anticipation of a first
round victory for President Menem, who had campaigned on a
platform which stressed continuity of economic policy and a
continued commitment to the Convertibility Plan. Asset prices
encountered profit taking in the post-election euphoria as
signs of a dramatic slowdown in the economy emerged. The
strait jacket of the Convertibility Plan presents a policy
dilemma as it leaves deflation as the only way out of a
slowdown in economic activity. We reduced our exposure to
Argentina in June to 2.5% of the Fund from the 8% level we
had maintained for some time.
Brazil remains our largest position at around 28% of the
Fund. Brazil has the strongest economy in the region and has
embarked on a long and tortuous task of amending its
constitution in order to de-regulate the economy and
stabilize the economy in the long run. The reform agenda is
ambitious
"EMERGING MARKETS DEBT CONTINUES TO OFFER ATTRACTIVE YIELDS. POSITIVE TOTAL
RETURNS SHOULD RESULT FROM CONTINUED IMPROVEMENT IN PERCEIVED CREDIT QUALITY."
27
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
and the legislative sessions are likely to be noisy, with
vested interest groups vying to make the outcome more
acceptable to their constituencies. We are confident that,
when all is said and done, Brazil will emerge as the
strongest credit in the region.
Emerging markets debt continues to offer attractive yields.
Positive total returns should result from continued
improvement in perceived credit quality. Reaffirmed
commitments to orthodox economic policies in the
post-devaluation world should bolster confidence in this
asset class.
The second half of 1994 was weak on the heels of rising
interest rates and a slowing U.S. economy. The U.S. high
yield market was strong in the first half of 1995, reflecting
the 162 basis point decline in government bond yields and the
strong rally in the equity markets. Towards the end of the
period however, the market paused as investors feared that
the economy was slowing at a potentially dangerous pace for
high yield investors. The U.S. Federal Reserve (the "Fed")
shared this concern and lowered short-term interest rates 25
basis points near the end of the second calendar quarter.
This stabilized the high yield market somewhat although
government bonds began to deteriorate shortly after the Fed
easing.
We were fairly active in the high yield portion of the Fund.
We sold off five issues and added seven issues. Several
issues were added when the market for new issues turned soft
and buyers were hesitant to add new names to their funds.
During this period we believe we picked up a couple of very
good values for the Fund. Also during the first half of
calendar 1995, the quality spreads within the high yield
market widened. We sold off a few holdings where earnings
disappointed us and we felt trouble may come in the future.
The high yield portion of the Fund is well balanced with a
healthy portion of high quality cable television issues that
have the potential to be upgraded, in some cases to
investment grade, along with a few cyclical credits that have
good market positions that we feel we bought at very
attractive prices. The high yield portion of the Fund appears
well positioned in the current market environment.
"THE HIGH YIELD PORTION OF THE FUND IS WELL BALANCED WITH A HEALTHY PORTION OF
HIGH QUALITY CABLE TELEVISION ISSUES THAT HAVE THE POTENTIAL TO BE UPGRADED. .
."
28
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
FIXED INCOME SECURITIES (100.0%)
CORPORATE BONDS (23.9%)
UNITED STATES (23.9%)
$ 500 AES Corp. 9.75%, 6/15/00 ......................... $ 511
500 Armco, Inc. 9.375%, 11/1/00 ...................... 481
++200 Columbia Gas Systems, Inc. 10.50%, 6/1/12 ........ 292
500 Comcast Corp. 9.50%, 1/15/08 ..................... 501
1,000 Marcus Cable Co. 0.00% to 6/15/00, 14.25% to
12/15/05 ....................................... 533
500 Owens Illinois, Inc. 10.50%, 6/15/02 ............. 519
300 Plastic Specialties & Technologies, Inc. 11.25%,
12/1/03 ........................................ 282
500 Primark Corp. 8.75%, 10/15/00 .................... 488
500 Sherritt, Inc. 10.50%, 3/31/14 ................... 486
#350 Six Flags Theme Park, Inc. 0.00% to 6/15/98,
12.25% to 6/1/05 ............................... 254
500 Tracor, Inc. 10.875%, 8/15/01 .................... 513
518 Trump Taj Mahal PIK 11.35%, 11/15/99 ............. 411
500 Viacom International Subordinate Note 8.00%,
7/7/06 ......................................... 487
#150 Weirton Steel 10.75%, 6/1/05 ..................... 142
500 Westpoint Stevens, Inc. 9.375%, 12/15/05 ......... 484
--------
TOTAL CORPORATE BONDS (COST $6,286)........................... 6,384
--------
EUROBONDS (57.8%)
ARGENTINA (1.3%)
#400 Transport de Gas del Sur 7.75%, 12/23/98 ......... 354
--------
BRAZIL (27.5%)
1,300 Ceval Overseas Ltd. 10.75%, 7/11/96 .............. 1,300
#1,000 Compania Brasil de Projertos 12.50%, 12/22/97 .... 972
+++780 Federal Republic of Brazil 'C' Bond PIK 8.00%,
4/15/14 ........................................ 385
+++2,000 Federal Republic of Brazil New Money Bond 7.31%,
4/15/09 ........................................ 1,078
#1,000 Iochpe Maxion S.A. 12.375%, 11/8/02 .............. 880
1,500 Klabin Fabricadora Papel 10.00%, 12/20/01 ........ 1,357
1,750 Minas Gerais 'B' 8.25%, 2/10/00 .................. 1,365
--------
7,337
--------
BULGARIA (4.7%)
+++3,000 Bulgaria IAB 7.56%, 7/28/11 ...................... 1,268
--------
ECUADOR (4.2%)
+++2,250 Republic of Ecuador 7.25%, 2/28/25 ............... 1,119
--------
MEXICO (9.4%)
1,500 Cemex S.A. 8.875%, 6/10/98 ....................... 1,297
#200 Cemex S.A. 9.50%, 9/20/01 ........................ 156
500 Empresas La Moderna 10.25%, 11/12/97 ............. 455
#216 MC-Cuernavaca Trust 9.25%, 7/25/01 ............... 158
750 Mexico Par Bond 'B' (Value Recovery Rights
Attached) 6.25%, 12/31/19 ...................... 457
--------
2,523
--------
NIGERIA (5.0%)
3,000 Central Bank of Nigeria (Warrants Attached) 6.25%,
11/15/20 ....................................... 1,328
--------
VENEZUELA (5.7%)
+++3,000 Republic of Venezuela 'B' (Oil Warrants Attached)
6.75%, 3/31/20 ................................. 1,511
--------
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
TOTAL EUROBONDS (COST $15,585)................................ $ 15,440
--------
LOAN AGREEMENTS (8.9%)
MOROCCO (2.2%)
$ p+++1,000 Kingdom of Morocco Restructuring and Consolidation
Agreement 'A' 1990 7.38%, 1/1/09 (Participation:
Salomon Brothers)............................... 589
--------
RUSSIA (6.7%)
++/+++5,500 Bank for Foreign Economic Affairs................. 1,787
--------
TOTAL LOAN AGREEMENTS (COST $2,316) .......................... 2,376
--------
YANKEE BONDS (9.4%)
ARGENTINA (1.2%)
#350 Bridas Corp. 12.50%, 11/15/99 .................... 313
--------
INDONESIA (0.6%)
150 Polysindo Eka Perkasa 13.00%, 6/15/01 ............ 152
--------
MEXICO (5.9%)
#1,500 Petro Mexicanos 8.625%, 12/1/23 .................. 1,018
800 Tolmex S.A. 8.375%, 11/1/03 ...................... 566
--------
1,584
--------
UNITED STATES (1.7%)
500 Algoma Steel, Inc. 12.375%, 7/15/05 .............. 460
--------
TOTAL YANKEE BONDS (COST $2,552) ............................. 2,509
--------
TOTAL FIXED INCOME SECURITIES (COST $26,739) ................... 26,709
--------
NO. OF
UNITS
- ------------
UNITS (0.4%)
UNITED STATES (0.4%)
#100 Gulf States Steel ($1 million 1st Mortgage Note +
1 Warrant) 13.50%, 4/15/03 (COST $100) ......... 97
--------
TOTAL INVESTMENTS IN SECURITIES (COST $26,839).................. 26,806
--------
FACE
AMOUNT
(000)
- ------------
SHORT-TERM INVESTMENT (26.2%)
REPURCHASE AGREEMENT
UNITED STATES
$ 6,983 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95 to be
repurchased at $6,986, collateralized by $7,235
U.S. Treasury Bills, due 7/27/95, valued at
$7,207 (COST $6,983) ........................... 6,983
--------
TOTAL INVESTMENTS (126.6%) (COST $33,822)....................... 33,789
LIABILITIES IN EXCESS OF OTHER ASSETS (-26.6%).................. (7,090)
--------
NET ASSETS (100%)............................................... $ 26,699
--------
--------
- ---------------
++ -- Non-income producing securities -- in
default
+++ -- Variable or floating rate securities --
rate disclosed is as of June 30, 1995.
# -- 144A Security -- Certain conditions for
public sale may exist.
IAB -- Interest Arrears Bond
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.
The accompanying notes are an integral part of the financial statements. 29
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
Foreign Government Bonds................ $ 7,146 26.8%
Consumer Goods.......................... 3,748 14.0
Energy.................................. 3,343 12.5
Materials............................... 3,306 12.4
Loan Agreements......................... 2,376 8.9
Capital Equipment....................... 1,904 7.1
Telecommunications...................... 1,520 5.7
Metals.................................. 1,083 4.1
Services................................ 1,153 4.3
Industrial.............................. 972 3.6
Finance................................. 158 0.6
-------- --------
$ 26,709 100.0%
-------- --------
-------- --------
30 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 8.9%
Brazil 55.0%
Chile 2.6%
Colombia 3.2%
Mexico 26.9%
Peru 3.0%
Other 0.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY COUNTRY (000)
- --------------------------- --------- -----
Banco Bradesco (Preferred) Brazil $ 516
Itaubanco (Preferred) Brazil 499
Eletrobras Brazil 461
FEMSA `B' Mexico 435
Petrobras (Preferred) Brazil 384
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
<S> <C> <C>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------------------------- --------- ------------
Finance $ 2,738 23.3%
Consumer Goods 2,009 17.1%
Materials 1,974 16.8%
Utilities 1,954 16.6%
Services 1,477 12.6%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS SINCE INCEPTION (JULY 6, 1994)**
- --------------------------------------------------
WITH WITHOUT
SALES SALES
CHARGE* CHARGE
<S> <C> <C>
- --------------------------------------------------
- --------------------------------------------------
Class A Shares -26.73% -23.07%
- --------------------------------------------------
Class C Shares+ -24.58% -23.83%
- --------------------------------------------------
IFC Latin America Total
Return Composite Index N/A -8.49%
- --------------------------------------------------
MSCI Latin America Global
Index N/A -14.83 %
- --------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995.
The IFC Latin America Total Return Composite Index is an unmanaged index of
common stocks and includes Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela (assumes dividends are reinvested).
The MSCI Latin America Global Index is a broad-based market cap weighted
composite index covering at least 60% of markets in Mexico, Argentina, Brazil,
Chile, Colombia, Peru and Venezuela (assumes dividends are reinvested).
