<PAGE>
SUPPLEMENT DATED FEBRUARY 27, 1996
TO THE PROSPECTUS DATED JANUARY 2, 1996
MORGAN STANLEY FUND, INC.
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
The prospectus dated January 2, 1996 (the "Prospectus") of the Morgan
Stanley Fund, Inc. (the "Fund") is hereby amended and supplemented, effective
February 27, 1996, as follows:
1. Although the total operating expenses of each class of shares of the
investment funds of the Fund have not changed, the following amendments have
been made to the "Annual Fund Operating Expenses" table appearing on pages 4 and
5 of the Prospectus under the "FUND EXPENSES" section. Each entry under the
"12b-1 Fee" category for the Class A and Class B shares of each investment fund
appearing in the table is changed from 0.75% to 1.00% to reflect a shareholder
services fee of 0.25% applicable to both such classes. Accordingly, footnote (6)
has been added to the "Class A" and "Class B" line under "12b-1 Fees" as
follows:
(6) Of the 12b-1 fees for the Class B shares and the Class C shares, 0.75%
represents a distribution fee and 0.25% represents a shareholder
services fee.
In addition, each entry under the "Other Expenses" category for the Class A
and Class B shares of each investment fund is decreased by 0.25%.
2. The following section is added to page 35 of the Prospectus after the
section entitled "Investment Objectives and Policies -- Aggressive Equity Fund":
PERFORMANCE INFORMATION FOR THE AGGRESSIVE EQUITY FUND
The Aggressive Equity Fund has identical investment objectives and
policies and substantially similar investment restrictions as those of the
Aggressive Equity Portfolio (the "Portfolio") of Morgan Stanley
Institutional Fund, Inc., an investment portfolio currently managed by the
Adviser. Set forth below is representative performance data which an
investor may find relevant in considering whether to invest in the
Aggressive Equity Fund. The performance data is not necessarily indicative
of the future performance of the Aggressive Equity Fund. Although the
Adviser expects that the Aggressive Equity Fund initially will be somewhat
smaller in asset size to the Portfolio, it anticipates that the Aggressive
Equity Fund will be comparable in asset size to the Portfolio before the end
of the Aggressive Equity Fund's first year of operation and will continue to
grow in size thereafter. (Investment in the Portfolio is subject to
considerably larger minimum investments and account sizes, with certain
exceptions.)
The Portfolio incurred expenses during the periods shown that are
different from the estimated advisory, administrative and other fees to
which the Aggressive Equity Fund will be subject. Accordingly, the following
performance information has been adjusted by applying the anticipated total
expense ratios for the Aggressive Equity Fund rather than the total expense
ratios experienced by the Portfolio. The data set forth below under the
heading "Return With Sales Charge" is adjusted, with respect to the Class A
shares, to take into account a 4.75% sales charge applicable to purchases of
Class A shares of the Aggressive Equity Fund and, with respect to Class B
shares, is adjusted to take into account a 1.00% contingent deferred sales
charge that is imposed if Class B shares
<PAGE>
are redeemed within one year of their purchase. The data set forth below
under the heading "Return Without Sales Charge" is not adjusted to take into
account such sales charges. See "Performance Information" below and in the
Statement of Additional Information.
TOTAL RETURN FOR THE AGGRESSIVE EQUITY PORTFOLIO
FROM INCEPTION ON 3/18/95 THROUGH 12/31/95
(ADJUSTED TO REFLECT ESTIMATED AGGRESSIVE EQUITY FUND EXPENSES)
<TABLE>
<CAPTION>
RETURN WITH SINCE
SALES CHARGE INCEPTION
- ----------------------------------------------------------- -----------
<S> <C>
Class A (at 4.75%)......................................... 36.00%
Class B (at 1.00%)......................................... 39.00%
<CAPTION>
RETURN WITHOUT
SALES CHARGE
- -----------------------------------------------------------
<S> <C>
Class A.................................................... 40.75%
Class B.................................................... 40.00%
</TABLE>
The past performance of the Portfolio is no guarantee of the future
performance of the Investment Fund.
3. The following sections are added to the Prospectus in light of
investment in Russian equity securities by the Emerging Markets Fund. The
following paragraph is added to the cover page of the Prospectus after the first
bold-face paragraph:
THE MORGAN STANLEY EMERGING MARKETS FUND MAY INVEST IN EQUITY SECURITIES
OF RUSSIAN COMPANIES. RUSSIA'S SYSTEM OF SHARE REGISTRATION AND CUSTODY
INVOLVES CERTAIN RISKS OF LOSS THAT ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENTS IN OTHER SECURITIES MARKETS. SEE "ADDITIONAL INVESTMENT
INFORMATION -- RUSSIAN SECURITIES TRANSACTIONS."
The following is added to page 10 of the Prospectus at the end of the
section entitled "Prospectus Summary -- Risk Factors":
The Emerging Markets Portfolio may invest in equity securities of Russian
companies. The registration, clearing and settlement of securities
transactions in Russia are subject to significant risks not normally
associated with securities transactions in the United States and other more
developed markets. See "Additional Investment Information -- Russian
Securities Transactions."
The following section is added to page 20 of the Prospectus after the
section entitled "Additional Investment Information -- Reverse Repurchase
Agreements":
RUSSIAN SECURITIES TRANSACTIONS. The Emerging Markets Fund may invest
in equity securities of Russian companies. The registration, clearing and
settlement of securities transactions in Russia are subject to significant
risks not normally associated with securities transactions in the United
States and other more developed markets. Ownership of shares in Russian
companies is evidenced by entries in a company's share register (except
where shares are held through depositories that meet the requirements of the
1940 Act) and the issuance of extracts from the register or, in certain
limited cases, by formal share certificates. However, Russian share
registers are frequently unreliable and the Investment Fund could possibly
lose its registration through oversight, negligence or fraud. Moreover,
Russia lacks a centralized registry to record securities transactions and
registrars located throughout Russia or the companies themselves maintain
share registers. Registrars are under no obligation to provide extracts to
potential purchasers in a timely manner or at all and are not necessarily
subject to effective state supervision. In addition, while registrars are
liable under law for losses resulting from their errors, it may be
<PAGE>
difficult for the Investment Fund to enforce any rights it may have against
the registrar or issuer of the securities in the event of loss of share
registration. Although Russian companies with more than 1,000 shareholders
are required by law to employ an independent company to maintain share
registers, in practice, such companies have not always followed this law.
Because of this lack of independence of registrars, management of a Russian
company may be able to exert considerable influence over who can purchase
and sell the company's shares by illegally instructing the registrar to
refuse to record transactions on the share register. Furthermore, these
practices may prevent the Investment Fund from investing in the securities
of certain Russian companies deemed suitable by the Adviser and could cause
a delay in the sale of Russian securities by the Investment Fund if the
company deems a purchaser unsuitable, which may expose the Investment Fund
to potential loss on its investment.
In light of the risks described above, the Board of Directors of the
Investment Fund has approved certain procedures concerning the Investment
Fund's investments in Russian securities. Among these procedures is a
requirement that the Investment Fund will not invest in the securities of a
Russian company unless that issuer's registrar has entered into a contract
with the Investment Fund's sub-custodian containing certain protective
conditions including, among other things, the sub-custodian's right to
conduct regular share confirmations on behalf of the Investment Fund. This
requirement will likely have the effect of precluding investments in certain
Russian companies that the Investment Fund would otherwise make.
------------------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Fund") is an open-end management investment
company. The Fund currently consists of eleven diversified and non-diversified
investment portfolios designed to offer a range of investment choices. The Fund
is designed to provide clients with attractive alternatives for meeting their
investment needs. This Statement of Additional Information ("SAI") addresses
information of the Fund applicable to the Class A shares, Class B shares and
Class C shares of the ten investment portfolios listed below (each, an
"Investment Fund"). An eleventh investment portfolio, the Morgan Stanley Money
Market Fund, which is not currently offering shares, is not described in this
SAI.
This Statement is not a prospectus but should be read in conjunction with
the Fund's prospectus (the "Prospectus"). To obtain the Prospectus, please call
the Morgan Stanley Fund, Inc. Services Group:
1-800-282-4404
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 2
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Tax Treatment of Forward Currency Contracts and Exchange
Rate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Taxes and Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . .12
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Determining Maturities of Certain Instruments. . . . . . . . . . . . . . . . .16
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Description of Securities and Ratings. . . . . . . . . . . . . . . . . . . . .44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Statement of Additional Information dated January 2, 1996, as amended
February 27, 1996, relating to the Prospectus dated January 2, 1996, as
amended and supplemented February 27, 1996, for:
Morgan Stanley Global Equity Allocation Fund
Morgan Stanley Global Fixed Income Fund
Morgan Stanley Asian Growth Fund
Morgan Stanley Emerging Markets Fund
Morgan Stanley Latin American Fund
Morgan Stanley European Equity Fund
Morgan Stanley American Value Fund
Morgan Stanley Aggressive Equity Fund
Morgan Stanley Worldwide High Income Fund
Morgan Stanley Growth and Income Fund
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the investment objectives and policies
set forth in the Fund's Prospectus with respect to ten Investment Funds of
the Fund: the Morgan Stanley Global Equity Allocation Fund, Morgan Stanley
Global Fixed Income Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley
Emerging Markets Fund, Morgan Stanley Latin American Fund, Morgan Stanley
European Equity Fund, Morgan Stanley American Value Fund, Morgan Stanley
Aggressive Equity Fund, Morgan Stanley Worldwide High Income Fund and Morgan
Stanley Growth and Income Fund (referred to herein respectively as the
"Global Equity Allocation Fund," "Global Fixed Income Fund," "Asian Growth
Fund," "Emerging Markets Fund," "Latin American Fund," "European Equity
Fund," "American Value Fund," "Aggressive Equity Fund," "Worldwide High
Income Fund" and "Growth and Income Fund" ).
EQUITY-LINKED SECURITIES
The Growth and Income and Aggressive Equity Funds may invest in
equity-linked securities, including, among others, PERCS, ELKS or LYONs,
which are securities that are convertible into, or the value of which is
based upon the value of, equity securities upon certain terms and conditions.
The amount received by an investor at maturity of such securities is not
fixed but is based on the price of the underlying common stock. It is
impossible to predict whether the price of the underlying common stock will
rise or fall. Trading prices of the underlying common stock will be
influenced by the issuer's operational results, by complex, interrelated
political, economic, financial or other factors affecting the capital
markets, the stock exchanges on which the underlying common stock is traded
and the market segment of which the issuer is a part. It is not possible to
predict how equity-linked securities will trade in the secondary market or
whether such market will be liquid or illiquid. The following are three
examples of equity-linked securities. The Investment Fund may invest in the
securities described below or other similar equity-linked securities.
There are certain risks of loss of principal in connection with investing
in equity-linked securities, as described in the following examples of certain
equity-linked securities. Preferred Equity Redemption Cumulative Stock ("PERCS")
as described in "Additional Investment Information" in the Prospectus will
convert into common stock within three years no matter at what price the common
stock trades. If the common stock is trading at a price that is at or below the
cap, the Investment Fund receives one share of common stock for each PERCS
share. If the common stock is trading at a price that is above the cap, the
Investment Fund receives less than one share, with the conversion ratio adjusted
so that the market value of the common stock received by the Investment Fund
equals the cap. Accordingly, the Investment Fund is subject to the risk that if
the price of the common stock is below the cap price at the maturity of the
PERCS, the Investment Fund will lose the amount of the difference between the
price of the common stock and the cap. Such a loss could substantially reduce
the Investment Fund's initial investment in the PERCS and any dividends that
were paid on the PERCS. PERCS also present risks based on payment expectations.
If a PERCS issuer redeems the PERCS, the Investment Fund may have to replace the
PERCS with a lower yielding security, resulting in a decreased return for
investors.
The principal amount that Equity-Linked Securities ("ELKS") holders receive
at maturity, as described in "Additional Investment Information" in the
Prospectus, is based on the price of underlying common stock. If the common
stock is trading at a price that is at or below the cap, the Investment Fund
receives for each ELKS share an amount equal to the average price of the common
stock. If the common stock is trading at a price that is above the cap, the
Investment Fund receives the cap amount. Accordingly, the Investment Fund is
subject to the risk that if the price of the common stock is below the cap price
at the maturity of the ELKS, the Investment Fund will lose the amount of the
difference between the price of the common stock and the cap. Such a loss could
substantially reduce the Investment Fund's initial investment in the ELKS and
any dividends that were paid on the ELKS. An additional risk is that the issuer
may "reopen" the issue of ELKS and issue additional ELKS at a later time or
issue additional debt securities or other securities with terms similar to those
of the ELKS, and such issuances may affect the trading value of the ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-marked yield at maturity, as
described in "Additional Investment Information" in the Prospectus, is based on
the price of underlying common stock. If the common stock is trading at a price
that is at or below the purchase price of the LYONs plus accrued original issue
discount, the Investment Fund receives only the
2
<PAGE>
lower-than-market yield, assuming the LYONs are not in default. If the common
stock is trading at a price that is above the purchased price of the LYONs plus
accrued original issue discount, the Investment Fund will receive an amount
above the lower-than-market yield on the LYONs, based on how well the underlying
common stock does. LYONs also present risks based on payment expectations. If
a LYONs issuer redeems the LYONs, the Investment Fund may have to replace the
LYONs with a lower yielding security, resulting in a decreased return for
investors.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. dollar value of the assets of the Global Equity Allocation,
Global Fixed Income, Asian Growth, Emerging Markets, Latin American, European
Equity, and to the extent they invest in foreign currencies, the American
Value, Aggressive Equity, Growth and Income and Worldwide High Income Funds
may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and the Investment Funds may
incur costs in connection with conversions between various currencies. The
Investment Funds will conduct their foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract (a "forward contract") involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for such trades.
