<PAGE>
MORGAN STANLEY FUNDS
- ---------------------------------
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MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
------------------------------------------------------------
MORGAN STANLEY GLOBAL FIXED INCOME FUND
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MORGAN STANLEY ASIAN GROWTH FUND
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MORGAN STANLEY AMERICAN VALUE FUND
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MORGAN STANLEY WORLDWIDE HIGH INCOME FUND
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MORGAN STANLEY LATIN AMERICAN FUND
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MORGAN STANLEY EMERGING MARKETS FUND
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SEMI-ANNUAL REPORT
DECEMBER 31, 1995
<PAGE>
PRESIDENT'S LETTER
- -------------------------------------------------------------------
Dear Shareholders:
We are pleased to present to you the Fund's semi-annual report for the six
months ended December 31, 1995. The Morgan Stanley Fund currently offers shares
in eight separate funds, each having specific investment goals and objectives:
THE MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND seeks
long-term capital appreciation by investing in common stocks
of U.S. and non-U.S. issuers in accordance with country
weightings determined by the Adviser with stock selection
within each country designed to replicate a broad market
index.
THE MORGAN STANLEY GLOBAL FIXED INCOME FUND seeks to
produce an attractive real rate of return while preserving
capital by investing in fixed income securities of issuers
throughout the world, including U.S. issuers.
THE MORGAN STANLEY ASIAN GROWTH FUND seeks long-term
capital appreciation by investing primarily in common stocks
of Asian issuers, excluding Japan.
THE MORGAN STANLEY AMERICAN VALUE FUND seeks high
long-term total return by investing in undervalued common
stocks of small- to medium-sized corporations.
THE MORGAN STANLEY WORLDWIDE HIGH INCOME FUND seeks high
current income consistent with relative stability and
potential for capital appreciation by investing across three
broad classes: U.S. high yield, emerging country debt and
global fixed income.
THE MORGAN STANLEY LATIN AMERICAN FUND seeks to provide
long-term capital appreciation by investing primarily in
common stocks of Latin American issuers.
THE MORGAN STANLEY EMERGING MARKETS FUND seeks to provide
long-term capital appreciation by investing primarily in
common stocks of emerging country issuers.
THE MORGAN STANLEY AGGRESSIVE EQUITY FUND seeks capital
appreciation by investing primarily in a non-diversified
portfolio of corporate equity and equity-linked securities.
The funds are designed to bring the individual investor the same high
quality professional investment management that Morgan Stanley has been
providing to institutional investors for many years.
The Morgan Stanley Fund expects to begin offering shares in four additional
funds in 1996:
THE MORGAN STANLEY HIGH YIELD FUND will seek to maximize
total return by investing in a diversified portfolio of high
yield income securities that offer a yield above that
generally available on debt securities in the three highest
rating categories of the recognized rating services.
THE MORGAN STANLEY U.S. REAL ESTATE FUND will seek to
provide above-average current income and long-term capital
appreciation by investing primarily in equity securities of
companies in the U.S. real estate industry, including real
estate investment trusts.
THE MORGAN STANLEY INTERNATIONAL MAGNUM FUND will seek
long-term capital appreciation by investing primarily in
equity securities of non-U.S. issuers in accordance with
country weightings determined by the Adviser.
THE MORGAN STANLEY JAPANESE EQUITY FUND will seek
long-term capital appreciation by investing primarily in
equity securities of Japanese issuers.
Together, the foregoing funds will make available a range of investment
choices so that a client may invest in a single fund to meet a specific
investment need or allocate assets among different funds within the Morgan
Stanley Fund as part of an overall investment strategy.
While performance in certain of the markets in which many of our funds
invest continued to be overshadowed by the U.S. equity market during the six
months ended December 31, 1995, several of our funds, the Worldwide High Income
Fund and the Global Equity Allocation Fund in particular, performed well during
the period. The Worldwide High Income Fund's strong performance was
attributable, in part, to the U.S. high yield market which wrapped up one of its
finest years. Additionally, emerging markets debt securities resumed their
upward climb following profit taking early in the fourth quarter of 1995.
<PAGE>
In the equity markets, the Global Equity Allocation Fund performed well for
the six months ended December 31, 1995 due in part to its overweight position in
Japan and its position in U.S. equities. Looking forward, the funds' portfolio
managers believe that emerging market equities and Asia in particular are poised
for recovery and that a winning global investment strategy for 1996 includes
underweighting the U.S. in favor of the Japanese, Asian and emerging markets.
The specific results for each fund, together with a commentary by each
portfolio manager explaining the strategy and performance results are enclosed
in the report. We hope these commentaries provide useful and informative
insights into the markets and our funds.
We very much value your participation in the Morgan Stanley Fund and look
forward to a successful year for the Fund and its shareholders.
Sincerely,
(SIGNATURE)
Warren J. Olsen
President
February 22, 1996
THERE IS NO GUARANTEE THAT THE FUNDS WILL MEET THEIR INVESTMENT OBJECTIVES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS.
<PAGE>
MORGAN STANLEY FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Overview and Portfolio of Investments by Portfolio:
Global Equity Allocation Fund....................................... 1
Global Fixed Income Fund............................................ 11
Asian Growth Fund................................................... 16
American Value Fund................................................. 20
Worldwide High Income Fund.......................................... 25
Latin American Fund................................................. 30
Emerging Markets Fund............................................... 35
Statement of Assets and Liabilities................................... 40
Statement of Operations............................................... 41
Statement of Changes in Net Assets.................................... 42
Financial Highlights ................................................. 49
Notes to Financial Statements......................................... 53
</TABLE>
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 2.3%
Belgium 1.8%
France 1.8%
Germany 3.7%
Hong Kong 5.5%
Italy 1.7%
Japan 26.2%
Netherlands 2.0%
Singapore 3.5%
Spain 3.2%
Switzerland 2.0%
United Kingdom 3.2%
United States 35.4%
Other 7.7%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY COUNTRY (000)
- ---------------------------------------- --------------- ------
<S> <C> <C>
Morgan Stanley Emerging Markets Fund,
Inc. United States $2,142
General Electric Co. United States 1,260
Exxon Corp. United States 1,082
American Telephone & Telegraph Co. United States 1,062
Sumitomo Bank Japan 954
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- --------------------- ------- --------
<S> <C> <C>
Finance $22,050 22.4%
Consumer Goods 17,802 18.0
Services 15,267 15.5
Capital Equipment 11,365 11.5
Energy 10,596 10.7
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
----------------- ----------------- -----------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
Class A Shares 8.72% 14.14% 13.97% 19.65% 11.98% 13.82%
- ---------------------------------------------------------------------------------------
Class B+ Shares 3.53% 8.53% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------
Class C Shares 12.67% 13.67% 17.83% 18.83% 12.98% 12.98%
- ---------------------------------------------------------------------------------------
MSCI World Index N/A 10.61% N/A 20.72% N/A 15.89%
- ---------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+Class B Shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index which includes securities listed on the stock exchanges of the U.S.,
Europe, Canada, Australia, New Zealand and the Far East and assumes dividends
are reinvested net of withholding tax.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Equity Allocation Fund invests in global equity
markets, with emphasis placed upon country rather than stock
selection. This approach reflects an investment philosophy
that a diversified selection of securities representing
exposure to each country that we find attractive is, we
believe, an effective way to maximize the return and reduce
the risk associated with global investing.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of 14.14% for
the Class A shares, 8.53% for the Class B shares and 13.67%
for the Class C shares, and a total return with sales charge
of 8.72% for the Class A shares, 3.53% for the Class B shares
and 12.67% for the Class C shares, as compared to a total
return of 10.61% for the Morgan Stanley Capital International
(MSCI) World Index (the "Index"). For the one year period
ended December 31, 1995, the Fund had a total return
exclusive of sales charge of 19.65% for the Class A shares
and 18.83% for the Class C shares, and a total return with
sales charge of 13.97% for Class A shares and 17.83% for the
Class C shares as compared with 20.72% for the Index for the
same period. For the period from inception on January 4, 1993
through December 31, 1995, the average annual total return
for the Fund exclusive of sales charge was 13.82% for the
Class A shares and 12.98% for the Class C shares and 11.98%
for the Class A shares with sales charge as compared to
15.89% for the Index for the same period. Class B shares held
prior to May 1, 1995 were renamed Class C shares. The Fund
began offering the current Class B shares on August 1, 1995.
In U.S. dollar terms, as measured by the Morgan Stanley
Capital International (MSCI) indices, world equities
(including all developed countries) returned 10.6% for the
six months with regional returns of: U.S. 14.2%, Europe 7.8%,
Japan 9.8%, Pacific Ex-Japan 5.6% and Emerging Market
equities -3.5%. In local currency terms, six month regional
returns were: Europe 9.2%, Japan 33.5%, Pacific Ex-Japan 5.5%
and Emerging Markets 2.0%. The dollar rallied sharply against
the Japanese yen during the six months, detracting from
equity returns for unhedged U.S. investors.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI WORLD INDEX AND ARE FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE PERFORMANCE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
1
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
Within this environment, the Fund enjoyed a strong six
months. Our decision to hedge the Japanese yen exposure was
the most significant contributor to the Fund's relative
outperformance as it allowed us to capture much of the
Japanese equity rally. Within Europe, our underweights in
France, Germany, Finland, Sweden and the U.K. added to
results. In Asia, perceptions of rising inflation rates and
growing current account deficits caused the markets to
decline and our overweight positions in Hong Kong and
Singapore detracted from results. In North America, our
significant position in the U.S. was positive as the markets
rallied through year-end; however, our results in Canada did
not add to performance as we liquidated our position too
early (shortly after the Quebecois referendum on separation)
to benefit from the continued market appreciation.
Our most significant overweights within the portfolio are in
Japan and Asia. Over the past six months, the Japanese market
backdrop has improved substantially even though economic
fundamentals have remained unchanged. The improvement in
sentiment has occurred as the market rise has led to an
increase in wealth and a general deleveraging in real terms.
Internal and external liquidity remains favorable as monetary
and fiscal policy are stimulative and the policy debate is
beginning to tackle more substantial issues including
measures to deal with the non-performing loan problem. With
interest rates so low, the equity market looks cheap against
bonds and cash, arguing for an allocation shift by domestic
investors who remain very underweight in equities. We expect
the economy to experience a moderate recovery in 1996, but
anticipate that structural impediments will continue to keep
growth muted. Ongoing policy initiatives to push the value of
the yen down continue to favor our fully hedged strategy.
"OUR MOST SIGNIFICANT OVERWEIGHTS WITHIN THE PORTFOLIO ARE IN JAPAN AND ASIA."
In Asia, we have increased exposure to the region and are
currently overweight in Hong Kong and Singapore. We favor the
region, based on valuation levels, premium earnings growth
expectations, and a gradual unwinding of inflationary
pressures as the global forces of disinflation continue to
play out. Within Asia, we see Hong Kong as having the
greatest potential for near-term appreciation for three key
reasons. First, after two years of painful austerity
measures, it looks as if China is engineering a soft landing.
Second, there has been some easing of China/U.S. as well as
China/ Taiwan tensions. And finally, it appears that the
worst is nearly over for the important Hong Kong property
sector and for downside earnings surprises. Other Asian
markets that we favor include: Thailand, Indonesia, Korea and
India; we have recently initiated positions in each of these
markets.
In Europe, the economic reports in early 1996 are likely to
make depressing reading as the lagged effects of the
transportation strike on production and sales in France and
reports of ongoing restructuring in Germany reinforce
existing perceptions of economic weakness. The current mix of
tight budgets and high real interest rates also can be
expected to add to the gloomy prognostications. In this
environment, there will be tremendous pressure on European
central banks, particularly on the French, to cut interest
rates. We expect that investors will not be disappointed. The
Bundesbank will continue to cut rates, perhaps even through
the second quarter, if monetary growth and the economy remain
lackluster. Europe's growth, especially in the core, will
continue to look sluggish because of the lagged effects of
the prior year's DM strength, further restructuring, and
continuing fiscal stringency. With the unemployment rate
still high and GDP gaps still wide, inflation should be
contained. In sum, with the news from Europe positive on the
inflation front but negative on economic growth prospects, we
remain underweight in these markets.
After an extended correction, we believe that emerging market
equities are poised for recovery. The combination of high
economic and earnings growth prospects, attractive valuations
and under-representation in institutional portfolios bodes
well for expected returns over the next twelve months. We
believe Asia offers the most attractive opportunities within
the emerging markets and
2
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
have increased exposure to the region. Additionally, we have
increased overall exposure to the sector through the purchase
of a broadly diversified closed-end emerging markets fund and
through individual investments in countries such as Brazil.
We remain underweight in the U.S. After a spectacular rise in
1995, U.S. equity valuations are very extended and growth
expectations for many of the market leaders (multinational
consumer and technology companies) may be excessive and
vulnerable to disappointment due to a stronger dollar,
competition and loss of pricing power. Overall, we believe
that a winning global investment strategy for 1996 will be to
underweight the U.S. in favor of Japanese, Asian, and
Emerging Market equities.
3
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (88.0%)
AUSTRALIA (2.2%)
10,400 Amcor Ltd. ....................................... $ 73
5,900 Ampolex Ltd. ..................................... 13
9,800 Australian National Industries Ltd. .............. 7
16,700 Boral Ltd. ....................................... 42
4,100 Brambles Industries Ltd. ......................... 46
30,700 Broken Hill Proprietary Ltd. ..................... 433
10,800 Burns, Philip & Co. Ltd. ......................... 24
5,300 Coca-Cola Amatil Ltd. ............................ 42
22,256 Coles Myer Ltd. .................................. 69
11,502 CRA Ltd. ......................................... 169
16,800 CSR Ltd. ......................................... 55
52,800 Foster Brewing Group Ltd. ........................ 87
13,851 General Property Trust ........................... 24
+2,432 Goldfields Limited Ltd. .......................... 6
22,200 Goodman Fielder Ltd. ............................. 22
5,900 ICI Australia Ltd. ............................... 45
4,697 Lend Lease Corp. Ltd. ............................ 68
27,000 MIM Holdings Ltd. ................................ 37
22,900 National Australia Bank Ltd. ..................... 206
5,500 Newcrest Mining Ltd. ............................. 23
31,900 News Corp. Ltd. .................................. 170
14,200 North Broken Hill Peko Ltd. ...................... 40
19,300 Pacific Dunlop Ltd. .............................. 45
16,100 Pioneer International Ltd. ....................... 42
5,100 Renison Goldfields Consolidated Ltd. ............. 25
10,300 Santos Ltd. ...................................... 30
12,300 Southcorp Holdings Ltd. .......................... 29
+8,000 TNT Ltd. ......................................... 11
17,400 Western Mining Corp. ............................. 112
1,128 Westfield Trust .................................. 2
29,300 Westpac Banking Corp. Ltd. ....................... 130
-------
2,127
-------
BELGIUM (1.8%)
70 Bekaert S.A. ..................................... 58
125 CBR .............................................. 50
1,600 Delhaize Freres et Cie 'Le Lion' S.A. ............ 66
1,350 Electrabel S.A. .................................. 321
300 Electrabel S.A. VVPR (New) ....................... 72
30 Fortis AG ........................................ 4
1,100 Fortis AG (Terme) ................................ 134
450 Generale de Banque VVPR .......................... 159
775 Gevaert Photo-Production N.V. .................... 48
160 Glaverbel S.A. ................................... 17
+9 Glaverbel S.A. STRIP ............................. --
700 Groupe Bruxelles Lambert S.A. .................... 97
400 Kredietbank N.V. ................................. 109
720 Petrofina S.A. ................................... 220
400 Royale Belge ..................................... 80
250 Solvay et Cie 'A' ................................ 135
400 Tractebel S.A. ................................... 165
+800 Union Miniere S.A. ............................... 54
-------
1,789
-------
FRANCE (1.8%)
175 Accor S.A. ....................................... 23
850 Alcatel Alsthom .................................. 73
950 AXA S.A. ......................................... 64
1,150 Banque Nationale de Paris ........................ 52
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
750 Banque Paribas ................................... $ 41
100 BIC .............................................. 10
182 Bouygues ......................................... 18
140 Canal Plus ....................................... 26
150 Carrefour S.A. ................................... 91
500 Casino ........................................... 15
50 Chargeurs S.A. ................................... 10
165 Cie Bancaire S.A. ................................ 18
530 Cie de Saint-Gobain .............................. 59
1,050 Cie de Suez S.A. ................................. 43
723 Cie Generale des Eaux ............................ 72
1,550 Elf Acquitaine ................................... 114
605 Elf Sanofi S.A. .................................. 39
200 Eridania Beghin-Say S.A. ......................... 34
440 Groupe Danone RFD ................................ 73
350 Havas S.A. ....................................... 28
667 Lafarge Coppee S.A. .............................. 43
400 L'Air Liquide .................................... 66
170 Legrand S.A. ..................................... 26
400 L'Oreal .......................................... 107
525 LVMH Moet Hennessy Louis Vuitton ................. 109
498 Lyonnaise des Eaux S.A. .......................... 48
750 Michelin (C.G.D.E.) 'B' .......................... 30
350 Pernod-Ricard .................................... 20
120 Pinault S.A. ..................................... 24
100 Promodes ......................................... 24
330 PSA Peugeot Citroen S.A. ......................... 44
1,850 Rhone-Poulenc S.A. 'A' ........................... 40
25 Sagem ............................................ 14
70 Saint Louis ...................................... 19
800 Schneider S.A. ................................... 27
29 Simco ........................................... 3
200 Simco (Registered) ............................... 19
30 Societe Eurafrance S.A. .......................... 10
100 Societe Generale ................................. 12
900 Thomson CSF S.A. ................................. 20
1,300 Total S.A. 'B' ................................... 88
1,750 Union des Assurances de Paris .................... 46
+1,600 Usinor Sacilor ................................... 21
-------
1,763
-------
GERMANY (3.6%)
50 Aachener & Muenchener Beteiligungs AG ............ 36
550 Agiv AG .......................................... 12
257 Allianz AG ...................................... 505
50 Asko Deutsche Kaufhaus AG ........................ 26
650 BASF AG .......................................... 147
700 Bayer AG ......................................... 186
2,400 Bayer Hypothecken-und Wechsel-Bank AG ............ 61
2,450 Bayer Vereinsbank AG ............................. 74
50 Beiersdorf AG .................................... 34
50 Bilfinger & Berger Bau AG ........................ 19
50 Brau und Brunnen AG .............................. 8
+200 Bremer Vulkan Verbund AG ......................... 6
1,100 Continental AG ................................... 16
500 Daimler-Benz AG .................................. 253
100 Degussa AG ....................................... 34
4,850 Deutsche Bank AG ................................. 230
350 Deutsche Lufthansa AG ............................ 48
</TABLE>
4
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
GERMANY (CONT.)