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C> <C>
Latin American Latin American IFC Latin America Total MSCI Latin America
Fund Class A Fund Class C+ Return Composite Index Global Index
07/06/94 $9,525 $10,000 $10,000 $10,000
06/30/95 $7,327 $7,542 $9,151 $8,517
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Latin American Fund is to
provide long-term capital appreciation by investing in common
stocks of Latin American issuers.
For the period from inception on July 6, 1994 through June
30, 1995, the Fund had an aggregate total return exclusive of
sales charge of -23.07% for the Class A shares and -23.83%
for the Class C shares, and an aggregate total return with
sales charge of -26.73% for the Class A shares and -24.58%
for the Class C shares, as compared to an aggregate total
return of -14.83% for the Morgan Stanley Capital
International ("MSCI") Latin America Global Index for the
same period. Beginning with this report, we are now comparing
the Fund's performance to the MSCI Latin America Global Index
rather than the IFC Latin America Total Return Composite
Index. The MSCI Latin America Global Index is a broader index
and we believe this index more clearly tracks the investments
of the Fund.
Latin American markets rallied strongly off their lows of the
first quarter of calendar 1995 as the Mexican currency and
economy stabilized in response to international support
efforts and domestic austerity measures. As economic
uncertainty was reduced, investors began to focus on low
valuations that had taken many stocks in the region back to
pre-1993 levels.
Over the second quarter of the calendar year, the MSCI Index
for Brazil increased 16.5% bringing its performance for the
first half of 1995 to a net decrease of -21.0%. In addition
to the reversal of negative sentiment toward Latin America,
the Brazilian market was bolstered by investors' positive
response to continuing economic reform including the
announcement of the intention to privatize Eletrobras, the
state electric utility.
Progress was made on various economic reforms sent to
congress by the Cardoso administration. Five "economic order"
constitutional reform measures--centering on liberalizing the
telecommunications, petroleum, mining, electric utility and
shipping sectors--were approved in the lower body of congress
and are presently being debated in the upper house of
congress.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI LATIN AMERICA GLOBAL INDEX AND ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
31
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
An area of concern for the market remains the trade balance
and the exchange rate. Since implementation of the reforms,
Brazil has experienced significant appreciation of the real
and deterioration of the trade accounts; in the aftermath of
the Mexican crisis, this is seen by both the government and
market participants as creating a significant risk to the
economic program. Despite a nominal devaluation of
approximately 8% since the beginning of the year, the real
remains overvalued; consequently, there is pressure on the
government to allow further devaluation.
However, the risk in devaluing the currency is that it may
lead to upward pressure on inflation. As inflation control
forms the foundation of economic reform, a shock devaluation
could hamper the administration's capacity to implement the
additional fiscal reforms necessary for long-term growth.
While inflation has remained in check throughout the recent
quarter, averaging roughly 2.5% per month, the government is
currently managing a balancing act between containing
inflation and improving its trade accounts. Monetary policy
has been the primary instrument through which this balance
has been achieved and, to a secondary extent, trade policy
has been also, through the imposition of temporary import
tariffs on selected products. As a result, domestic real
interest rates have averaged over 20% on an annualized basis
thus far for 1995. We began to see this finally dampen
domestic consumption in May, especially in the consumer
durables sector.
While this slowdown from the unsustainably brisk pace is a
positive, the playing out of this balancing act--between the
trade account, the foreign exchange rate, domestic interest
rates, and inflation-- will determine both the success of the
economic program and the performance of the market for the
rest of this calendar year. We remain very upbeat about the
potential for the market over the rest of the calendar year,
and feel that the sectors we are heavily weighted in
represent extraordinary value relative to their growth
potential.
We expect to see positive news coming out on selected
privatizations (e.g. two state electricity distribution
companies and various government-held petrochemical
companies), as well as on de-indexation efforts by the
government as a means to eradicate the vestiges of
"structural inflation" from the economy. In view of the above
outlook, we are positioned with large weightings in the
electric utility, banking, and beverage sectors. As usual
with Brazil, however, the timetable for said privatization
and regulatory framework remains the primary risk in the
market.
The Mexican stock market rebounded strongly in the second
quarter of calendar 1995, with an increase of 28.5% bringing
the net decline for the first six months of calendar 1995 to
-24.6%, as measured by the MSCI Index. The Bolsa's rally was
driven by a reversal of investor sentiment as the economy
stabilized and the peso strengthened in response to the U.S.
support package and the Mexican government's economic
austerity program. The market was further helped by first
quarter earnings reports that showed stronger than expected
operating results for most companies.
The Zedillo administration's orthodox program of tight fiscal
and monetary policy proved effective at reversing the trade
accounts from deficit to surplus and at keeping the
inflationary bubble, sparked by the devaluation, from
spiraling out of control. Mexico's first quarter turnaround
in the trade balance accelerated as the trade surplus reached
U.S.$866 million in May, bringing the cumulative five-month
surplus for 1995 to U.S.$2.2 billion versus a deficit of
U.S.$7.2 billion over the same period in 1994. The monthly
rate of inflation peaked at 8% for April and declined to 3%
in June and is expected to decrease gradually to 2% by
December.
The peso rose 8% from its first quarter level as foreign
capital inflows resumed; however, the peso is down 31% on a
year-to-date basis. The peso stabilized as U.S. funding
allowed it to manage through the potential liquidity crisis
from maturing short-term dollar denominated debt. Through the
end of June, due to the success of the stabilization effort,
Mexico had drawn down substantially less funding than
originally committed from the U.S. Treasury Emergency
Stabilization Fund (approximately $12.5 billion out of $20
billion) and had rebuilt international reserves to $10.8
billion. While measures by Senate Banking Committee Chairman
Alfonse D'Amato to suspend further disbursements to Mexico
are likely to receive publicity over the near term, we expect
such efforts are unlikely to succeed and could lead to
sentiment-driven selling.
32
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
On the political front, President Zedillo enhanced his
ability to govern by replacing an idealistic minister of the
interior with an experienced trouble shooter. This new
minister's responsibilities include negotiating with the
Chiapas rebels with whom his predecessor made little
progress. The risk of social unrest in response to economic
austerity remains high; however, recent cooperation between
President Zedillo and his political adversaries limit the
potential for wide-scale escalation of political shocks.
Over the first half of calendar 1995, the Fund increased its
weighting in Mexico given valuations in light of our positive
outlook on the prospects for a quick recovery of the economy.
We overweighted the early cyclical sectors - banks, cements
and construction - on the basis of extremely depressed asset
valuations for selected stocks. While GDP growth has not yet
hit bottom, we expect that as inflation remains under
control, interest rates continue their downward path and
foreign capital inflows gradually resume, the economy will
recover.
At current levels, the Mexican market has retraced much of
the oversold condition, but remains undervalued relative to
the prospective growth rate of earnings over the next five
years. We expect sentiment-driven volatility to present
opportunities for the Fund to selectively increase its
Mexican holdings over the next six months in anticipation of
renewed GDP growth by the fourth quarter of calendar 1995 or
the first quarter of calendar 1996.
Argentina lagged the region in the second quarter, as the
MSCI Index for Argentina gained 2.1%. President Menem was
re-elected by a wide margin in May, setting the stage for
four additional years of a stable political arena and
economic reform. The province of Cordoba was temporarily
unable to pay its government employees due to fiscal
imbalances, placing additional pressure on the federal
government's finances. We expect the economy to slow down in
the second and third quarters of the calendar year,
particularly the consumer durables and even semi-durables
sector. As a result, although we maintain our positive medium
and long-term outlook on the country's economic prospects, we
have a defensive posture in the market.
Chile posted a strong second quarter, advancing 23.2%
according to the MSCI Index for Chile and 14.6% for the six
months ended June 30, 1995. The economy continues to enjoy a
boom in global demand for its three principal
exports--copper, wood pulp and fishmeal--as well as from a
decline in inflation and domestic interest rates. We expect
continued strong economic growth for the rest of the year.
However, we continue to view the market's lofty valuation as
a measure that these positives are fully discounted and,
thus, remain highly selective with our stock positions in the
market.
Colombia returned 3.0% for the second quarter and -7.4% for
the six months ended June 30, 1995 as measured by the MSCI
Index. In spite of Colombia's solid fundamentals, the market
is fully valued; thus, the Fund is unlikely to increase
exposure.
Peru paced the region for the second quarter, as the MSCI
Index for Peru posted a 42.1% increase. The market was buoyed
by an overwhelming re-election victory by President Fujimori
in April, as well as by continued strong economic growth
which is bolstering corporate earnings. We have a favorable
view on the market but, owing to a relative lack of
liquidity, are selectively positioned in core blue-chip
companies which we believe possess superior earnings growth
prospects.
Venezuela continued to scrape bottom with a decline of -1.5%
in the second quarter leaving it at a -13.0% for the six
month period ended June 30, 1995. While valuations based on
stated financial information appear low, our negative outlook
for political and macroeconomic fundamentals will keep us out
of Venezuela.
Although Latin America has had a strong rebound from its
first quarter of calendar 1995 sell-off, given Brazil's and
Mexico's compelling valuations together with the expected
resolution of political and economic uncertainties, we
believe the Fund is well-positioned for good performance in
the next six months.
"ALTHOUGH LATIN AMERICA HAS HAD A STRONG REBOUND FROM ITS FIRST QUARTER OF
CALENDAR 1995 SELL-OFF ... WE BELIEVE THE FUND IS WELL-POSITIONED FOR GOOD
PERFORMANCE IN THE NEXT SIX MONTHS."