The Investment Funds may enter into forward contracts in several
circumstances. When an Investment Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when an Investment
Fund anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Investment Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for a fixed amount of dollars, for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the
Investment Fund will be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Investment Funds anticipates that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value of
some or all of such Investment Fund's securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. An Investment Fund will not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate such Investment Fund to
deliver an amount of foreign currency in excess of the value of such Investment
Fund securities or other assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Investment Fund will thereby be served. Except in circumstances where
segregated accounts are not required by the 1940 Act and the rules adopted
3
<PAGE>
thereunder, the Fund's Custodian will place cash, U.S. Government securities, or
liquid, high-grade debt securities into a segregated account of an Investment
Fund in an amount equal to the value of such Investment Fund's total assets
committed to the consummation of forward contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will be at least equal to the amount of such Investment Fund's
commitments with respect to such contracts.
The Investment Funds generally will not enter into a forward contract with
a term of greater than one year. At the maturity of a forward contract, an
Investment Fund may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for an Investment Fund to purchase additional foreign currency
on the spot market (and bear the expense of such purchase) if the market value
of the security is less than the amount of foreign currency that such Investment
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency.
If an Investment Fund retains the portfolio security and engages in an
offsetting transaction, such Investment Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in forward contract
prices. Should forward prices decline during the period between an Investment
Fund entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, such Investment Fund will realize a gain to the extent that the price
of the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, such Investment Fund would
suffer a loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Investment Funds are not required to enter into such transactions with
regard to their foreign currency-denominated securities. It also should be
realized that this method of protecting the value of portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
FUTURES CONTRACTS
The Emerging Markets, Latin American, European Equity, American Value,
Aggressive Equity, Growth and Income and Worldwide High Income Funds may
enter into securities index futures contracts and options on securities index
futures contracts to a limited extent and the Latin American Fund may utilize
appropriate interest rate futures contracts and options on interest rate
futures contracts to a limited extent. In addition, the Emerging Markets,
Latin American, European Equity, American Value, Aggressive Equity, Growth and
Income and Worldwide High Income Funds may enter into foreign currency
futures contracts and options thereon. Futures contracts provide for the
future sale by one party and purchase by another party of a specified amount
of a specific security or a specific currency at a specified future time and
at a specified price. Futures contracts, which are standardized as to
maturity date and underlying financial instrument, index or currency, traded
in the United States are traded on national futures exchanges. Futures
exchanges and trading are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"), a U.S. government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making
4
<PAGE>
or taking of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an identical contract to
terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold.
The Emerging Markets, Latin American, European Equity, American Equity,
Aggressive Equity, Growth and Income and Worldwide High Income Funds may
purchase and sell indexed financial futures contracts. An index futures
contract is an agreement to take or make delivery of an amount of cash equal
to the difference between the value of the index at the beginning and at the
end of the contract period. Successful use of index futures will be subject
to the Adviser's ability to predict correctly movements in the direction of
the relevant securities market. No assurance can be given that the Adviser's
judgment in this respect will be correct.
The Emerging Markets, Latin American, European Equity, American Equity,
Aggressive Equity, Growth and Income and Worldwide High Income Funds may sell
indexed financial futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of securities in
its portfolio that might otherwise result. If the Adviser believes that a
portion of the Investment Fund assets should be invested in emerging country
securities but such investments have not been fully made and the Adviser
anticipates a significant market advance, the Investment Fund may purchase
index futures in order to gain rapid market exposure that may in part or
entirely offset increases in the cost of securities that it intends to
purchase. In a substantial majority of these transactions, the Investment
Fund will purchase such securities upon termination of the futures position
but, under unusual market conditions, a futures position may be terminated
without the corresponding purchase of debt securities.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Investment
Fund expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Investment Funds intend to use futures contracts only for
hedging purposes.
Regulations of the CFTC applicable to the Investment Funds require that all
futures transactions constitute bona fide hedging transactions or transactions
for other purposes so long as the aggregate initial margin and premiums required
for such transaction will not exceed 5% of the liquidation value of the
Investment Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into. The Investment
Funds will only sell futures contracts to protect securities owned against
declines in price or purchase contracts to protect against an increase in the
price of securities intended for purchase. As evidence of this hedging interest,
the Investment Funds expect that approximately 75% of their respective futures
contracts will be "completed"; that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Investment Fund upon sale
of open futures contracts.
5
<PAGE>
Although techniques other than the sale and purchase of futures contracts
could be used to control the Investment Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Investment Funds will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Emerging Markets, Latin
American, European Equity, American Value, Aggressive Equity, Growth and
Income and Worldwide High Income Funds will not enter into futures contract
transactions to the extent that, immediately thereafter, the sum of its
initial margin deposits on open contracts exceeds 5% of the market value of
its total assets. In addition, the Investment Fund will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under futures contracts and options would exceed 20% of its total
assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, an Investment Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if an Investment
Fund has insufficient cash, it may have to sell portfolio securities to meet its
daily margin requirement at a time when it may be disadvantageous to do so. In
addition, the Investment Fund may be required to make delivery of the
instruments underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the
Investment Fund's ability to effectively hedge.
Each Investment Fund will minimize the risk that it will be unable to close
out a futures contract by only entering into futures for which there appears to
be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Investment
Funds engage in futures strategies only for hedging purposes, the Adviser does
not believe that the Investment Funds are subject to the risks of loss
frequently associated with futures transactions. The Investment Fund would
presumably have sustained comparable losses if, instead of the futures contract,
the Investment Fund had invested in the underlying security or currency and sold
it after the decline.
Utilization of futures transactions by the Investment Fund does involve the
risk of imperfect or no correlation where the securities underlying futures
contracts have different maturities than the portfolio securities or currencies
being hedged. It is also possible that an Investment Fund could both lose money
on futures contracts and also experience a decline in value of its portfolio
securities. There is also the risk of loss by an Investment Fund of margin
deposits in the event of bankruptcy of a broker with whom the Investment Fund
has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have
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occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
GLOBAL INVESTING
Global investment diversification can lower the risk that occurs from
fluctuations in any one market. Global stock and bond markets often do not
parallel the performance of each other which means that, over time, diversifying
investments across several countries can help reduce portfolio volatility while
increasing returns.
U.S. stock and bond markets now comprise less than half of the total
securities available worldwide and investors who limit their investments to the
U.S. ignore over 80% of the world's blue chip companies. Participating in global
markets helps the astute investor take advantage of opportunities worldwide.
Over the past 10 years, through 1994, the U.S. ranked in the top five performing
stock markets only two times according to Morgan Stanley Capital International.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Worldwide High Income Fund may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between an issuer of sovereign
debt obligations and one or more financial institutions ("Lenders"). The
Investment Fund's investments in Loans are expected in most instances to be in
the form of participations in Loans ("Participations") and assignments of all or
a portion of Loans ("Assignments") from third parties. The Investment Fund will
have the right to receive payments of principal, interest and any fees to which
it is entitled only from the Lender selling the Participation and only upon
receipt by the Lender of the payments from the borrower. In the event of the
insolvency of the Lender selling a Participation, the Investment Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. Certain Participations may be structured in
a manner designed to avoid purchasers of the Participation being subject to the
credit risk of the Lender with respect to the Participation, but even under such
a structure, in the event of the Lender's insolvency, the Lender's servicing of
the Participation may be delayed and the assignability of the Participation
impaired. The Investment Fund will acquire a Participation only if the Lender
interpositioned between the Investment Fund and the borrower is determined by
the Adviser to be creditworthy.
When the Investment Fund purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Investment Fund
as the purchaser of an Assignment may differ from, and be more limited than,
those held by the assigning Lender. Because there is no liquid market for such
securities, the Investment Fund anticipates that such securities could be sold
only to a limited number of institutional investors. The lack of a liquid
secondary market may have an adverse impact on the value of such securities and
the Investment Fund's ability to dispose of particular Assignments or
Participation when necessary to meet the Investment Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participation also may make it more difficult for the Investment
Fund to assign a value to these securities for purposes of valuing the
Investment Fund's portfolio and calculating its net asset value.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in accordance with country
weightings determined by the Adviser in common stocks of United States and
non-United States issuers. The Adviser determines country allocations for the
Investment Fund on an ongoing basis within policy ranges dictated by each
country's market capitalization and liquidity. The Investment Fund will invest
in the United States and industrialized countries throughout the world that
comprise
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the Morgan Stanley Capital International World Index (the "World Index"). The
World Index is one of seven International Indices, twenty National Indices and
thirty-eight International Industry Indices making up the Morgan Stanley Capital
International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
OPTIONS ON FOREIGN CURRENCIES
The Emerging Markets, Latin American, European Equity, Aggressive
Equity, Growth and Income and Worldwide High Income Funds may attempt to
accomplish objectives similar to those described above with respect to
forward foreign currency exchange contracts and futures contracts for
currency by means of purchasing put or call options on foreign currencies on
exchanges. A put option gives the Investment Fund the right to sell a
currency at the exercise price until the expiration of the option. A call
option gives the Investment Fund the right to purchase a currency at the
exercise price until the expiration of the option.
OPTIONS TRANSACTIONS
The Emerging Markets, Latin American, European Equity, Aggressive
Equity, Growth and Income and Worldwide High Income Funds may write (i.e.,
sell) covered call options which give the purchaser the right to buy the
underlying security covered by the option from the Investment Fund at the
stated exercise price. A "covered" call option means that so long as the
Investment Fund is obligated as the writer of the option, it will own (i) the
underlying securities subject to the option, or (ii) securities convertible
or exchangeable without the payment of any consideration into the securities
subject to the option. As a matter of operating policy, the value of the
underlying securities on which options will be written at any one time will
not exceed 5% of the total assets of the Investment Fund.
The Investment Fund will receive a premium from writing call options, which
increases the Investment Fund's return on the underlying security in the event
the option expires unexercised or is closed out at a profit. By writing a call,
the Investment Fund will limit its opportunity to profit from an increase in the
market value of the underlying security above the exercise price of the option
for as long as the Investment Fund's obligation as writer of the option
continues. Thus, in some periods the Investment Fund will receive less total
return and in other periods greater total return from writing covered call
options than it would have received from its underlying securities had it not
written call options.
PORTFOLIO TURNOVER
It is anticipated that the annual portfolio turnover rate for each of
the Investment Funds, except the Growth and Income and Aggressive Equity
Funds will not exceed 100%, although in any particular year, market
conditions could result in portfolio activity at a greater or lesser rate
than anticipated. High rates of portfolio turnover necessarily result in
correspondingly heavier brokerage and portfolio trading costs which are paid
by each of the Investment Funds. In addition to portfolio trading costs,
higher rates of portfolio turnover may result in the realization of capital
gains, See "Taxes" in the Prospectus for more information on taxation. The
portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value
of the Investment Fund for the year, excluding U.S. Government securities and
securities with maturities of one year or less. The portfolio turnover rate
for a year is calculated by dividing the lesser of sales or the average
monthly value of the Investment Fund's portfolio purchases of portfolio
securities during that year by securities, excluding money market
instruments. The rate of portfolio turnover will not be a limiting factor
when the Investment Fund deems it appropriate to purchase or sell securities
for the portfolio. However, the U.S. federal tax requirement that the
Investment Fund derive less than 30% of its gross income from the sale or
disposition of securities held less than three months may limit the
Investment Fund's ability to dispose of its securities. See "Federal Income
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Tax." The tables set forth in the Prospectus under "Financial Highlights"
present each of the Investment Funds historical portfolio turnover ratios.
SECURITIES LENDING
Each Investment Fund may lend its investment securities to qualified
institutional investors who need to borrow securities in order to complete
certain transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, an Investment Fund attempts to increase its net investment income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Investment Fund. Each Investment Fund may lend
its investment securities to qualified brokers, dealers, domestic and foreign
banks or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the Investment Company
Act of 1940, as amended (the "1940 Act"), or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "SEC")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Investment Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by the
U.S. Government having a value at all times not less than 100% of the value of
the securities loaned, including accrued interest, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Investment Fund at any time, and (d) the Investment Fund
receive reasonable interest on the loan (which may include the Investment Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by Morgan Stanley Asset
Management Inc. (the "Adviser" or "MSAM") to be of good standing and when, in
the judgment of the Adviser, the consideration which can be earned currently
from such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's prospectus is not
intended as a substitute for careful tax planning.