4,150 Dresdner Bank AG ................................. $ 111
50 Heidelberger Zement AG ........................... 31
100 Hochtief AG ...................................... 43
100 Karstadt AG ...................................... 41
100 Kaufhof Holding AG ............................... 30
+500 Kloeckner-Humboldt-Deutz AG ...................... 3
100 Linde AG ......................................... 59
100 MAN AG ........................................... 28
400 Mannesmann AG .................................... 127
+1,700 Merck KGAA ....................................... 69
100 Muenchener Rueckver (Registered) ................. 215
+3 Muenchener Rueckver (New) ........................ 6
200 Preussag AG ...................................... 56
350 RWE AG ........................................... 127
620 SAP AG ........................................... 96
700 Schering AG ...................................... 47
50 Siemens AG ....................................... 302
+350 Thyssen AG ....................................... 64
4,900 Veba AG .......................................... 210
200 Viag AG .......................................... 82
300 Volkswagen AG .................................... 101
-------
3,543
-------
HONG KONG (5.5%)
+28,000 Applied International Holdings Ltd. .............. 3
27,302 Bank of East Asia ................................ 98
101,000 Cathay Pacific Airways Ltd. ...................... 154
76,000 Cheung Kong Holdings Ltd. ........................ 463
68,000 China Light and Power Co. Ltd. ................... 313
58,000 Chinese Estate Holdings Ltd. ..................... 38
27,000 Dickson Concepts International Ltd. .............. 25
22,000 Giordano Holdings Ltd. ........................... 19
43,000 Hang Lung Development Corp. ...................... 68
66,100 Hang Seng Bank Ltd. .............................. 592
6,400 Hong Kong Aircraft Engineering Co. Ltd. .......... 17
67,400 Hong Kong & China Gas Co. ........................ 109
44,000 Hong Kong Shanghai Hotels ........................ 64
381,716 Hong Kong Telecommunications Ltd. ................ 681
154,869 Hopewell Holdings Ltd. ........................... 89
124,000 Hutchison Whampoa Ltd. ........................... 755
35,000 Hysan Development Co. ............................ 93
14,000 Johnson Electric Holdings Ltd. ................... 25
20,000 Miramar Hotel Investment Ltd. .................... 42
53,335 New World Development Co. Ltd. ................... 233
50,000 Oriental Press Group ............................. 15
13,300 Peregrine Investment Holdings .................... 17
36,905 Shangri-La Asia Ltd. ............................. 45
56,000 Shun Tak Holdings Ltd. ........................... 39
64,000 South China Morning Post ......................... 39
36,000 Stelux Holdings Ltd. ............................. 9
79,000 Sun Hung Kai Properties Ltd. ..................... 646
55,500 Swire Pacific Ltd. 'A' ........................... 431
15,000 Television Broadcasting Ltd. ..................... 53
75,000 Wharf Holdings Ltd. .............................. 250
12,000 Windsor Industrial ............................... 10
5,180 Wing Lung Bank ................................... 29
-------
5,464
-------
ITALY (1.7%)
12,225 Assicurazioni Generali S.p.A. .................... 296
24,000 Banca Commerciale Italiana ....................... 51
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
8,000 Banco Ambrosiano Veneto .......................... $ 22
2,500 Benetton Group S.p.A. ............................ 30
2,000 Burgo Cartiere S.p.A. ............................ 10
34,000 Credito Italiano S.p.A. .......................... 40
10,000 Edison S.p.A. .................................... 43
+1,000 Falck ........................................... 2
48,000 Fiat S.p.A. ...................................... 156
12,000 Fiat S.p.A. Di Risp NCS .......................... 21
6,000 Fidis Finanziaria di Sviluppo S.p.A. ............. 11
+3,000 Impreglio S.p.A. ................................. 3
12,000 Istituto Bancario San Paolo di Torina S.p.A. ..... 71
9,400 Istituto Mobiliare Italiano S.p.A. ............... 59
61,600 Istituto Nazionale delle Assicurazioni (INA) ..... 82
1,750 Italcementi S.p.A. ............................... 4
4,000 Italcementi S.p.A. NCS ........................... 24
11,000 Italgas .......................................... 33
4,500 Magneti Marelli S.p.A. ........................... 6
7,300 Mediobanca S.p.A. ................................ 51
+80,000 Montedison S.p.A. ................................ 53
+10,000 Montedison S.p.A. Di Risp NCS .................... 6
+56,250 Olivetti Group ................................... 45
19,300 Parmalat Finanziaria S.p.A. ...................... 17
+25,000 Pirelli S.p.A. ................................... 32
3,910 R.A.S. ........................................... 44
1,690 R.A.S. di Risp ................................... 10
2,565 Rinascente S.p.A. ................................ 16
+1,000 Saffa S.p.A. 'A' ................................. 3
2,000 S.A.I. ........................................... 20
7,500 Saipem S.p.A. .................................... 17
2,000 Sasib S.p.A. ..................................... 9
3,500 Sirti S.p.A. ..................................... 20
+10,000 Snia BPD S.p.A. .................................. 8
102,200 Telecom Italia S.p.A. ............................ 159
25,000 Telecom Italia Di Risp S.p.A. .................... 31
+99,500 Telecom Italia Mobile S.p.A ...................... 175
-------
1,680
-------
JAPAN (26.2%)
2,000 Advantest Corp. .................................. 103
18,000 Ajinomoto Co., Inc. .............................. 200
9,000 Aoki Corp. ....................................... 38
1,000 Aoyama Trading Co. Ltd. .......................... 32
36,000 Asahi Bank Ltd. .................................. 453
9,000 Asahi Breweries Ltd. ............................. 106
27,000 Asahi Chemical Industry Co. Ltd. ................. 207
27,000 Asahi Glass Co. .................................. 301
27,000 Bank of Tokyo .................................... 473
9,000 Bridgestone Co. .................................. 143
16,000 Canon, Inc. ...................................... 290
5,000 Casio Computer Co. Ltd. .......................... 49
14,000 Chiba Bank ....................................... 126
4,000 Chiyoda Corp. .................................... 40
9,000 Chugai Pharmaceutical Ltd. ....................... 86
41,000 Dai Ichi Kangyo Bank ............................. 806
18,000 Dai Nippon Printing Co. Ltd. ..................... 305
12,000 Daiei Inc. ....................................... 145
9,000 Daikin Industries Ltd. ........................... 88
+4,000 Daishowa Paper Manufacturing Co. Ltd. ............ 31
9,000 Daiwa House Industry ............................. 148
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
JAPAN (CONT.)
18,000 Daiwa Securities Co., Ltd. ....................... $ 275
6,000 Ebara Corp. ...................................... 88
4,100 Fanuc Co. ........................................ 178
40,000 Fuji Bank ........................................ 883
9,000 Fuji Photo Film Ltd. ............................. 260
29,000 Fujitsu Ltd. ..................................... 323
15,000 Furukawa Electric ................................ 73
18,000 Hankyu Corp. ..................................... 98
9,000 Hazama-Gumi ...................................... 38
54,000 Hitachi Ltd. ..................................... 544
14,000 Honda Motor Co. .................................. 289
29,000 Industrial Bank of Japan ......................... 879
5,000 Ito-Yokado Co. Ltd. .............................. 308
+36,000 Japan Airlines ................................... 239
22,000 Japan Energy Corp. ............................... 74
10,000 Joyo Bank ........................................ 80
7,000 Jusco Co. ........................................ 182
18,000 Kajima Corp. ..................................... 178
12,754 Kansai Electric Power Co. ........................ 309
18,000 KAO Corp. ........................................ 223
46,000 Kawasaki Steel Corp. ............................. 160
27,000 Kinki Nippon Railway ............................. 204
18,000 Kirin Brewery Co. Ltd. ........................... 213
+53,000 Kobe Steel Ltd. .................................. 164
18,000 Komatsu Ltd. ..................................... 148
27,000 Kubota Corp. ..................................... 174
18,000 Kumagai Gumi Co. Ltd. ............................ 72
9,000 Kyowa Hakko Kogyo ................................ 85
27,000 Marubeni Corp. ................................... 146
8,000 Marui Co. ........................................ 166
27,000 Matsushita Electric Industries Ltd. .............. 439
27,000 Mitsubishi Chemical Corp. ........................ 131
25,000 Mitsubishi Corp. ................................. 307
31,000 Mitsubishi Electric Corp. ........................ 223
19,000 Mitsubishi Estate Co. Ltd. ....................... 237
49,000 Mitsubishi Heavy Industries Ltd. ................. 391
18,000 Mitsubishi Materials Corp. ....................... 93
17,000 Mitsubishi Trust and Banking Corp. ............... 283
27,000 Mitsui & Co. ..................................... 237
+18,000 Mitsui Engineering & Shipbuilding Co. Ltd. ....... 50
15,000 Mitsui Fudosan Co. Ltd. .......................... 185
10,000 Mitsukoshi ....................................... 94
2,000 Mochida Pharmaceutical Co. Ltd. .................. 28
4,000 Murata Manufacturing ............................. 147
21,000 NEC Corp. ........................................ 256
9,000 NGK Insulators Ltd ............................... 90
18,000 New OJI Paper Co., Ltd. .......................... 163
9,000 Nippon Denko Co. Ltd. ............................ 168
18,000 Nippon Express Co. Ltd. .......................... 173
9,000 Nippon Fire & Marine Insurance Co. ............... 61
9,000 Nippon Light Metal Co. ........................... 52
9,000 Nippon Meat Packers .............................. 131
27,000 Nippon Oil Co. ................................... 169
67,000 Nippon Steel Corp. ............................... 230
27,000 Nippon Yusen Kabushiki Kaisha .................... 157
34,000 Nissan Motor Co. Ltd. ............................ 261
+52,000 NKK Corp. ........................................ 140
27,000 Nomura Securities Co. Ltd. ....................... 588
18,000 Odakyu Electric Railway Co. ...................... 123
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
53,000 Osaka Gas Co. .................................... $ 183
9,000 Penta-Ocean Construction ......................... 70
4,000 Pioneer Electronic Corp. ......................... 73
44,000 Sakura Bank ...................................... 558
9,000 Sankyo Co. Ltd. .................................. 202
27,000 Sanyo Electric Co. Ltd. .......................... 156
2,000 Secom Co. ........................................ 139
2,100 Sega Enterprises ................................. 116
9,000 Sekisui House Ltd. ............................... 115
5,000 Seven-Eleven Japan ............................... 353
18,000 Sharp Corp. ...................................... 288
3,000 Shimano Inc. ..................................... 53
4,000 Shin-Etsu Chemical Co. ........................... 83
13,000 Shinizu Corp. .................................... 132
4,000 Shiseido Co. Ltd. ................................ 48
11,000 Shizuoka Bank .................................... 138
+18,000 Showa Denko K.K. ................................. 56
4,000 Sony Corp. ....................................... 240
45,000 Sumitomo Bank .................................... 954
36,000 Sumitomo Chemical Co. ............................ 180
18,000 Sumitomo Corp. ................................... 183
12,000 Sumitomo Electric Industries ..................... 144
4,000 Sumitomo Forestry ................................ 61
62,000 Sumitomo Metal Industries ........................ 188
9,000 Sumitomo Metal Mining Co. ........................ 81
9,000 Sumitomo Osaka Cement Co. Ltd. ................... 42
18,000 Taisei Corp., Ltd. ............................... 120
18,000 Takeda Chemical Industries ....................... 296
18,000 Teijin Ltd. ...................................... 92
18,000 Tobu Railway Co. ................................. 113
8,800 Tohoku Electric Power ............................ 212
28,000 Tokai Bank ....................................... 391
27,000 Tokio Marine & Fire Insurance Co. ................ 353
4,000 Tokyo Dome Corp. ................................. 69
17,681 Tokyo Electric Power Co. ......................... 473
3,000 Tokyo Electron Ltd. .............................. 116
47,000 Tokyo Gas Co. .................................... 166
18,000 Tokyu Corp. ...................................... 127
12,000 Toppan Printing Co. Ltd. ......................... 158
27,000 Toray Industries, Inc. ........................... 178
9,000 Toto Ltd. ........................................ 126
18,000 Toyobo Ltd. ...................................... 65
41,000 Toyota Motor Corp. ............................... 870
+18,000 Ube Industries Ltd. .............................. 68
18,000 Yamaichi Securities .............................. 140
18,000 Yasuda Trust & Banking ........................... 107
-------
25,906
-------
NETHERLANDS (2.0%)
2,762 ABN-Amro Holdings N.V. ........................... 126
700 Akzo Nobel ....................................... 81
5,800 Elsevier N.V. .................................... 77
350 Heineken N.V. .................................... 62
2,714 Internationale Nederlanden Groep N.V. ............ 181
785 KLM Royal Dutch Airlines N.V. .................... 28
1,215 Koninklijke Ahold N.V. ........................... 49
278 Koninklijke Hoogovens ............................ 9
8,835 Koninklijke PTT Nederland N.V. ................... 321
900 N.V. Koninklijke KNP BT .......................... 23
200 Nedlloyd Groep N.V. .............................. 5
2,900 Phillips Electronics N.V. ........................ 105
</TABLE>
6
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS (CONT.)
4,700 Royal Dutch Petroleum Co. ........................ $ 657
281 Stork N.V. ....................................... 7
1,400 Unilever N.V. .................................... 197
633 Wolters Kluwer N.V. .............................. 60
-------
1,988
-------
SINGAPORE (3.5%)
13,000 Amcol Holdings Ltd. .............................. 36
35,000 City Developments Ltd. ........................... 255
10,000 Cycle & Carriage Ltd. ............................ 100
37,000 DBS Land Ltd. .................................... 125
29,000 Development Bank of Singapore .................... 361
9,000 First Capital Corp. .............................. 25
11,000 Fraser & Neave Ltd. .............................. 140
28,000 Hai Sun Hup Group Ltd. ........................... 19
19,000 Hotel Properties Ltd. ............................ 29
8,000 Inchcape Bhd. .................................... 26
5,000 Jurong Shipyard Ltd. ............................. 38
23,000 Keppel Corp. ..................................... 205
12,000 NatSteel Ltd. .................................... 25
36,000 Neptune Orient Lines Ltd. ........................ 40
39,000 Oversea-Chinese Banking Corp. .................... 488
7,000 Overseas Union Enterprise Ltd. ................... 35
14,000 Parkway Holdings Ltd. ............................ 38
2,000 Robinson & Co. Ltd. .............................. 8
8,000 Shangri-La Hotel Ltd. ............................ 31
58,000 Singapore Airlines Ltd. (Foreign) ................ 541
15,600 Singapore Press Holdings (Foreign) ............... 276
27,000 Straits Steamship Land Ltd. ...................... 91
18,000 Straits Trading Co. Ltd. ......................... 42
71,000 United Industrial Corp. Ltd. ..................... 70
40,000 United Overseas Bank Ltd. ........................ 385
-------
3,429
-------
SPAIN (3.2%)
440 Acerinox S. ...................................... 45
4,200 Argentaria S.A. .................................. 173
7,253 Autopistas Concesionaria Espanola S.A. ........... 83
8,100 Banco Bilbao Vizcaya (Registered) ................ 292
5,300 Banco Central Hispanoamericano S.A. .............. 108
+3,466 Banco Espanol de Credito S.A. .................... 24
5,200 Banco Santander S.A. ............................. 261
700 Corporacion Financiera Alba S.A. ................. 43
900 Corporacion Mapfre CIA S.A. ...................... 50
2,600 Dragados & Construcciones S.A. ................... 34
1,950 Ebro Agricolas, Compania de Alimentacion S.A. .... 20
8,900 Endesa ........................................... 504
317 Energia e Indsutrias Aragonesas .................. 1
+3,500 Ercros S.A. ...................................... 2
850 Fasa Renault ..................................... 14
500 Fomento de Construcciones y Contratas S.A. ....... 38
1,300 Gas Natural SDG 'E' .............................. 203
200 Gines Navarro Construction Co. ................... 2
30,300 Iberdrola S.A. ................................... 277
125 Metrovacesa ...................................... 4
400 Portland Vaderrivas S.A. ......................... 25
10,800 Repsol S.A. ...................................... 354
1,300 Tabacalera S.A. 'A' .............................. 49
31,800 Telefonica de Espana ............................. 441
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
10,500 Union Electrica Fenosa S.A. ...................... $ 63
1,400 Uralita S.A. ..................................... 13
1,550 Vallehermoso S.A. ................................ 29
1,000 Viscofan Industria Navarra De Envolturas
Celulosicas S.A. ............................... 12
330 Zardoya-Otis S.A. ................................ 36
-------
3,200
-------
SWITZERLAND (2.0%)
+25 Adia S.A. (Bearer) ............................... 4
25 Alusuisse-Lonza Holding AG (Bearer) .............. 20
50 Alusuisse-Lonza Holding AG (Registered) .......... 40
60 BBC Brown Boveri AG (Bearer) ..................... 70
30 Ciba-Geigy AG (Bearer) ........................... 26
160 Ciba-Geigy AG (Registered) ....................... 141
800 CS Holding AG (Registered) ....................... 82
10 Georg Fischer AG (Bearer) ........................ 13
45 Holderbank Financiere Glaris AG, 'B' (Bearer) .... 34
30 Merkur Holding AG (Registered) ................... 7
250 Nestle S.A. (Registered) ......................... 276
10 Roche Holding AG (Bearer) ........................ 140
45 Roche Holding AG-Genusshein ...................... 356
10 SGS Societe Generale de Surveillance Holding S.A
(Bearer) ....................................... 20
225 Sandoz AG (Registered) ........................... 206
100 Schweizerische Rueckver (Registered) ............. 116
25 SMH AG (Bearer) .................................. 15
100 SMH AG (Registered) .............................. 13
25 Sulzer AG (Registered) ........................... 14
150 Swiss Bank Corp. (Bearer) ........................ 61
250 Swiss Bank Corp. (Registered) .................... 51
+25 SwissAir AG (Registered) ......................... 18
140 Union Bank of Switzerland (Bearer) ............... 152
150 Union Bank of Switzerland (Registered) ........... 34
250 Zuerich Versicherungs-Gesellschaft
(Registered) ................................... 75
-------
1,984
-------
UNITED KINGDOM (3.1%)
6,900 Abbey National plc ............................... 68
5,000 Argyll Group plc ................................. 26
4,900 Arjo Wiggins Appleton plc ........................ 13
4,000 Associated British Foods plc ..................... 23
5,800 Barclays plc ..................................... 66
3,600 Bass plc ......................................... 40
12,349 BAT Industries plc ............................... 109
2,300 BICC plc ......................................... 10
4,300 Blue Circle Industries plc ....................... 23
2,100 BOC Group plc .................................... 29
4,300 Boots Co. plc .................................... 39
2,900 BPB Industries plc ............................... 14
1,700 British Aerospace plc ............................ 21
4,000 British Airways plc .............................. 29
19,500 British Gas plc .................................. 77
20,500 British Petroleum Co. plc ........................ 172
7,400 British Steel plc ................................ 19
18,700 British Telecommunications plc ................... 103
14,400 BTR plc .......................................... 73
1,018 Burmah Castrol plc ............................... 15
8,698 Cable & Wireless plc ............................. 62
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (CONT.)