33
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------
COMMON STOCKS (60.2%)
ARGENTINA (8.9%)
1,851 Banco del Sud Argentina .............. $ 11
+126,607 Banco del Suquia S.A. 'B' ............ 184
395 Buenos Aires Embotelladora ADR ....... 10
14,900 Capex S.A. 'A' ....................... 116
#22,865 Capex S.A. ADR ....................... 352
23,610 CIADEA (Renault) ..................... 115
13,545 Quilmes Industrial ................... 264
---------
1,052
---------
BRAZIL (18.8%)
25,550,000 Acesita .............................. 166
15,119 Brahma ............................... 5
6,340,820 Cia Energetica de Sao Paulo .......... 207
1,108,000 Cia Paulista De Forca e Luz .......... 55
9,400,000 Cia Siderurgica Nacional ............. 214
#6,313 Cemig GDR ............................ 123
1,770,000 Eletrobras ........................... 461
8,300 Eletrobras ADR ....................... 112
305,000 Light ................................ 96
#15,930 Rhodia-Ster S.A. GDR ................. 223
4,600,000 Telebras ............................. 131
6,300 Telebras ADR ......................... 208
1,303,000 Telesp ............................... 166
#3,907 Usiminas ADR ......................... 43
---------
2,210
---------
CHILE (2.6%)
7,915 Empresa Nacional de Electricidad
ADR ................................ 210
5,000 Maderas y Sinteticos S.A. ADR ........ 94
---------
304
---------
MEXICO (26.9%)
9,600 ALFA S.A. de C.V. .................... 117
+56,800 Apasco S.A. de C.V. .................. 225
96,270 Banacci 'B' .......................... 148
106,588 Banacci 'L' .......................... 162
#24,080 Cemex ADR ............................ 164
19,400 Cemex 'CPO' .......................... 67
16,150 Empresas ICA Sociedad Controladora
S.A. de C.V. ....................... 166
186,250 FEMSA 'B' ............................ 435
#4,300 Grupo Carso S.A. ADR ................. 47
+157,000 Grupo Financiero Bancomer 'B' ........ 46
+37,015 Grupo Financiero Bancomer 'L' ........ 10
#49,790 Grupo Financiero Bancomer ADS ........ 299
+107,000 Grupo Financiero Probursa 'C' ........ 47
+12,950 Grupo Mexicano de Desarollo 'B'
ADR ................................ 50
+5,000 Grupo Simec S.A. de C.V. 'B' ADR ..... 49
#9,550 Hylsamex ADR ......................... 174
8,275 Pan American Beverages, Inc. 'A' ..... 248
30,450 Sidek 'B' ............................ 27
10,660 Telefonos de Mexico 'L' ADR .......... 316
89,450 Tolmex 'B2' .......................... 349
+1,150 Tribasa ADR .......................... 10
---------
3,156
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------
PERU (3.0%)
67,600 Banco de Credito del Peru 'C' ........ $ 119
136,061 Telefonica del Peru 'B' .............. 232
---------
351
---------
TOTAL COMMON STOCKS (COST $7,930).................. 7,073
---------
PREFERRED STOCKS (36.2%)
BRAZIL (36.2%)
670,000 Acesita .............................. 5
60,940,000 Banco Bradesco ....................... 516
2,790,000 Banco Nacional ....................... 54
15,950,000 Banco do Brasil ...................... 191
3,940,000 Banco do Estado ...................... 22
164 Bardella S.A. ........................ 25
+1,134,700 Brahma ............................... 372
293,000 Brasmotor S.A. ....................... 54
800,000 Cemig ................................ 16
#3,539 Cemig ADR ............................ 70
+181,000 Centrais Eletricas de Santa Catarina
'B' ................................ 146
65,400 Cia Energetica de Sao Paulo .......... 3
6,040,000 Cia Paulista de Forca e Luz .......... 199
20,000 Confab Industrial S.A. ............... 15
400,000 Coteminas ............................ 126
3,200,000 Continental 2001 ..................... 69
144,064 Dixie Lalekla S.A. ................... 113
939,000 Eletrobras 'B' ....................... 250
1,639,100 Itaubanco ............................ 499
8,166,000 Lojas Renner ......................... 138
85,000 Multibras S.A. ....................... 70
4,528,000 Petrobras ............................ 384
49,500,000 Refripar ............................. 96
10,000,000 Tec Toy Industria Brinquedos ......... 6
5,889,383 Telebras ............................. 194
1,867,000 Telesp ............................... 231
62,800,000 Usiminas ............................. 71
1,080,000 Vale do Rio Doce ..................... 163
+325,000 WEG S.A. ............................. 148
---------
TOTAL PREFERRED STOCKS (COST $4,733)............... 4,246
---------
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
+4,000,000 Cia Paulista De Forza e Luz call,
expiring 10/16/95, strike price BR
70.00 (COST $0)..................... 6
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
(000)
<C> <S> <C>
- -----------
RIGHTS (0.0%)
BRAZIL (0.0%)
*+1,100,455 Banco Bradesco (COST $0)............. 1
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------
CONVERTIBLE DEBENTURES (3.2%)
COLOMBIA (3.2%)
$ #500 Banco de Colombia 5.20%, 2/1/99 (COST
$489) ............................. 380
---------
TOTAL FOREIGN SECURITIES (99.6%) (COST $13,152)... 11,706
---------
</TABLE>
34 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------
FOREIGN CURRENCY (0.7%)
APS 33 Argentine Peso ...................... $ 33
BR 21 Brazilian Real ...................... 22
ME 136 Mexican New Peso .................... 22
PS 2 Peruvian Sol ........................ 1
---------
TOTAL FOREIGN CURRENCY (COST $78)................. 78
---------
TOTAL INVESTMENTS (100.3%) (COST $13,230)......... 11,784
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.3%)..... (41)
---------
NET ASSETS (100%)................................. $11,743
---------
---------
- ---------------
</TABLE>
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
* -- Fair valued securities -- See Note A-1
144A Security -- certain conditions for public sale
# -- may exist
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995,
the Fund is obligated to deliver U.S. dollars in exchange for foreign currency
as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ------------- ----- ----------- ------------- ----- ---------------
<S> <C> <C> <C> <C> <C>
$ 72 $ 72 7/3/95 BR 66 $ 72 --
-- --
-- --
------ ---
------ ---
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
BR -- Brazilian Real
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Finance............................................................ $ 2,738 23.3%
Consumer Goods..................................................... 2,009 17.1
Materials.......................................................... 1,974 16.8
Utilities.......................................................... 1,954 16.6
Services........................................................... 1,477 12.6
Energy Sources..................................................... 999 8.5
Multi-Industry..................................................... 329 2.8
Capital Equipment.................................................. 226 1.9
--------- ---
$ 11,706 99.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. 35
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 2.1%
Brazil 15.7%
China 1.1%
Colombia 0.3%
Greece 3.1%
Hong Kong 8.2%
Hungary 0.2%
India 6.3%
Indonesia 6.1%
Israel 3.1%
Korea 1.3%
Mexico 10.2%
Morocco 0.3%
Pakistan 3.2%
Philippines 3.5%
Poland 1.9%
Portugal 1.2%
Russia 4.4%
Singapore 0.2%
South Africa 2.9%
Taiwan 2.3%
Thailand 6.9%
Turkey 3.8%
Other 11.7%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
<S> <C> <C>
VALUE
SECURITY COUNTRY (000)
- ------------------------------ --------- ---------
Bank for Foreign Economic Russia $ 2,113
Affairs
Morgan Stanley India India 1,114
Investment Fund
Telebras ADR Brazil 926
Bangkok Bank Co. Ltd. Thailand 749
(Foreign)
Hutchison Whampoa Ltd. Hong Kong 662
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS SINCE INCEPTION (JULY 6, 1994)**
- ----------------------------------------------------
WITH WITHOUT
SALES SALES
CHARGE* CHARGE
<S> <C> <C>
- ----------------------------------------------------
- --------------------------------------------------
Class A Shares -15.78% -11.58%
- ----------------------------------------------------
Class C Shares+ -13.13% -12.25%
- ----------------------------------------------------
IFC Global Total Return
Composite Index N/A -1.32%
- ----------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares and the 1% deferred sales charge for Class C
shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
return would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995.
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE SECTORS
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------- --------- -------------
<S> <C> <C>
Finance $ 12,619 26.1%
Consumer Goods 7,904 16.4%
Materials 5,533 11.4%
Capital Equipment 4,347 9.0%
Services 4,323 8.9%
</TABLE>
The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa (assuming dividends are reinvested).
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
IFC Global Retail Return Composite
Emerging Markets Fund Class A Emerging Markets Fund Class C+ Index
07/06/94 $9,525 $10,000 $10,000
06/30/95 $8,422 $8,688 $9,868
</TABLE>
In accordance with SEC regulations, Fund performance since inception as shown at
left assumes that: the maximum sales charge was deducted from the initial
investment of $10,000 in Class A shares; the maximum deferred sales charge was
deducted from the value of the investment of $10,000 in Class C shares; all
recurring fees (including management fees) were deducted; and all dividends and
distributions were reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Emerging Markets Fund is to
provide long-term capital appreciation by investing in common
stocks of emerging country issuers.
For the period since inception on July 6, 1994 through June
30, 1995, the Fund had an aggregate total return exclusive of
sales charge of -11.58% for the Class A shares and -12.25%
for the Class C shares, and an aggregate total return with
sales charge of -15.78% for the Class A shares and -13.13%
for the Class C shares, as compared to an aggregate total
return of -1.32% for the IFC Global Total Return Composite
Index for the same period.
The second quarter of 1995 saw a rebound in confidence in the
emerging markets as Latin America significantly outperformed
Asia. In the Fund, overweight positions in Brazil, Mexico,
Turkey, Israel, Greece, Indonesia, Hong Kong and an
underweight position in Taiwan all added to relative
performance. India and Pakistan, however, exerted some drag
on the overall return.
Asia rose 1.3% over the three-month period led by the
Philippines, Thailand, Malaysia and Hong Kong. Sentiment in
Asia is sensitive to the direction of U.S. interest rates and
the recent Federal Reserve easing created a rally in most of
the Asian markets. The outlook for Asian growth, while
slightly slower in 1995 than in 1994, is still very positive.
A slowing U.S. economy is now not such a negative for Asian
growth. While OECD economic growth has historically been the
dominant factor impacting Asia's export led economies, more
recently however intra-Asian trade has become more important.
In the 1980's one-third of Asian exports went to the U.S. and
one quarter went to Asia. By 1994, these weightings had
reversed and intra-Asian trade now accounts for 32% of total
Asian exports. The weak U.S. dollar also boosts Asian and
other emerging market trade with the non-U.S. OECD economies.
The anticipated pick up in economic growth in Japan should
draw in imports from Thailand, Indonesia, the Philippines,
Korea and Taiwan.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE IFC GLOBAL TOTAL RETURN REGIONAL OR COUNTRY INDICES AND ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
FUND'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
36
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
By heavily underweighting Taiwan, the Fund avoided some of
the 16% fall in the Taipei stock market. Several factors led
to the decline including a weak real estate market and fears
of China's retaliation against the visit of the Taiwan
president to the U.S.. Taiwan is no longer the most expensive
market in Asia and we are looking closely at the
opportunities available there.
Latin America bounced 19.4% for the quarter. This time the
"tequila effect" was positive. With the exception of
Argentina, all markets in the region performed strongly with
Brazil up 15.9% and Mexico rising 27.1% from its oversold
position.
Tangible economic progress is being seen in Brazil. The
likely reduction in inflation to 40% year-on-year by December
1995 compared to a monthly rate of 40% a year ago testifies
to the success of the Real Plan. Although constitutional
reform is likely to be protracted, President Cardoso
continues to move toward some privatization of the
telecommunications, oil, mining and electricity sectors.
Brazil has one of the strongest economies in the region and
remains the largest single country exposure of the Fund.
Mexico has swiftly moved out of the intensive care
department. A sharp austerity program has been implemented
and inflation is dropping significantly, paving the way for
interest rate declines and positive economic growth in 1996.
A strong export sector has limited the depth of the recession
to a decline of 4.0% at worst, for 1995. Mexico's currency
weakness has put the country in a win-win situation in
merchandise trade. Exports to dollar based countries are
boosted while weakness of the U.S. dollar itself gives Mexico
the ability to broaden its export base. Mexican steel
producers are now among the cheapest in the world.
The financial credibility of Mexico improves daily. Tesobono
holders and foreign lenders to Mexican banks are likely to be
paid in full. Banks and infrastructure stocks in Mexico have
been the strong performers in the quarter.
European markets had a buoyant quarter. Poland recovered
35.8%, Hungary 13.8% and Greece and Turkey both around 10%.
As a region, Europe has outpaced Latin America and Asia in
performance terms for the calendar year-to-date, the stock
markets are still cheap and foreign investment in the region
continues to build up steam. The Fund is overweight in
Europe.
We believe the biggest potential opportunity lies in Russia.