Each Investment Fund is generally treated as a separate corporation for
federal income tax purposes, and thus the provisions of the Code generally will
be applied to each Investment Fund separately, rather than to the Fund as a
whole. Each Investment Fund intends to qualify and elect to be treated for each
taxable year as a regulated investment company ("RIC") under subchapter M of the
Code.
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Legislation and administrative changes or court decisions may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
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In order to qualify for the special tax treatment afforded to RICS under
Subchapter M of the Code, each Investment Fund must, among other things,
(a) derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test"); (b) derive less than 30% of its gross
income each taxable year from the sale or other disposition of (i) stocks or
securities, (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies) and (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies), but only if
not directly related to the Investment Fund's principal business of investing in
stocks or securities (or options and futures with respect to stocks or
securities) held less than three months (the "Short-Short Gain Test"), and
(c) diversify its holdings so that, at the end of each fiscal quarter of the
Fund's taxable year, (i) at least 50% of the market value of the Investment
Fund's total assets is represented by cash, United States Government securities,
securities of other RICs, and other securities and cash items, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Investment Fund's total assets or 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer or two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses (other than U.S. Government securities or the
securities of other RICs). For purposes of the 90% gross income requirement
described above, foreign currency gains may be excluded by regulation from
income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a
RIC, an Investment Fund must distribute at least 90% of its net investment
income (which generally includes dividends, taxable interest, and net short-term
capital gains less operating expenses) to shareholders. If an Investment Fund
meets all of the RIC requirements, it will not be subject to federal income tax
on any of its net investment income or capital gains that it distributes to
shareholders.
If an Investment Fund fails to qualify as a RIC for any taxable year, it
will be taxable at regular corporate rates. In such case, distributions
(including capital gain distributions) will be taxable as ordinary dividends to
the extent of the Investment Fund's current and accumulated earnings and profits
and such distributions generally will be eligible for the corporate dividends
received deductions.
Each Investment Fund will decide whether to distribute or to retain all or
part of any net capital gains (the excess of net long-term capital gains over
net short-term capital losses) in any year for reinvestment. If any such gains
are retained, the Investment Fund will pay federal income tax thereon, and, if
the Investment Fund makes an election, the shareholders will include such
undistributed gains in their income and shareholders subject to tax will be able
to claim their share of the tax paid by the Investment Fund as a credit against
their federal income tax liability.
A gain or loss realized by a shareholder on the sale or exchange of shares
of an Investment Fund held as a capital asset will be capital gain or loss, and
such gain or loss will be long-term if the holding period for the shares exceeds
one year, and otherwise will be short-term. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of. Any loss realized by a shareholder on the disposition
of shares held 6 months or less is treated as a long-term capital loss to the
extent of any distributions of net long-term capital gains received by the
shareholder with respect to such shares or any inclusion of undistributed
capital gain with respect to such shares.
Each Investment Fund will generally be subject to a nondeductible 4%
federal excise tax to the extent it fails to distribute by the end of any
calendar year at least 98% of its ordinary income and 98% of its capital gain
net income (the excess of short and long-term capital gains over short and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts.
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Each Investment Fund is required by federal law to withhold 31% of
reportable payments (which may include dividends, capital gains distributions,
and redemptions) paid to shareholders who have not certified on the Account
Registration Form or on a separate form supplied by the Investment Fund, that
the Social Security or Taxpayer Identification Number provided is correct and
that the shareholder is exempt from backup withholding or is not currently
subject to backup withholding.
FOREIGN INCOME TAX
It is expected that each Investment Fund will be subject to foreign
withholding taxes with respect to its dividend and interest income from foreign
countries, and the Investment Fund may be subject to foreign income or other
taxes with respect to other income. So long as more than 50% in value of each
Investment Fund's total assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Investment Fund may elect to
treat certain foreign income taxes imposed on it under U.S. federal income tax
law as paid directly by its shareholders. An Investment Fund will make such an
election only if it deems it to be in the best interest of its shareholders and
will notify shareholders in writing each year if it makes an election and of the
amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If an Investment Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Investment Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if they itemize deductions, a deduction for their shares of the foreign
income taxes in computing their federal income tax liability. (No deductions
will be allowed in computing alternative minimum tax liability.)
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by an Investment Fund from its
foreign source income will be treated as foreign source income. An Investment
Fund's gains from the sale of securities will generally be treated as derived
from U.S. sources and certain foreign currency gains and losses likewise will be
treated as derived from U.S. sources. The limitation on the foreign tax credit
is applied separately to foreign source "passive income," such as the portion of
dividends received from an Investment Fund which qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations as individuals. Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income taxes paid by an Investment
Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE CHANGES
Except for certain hedging transactions, each Investment Fund is required
for federal income tax purposes to recognize as gain or loss for each taxable
year its net unrealized gains and losses on certain forward currency and futures
contracts as of the end of each taxable year, as well as those actually realized
during the year. In most cases, any such gain or loss recognized with respect to
a regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Gain or loss attributable to a foreign currency forward
contract is treated as 100% ordinary income. Furthermore, forward currency
futures contracts which are intended to hedge against a change in the value of
securities held by an Investment Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
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Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, the Investment Fund will
have to avoid realizing gains on futures contracts and certain forward contracts
held less than three months and may be required to defer the closing out of
futures contracts beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains of such contracts that have been
open for less than three months as of the end of the Investment Fund's taxable
year and which are treated as recognized for tax purposes at the end of the
taxable year will not be considered gains on securities held less than three
months for purposes of the Short-Short Gain test.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Investment Fund
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Investment Fund actually
collects such receivables or pays such liabilities are treated as ordinary
income or ordinary loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the security
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses increase or decrease the amount of an Investment Fund's net
investment income, if any, available to be distributed to its shareholders as
ordinary income.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, foreign corporation, or foreign
partnership ("Foreign Shareholder") depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a Foreign Shareholder, distributions of ordinary
income will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, Foreign
Shareholders will generally be exempt from United States federal income tax on
gains realized on the sale of shares of the Fund, distributions of net long-term
capital gains, and amounts retained by the Fund which are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, then distributions of net
investment income and net long-term capital gains, and any gains realized upon
the sale of shares of the Fund, will be subject to U.S. federal income tax at
the rates applicable to United States citizens and residents or domestic
corporations.
The Fund may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described here.
Furthermore, Foreign Shareholders are strongly urged to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Fund.
PURCHASE OF SHARES
For Class A shares of the Investment Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Investment Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Investment Funds an order received prior to the regular close of the New
York Stock Exchange (the "NYSE") will be executed at the price computed on the
date of receipt; and an order received after the regular close of the NYSE will
be executed at the price computed
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on the next day the NYSE is open. The purchase price of shares of the Investment
Funds is based on such price as further described in the Prospectus under
"Purchase of Shares." Class A shares of the Investment Funds purchased without
an initial sales charge that are redeemed within one year of purchase are
subject to a 1.00% contingent deferred sales charge ("CDSC"), certain Class B
shares of the Investment Funds that are redeemed within six years of purchase
are subject to a CDSC of up to 5.00% and certain Class C shares of the
Investment Funds that are redeemed within one year of purchase are subject to a
1.00% CDSC, as described in the Prospectus under "Purchase of Shares." The
initial sales charge and CDSC are not applicable to shares of any class of any
Investment Fund purchased through the automatic reinvestment of dividends or
distributions paid by any Investment Fund. Shares of the Fund may be purchased
on any day the NYSE is open. The NYSE is closed on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
Each Investment Fund reserves the right in its sole discretion (i) to
suspend the offering of its shares, (ii) to reject purchase orders when in the
judgment of management such rejection is in the best interest of the Fund, and
(iii) to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts such as employee benefit plans or under circumstances
where certain economies can be achieved in sales of an Investment Fund's shares.
REDEMPTION OF SHARES
Each Investment Fund may suspend redemption privileges or postpone the date
of payment (i) during any period that the NYSE is closed, or trading on the NYSE
is restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for an Investment Fund to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the SEC may permit.
Any redemption may be more or less than the shareholder's cost depending
on, among other factors, the market value of the securities held by the
Investment Fund. Class A shares of the Investment Funds purchased without an
initial sales charge due to the size of the purchase that are redeemed within
one year of purchase are subject to a 1.00% CDSC, certain Class B shares of the
Investment Funds that are redeemed within six years of purchase are subject to a
CDSC of up to 5.00% that decreases to 0% after six years, and certain Class C
shares of the Investment Funds that are redeemed within one year of purchase are
subject to a 1.00% CDSC as described in the Prospectus under "Purchase of
Shares." Such initial sales charge and CDSC are not applicable to shares of any
class of any Investment Fund purchased through the automatic reinvestment of
dividends or distributions paid by any Investment Fund.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with: (1) all redemptions,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (2) share
transfer requests.
Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.
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Redemption of shares held in broker street name may not be accomplished by
mail or telephone as described above. Shares held in broker street name may be
redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
INVESTMENT LIMITATIONS
Each current Investment Fund of the Fund has adopted the following
restrictions which are fundamental policies and may not be changed without the
approval of the lesser of: (1) at least 67% of the voting securities of the
Investment Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Investment Fund are present or represented
by proxy, or (2) more than 50% of the outstanding voting securities of the
Investment Fund. Each current Investment Fund of the Fund will not:
(1) invest in commodities, except that each of the Emerging Markets
Fund, Latin American Fund, European Equity Fund, American Value Fund,
Aggressive Equity Fund, Growth and Income and Worldwide High Income Fund may
invest in futures contracts and options to the extent that not more than 5%
of its total assets are required as deposits to secure obligations under
futures contracts and not more than 20% of its total assets are invested in
futures contracts and options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (11) below) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
(4) purchase on margin or sell short except as specified above in (1)
and except that the Emerging Markets Fund, Latin American Fund, European
Equity Fund, Aggressive Equity Fund and Worldwide High Income Fund may enter
into short sales in accordance with its investment objectives and policies;
(5) with respect to all of the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund, Latin American Fund and Aggressive Equity
Fund purchase more than 10% of any class of the outstanding securities of any
issuer;
(6) with respect to all the Investment Funds except the Global Fixed
Income Fund, Emerging Markets Fund and Latin American Fund, purchase securities
of an issuer (except obligations of the U.S. Government and its
instrumentalities) if as the result, with respect to 75% of its total assets,
more than 5% of the Investment Fund's total assets, at market, would be invested
in the securities of such issuer;
(7) purchase or retain securities of an issuer if those officers and
Directors of the Fund or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(8) borrow, except from banks and as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of 10%
of the Investment Fund's total assets valued at the lower of market or cost
and an Investment Fund may not purchase additional securities when borrowings
exceed 5% of total assets, except that the Worldwide High Income Fund, Latin
American Fund and Growth and Income Fund may enter into reverse repurchase
agreements in accordance with their investment objectives and policies and
except that each of the Latin American Fund, Aggressive Equity Fund and
Worldwide High Income Fund may borrow amounts up to 33 1/3% of its total
assets (including the amount borrowed), less all liabilities and indebtedness
other than the borrowing;
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(9) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% of its total assets at fair market value, except that each
of the Latin American, Aggressive Equity Fund and Worldwide High Income Funds
may pledge, mortgage or hypothecate its assets to secure borrowings in
amounts up to 33 1/3% of its assets (including the amount borrowed);
(10) underwrite the securities of other issuers;
(11) invest more than an aggregate of 15% of the total assets of the
Investment Fund, determined at the time of investment, in illiquid assets,
including repurchase agreements having maturities of more than seven days;
provided, however, that no Investment Fund shall invest more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale;
(12) invest for the purpose of exercising control over management of any
company;
(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(14) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(15) with respect to all the Investment Funds, except the Latin American
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Investment Fund's total
assets would be invested in securities of companies within such industry;
provided, however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
(16) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases; or
(17) issue senior securities.