4,100 Cadbury Schweppes plc ............................ $ 34
2,700 Caradon plc ...................................... 8
2,900 Coats Viyella plc ................................ 8
1,800 Commercial Union plc ............................. 18
1,700 Courtaulds plc ................................... 11
1,212 De La Rue plc .................................... 12
4,300 Forte plc ........................................ 22
1,700 General Accident plc ............................. 17
13,000 General Electric plc ............................. 72
1,800 GKN plc .......................................... 22
12,000 Glaxo Wellcome plc ............................... 170
9,729 Grand Metropolitan plc ........................... 70
4,200 Great Universal Stores plc ....................... 45
5,722 Guardian Royal Exchange plc ...................... 25
7,100 Guinness plc ..................................... 52
20,600 Hanson plc ....................................... 62
4,100 Harrisons & Crosfield plc ........................ 10
8,000 HSBC Holdings plc ................................ 122
2,900 Imperial Chemical Industries plc ................. 34
5,700 Ladbroke Group plc ............................... 13
2,600 Land Securities plc .............................. 25
3,700 Lasmo plc ........................................ 10
21,983 Lloyds TSB Group plc ............................. 113
3,050 Lonrho plc ....................................... 8
11,800 Marks & Spencer plc .............................. 82
2,000 MEPC plc ......................................... 12
5,200 National Power plc ............................... 36
2,327 North West Water plc ............................. 22
3,500 Peninsular & Oriental Steam Navigation Co. ....... 26
4,900 Pilkington plc ................................... 15
+1,225 Pilkington plc (New) ............................. 4
8,600 Prudential Corp. plc ............................. 55
1,800 Rank Organisation plc ............................ 13
2,766 Redland plc ...................................... 17
3,200 Reed International plc ........................... 49
6,400 Reuters Holdings plc ............................. 59
2,000 Rexam plc ........................................ 11
1,550 RMC Group plc .................................... 24
3,700 Royal Bank of Scotland Group plc ................. 34
2,900 Royal Insurance Holdings plc ..................... 17
5,000 RTZ Corp. plc (Registered) ....................... 73
6,859 Sainsbury (J) plc ................................ 42
1,000 Schroders plc .................................... 21
3,100 Scottish Power plc ............................... 18
6,300 Sears plc ........................................ 10
2,000 Sedwick Group plc ................................ 4
1,500 Slough Estates plc ............................... 5
5,000 SmithKline Beecham plc 'A' ....................... 55
1,300 Southern Electric plc ............................ 18
4,746 Tarmac plc ....................................... 8
2,400 Taylor Woodrow plc ............................... 4
6,400 Tesco plc ........................................ 30
2,300 Thames Water plc ................................. 20
2,100 Thorne EMI plc ................................... 49
1,700 TI Group plc ..................................... 12
+4,400 Trafalgar House plc .............................. 2
2,600 Unilever plc ..................................... 53
12,200 Vodafone Group plc ............................... 44
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
3,000 Zeneca Group plc ................................. $ 58
-------
3,016
-------
UNITED STATES (31.4%)
8,700 Abbott Laboratories .............................. 363
2,700 Aluminum Co. of America .......................... 143
5,600 American Express Co. ............................. 232
3,800 American Home Products Corp. ..................... 369
4,200 American International Group, Inc. ............... 388
16,400 American Telephone & Telegraph Co. ............... 1,062
5,900 Amoco Corp. ...................................... 424
+2,700 AMR Corp. ........................................ 200
2,000 Atlantic Richfield Co. ........................... 221
2,700 Automatic Data Processing, Inc. .................. 201
5,500 Banc One Corp. ................................... 208
5,500 BankAmerica Corp. ................................ 356
5,000 Bell Atlantic Corp. .............................. 334
5,900 BellSouth Corp. .................................. 257
5,500 Boeing Co. ....................................... 431
5,400 Bristol-Myers Squibb Co. ......................... 464
4,600 Campbell Soup Co. ................................ 276
200 Capital Cities/ABC, Inc. ......................... 25
2,700 Caterpillar, Inc. ................................ 159
3,700 Chevron Corp. .................................... 194
4,500 Chrysler Corp. ................................... 249
2,700 Chubb Corp. ...................................... 261
+3,700 Cisco Systems, Inc. .............................. 276
4,500 Citicorp ......................................... 303
11,700 Coca-Cola Co. .................................... 869
4,900 Columbia HCA/Healthcare Corp. .................... 249
2,700 Computer Associates International, Inc. .......... 154
5,500 Consolidated Edison Co. of New York, Inc. ........ 176
2,700 Cooper Industries, Inc. .......................... 99
2,700 Corning, Inc. .................................... 86
3,800 CSX Corp. ........................................ 173
1,400 Deere & Co. ...................................... 49
4,000 Dow Chemical Co. ................................. 281
8,100 Du Pont (EI) de Nemours Co. ...................... 566
5,500 Duke Power Co. ................................... 261
5,500 Eastman Kodak Co. ................................ 367
6,848 Eli Lilly & Co. .................................. 385
3,700 Enron Corp. ...................................... 141
5,800 Entergy Corp. .................................... 170
13,500 Exxon Corp. ...................................... 1,082
5,500 Federal National Mortgage Association ............ 683
5,500 FPL Group, Inc. .................................. 255
2,100 Gannett Co., Inc. ................................ 129
17,500 General Electric Co. ............................. 1,260
8,800 General Motors Corp. ............................. 465
2,700 General Motors Corp. 'E' ......................... 140
1,700 General RE Corp. ................................. 264
2,700 Goodyear Tire & Rubber Co. ....................... 123
+1,400 Harrah's Entertainment, Inc. ..................... 34
5,500 Hewlett-Packard Co. .............................. 461
5,150 H.J. Heinz Co. ................................... 171
5,400 Home Depot, Inc. ................................. 259
8,100 Intel Corp. ...................................... 460
6,200 International Business Machines Corp. ............ 569
1,900 International Game Technology .................... 21
2,700 International Paper Co. .......................... 102
</TABLE>
8
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
+1,600 ITT Corp ......................................... $ 85
+1,600 ITT Hartford Group, Inc. ......................... 77
1,600 ITT Industries, Inc. ............................. 38
3,200 J.C. Penney Co., Inc. ............................ 152
6,200 Johnson & Johnson ................................ 531
8,200 Kmart Corp. ...................................... 59
2,700 May Department Stores Co. ........................ 114
6,800 McDonald's Corp. ................................. 307
2,700 Melville Corp. ................................... 83
13,600 Merck & Co., Inc. ................................ 894
+5,500 Microsoft Corp. .................................. 483
5,500 Minnesota Mining & Manufacturing Co. ............. 364
4,700 Mobil Corp. ...................................... 526
1,700 Monsanto ......................................... 208
2,700 Morgan (J.P.) & Co., Inc. ........................ 217
6,700 Motorola, Inc. ................................... 382
5,500 NationsBank Corp. ................................ 383
2,200 Norfolk Southern Corp. ........................... 175
5,900 Norwest Corp. .................................... 195
+4,200 Novell, Inc. ..................................... 60
1,200 Nucor Corp. ...................................... 69
+2,700 Oracle System Corp. .............................. 114
7,900 Pacific Gas & Electric Co. ....................... 224
9,200 PepsiCo, Inc. .................................... 514
2,900 Pfizer, Inc. ..................................... 183
8,700 Philip Morris Cos., Inc. ......................... 787
1,700 PPG Industries, Inc. ............................. 78
8,100 Procter & Gamble Co. ............................. 672
8,200 Public Service Enterprise Group, Inc. ............ 251
5,500 Rockwell International Corp. ..................... 291
6,200 SBC Communications, Inc. ......................... 357
2,800 SCE Corp. ........................................ 50
5,300 Schering-Plough Corp. ............................ 290
5,500 Sears, Roebuck & Co. ............................. 214
8,200 Southern Co. ..................................... 202
5,400 Sprint Corp. ..................................... 215
2,700 Suntrust Banks, Inc. ............................. 185
+9,100 Tele-Communications, Inc., 'A' ................... 181
5,500 Texas Utilities Co. .............................. 226
2,700 The Dun & Bradstreet Corp. ....................... 175
5,500 The Limited, Inc. ................................ 96
5,500 Time Warner, Inc. ................................ 208
+5,500 Toys 'R' Us, Inc. ................................ 120
+20 Transport Holdings, Inc., 'A' .................... 1
4,300 Travelers, Inc. .................................. 270
1,400 U.S. Healthcare, Inc. ............................ 65
2,600 Union Pacific Corp. .............................. 172
+3,100 Viacom, Inc. 'B' ................................. 147
16,400 Wal-Mart Stores, Inc. ............................ 367
5,900 Walt Disney Co. .................................. 348
800 Wells Fargo & Co. ................................ 173
8,200 Westinghouse Electric Corp. ...................... 135
5,500 Weyerhaeuser Co. ................................. 238
4,900 WMX Technologies, Inc. ........................... 146
-------
30,997
-------
TOTAL COMMON STOCKS (COST $76,549).......................... 86,886
-------
PREFERRED STOCKS (0.2%)
AUSTRALIA (0.1%)
16,100 News Corp. Ltd. .................................. 75
-------
GERMANY (0.1%)
200 RWE AG .......................................... 56
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
400 SAP AG ........................................... $ 61
-------
117
-------
ITALY (0.0%)
15,000 Fiat S.p.A. ..................................... 27
-------
TOTAL PREFERRED STOCKS (COST $213).......................... 219
-------
INVESTMENT COMPANIES (4.0%)
UNITED STATES (4.0%)
@136,000 Morgan Stanley Emerging Markets Fund, Inc. ....... 2,142
@+100,000 Morgan Stanley India Investment Fund, Inc. ....... 913
@20,000 Thai Fund, Inc. .................................. 447
20,000 The Korea Fund, Inc. ............................. 440
-------
TOTAL INVESTMENT COMPANIES (COST $3,978).................... 3,942
-------
<CAPTION>
NO. OF
RIGHTS
- --------
<C> <S> <C>
RIGHTS (0.0%)
SPAIN (0.0%)
+3,500 Ercros S.A., expiring 1/5/96 (COST $0) ........... --
-------
<CAPTION>
NO. OF
WARRANTS
- --------
<C> <S> <C>
WARRANTS (0.0%)
BELGIUM (0.0%)
+61 Petrofina S.A., expiring 6/3/97 .................. 1
-------
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
-------
UNITED KINGDOM (0.0%)
+119 British Aerospace plc, expiring 11/15/00 ......... 1
-------
TOTAL WARRANTS (COST $0).................................... 7
-------
<CAPTION>
NO. OF
UNITS
- --------
<C> <S> <C>
UNITS (0.1%)
AUSTRALIA (0.0%)
15,447 Westfield Trust .................................. 28
-------
UNITED KINGDOM (0.1%)
4,800 SmithKline Beecham (1 'B' share common plus 1
preferred share) ............................... 52
-------
TOTAL UNITS (COST $70)...................................... 80
-------
<CAPTION>
FACE
AMOUNT
(000)
- --------
<C> <S> <C>
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
$ 29 Sanofi S.A. 4.00%, 1/1/00......................... 22
-------
ITALY (0.0%)
ITL 2,125 Mediobanca S.p.A. 6.00%, 12/31/02 ................ 1
1,575 Saffa S.p.A. 9.25%, 1/1/01 ....................... 1
-------
2
-------
TOTAL CONVERTIBLE DEBENTURES (COST $21)..................... 24
-------
TOTAL FOREIGN & U.S. SECURITIES (92.3%) (COST $80,831)...... 91,158
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.4%)
REPURCHASE AGREEMENT (2.4%)
UNITED STATES
$ 2,340 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95 due 1/2/96, to be repurchased at
$2,342, collateralized by $2,155 U.S. Treasury
Notes, 7.50%, due 11/15/01, valued at $2,389
(COST $2,340) .................................. $ 2,340
-------
TOTAL INVESTMENT IN SECURITIES (COST $83,171)............... 93,498
-------
FOREIGN CURRENCY (0.1%)
AUD 25 Australian Dollar................................. 19
BEF 401 Belgian Franc..................................... 14
GBP 6 British Pound..................................... 9
CAD 46 Canadian Dollar................................... 34
DEM 8 Deutsche Mark..................................... 6
FRF 26 French Franc...................................... 5
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<C> <S> <C>
HKD 49 Hong Kong Dollar.................................. $ 6
NLG 20 Netherland Guilder................................ 12
SGD 31 Singapore Dollar.................................. 22
ESP 119 Spanish Peseta.................................... 1
CHF 2 Swiss Franc....................................... 2
-------
TOTAL FOREIGN CURRENCY (COST $129).......................... 130
-------
TOTAL INVESTMENTS (94.8%) (COST $83,300).................... 93,628
OTHER ASSETS IN EXCESS OF LIABILITIES (5.2%)................ 5,146
-------
NET ASSETS (100%)........................................... $98,774
-------
-------
</TABLE>
<TABLE>
<S> <C>
- ---------------
+ -- Non-income producing securities
@ -- The Fund is Advised by an Affiliate
NCS -- Non Convertible Shares
RFD -- Ranked for Dividends
ITL -- Italian Lira
</TABLE>
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 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>
NET
UNREALIZED
CURRENCY IN EXCHANGE GAIN
TO DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
- -------------- ------- ----------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
DEM 2,462 $ 1,717 1/4/96 $ 1,725 $ 1,725 $ 8
FRF 8,572 1,750 1/4/96 $ 1,725 1,725 (25)
CHF 2,173 1,896 2/28/96 $ 1,795 1,795 (101)
DEM 2,153 1,506 4/3/96 $ 1,500 1,500 (6)
BEF 131,233 4,467 4/30/96 $ 4,650 4,650 183
DEM 429 301 4/30/96 $ 300 300 (1)
JPY 2,358,846 23,423 4/30/96 $ 27,463 27,463 4,040
$ 2,900 2,900 4/30/96 BEF 82,839 2,820 (80)
$ 1,030 1,030 7/31/96 NLG 1,685 1,061 31
NLG 4,577 2,882 7/31/96 $ 3,000 3,000 118
JPY 391 4,195 8/14/96 $ 4,565 4,565 370
$ 3,325 3,325 8/30/96 JPY 292,833 2,928 (397)
------- ------- ---------
$49,392 $53,532 $ 4,140
------- ------- ---------
------- ------- ---------
</TABLE>
<TABLE>
<S> <C>
- ------------
BEF -- Belgian Franc
DEM -- Deutsche Mark
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Netherland Guilder
CHF -- Swiss Franc
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- -------------------------------------------------- -------- ------
<S> <C> <C>
Finance........................................... $ 22,050 22.4%
Consumer Goods.................................... 17,802 18.0
Services.......................................... 15,267 15.5
Capital Equipment................................. 11,365 11.5
Energy............................................ 10,596 10.7
Multi-Industry.................................... 7,159 7.2
Materials......................................... 6,825 6.9
Mining............................................ 94 0.1
-------- ------
$ 91,158 92.3%
-------- ------
-------- ------
</TABLE>
10
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australian Dollar 1.5%
British Pound
Sterling 5.8%
Canadian Dollar 5.1%
Danish Krone 6.1%
Deutsche Mark 15.8%
French Franc 6.3%
Irish Punts 1.1%
Italian Lira 4.4%
Japanese Yen 8.3%
Netherland Guilder 1.7%
New Zealand Dollar 2.0%
Spanish Peseta 5.2%
Swedish Krona 3.1%
United States Dollar 29.5%
Other 4.1%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY CURRENCY (000)
- ---------------------------------------- -------------------------- ------
<S> <C> <C>
United States Treasury Notes 7.50%,
11/15/01 United States Dollar $2,000
Treuhandanstalt 6.75%, 5/13/04 Deutsche Mark 1,463
Government National Mortgage Association
TBA 8.50%, 1/15/26 United States Dollar 1,050
French Treasury Bill 7.75%, 4/12/00 French Franc 1,007
United Kingdom 7.00%, 11/6/01 British Pound 933
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE CURRENCY DENOMINATIONS
PERCENT
OF
VALUE NET
CURRENCY (000) ASSETS
- --------------------- ------- --------
<S> <C> <C>
United States Dollar $ 4,702 29.5%
Deutsche Mark 2,529 15.8
Japanese Yen 1,326 8.3
French Franc 1,007 6.3
Danish Krone 976 6.1
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
----------------- ----------------- -----------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------
Class A Shares 0.68% 5.71% 12.06% 17.65% 6.78% 8.54%
- -------------------------------------------------------------------------------------
Class B+ Shares -0.42% 4.58% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------
Class C Shares 4.30% 5.30% 15.63% 16.63% 7.63% 7.63%
- -------------------------------------------------------------------------------------
J.P. Morgan Traded
Global Bond Index N/A 3.24% N/A 19.31% N/A 10.74%
- -------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The J.P. Morgan Traded Global Bond Index is an unmanaged index of government
bond issues that include Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom and the United
States excluding withholding tax.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Global Fixed Income Fund seeks to produce an attractive
real rate of return while preserving capital by investing in
fixed income securities of U.S. and foreign issuers
denominated in U.S. dollars and in other currencies.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of 5.71% for the
Class A shares, 4.58% for the Class B shares and 5.30% for
the Class C shares, and a total return with sales charge of
0.68% for the Class A shares, -0.42% for the Class B shares
and 4.30% for the Class C shares, as compared to a total
return of 3.24% for the J.P. Morgan Traded Global Bond Index
(the "Index"). For the one year period ended December 31,
1995, the Fund had a total return exclusive of sales charges
of 17.65% for the Class A shares and 16.63% for the Class C
shares, and a total return with sales charge of 12.06% for
the Class A shares and 15.63% for the Class C shares as
compared with 19.31% for the Index for the same period. For
the period from inception on January 4, 1993 through December
31, 1995, the average annual total return of the Fund
exclusive of sales charge was 8.54% for the Class A shares
and 7.63% for the Class C shares, and 6.78% for the Class A
shares with sales charge, as compared to 10.74% for the Index
for the same period. Class B shares held prior to May 1, 1995
were renamed Class C shares. The Fund began offering the
current Class B shares on August 1, 1995.
All global fixed income markets registered positive local
currency returns in the second half of 1995, ranging from 1%
in Japan to over 15% in Sweden. The dominant factor fueling
the rally was a continued drop in short rate expectations in
response to weaker than anticipated economic data and subdued
inflationary pressures.
U.S. Treasury bonds steadily rallied during the period and by
year end the 30-year long bond was trading around a 6.0%
yield level, the lowest since October 1993. The average
return was 5.9%
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
11
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
and the highest returns came from longer duration securities.
The yield spreads on mortgage bonds typically widened over
Treasuries as they lagged the rally and prepayment risk
increased. However, corporate spreads remained tight. The
market continued to expect a relaxation of monetary policy by
the Federal Reserve as various indicators confirmed that
economic activity was declining from the pace experienced
earlier in the year. This easing initially occurred in July
when the Fed Funds rate was lowered by 0.25% to 5.75%, with
another 0.25% reduction occurring in December. The
authorities cited the continued benign inflation outlook in
justifying their moves. The market shrugged off the continued
impasse over the budget deficit negotiations, believing an
eventual agreement involving a reduced deficit would be a
positive factor for the market. Expectations of the Fed
moving to a slightly less restrictive stance remained in
place as evidenced by ten-year yields finishing the year no
higher than cash rates. The Fund maintained a neutral to
slightly longer than benchmark duration throughout the
period, with tactical shifts into the mortgage sector. An
underweight allocation was maintained in preference to
European bonds.
Canadian bonds outperformed their U.S. counterparts across
the maturity spectrum and the market offered an average
return of 7.9%. The narrow defeat of the Quebec separatist
movement in the September referendum removed some risk
premium, allowing an immediate rally in the market and an
easing of interest rates by the Bank of Canada. Subdued
inflation, credible fiscal tightening, high real interest
rates and the scope for further rate cuts also aided
performance. The Fund increased its exposure to an overweight
position after the referendum. An overweight position was
held in the Australian and New Zealand markets, where the
former returned an overall 8.5%. Economic activity continued
to moderate over the period but the Reserve Bank resisted the
pressure to lower rates as underlying inflation broke above
their target ranges. New Zealand bonds returned 5.2%. The
yield curve remained inverse as the Reserve Bank remained
hawkish on inflation and increased rates in December.
The Japanese market performed poorly in the second half of
the year with benchmark yields rising from the all-time lows
of 2.5% they had reached in July. Although the Official
Discount Rate had fallen to a record low of 0.5% by September
the market succumbed to yen weakness, a recovery in the stock
market and the authorities finally acknowledging the need to
reliquify and stimulate the economy. The yield curve moved to
an historically steep position as longer dated yields rose
relative to shorts. The impact of fiscal stimulus, a
deteriorating budget deficit and the weaker yen will probably
put further upward pressure on yields although they are
likely to be capped by the prospect of only moderate economic
recovery with continued disinflation. The Fund maintained a
low allocation to the market but tactically increased
duration slightly in November in anticipation of yield curve
flattening.
"1995 HAS PROVEN TO BE AN EXCEPTIONALLY GOOD YEAR FOR BOND INVESTORS WHO HAVE
ENJOYED DOUBLE DIGIT RETURNS ACROSS ALL MARKETS."
European bonds performed well, particularly in the latter
part of the year, as short rate expectations fell in response
to increasingly disappointing economic data. The German
market produced a return of 8.5% as deteriorating business
surveys and industrial production data together with
declining inflation encouraged the Bundesbank to allow its
money market repo rates to fall below 4.0%. The discount rate
was reduced in August and then December when it fell to 3.0%,
the lowest level since 1987. The German yield curve steepened
to a historic extreme, but longer dated bonds produced the
highest returns. After underperforming in the first part of
the year, most other European markets recovered strongly and
narrowed their yield spread over German bonds. Improving
fundamentals and the general bond friendly environment gave
investors confidence to diversify into higher yielding
assets. The best performer was Sweden, boosted by the
prospects of a lower budget deficit, lower short rates and a
positive inflation outlook. The prospects for Monetary Union
cast uncertainty over European markets, although most
countries reaffirmed their commitment to the concept at a
November summit meeting. The Fund remained overweight in
Europe throughout the period, with a long overall duration
reflecting attractive valuations and steep yield curves.
Holdings were actively switched between markets and the
overweight total position in the higher yielders was a
positive for performance.
12
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
On the foreign exchanges the dollar ended the period 4.0%
stronger against the deutschemark and 20% higher against the
yen, with most of the gains occurring in the third quarter.
It recovered sharply from the lows of early 1995,
particularly against the yen, following aggressive central
bank intervention. This generated speculation of a G7
agreement to bring the dollar more into line with
fundamentals and an acknowledgment of the dangers of an
implosion of the Japanese economy. The Fund maintained an
overweight exposure to the dollar by hedging some European
currency exposure. This also earned a hedging premium due to
interest rate differentials. The Fund was underweight the yen
throughout the period. The Fund also hedged some of its
Canadian dollar exposure because of an erosion of rate
differentials with the U.S. and the Bank of Canada's overt
desire to stimulate the economy through looser monetary
policy and a trade competitiveness. On the European cross
rates, the general trend was for higher yielding currencies
to recover from their depreciations in the first half of the
year. Sterling was the weakest European currency, falling to
new all-time lows on a trade weighted basis, undermined by
weaker economic data, poor trade figures and political
worries. Monetary Union uncertainties continued to give the
Swiss franc a strong bid, despite official protestations of
the resultant damage to the Swiss economy.