In April, the IMF made the second largest loan in it's
history ($6.46 billion) to Russia based on the political and
Central Bank resolve to reduce inflation and the budget
deficit. The ruble has been strengthening recently after
losing almost one-third of its value against the U.S. dollar
between January and April. By late 1995, we expect the
economy to show positive growth after years of decline. On an
international comparison, Russian companies are cheap. The
bond and equity markets have shrugged off President Yeltsin's
recent heart attack suggesting that the political situation
is also more stable. Prime Minister Victor Chernomyrdin's
standing has increased on two counts. First he is being given
credit for the reforms that have stabilized the economy and
second, he successfully handled the Chechen hostage crisis.
We continue to be positively disposed toward India although
the stock market has suffered from political uncertainty and
settlement problems. The corporate sector is healthy and
producing earnings growth in excess of 30%.
In conclusion, while confidence is returning to the emerging
markets, there is little sign of investor complacency or over
valuation. There remains scope for the emerging markets to
move upwards from here.
"WE BELIEVE THE BIGGEST POTENTIAL OPPORTUNITY LIES IN
RUSSIA."
37
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S>
- ---------------------------------------------------------------------
COMMON STOCKS (71.7%)
ARGENTINA (2.1%)
2,200 Banco Frances del Rio de la Plata................. $13
705 Banco Frances del Rio de la Plata ADR............. 13
3,420 Banco de Galicia y Buenos Aires 'B'............... 14
8,227 Banco de Galicia y Buenos Aires ADR............... 130
1,410 Banco del Sud Argentina........................... 9
960 Buenos Aires Embotelladora ADR.................... 24
32,467 CIADEA (Renault).................................. 157
1,500 Capex S.A. 'A'.................................... 12
#6,575 Capex S.A. ADR.................................... 101
18,133 Cia Naviera Perez Companc S.A. 'B'................ 76
23,352 Quilmes Industrial................................ 455
--
1,004
--
BRAZIL (5.4%)
16,099 Brahma............................................ 5
#5,702 Cemig............................................. 111
5,963,260 Cia Energetica de Sao Paulo....................... 194
2,275,000 Cia Paulista de Forca e Luz....................... 114
9,950,000 Cia Siderurgica Nacional.......................... 227
1,513,000 Eletrobras........................................ 395
404,000 Light............................................. 127
#8,782 Rhodia-Ster S.A. GDR.............................. 123
5,260,000 Telebras.......................................... 149
28,070 Telebras ADR...................................... 926
740,000 Telesp............................................ 94
#15,100 Usiminas ADR...................................... 168
--
2,633
--
CHINA (1.1%)
4,300 Jilin Chemical Industrial Co. ADR................. 83
50,000 Maanshan Iron & Steel Co. Ltd..................... 10
50,000 Shanghai Diesel Engine Co. Ltd. 'B'............... 31
150,000 Shenzhen Chiwan Wharf Holdings 'B'................ 75
*160,000 Shenzhen North Jainshe Motorcycle................. 78
630,000 Yizheng Chemical Fibre 'H'........................ 220
+40,000 Zhuhai Pharmaceutical 'B'......................... 18
--
515
--
GREECE (3.1%)
+7,500 Aegek............................................. 167
6,000 Alpha Credit Bank................................. 333
17,000 Delta Dairy S.A................................... 354
7,000 Ergo Bank S.A..................................... 322
11,000 Hellenic Bottling Co. S.A......................... 327
--
1,503
--
HONG KONG (8.2%)
680,000 Charoen Pokphand Co............................... 239
72,000 Cheung Kong Holdings Ltd.......................... 356
90,000 Citic Pacific Ltd................................. 226
650,000 Guangdong Investments Ltd......................... 355
46,000 Hang Seng Bank Ltd................................ 351
262,000 Harbin Power Equipment Co......................... 84
132,800 Hong Kong Telecommunications Ltd.................. 263
420,000 Hopewell Holdings Ltd............................. 355
137,000 Hutchison Whampoa Ltd............................. 662
113,000 New World Development Co. Ltd..................... 376
11,000 Sun Hung Kai Properties Ltd....................... 81
49,000 Swire Pacific Ltd. 'A'............................ 374
140,000 Varitronix International Ltd...................... 245
--
3,967
--
HUNGARY (0.2%)
5,350 Gedeon Richter (Austrian Certificates)............ 86
--
INDIA (6.1%)
3,255 Century Textiles & Industries GDR................. 505
90,000 Great Eastern Shipping GDR........................ 641
20,250 Indian Aluminum Co. GDR........................... 220
#4,480 JCT Ltd. GDR...................................... 80
@108,700 Morgan Stanley India Investment Fund.............. 1,114
60,000 Tube Investments of India......................... $405
--
2,965
--
INDONESIA (6.1%)
*840,000 Bimantara Citra................................... 471
*80,000 Bank International Indonesia (Foreign)............ 247
*55,500 Charoen Pokphand Co. Ltd.(Foreign)................ 121
*72,000 Duta Pertiwi (Foreign)............................ 73
*109,500 Indocement Tunggal (Foreign)...................... 430
*60,000 Indosat (Foreign)................................. 228
5,800 Indosat ADR....................................... 222
*79,000 Kalbe Farma (Foreign)............................. 362
*16,000 Kermika Indonesia Association (Foreign)........... 21
*35,166 Sorini Corp. (Foreign)............................ 168
44,800 Tempo Scan Pacific (Foreign)...................... 231
*173,000 United Tractors (Foreign)......................... 369
--
2,943
--
ISRAEL (3.1%)
4,000 Elbit Ltd......................................... 300
680 First International Bank of Israel Ltd. '1'....... 84
2,000 First International Bank of Israel Ltd. '5'....... 247
44,327 Israel Land Development Co. Ltd................... 133
5,100 Koor Industries Ltd............................... 434
16,900 Osem Investment Ltd............................... 130
9,000 Super Sol Ltd..................................... 172
--
1,500
--
KOREA (1.3%)
1,000 Pohang Iron & Steel............................... 86
*1,500 Samsung Electronics Co............................ 309
6,000 Shinhan Bank Co. Ltd.............................. 123
3,000 Yukong Ltd........................................ 125
--
643
--
MEXICO (9.1%)
+37,200 Apasco S.A. de C.V................................ 148
221,655 Banacci 'B'....................................... 340
137,082 Banacci 'L'....................................... 208
#70,021 Cemex 'CPO' ADR................................... 476
51,500 Cemex 'CPO'....................................... 178
34,625 Empresas ICA Sociedad Controladora S.A. de C.V.... 355
+214,000 Grupo Financiero Bancomer 'B'..................... 63
+54,403 Grupo Financiero Bancomer 'L'..................... 14
#95,510 Grupo Financiero Bancomer ADS..................... 573
+59,000 Grupo Financiero Probursa 'C'..................... 26
+17,200 Grupo Mexicano de Desarollo 'B' ADR............... 67
#10,720 Hylsamex ADR...................................... 196
+4,800 Internacional de Ceramica ADR..................... 38
14,280 Pan American Beverages, Inc. 'A'.................. 428
+7,200 Sidek 'A'......................................... 6
+21,000 Sidek 'B'......................................... 19
5,700 Sidek ADR......................................... 26
17,325 Telefonos de Mexico 'L' ADR....................... 513
129,850 Tolmex 'B2'....................................... 507
+26,420 Tribasa ADR....................................... 225
--
4,406
--
MOROCCO (0.3%)
2,000 ONA S.A........................................... 83
2,000 Wafabank.......................................... 82
--
165
--
PAKISTAN (3.2%)
95,000 Dewan Salman Fibre................................ 313
143,000 D.G. Khan Cement Ltd.............................. 202
100,000 Fauji Fertilizer Co. Ltd.......................... 197
100,000 Karachi Electric.................................. 86
35,000 Nishat Mills Ltd.................................. 32
27,000 Pakistan State Oil Co. Ltd........................ 327
3,450 Pakistan Telecommunication Co..................... 368
10,000 Sui Northern Gas Pipelines........................ 10
--
1,535
--
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S>
PHILIPPINES (3.5%)
184,125 Ayala Land, Inc. 'B'.............................. $213
749,000 JG Summit Holding 'B'............................. 223
30,000 Manilla Electric 'B'.............................. 241
737,500 Petron Corp....................................... 476
600 Philippine Long Distance Telephone ADR............ 43
32,000 Pilipino Telephone Corp........................... 25
841,100 SM Prime Holdings, Inc............................ 231
57,900 San Miguel Corp. 'B'.............................. 240
--
1,692
--
POLAND (1.9%)
12,500 Bank Rozwoju Eksportu S.A......................... 200
15,750 Debica S.A........................................ 222
1,650 E. Wedel S.A...................................... 97
+31,300 Electrim.......................................... 110
+48,000 Mostostal Export 'A'.............................. 121
2,100 Zywiec............................................ 159
--
909
--
PORTUGAL (1.0%)
6,500 Banco Totta & Acores 'B' (Registered)............. 138
6,000 Filmes Lusomundo.................................. 66
15,000 UNICER-Uniao Cervejeira S.A....................... 253
--
457
--
SINGAPORE (0.2%)
6,600 Asia Pulp & Paper Co. Ltd. ADR.................... 83
--
SOUTH AFRICA (2.9%)
1,324 Anglo American Industrial Corp. Ltd............... 66
69,000 Gencor Ltd........................................ 237
75,000 Murray & Roberts Holdings Ltd..................... 433
400,000 SA Iron & Steel Corp. Ltd......................... 454
17,933 SASOL Ltd......................................... 172
5,530 Trans-Natal Coal.................................. 43
--
1,405
--
TAIWAN (2.3%)
+88,400 Advanced Semiconductor Engineering, Inc........... 257
+82,800 Taiwan Semiconductor Co........................... 402
+88,000 United Micro Electronics Corp. Ltd................ 451
--
1,110
--
THAILAND (6.9%)
14,800 Advanced Information Services Co. Ltd.