Each of the Global Fixed Income, Emerging Markets, Latin American and
Aggressive Equity Funds will diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of the
Investment Fund's total assets is represented by cash (including cash items
and receivables), U.S. Government securities, and other securities, with such
other securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Investment
Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities);
In addition, the Fund has adopted the following limitations which are not
fundamental policies and may be changed without shareholder approval:
(1) no Investment Fund will purchase puts, calls, straddles, spreads
and any combination thereof if by reason thereof the value of its aggregate
investment in such derivative securities will exceed 5% of its respective
total assets except that the Emerging Markets, Latin American, European
Equity, Aggressive Equity Fund, Growth and Income and Worldwide High Income
Funds may purchase puts and calls on foreign currencies and may write covered
call options in accordance with its investment objective and policies;
(2) no Investment Fund may purchase warrants if, by reason of such
purchase, more than 5% of the value of the Investment Fund's net assets would
be invested in warrants valued at the lower of cost or market. Included in
this amount, but not to exceed 2% of the value of the Investment Fund's net
assets, may be warrants that are not listed on a nationally recognized stock
exchange; and
15
<PAGE>
(3) no Investment Fund will invest in oil, gas or other mineral leases;
and
(4) the Emerging Markets Fund may invest up to 25% of its total assets in
privately placed securities, provided that it may not invest more than 15% of
its total assets in illiquid securities, including securities for which there is
no readily available market, and provided further that it will not invest more
than 10% of its total assets in securities which are restricted from sale to the
public without registration under the Securities Act of 1933, except securities
that are not registered under the Securities Act of 1933 but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act.
The percentage limitations contained in these restrictions apply at the
time of purchase of securities. Future Investment Funds of the Fund may adopt
different limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a Government
Obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors set broad policies
for the Fund and choose its officers. Three Directors and all of the officers
of the Fund are directors, officers or employees of the Fund's adviser,
distributor or administrative services provider. The other Directors have no
affiliation with the Fund's adviser, distributor or administrative services
provider. The Directors are also Directors of other open-end funds advised by
Morgan Stanley Asset Management Inc. (collectively with the Fund, the "Open-End
Fund Complex"). Officers of the Fund are also Officers of some or all of the
other investment companies managed, administered, advised or distributed by
Morgan Stanley Asset Management Inc. or its affiliates. A list of the Directors
and officers of the Fund and a brief statement of their present positions and
principal occupations during the past 5 years is set forth below:
16
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Barton M. Biggs* Chairman and Chairman and Director of
1221 Avenue of the Director Morgan Stanley Asset
Americas Management Inc. and Morgan
New York, NY 10020 Stanley Asset Management
(62) Limited; Managing Director
of Morgan Stanley & Co.
Incorporated; Director of
Morgan Stanley Group Inc.;
Member of International
Advisory Counsel of the
Thailand Fund; Chairman and
Director of The Brazilian
Investment Fund, Inc., The
Latin American Discovery
Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley
Africa Investment Fund,
Inc., Morgan Stanley Asia-
Pacific Fund, Inc., Morgan
Stanley Emerging Markets
Debt Fund, Inc., Morgan
Stanley Emerging Markets
Fund, Inc., Morgan Stanley
Fund Inc., Morgan Stanley
Global Opportunity Bond
Fund, Inc., Morgan Stanley
High Yield Fund, Inc.,
Morgan Stanley India
Investment Fund, Inc.,
Morgan Stanley
Institutional Fund, Inc.,
The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Warren J. Olsen* Director and Principal of Morgan Stanley
1221 Avenue of the President & Co. Incorporated;
Americas Principal of Morgan Stanley
New York, NY 10020 Asset Management Inc.;
(39) President and Director of
The Brazilian Investment
Fund, Inc., The Latin
American Discovery Fund,
Inc., The Malaysia Fund,
Inc., Morgan Stanley Africa
Investment Fund, Inc.,
Morgan Stanley Asia-Pacific
Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund,
Inc., Morgan Stanley
Emerging Markets Fund,
Inc., Morgan Stanley Fund,
Inc., Morgan Stanley Global
Opportunity Bond Fund,
Inc., Morgan Stanley High
Yield Fund, Inc., Morgan
Stanley India Investment
Fund, Inc., Morgan Stanley
Institutional Fund, Inc.,
The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc., and The Turkish
Investment Fund, Inc.
17
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
John D. Barrett, II Director Chairman and Director of
521 Fifth Avenue Barrett Associates, Inc.
New York, NY 10135 (investment counseling);
(60) Director of the Ashforth
Company (real estate);
Director of the Morgan
Stanley Fund, Inc., Morgan
Stanley Institutional Fund,
Inc. and PCS Cash Fund, Inc.
Gerard E. Jones Director Partner in Richards & O'Neil
43 Arch Street LLP (law firm); Director of
Greenwich, CT 06830 the Morgan Stanley Fund,
(58) Inc., Morgan Stanley
Institutional Fund, Inc. and
PCS Cash Fund, Inc.
Andrew McNally IV Director Chairman and Chief Executive
8255 North Central Officer of Rand McNally
Park Avenue (publication); Director of
Skokie, IL 60076 Allendale Insurance Co.,
(56) Mercury Finance (consumer
finance); Zenith Electronics,
Hubbell, Inc. (industrial
electronics); Director of the
Morgan Stanley Fund, Inc.,
Morgan Stanley Institutional
Fund, Inc. and PCS Cash Fund,
Inc.; Director of the Morgan
Stanley Fund, Inc., Morgan
Stanley Institutional Fund,
Inc. and PCS Cash Fund, Inc.
Samuel T. Reeves Director Chairman of the Board and
8211 North Fresno Street CEO, Pinacle L.L.C.
Fresno, CA 93720 (investment firm); Director,
(61) Pacific Gas and Electric and
PG&E Enterprises (utilities);
Director of the Morgan
Stanley Fund, Inc., Morgan
Stanley Institutional Fund,
Inc. and PCS Cash Fund, Inc.
Fergus Reid Director Chairman and Chief Executive
85 Charles Colman Blvd. Officer of LumeLite
Pawling, NY 12564 Corporation (injection
(63) molding firm); Trustee and
Director of Vista Mutual Fund
Group; Director of the Morgan
Stanley Fund, Inc., Morgan
Stanley Institutional Fund,
Inc. and PCS Cash Fund, Inc.
18
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Frederick O. Robertshaw Director Of Counsel, Bryan, Cave (law
2800 North Central Avenue firm); Previously associated
Phoenix, AZ 85004 with Copple, Chamberlin &
(61) Boehm, P.C. and Rake, Copple,
Downey & Black, P.C. (law
firms); Director of the
Morgan Stanley Fund, Inc.,
Morgan Stanley Institutional
Fund, Inc. and PCS Cash Fund,
Inc.
Frederick B. Whittemore* Director Advisory Director of Morgan
1251 Avenue of the 65 Stanley & Co.,
Americas Incorporated; Vice-Chariman
30th Flr. and Director of The Brazilian
New York, NY 10020 Investment Fund, Inc., The
(65) Latin American Discovery
Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific
Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund,
Inc., Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
James W. Grisham* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co. Incorporated; Principal
Americas of Morgan Stanley Asset
New York, NY 10020 Management Inc.; Vice
(54) President of The Brazilian
Investment Fund, Inc.,
The Latin American
Discovery Fund, Inc., The
Malaysia Fund, Inc., Morgan
Stanley Africa Investment
Fund, Inc., Morgan Stanley
Asia-Pacific Fund, Inc.,
Morgan Stanley Emerging
Markets Debt Fund, Inc.,
Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
19
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Harold J. Schaaff, Jr.* Vice President Principal of Morgan Stanley &
1221 Avenue of the Co. Incorporated; Principal,
Americas General Counsel and Secretary
New York, NY 10020 of Morgan Stanley Asset
(35) Management Inc.; Vice
President of The Brazilian
Investment Fund, Inc., The
Latin American Discovery
Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific
Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund,
Inc., Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Joseph P. Stadler* Vice President Vice President of Morgan
1221 Avenue of the Stanley Asset Management
Americas Inc.; Previously with Price
New York, NY 10020 Waterhouse LLP (accounting);
(41) Vice President of The
Brazilian Investment Fund,
Inc., The Latin American
Discovery Fund, Inc., The
Malaysia Fund, Inc., Morgan
Stanley Africa Investment
Fund, Inc., Morgan Stanley
Asia-Pacific Fund, Inc.,
Morgan Stanley Emerging
Markets Debt Fund, Inc.,
Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
20
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Valerie Y. Lewis* Secretary Vice President of Morgan
1221 Avenue of the Stanley Asset Management
Americas Inc.; Previously with
New York, NY 10020 Citicorp (banking); Secretary
(39) of The Brazilian Investment
Fund, Inc., The Latin
American Discovery Fund,
Inc., The Malaysia Fund,
Inc., Morgan Stanley Africa
Investment Fund, Inc., Morgan
Stanley Asia-Pacific Fund,
Inc., Morgan Stanley Emerging
Markets Debt Fund, Inc.,
Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The PCS Cash
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
Karl O. Hartmann Assistant Senior Vice President,
73 Tremont Street Secretary Secretary and General Counsel
Boston, MA 02108-3913 of Chase Global Funds
(40) Services Company; Previously
with Leland, O'Brien,
Rubinstein Associates, Inc.
(investments).
James R. Rooney Treasurer Assistant Vice President,
73 Tremont Street Chase Global Funds Services
Boston, MA 02108-3913 Company; Manager of Fund
(37) Administration; Previously
with Scudder, Stevens &
Clark, Inc. (investment)
and Ernst & Young LLP
(accounting); Treasurer
of The Brazilian Investment
Fund, Inc., The Latin
American Discovery
Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific
Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund,
Inc., Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
21
<PAGE>
Principal Occupation During
Name, Address and Age Position with Fund Past Five Years
- --------------------- ----------------- ---------------------------
Joanna Haigney Assistant Supervisor of Fund
73 Tremont Street Treasurer Administration and
Boston, MA 02108-3913 Compliance, Chase Global
(29) Funds Services Company;
Previously with Coopers &
Lybrand LLP; Assistant
Treasurer of The Brazilian
Investment Fund, Inc., The
Latin American Discovery
Fund, Inc., The Malaysia
Fund, Inc., Morgan Stanley
Africa Investment Fund, Inc.,
Morgan Stanley Asia-Pacific
Fund, Inc., Morgan Stanley
Emerging Markets Debt Fund,
Inc., Morgan Stanley Emerging
Markets Fund, Inc., Morgan
Stanley Fund, Inc., Morgan
Stanley Global Opportunity
Bond Fund, Inc., Morgan
Stanley High Yield Fund,
Inc., Morgan Stanley India
Investment Fund, Inc., Morgan
Stanley Institutional Fund,
Inc., The Pakistan Investment
Fund, Inc., The Thai Fund,
Inc. and The Turkish
Investment Fund, Inc.
- ---------------
*"Interested Person" within the meaning of the 1940 Act.
REMUNERATION OF DIRECTORS AND OFFICERS
Effective June 28, 1995, the Open-End Fund Complex will pay each of the
nine Directors who is not an "interested person" an annual aggregate fee of
$55,000, plus out-of-pocket expenses. The Open-End Fund Complex will pay each
of the members of the Fund's Audit Committee, which consists of the Fund's
Directors who are not "interested persons" an additional annual aggregate fee
of $10,000 for serving on such a committee, The allocation of such fees will
be among the three funds in the Open-End Fund Complex in direct proportion to
their respective average net assets. For the fiscal period ended June 30,
1995, the Fund paid approximately $77,000 in Directors' fees and expenses.
Directors who are also officers or affiliated persons receive no remuneration
for their services as Directors. The Fund's officers and employees are paid
by the Adviser or its agents. As of December 18, 1995, to Fund management's
knowledge, the Directors and officers of the Fund, as a group, owned less
than 1% of the outstanding common stock of each Investment Fund of the Fund.
The following table shows aggregate compensation paid to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, for the fiscal year
from July 1, 1994 to June 30, 1995.
22
<PAGE>
COMPENSATION TABLE
- --------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensation Retirement Annual Compensation
Position From Benefits Benefits From Registrant
Registrant Accrued Upon and Fund
as Part of Retirement Complex
Fund Paid to
Expenses Directors
- --------------------------------------------------------------------------------
Barton M. Biggs* $0 $0 $0 $0
Director and Chairman of
the Board
John D. Barret, II,* $0 $0 $0 $0
Director
John E. Eckleberry,*** $7,500 $0 $0 $7,500
Director
Gerard E. Jones,* $8,700 $0 $0 $93,977
Director
Warren J. Olsen,* $0 $0 $0 $0
Director and President
Andrew McNally IV,* $0 $0 $0 $13,630
Director
Samuel T. Reeves,* $0 $0 $0 $0
Director
Fergus Reid,* $0 $0 $0 $0
Director
Frederick O. Robertshaw,** $11,152+ $0 $0 $32,002
Director
Frederick B. Whittemore,** $21,254+ $0 $0 $69,904
Director (Chairman of the
Board until June 28, 1995)
- -------------------------------------------------------------------------------
*Elected (Director) as of June 28, 1995.
**Reelected as of June 28, 1995.
***Resigned as of June 28, 1995.
+The total amount of deferred compensation for Frederick O. Robertshaw and
Frederick B. Whittemore was $3,652 and $13,754, respectively.
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
The Adviser is a wholly-owned subsidiary of Morgan Stanley Group Inc.