1995 has proved to be an exceptionally good year for bond
investors who have enjoyed double digit returns across all
markets. The current environment of structurally subdued
inflation, stable or slightly lower interest rates, below
potential economic growth and restrained fiscal policies
would suggest there is little on the horizon to threaten a
significant reversal of recent gains in the near future.
Parallels are naturally being drawn with the situation at the
end of 1993, but a repeat of 1994's simultaneous growth surge
and bond market carnage seems unlikely this time around.
Market valuations are less stretched than in late 1993 with
real yields higher, the overhang of leverage less of a risk
and the global environment of slow nominal growth more firmly
entrenched than two years ago. The policy priorities of major
nations are also different from late 1993 with greater
emphasis on the need for medium term fiscal responsibility in
the U.S. and Europe and a stronger commitment in Japan to
fighting deflation.
Despite this benign background it is clear that 1995's fall
in yields is most unlikely to be repeated this year. Any pick
up in economic prospects later in the year is likely to
result in a move to higher yields. In relative terms European
markets appear to offer better protection that the U.S. and
Japan.
Starting from reasonably cheap valuation levels, prospects
for the dollar seem quite encouraging for 1996. There appears
an international desire to push the dollar higher to ease the
strain on growth in European economies and Japan. Although
the current U.S. budget negotiations are unlikely to offer a
quick solution to U.S. fiscal problems, the deficit as a
percentage of GDP is the lowest for fifteen years and better
than most other nations. A falling current account deficit
with Japan should further aid the USD/JPY rate. Arguably the
value of the dollar has yet to fully reflect the competitive
advances of the U.S. corporate sector and the recent strength
of U.S. financial markets.
13
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (95.9%)
AUSTRALIAN DOLLAR (1.5%)
GOVERNMENT BOND
AUD 300 Government of Australia 9.50%, 8/15/03............ $ 241
-------
BRITISH POUND STERLING (5.8%)
GOVERNMENT BOND
GBP 600 United Kingdom 7.00%, 11/6/01..................... 933
-------
CANADIAN DOLLAR (5.1%)
EUROBOND
CAD 600 Export-Import Bank of Japan 7.75%, 10/8/02........ 454
-------
GOVERNMENT BOND
475 Government of Canada 7.50%, 12/1/03............... 359
-------
TOTAL CANADIAN DOLLAR.......................................... 813
-------
DANISH KRONE (6.1%)
GOVERNMENT BONDS
DKK 2,200 Kingdom of Denmark 8.00%, 11/15/01................ 424
2,550 Kingdom of Denmark 7.00%, 12/15/04................ 457
500 Kingdom of Denmark 8.00%, 3/15/06................. 95
-------
TOTAL DANISH KRONE............................................. 976
-------
DEUTSCHE MARK (15.8%)
GOVERNMENT BONDS
DEM 850 Treuhandanstalt 6.875%, 6/11/03................... 630
600 Bundesrepublik 6.50%, 7/15/03..................... 436
2,000 Treuhandanstalt 6.75%, 5/13/04.................... 1,463
-------
TOTAL DEUTSCHE MARK............................................ 2,529
-------
FRENCH FRANC (6.3%)
GOVERNMENT BOND
FRF 4,600 French Treasury Bill 7.75%, 4/12/00............... 1,007
-------
IRISH PUNTS (1.1%)
GOVERNMENT BOND
IEP 100 Republic of Ireland 9.25%, 7/11/03................ 178
-------
ITALIAN LIRA (4.4%)
GOVERNMENT BOND
ITL 1,100,000 Republic of Italy 10.50%, 11/1/00................. 698
-------
JAPANESE YEN (8.3%)
EUROBONDS
JPY 70,000 Japan Development Bank 6.50%, 9/20/01............. 828
45,000 World Bank 4.75%, 12/20/04........................ 498
-------
TOTAL JAPANESE YEN............................................. 1,326
-------
NETHERLANDS GUILDER (1.7%)
GOVERNMENT BOND
NLG 400 Government of the Netherlands 7.75%, 1/15/00...... 275
-------
NEW ZEALAND DOLLAR (2.0%)
GOVERNMENT BONDS
NZD 250 Government of New Zealand 8.00%, 7/15/98.......... 164
250 Government of New Zealand 6.50%, 2/15/00.......... 158
-------
TOTAL NEW ZEALAND DOLLAR....................................... 322
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
SPANISH PESETA (5.2%)
GOVERNMENT BOND
ESP 97,000 Government of Spain 10.30%, 6/15/02............... $ 827
-------
SWEDISH KRONA (3.1%)
GOVERNMENT BOND
SEK 3,100 Government of Sweden 10.25%, 5/5/00............... 501
-------
UNITED STATES DOLLAR (29.5%)
CORPORATE BOND (1.4%)
$ #200 Prudential Insurance Co. 8.30%, 7/1/25............ 215
-------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (28.1%)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
99 Pool #341930 8.00%, 7/15/08....................... 104
1,000 TBA 8.50%, 1/15/26................................ 1,050
100 TBA ARM 6.00%, 1/20/26............................ 101
-------
1,255
-------
U.S. TREASURY BOND
100 8.875%, 8/15/17................................... 134
-------
U.S. TREASURY NOTES
++360 5.00%, 1/31/99.................................... 357
++1,815 7.50%, 11/15/01................................... 2,000
710 6.25%, 2/15/03.................................... 741
-------
3,098
-------
4,487
-------
TOTAL UNITED STATES DOLLAR....................................... 4,702
-------
TOTAL FIXED INCOME SECURITIES (COST $14,763)..................... 15,328
-------
SHORT-TERM INVESTMENT (8.5%)
REPURCHASE AGREEMENT (8.5%)
UNITED STATES DOLLAR
1,365 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
$1,366, collateralized by $1,255 U.S. Treasury
Notes, 7.50%, due 11/15/01, valued at $1,391
(COST $1,365)................................... 1,365
-------
TOTAL INVESTMENTS IN SECURITIES (COST $16,128)................... 16,693
-------
FOREIGN CURRENCY (0.1%)
JPY 1,069 Japanese Yen (COST $10)........................... 10
-------
TOTAL INVESTMENTS (104.5%) (COST $16,138)........................ 16,703
LIABILITIES IN EXCESS OF OTHER ASSETS (-4.5%).................... (722)
-------
NET ASSETS (100%)................................................ $15,981
-------
-------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
++ -- A portion of this security was pledged as
collateral for delayed delivery securities.
# -- 144A Security -- certain conditions for public
sale may exist.
ARM -- Adjustable Rate Mortgages
TBA -- Security is subject to delayed delivery.
</TABLE>
14
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of forward foreign currency contracts open at December 31, 1995,
the Fund is obligated to deliver or is to receive foreign currency in exchange
for U.S. dollars or as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED GAIN
(000) (000) DATE (000) (000) (LOSS) (000)
- ------------- --------- ----------- ----------- --------- -------------------
<S> <C> <C> <C> <C> <C>
JPY 1,069 $ 10 1/4/96 $ 11 $ 11 $ 1
NLG 900 562 2/13/96 $ 567 567 5
$ 312 312 2/13/96 NLG 500 312 --
CAD 400 293 2/14/96 $ 295 295 2
JPY 40,000 390 2/14/96 $ 405 405 15
$ 198 198 2/14/96 JPY 20,000 195 (3)
DEM 500 349 2/20/96 $ 357 357 8
DEM 1,000 699 3/6/96 $ 699 699 --
FRF 2,300 470 3/7/96 $ 462 462 (8)
--------- --------- ---
$3,283 $ 3,303 $ 20
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
CAD -- Canadian Dollar
DEM -- Deutsche Mark
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Netherlands Guilder
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
China 1.2%
Hong Kong 26.7%
India 0.7%
Indonesia 5.4%
Korea 3.9%
Malaysia 19.0%
Philippines 5.8%
Singapore 12.8%
Taiwan 1.8%
Thailand 13.3%
Other 9.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY COUNTRY (000)
- ---------------------------------------- ------------ --------
<S> <C> <C>
Cheung Kong Holdings Ltd. Hong Kong $ 14,832
Hutchison Whampoa Ltd. Hong Kong 11,927
Hong Kong & Shanghai Bank Hong Kong 10,799
Malayan Banking Bhd. Malaysia 10,790
Hong Kong Telecommunications Ltd. Hong Kong 9,700
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- --------------------- ------- -------
<S> <C> <C>
Services $67,910 20.3%
Finance 67,806 20.3
Real Estate 59,680 17.8
Multi-Industry 31,429 9.4
Capital Equipment 25,380 7.6
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
----------------- ----------------- -----------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
Class A Shares -5.85% -1.16% 1.30% 6.36% 12.02% 14.20%
- ---------------------------------------------------------------------------------------
Class B+ Shares -8.11% -3.27% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------
Class C Shares -2.53% -1.54% 4.49% 5.49% 13.40% 13.40%
- ---------------------------------------------------------------------------------------
MSCI CFEF ex-Japan
index N/A -0.17% N/A 6.81% N/A 17.52%
- ---------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The Morgan Stanley Capital International (MSCI) Combined Far East Free (CFEF)
ex-Japan Index is an unmanaged index of common stocks and includes Indonesia,
Hong Kong, Malaysia, the Philippines, Korea, Taiwan and Thailand (assumes
dividends reinvested).
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Asian Growth Fund is
long-term capital appreciation through investment in the
stock markets of Asia excluding Japan. The benchmark for
investment performance is the Morgan Stanley Capital
International (MSCI) Combined Far East Free ex-Japan Index.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of -1.16% for
the Class A shares, -3.27% for the Class B shares and -1.54%
for the Class C shares, and a total return with sales charge
of -5.85% for the Class A shares, -8.11% for the Class B
shares and -2.53% for the Class C shares, as compared to a
total return of -0.17% for the Morgan Stanley Capital
International (MSCI) Combined Far East Free ex-Japan Index
(the "Index"). For the one year period ended December 31,
1995, the Fund had a total return exclusive of sales charge
of 6.36% for the Class A shares and 5.49% for the Class C
shares, and a total return with sales charge of 1.30% for
Class A shares and 4.49% for the Class C shares as compared
with 6.81% for the Index for the same period. For the period
from inception on June 23, 1993 through December 31, 1995,
the average annual total return for the Fund exclusive of
sales charge was 14.20% for the Class A shares and 13.40% for
the Class C shares and 12.02% for the Class A shares with
sales charge, as compared to 17.52% for the Index for the
same period. Class B shares held prior to May 1, 1995 were
renamed Class C shares. The Fund began offering the current
Class B shares on August 1, 1995.
The Asian markets as represented by the MSCI Combined Far
East Free ex-Japan Index increased by a moderate 6.8% in
1995, which was largely an extension of the correction and
consolidation that took place since early 1994 when the
liquidity bubble was pricked. The performance, however, paled
in comparison with the developed markets, many of which
achieved double-digit market appreciation of between 15-35%
in 1995. With the exception of Hong Kong which rose 18%, the
Asian markets generally did not benefit from a more benign
external economic environment which led to a surge in bond
and equity prices in many parts of the world. Portfolio
investment flows into Asia in 1995 were down significantly
from the 1993/94 level, as funds were attracted to the
developed markets led by the U.S. where unexpectedly weak
economies and low inflation resulted in significant declines
in interest rates. Investors had also largely avoided
emerging markets following the Mexico crisis which led to
higher risk premiums being attached to countries with weak
economic fundamentals.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI COMBINED FAR EAST FREE EX-JAPAN INDEX AND ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
FUND'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
16
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
Hong Kong emerged as the best performing market in Asia as a
result of its currency peg which benefitted directly from the
U.S. monetary easing. Singapore also performed strongly
because of its strong economic fundamentals and relative
valuation attractions. Concerns over overheating, higher
inflation and growing external deficits after several years
of strong GDP growth had put upward pressure on interest
rates in some Asian markets such as Thailand, Philippines and
Malaysia. The subsequent downgrading of earnings growth
forecasts caused a sell-off in these markets and resulted in
their underperformance. The Taiwanese and Korean markets
benefitted strongly from a boom in sales of semiconductors,
electronics and computer-related products. However, these
positive factors were overwhelmed by political concerns which
caused stock prices to plummet. Taiwan was one of the worst
performing markets in the world last year as tensions between
China and Taiwan escalated following Taiwanese President Lee
Teng Hui's high-profile visit to the U.S.
1996 has got off to an encouraging start, with many Asian
markets recovering strongly from their low levels seen in
1995. The rally was to a large extent triggered by the return
of foreign funds. According to Salomon Brothers, U.S. mutual
fund cash flows into non-Japan Asia for the first 3 weeks of
1996 have already exceeded the total inflow for the whole of
1995.
We expect the Asian markets to revert to their secular growth
rate of between 15% to 20% in 1996 after two years of
correction and below-trend performance. While a moderate
slowdown in economic growth is expected in 1996 (from 7.5% to
7.1%), the Asian economies are generally in better shape than
they were last year. With cyclical pressure beginning to
unwind in many Asian countries, inflation should ease from an
estimated 7% in 1995 to slightly below 6% in 1996. This
should give rise to less restrictive monetary policies and
make interest rate cuts possible. While lower U.S. interest
rates will support liquidity flows into Asia, attractive
equity valuations should lend further credence to the Asian
story.
Politics is likely to be the major potential concern for
1996. Tensions between China and Taiwan could build up again
ahead of Taiwan's first ever presidential election in March,
although the prospect for a major military confrontation
seems remote. In South Korea, uncertainties ahead of the
National Assembly elections scheduled for April do not augur
well for the stock market.
"WE EXPECT THE ASIAN MARKETS TO REVERT TO THEIR SECULAR GROWTH RATE..."
As the largest and most liquid Asian market with modest
equity valuation, we expect Hong Kong to continue to do well
in 1996. The market is underpinned by a favorable interest
rate trend, the bottoming of the economic and real estate
cycle. The expected relaxation of China's austerity program
should benefit Hong Kong further. Singapore should continue
to attract its fair share of international fund flows given
its robust economy and currency attraction. We remain very
selective in Malaysia, Thailand, Indonesia and the
Philippines, where economic and interest rate risks are
relatively higher. Their overall market risk-reward profile
has deteriorated following their recent strong showing. Their
relative attraction should improve once their economic
imbalance is contained. Elsewhere, Taiwan and South Korea
have borne the brunt of political tensions last year. As
these markets are trading near their respective historical
low multiples, we expect a significant rebound from the
current low levels once we get over the height of the
political uncertainties.
17
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (90.6%)
AUSTRALIA (0.0%)
+12,000 Odin Mining & Investment Co. Ltd. ................ $ 2
--------
CHINA (1.2%)
435,600 China Merchants Shokou Port Services 'B'.......... 158
3,032,000 Harbin Power Equipment Co. ....................... 447
+30,000 Jilin Chemical Industrial Co. ADR ................ 645
709,800 Jinqiao Export Processing Zone Development Co.
Ltd. 'B' ....................................... 265
5,519,000 Maanshan Iron & Steel Co. Ltd. ................... 771
+188,800 Shanghai Refrigerator Compressor Co. Ltd. 'B' .... 67
165,500 Shanghai Tire & Rubber 'B' ....................... 34
+1,967,700 Shenzhen North Jainshe Motorcycle Co. Ltd. ....... 814
4,052,000 Yizheng Chemical Fibre Co. 'H' ................... 912
--------
4,113
--------
HONG KONG (26.7%)
8,020,000 Charoen Pokphand Co. ............................. 3,215
2,435,000 Cheung Kong Holdings Ltd. ........................ 14,832
573,000 China Light and Power Co. Ltd. ................... 2,638
1,433,000 Citic Pacific Ltd. ............................... 4,902
12,056,000 Guangdong Investments Ltd. ....................... 7,250
713,724 Hong Kong & Shanghai Bank ........................ 10,799
821,000 Hong Kong Electric Holdings ...................... 2,691
5,435,200 Hong Kong Telecommunications Ltd. ................ 9,700
3,157,000 Hopewell Holdings Ltd. ........................... 1,817
1,958,000 Hutchison Whampoa Ltd. ........................... 11,927
1,565,000 New World Development Co. Ltd. ................... 6,821
+2,741 New World Infrastructure Ltd. .................... 5
+59,000 Shandong Huaneng Power Development ............... 398
601,100 Sun Hung Kai Properties Ltd. ..................... 4,917
730,300 Swire Pacific Ltd. 'A'............................ 5,667
972,000 Varitronix International Ltd. .................... 1,804
--------
89,383
--------
INDIA (0.7%)
38,000 Grasim Industries Ltd. GDR........................ 779
#49,000 Hindalco Industries Ltd. ......................... 1,666
--------
2,445
--------
INDONESIA (5.4%)
*300,000 Asiana Imi Industries (Foreign)................... 157
*350,000 Bank Bali (Foreign)............................... 689
*920,000 Barito Pacific Timber (Foreign)................... 674
*+750,000 Bimantara Citra (Foreign)......................... 623
*594,000 Charoen Pokphand Co. Ltd.(Foreign)................ 1,208
*143,600 Hanjaya Mandala Sampoerna (Foreign)............... 1,495
*462,000 Indocement Tunggal (Foreign)...................... 1,551
*781,000 Indosat (Foreign)................................. 2,835
*393,000 Kalbe Farma (Foreign)............................. 1,332
*378,500 Kermika Indonesia Associasi (Foreign)............. 182
*1,400,000 Ometraco (Foreign)................................ 689
*334,000 Semen Gresik (Foreign)............................ 935
*+2,887,200 Sona Topas Tourism Industry (Foreign)............. 821
*311,000 Sorini Corp. (Foreign)............................ 1,510
*41,000 Suba Indah (Foreign).............................. 27
*+1,257,500 Telekomunikasi (Foreign).......................... 1,650
*656,000 Ultra Jaya Milk IDR (Foreign)..................... 315
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
*729,000 United Tractors (Foreign)......................... $ 1,371
--------
18,064
--------
KOREA (3.9%)
+2,367 Hyundai Engineering & Construction Co............. 109
+34,560 Hyundai Engineering & Construction Co.
(Foreign)....................................... 1,586
*40,000 Korea Electric Power.............................. 1,715
*1,700 Korea Mobile Telecommunications Corp. ............ 1,878
+69,600 Pohang Iron & Steel Ltd........................... 1,523
*22,330 Samsung Electronics Co............................ 4,059
*+147 Samsung Electronics Co. (Foreign)................. 27
#+222 Samsung Electronics Co. ADS....................... 21
+188 Samsung Electronics Co. GDR (New)................. 11
#+10,000 Samsung Electronics Co. GDS (New)................. 970
#+1,127 Samsung Electronics Co. GDS (Euro 1/2
non-voting)..................................... 108
*45,530 Shinhan Bank...................................... 999
--------
13,006
--------
MALAYSIA (19.0%)
73,000 AMMB Holdings Bhd. ............................... 834
649,000 Bandar Raya Developments Bhd. .................... 925
*1,015,000 Genting Bhd. ..................................... 8,473
927,000 Land & General Bhd. .............................. 2,007
769,000 Magnum Corp. Bhd. ................................ 1,453
1,280,500 Malayan Banking Bhd. ............................. 10,790
1,256,000 Malaysian International Shipping (Foreign)........ 3,289
+507,000 Petronas Gas Bhd. ................................ 1,727
2,670,000 Renong Bhd. ...................................... 3,953
1,481,000 Resorts World Bhd. ............................... 7,931
650,000 Sime Darby Bhd. .................................. 1,727
1,319,000 Tan & Tan Development............................. 1,127
+601,000 Technology Resources Industries................... 1,775
830,000 Telekom Malaysia Bhd. ............................ 6,471
1,414,000 Tenaga Nasional Bhd. ............................. 5,568
282,000 Time Engineering Bhd. ............................ 655
774,000 United Engineers Bhd. ............................ 4,937
--------
63,642
--------
PHILIPPINES (5.8%)
1,081,872 Ayala Corp. 'B'................................... 1,320
1,238,125 Ayala Land, Inc. 'B'.............................. 1,510
#+18,384 Benpres Holdings Corp. GDR........................ 1,592
+1,738,400 C&P Homes, Inc. .................................. 1,276
+1,926,000 DMCI Holdings, Inc. .............................. 690
+609,600 Fil-Estate Land, Inc. ............................ 459
7,986,600 JG Summit Holding 'B'............................. 2,192
384,865 Manilla Electric 'B'.............................. 3,140
5,282,500 Petron Corp. ..................................... 2,719
20,500 Philippine Long Distance Telephone Co............. 1,114
9,800 Philippines Long Distance Telephone Co. ADR....... 530
+37,978 Philippine National Bank 'B'...................... 420
289,380 San Miguel Corp. 'B'.............................. 987
+4,435,300 SM Prime Holdings, Inc. .......................... 1,268
--------
19,217
--------
SINGAPORE (12.8%)
226,000 British-American Tobacco.......................... 871
659,800 City Developments Ltd. ........................... 4,804
</TABLE>
18
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (CONT.)