(Foreign)....................................... 219
63,400 Bangkok Bank Co. Ltd.............................. 555
68,000 Bangkok Bank Co. Ltd. (Foreign)................... 749
75,700 Finance One Co. Ltd. (Foreign).................... 558
22,000 Phatra Thanakit Co. Ltd. (Foreign)................ 184
10,300 Shinawatra Computer Co. Ltd....................... 255
2,900 Siam Cement Co. Ltd. (Foreign).................... 185
67,000 Thai Farmer's Bank Public Co...................... 641
--
3,346
--
TURKEY (3.7%)
350,000 Aksa Akrilik Kimya Sanayii A.S.................... 309
300,000 Borusan Birmesik.................................. 117
+405,000 Ege Biracilik Ve Malt Sanayii..................... 476
190,000 Ege Seramik Co., Inc.............................. 92
250,000 Koc Yatirim Ve Sanayii Mamulleri.................. 78
130,000 Migros Turk....................................... 146
250,000 Tat Konserve...................................... 195
+230,000 Tofas Turk Otomobil Fabrikasi..................... 203
2,428,400 Yapi Ve Kredi Bankasi............................. 156
--
1,772
--
TOTAL COMMON STOCKS (COST $35,785)............................... 34,639
--
PREFERRED STOCKS (11.6%)
BRAZIL (10.3%)
9,234,000 Acesita........................................... 60
77,680,000 Banco Bradesco.................................... $658
12,067,000 Banco Nacional.................................... 235
21,630,000 Banco do Brasil................................... 258
6,400,000 Banco do Estado................................... 36
+1,649,000 Brahma............................................ 541
386,000 Brasmotor......................................... 71
2,847 Cemig ADR......................................... 56
+19,000 Centrais Eletricas de Santa Catarina 'B'.......... 15
1,560,000 Cia Energetica de Sao Paulo....................... 62
#18,110 Cia Energetica de Sao Paulo ADR................... 206
1,350,000 Cia Paulista de Forca e Luz....................... 44
+45,000,000 Cosipa 'B'........................................ 75
2,070,000 Eletrobras 'B'.................................... 551
1,935,200 Itaubanco......................................... 589
93,000 Multibras S.A..................................... 77
4,991,000 Petrobras......................................... 423
2,105,000 Petrobras Distribuidora........................... 73
11,698,390 Telebras.......................................... 385
1,991,000 Telesp............................................ 247
96,360,000 Usiminas.......................................... 109
1,480,000 Vale do Rio Doce.................................. 224
--
4,995
--
MEXICO (1.1%)
224,900 FEMSA 'B'......................................... 525
--
PORTUGAL (0.2%)
*11,780 Filmes Lusomundo.................................. 109
--
TOTAL PREFERRED STOCKS (COST $6,477)............................. 5,629
--
<CAPTION>
NO. OF
RIGHTS
<C> <S>
- ------------
RIGHTS (0.1%)
BRAZIL (0.0%)
*+1,402,746 Banco Bradesco.................................... 2
--
PAKISTAN (0.0%)
*+750 Dewan Salman Fibre................................ --
*+5,250 Nishat Mills...................................... 2
--
2
--
TURKEY (0.1%)
*+65,000 Migros Turk....................................... 71
--
TOTAL RIGHTS (COST $74).......................................... 75
--
<CAPTION>
NO. OF
WARRANTS
<C> <S>
- ------------
WARRANTS (0.0%)
THAILAND
*+3,800 National Finance & Securities Co. Ltd., expiring
11/15/99 (COST $0).............................. --
--
<CAPTION>
SHARES
<C> <S>
- ------------
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
+900,000 Cia Paulista De Forza e Luz call, expiring
10/16/95, strike price BR 70.00 (COST $0)....... 1
--
<CAPTION>
FACE
AMOUNT
(000)
<C> <S>
- ------------
FIXED INCOME SECURITIES (4.9%)
CONVERTIBLE DEBENTURES (0.5%)
COLOMBIA (0.3%)
$ #170 Banco de Colombia 5.20%, 2/1/99................... 129
--
INDIA (0.2%)
120 Tata Iron & Steel Co. 2.25%, 4/1/99............... 112
--
TOTAL CONVERTIBLE DEBENTURES (COST $303)......................... 241
--
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<C> <S>
LOAN AGREEMENTS (4.4%)
RUSSIA (4.4%)
++/+++$6,500 Bank for Foreign Economic Affairs
(COST $1,741)................................... $2,113
--
TOTAL FIXED INCOME SECURITIES (COST $2,044)...................... 2,354
--
TOTAL FOREIGN SECURITIES (88.3%) (COST $44,380).................. 42,698
--
SHORT TERM INVESTMENTS (13.9%)
REPURCHASE AGREEMENT
UNITED STATES
6,706 U.S. Trust 5.90%, dated 6/30/95, due 7/3/95, to be
repurchased at $6,709, collateralized by $6,950
United States Treasury Bills, due 7/27/95,
valued at $6,923 (COST $6,706) 6,706
--
TOTAL INVESTMENT IN SECURITIES (COST $51,086).................... 49,404
--
FOREIGN CURRENCY (1.1%)
APS 66 Argentine Peso.................................... 66
BR 58 Brazilian Real.................................... 63
GR 14,091 Greek Drachma..................................... 62
HK$ 3 Hong Kong Dollar.................................. --
IDN 518,430 Indonesian Rupiah................................. $233
MXN 5 Mexican New Peso.................................. 1
PKR 2,660 Pakistani Rupee................................... 86
PLZ 14 Polish Zloty...................................... 6
T$ 198 Taiwan Dollar..................................... 8
TB 369 Thai Baht......................................... 15
--
TOTAL FOREIGN CURRENCY (COST $540)............................... 540
--
TOTAL INVESTMENTS (103.3%) (COST $51,626)........................ 49,944
LIABILITIES IN EXCESS OF OTHER ASSETS (-3.3%).................... (1,608)
--
NET ASSETS (100%)................................................ $48,336
--
--
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing
securities
++ -- Non-income producing
securities -- in default
+++ -- Variable or floating rate
securities.
* -- Fair valued securities -- See
Note A-1
@ -- The Fund is advised by an
affiliate.
# -- 144A Security -- certain
conditions for pubic sale may
exist.
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995, the
Fund is obligated to deliver U.S. dollars in exchange for foreign currency as
indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- ---------- ------- ----------- -------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 71 $ 71 7/3/95 GR 16,193 $ 72 $ 1
$ 51 51 7/3/95 PKR 1,573 51 --
$ 77 77 7/3/95 PTE 11,198 77 --
$ 150 150 7/3/95 ZAR 547 151 1
--
------- -------
$ 349 $ 351 $ 2
--
--
------- -------
------- -------
</TABLE>
- ------------
<TABLE>
<S> <C> <C>
GR -- Greek Drachma
PKR -- Pakistani Rupee
PTE -- Portuguese Escudo
ZAR -- South African Rand
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Finance................................. $ 12,619 26.1%
Consumer Goods.......................... 7,904 16.4
Materials............................... 5,533 11.4
Capital Equipment....................... 4,347 9.0
Services................................ 4,323 8.9
Energy.................................. 3,666 7.6
Multi-Industry.......................... 2,193 4.5
Loan Agreements......................... 2,113 4.4
-------- ---
$ 42,698 88.3%
-------- ---
-------- ---
</TABLE>
40 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JUNE 30, 1995
<TABLE>
<CAPTION>
WORLDWIDE
GLOBAL EQUITY GLOBAL ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION FIXED GROWTH VALUE INCOME AMERICAN MARKETS
FUND INCOME 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 $ 85,375 $ 16,894 $ 319,520 $ 34,374 $ 33,789 $ 11,706 $ 49,404
Foreign Currency at
Value 83 -- 99 -- -- 78 540
Cash 134 399 1 -- 1 -- 332
Receivable for:
Investments Sold 140 -- 955 -- 1,241 585 156
Fund Shares Sold 223 5 858 241 143 154 544
Dividends 278 -- 714 57 -- 21 103
Interest 1 410 -- -- 522 11 5
Foreign Withholding
Tax Reclaim 58 -- 11 -- -- -- --
Unrealized Gain on
Forward Foreign
Currency Contracts 292 -- -- -- -- -- 2
Deferred Organization
Costs 49 48 32 54 60 59 58
Other 4 -- 26 -- -- -- --
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 86,637 17,756 322,216 34,726 35,756 12,614 51,144
------------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments Purchased 2,903 524 1,509 -- 8,762 432 2,531
Fund Shares Redeemed 221 26 926 11 16 183 27
Bank Overdraft 83 -- -- -- -- 174 --
Dividends -- 28 -- 50 148 -- --
Investment Advisory
Fees 127 -- 762 30 30 2 78
Administrative Fees 25 5 82 8 7 4 12
Custody Fees 26 5 126 4 3 13 31
Professional Fees 30 30 40 19 30 30 28
Distribution Fees 126 21 435 42 36 14 61
Shareholder Reporting
Expenses 37 5 135 10 9 -- 11
Directors' Fees and
Expenses 2 2 2 2 2 2 2
Filing and
Registration Fees 11 10 35 8 14 17 27
Unrealized Loss on
Forward Foreign
Currency Contracts -- 43 -- -- -- -- --
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 3,591 699 4,052 184 9,057 871 2,808
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 83,046 $ 17,057 $ 318,164 $ 34,542 $ 26,699 $ 11,743 $ 48,336
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Assets Consist Of:
Capital Stock at Par $ 6 $ 2 $ 19 $ 3 $ 2 $ 1 $ 5
Paid in Capital in
Excess of Par 76,810 16,770 291,244 32,428 27,093 15,494 50,944
Undistributed
(Distribution in
excess of) Net
Investment Income (990) 330 -- 13 165 -- 94
Accumulated
(Distribution in
excess of) Net
Realized Gain (Loss) 2,162 (524) (1,382) 143 (528) (2,306) (1,025)
Unrealized Appreciation
(Depreciation) on
Investments and
Foreign Currency 5,058 479 28,283 1,955 (33) (1,446) (1,682)
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 83,046 $ 17,057 $ 318,164 $ 34,542 $ 26,699 $ 11,743 $ 48,336
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS A SHARES:
Net Assets $ 42,586 $ 11,092 $ 178,667 $ 20,675 $ 14,819 $ 7,658 $ 26,091
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,379 1,084 10,878 1,604 1,281 844 2,459
Net Asset Value and
Redemption Price Per
Share $ 12.60 $ 10.23 $ 16.42 $ 12.89 $ 11.57 $ 9.08 $ 10.61
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
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) $ 13.23 $ 10.74 $ 17.24 $ 13.53 $ 12.15 $ 9.53 $ 11.14
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS C SHARES:+
Net Assets $ 40,460 $ 5,965 $ 139,497 $ 13,867 $ 11,880 $ 4,085 $ 22,245
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,256 585 8,615 1,076 1,026 454 2,112
Net Asset Value and
Offering Price Per
Share $ 12.43 $ 10.20 $ 16.19 $ 12.89 $ 11.58 $ 8.99 $ 10.53
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Investments at Cost,
Including Foreign
Currency $ 80,663 $ 16,382 $ 291,336 $ 32,419 $ 33,822 $ 13,230 $ 51,626
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
<FN>
* Includes repurchase agreements aggregating $4,465,000, $586,000, $883,000,
$2,677,000, $6,983,000 and $6,706,000 for Global Equity Allocation Fund,
Global Fixed Income Fund, Asian Growth Fund, American Value Fund, Worldwide
High Income Fund and Emerging Markets Fund, respectively.