("Group"). The principal offices of the Group are located at 1221 Avenue of the
Americas, New York, NY 10020.
23
<PAGE>
The Group, a renowned global financial services firm, is distinguished by
quality, service and a commitment to excellence. Tracing its roots to the
founding of the U.S. securities industry, the Group remains a leader in the
field. The Group's premier list of clients includes some of the largest
multinational corporations and institutions, governments, nation-states, royal
households and very high-net-worth individuals.
The Group with its subsidiaries ("Morgan Stanley") maintains a major global
presence with offices in Chicago, Frankfurt, Hong Kong, London, Los Angeles,
Luxembourg, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore,
Taipei, Tokyo, Toronto and Zurich. With over 9,800 employees, approximately 35%
of which are located outside the U.S., and members of the portfolio management
teams which are native to the countries in which they are investing, Morgan
Stanley is in an exceptional position to interpret the forces that will impact
the world's capital markets today, over the next decade and beyond.
The investment management division of Morgan Stanley was formed in 1975
under the leadership of Barton Biggs and incorporated as a wholly-owned
subsidiary of the Group in 1981. MSAM was formed to offer investment management
and fiduciary services to institutions and high-net-worth individuals. MSAM
offers its clients the same superior service and high standards of integrity
that have been the hallmark of Morgan Stanley since its founding in 1935.
As one of the world's premier global investment managers affiliated with
one of the leading global financial services firms and with offices in the
United States, Europe and Asia, MSAM brings a truly global perspective to the
investment of its clients' assets. This global perspective, coupled with Morgan
Stanley's long-standing tradition of integrity and prudence, puts MSAM in a
unique position to offer investment management services. As compensation for
advisory services for the fiscal years ended June 30, 1993, June 30, 1994 and
June 30, 1995, the Adviser earned fees of approximately $126,000 (and
voluntarily waived all such fees), $2,322,000 (and voluntarily waived a portion
of such fees equal to approximately $1,026,000) and $4,571,000 (and voluntarily
waived a portion of such fees equal to approximately $868,000), respectively.
Pursuant to the Administration Agreement between the Adviser and the Fund,
the Adviser provides administrative services. For its services under the
Administration Agreement, the Fund pays the Adviser a monthly fee which on an
annual basis equals 0.25% of the average daily net assets of each Investment
Fund. For the fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995,
the Fund paid administrative fees to MSAM of approximately $58,000, $852,000 and
$1,154,000, respectively.
Under an Agreement between the Adviser and The Chase Manhattan Bank, N.A.
("Chase," successor in interest to United States Trust Company of New York),
Chase Global Funds Services Company ("CGFSC," formerly Mutual Funds Service
Company, a Chase subsidiary) provides certain administrative services to the
Fund. CGFSC provides operational and administrative services to investment
companies with approximately $61 billion in assets and having approximately
217,452 shareholder accounts as of September 30, 1995. CGFSC's business address
is 73 Tremont Street, Boston, Massachusetts 02108-3913.
DISTRIBUTION OF FUND SHARES
Morgan Stanley & Co. Incorporated (the "Distributor"), a wholly-owned
subsidiary of Group, serves as the Distributor of the Fund's shares pursuant
to a Distribution Agreement for the Fund and a Plan of Distribution for each
class of the Investment Funds pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan" and collectively, the "Plans"). Under each Plan the
Distributor is entitled to receive from these Investment Funds a distribution
fee, which is accrued daily and paid quarterly, of up to 0.25% for the Class
A shares of each of the Investment Funds, the Class B shares and Class C
shares of each of the Investment Funds, on an annualized basis, of the
average daily net assets of such Investment Fund or classes. The Distributor
expects to allocate most of its fee to investment dealers, banks or financial
service firms that provide distribution, administrative or shareholder
services ("Participating Dealer"). The actual amount of such compensation is
agreed upon by the Fund's Board of Directors and by the Distributor.
24
<PAGE>
The Distributor may, in its discretion, voluntarily waive from time to time all
or any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
The Plans obligate the Investment Funds to accrue and pay to the
Distributor the fee agreed to under its Distribution Agreement. The Plans do not
obligate the Investment Funds to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under the Plan.
Thus, under each Plan, even if the Distributor's actual expenses exceed the fee
payable to it thereunder at any given time, the Investment Funds will not be
obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee. The Plans for the Class A, Class B and Class C shares were most
recently approved by the Fund's Board of Directors, including those directors
who are not "interested persons" of the Fund as that term is defined in the 1940
Act and who have no direct or indirect financial interest in the operation of a
Plan or in any agreements related thereto, on September 20, 1995.
As compensation for providing distribution services to the Fund for the
fiscal year ended June 30, 1995, the Distributor received aggregate fees of
approximately $2,697,893 which were attributable approximately as follows:
Fiscal Year
Ended
June 30, 1995
-------------
Global Equity Allocation Fund-Class A. . . . . . . . . . . . . . $97,885
Global Equity Allocation Fund-Class B+ . . . . . . . . . . . . . N/A
Global Equity Allocation Fund-Class C+ . . . . . . . . . . . . . 366,778
Global Fixed Income Fund-Class A . . . . . . . . . . . . . . . . 24,803
Global Fixed Income Fund-Class B+. . . . . . . . . . . . . . . . N/A
Global Fixed Income Fund-Class C+. . . . . . . . . . . . . . . . 56,785
Asian Growth Fund-Class A. . . . . . . . . . . . . . . . . . . . 402,870
Asian Growth Fund-Class B+ . . . . . . . . . . . . . . . . . . . N/A
Asian Growth Fund-Class C+ . . . . . . . . . . . . . . . . . . . 1,314,505
Emerging Markets Fund-Class A* . . . . . . . . . . . . . . . . . 34,453
Emerging Markets Fund-Class B* . . . . . . . . . . . . . . . . . N/A
Emerging Markets Fund-Class C* . . . . . . . . . . . . . . . . . 110,688
Latin American Fund-Class A* . . . . . . . . . . . . . . . . . . 14,697
Latin American Fund-Class B* . . . . . . . . . . . . . . . . . . N/A
Latin American Fund-Class C* . . . . . . . . . . . . . . . . . . 28,402
American Value Fund-Class A. . . . . . . . . . . . . . . . . . . 35,886
American Value Fund-Class B+ . . . . . . . . . . . . . . . . . . N/A
American Value Fund-Class C+ . . . . . . . . . . . . . . . . . . 93,416
Worldwide High Income Fund-Class A . . . . . . . . . . . . . . . 28,283
Worldwide High Income Fund-Class B . . . . . . . . . . . . . . . N/A
Worldwide High Income Fund-Class C+. . . . . . . . . . . . . . . 88,442
None of the three classes of the European Equity and Growth and Income
Funds were in operation in the fiscal year ended June 30, 1995.
- ---------------
* The Emerging Markets and Latin American Funds commenced operations on July
6, 1994.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995. Therefore,
no fees were incurred for the fiscal year ended June 30, 1995.
25
<PAGE>
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes significantly restrict the personal investing
activities of all employees of the Adviser and, as described below, impose
additional, more onerous, restrictions on the Fund's investment personnel.
The Codes require that all employees of the Adviser preclear any personal
securities investment (with limited exceptions, such as government securities).
The preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed investment.
The substantive restrictions applicable to all employees of the Adviser include
a ban on acquiring any securities in a "hot" initial public offering and a
prohibition from profiting on short-term trading in securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Fund as of December 18, 1995 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Fund management's knowledge, as follows:
GLOBAL FIXED INCOME FUND: The Morgan Stanley Group, Inc. ("The Group"),
1221 Avenue of the Americas, New York, NY 10020, owned 30% of the total
outstanding Class A shares and 53% of the total outstanding Class C shares of
such Investment Fund; Steve M. Barnett, 666 Dundee Road Suite 1704, Northbrook,
IL 60062, owned 10% of the total outstanding Class A shares of such Investment;
Raymond James & Associates Inc., for Elite Account # 50071735, FAO Fredmar Inc.,
P.O. Box 7669, Warwick, RI 02887, owned 22% of the total outstanding Class B
shares of such Investment Fund; Smith Barney Inc., 388 Greenwich Street, New
York, NY 10013, owned 20% of the total outstanding Class B shares of such
Investment Fund; Gerald Schmitz & Gerald Newcomb, Petroleum MKTRS Equip PSP,
2010 Exchange, Oklahoma City, OK 73108, owned 19% of the total outstanding
Class B shares of such Investment Fund and Bernard Tabor IRA Rollover, MSTC
Custodian, 15320 SW 298 Street, Homestead, FL 33033, owned 5% of the total
outstanding Class B shares of such Investment Fund.
ASIAN GROWTH FUND: Advest Inc., Mutual Fund Operations, 18th floor, 280
Trumbull Street, Hartford, CT 06103, owned 6% of the total outstanding Class A
shares of such Investment Fund.
26
<PAGE>
AMERICAN VALUE FUND: Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 24% of the total outstanding Class A
shares and 31% of the total outstanding Class C shares of such Investment
Fund; Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned 5%
of the total outstanding Class A shares of such Investment Fund; James G.
McMurray, M.D. Profit Sharing Plan, 303 Williams Avenue, Suite 411,
Huntsville, AL 35801, owned 12% of the total outstanding Class B shares of
such Investment Fund and Cuddy Pup I & Thompson Associates Profit Sharing
Plan, C/O Joan Ciufo, 1300 5th Street Ext., Beaver, PA 15009, owned 5% of
the total outstanding Class B shares of such Investment Fund.
WORLDWIDE HIGH INCOME FUND: FTC & Co., Attn: Datalynx #118, P.O. Box
173736, Denver, CO 80217, owned 22% of the total outstanding Class A shares
of such Investment Fund; Morgan Stanley Group Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 13% of the total outstanding Class A
shares and 22% of the total outstanding Class C shares of such Investment
Fund and Charles Schwab & Company Inc., Exclusive Benefit of its Customers,
101 Montgomery Street, San Francisco, CA 94104, owned 11% of the total
outstanding Class A shares of such Investment Fund.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 16% of the
total outstanding Class A shares of such Investment Fund; Crester Bank Trust
Department, Sheltering Arms Foundation, A/C #10091700, P.O. Box 26246,
Richmond, VA 23260, owned 6% of the total outstanding Class A shares of such
Investment Fund; Advest, Inc., 280 Trumbull Street, Hartford, CT 06103, owned
5% of the total outstanding Class A shares and 6% of the total outstanding
Class C shares of such Investment Fund and Central Fidelity Bank Cust., FBO
Obici Foundation, 5th floor, P.O. Box 27602, Richmond, VA 23261, owned 5% of
the total outstanding Class C shares of such Investment Fund.
LATIN AMERICAN FUND: Charles Schwab & Co., Inc., Exclusive Benefit of
its Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 15% of
the total outstanding Class A shares of such Investment Fund; FTC & Co. Attn.
Datalynx #190, P.O. Box 173736, Denver, CO 80217, owned 10% of the total
outstanding Class A shares of such Investment Fund; The Group owned 8% of the
total outstanding Class A shares and 17% of the total outstanding Class C
shares of such Investment Fund; Principal Financial Customer FBO Mike A.
LePrino, P.O. Box 508, Dallas, TX 75221, owned 28% of the total outstanding
Class B shares of such Investment Fund; Principal Financial Customer FBO Jon
F. Hrabe, P.O. Box 508, Dallas, Texas 75221, owned 20% of the total
outstanding Class B shares of such Investment Fund; Principal Financial, IRA
Cust FBO Jon F. Hrabe, P.O. Box 215132, Dallas, Texas 75221 owned 11% of the
total outstanding Class B shares of such Investment Fund; Paine Webber for
the benefit of Paine Webber CDN FBO Franklin Mirroff IRA, P.O. Box 3321,
Weehawken, NJ 07087, owned 9% of the total outstanding Class B shares of such
Investment Fund and Prudential Securities FBO J.P. Barger, 600 W. Cummings
Park, Suite 3500, Woburn, MA 01801-6349, owned 11% of the total outstanding
Class C shares of such Investment Fund.
The Group may be deemed a "controlling person" of the Fund by virtue of its
power to control the voting or disposition of the shares it owns. As a result of
its ownership position, the Group may be able to control the outcome of matters
voted on by shareholders of the Funds.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement authorizes the Adviser to select the
brokers or dealers that will execute the purchases and sales of investment
securities for the Investment Fund and directs the Adviser to use its best
efforts to obtain the best available price and most favorable execution with
respect to all transactions for the Investment Fund. The Fund has authorized the
Adviser to pay higher commissions in recognition of brokerage
27
<PAGE>
services which, in the opinion of the Adviser, are necessary for the achievement
of better execution, provided the Adviser believes this to be in the best
interest of the Fund.