967,000 DBS Land Ltd. .................................... $ 3,268
383,500 Development Bank of Singapore..................... 4,772
158,000 Fraser & Neave Ltd. .............................. 2,011
726,000 Keppel Corp. ..................................... 6,467
541,666 Oversea-Chinese Banking Corp. .................... 6,778
259,000 Sembawang Corp. Ltd. ............................. 1,437
115,000 Singapore Airlines Ltd. (Foreign)................. 1,073
95,400 Singapore Press Holdings (Foreign)................ 1,686
1,556,000 Singapore Technologies Industrial Corp. .......... 3,520
400,000 Straits Steamship Land Ltd. ...................... 1,352
561,000 Straits Trading Co. Ltd. ......................... 1,317
353,000 United Overseas Bank Ltd. ........................ 3,394
--------
42,750
--------
TAIWAN (1.8%)
+337,000 Acer, Inc. ....................................... 778
+228,000 Advanced Semiconductor Engineering, Inc. ......... 552
+918,000 Taiwan Semiconductor Co........................... 2,876
667,500 United Micro Electronics Corp. Ltd. .............. 1,676
--------
5,882
--------
THAILAND (13.3%)
94,100 Advanced Information Services Co. Ltd.
(Foreign)....................................... 1,666
614,800 Bangkok Bank Co. Ltd. (Foreign)................... 7,468
144,300 Charoen Pokphand Feedmill Co. Ltd. (Foreign)...... 676
739,244 Finance One Co. Ltd. (Foreign).................... 5,135
69,400 Land & House Co. Ltd. (Foreign)................... 1,140
207,800 National Finance & Securities Co. Ltd.
(Foreign)....................................... 1,114
201,600 Phatra Thanakit Co. Ltd. (Foreign)................ 1,729
96,000 Shinawatra Computer Co. Ltd. (Foreign)............ 2,363
40,900 Siam Cement Co. Ltd. (Foreign).................... 2,267
360,100 Siam Commercial Bank Co. Ltd. (Foreign)........... 4,746
+1,500,000 Telecomasia Co. Ltd. (Foreign).................... 4,585
738,900 Thai Farmer's Bank Co. (Foreign).................. 7,451
+366,400 Thai Telephone & Telecommunications (Foreign)..... 2,633
92,000 United Communication Industry (Foreign)........... 1,176
403,000 Wongpaitoon Footwear Co. Ltd. (Foreign)........... 436
--------
44,585
--------
TOTAL COMMON STOCKS (COST $279,735).............................. 303,089
--------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
WARRANTS (0.0%)
INDONESIA (0.0%)
*+150,000 Ometraco Corp. expiring 7/12/00 (COST $0)......... $ --
--------
TOTAL FOREIGN SECURITIES (90.6%) (COST $279,735)................. 303,089
--------
FACE
AMOUNT
(000)
- -------------
SHORT-TERM INVESTMENT (3.6%)
REPURCHASE AGREEMENT (3.6%)
UNITED STATES
$ 12,076 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
$12,084, collateralized by $9,815, U.S. Treasury
Bonds, 7.875%, due 2/15/21, valued at $12,318
(COST $12,076) ................................. 12,076
--------
TOTAL INVESTMENT IN SECURITIES (COST $291,811)................... 315,165
--------
FOREIGN CURRENCY (0.3%)
HKD 2,805 Hong Kong Dollar ................................. 363
IDR 1,014,320 Indonesian Rupiah ................................ 444
MYR 4 Malaysian Ringgit ................................ 1
TWD 6,880 Taiwan Dollar .................................... 252
--------
TOTAL FOREIGN CURRENCY (COST $1,058)............................. 1,060
--------
TOTAL INVESTMENTS (94.5%) (COST $292,869)........................ 316,225
OTHER ASSETS IN EXCESS OF LIABILITIES (5.5%)..................... 18,349
--------
NET ASSETS (100%)................................................ $334,574
--------
--------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------
+ -- Non-income producing securities
* -- Fair valued securities (totaling U.S. $35,215 or
10.5% of net assets at December 31, 1995.) -- 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
GDS -- Global Depositary Shares
IDR -- International Depositary Receipt
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
- ----------------------------------- -------- ----------------
<S> <C> <C>
Services........................... $ 67,910 20.3 %
Finance............................ 67,806 20.3
Real Estate........................ 59,680 17.8
Multi-Industry..................... 31,429 9.4
Capital Equipment.................. 25,380 7.6
Energy............................. 19,671 5.9
Materials.......................... 17,389 5.2
Consumer Goods..................... 13,824 4.1
-------- -----
$303,089 90.6 %
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace 2.0%
Banking 10.1%
Building 2.0%
Capital Goods 4.1%
Chemicals 4.7%
Communications 1.1%
Consumer - Durables 4.2%
Consumer - Retail 4.0%
Consumer - Staples 4.5%
Energy 3.3%
Financial - Diversified 1.9%
Health Care 6.7%
Industrial 5.7%
Insurance 5.8%
Metals 2.0%
Paper & Packaging 2.8%
Real Estate Investment
Trust 2.6%
Services 11.3%
Technology 7.5%
Transportation 2.8%
Utilities 7.0%
Other 3.9%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY INDUSTRY (000)
- ---------------------------------------- ------------------- ------
<S> <C> <C>
Coors (Adolph) 'B' Consumer-Staples $ 597
Greenpoint Financial Corp. Banking 575
Tecumseh Products 'A' Capital Goods 564
Provident Companies, Inc. Insurance 562
Enhance Financial Services Group Insurance 559
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- --------------------- ------ --------
<S> <C> <C>
Services $4,895 11.3%
Banking 4,375 10.1
Technology 3,253 7.5
Utilities 3,031 7.0
Health Care 2,896 6.7
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
----------------------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
------------------- ------------------------ -----------------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
Class A
Shares 2.18% 7.28% 13.67% 19.34% 7.05% 9.44%
- ------------------------------------------------------------------------------------------------------
Class B+
Shares -1.98% 3.02% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Class C
Shares 5.83% 6.83% 17.43% 18.43% 8.57% 8.57%
- ------------------------------------------------------------------------------------------------------
Russell 2500
Small Company Index N/A 12.61% N/A 31.69% N/A 12.72%
- ------------------------------------------------------------------------------------------------------
S&P 500 Index N/A 14.43% N/A 37.53% N/A 16.38%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B Shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The Russell 2500 Small Company Index and S&P 500 Index are unmanaged indices of
common stocks. The S&P 500 assumes dividends are reinvested.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The American Value Fund invests in domestic small- to
medium-sized companies that our research indicates are
undervalued, of high quality, and will reward the shareholder
through high current dividend income. The Fund's disciplined
value approach seeks to outperform the Russell 2500 Small
Company Index in the longer term. We believe our emphasis on
high quality companies and high yielding securities will help
the Fund perform particularly well in difficult markets.
The Fund selects companies that can be purchased at bargain
prices. Bargains mostly arise as a result of public
overreactions to temporary problems associated with an
otherwise healthy company, or because a company is neglected
and currently out-of-the limelight of investors' interest.
Often, these companies operate as major players in very
focused markets and are not widely followed by the investment
community.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of 7.28% for the
Class A shares, 3.02% for the Class B shares and 6.83% for
the Class C shares, and a total return with sales charge of
2.18% for the Class A shares, -1.98% for the Class B shares
and 5.83% for the Class C shares, as compared to a total
return of 12.61% for the Russell 2500 Small Company Index and
14.43% for the S&P 500 Index for the same period. For the one
year period ended December 31, 1995, the Fund had a total
return exclusive of sales charge of 19.34% for the Class A
shares and 18.43% for the Class C shares, and a total return
with sales charge of 13.67% for Class A shares and 17.43% for
the Class C shares as compared with 31.69% for the Russell
2500 Small Company Index and 37.53% for the S&P 500 Index for
the same period. For the period since inception on October
18, 1993 through December 31, 1995, the average annual total
return of the Fund exclusive of sales charge was 9.44% for
the Class A shares and 8.57% for the Class C shares and 7.05%
for the Class A shares with sales charge as compared to the
average annual total return of 12.72% for the Russell 2500
Small Company Index and 16.38% for the S&P 500 Index for the
same period. Class B shares held prior to May 1, 1995 were
renamed Class C shares. The Fund began offering the current
Class B shares August 1, 1995.
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
20
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
PERFORMANCE REVIEW
One investment theme dominated the direction of U.S. equity
market returns during 1995: the considerable slowdown of the
strong economic growth experienced in 1994. During the
summer, the slowdown was severe enough as to awaken talks of
a recession pending. By year-end, however, the consensus
focused on a successful 'soft landing' and moderate growth
expectations for 1996. The slowdown in economic growth led to
a sharp drop in long term interest rates during 1995. Equity
markets in the United States responded with enthusiasm. The
bellwether S&P 500 Index rose 37.5% for the full year 1995
and 14.4% during the second half of the year. Since the rally
in equities was interest rate driven, interest rate sensitive
"growth" companies rose most sharply. The most dramatic
example of this could be seen in the areas of technology and
health care. By mid-year 1995 the average small cap
technology company was trading at a price-to-earnings
multiple of 30.2 times, more than twice as expensive as the
average stock in your American Value Fund. Periods of such
market ebullience are expected to produce high absolute
returns for the American Value Fund. They are, however, the
most difficult time for the small cap value style to better
the small cap averages since the market's normal desire for
dividend income and deep bargain values is superseded by its
willingness to count on extraordinarily high future earnings
growth. Going forward, we expect increasing market valuation,
absolutely low interest rates, and a steady economy to set
the stage for a positive environment for the Fund's
out-of-the-limelight companies.
"OUR OUTLOOK ON THE FUNDAMENTAL STRENGTH OF THE FUND'S COMPANIES REMAINS
POSITIVE..."
The best performing industries in the Fund during the past
six months were health care, followed by companies in the
banking and insurance industries, aerospace and electric
utilities. The Fund's health care companies returned more
than 30% during the second half of 1995. In particular,
Kinetic Concepts Inc. whose major source of revenues comes
from rental of hospital beds advanced by 70% during that
period. The overall return impact on the Fund's health care
issues was somewhat muted, since the Fund--true to its
mission of seeking 'value' companies--has been underweight in
this high flying industry. The Fund's banking stocks returned
29.8% for the second half of 1995. Since banks began the year
as truly undervalued securities with good growth prospects,
the Fund benefited from an overweight in that industry. While
falling interest rates provided for healthy fundamental
earnings growth, the sharp rally in banking stocks was fueled
by announced mergers and acquisitions affecting highly
visible money center banks, midsize regional banks, as well
as small community banks. The Fund's insurance companies
returned 29.2% during the past six months. We believe the
success in the industry was the result of falling interest
rates which led to strongly improved earnings for the Fund's
companies. The Fund's aerospace companies averaged a return
of 22% for the second half of 1995. Good performance in that
industry was mainly driven by the resurgence of the U.S.
commercial airline industry which improved strongly the
business conditions for the Fund's airline service companies.
Another bright spot during the past six months proved to be
companies in the electric utility industry. At the beginning
of the year confidence in U.S. utilities was badly shaken by
the specter of loss of their monopoly status which led to
extremely attractive valuations in that industry. However, as
utilities prepared for increased wholesale and retail
competition by dramatically improving their cost structure
they managed to show positive earnings surprises as the year
progressed.
The weakest areas in the Fund turned out to be companies in
cyclical industries. The slowdown in economic growth and the
mid-year fear of slipping into a recession penalized
companies in deep cyclical industries. The slowdown in U.S.
automobile sales and production had a ripple effect on the
Fund's auto part suppliers. Weakening steel prices, falling
prices for paper products and chemicals were interpreted as
harbingers of a looming recession and not simply as the
result of a mid-cycle inventory correction. Another area of
mixed performance proved to be the retail sector. As it
21
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
became evident mid-year that the expected strengthening of
consumer retail spending would not materialize, we decided to
significantly upgrade the quality of the Fund holdings. We
sold Venture Stores, the midwest discount retail chain, and
Edison Brothers, a chain of high fashion men's stores, and
purchased Ross Stores. Ross Stores, an off-price retailer
based in California, displays a clean balance sheet and was
managed in a cautious and most conservative manner. Unlike
its competitors in the apparel retail business, Ross Stores
managed to increase same store sales for the remainder of the
year and the stock price nearly doubled since purchase.
As we look for inexpensive companies with rich dividend
yields in specialty niche markets, we added Tecumseh
Products, a Michigan company, to the Fund. Tecumseh is one of
the leading domestic companies in the manufacturing of
compressors for refrigerators and air conditioners. We were
able to purchase the company at an inexpensive 130% of book
value and 8.4x earnings. We believe this low price ignores
the company's extensive operations overseas that show high
growth potential. The Fund also purchased Airborne Freight
Corp., an air courier company based in Seattle. We purchased
Airborne Freight at a price close to its book value. The
company has shown 20% growth in total delivery volume during
the previous six months. However, since a large percentage of
the increased volume came from less profitable deferred
deliveries (two-day instead of next-day) the company's
earnings are currently lower than last year. We believe
Airborne's earnings are only temporarily lower since the
company has had a successful record of restoring profit
margins by increasing operating efficiencies. Hence,
Airborne's current stock price constitutes a bargain purchase
for the Fund. During the fourth quarter, we took advantage of
attractive valuations of deep cyclical companies and added
Smith (A.O.) Corp., a manufacturer of automobile structural
components, to the Fund. We purchased Smith (A.O.) at seven
times trailing earnings. The company has improved its
earnings every year since 1991 and is estimated to grow its
earnings by 15% in 1996.
In September we increased our holdings in Real Estate
Investment Trusts (REITs). At the time of purchase, REITs
were valued at the largest discount relative to the yield on
U.S. Treasury bonds since 1990. Unlike in 1990, fundamentals
in the real estate sector appear very promising: interest
rates are low, internal growth is solid, and there are few
new equity offerings in the making. The Fund has taken
positions in two financially conservatively managed apartment
REITs (Wellsford Residential Property Trust and Southwestern
Property Trust) that also trade at significant price-to-cash
flow discounts relative to their peers.
Four of the Fund's companies were involved in takeover
activities during the second half of 1995 and subsequently
sold out of the Fund: Joslyn Corp., a Chicago maker of
electric components, Wallace Computer Services Inc., a
printer of business forms, Summit Bancorp in New Jersey, and
most recently Pratt & Lambert, United Co. The latter was
acquired by Sherwin Williams Co., which paid a 70% premium to
market value to obtain Pratt & Lambert's franchise in
architectural finishes (paint). While we do not aim to
construct a Fund of takeover candidates, these companies
shared in common an undervalued stock price and a franchise
that made them special to their acquisitors.
Our outlook on the fundamental strength of the Fund's
companies remains positive as reflected by recent earnings
reports. In addition, many U.S. industrial small cap
companies see strongly rising demand from overseas. Thanks to
past efficiency gains and a favorable U.S. currency, small
industrial companies have emerged as worldwide low cost
producers of goods.
The Fund offers the consistent application of a disciplined
value driven investment process to its participants. As such,
we will pursue our search for smaller companies that our
research shows are undervalued, are of high quality and pay
above average dividend yield. We believe these companies will
be well positioned to achieve superior total return for the
longer term.
22
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (96.1%)
AEROSPACE (2.0%)
20,400 AAR Corp.......................................... $ 449
12,300 Thiokol Corp...................................... 416
-------
865
-------
BANKING (10.1%)
13,500 First Security Corp............................... 520
21,500 Greenpoint Financial Corp......................... 575
15,100 Onbankcorp., Inc.................................. 504
20,000 Peoples Heritage Financial Group, Inc............. 455
12,200 Standard Federal Bank............................. 480
10,000 Summit Bancorp., Inc.............................. 315
23,500 Trustmark Corp.................................... 534
14,800 Union Planters Corp............................... 472
18,000 Washington Mutual, Inc............................ 520
-------
4,375
-------
BUILDING (2.0%)
13,200 Ameron, Inc....................................... 496
31,000 Gilbert Associates, Inc. 'A'...................... 388
-------
884
-------
CAPITAL GOODS (4.1%)
13,600 Binks Manufacturing Corp.......................... 319
30,400 Cascade Corp...................................... 426
18,900 Starret (L.S.) Co. 'A'............................ 489
10,900 Tecumseh Products 'A'............................. 564
-------
1,798
-------
CHEMICALS (4.7%)
22,440 Aceto Corp........................................ 359
20,500 Dexter Corp....................................... 484
15,000 LeaRonal, Inc..................................... 345
27,400 Quaker Chemical Corp.............................. 370
17,000 Witco Corp........................................ 497
-------
2,055
-------
COMMUNICATIONS (1.1%)
25,500 Comsat Corp....................................... 475
-------
CONSUMER--DURABLES (4.2%)
24,700 A.O. Smith Corp................................... 513
29,900 Arvin Industries, Inc............................. 493
26,820 Knape & Vogt Manufacturing Co..................... 466
21,000 Oneida Ltd........................................ 370
-------
1,842
-------
CONSUMER--RETAIL (4.0%)
26,200 CPI Corp.......................................... 419
16,700 Deb Shops, Inc.................................... 58
22,800 Guilford Mills, Inc............................... 465
18,000 Ross Stores, Inc.................................. 344
11,100 Springs Industries, Inc. 'A'...................... 459
-------
1,745
-------
CONSUMER--STAPLES (4.5%)
14,122 Block Drug Co. 'A'................................ 491
27,000 Coors (Adolph) 'B'................................ 597
22,300 International Multifoods Corp..................... 449
23,400 Nash Finch Co..................................... 427
-------
1,964
-------
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
ENERGY (3.3%)
20,300 Ashland Coal, Inc................................. $ 434
18,500 Diamond Shamrock, Inc............................. 479
20,100 Ultramar Corp..................................... 517
-------
1,430
-------
FINANCIAL--DIVERSIFIED (1.9%)
8,900 FINOVA Group, Inc................................. 429
8,100 GATX Corp......................................... 394
-------
823
-------
HEALTH CARE (6.7%)
28,000 Analogic Corp..................................... 518
12,200 Beckman Instruments, Inc.......................... 432
21,000 Bergen Brunswig Corp. 'A'......................... 522
30,000 Bindley Western Industries, Inc................... 510
38,600 Kinetic Concepts, Inc............................. 463
20,500 United Wisconsin Services, Inc.................... 451
-------
2,896
-------
INDUSTRIAL (5.7%)
12,200 American Filtrona Corp............................ 409
11,700 Barnes Group, Inc................................. 421
39,100 Gencorp, Inc...................................... 479
41,100 Kaman Corp. 'A'................................... 457
27,600 Zero Corp......................................... 490
10,000 Zurn Industries, Inc.............................. 214
-------
2,470
-------
INSURANCE (5.8%)
14,600 Argonaut Group, Inc............................... 475
21,000 Enhance Financial Services Group.................. 559
16,600 Provident Companies, Inc.......................... 562
12,600 Selective Insurance Group, Inc.................... 447
16,250 US Life Corp...................................... 486
-------
2,529
-------
METALS (2.0%)
31,500 Birmingham Steel Corp............................. 469
10,300 Cleveland-Cliffs Iron Co.......................... 422
-------
891
-------
PAPER & PACKAGING (2.8%)
17,500 Ball Corp......................................... 481
10,900 Potlatch Corp..................................... 436
25,600 Sealright Co., Inc................................ 285
-------
1,202
-------
REAL ESTATE INVESTMENT TRUST (2.6%)
30,400 Manufactured Home Communities, Inc................ 532
25,000 South West Property Trust......................... 338
12,000 Wellsford Residential Property Trust.............. 276
-------
1,146
-------
SERVICES (11.3%)
15,400 ABM Industries, Inc............................... 427
18,200 Angelica Corp..................................... 373
25,600 Bowne & Co........................................ 512
26,200 Cross A.T. Co. 'A'................................ 396
33,500 Jackpot Enterprises, Inc.......................... 390
14,000 National Service Industries, Inc.................. 453
18,100 New England Business Services, Inc................ 394
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ---------------------------------------------------------------------
<C> <S> <C>
SERVICES (CONT.)