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements. 41
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
LATIN EMERGING
AMERICAN MARKETS
GLOBAL GLOBAL WORLDWIDE FUND FUND
EQUITY FIXED ASIAN AMERICAN HIGH PERIOD PERIOD
ALLOCATION INCOME GROWTH VALUE INCOME FROM FROM
FUND FUND FUND FUND FUND JULY 6, JULY 6,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994* 1994*
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE TO JUNE
1995 1995 1995 1995 1995 30, 1995 30, 1995
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,067 $ -- $ 5,353 $ 819 $ -- $ 156 $ 376
Interest 219 1,147 740 82 2,648 35 440
Less Foreign Taxes
Withheld (231) (9) (500) -- (3) (12) (30)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Income 2,055 1,138 5,593 901 2,645 179 786
---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory
Fees
Basic Fee 759 117 2,920 202 152 109 312
Less: Fees Waived (247) (117) -- (110) (88) (109) (197)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory
Fees -- Net 512 -- 2,920 92 64 -- 115
Administrative Fees 282 50 895 78 69 41 85
Custodian Fees 104 22 498 18 14 54 125
Filing and Registration
Fees 5 2 12 4 4 6 17
Directors' Fees and
Expenses 13 13 13 13 8 8 8
Professional Fees 51 34 91 25 35 35 37
Shareholder Reports 77 16 302 23 20 10 26
Distribution Fees
Class A 98 25 403 36 28 15 34
Class C+ 367 57 1,315 93 88 29 111
Amortization of
Organizational Costs 19 19 11 16 16 15 14
Blue Sky Fees
Class A 16 16 25 13 16 16 16
Class C+ 16 16 25 13 16 16 16
Brazilian Tax Expense -- -- -- -- -- 32 46
Other 8 3 27 3 3 16 17
Expenses Reimbursed by
Adviser -- (4) -- -- -- (56) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Expenses 1,568 269 6,537 427 381 237 667
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income
(Loss) 487 869 (944) 474 2,264 (58) 119
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS)
ON INVESTMENTS
Securities Sold 2,238 (502) 4,934 362 (494) (2,306) (996)
Foreign Currency
Transactions (2,101) 67 318 -- 24 (34) (68)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized
Gain (Loss) 137 (435) 5,252 362 (470) (2,340) (1,064)
---------- ---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) 3,795 1,228 19,182 2,637 82 (1,446) (1,682)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized Gain
(Loss) and Change in
Unrealized Appreciation
(Depreciation) 3,932 793 24,434 2,999 (388) (3,786) (2,746)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $ 4,419 $ 1,662 $ 23,490 $ 3,473 $ 1,876 ($ 3,844) ($ 2,627)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
42 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>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 262 $ 487
Net Realized Gain on Investments 632 137
Change in Unrealized Appreciation 86 3,795
-------------- --------------
Net Increase in Net Assets from
Operations 980 4,419
-------------- --------------
DISTRIBUTIONS:
Net Investment Income:
Class A (50) --
Class C + -- --
In Excess of Net Investment Income:
Class A -- (168)
Class C+ -- (82)
-------------- --------------
(50) (250)
-------------- --------------
Net Realized Gain:
Class A (127) (427)
Class C + (85) (407)
-------------- --------------
(212) (834)
-------------- --------------
Net Decrease in Net Assets Resulting
from Distributions (262) (1,084)
-------------- --------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 59,445 32,645
Distributions Reinvested 243 996
Redeemed (14,518) (17,247)
-------------- --------------
Net Increase in Net Assets Resulting
from Capital Share Transactions 45,170 16,394
-------------- --------------
Total Increase in Net Assets 45,888 19,729
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 $990, respectively) $ 63,317 $ 83,046
-------------- --------------
-------------- --------------
- -------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 2,528 1,341
Distributions Reinvested 14 45
Redeemed (696) (794)
-------------- --------------
Net Increase in Class A Shares
Outstanding 1,846 592
-------------- --------------
-------------- --------------
Dollars:
Issued $ 30,362 $ 16,461
Distributions Reinvested 164 546
Redeemed (8,163) (9,697)
-------------- --------------
Net Increase in Class A Shares
Outstanding $ 22,363 $ 7,310
-------------- --------------
-------------- --------------
Class C +
Shares:
Issued 2,421 1,329
Distributions Reinvested 6 38
Redeemed (548) (623)
-------------- --------------
Net Increase in Class C Shares
Outstanding 1,879 744
-------------- --------------
-------------- --------------
Dollars:
Issued $ 29,083 $ 16,184
Distributions Reinvested 79 450
Redeemed (6,355) (7,550)
-------------- --------------
Net Increase in Class C Shares
Outstanding $ 22,807 $ 9,084
-------------- --------------
-------------- --------------
- -------------------------------------------------------------------------
</TABLE>
+Class B Shares were renamed Class C Shares on May 1, 1995.
The accompanying notes are an integral part of the financial statements. 43
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 619 $ 869
Net Realized Gain (Loss) 504 (435)
Change in Unrealized Appreciation
(Depreciation) (1,219) 1,228
-------------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations (96) 1,662
-------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (371) (369)
Class C+ (248) (173)
In Excess of Net Investment Income:
Class A (93) --
Class C+ (62) --
-------------- -------
(774) (542)
-------------- -------
Net Realized Gain:
Class A (267) --
Class C+ (237) --
In Excess of Net Realized Gain:
Class A (14) --
Class C+ (13) --
-------------- -------
(531) --
-------------- -------
Net Decrease in Net Assets Resulting
from Distributions (1,305) (542)
-------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 15,880 8,903
Distributions Reinvested 737 328
Redeemed (12,193) (9,070)
-------------- -------
Net Increase in Net Assets Resulting
from Capital Share Transactions 4,424 161
-------------- -------
Total Increase in Net Assets 3,023 1,281
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
$330, respectively) $ 15,776 $ 17,057
-------------- -------
-------------- -------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 989 682
Distributions Reinvested 41 27
Redeemed (572) (712)
-------------- -------
Net Increase (Decrease) in Class A
Shares Outstanding 458 (3)
-------------- -------
-------------- -------
Dollars:
Issued $ 10,128 $ 6,628
Distributions Reinvested 426 258
Redeemed (5,980) (6,878)
-------------- -------
Net Increase in Class A Shares
Outstanding $ 4,574 $ 8
-------------- -------
-------------- -------
Class C+:
Shares:
Issued 549 239
Distributions Reinvested 30 7
Redeemed (591) (228)
-------------- -------
Net Increase (Decrease) in Class C
Shares Outstanding (12) 18
-------------- -------
-------------- -------
Dollars:
Issued $ 5,752 $ 2,275
Distributions Reinvested 311 70
Redeemed (6,213) (2,192)
-------------- -------
Net Increase (Decrease) in Class C
Shares Outstanding $ (150) $ 153
-------------- -------
-------------- -------
- -----------------------------------------------------------------------------
</TABLE>
+Class B Shares were renamed Class C Shares on May 1, 1995.
44 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>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (984) $ (944)
Net Realized Gain on Investments 4,723 5,252
Change in Unrealized Appreciation 9,101 19,182
--------------- --------
Net Increase in Net Assets Resulting
from Operations 12,840 23,490
--------------- --------
DISTRIBUTIONS:
Net Realized Gain:
Class A -- (4,935)
Class C+ -- (4,055)
In Excess of Net Realized Gain:
Class A -- (241)
Class C+ -- (198)
--------------- --------
Net Decrease in Net Assets Resulting
from Distributions -- (9,429)
--------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Issued 285,430 109,249
Distributions Reinvested -- 8,260
Redeemed (63,430) (68,507)
--------------- --------
Net Increase in Net Assets Resulting
from Capital Share Transactions 222,000 49,002
--------------- --------
Total Increase in Net Assets 234,840 63,063
NET ASSETS -- Beginning of Period 20,261 255,101
--------------- --------
NET ASSETS -- End of Period $ 255,101 $ 318,164
--------------- --------
--------------- --------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 10,025 3,855
Distributions Reinvested -- 299
Redeemed (2,090) (2,192)
--------------- --------
Net Increase in Class A Shares
Outstanding 7,935 1,962
--------------- --------
--------------- --------
Dollars:
Issued $ 150,145 $ 62,609
Distributions Reinvested -- 4,563
Redeemed (32,820) (35,024)
--------------- --------
Net Increase in Class A Shares
Outstanding $ 117,325 $ 32,148
--------------- --------
--------------- --------
Class C+
Shares:
Issued 8,840 2,904
Distributions Reinvested -- 245
Redeemed (1,959) (2,123)
--------------- --------
Net Increase in Class C Shares
Outstanding 6,881 1,026
--------------- --------
--------------- --------
Dollars:
Issued $ 135,285 $ 46,640
Distributions Reinvested -- 3,697
Redeemed (30,610) (33,483)
--------------- --------
Net Increase in Class C Shares
Outstanding $ 104,675 $ 16,854
--------------- --------
--------------- --------
- -------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements. 45
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
OCTOBER 18, 1993* TO YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 183 $ 474
Net Realized Gain 208 362
Change in Unrealized Appreciation (Depreciation) (682) 2,637
------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations (291) 3,473
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (120) (350)
Class C+ (59) (143)
------- -------
(179) (493)
------- -------
Net Realized Gain:
Class A -- (260)
Class C+ -- (167)
------- -------
-- (427)
------- -------
Net Decrease in Net Assets Resulting from Distributions (179) (920)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 18,925 15,936
Distributions Reinvested 55 472
Redeemed (556) (2,373)
------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 18,424 14,035
------- -------
Total Increase in Net Assets 17,954 16,588
NET ASSETS -- Beginning of Period -- 17,954
------- -------
NET ASSETS -- End of Period (Including undistributed net investment income of $16 and
$13, respectively) $ 17,954 $ 34,542
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 940 794
Distributions Reinvested 4 29
Redeemed (28) (135)
------- -------
Net Increase in Class A Shares Outstanding 916 688
------- -------
------- -------
Dollars:
Issued $ 11,269 $ 9,738
Distributions Reinvested 42 351
Redeemed (336) (1,647)
------- -------
Net Increase in Class A Shares Outstanding $ 10,975 $ 8,442
------- -------
------- -------
Class C+
Shares:
Issued 636 506
Distributions Reinvested 1 11
Redeemed (18) (60)
------- -------
Net Increase in Class C Shares Outstanding 619 457
------- -------
------- -------
Dollars:
Issued $ 7,656 $ 6,198
Distributions Reinvested 13 121
Redeemed (220) (726)
------- -------
Net Increase in Class C Shares Outstanding $ 7,449 $ 5,593
------- -------
------- -------
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
46 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>
YEAR ENDED YEAR ENDED
JUNE 30, 1994 JUNE 30, 1995
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 183 $ 2,264
Net Realized Gain (Loss) on Investments 192 (470)
Change in Unrealized Appreciation (Depreciation) (115) 82
------------- -------------
Net Increase in Net Assets Resulting from Operations 260 1,876
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (94) (1,262)
Class C+ (76) (906)
------------- -------------
(170) (2,168)
------------- -------------
Net Realized Gain:
Class A -- (104)
Class C+ -- (97)
------------- -------------
-- (201)
------------- -------------
Net Decrease in Net Assets Resulting from Distributions (170) (2,369)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Issued 12,701 21,132
Distributions Reinvested 161 918
Redeemed (14) (7,796)
------------- -------------
Net Increase in Net Assets Resulting from Capital Share Transactions 12,848 14,254
------------- -------------
Total Increase in Net Assets 12,938 13,761
NET ASSETS -- Beginning of Period -- 12,938
------------- -------------
NET ASSETS -- End of Period (Including undistributed net investment income of $15 and $165,
respectively) $ 12,938 $ 26,699
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 557 1,277
Distributions Reinvested 7 51
Redeemed -- (611)
------------- -------------
Net Increase in Class A Shares Outstanding 564 717
------------- -------------
------------- -------------
Dollars:
Issued $ 6,729 $ 14,466
Distributions Reinvested 88 542
Redeemed (2) (6,987)
------------- -------------
Net Increase in Class A Shares Outstanding $ 6,815 $ 8,021
------------- -------------
------------- -------------
Class C+
Shares:
Issued 495 564
Distributions Reinvested 6 35
Redeemed (1) (73)
------------- -------------
Net Increase in Class C Shares Outstanding 500 526
------------- -------------
------------- -------------
Dollars:
Issued $ 5,972 $ 6,666
Distributions Reinvested 73 376
Redeemed (12) (809)
------------- -------------
Net Increase in Class C Shares Outstanding $ 6,033 $ 6,233
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
+ Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements. 47
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
JUNE 30, 1995
(000)
<S> <C>
- -------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (58)
Net Realized Loss on Investments (2,340)
Change in Unrealized Depreciation (1,446)
-------
Net Decrease in Net Assets Resulting from Operations (3,844)
-------
DISTRIBUTIONS:
Paid in Capital:
Class A (124)
Class C+ (50)
-------
Net Decrease in Net Assets Resulting from Distributions (174)
-------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,076
Distributions Reinvested 135
Redeemed (5,450)
-------
Net Increase in Net Assets Resulting from Capital Share
Transactions 15,761
-------
Total Increase in Net Assets 11,743
NET ASSETS -- Beginning of Period --
-------
NET ASSETS -- End of Period $ 11,743
-------
-------
- -------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 1,235
Distributions Reinvested 9
Redeemed (400)
-------
Net Increase in Class A Shares Outstanding 844
-------
-------
Dollars:
Issued $ 14,271
Distributions Reinvested 103
Redeemed (3,781)
-------
Net Increase in Class A Shares Outstanding $ 10,593
-------
-------
Class C+
Shares:
Issued 613
Distributions Reinvested 3
Redeemed (162)
-------
Net Increase in Class C Shares Outstanding 454
-------
-------
Dollars:
Issued $ 6,805
Distributions Reinvested 32
Redeemed (1,669)
-------
Net Increase in Class C Shares Outstanding $ 5,168
-------
-------
- -------------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
48 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
JULY 6, 1994* TO
JUNE 30, 1995
(000)
<S> <C>
- -----------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 119
Net Realized Loss on Investments (1,064)
Change in Unrealized Depreciation (1,682)
-------
Net Decrease in Net Assets Resulting from Operations (2,627)
-------
CAPITAL SHARE TRANSACTIONS (1):
Issued 57,700
Redeemed (6,737)
-------
Net Increase in Net Assets Resulting from Capital Share
Transactions 50,963
-------
Total Increase in Net Assets 48,336
NET ASSETS -- Beginning of Period --
-------
NET ASSETS -- End of Period (Including undistributed net
investment income of $94) $ 48,336
-------
-------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
Shares:
Issued 2,800
Redeemed (341)
-------
Net Increase in Class A Shares Outstanding 2,459
-------
-------
Dollars:
Issued $ 31,244
Redeemed (3,679)
-------
Net Increase in Class A Shares Outstanding $ 27,565
-------
-------
Class C+
Shares:
Issued 2,392
Redeemed (280)
-------
Net Increase in Class C Shares Outstanding 2,112
-------
-------
Dollars:
Issued $ 26,456
Redeemed (3,058)
-------
Net Increase in Class C Shares Outstanding $ 23,398
-------
-------
- -----------------------------------------------------------------------------
<FN>
*Commencement of operations
+Class B Shares were renamed Class C Shares on May 1, 1995.