In purchasing and selling securities for the Investment Fund, it is the
Fund's policy to seek to obtain quality execution at the most favorable prices,
through responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Investment Fund, consideration will be given to
such factors as the price of the security, the rate of the commission, the size
and difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Investment Fund may also be
appropriate for other clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Investment Fund and
one or more of these other clients served by the Adviser is considered at or
about the same time, transactions in such securities will be allocated among the
Investment Fund and clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Fund's
Directors.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Adviser may allocate a portion of the Fund's portfolio
brokerage transactions to Morgan Stanley or broker affiliates of Morgan Stanley.
In order for Morgan Stanley or its affiliates to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration received
by Morgan Stanley or such affiliates must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. Furthermore, the
Directors of the Fund, including a majority of the Directors who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to Morgan Stanley
or such affiliates are consistent with the foregoing standard. For the three
fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995, the Fund paid
brokerage commissions of approximately $2,497, $618,000 and $115,622,
respectively, to the Distributor, an affiliated broker-dealer. For the fiscal
years ended June 30, 1993, June 30, 1994 and June 30, 1995, commissions paid to
the Distributor represented approximately 6.8%, 30%, and 7%, respectively, of
the total amount of brokerage commissions paid in such period and which were
paid on transactions that represented 8.9%, 21%, and 3%, respectively, of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund during such period.
Investment Fund securities will not be purchased from, or through, or sold
to or through, the Adviser or Morgan Stanley or any "affiliated persons," as
defined in the 1940 Act, of Morgan Stanley when such entities are acting as
principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to
illustrate the Investment Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Fund but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Fund to compute or express
performance follows.
28
<PAGE>
TOTAL RETURN
From time to time the Investment Funds may advertise total return. Total
return figures are based on historical earnings and are not intended to indicate
future performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Investment Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assumes that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1-, 5-, and 10-year
period (or over the life of the Investment Fund) and the deduction of all
applicable Fund expenses on an annual basis.
Total return figures are calculated according to the following formula:
P(1 + T)to the nth power = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the end of the
1-, 5-, or 10-year periods (or fractional portion thereof).
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Investment
Funds for the one-year period ended June 30, 1995 and for the period from the
inception of each Investment Fund through June 30, 1995 are as follows:
One-Year Period
Ended Since
June 30, 1995 Inception
--------------- ---------
Global Equity Allocation Fund
(commenced operations on
January 4, 1993)
Class A Shares . . . . . . . . 6.69% 10.79%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 5.84% 9.99%
Global Fixed Income Fund
(commenced operations on
January 4, 1993)
Class A Shares . . . . . . . . 11.41% 7.92%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 10.24% 7.01%
Asian Growth Fund
(commenced operations on
June 23, 1993)
Class A Shares . . . . . . . . 9.50% 18.73%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 8.71% 17.93%
29
<PAGE>
American Value Fund
(commenced operations on
Oct. 18, 1993)
Class A Shares . . . . . . . . 15.01% 7.86%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 14.13% 7.00%
Worldwide High Income Fund
(commenced operations on
April 21, 1994)
Class A Shares . . . . . . . . 6.87% 8.26%
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . 6.20% 7.49%
Emerging Markets Fund
(commenced operations on
July 6, 1994)
Class A Shares . . . . . . . . N/A (11.58)%*
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . N/A (12.25)%*
Latin American Fund
(commenced operations on
July 6, 1994)
Class A Shares . . . . . . . . N/A (23.07)%*
Class B Shares+. . . . . . . . N/A N/A
Class C Shares+. . . . . . . . N/A (23.83)%*
The European Equity and Growth and Income Funds had not commenced
operations in the fiscal year ended June 30, 1995.
+ The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1,
1995. The Class B shares commenced operations on August 1, 1995. Therefore,
no total return information is available.
* Not Annualized.
YIELD FOR CERTAIN INVESTMENT FUNDS
From time to time certain of the Investment Funds may advertise yield.
Current yield reflects the income per share earned by an Investment Fund's
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
30
<PAGE>
Yield = 2[(a - b + 1)to the 6th power - 1]
-----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period
The 30-day yield for the Global Fixed Income Fund as of June 30, 1995 was
5.19% for Class A shares and 4.69% for Class C shares. The 30-day yield for
the Worlwide High Income Fund as of June 30, 1995 was 10.55% for Class A shares
and 10.47% for Class C shares.
COMPARISONS
To help investors better evaluate how an investment in an Investment Fund
of Morgan Stanley Fund, Inc. might satisfy their investment objective,
advertisements regarding the Fund may discuss various measures of Fund
performance as reported by various financial publications. Advertisements may
also compare performance (as calculated above) to performance as reported by
other investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages - an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices - unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
company stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
(d) Wilshire 5000 Equity Index or its component indices - represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(f) Morgan Stanley Capital International EAFE Index - an arithmetic,
market value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
(g) Goldman Sachs 100 Convertible Bond Index - currently includes 67 bonds
and 33 preferred. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(h) Salomon Brothers GNMA Index - includes pools of mortgages originated
by private lenders and guaranteed by the mortgage pools of the Government
National Association.
31
<PAGE>
(i) Salomon Brothers High Grade Corporate Bond Index - consists of
publicly issued, non-convertible corporate bonds rated AA or AAA. It is
value-weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
(j) Salomon Brothers Broad Investment Grade Bond - is a market-weighted
index that contains approximately 4700 individually priced investment grade
corporate bonds rated BBB or better, United States Treasury/agency issues and
mortgage pass-through securities.
(k) Salomon Brothers World Bond Index - measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
(l) J.P. Morgan Traded Global Bond Index - is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(m) Lehman LONG-TERM Treasury Bond - is composed of all bonds covered by
the Lehman Treasury Bond Index with maturities of 10 years or greater.
(n) Lehman Aggregate Bond Index - is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the Asset-
Backed Securities Index.
(o) NASDAQ Industrial Index - is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and does
not include income.
(p) Composite Indices - 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(q) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- - analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
(r) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk and total return for equity funds.
(s) Financial publications: Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times,
Global Investor, Investor's Daily, Lipper Analytical Services, Inc.,
Morningstar, Inc., New York Times, Personal Investor, Wall Street Journal and
Weisenberger Investment Companies Service - publications that rate fund
performance over specified time periods.
(t) Consumer Price Index (or cost of Living Index), published by the
United States Bureau of Labor Statistics - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.
32
<PAGE>
(u) Stocks, Bonds, Bills and Inflation, published by Hobson Associates -
historical measure of yield, price and total return for common and small company
stock, long-term government bonds, Treasury bills and inflation.
(v) Savings and Loan Historical Interest Rates - as published in the
United States Savings & Loan League Fact Book.
(w) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(x) The MSCI Combined Far East Free ex-Japan Index, a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in the
MSCI Combined Far East Free ex Japan Index at 20% of its market capitalization.
(y) First Boston High Yield Index - generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(z) Russell 2500 Small Company Index - is comprised of the bottom 500
stocks in the Russell 1000 Index which represents the universe of stocks from
which most active money managers typically select; and all the stocks in the
Russell 2000 Index. The largest security in the index has a market
capitalization of approximately 1.3 billion.
(aa) Morgan Stanley Capital International World Index - An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.
(bb) Morgan Stanley Capital International Emerging Markets Global Latin
American Index - An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela (Assumes reinvestment of dividends).
(cc) IFC Global Total Return Composite Index - An unmanaged index of common
stocks and includes 18 developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (net of dividends reinvested).
(dd) EMBI+ - Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ee) 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 reinvestment of dividends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in the Fund's
Investment Funds, that the averages are generally unmanaged, and that the items
included in the calculations of such averages may not be identical to the
formula used by the Fund to calculate its performance.
33
<PAGE>
In addition, there can be no assurance that the Fund will continue this
performance as compared to such other averages.
AMERICAN VALUE FUND
The American Value Fund's portfolio managers are "value" investors, and as
such, their mission is to buy stocks of quality U.S.-based companies they
believe to be selling below their intrinsic worth and sell them when they reach
fair value. This involves buying quality stocks when they are out of favor with
the majority of investors and selling them after the market has realized their
fair value.
Since 1926, small market capitalization stocks have, on average,
outperformed large market capitalization stocks by 2%-3% annualized. Small
capitalized stocks are defined as the five smallest market capitalization
deciles of the Center for Research in Security Prices at the University of
Chicago ("CRSP"); large capitalization stocks constitute the five largest CRSP
market capitalization deciles.
Wilshire Associates reports small cap value stocks (an index made up of the
lowest price-to-book, lowest price-to-earnings and highest yielding small
capitalization stocks) have outperformed the average small cap stock as well as
the average small cap growth stock during the period of 1978 to 1994, and with
less risk than the average small cap growth stock (an index made up of small
capitalization stocks with the highest earnings growth, highest price-to-book
and highest price-to-earnings ratios as shown in the chart below).
[THE FOLLOWING IS A NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Small Cap Value Has Provided A Favorable Risk/Return Profile"
indicates returns from 14.3% to 19.5% on the vertical axis and risk (standard
deviation) from 14.9% to 24.3% on the horizontal axis. The following points are
indicated on the graph:
For Small Cap Value Portfolio:
Return of 19.5% at risk (standard deviation) of 15.9%
For Small Cap Mean Between Value and Growth:
Return of 15.9% at risk (standard deviation) of 20.6%
Small Cap Growth Portfolio:
Return of 15.6% at risk (standard deviation) of 24.3%
For S&P 500: Return of 14.3% at risk (standard deviation) of 14.9%
Source: Wilshire Associates style performance data 1978-1994
[END OF NARRATIVE DESCRIPTION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. The S&P 500 and the Style
Portfolio Data are unmanaged indices of securities. The risk factor is an
annualized standard deviation of the annual returns. The Small Cap Value Index
is a straightforward composite benchmark. It is the average of three separate
indices: Low Price/Book Index ("Low P/B"), High Yield Index, and Low
Price/Earnings Index ("Low P/E"). Each index is computed by sorting the
companies of stocks ranked 501-2000 by market capitalization by the fundamental
measure. The universe is then split into equally weighted deciles based on the
sorted fundamental measure. The Low P/B and the Low P/E indices are simply the
unweighted returns from the 8th and 9th decile. The High Yield Index is the
unweighted return from the 2nd and 3rd decile. The process is a repetitive,
rigid algorithm which is not subject to manager selectivity. The Small Cap
Index is the Decile 6-8 index of the Center for Research in Security Prices of
the University of Chicago ("CRSP"). The CRSP indices are composed of nearly all
common stocks traded on the NYSE, AMEX, and NASDAQ within a given market-cap
range. The size cutoffs are determined by ranking all NYSE stocks by market
cap, forming deciles, and then adding all the issues that fit the size range
from the other deciles. The CRSP Decile 6-8 represents the sixth through eighth
deciles. The market
34
<PAGE>
capitalization ranges characterized by both indices are consistent with each
other and represent the MSAM/Chicago definition of the small capitalization
universe.
$10,000 invested 20 years ago in an unmanaged basket of small cap value stocks
would have significantly outperformed the other investments shown in the chart
below:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
A graph entitled "Growth of a $10,000 investment on January 1, 1971 through
September 30, 1995" indicates returns of $10,000 to $710,000 on the vertical
axis and calendar quarters from the fourth quarter of 1970 to the third quarter
of 1995 on the horizontal axis. Every sixth quarter is presented instead of
lines covering each quarter.
<TABLE>
<CAPTION>
In Thousands (except last column)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70Q4 72Q2 73Q4 75Q2 76Q4 78Q2 79Q4 81Q2 82Q4 84Q2 85Q4 87Q2 88Q4 90Q2 91Q4 93Q2 94Q4 9/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap $10 $10 $10 $20 $30 $35 $55 $70 $110 $170 $240 $270 $270 $390 $525 $539 $657
Value
$10
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap 10 10 10 15 20 30 45 55 70 100 120 110 135 160 210 $237 $304
10
- -----------------------------------------------------------------------------------------------------------------------------------
Large Cap 10 10 10 15 15 15 15 30 35 50 65 65 85 110 130 $130 $169
10
- -----------------------------------------------------------------------------------------------------------------------------------
10 Year 10 10 10 12 15 15 15 30 30 35 40 45 50 60 75 $ 74 $ 85
Govt Bond
10
- -----------------------------------------------------------------------------------------------------------------------------------
T-Bill 10 10 10 12 15 15 20 30 35 35 40 45 50 55 58 $ 60 $ 62
10
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[END OF TABULAR REPRESENTATION THAT REPLACES GRAPHIC
MATERIAL FOR EDGAR FILING PURPOSES.]
Past performance is no guarantee of future results. Small cap securities are
generally more volatile than T-Bills, 10-year government bonds or the S&P 500.
The returns shown assume the reinvestment of all distributions of income and
capital gains and do not reflect the deduction of sales charges or management
fees and expenses that would be applicable to a managed basket of equity
securities. The deduction of such sales charges and management fees and
expenses would reduce the returns shown. It is not possible to invest directly
in an index of equity securities, including any of the MSCI indices. An
investment strategy may be designed to replicate an index of equity securities
and may be more or less successful in achieving such a replication.