24,800 Ogden Corp........................................ $ 530
52,500 Piccadilly Cafeterias, Inc........................ 499
35,500 Russ Berrie & Co., Inc............................ 448
22,000 Sbarro, Inc....................................... 473
-------
4,895
-------
TECHNOLOGY (7.5%)
30,500 Augat, Inc........................................ 522
37,000 Core Industries, Inc.............................. 477
16,900 Cubic Corp........................................ 482
28,000 Gerber Scientific, Inc............................ 455
11,100 MTS Systems Corp.................................. 366
26,900 National Computer Systems, Inc.................... 508
32,500 Scitex Corp....................................... 443
-------
3,253
-------
TRANSPORTATION (2.8%)
18,000 Airborne Freight Corp............................. 479
20,600 Overseas Shipholding Group, Inc................... 391
28,000 SkyWest, Inc...................................... 361
-------
1,231
-------
UTILITIES (7.0%)
15,100 Central Hudson Gas & Electric Corp................ 466
11,500 Commonwealth Energy Systems....................... 515
13,500 Eastern Entreprises............................... 476
18,300 Oneok, Inc........................................ 419
13,900 Orange & Rockland Utilities, Inc.................. 497
6,500 SJW Corp.......................................... 245
23,600 Washington Water Power Co......................... 413
-------
3,031
-------
TOTAL COMMON STOCKS (COST $38,287).......................... 41,800
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.5%)
REPURCHASE AGREEMENT (3.5%)
$ 1,517 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
$1,518, collateralized by $1,085 U.S. Treasury
Bonds, 13.375%, due 8/15/01, valued at $1,549
(COST $1,517)................................... $ 1,517
-------
TOTAL INVESTMENTS (99.6%) (COST $39,804).................... 43,317
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)................ 158
-------
NET ASSET VALUE (100%)...................................... $43,475
-------
-------
</TABLE>
24
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 18.7%
Brazil 16.5%
Bulgaria 1.6%
Canada 2.6%
Ecuador 4.3%
Indonesia 0.2%
Mexico 12.3%
Morocco 8.2%
Nigeria 0.5%
Panama 4.7%
Russia 5.4%
United States 21.8%
Venezuela 0.4%
Other 2.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY COUNTRY (000)
- ---------------------------------------- ------------- ------
<S> <C> <C>
Kingdom of Morocco Restructuring and
Consolidation Agreement `A' 1990 6.69%,
1/1/09 Morocco $5,973
Republic of Argentina `L' 5.00%, 3/31/05 Argentina 4,275
Bank for Foreign Economic Affairs Russia 3,924
Republic of Panama 6.75%, 5/10/02 Panama 3,418
Minas Gerais 'B' 8.25%, 2/10/00 Brazil 3,320
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- --------------------- ------- --------
<S> <C> <C>
Foreign Government
Bonds $18,357 25.1%
Loan Agreements 9,897 13.5
Consumer Goods 9,344 12.8
Energy 9,047 12.3
Materials 7,771 10.6
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-------------------------------------------------------------------------------
AVERAGE ANNUAL SINCE
YTD ONE YEAR INCEPTION
----------------------- ----------------------- -----------------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------
Class A Shares 5.06% 10.30% 14.08% 19.77% 8.86% 12.03%
- ---------------------------------------------------------------------------------------------------------
Class B+ Shares 3.38% 8.38% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
Class C Shares 8.82% 9.82% 17.88% 18.88% 11.18% 11.18%
- ---------------------------------------------------------------------------------------------------------
Lehman Aggregate Bond
Index N/A 6.32% N/A 18.48% N/A 11.01%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The Lehman Aggregate Bond Index is an unmanaged index comprised of the
Government Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Worldwide High Income Fund seeks to offer investors a
high current income consistent with relative stability of
principal and potential for capital appreciation. To achieve
this objective, the Fund will invest across three broad asset
classes, namely U.S. high yield, emerging country debt, and
global fixed income.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of 10.30% for
the Class A shares, 8.38% for the Class B shares and 9.82%
for the Class C shares, and a total return with sales charge
of 5.06% for the Class A shares, 3.38% for the Class B shares
and 8.82% for the Class C shares, as compared to a total
return of 6.32% for the Lehman Aggregate Bond Index. For the
one year period ended December 31, 1995, the Fund had a total
return exclusive of sales charge of 19.77% for the Class A
shares and 18.88% for the Class C shares and a total return
with sales charge of 14.08% for Class A shares and 17.88% for
Class C shares as compared with 18.48% for the Lehman
Aggregate Bond Index for the same period. For the period from
inception on April 21, 1994 through December 31, 1995, the
Fund had an average annual total return exclusive of sales
charge of 12.03% for the Class A shares and 11.18% for the
Class C shares, and an average annual total return with sales
charge of 8.86% for the Class A shares as compared to an
average annual total return of 11.01% for the Lehman
Aggregate Bond Index for the same period. Class B shares held
prior to May 1, 1995 were renamed Class C shares. The Fund
began offering the current Class B shares on August 1, 1995.
Following a bout of profit taking early in the fourth quarter
of 1995, the emerging markets resumed their upward climb.
Profit taking was triggered by broker/dealers who were
reducing positions due to fiscal year-end considerations. An
improvement in the markets' sentiment toward Argentina
prompted all market participants to increase capital
committed to this asset class. Hopes of a balanced budget
agreement in the U.S. provided a favorable backdrop to the
currency and fixed income markets in general over this
period.
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE FOR INFORMATIONAL PURPOSES
ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
25
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
The fourth quarter was characterized by a high degree of
dispersion in the individual country performances, as
investors re-positioned their portfolios. Panama, Argentina
and Venezuela were the outperformers and Poland, Philippines,
South Africa, Mexico and Russia were the underperformers for
the quarter.
The markets perception of Argentina's credit risk changed
dramatically as the political infighting between rival
contenders for power came to an end, as President Menem
seized the political initiative. Aggressive moves to tackle
the federal budget, remedial measures to tackle the fiscal
problems in the provinces and the privatization of the
remaining state assets pulled Argentina out of the vicious
circle of declining confidence and poor economic performance
following the tequila crisis of the first quarter.
Brazilian assets recovered quite strongly during the last
weeks of the quarter as President Cardoso re-established the
political momentum for the reform program. The fiscal
condition of the federal government will continue to be
strained as the current constitution does not provide the
government with sufficient degrees of freedom. Any long term
corrective measures will have to wait until such time when
reforms (including the administrative, tax and social
security reform measures currently being discussed) are
passed and implemented in the future. We remain optimistic
that the political process will deliver reforms eventually.
"OUR OUTLOOK FOR EMERGING MARKETS DEBT REMAINS POSITIVE."
Mexico once again proved to be a difficult credit to
understand. Concerns over the state of the banking system and
the lack of a pick-up in domestic growth caused nervousness
in the foreign exchange markets in the fourth quarter. The
markets believed that the government lacked the political
will and economic policy alternatives to meeting year-end
demand for dollars. Fears about another peso crisis and the
lack of a clear and timely strategic response on the part of
the policy makers to combat the speculative demand for
dollars produced the second peso crisis within the space of
less than twelve months. Our holdings in peso denominated
local treasury bills were affected as interest rates
eventually increased and the peso weakened dramatically. We
continued to hold our positions as we believed that this time
around the pressures on the currency were seasonal and
temporary and a drastic tightening of monetary policy would
reverse the slide in the currency. Our outlook for 1996 is
one of cautious optimism.
Russia, one of our relatively large bets against the Index
finally reached an agreement with its external creditors. The
non-performing loans, based on the parameters of the
announced restructuring, trade at spreads close to 2,000
basis points above U.S. Treasuries, 700 basis points wider
than the assets of Ecuador, Bulgaria and Venezuela. We
believe that given the current state of the economy
(declining inflation, trade surpluses, a low external debt
burden and a resumption in growth) and the willingness of any
future administration to service their external debts, the
market is mis-pricing Russian risk. The prices of the asset
should increase on the announcement of an IMF Extended Fund
Facility and continued compliance by the government under the
terms of the restructuring agreement. We do not envisage any
changes in our exposure to Russia at this point.
Our outlook for emerging markets debt remains positive. A
slowdown in growth in the U.S. and Europe and signs of
inflation should result in a decline in market rates. Credit
stories unfolding in Latin America and Eastern Europe show
dramatic improvements over 1995. Policy makers commitment to
reform has only been strengthened in the post tequila days.
The perfect line up of interest rates, spreads and fund flows
should result in price appreciation. We will remain vigilant
however for the first signs of a turnaround in market
sentiment or fundamentals.
As 1995 closed, the U.S. high yield market wrapped up one of
its finest years. While market returns were excellent, there
were several undercurrents that one had to be aware of to
stay ahead of the competition. While the market rallied,
spreads to Treasuries widened. More importantly, intra-market
quality spreads widened as well. Market participants were
concerned that the economy was entering an economic downturn.
This view was supported by an extremely weak retail
environment. Several major retailers filed for bankruptcy
during the year. Also auto sales seemed to be softening and
steel and paper prices were reported to be declining after
strong run-ups in late 1994 and early 1995.
26
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
The Fund's strong performance in the U.S. portion of the
portfolio was a result of overweight positions in the casino,
communications, cable television and chemical sectors. As
important as investing in winning ideas is avoiding trouble
situations. Two of the weakest industries in 1995 were
retailers and restaurants, sectors which the Fund avoided
entirely.
It is difficult to formulate a strategy for 1996. Other than
retailers, which have had a horrible history in the high
yield market, it is hard to find a clearly undervalued
industry. Steel and auto-related companies have cheapened to
the rest of the market, but timing the market to catch a
rebound in their bond prices and earnings momentum is always
difficult. Treasury rates have dropped precipitously and
therefore cushion bonds have some appeal. Long-term interest
rates are near the lows achieved at the end of 1993, however
the shape of the yield curve is very different. Short-term
rates are much higher than at the end of 1993 and it does not
appear that a tightening is likely in the near future. We are
also faced with the uncertainty of an election year. We
expect to play it fairly close to the vest in 1996. We will
be searching for bonds that generate good current income but
do not represent undue credit risk.
27
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (96.8%)
CORPORATE BONDS (24.3%)
ARGENTINA (2.4%)
$ 2,000 Banco Rio de la Plata 8.75%, 12/15/03 ............ $ 1,766
--------
MEXICO (0.5%)
500 Banco Nacional de Comercio Exterior 7.25%,
2/2/04 ......................................... 392
--------
UNITED STATES (21.4%)
450 AES Corp. 9.75%, 6/15/00 ......................... 465
500 Armco, Inc. 9.375%, 11/1/00 ...................... 495
29 Columbia Gas Systems, Inc. 'A' 6.39%, 11/28/00 ... 29
27 Columbia Gas Systems, Inc. 'B' 6.61%, 11/28/02 ... 28
27 Columbia Gas Systems, Inc. 'C' 6.80%, 11/28/05 ... 27
27 Columbia Gas Systems, Inc. 'D' 7.05%, 11/28/07 ... 27
27 Columbia Gas Systems, Inc. 'E' 7.32%, 11/28/10 ... 27
27 Columbia Gas Systems, Inc. 'F' 7.42%, 11/28/15 ... 27
27 Columbia Gas Systems, Inc. 'G' 7.62%, 11/28/25 ... 27
500 Comcast Corp. 9.50%, 1/15/08 ..................... 522
250 Corporate Express, Inc. 'B' 9.125%, 3/15/04 ...... 254
450 Grand Union Co. 12.00%, 9/1/04 ................... 387
1,000 Lenfest Communications, Inc. 8.375%, 11/1/05 ..... 1,004
1,000 Marcus Cable Co. 0.00% to 8/1/99, 13.50% to
8/1/04 ......................................... 753
500 Owens Illinois, Inc. 10.50%, 6/15/02 ............. 531
1,000 Owens Illinois, Inc. 9.75%, 8/15/04 .............. 1,053
400 PM Holdings Corp. 0.00% to 9/1/00, 11.50% to
9/1/05 ......................................... 206
500 Paging Network, Inc. 10.125%, 8/1/07 ............. 543
300 Plastic Specialties & Technologies, Inc. 11.25%,
12/1/03 ........................................ 276
500 Primark Corp. 8.75%, 10/15/00 .................... 502
1,600 Quorum Health Group, Inc. 8.75%, 11/1/05 ......... 1,656
100 Sheffield Steel Corp. 12.00%, 11/1/01 ............ 87
500 Sherritt, Inc. 10.50%, 3/31/14 ................... 534
1,100 Six Flags Theme Park, Inc. 'A' 0.00% to 6/15/98,
12.25% to 6/15/05 .............................. 858
900 Stone Container Corp. 10.75%, 10/1/02 ............ 929
500 Tenet Healthcare Corp. 8.625%, 12/1/03 ........... 524
1,850 Viacom International Subordinate Note 8.00%,
7/7/06 ......................................... 1,882
2,000 Westpoint Stevens, Inc. 9.375%, 12/15/05 ......... 1,985
--------
15,638
--------
TOTAL CORPORATE BONDS (COST $20,991).......................... 17,796
--------
EUROBONDS (45.8%)
ARGENTINA (9.7%)
2,500 Banco De Galicia 9.00%, 11/1/03 .................. 2,191
+++6,000 Republic of Argentina 'L' 5.00%, 3/31/05 ......... 4,275
+++1,000 Republic of Argentina 6.56%, 3/31/23 ............. 656
--------
7,122
--------
BRAZIL (16.5%)
1,000 Aracruz Celulose S.A. 10.375%, 1/31/02 ........... 957
+++3,000 Brazil Discount 6.81%, 4/15/24 ................... 1,853
1,350 Compania Brasil de Projertos 12.50%, 12/22/97 .... 1,337
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
$ +++2,000 Federal Republic of Brazil New Money Bond 6.88%,
4/15/09 ........................................ $ 1,243
/\+++2,918 Federal Republic of Brazil 'C' Bond PIK 8.00%,
4/15/14 ........................................ 1,674
2,000 Iochpe Maxion S.A. 12.375%, 11/8/02 .............. 1,710
4,000 Minas Gerais 'B' 8.25%, 2/10/00 .................. 3,320
--------
12,094
--------
BULGARIA (1.6%)
+++2,500 Bulgaria IAB 6.75%, 7/28/11 ...................... 1,163
--------
ECUADOR (4.3%)
+++950 Republic of Ecuador 6.50%, 12/21/04 .............. 580
+++2,043 Republic of Equador 6.81%, 2/27/15 ............... 684
+++3,750 Republic of Ecuador 6.81%, 2/28/25 ............... 1,901
--------
3,165
--------
MEXICO (8.1%)
MXP 32,143 Banamex Pagare Zero Coupon, 10/9/97 .............. 2,293
$ 1,500 Cemex S.A. 8.875%, 6/10/98 ....................... 1,453
#200 Cemex S.A. 9.50%, 9/20/01 ........................ 186
#206 MC-Cuernavaca Trust 9.25%, 7/25/01 ............... 142
750 Mexico Par Bond 'A' (Value Recovery Rights
Attached) 6.25%, 12/31/19 ...................... 492
1,600 Tolmex S.A. 8.375%, 11/1/03 ...................... 1,350
--------
5,916
--------
NIGERIA (0.5%)
750 Central Bank of Nigeria (Warrants Attached) 6.25%,
11/15/20 ....................................... 369
--------
PANAMA (4.7%)
+++4,000 Republic of Panama 6.75%, 5/10/02 ................ 3,418
--------
VENEZUELA (0.4%)
+++500 Republic of Venezuela DCB 6.56%, 12/18/07 ........ 276
--------
TOTAL EUROBONDS (COST $32,874)................................ 33,523
--------
LOAN AGREEMENTS (13.6%)
MOROCCO (8.2%)
~8,800 Kingdom of Morocco Restucturing and Consolidation
Agreement 'A' 1990 1/1/09 (Participation: The
Chase Manhattan Bank, N.A. J.P. Morgan, Lehman
Brothers, Salomon Brothers)..................... 5,973
--------
RUSSIA (5.4%)
++11,500 Bank for Foreign Ecomomic Affairs................. 3,924
--------
TOTAL LOAN AGREEMENTS (COST $9,230) .......................... 9,897
--------
YANKEE BONDS (13.1%)
ARGENTINA (6.6%)
#1,850 Bridas Corp. 12.50%, 11/15/99 .................... 1,836
1,900 Metrogas S.A. 'A' 12.00%, 8/15/00 ................ 1,933
1,000 Telecomm Argentina S.A. 12.00%, 11/15/02 ......... 1,065
--------
4,834
--------
CANADA (2.6%)
1,000 Algoma Steel, Inc. 12.375%, 7/15/05 .............. 900
1,000 Gulf Canada Resources Ltd. 9.25%, 1/15/04 ........ 1,016
--------
1,916
--------
INDONESIA (0.2%)
150 Polysindo Eka Perkasa 13.00%, 6/15/01 ............ 155
--------
MEXICO (3.7%)
2,200 Grupo Industrial Durango 12.00%, 7/15/01 ......... 1,954
</TABLE>
28 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
MEXICO (CONT.)
$ #1,000 Petro Mexicanos 8.625%, 12/1/23 .................. $ 750
--------
2,704
--------
TOTAL YANKEE BONDS (COST $5,842) ............................. 9,609
--------
TOTAL FIXED INCOME SECURITIES (COST $68,937) ................... 70,825
--------
<CAPTION>
SHARES
- ------------
<C> <S> <C>
EQUITY SECURITIES (0.0%)
CONVERTIBLE PREFERRED STOCK (0.0%)
UNITED STATES (0.0%)
468 Columbia Gas Systems, Inc. 5.22%, 11/28/00 ....... 19
--------
PREFERRED STOCK (0.0%)
UNITED STATES (0.0%)
765 Columbia Gas Systems, Inc......................... 19
--------
<CAPTION>
NO. OF
WARRANTS
- ------------
<C> <S> <C>
WARRANTS (0.0%)
UNITED STATES (0.0%)
+500 Sheffield Steel Corp., expiring 2001 ............. 3
--------
TOTAL EQUITY SECURITIES (COST $40).............................. 41
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
- ------------
<C> <S> <C>
UNITS (0.4%)
UNITED STATES (0.4%)
##268 Trump Taj Mahal PIK (Bond + 1 Taj Mahal Holding
Corp. 'B' Common Stock) 11.35%, 11/15/99 (COST
$253)........................................... 258
--------
TOTAL FOREIGN & U.S. SECURITIES (97.2%) (COST $69,230).......... 71,124
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (6.8%)
<C> <S> <C>
REPURCHASE AGREEMENT (6.8%)
UNITED STATES
$ 4,939 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
$4,939, collateralized by $3,530 U.S. Treasury
Bonds, 13.375%, due 8/15/01, valued at $5,039
(COST $4,939) .................................. $ 4,939
--------
TOTAL INVESTMENTS (104.0%) (COST $74,169)....................... 76,063
LIABILITIES IN EXCESS OF OTHER ASSETS (-4.0%)................... (2,947)
--------
NET ASSETS (100%)............................................... $ 73,116
--------
--------
- ---------------
+ -- Non-income producing securities
++ -- Non-income producing securities -- in
default
+++ -- Variable or floating rate securities --
rate disclosed is as of December 31,
1995
# -- 144A Security -- certain conditions for
public sale may exist
## -- 9.375% of 11.35% represents amount paid
in cash. The remainder is Payment in
Kind.
/\ -- 4.00% of 8.00% represents amount paid in
cash. Cash payment rate is low for an
initial period and then increases in
increments to maturity. The remainder is
Payment in Kind.
~ -- Participation interests were acquired
through the financial institutions
indicated parenthetically; all other
loan agreement are assignments.
DCB -- Debt Convertible Bond
IAB -- Interest Arrears Bond
PIK -- Payment-in-Kind. Income may be received
in additional securities or cash at the
discretion of the issuer.