</TABLE>
The accompanying notes are an integral part of the financial statements. 49
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE DATA JANUARY 4, 1993* YEAR ENDED YEAR ENDED JANUARY 4, 1993* YEAR ENDED YEAR ENDED
AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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 0.12 0.01 0.06 0.04
Net Realized and
Unrealized Gain 1.05 0.90 0.67 1.04 0.86 0.65
------- ------------- ------------- ------ ------------- -------------
Total From Investment
Operations 1.09 1.00 0.79 1.05 0.92 0.69
------- ------------- ------------- ------ ------------- -------------
DISTRIBUTIONS
Net Investment Income -- (0.03) -- -- -- --
In Excess of Net
Investment Income -- -- (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 $ 12.60 $ 11.05 $ 11.90 $ 12.43
------- ------------- ------------- ------ ------------- -------------
------- ------------- ------------- ------ ------------- -------------
TOTAL RETURN(1) 10.90% 9.02% 6.69% 10.50% 8.34% 5.84%
------- ------------- ------------- ------ ------------- -------------
------- ------------- ------------- ------ ------------- -------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 10,434 $ 33,425 $ 42,586 $ 6,995 $ 29,892 $ 40,460
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% 1.01% 0.29%** 0.23% 0.25%
Portfolio Turnover Rate 14% 30% 39% 14% 30% 39%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to
Net Investment Income $ 0.08 $ 0.09 $ 0.04 $ 0.07 $ 0.12 $ 0.05
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% 0.68% (1.66 %** (0.66)% (0.08)%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED JANUARY 4, 1993* YEAR ENDED YEAR ENDED
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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 0.56 0.21 0.43 0.49
Net Realized and Unrealized
Gain (Loss) 0.55 (0.42) 0.50 0.55 (0.40) 0.47
------ ------------- ------------- ------ ------ ------
Total From Investment
Operations 0.80 0.10 1.06 0.76 0.03 0.96
------ ------------- ------------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.36) (0.20) (0.44) (0.30)
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) (0.36) (0.20) (1.05) (0.30)
------ ------------- ------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.23 $ 10.56 $ 9.54 $ 10.20
------ ------------- ------------- ------ ------ ------
------ ------------- ------------- ------ ------ ------
TOTAL RETURN(1) 8.02% 0.41% 11.41% 7.61% (0.25)% 10.24%
------ ------------- ------------- ------ ------ ------
------ ------------- ------------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 6,633 $ 10,369 $ 11,092 $ 6,120 $ 5,407 $ 5,965
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% 5.84% 4.25%** 3.95% 5.09%
Portfolio Turnover Rate 55% 168% 169% 55% 168% 169%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.11 $ 0.07 $ 0.07 $ 0.12 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88%** 2.48% 2.22% 3.63%** 3.29% 2.97%
Net Investment Income to
Average Net Assets 3.57%** 3.67% 5.07% 2.82%** 2.86% 4.32%
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
50 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 C+
---------------------------------------------- ----------------------------------------------
SELECTED PER SHARE JUNE 23, 1993* YEAR ENDED YEAR ENDED JUNE 23, 1993* YEAR ENDED YEAR ENDED
DATA AND RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995
<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) -- -- (0.10) (0.12)
Net Realized and
Unrealized Gain -- 3.53 1.43 -- 3.50 1.42
------- ------------- ------------- ------- ------------- -------------
Total From
Investment
Operations -- 3.50 1.43 -- 3.40 1.30
------- ------------- ------------- ------- ------------- -------------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) -- -- (0.49)
In Excess of Net
Realized Gain -- -- (0.02) -- -- (0.02)
------- ------------- ------------- ------- ------------- -------------
-- -- (0.51) -- -- (0.51)
------- ------------- ------------- ------- ------------- -------------
NET ASSET VALUE, END
OF PERIOD $ 12.00 $ 15.50 $ 16.42 $ 12.00 $ 15.40 $ 16.19
------- ------------- ------------- ------- ------------- -------------
------- ------------- ------------- ------- ------------- -------------
TOTAL RETURN(1) 0.00% 29.17% 9.50% 0.00% 28.33% 8.71%
------- ------------- ------------- ------- ------------- -------------
------- ------------- ------------- ------- ------------- -------------
RATIOS AND
SUPPLEMENTAL DATA
Net Assets, End of
Period (000's) $ 11,770 $ 138,212 $ 178,667 $ 8,491 $ 116,889 $ 139,497
Ratio of Expenses to
Average Net Assets 1.90%** 1.90% 1.90% 2.65%** 2.65% 2.65%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (0.81 %** (0.24)% 0.04% (1.56 %** (0.99)% (0.77)%
Portfolio Turnover
Rate 0% 34% 34% 0% 34% 34%
- --------------------------------------------------------------------------------------------------------------------
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% 1.90% 12.64%** 2.92% 2.65%
Net Investment
Income (Loss) to
Average Net
Assets (10.74 %** (0.51)% 0.04% (11.55 %** (1.26)% (0.77)%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
-------------------------------- --------------------------------
OCTOBER 18, 1993* YEAR ENDED OCTOBER 18, 1993* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1994 JUNE 30, 1995
<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 0.27 0.11 0.17
Net Realized and Unrealized Gain (Loss) (0.30) 1.44 (0.31) 1.44
------- ------------- ------ -------------
Total from Investment Operations (0.13) 1.71 (0.20) 1.61
------- ------------- ------ -------------
DISTRIBUTIONS
Net Investment Income (0.17) (0.28) (0.11) (0.17)
Net Realized Gain -- (0.24) -- (0.24)
------- ------------- ------ -------------
Total Distributions (0.17) (0.52) (0.11) (0.41)
------- ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 11.70 $ 12.89 $ 11.69 $ 12.89
------- ------------- ------ -------------
------- ------------- ------ -------------
TOTAL RETURN(1) (1.12)% 15.01% (1.70)% 14.13%
------- ------------- ------ -------------
------- ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 10,717 $ 20,675 $ 7,237 $ 13,867
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%** 2.29% 1.39%** 1.54%
Portfolio Turnover Rate 17% 23% 17% 23%
- -----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $ 0.08 $ 0.05 $ 0.08 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.48%** 1.96% 3.28%** 2.71%
Net Investment Income to Average Net Assets 1.16%** 1.83% 0.36%** 1.08%
- -----------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements. 51
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
------------------------------- -------------------------------
APRIL 21, 1994* YEAR ENDED APRIL 21, 1994* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1994 JUNE 30, 1995 TO JUNE 30, 1994 JUNE 30, 1995
<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 1.26 0.17 1.17
Net Realized and Unrealized Gain
(Loss) 0.16 (0.52) 0.15 (0.50)
------ ------------- ------ -------------
Total From Investment Operations 0.34 0.74 0.32 0.67
------ ------------- ------ -------------
DISTRIBUTIONS
Net Investment Income (0.17) (1.22) (0.16) (1.13)
Net Realized Gain -- (0.12) -- (0.12)
------ ------------- ------ -------------
Total Distributions (0.17) (1.34) (0.16) (1.25)
------ ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 12.17 $ 11.57 $ 12.16 $ 11.58
------ ------------- ------ -------------
------ ------------- ------ -------------
TOTAL RETURN(1) 2.86% 6.87% 2.62% 6.20%
------ ------------- ------ -------------
------ ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,857 $ 14,819 $ 6,081 $ 11,880
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%** 11.53% 7.54%** 10.72%
Portfolio Turnover Rate 19% 178% 19% 178%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.05 $ 0.06 $ 0.05
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.23%** 1.97% 4.00%** 2.74%
Net Investment Income to Average Net
Assets 6.61%** 11.11% 5.84%** 10.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------- ----------------
JULY 6, 1994* JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1995 TO JUNE 30, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.02) (0.08)
Net Realized and Unrealized Loss (2.70) (2.73)
-------- --------
Total From Investment Operations (2.72) (2.81)
-------- --------
DISTRIBUTIONS
Paid in Capital (0.20) (0.20)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 8.99
-------- --------
-------- --------
TOTAL RETURN(1) (23.07)% (23.83)%
-------- --------
-------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 7,658 $ 4,085
Ratio of Expenses to Average Net Assets 2.46%**/\ 3.20%**/\
Ratio of Net Investment Loss to Average Net Assets (0.44 %** (1.16)%**
Portfolio Turnover Rate 107% 107%
- --------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Loss $ 0.13 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets (Including Brazilian Tax Expense) 4.30%** 5.20%**
Net Investment Loss to Average Net Assets (2.26 %** (3.16)%**
/\ 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 C+, respectively.