THE AMERICAN VALUE FUND'S PORTFOLIO. The portfolio universe consists of
the next 2,000 companies that rank in size following the 500 largest U.S.
corporations. The portfolio consists of approximately 100 companies, many of
which have been in business for over one hundred years and meet the stringent
criteria set forth by Morgan Stanley's portfolio management team. Companies in
the portfolio must be bargain-priced, with quality products and a dominant
market niche. They must demonstrate a sustainable growth rate, a healthy
financial position and have a history of paying dividends.
Careful analysis, using this criteria, helps Morgan Stanley portfolio
managers distinguish an underpriced stock that is in a position to recover, from
one that will continue to decline.
THE MORGAN STANLEY DISTINCTION. The portfolio managers' goal is to
capitalize on the market's tendency to overreact to bad news. Often a single
negative event that has been exaggerated in the stock market can cause a stock's
price to decline much more than is justified by the company's actual prospects.
This type of discrepancy between a company's market price and its intrinsic
worth (based on its earnings, cash flow, and/or asset values) is viewed by the
portfolio managers as an opportunity.
35
<PAGE>
The managers of the American Value Fund are long-term investors, not short-
term traders. They recognize that the potentially higher rate of return
available from small stocks cannot be achieved overnight. Value takes time to
be realized.
The Fund's portfolio managers seek companies paying high, sustainable
dividends. Dividends are important because they provide a good indication that
a company has not only quality, shareholder-oriented management, but also
financial strength.
THE ASIAN GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is
projected to be 5.3% in Asia as compared with 2% in both North America and
Europe, according to the World Bank Atlas. According to Morgan Stanley
research, the economies in this region are less mature and are expected to have
a higher rate of sustainable growth well into the next century.
According to research conducted by J. Walter Thompson, by the year 2000,
Asia will have two-thirds of the world's population; only four of the world's
largest cities will be non-Asian; affluent Asian households will rise by 50% to
51 million; and per capita Gross Domestic Product ("GDP") will double. In
addition, 240 million Asian households will have televisions (a 70% increase in
the past 5 years, as compared with a 4.3% increase in Britain and a 6.7%
increase in the U.S.). China currently has one-quarter of the world's
population and is projected to have 200 million middle-class consumers by the
year 2000. By 2012, China, alone, is projected to have the world's largest
economy.
Annualized returns of stock markets in this region are, in some cases,
twice that of the U.S., according to Morgan Stanley Capital International (MSCI)
Indices. On a relative basis, stock prices in this region are less than many
countries in the world, according to MSCI.
MORGAN STANLEY: THE ASIAN AUTHORITY. Morgan Stanley has a strong
commitment to the Asian region. The portfolio team is based in Morgan Stanley's
Singapore office, with managers who are native to the region and the markets
they analyze, offering local insights that have contributed to a superior
performance record. Morgan Stanley has over 1,250 employees located in the Far
East and has offices in Singapore, Shanghai, Taipei and Seoul.
ESTIMATED GNP GROWTH
1990-2000
Asia 5.3%
North America 2.0%
South America 2.2%
Europe 2.0%
Middle East 1.6%
Africa 0.3%
Source: World Bank Atlas
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates percentage returns on the
vertical axis and countries on the horizontal axis:
36
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SUPERIOR HISTORIC MARKET RETURNS
1990-1994 ANNUALIZED RETURNS* (US DOLLARS)
Hong Kong 27.18%
Philippines 21.44
CFEFxJ 20.14
Thailand 17.47
Singapore 16.02
Malaysia 13.86
USA 9.16
World 4.24
EAFE 1.82
Korea 0.26
Indonesia -2.15
Taiwan -2.98
Japan -3.43
Past performance of Asian markets is not a guarantee of their future performance
and is not indicative of the Fund's future performance.
* Gross Dividends
Sources: MSCI Indices
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Past Performance is no guarantee of future results. The MSCI indices represent
an unmanaged basket of equity securities. The returns shown assume the
reinvestment of all distributions of income and capital gains and do not reflect
the deduction of sales charges or management fees and expenses that would be
applicable to a managed basket of equity securities. The deduction of such
sales charges and management fees and expenses would reduce the returns shown.
It is not possible to invest directly in an index of equity securities,
including any of the MSCI indices. An investment strategy may be designed to
replicate an index of equity securities and may be more or less successful in
achieving such a replication.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates price earnings ratios in
percentages from 0-100% on the vertical axis and countries on the horizontal
axis:
PRICE EARNINGS/RATIO* AS OF DECEMBER, 1994
Japan 97.3%
Taiwan (E) 36.0
Philippines 28.0
Malaysia 24.2
World 23.2
Korea (E) 22.0
Indonesia 20.9
Thailand 20.1
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<PAGE>
Singapore 19.5
CFEFxJ(E) 19.4
USA 16.9
Hong Kong 13.3
*Trailing 12 Months
Source: MSCI
(E) Estimate, not from MSCI, 12/31/94
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
EMERGING MARKETS' GROWTH POTENTIAL
Annual growth, as measured by Gross National Product, in the 1990s is projected
to be 6.5% in emerging markets as compared with 2.5% in industrial countries,
according to the World Bank. According to Morgan Stanley research, the economies
in this region are less mature and are expected to have a higher rate of
sustainable growth well into the next century. If the high savings in the
emerging markets countries as of 1991 are sustained, the savings will provide
much of the needed capital for economic growth:
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates percentage of growth from
0-50% on the vertical axis and countries on the horizontal axis:
GROWTH - HIGH SAVINGS RATE (1991)
Singapore 45%
China 43
Korea 37
Indonesia 37
Thailand 34
Japan 34
Hong Kong 33
Malaysia 33
Taiwan 30
EEC(1) 22
India(1) 20
Mexico 20
Chile 18
Philippines 16
Brazil 16
Argentina 16
USA 15
Source: World Bank
Note: (1) 1989 data.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
38
<PAGE>
Morgan Stanley believes that population growth projected by the World Bank for
the 1990s, particularly among the middle class, will create buying power and
fuel demand for products, leading to economic growth and industrial
sophistication:
Total Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will greatly increase consumption of
goods and services.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bar graph that indicates the percentages of population
under the age of 15 ranging from 0-50% on the horizontal axis and countries on
the vertical axis.
YOUNG POPULATION (1991)
Source: The Economist
Note:(1) 1990 data.
USA 22%
Argentina(1) 30
Brazil(1) 35
Chile(1) 31
Mexico(1) 37
Venezuela(1) 38
Indonesia 37
S. Korea 27
Malaysia 37
Philippines 39
Taiwan 27
Thailand 35
India 36
Turkey(1) 35
Jordan(1) 44
Nigeria(1) 47
A large percentage of the population is under the age of 15 in emerging
countries. As these children mature, they will have a tremendous impact on
consumption of goods and services.
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, the average annual total return of emerging markets has
exceeded that of developed countries, and other indicators point to significant
future growth in the emerging markets:
39
<PAGE>
THE CASE FOR EMERGING MARKETS
- --------------------------------------------------------------------------------
RETURNS GROWTH VALUE UNDER- DIVERSI-
REPRESEN- FICATION
TATION
- --------------------------------------------------------------------------------
Annual Real Foreign
Returns GNP Real Inv.
(1940- Growth EPS Mkt % of
1993) (1994- Growth P/E Cap/ Institutional Average
2000) (1994) 1994E GNP Assets Correlation
Emerging 17% 6.5% 15% 24.0x 30% 0.6% 0.07
Markets
Developed 13% 2.5% 5% 26.5x 70% 99.4% 0.51%
Markets
SOURCE: MORGAN STANLEY RESEARCH
THE RETURNS DO NOT REFLECT ANY ASSET-BASED CHARGES FOR
INVESTMENT MANAGEMENT OR OTHER EXPENSES.
ASSUMES REINVESTMENT OF ALL DIVIDENDS/DISTRIBUTIONS.
THE PAST PERFORMANCE OF EMERGING MARKETS, HOWEVER, IS NO GUARANTEE OF
THE EMERGING MARKETS FUND'S FUTURE PERFORMANCE.
MORGAN STANLEY: AN AUTHORITY IN LATIN AMERICA AND EMERGING MARKETS
Over one-third of Morgan Stanley's 9,200 employees live and work outside
the United States, enabling them to recognize opportunities as they arise and,
more importantly, to act on them quickly.
At June 30, 1995, MSAM, together with its affiliated asset management
companies, had approximately $52 billion in assets under management and
fiduciary advice, including over $824 million in Latin America markets and over
$3 billion in equities and fixed income in emerging markets, making it one of
the largest investment managers in emerging markets.
Morgan Stanley portfolio managers have access to proprietary research
through Morgan Stanley Capital International (MSCI), the generally recognized
standard for measuring the performance of international securities worldwide.
MSCI monitors approximately 4,000 of some of the world's leading companies,
which account for about 80% of the total market value of the world's stock
markets.
GROWTH POTENTIAL IN LATIN AMERICA
An economic transformation is occurring in Latin America today, which we
believe is creating a positive environment for investors. Old (protected)
economies are being transformed into new (open) free market economies, as
evidenced by many changes, including:
Old (Protected) New (Open)
--------------- ----------
High import tariffs Low tariffs
Regulated exchange rates Free exchange rates
Regulated interest rates Market interest rates
Investment restrictions Open foreign investment
High tax rates Competitive tax rates
Command economy Market economy
Employment priority Efficiency priority
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<PAGE>
Subsidies Competitive market prices
State-owned industry Privatization
Deficit spending Fiscal austerity
Capital flight Return capital
High inflation Lower inflation
According to Morgan Stanley research, the economies in this region are less
mature and are expected to have higher rates of sustainable growth well into the
next century. We believe the greatest potential for gain is when situations are
improving and not when they are mature.
[THE FOLLOWING IS A TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
The following replaces a bell curve line graph that indicates development
increasing upward in the vertical axis and time of maturity increasing to the
right in the horizontal axis:
EMERGING MARKET LIFE CYCLE
- ------------------------------------------------------------------------------
COUNTRIES BEHIND-THE- EMERGING ESTABLISHED MATURE
SCENES MARKETS GROWTH ECONOMIES
- ------------------------------------------------------------------------------
Germany X
- ------------------------------------------------------------------------------
U.S. X
- ------------------------------------------------------------------------------
Japan X
- ------------------------------------------------------------------------------
U.K. X
- ------------------------------------------------------------------------------
Spain X
- ------------------------------------------------------------------------------
Hong Kong X
- ------------------------------------------------------------------------------
Singapore X
- ------------------------------------------------------------------------------
Portugal X
- ------------------------------------------------------------------------------
Taiwan X
- ------------------------------------------------------------------------------
Greece X
- ------------------------------------------------------------------------------
Korea X
- ------------------------------------------------------------------------------
Malaysia X
- ------------------------------------------------------------------------------
Turkey X
- ------------------------------------------------------------------------------
Thailand X
- ------------------------------------------------------------------------------
Mexico X
- ------------------------------------------------------------------------------
Chile X
- ------------------------------------------------------------------------------
Argentina X
- ------------------------------------------------------------------------------
Venezuela X
- ------------------------------------------------------------------------------
Indonesia X
- ------------------------------------------------------------------------------
Philippines X
- ------------------------------------------------------------------------------
India X
- ------------------------------------------------------------------------------
Brazil X
- ------------------------------------------------------------------------------
Pakistan X
- ------------------------------------------------------------------------------
Sri Lanka X
- ------------------------------------------------------------------------------
Peru X
- ------------------------------------------------------------------------------
Egypt X
- ------------------------------------------------------------------------------
Sub-Saharan
Africa X
- ------------------------------------------------------------------------------
Eastern Europe X
- ------------------------------------------------------------------------------
Cuba X
- ------------------------------------------------------------------------------
Vietnam X
41
<PAGE>
- ------------------------------------------------------------------------------
Iran X
- ------------------------------------------------------------------------------
Source: Morgan Stanley Research
[END OF TABULAR REPRESENTATION THAT REPLACES
GRAPHIC MATERIAL FOR EDGAR FILING PURPOSES.]
Historically, this region's economy has grown faster than the industrial
countries, as measured by Gross Domestic Product, and the World Bank projects it
to grow twice as fast as the industrial countries by the year 2000.
Real GDP Growth
1965-93 1993-2000
Forecast
Latin America 4.3% 5.0%
Industrial Countries 3.1% 2.5%
SOURCE: WORLD BANK
PAST PERFORMANCE OF LATIN AMERICAN MARKETS, HOWEVER, IS NO GUARANTEE OF THE
LATIN AMERICAN FUND'S FUTURE PERFORMANCE.