MXP -- Mexican Pesos
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Foreign Government Bonds................ $ 18,357 25.1%
Loan Agreements......................... 9,897 13.5
Consumer Goods.......................... 9,344 12.8
Energy.................................. 9,047 12.3
Materials............................... 7,771 10.6
Finance................................. 7,217 9.9
Services................................ 7,017 9.6
Capital Equipment....................... 2,175 3.0
-------- --------
$ 70,825 96.8%
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements. 29
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 9.8%
Brazil 51.0%
Colombia 2.5%
Mexico 30.8%
Venezuela 2.7%
Other 3.2%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY COUNTRY (000)
- ---------------------------------------- ----------- ------
<S> <C> <C>
Telebras (Preferred) Brazil $1,126
Eletrobras Brazil 831
Telebras (Preferred) ADR Brazil 802
Brahma (Preferred) Brazil 780
Telefonos de Mexico 'L' ADR Mexico 674
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- --------------------- ------- --------
<S> <C> <C>
Services $ 3,644 23.5%
Finance 2,961 19.0
Consumer Goods 2,733 17.6
Energy 2,675 17.2
Materials 1,521 9.8
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
-----------------------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------------------- ----------------------- -----------------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Class A Shares -1.01% 3.93% -24.21% -20.43% -16.73% -13.96%
- -------------------------------------------------------------------------------------------------------
Class B+ Shares -7.58% -2.71% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
Class C Shares 2.45% 3.45% -21.97% -21.19% -14.80% -14.80%
- -------------------------------------------------------------------------------------------------------
MSCI Latin America
Global Index N/A -0.05% N/A -13.53% N/A -10.26%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The MCSI Latin America Global Index is a broad-based market cap weighted
composite index covering at least 60% of markets in Mexico, Argentina, Brazil,
Chile, Colombia, Peru and Venezuela (assumes dividends are reinvested).
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Latin American Fund is to
provide long-term capital appreciation by investing in common
stocks of Latin American issuers.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of 3.93% for the
Class A shares, -2.71% for the Class B shares and 3.45% for
the Class C shares, and a total return with sales charge of
- -1.01% for the Class A shares, -7.58% for the Class B shares
and 2.45% for the Class C shares, as compared to a total
return of -0.05% for the Morgan Stanley Capital International
("MSCI") Latin America Global Index (the "Index") for the
same period. For the one year period ended December 31, 1995,
the Fund had a total return exclusive of sales charge of
- -20.43% for the Class A shares and -21.19% for the Class C
shares, and a total return with sales charge of -24.21% for
Class A shares and -21.97% for the Class C shares as compared
with -13.53% for the Index for the same period. For the
period from inception on July 6, 1994 through December 31,
1995, the average annual total return for the Fund exclusive
of sales charge was -13.96% for the Class A shares and
- -14.80% for the Class C shares and -16.73% for the Class A
shares with sales charge as compared to -10.26% for the Index
for the same period. Class B shares held prior to May 1, 1995
were renamed Class C shares. The Fund began offering the
current class B shares on August 1, 1995.
Latin American markets continued their mid-year rally in the
3rd quarter of 1995 only to fall back in October. The
negative performance of the Latin markets in the final
quarter was attributable primarily to peso weakness in Mexico
and political infighting that stalled reforms in Brazil. The
markets were also subject to tax-loss selling. By the end of
November, however, the markets stabilized and commenced a
rally driven by short-covering and bottom fishing in view of
the region's improving fundamentals.
The Fund outperformed for the second half of 1995 as a result
of its underweighting of Chile. While 1995 overall was a
difficult year, the Fund's strategy is to invest in Latin
American equities based on secular driving forces which we
believe will produce absolute and relative outperformance
over the medium term. To this end, we believe that going
forward, Brazil and Mexico will rebound more dramatically
than the more defensive markets such as Chile.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE MSCI LATIN AMERICA GLOBAL INDEX AND ARE FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE FUND'S FUTURE
PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
30
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
Over the second half, the MSCI Index for Brazil increased 1%
in U.S. dollars resulting in a net decrease of 21% for 1995.
The government was successful in breaking the constitutional
monopolies in the oil and telecom sectors. Year-end foreign
reserves reached a record level of U.S.$50 billion. The
government engineered a cooling of the economy, slowing GDP
growth from 10.4% in the first quarter to 4.5% for the full
year. 1995 saw a spectacular reduction in the inflation rate
to 22% for the year from 900% in 1994. All the while, Cardoso
maintained approval ratings of over 50%.
Nevertheless, the negative sentiment from the Mexico crisis
and disappointment in the pace of reform led to a decline in
the Brazilian market for the year. The market's
underperformance has been driven by the tight monetary policy
necessary to control inflation. Real interest rates well over
20% slowed down the economy and kept financial assets out of
the equity market. In the final quarter of the year a
political scandal spooked investors regarding Cardoso's
ability to maintain the momentum for reform.
The key task in 1996 will be the implementation of tax,
social security and administrative changes necessary to
reduce the growing fiscal imbalance. Government expenses on
personnel are too high. We believe that with Cardoso's strong
approval ratings, the pro-reform forces will make
significant, albeit not steady progress on these issues
throughout 1996. With the fall in inflation and the desire to
reactivate the economy, monetary authorities will likely
guide short-term interest rates markedly lower over the
course of the year, and we are expecting the economy to pick
up noticeably in the second half of 1996. Overall, economic
growth should be robust, led by consumption and domestic
credit expansion and, subsequently, investment spending. We
are particularly excited by a) the telecommunications sector,
which should demonstrate explosive earnings growth and is
still quite inexpensively valued, b) the beer company Brahma,
which is implementing a huge capacity expansion to keep pace
with booming demand growth, and c) the banking sector, which
should benefit by the decline in interest rates as
provisioning levels decline and loan volumes expand, and
which trades at the most attractive valuation levels in Latin
America. Thus, the Fund will continue to overweight Brazilian
equities into 1996 with an emphasis on telecom, banking and
beverage stocks.
The Mexican stock market increased 3% in U.S. dollars for the
second half of 1995, resulting in a decrease of 23% for the
year. The year's performance was driven by an economic
contraction necessary to stabilize the economy after Mexico's
poorly implemented devaluation at the end of 1994. The
Zedillo administration's stabilization program included tight
monetary and fiscal policy that led to a deep recession over
the first three quarters of 1995, but managed to prevent the
outbreak of uncontrolled inflation that had followed previous
devaluations. The result was a steep increase in
unemployment, a plunge in domestic demand and, consequently,
a financial system crisis.
The shock therapy, while painful, has been effective in
stabilizing the economy in the short-term and restructuring
it for a higher level of sustainable growth. Mexico's trade
accounts have turned from U.S.$18.5 billion deficit in 1994
to an estimated U.S.$7.3 billion surplus for 1995. The
current account is likely to be slightly positive for the
year versus a negative U.S.$28 billion in 1994. Foreign
exchange reserves, which had reached a low of U.S.$3.5
billion in January, grew to an estimated U.S.$16 billion by
year-end, mostly as a result of the U.S. and IMF support
programs.
Weak fourth quarter performance was the result of increased
currency volatility. The peso's weakness resulted from the
circular interplay of technical and fundamental factors
arising from Mexico's balance sheet. Weak peso demand from
investors led to a weakening outlook for recovery, which in
turn further reduced peso demand which further reduced the
outlook for recovery. The vicious circle was broken by
central bank intervention in the currency markets and
continued support by the government for the banking system.
For 1996, the Fund is positioned to take advantage of resumed
economic growth, decreasing interest rates and a stronger
peso in real terms. Sentiment has begun to improve and
valuations are not demanding for an economy emerging from a
depression. While monetary policy is likely to remain
31
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
tight to control inflation, it will be less restrictive than
in 1995. Further, Mexico's debt profile has improved
significantly as debt amortizations for 1996 are projected at
US$10 billion versus U.S.$41 billion in 1995. The banking
system rescue package is estimated to cost between 5-10% of
GDP and, thus, will create a drag on growth for several
years, yet the system is likely to resume lending in 1996.
Fears of a generalized financial collapse have faded. The
Fund is overweight bank, cement and construction companies
and underweight stocks dependent on consumer spending. One
exception is Femsa, a very attractively valued beer company.
The MSCI Index for Argentina increased 17% in U.S. dollars
for the second half and is up 9% for 1995. Argentina's
performance is the result of its demonstrated commitment to
its currency convertibility system. In response to capital
outflows as a consequence of the Mexican crises, the
government bravely chose fiscal austerity. Inflation for the
year came in at 1.8%, a lifetime low for most Argentines. The
currency held firm against the dollar. Due to the return of
confidence and capital flows, economic growth should resume
in 1996 after falling 3% in 1995. While bullish about the
macrofundamentals, the Fund is neutral on the market in light
of uninspiring earnings growth forecasts for the listed
companies.
The Chilean market decreased 17% in the second half of 1995
for a twelve month decline of 6%. Given its stong
macrofundamentals and capital restrictions, the market was
initially insulated from the general sell-off in Latin
America. In the third quarter, however, the market fell as
the currency weakened and the potential arose for increased
competition in the electricity sector. In light of high
relative valuations and an unpromising outlook on interest
rates, currency and earnings growth, the Fund will continue
its underweighting of the market.
"...THE FUNDAMENTAL OUTLOOK REMAINS POSITIVE FOR LATIN AMERICAN COMPANIES..."
Peru increased 10% for the second half of 1995 bringing its
net full year appreciation to 22%. At this point, the
equities seem fully valued and prospective returns are likely
to be weak, especially if commodity prices continue to roll
over.
Colombia declined 21% for the second half of 1995 bringing
its net performance to a decrease of 28% for 1995. The
market's performance was attributable to a presidential
election scandal involving illegal campaign contributions.
While Colombian equities are not expensive, the central bank
is likely to maintain a restrictive monetary policy to combat
stubborn inflation.
Venezuela decreased 17% in the fourth quarter of 1995 leaving
the market down 29% for the year. Faced with dwindling
foreign exchange reserves and mounting debt arrears,
Venezuela devalued its currency in response to IMF
preconditions for financial assistance. While the country's
role as a major oil supplier provides long-term support, the
country is currently stagnating under a huge fiscal deficit.
The equity market also suffers from continued foreign
exchange restrictions.
The performance of Latin American equity markets in 1995 was
driven by the fallout from the Mexican currency crisis. This
crisis presented a clear challenge and raised the question of
whether Latin America would continue, unlike in previous
crises, along the path of political and economic
modernization. The answer was a clear "Yes", as orthodox
economic policies prevailed in all countries, save Venezuela,
in managing the crisis. 1995 represented an extreme cyclical
test of the Latin America story. The long-term, secular
trends driving equity appreciation and earnings growth of
Latin American companies remain intact: 1) sound economic
policies continue to enhance competitiveness, improve living
standards and increase political stability throughout most of
the region; 2) accelerating global trade continues to open
new markets to Latin American producers; 3) professional
management of economic resources by the private sector
continues to increase the efficiency of companies in the
region. In short, the fundamental outlook remains positive
for Latin American companies to continue to achieve high
earnings growth and, thus, for the stock markets' prospects
for continuing to deliver superior, long-term investment
performance.
32
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (58.1%)
ARGENTINA (9.8%)
3,610 Banco de Galicia y Buenos Aires ADR .............. $ 75
133,720 Banco del Suquia S.A. 'B' ........................ 180
3,174 Banco Frances del Rio de la Plata ADR ............ 85
14,900 Capex S.A. 'A' ................................... 109
#11,405 Capex S.A. ADR ................................... 167
8,800 Quilmes Industrial ............................... 137
3,650 Telecom Argentina Stet-France Telecom S.A. ADR ... 174
22,157 Telefonica de Argentina S.A. ADR ................. 604
--------
1,531
--------
BRAZIL (17.0%)
18,213,000 Acesita .......................................... 86
#5,693 Cia Energetica de Minas GDR ...................... 126
3,119 Cia Energetica de Minas Gerais ADR ............... 69
+#13,190 Companhia Brasileira ADR ......................... 132
3,069,000 Eletrobras ....................................... 831
4,460 Eletrobras ADR ................................... 61
2,000 Eletrobras ADR 'B' ............................... 27
136,000 Itausa Investimentos S.A. ........................ 74
475,000 Light ............................................ 152
+#3,216 Lojas Arapua S.A. ADR ............................ 27
+6,962,000 Refripar ......................................... 12
#5,780 Rhodia-Ster S.A. GDR ............................. 52
3,283,000 Telebras ......................................... 127
16,930 Telebras ADR ..................................... 802
431,000 Telesp ........................................... 62
--------
2,640
--------
COLOMBIA (0.5%)
#14,670 Banco de Colombia GDR ............................ 77
--------
MEXICO (30.8%)
12,490 ALFA S.A. de C.V. ................................ 161
79,850 Apasco S.A. de C.V. .............................. 328
157,388 Banacci 'L' ...................................... 234
180,384 Cemex 'CPO' ...................................... 595
+7,880 Cemex S.A. de C.V. ADR ........................... 52
+135,000 Cifra S.A. 'B' ................................... 141
23,400 Empresas ICA Sociedad Controladora S.A. de
C.V. ........................................... 240
297,850 FEMSA 'B' ........................................ 671
+#6,635 Grupo Carso S.A. ADR ............................. 71
122,770 Grupo Financiero Banamex 'B' ..................... 206
+423,000 Grupo Financiero Bancomer 'B' .................... 118
+5,814 Grupo Financiero Bancomer 'L' .................... 2
#93,265 Grupo Financiero Bancomer ADS .................... 542
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
14,738 Grupo Televisa S.A. GDR .......................... $ 332
10,470 Kimberly-Clark de Mexico S.A. 'A' ................ 158
8,075 Pan American Beverages, Inc. 'A' ................. 258
21,155 Telefonos de Mexico 'L' ADR ...................... 674
--------
4,783
--------
TOTAL COMMON STOCKS (COST $9,103)............................... 9,031
--------
PREFERRED STOCKS (34.0%)
BRAZIL (NON-VOTING STOCKS) (34.0%)
64,891,455 Banco Bradesco ................................... 567
+19,517,000 Banco do Brasil .................................. 221
*+8,115,000 Banco Nacional ................................... 17
1,894,819 Brahma ........................................... 780
+116,500 Centrais Eletricas de Santa Catarina 'B' ......... 56
3,249,000 Cia Energetica de Minas Gerais ................... 72
+65,400 Cia Energetica de Sao Paulo ...................... 2
7,235,000 Cia Paulista de Forca e Luz ...................... 194
3,285,000 Continental 2001 ................................. 40
462,000 Coteminas ........................................ 154
+161,293 Dixie Toga S.A. .................................. 141
2,055,000 Eletrobras 'B' ................................... 556
1,153,100 Itaubanco ........................................ 322
7,466,000 Lojas Renner ..................................... 200
56,000 Multibras S.A. ................................... 41
3,288,000 Petrobras ........................................ 281
36,326,000 Refripar ......................................... 73
23,393,383 Telebras ......................................... 1,126
508,000 Telesp ........................................... 75
1,517,000 Vale do Rio Doce ................................. 250
302,000 WEG S.A. ......................................... 124
--------
TOTAL PREFERRED STOCKS (COST $5,469)............................ 5,292
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
- ------------
<C> <S> <C>
RIGHTS (0.0%)
BRAZIL (0.0%)
*+1,903,283 Banco Bradesco, expiring 1/31/96 (COST $0)........ 3
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- ------------
<C> <S> <C>
CONVERTIBLE DEBENTURE (2.0%)
COLOMBIA (2.0%)
$ #410 Banco de Colombia 5.20%, 2/1/99 (COST $395) ...... 312
--------
</TABLE>
The accompanying notes are an integral part of the financial statements. 33
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
FOREIGN GOVERNMENT BOND (2.7%)
VENEZUELA (2.7%)
$ ++750 Republic of Venezuela 6.563%, 12/18/07 (COST
$398)........................................... $ 413
--------
TOTAL FOREIGN SECURITIES (96.8%) (COST $15,365)................. 15,051
--------
SHORT-TERM INVESTMENT (2.3%)
REPURCHASE AGREEMENT (2.3%)
UNITED STATES
366 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95 due 1/2/96, to be repurchased at $366,
collateralized by $340 U.S. Treasury Notes
7.50%, due 11/15/01, valued at $377 (COST
$366)........................................... 366
--------
TOTAL INVESTMENTS IN SECURITIES (COST $15,731).................. 15,417
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
FOREIGN CURRENCY (0.3%)
ARP 16 Argentine Peso ................................... $ 16
BRC 13 Brazilian Real ................................... 13
MXP 91 Mexican Pesos .................................... 12
PSS 4 Peruvian Sol ..................................... 2
--------
TOTAL FOREIGN CURRENCY (COST $43)............................... 43
--------
TOTAL INVESTMENTS (99.4%) (COST $15,774)........................ 15,460
OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%).................... 95
--------
NET ASSETS (100%)............................................... $ 15,555
--------
--------
- ---------------
</TABLE>
<TABLE>
<S> <C><C>
+ -- Non-income producing securities
++ -- Variable or floating rate securities -- rate
disclosed is as of December 31, 1995.
* -- 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>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
Services........................................................... $ 3,644 23.5%
Finance............................................................ 2,961 19.0
Consumer Goods..................................................... 2,733 17.6
Energy............................................................. 2,675 17.2
Materials.......................................................... 1,521 9.8
Multi-Industry..................................................... 505 3.2
Foreign Government Bond............................................ 413 2.7
Broadcasting & Publishing.......................................... 332 2.1
Capital Equipment.................................................. 267 1.7
--------- ---
$ 15,051 96.8%
--------- ---
--------- ---
</TABLE>
34 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- -------------------------------------------------------------------
INVESTMENT OVERVIEW
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 0.8%
Brazil 13.5%
China 0.9%
Colombia 0.2%
Greece 2.6%
Hong Kong 9.5%
India 6.9%
Indonesia 4.4%
Israel 3.0%
Korea 2.2%
Mexico 7.5%
Morocco 0.3%
Pakistan 2.4%
Philippines 4.7%
Poland 1.3%
Portugal 0.4%
Russia 6.8%
South Africa 2.4%
Taiwan 3.3%
Thailand 3.6%
Turkey 5.5%
Other 17.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS
VALUE
SECURITY COUNTRY (000)
- ---------------------------------------- ------------ ------
<S> <C> <C>
Bank for Foreign Economic Affairs Russia $2,218
Telebras ADR Brazil 1,358
Cia Cervejaria Brahma (Preferred) Brazil 1,045
New World Development Co. Ltd. Hong Kong 998
Morgan Stanley India Investment Fund,
Inc. India 992
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SECTORS
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- --------------------- ------- --------
<S> <C> <C>
Finance $12,246 19.5%
Consumer Goods 9,928 15.9
Services 6,689 10.7
Capital Equipment 5,671 9.1
Energy 5,296 8.5
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS**
------------------------------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
------------------ ------------------- -------------------
WITH WITHOUT WITH WITHOUT WITH WITHOUT
SALES SALES SALES SALES SALES SALES
CHARGE* CHARGE CHARGE* CHARGE CHARGE* CHARGE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------
Class A
Shares -7.85% -3.26% -11.52% -7.11% -12.87% -9.97%
- ------------------------------------------------------------------------------------------
Class B+
Shares -11.61% -6.96% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Class C
Shares -4.57% -3.60% -8.73% -7.80% -10.64% -10.64%
- ------------------------------------------------------------------------------------------
IFC Global
Total Return
Composite Index N/A -4.26% N/A -12.32% N/A -3.71%
- ------------------------------------------------------------------------------------------
</TABLE>
* The returns above with sales charge are calculated using the 4.75% sales
charge for Class A shares, the 5% contingent deferred sales charge for Class
B shares, and the 1% contingent deferred sales charge for Class C shares.
** Total returns for the Fund reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waivers and reimbursements, total
returns would be lower.
+ Class B shares were renamed Class C shares on May 1, 1995. Current Class B
shares have been offered since August 1, 1995.
The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa (assuming dividends are reinvested).
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Emerging Markets Fund is to
provide long-term capital appreciation by investing in common
stocks of emerging country issuers.
For the six month period ended December 31, 1995, the Fund
had a total return exclusive of sales charge of -3.26% for
the Class A shares, -6.96% for the Class B shares and -3.60%
for the Class C shares, and a total return with sales charge
of -7.85% for the Class A shares, -11.61% for the Class B
shares, and -4.57% for the Class C shares, as compared to a
total return of -4.26% for the IFC Global Total Return
Composite Index for the same period (the "Index"). For the
one year period ended December 31, 1995, the Fund had a total
return exclusive of sales charge of -7.11% for the Class A
shares and -7.80% for the Class C shares, and a total return
with sales charge of -11.52% for Class A shares and -8.73%
for the Class C shares as compared with -12.32% for the Index
for the same period. For the period from inception on July 6,
1994 through December 31, 1995, the average annual total
return for the Fund exclusive of sales charge was -9.97% for
the Class A shares and -10.64% for the Class C shares and
- -12.87% for the Class A shares with sales charge as compared
to -3.71% for the Index for the same period. Class B shares
held prior to May 1, 1995 were renamed Class C shares. The
Fund began offering the current Class B shares on August 1,
1995.