- --------------------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations.
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
52 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS C+
---------------- ----------------
JULY 6, 1994* JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1995 TO JUNE 30, 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 --
Net Realized and Unrealized Loss (1.44) (1.47)
------- -------
Total From Investment Operations (1.39) (1.47)
------- -------
NET ASSET VALUE, END OF PERIOD $ 10.61 $ 10.53
------- -------
------- -------
TOTAL RETURN(1) (11.58)% (12.25)%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 26,091 $ 22,245
Ratio of Expenses to Average Net Assets 2.33%**/\ 3.08%**/\
Ratio of Net Investment Income to Average Net Assets 0.81%** 0.06%**
Portfolio Turnover Rate 32% 32%
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income $ 0.04 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.10%** 3.90%**
Net Investment Income (Loss) to Average Net Assets 0.04%** (0.76)%**
/\ 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 C, respectively.
- ----------------------------------------------------------------------------------------------------------
<FN>
* Commencement of operations
** Annualized
+ Class B Shares were renamed Class C Shares on May 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred sales
charges. Total returns for periods of less than one year are not
annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements. 53
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
- --------------------------------------------------------------------------------
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, 1995, 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 C shares of each Portfolio. The current Class C shares were named
Class B shares until May 1, 1995 when such shares were renamed Class C.
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 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, or gains
realized. The Fund accrues such taxes when the related income is earned or gains
are realized. In addition, effective January 1, 1994, the Brazilian government
announced a 0.25% tax on banking transaction debits (withdrawals). This tax was
subsequently repealed as of January 1, 1995. The Brazilian government also
assessed a 1% tax on all settlements of foreign currency used to purchase listed
equity securities. This tax was repealed on March 9, 1995.
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.
At June 30, 1995, Global Fixed Income Fund had a capital loss carryforward for
Federal income tax purposes of approximately $366,000 which will expire June 30,
2003. To the extent that such carryforward is utilized, no capital gain
distribution will be made.
For the year ended June 30, 1995, Emerging Markets Fund and Global Equity
Allocation Fund deferred for Federal income tax purposes to July 1, 1995, post
October currency losses of approximately $44,000 and $715,000, respectively.
Emerging Markets Fund, American Value Fund and Global Fixed Income Fund also
deferred to July 1, 1995, post October capital losses of approximately $928,000,
$60,000 and $154,000, respectively.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank acting 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.
54
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
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 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. DELAYED DELIVERY COMMITMENTS: Each Portfolio may purchase securities on a
when-issued or forward commitment basis. Payment and delivery may take place a
month or more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for are
fixed at the time the transaction is negotiated.
8. ORGANIZATIONAL COSTS: The organizational costs of the Portfolios are being
amortized on a straight line basis
55
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
over a period of five years beginning with each Portfolio's commencement of
operations. Morgan Stanley Asset Management, Inc. 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.
9. 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.
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MSAM"), 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 C
MAXIMUM MAXIMUM
OPERATING OPERATING
ADVISORY EXPENSE EXPENSE
FUND 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 year ended June 30, 1995, totaled
$182,000 for Global Equity Allocation Fund, Global Fixed Income Fund, Asian
Growth Fund, American Value Fund, and Worldwide High Income Fund, and $178,000
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 C 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 C shares of each Portfolio redeemed within one year following
such purchase. For the year ended June 30, 1995, the Distributor has advised the
Fund that it earned deferred sales charges on Class C shares of approximately
$26,000, $5,000, $130,000, $2,000, $4,000, $5,000 and $15,000 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. There were no deferred sales charges earned on Class A shares.
E. PURCHASES AND SALES: For the year ended June 30, 1995, purchases and sales of
investment securities other than long-term U.S. Government securities and short-
term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
FUND (000) (000)
- ---------------------------------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Global Equity Allocation Fund....................................................................... $ 42,019 $28,655
Global Fixed Income Fund............................................................................ 12,889 17,056
Asian Growth Fund................................................................................... 158,562 93,194
American Value Fund................................................................................. 17,396 5,095
Worldwide High Income Fund.......................................................................... 47,817 32,975
Latin American Fund................................................................................. 23,839 8,378
Emerging Markets Fund............................................................................... 50,907 5,528
</TABLE>
56
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1995
- --------------------------------------------------------------------------------
Purchases and sales during the year ended June 30, 1995 of long-term U.S.
Government securities occurred in the Global Fixed Income Fund and totaled
$10,175,000 and $5,296,000, 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 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 year ended June 30, 1995 were as
follows:
<TABLE>
<CAPTION>
MSTC
MSTC CUSTODIAN
CUSTODIAN FEES
FEES PAYABLE
FUND (000) (000)
- ------------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Global Equity Allocation Fund............................................................. $ 96 $ 24
Global Fixed Income Fund.................................................................. 12 3
Asian Growth Fund......................................................................... 487 126
Worldwide High Income Fund................................................................ 4 1
Latin American Fund....................................................................... 52 13
Emerging Markets Fund..................................................................... 116 29
</TABLE>
G. OTHER: At June 30, 1995, 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 June 30, 1995:
<TABLE>
<S> <C> <C> <C>
Argentine Peso............................................................................ 0.999750 = $1.00
Australian Dollar......................................................................... 1.407360 = $1.00
Belgian Franc............................................................................. 28.460000 = $1.00
Brazilian Real............................................................................ 0.920500 = $1.00
British Pound Sterling.................................................................... 0.628540 = $1.00
Canadian Dollar........................................................................... 1.373350 = $1.00
Danish Krone.............................................................................. 5.402000 = $1.00
Deutsche Mark............................................................................. 1.383950 = $1.00
Finnish Markka............................................................................ 4.274500 = $1.00
French Franc.............................................................................. 4.850750 = $1.00
Greek Drachma............................................................................. 225.040000 = $1.00
Hong Kong Dollar.......................................................................... 7.737800 = $1.00
Indonesian Rupiah......................................................................... 2,227.000000 = $1.00
Italian Lira.............................................................................. 1,635.500000 = $1.00
Israeli Shekel............................................................................ 2.953500 = $1.00
Japanese Yen.............................................................................. 84.825000 = $1.00
Korean Won................................................................................ 758.250000 = $1.00
Malaysian Ringgit......................................................................... 2.438000 = $1.00
Mexican New Peso.......................................................................... 6.250000 = $1.00
Morocco Dhiram............................................................................ 8.330500 = $1.00
Netherlands Guilder....................................................................... 1.549400 = $1.00
New Zealand Dollar........................................................................ 1.496890 = $1.00
Pakistani Rupee........................................................................... 30.979000 = $1.00
Peruvian Sol.............................................................................. 2.224500 = $1.00
Philippine Peso........................................................................... 25.540000 = $1.00
Polish Zloty.............................................................................. 2.341000 = $1.00
Portuguese Escudo......................................................................... 146.300000 = $1.00
Singapore Dollar.......................................................................... 1.397500 = $1.00
South African Rand........................................................................ 3.636250 = $1.00
Spanish Peseta............................................................................ 121.050000 = $1.00
Swedish Krona............................................................................. 7.276850 = $1.00
Swiss Franc............................................................................... 1.151500 = $1.00
Taiwan Dollar............................................................................. 25.828000 = $1.00
Thai Baht................................................................................. 24.685000 = $1.00
Turkish Lira.............................................................................. 44,215.000000 = $1.00
</TABLE>
At June 30, 1995, Global Equity Allocation Fund, Asian Growth Fund, Latin
American Fund and Emerging Markets Fund incurred approximately $6,000, $107,000,
$1,000 and $2,000, respectively, as brokerage commissions with Morgan Stanley &
Co. Incorporated, an affiliated broker/dealer.
At June 30, 1995, 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................................................... $ 80,786 $6,661 $ (2,072) $ 4,589
Global Fixed Income Fund........................................................ 16,386 622 (114) 508
Asian Growth Fund............................................................... 292,284 41,905 (14,669) 27,236
American Value Fund............................................................. 32,419 2,824 (869) 1,955
Worldwide High Income Fund...................................................... 33,822 676 (709) (33)
Latin American Fund............................................................. 13,729 533 (2,556) (2,023)
Emerging Markets Fund........................................................... 51,190 3,123 (4,909) (1,786)
</TABLE>
57
<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, Worldwide High
Income Fund, Latin American Fund and Emerging Markets Fund (constituting the
Morgan Stanley Fund, Inc., hereafter referred to as the "Fund") at June 30,
1995, 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, 1995 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 10036
August 11, 1995
58
<PAGE>
MORGAN STANLEY FUNDS
- -----------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
During the year ended June 30, 1995, Morgan Stanley Fund, Inc. shareholders
voted on proposals at a special meeting held on June 28, 1995. The description
of each proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
VOTED FOR WITHHOLD
(000) (000)
--------- --------
<S> <C> <C>
1. To elect the following Directors to serve the
Fund until such time as their successors have
been duly appointed.
Barton M. Biggs 21,814 294
John D. Barrett II 21,814 294
Gerald E. Jones 21,800 308
Andrew McNally IV 21,806 302
Warren J. Olsen 21,813 295
Samuel T. Reeves 21,840 268
Fergus Reid 21,817 291
Frederick O. Robertshaw 21,837 271
Frederick B. Whittemore 21,798 310
</TABLE>
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
For the year ended June 30, 1995, the percentage of dividends that qualify for
the 70% dividend received deduction for corporate shareholders of the Global
Equity Allocation Fund and American Value Fund are 27.11% and 87.17%,
respectively.
Global Equity Allocation Fund and Asian Growth Fund have designated
approximately $2,376,000 and $867,000 as long-term capital gain for the fiscal
year ended June 30, 1995.
Foreign taxes paid during the fiscal year ended June 30, 1995 amounting to
$9,000 and $30,000 for Global Fixed Income Fund and Emerging Markets Fund,
respectively are expected to be passed through to shareholders as foreign tax
credits on Form 1099-DIV for the year ending December 31, 1995, which will be
sent to shareholders in late January 1996.
59
<PAGE>
MORGAN STANLEY FUNDS
- -----------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Frederick B. Whittemore
VICE CHAIRMAN OF THE BOARD
Warren J. Olsen
DIRECTOR AND PRESIDENT
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Andrew McNally IV
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
James W. Grisham
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
James R. Rooney
TREASURER
Joanna M. Haigney
ASSISTANT TREASURER
Karl O. Hartmann
ASSISTANT SECRETARY
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
CUSTODIANS
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
The United States Trust Company of New York
770 Broadway
New York, NY 10003
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
DIVIDEND DISBURSING AND TRANSFER AGENT
Mutual Funds Service Company
73 Tremont Street
Boston, MA 02108
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
For information on how to invest, please contact your account representative or
the Fund at (800) 282-4404.
This report is authorized for distribution only when preceded or accompanied by
a prospectus of the Morgan Stanley Fund, Inc. which describes in detail each of
the investment funds' investment policies, fees and expenses. Please read the
prospectus carefully before you invest or send money.