Morgan Stanley believes that the population growth projected by the World
Bank for the 1990s in these developing countries, particularly among the middle
class, will create buying power and fuel demand for products, leading to
economic growth and industrial sophistication:
Growth of Growth of
Total Population Middle Classes
(Percent Per Annum)
Developed Countries 0.4% 1.1%
Developing Countries 1.9% 5.9%
SOURCE: WORLD BANK
According to Morgan Stanley research, historically, annualized returns of
stock markets in this region have been superior, and on a relative basis, stock
prices in this region are significantly lower than developed markets as well as
other emerging markets, as measured by price/earnings ratios.
1988-93 1993
Annualized Return Return
S & P 500 14.5% 10.0%
T-Bills 5.7% 3.1%
Emerging Growth Stocks 18.4% 21.0%
U.S. Government Bonds 10.7% 8.2%
EAFE 2.0% 32.6%
Japanese Stocks -7.0% 25.5%
Emerging Market Equities 16.5% 67.5%
MSCI LATIN AMERICAN 42.4% 49.1%
SOURCE: MORGAN STANLEY RESEARCH
The returns do not reflect any asset-based charges for investment
management or other expenses. Assumes reinvestment of all
dividends/distribution. Past Performance is no guarantee of the Latin American
Fund's future performance.
42
<PAGE>
Price/Earnings Ratio
Developed Markets* 28.4X
Emerging Markets* 13.9X
LATIN AMERICA** 17.2X
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX, DEVELOPED
MARKETS BY MSCI WORLD
* PROSPECTIVE 1995
** TRAILING AS OF DECEMBER 31, 1994
Market Cap/GNP
(As of March 3, 1994)
Developed Markets .7
Emerging Markets .3
LATIN AMERICA .3
SOURCE: EMERGING MARKETS P/E REPRESENTED BY THE IFC INDEX, DEVELOPED
MARKETS BY MSCI WORLD
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Articles of Incorporation permit the Directors to issue
13.375 billion shares of common stock, par value $.001 per share, from an
unlimited number of Investment Funds. Currently the Fund is authorized to
offer shares of ten Investment Funds, nine of which have Class A and Class B
shares.
The shares of each Investment Fund of the Fund are fully paid and
non-assessable, and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Investment Fund of the Fund
have no pre-emptive rights. The shares of the Fund have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so. A shareholder is entitled to one vote for each full share owned (and a
fractional vote for each fractional share owned), then standing in his name on
the books of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each Investment
Fund's net investment income, if any. Each Investment Fund may choose to make
sufficient distributions of net capital gains to avoid liability for federal
excise tax. An Investment Fund will not be subject to federal income tax on
capital gains or ordinary income distributed to shareholders so long as it
qualifies as a RIC (see discussion under "Dividends and Distributions" and
"Taxes" in the Prospectus). However, the Fund may also choose to retain net
realized capital gains and pay taxes on such gains. The amounts of any income
dividends or distributions cannot be predicted.
Any dividend or distribution paid shortly after an investor purchases
shares of an Investment Fund will reduce the per share net asset value of that
Investment Fund by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes to shareholders subject to taxes as set
forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of an Investment Fund are automatically
reinvested in additional shares of that Investment Fund at net asset value as of
the business day following the record date. This reinvestment policy will remain
in effect until the shareholder notifies the Transfer Agent in writing at least
three days prior to a record date that the shareholder has elected either the
Income Option (income dividends in cash and distributions in additional shares
43
<PAGE>
at net asset value) or the Cash Option (both income dividends and distributions
in cash). No initial sales charge or CDSC is imposed on shares of any of the
Investment Funds, including the Investment Funds, that are purchased through the
automatic reinvestment of dividends and distributions of an Investment Fund.
Each Investment Fund generally will be treated as a separate corporation
(and hence as a separate "regulated investment company") for federal tax
purposes. Any net capital gains of any Investment Fund, whether or not
distributed to investors, cannot be offset against net capital losses of any
other Investment Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Fund's domestic custodian. Chase is not affiliated
with Morgan Stanley & Co. Incorporated. Morgan Stanley Trust Company, Brooklyn,
NY, acts as the Fund's custodian for foreign assets held outside the United
States and employs subcustodians who were approved by the Directors of the Fund
in accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan
Stanley Trust Company is an affiliate of Morgan Stanley & Co. Incorporated. In
the selection of foreign subcustodians, the Directors consider a number of
factors, including, but not limited to, the reliability and financial stability
of the institution, the ability of the institution to provide efficiently the
custodial services required for the Fund, and the reputation of the institution
in the particular country or region.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS: Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Aa -
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Moody's
applies numerical modifiers 1, 2 and 3 in the Aa and A rating categories. The
modifier 1 indicates that the security ranks at a higher end of the rating
category, modifier 2 indicates a mid-range rating and the modifier 3 indicates
that the issue ranks at the lower end of the rating category.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Ba - Bonds which are rated Ba
are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class. B -
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contact over any long period of time may be small. Caa -
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C
44
<PAGE>
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
RATINGS: AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation and indicate an extremely strong capacity to pay
principal and interest. AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only to a
small degree. A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC - Debt rated BB, B, CCC and CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. C - The rating C is reserved for income bonds on which no interest
is being paid. D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- - best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 - high quality with margins of protection ample
although not so large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") -
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: S-1+ - very strong
capacity to pay principal and interest; SP-1 - strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-1+ - this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 - this designation indicates the degree of safety regarding
timely payment is very strong.
WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
II. DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and credit"
of the United States. Securities issued or guaranteed by federal agencies and
United States Government sponsored instrumentalities may or may not be backed by
the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed
45
<PAGE>
by the full faith and credit of the United States include the Export-Import
Bank, Farmers Home Administration, Federal Financing Bank, and others. Certain
agencies and instrumentalities, such as the Government National Mortgage
Associates, are, in effect, backed by the full faith and credit of the United
States through provisions in their charters that they may make "indefinite and
unlimited" drawings on the Treasury, if needed to service debt. Debt from
certain other agencies and instrumentalities, including the Federal Home Loan
Bank and Federal National Mortgage Association, are not guaranteed by the United
States, but those institutions are protected by the discretionary authority for
the United States Treasury to purchase certain amounts of their securities to
assist the institution in meeting its debt obligations. Finally, other agencies
and instrumentalities, such as the Farm Credit System and the Federal Home Loan
Mortgage Corporation, are federally chartered institutions under Government
supervision, but their debt securities are backed only by the creditworthiness
of those institutions, not the United States Government.
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
III. FOREIGN INVESTMENTS
The Investment Funds may invest in securities of foreign issuers. Investors
should recognize that investing in such foreign securities involves certain
special considerations which are not typically associated with investing in
United States issuers. For a description of the effect on the Investment Funds
of currency exchange rate fluctuations, see "Investment Objectives and
Policies - Forward Foreign Currency Exchange Contracts" above. As foreign
issuers are not generally subject to uniform accounting, auditing and
financial reporting standards and may have policies that are not comparable
to those of domestic issuers, there may be less information available about
certain foreign companies than about domestic issuers. Securities of some
foreign issuers are generally less liquid and more volatile than securities
of comparable domestic issuers. There is generally less government
supervision and regulation of stock exchanges, brokers and listed issuers
than in the United States. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Foreign securities
not listed on a recognized domestic or foreign exchange are regarded as not
readily marketable and therefore such investments will be limited to 15% of
an Investment Fund's net asset value at the time of purchase.
Although the Investment Funds will endeavor to achieve the most favorable
execution costs in their portfolio transactions, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
United States exchanges.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the Global Fixed Income Fund, Asian Growth Fund, European Equity Fund and
Worldwide High Income Fund, it is not expected that an Investment Fund or its
shareholders would be able to claim a credit for U.S. tax purposes with respect
to any such foreign taxes. However, these foreign withholding taxes may not have
a significant impact on any such Investment Fund because its investment
objective is to seek long-term capital appreciation and any dividend or interest
income should be considered incidental.
IV. EMERGING COUNTRY EQUITY AND DEBT SECURITIES
46
<PAGE>
The definition of emerging country equity or debt securities of each of the
Global Equity Allocation, Global Fixed Income, Asian Growth, Emerging Markets,
Latin American, European Equity and Worldwide High Income Funds includes
securities of companies that may have characteristics and business relationships
common to companies in a country or countries other than an emerging country. As
a result, the value of the securities of such companies may reflect economic and
market forces applicable to other countries, as well as to an emerging country.
The Adviser believes, however, that investment in such companies will be
appropriate because the Investment Fund will invest only in those companies
which, in its view, have sufficiently strong exposure to economic and market
forces in an emerging country such that their value will tend to reflect
developments in such emerging country to a greater extent than developments in
another country or countries. The Investment Fund may invest in companies
organized and located in countries other than an emerging country, including
companies having their entire production facilities outside of an emerging
country, when securities of such companies meet one or more elements of the
Investment Fund's definition of an emerging country debt security and so long as
the Adviser believes at the time of investment that the value of the company's
securities will reflect principally conditions in such emerging country.
The value of debt securities held by the Investment Fund generally will
vary inversely to changes in prevailing interest rates. The Investment Fund's
investments in fixed-rated debt securities with longer terms to maturity are
subject to greater volatility than the Investment Fund's investments in shorter-
term obligations. Debt obligations acquired at a discount are subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities which are not subject to such
discount.
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, the Investment Fund may
have limited legal recourse against the issuer and/or guarantor. Remedies must,
in some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign government debt securities to obtain recourse
may be subject to the political climate in the relevant country. In addition,
no assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of other foreign government debt obligations in
the event of default under their commercial bank loan agreements.
The Investment Fund may invest in certain debt obligations customarily
referred to as "Brady Bonds," which are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the over-the-
counter secondary market. The Investment Fund may purchase Brady Bonds either
in the primary or secondary markets. The price and yield of Brady Bonds
purchased in the secondary market will reflect the market conditions at the time
of purchase, regardless of the stated face amount and the stated interest rate.
With respect to Brady Bonds with no or limited collateralization, the Investment
Fund will rely for payment of interest and principal primarily on the
willingness and ability of the issuing government to make payment in accordance
with the terms of the bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
which have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals
47
<PAGE>
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk"). In the event of a default with respect to collateralized Brady
Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held to
the scheduled maturity of the defaulted Brady Bonds by the collateral agent, at
which time the face amount of the collateral will equal the principal payments
which would have then been due on the Brady Bonds in the normal course. In
addition, in light of the residual risk of the Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds should be viewed as speculative.
Brady Plan debt restructurings totaling approximately $73 billion have been
implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the Philippines,
Uruguay and Venezuela, with the largest proportion of Brady Bonds having been
issued to date by Mexico and Venezuela. Brazil and Poland have announced plans
to issue Brady Bonds aggregating approximately $52 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.
FINANCIAL STATEMENTS
The Fund's audited financial statements and notes thereto for the fiscal
year ended June 30, 1995 , and the report thereon of Price Waterhouse LLP,
independent accountants, which appear in the June 30, 1995 Annual Report to
Shareholders are on the following pages. The European Equity Fund,
Aggressive Equity Fund and Growth and Income Fund were not operational as of
the date of the Annual Report.
48
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
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
-------
3,491
-------
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
-------
1,671
-------
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
-------
4,240
-------
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
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1995
VALUE
SHARES (000)
- ---------------------------------------------------------------------
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
-------
3,292
-------
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
-------
1,633
-------
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.
50
<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
The accompanying notes are an integral part of the financial statements.
51
<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.
52
<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
The accompanying notes are an integral part of the financial statements.
53
<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.
54
<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
------- ---
$80,910 97.4%
------- ---
------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
FIXED INCOME SECURITIES (94.8%)
AUSTRALIAN DOLLAR (2.5%)
GOVERNMENT BOND (2.5%)
A$ 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>
The accompanying notes are an integral part of the financial statements.
56
<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.
57
<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.
58
<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 %
-------- -----
-------- -----
The accompanying notes are an integral part of the financial statements.
59
<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
The accompanying notes are an integral part of the financial statements.
60
<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.
61
<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.
62
<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%
-------- --------
-------- --------
The accompanying notes are an integral part of the financial statements.
63
<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>
The accompanying notes are an integral part of the financial statements.
64
<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.
65
<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>
The accompanying notes are an integral part of the financial statements.
66
<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.
67
<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>
The accompanying notes are an integral part of the financial statements.
68
<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.
69
<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.
The accompanying notes are an integral part of the financial statements.
70
<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.
71
<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.
The accompanying notes are an integral part of the financial statements.
72
<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.
73
<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>
The accompanying notes are an integral part of the financial statements.
74
<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.
75
<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>
The accompanying notes are an integral part of the financial statements.
76
<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.
77
<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>
The accompanying notes are an integral part of the financial statements.
78
<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.
79
<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>
The accompanying notes are an integral part of the financial statements.
80
<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.
81
<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.
82
<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
83
<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>
84
<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>
85
<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.
86
<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
87