Only eight emerging markets included in the EMF Index showed
positive returns in dollar terms in 1995: Peru (22.1%),
Israel (21.8%), South Africa (17.3%), Greece (10.2%),
Argentina (8.7%), Indonesia (7.5%), Jordan (5.4%) and
Malaysia (4.0%).
The Fund's performance relative to the Index was negatively
impacted in part to an overweight position in Latin America
during the first quarter of 1995 and to a large underweight
position in South Africa. Also dampening relative performance
was the Fund's small exposure to Malaysia -- 16.7% of the EMF
Index -- which had an above average return in 1995. Other
negatives were Brazil, India and Turkey -- all over-weight
positions which produced disappointing performance. In dollar
terms Brazil was off 21.3%, India off 31.9%, and Turkey fell
5.9%. On a positive note, however, the Hong Kong exposure
added significantly to performance with a rise of 18.2%.
Russian, Israel and Greece were also positive contributors.
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE IFC GLOBAL TOTAL RETURN REGIONAL OR COUNTRY INDICES AND ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
FUND'S FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
35
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
INVESTMENT OVERVIEW (CONT.)
Negative sentiment was fueled by worries about the Mexican
peso devaluation, interest rates, politics and an anticipated
major slowdown of international capital inflows. While the
devaluation took center stage in Latin America, the Asian
markets were influenced by U.S. interest rates. Although
interest rates fell marginally in 1995, many anticipated that
the U.S. Federal Reserve would increase rates, as the economy
was at or near the bottom of the economic cycle. This tended
to keep money at home in the U.S. In addition, there was some
speculation that the reversal of the strong yen\weak dollar
would disadvantage countries such as Korea whose exports have
taken market share from the Japanese. However, Korean labor
costs are still only 1/4th of Japan's and we believe that
this will not have a marked impact on Korean profitability.
Also, in Thailand and Malaysia monetary conditions had to be
tightened to cool these fast growing economies with
problematic trade deficits. Looking through into 1996
however, some policy reversal may be possible in both
countries assuming U.S. interest rate rises are as moderate
as we anticipate.
Politics across the emerging markets gave rise to investor
concern in 1995. In Korea, avarice charges were leveled
against former President Roh Tae Woo. Meanwhile, China
applied pressure to Taiwan by testing missiles offshore in
response to the U.S. visit of President Lee and Taiwan's
continued move toward independence. Turkey's coalition
government of Tansu Ciller collapsed and the country remains
in a political no-man's land after the failure of any party
to win an absolute majority in the December elections. This
is not as bad as it seems--the equity market has since
recovered, recognizing the value in stocks and the improved
economic stability from two years ago. The Russian election
in December produced no surprises but underlined the need for
Boris Yeltsin (assuming he stands again in the Presidential
elections in June) to canvas the communist vote by de-
emphasizing reform in the next few months. On the bright
side, Russia has undergone an economic transformation towards
positive economic growth in 1996 coupled with continued
progress on inflation, a positive current account balance and
more progress on the budget deficit.
"...DIRECT CAPITAL INVESTMENT HAS CONTINUED IN THE EMERGING MARKETS."
India has experienced economic growth in its fiscal year
ending March 31, 1996 of 6.0%, yet the stock market suffered
from a combination of local selling and international
avoidance. Politics influenced overseas investors away from
the market in anticipation of a change in government in the
April 1996 elections. The slow pace of reform of India's
laborious settlement system and the cancellation (recently
reinstated) of the Enron power contract exacerbated the
situation. In the meantime, the 30% plus earnings growth
makes India one of the cheapest emerging markets in the
world. We remain overweight.
Politics in Brazil have been the most settled for many years.
Despite the major success of the Real Plan in bringing
inflation down from above 2,000% per annum to around 22% by
the end of 1995 and less than 20% predicted for 1996, the
stock market suffered from the spill over from the Mexican
crisis and a degree of impatience at the pace of the
restructuring of local and state government spending.
However, with a strong currency, tight monetary policy, and
low fiscal and current account deficits, Brazil is setting
itself up as a potential economic success story for the
remainder of the decade.
Despite doom and gloom forecasts, direct capital investment
has continued in the emerging markets. Direct investment by
multinationals is the positive, long term investment in
infrastructure, factories etc. which will generate future
economic growth. Not surprisingly, in view of the strong U.S.
market and the aftermath of the Mexico crisis, portfolio
flows were much lower in 1995. Portfolio flows to the
emerging markets showed signs of recovery in late 1995 and
continue in 1996 to date. Compelling valuations will attract
capital and the outlook is excellent.
The emerging markets endured a tough 1995, both economically
and politically. Yet, virtually all emerging nations moved
forward with needed reforms, seeking to promote economic
growth and efficiency. The basic market-oriented economic
model (with variations) not only endures in the emerging
markets, it continues to be reinforced as today's economic
success story becomes a model for others. It is important not
to forget that despite politics and economic uncertainties,
at the end of the day we are investing in companies with
strong earnings prospects. The markets should eventually
catch up to economic reality. It is undoubtedly a roller
coaster ride but the returns will repay persistent investors
who have a long-term horizon.
36
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (68.7%)
ARGENTINA (0.8%)
1,500 Capex S.A. 'A'.................................... $ 11
#6,575 Capex S.A. ADR.................................... 96
23,352 Quilmes Industrial................................ 364
-------
471
-------
BRAZIL (4.8%)
9,634,000 Acesita........................................... 46
#747 Cia Energetica de Minas Gerais ADR................ 17
#++4,302 Cia Energetica de Minas Gerais GDR................ 95
2,275,000 Cia Paulista de Forca e Luz....................... 110
#8,865 Companhia Brasileira ADR.......................... 89
2,874,000 Eletrobras........................................ 778
380,000 Light............................................. 122
#11,642 Rhodia-Ster S.A. ADS.............................. 105
5,260,000 Telebras.......................................... 203
28,675 Telebras ADR...................................... 1,358
740,000 Telesp............................................ 107
-------
3,030
-------
CHINA (0.9%)
454,000 Harbin Power Equipment Co......................... 67
+4,300 Jilin Chemical Industrial Co. ADR................. 93
50,000 Maanshan Iron & Steel Co. Ltd..................... 7
170,000 Shanghai Diesel Engine Co. Ltd. 'B'............... 63
14,200 Shanghai Yaohua Pilkington Glass 'B'.............. 12
245,200 Shenzhen Chiwan Wharf Holdings 'B'................ 92
870,000 Yizheng Chemical Fibre Co. 'H'.................... 196
89,000 Zhuhai Pharmaceutical 'B'......................... 29
-------
559
-------
GREECE (2.6%)
16,500 Aegek............................................. 142
6,000 Alpha Credit Bank................................. 347
24,400 Delta Dairy S.A................................... 458
10,850 Ergo Bank S.A..................................... 432
8,500 Hellenic Bottling Co. S.A......................... 278
-------
1,657
-------
HONG KONG (9.5%)
698,000 Charoen Pokphand Co............................... 280
96,000 Cheung Kong Holdings Ltd.......................... 585
189,000 Citic Pacific Ltd................................. 647
270,000 Florens Group Ltd................................. 176
684,000 Guangdong Investments Ltd......................... 411
48,100 Hang Seng Bank Ltd................................ 431
162,000 Hong Kong Telecommunications Ltd.................. 289
682,000 Hopewell Holdings Ltd............................. 392
123,000 Hutchison Whampoa Ltd............................. 749
229,000 New World Development Co. Ltd..................... 998
+234,000 Shenzhen North Jianshe Motorcycle Co. Ltd......... 97
33,000 Sun Hung Kai Properties Ltd....................... 270
37,000 Swire Pacific Ltd. 'A'............................ 287
166,000 Varitronix International Ltd...................... 308
230,000 Zhenhai Refining and Chemical Co.................. 43
-------
5,963
-------
INDIA (6.7%)
+6,655 Century Textiles & Industries GDR................. 898
#157,950 E.I.D. Parry GDR.................................. 474
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
90,000 Great Eastern Shipping GDR........................ $ 776
#+160 JCT Ltd........................................... 1
4,320 JCT Ltd. GDR...................................... 29
@108,700 Morgan Stanley India Investment Fund, Inc......... 992
50,000 Raymond Limited Ltd. GDR.......................... 850
80,000 Tube Investments of India......................... 180
-------
4,200
-------
INDONESIA (4.4%)
*100,000 Bank Bali (Foreign)............................... 197
*51,000 Bank International Indonesia (Foreign)............ 169
*+112,000 Bimantara Citra (Foreign)......................... 93
*55,500 Charoen Pokphand Co. Ltd.(Foreign)................ 113
*22,000 Duta Pertiwi Property (Foreign)................... 22
*24,000 Hanjaya Mandala Sampoerna (Foreign)............... 250
*109,500 Indocement Tunggal (Foreign)...................... 368
*67,000 Indosat (Foreign)................................. 243
*79,000 Kalbe Farma (Foreign)............................. 268
*16,000 Kermika Indonesia Association (Foreign)........... 8
*61,500 Semen Gresik (Foreign)............................ 172
*35,166 Sorini Corp. (Foreign)............................ 171
*+95,000 Telekomunikasi (Foreign).......................... 125
*89,600 Tempo Scan Pacific (Foreign)...................... 243
*173,000 United Tractors (Foreign)......................... 325
-------
2,767
-------
ISRAEL (3.0%)
4,000 Elbit Ltd......................................... 213
680 First International Bank of Israel Ltd. '1'....... 80
2,000 First International Bank of Israel Ltd. '5'....... 241
44,327 Israel Land Development Co. Ltd................... 128
5,100 Koor Industries Ltd............................... 506
34,432 Osem Investment Ltd............................... 206
9,000 Super Sol Ltd..................................... 189
7,000 Teva Pharmaceutical Industries Ltd. ADR........... 325
-------
1,888
-------
KOREA (2.2%)
2,800 Pohang Iron & Steel (Foreign)..................... 183
*+4,220 Samsung Electronics Co. (Foreign)................. 767
*+18 Samsung Electronics Co. (Foreign) 2nd Issue....... 3
*14,200 Shinhan Bank Co. Ltd. (Foreign)................... 312
3,000 Yukong Ltd. (Foreign)............................. 104
-------
1,369
-------
MEXICO (7.5%)
9,400 ALFA S.A. de C.V.................................. 121
35,900 Apasco S.A. de C.V................................ 147
229,055 Banacci 'B'....................................... 385
137,082 Banacci 'L'....................................... 204
147,662 Cemex 'CPO'....................................... 487
#34,819 Cemex 'CPO' ADR................................... 230
+105,500 Cifra S.A. de C.V................................. 107
5,530 Coca Cola Femsa S.A............................... 102
22,025 Empresas ICA Sociedad Controladora S.A. de C.V.... 226
295,850 FESMA 'B'......................................... 667
#+9,300 Grupo Carso S.A. ADR.............................. 99
+158,000 Grupo Financiero Bancomer 'B'..................... 44
</TABLE>
The accompanying notes are an integral part of the financial statements. 37
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
MEXICO (CONT.)
+7,925 Grupo Financiero Bancomer 'L'..................... $ 2
#104,900 Grupo Financiero Bancomer ADR..................... 610
12,560 Grupo Televisa S.A. GDR........................... 283
#+7,630 Hylsamex ADR...................................... 164
9,493 Pan American Beverages, Inc. 'A'.................. 304
14,430 Telefonos de Mexico 'L' ADR....................... 460
-------
4,642
-------
MOROCCO (0.3%)
2,000 ONA S.A........................................... 77
2,000 Wafabank.......................................... 86
-------
163
-------
PAKISTAN (2.4%)
+95,000 Dewan Salman Fibre................................ 229
+157,300 D.G. Khan Cement Ltd.............................. 138
100,000 Fauji Fertilizer Co. Ltd.......................... 150
+165,000 Karachi Electric.................................. 128
+144,750 Nishat Mills Ltd.................................. 124
35,100 Pakistan State Oil Co. Ltd........................ 272
+3,750 Pakistan Telecommunication Co. (Vouchers)......... 337
+162,000 Sui Northern Gas Pipelines........................ 141
-------
1,519
-------
PHILIPPINES (4.7%)
249,225 Ayala Land, Inc. 'B'.............................. 304
+456,900 C&P Homes, Inc.................................... 335
+346,000 DMCI Holdings, Inc................................ 124
965,000 JG Summit Holding 'B'............................. 265
54,800 Manilla Electric 'B'.............................. 447
840,900 Petron Corp....................................... 433
6,200 Philippine Long Distance Telephone ADR............ 337
+1,025,100 SM Prime Holdings, Inc............................ 293
113,900 San Miguel Corp. 'B'.............................. 389
-------
2,927
-------
POLAND (1.3%)
12,500 Bank Rozwoju Eksportu S.A......................... 190
*15,750 Debica S.A........................................ 238
1,800 E. Wedel S.A...................................... 59
31,300 Electrim.......................................... 106
+748,000 Mostostal-Export.................................. 94
2,100 Zywiec............................................ 145
-------
832
-------
PORTUGAL (0.2%)
5,000 Banco Totta & Acores.............................. 83
6,000 Filmes Lusomundo.................................. 64
-------
147
-------
RUSSIA (2.6%)
+72,500 Irkutskenergo..................................... 359
+22,000 Lukoil Holdings................................... 101
+1,050,000 Moscow Energy (Mosenergo)......................... 278
+90,000 Rostelecom........................................ 421
+14,582,500 United Energy System.............................. 444
+47,500 United Energy System 1st Issue.................... 1
-------
1,604
-------
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
SOUTH AFRICA (2.4%)
43,500 Gencor Ltd........................................ $ 152
250,000 ISCOR............................................. 225
@34,265 Morgan Stanley Africa Investment Fund, Inc........ 440
76,170 Murray & Roberts Holdings Ltd..................... 538
18,274 SASOL Ltd......................................... 150
-------
1,505
-------
TAIWAN (3.3%)
+50,400 Advanced Semiconductor Engineering, Inc........... 122
355,000 China Steel Corp.................................. 284
*+140,040 Mosel Vitelic Ltd................................. 416
+109,999 Shinkong Synthetic Fibers......................... 95
+209,800 Taiwan Semiconductor Co........................... 657
122,000 United Micro Electronics Corp. Ltd................ 306
+19,000 Walsin Lihwa Electric Wire & Cable Corp. GDR...... 190
-------
2,070
-------
THAILAND (3.6%)
14,800 Advanced Information Services Co. Ltd.
(Foreign)....................................... 262
48,600 Bangkok Bank Co. Ltd. (Foreign)................... 590
75,700 Finance One Co. Ltd. (Foreign).................... 526
10,300 Shinawatra Computer Co. Ltd. (Foreign)............ 254
59,900 Thai Farmer's Bank Public Co. (Foreign)........... 604
-------
2,236
-------
TURKEY (5.5%)
927,660 Aksa Akrilik Kimya Sanayii A.S.................... 286
355,000 Bagfas Bandirma Gubre Fabrikalari A.S............. 109
755,000 Borusan Birmesik.................................. 152
+1,550,000 Bossa Ticaret ve Sanayii Isletmeleri T.A.S........ 111
+2,000,000 Demirbank Tas..................................... 121
1,429,500 Ege Biracilik Ve Malt Sanayii..................... 493
470,000 Ege Seramik Co., Inc.............................. 112
314,000 Erciyas Biracilik Ve Malt Sanayii................. 147
2,320,000 Eregli Demir Ve Celik Fabrikalari T.A.S........... 190
485,000 Guney Biraculik Ve Malt Sana...................... 71
258,000 Migros Turk....................................... 197
7,776,000 Sabah............................................. 153
627,000 Tat Konserve...................................... 396
2,545,000 Tofas Turk Otomobil Fabrikasi..................... 247
2,380,000 Trakya Cam Sanayii A.S............................ 242
1,965,000 Turkiye Garanti Bankasi........................... 165
5,609,400 Yapi Ve Kredi Bankasi............................. 230
-------
3,422
-------
TOTAL COMMON STOCKS (COST $44,436)............................. 42,971
-------
PREFERRED STOCKS (8.9%)
BRAZIL (NON-VOTING STOCKS) (8.7%)
106,545,746 Banco Bradesco.................................... 932
+34,601,000 Banco do Brasil................................... 392
*11,156,000 Banco Nacional.................................... 23
2,540,099 Cia Cervejaria Brahma............................. 1,045
+4,190,000 Cia Energetica de Minas Gerais.................... 93
1,350,000 Cia Paulista de Forca e Luz....................... 36
3,298,000 Eletrobras 'B'.................................... 892
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------
<C> <S> <C>
BRAZIL (CONT.)
1,968,200 Itaubanco......................................... $ 549
2,690,000 Petrobras......................................... 230
200,000 Petrobras Distribuidora........................... 5
16,828,390 Telebras.......................................... 810
1,754,000 Telesp............................................ 258
1,095,000 Vale do Rio Doce.................................. 180
-------
5,445
-------
GREECE (0.0%)
3,000 Aegek Ltd. GDR.................................... 16
-------
PORTUGAL (0.2%)
11,780 Filmes Lusomundo.................................. 110
-------
TOTAL PREFERRED STOCKS (COST $5,778)........................... 5,571
-------
<CAPTION>
NO. OF
RIGHTS
- -----------
<C> <S> <C>
RIGHTS (0.0%)
BRAZIL (0.0%)
+2,566,000 Banco Bradesco, expiring 1/31/96.................. 21
-------
PAKISTAN (0.0%)
+47,190 D.G. Khan Cement Ltd.............................. 16
*+750 Dewan Salman Modaraba............................. --
+5,250 Nishat Mills Ltd.................................. 4
-------
20
-------
TOTAL RIGHTS (COST $0)......................................... 41
-------
<CAPTION>
FACE
AMOUNT
(000)
- -----------
<C> <S> <C>
FIXED INCOME SECURITIES (4.6%)
CONVERTIBLE DEBENTURES (1.0%)
COLOMBIA (0.2%)
$ #170 Banco de Colombia 5.20%, 2/1/99................... 129
-------
INDIA (0.2%)
120 Tata Iron & Steel Co. 2.25%, 4/1/99............... 107
-------
RUSSIA (0.6)%
+482 Lukoil Holdings Zero Coupon, 4/6/96............... 386
-------
TOTAL CONVERTIBLE DEBENTURES (COST $802)....................... 622
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------
<C> <S> <C>
LOAN AGREEMENT (3.6%)
RUSSIA (3.6%)
$ ++6,500 Bank for Foreign Economic Affairs
(COST $1,741)................................... $ 2,218
-------
TOTAL FIXED INCOME SECURITIES (COST $2,543).................... 2,840
-------
TOTAL FOREIGN SECURITIES (82.2%) (COST $52,757)................ 51,423
-------
SHORT TERM INVESTMENT (16.5%)
REPURCHASE AGREEMENT (16.5%)
UNITED STATES
10,339 The Chase Manhattan Bank, N.A., 5.35%, dated
12/29/95, due 1/2/96, to be repurchased at
$10,345, collateralized by $7,720 U.S. Treasury
Bonds, 8.875%, due 8/15/17, valued at $10,547
(COST $10,339).................................. 10,339
-------
TOTAL INVESTMENT IN SECURITIES (COST $63,096).................. 61,762
-------
FOREIGN CURRENCY (0.1%)
ARP 2 Argentine Peso.................................... 2
BRC 5 Brazilian Real.................................... 5
MXP 6 Mexican Peso...................................... 1
PKR 949 Pakistani Rupee................................... 28
TWD 692 Taiwan Dollar..................................... 25
THB 369 Thailand Baht..................................... 15
-------
TOTAL FOREIGN CURRENCY (COST $78).............................. 76
-------
TOTAL INVESTMENTS (98.8%) (COST $63,174)....................... 61,838
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)................... 723
-------
NET ASSETS (100%).............................................. $62,561
-------
-------
</TABLE>
<TABLE>
<S> <C> <C>
- ------------
+ -- Non-income producing securities
++ -- Non-income producing security -- in default
* -- Fair valued securities (totaling U.S.$4,526 or
7.2% of net assets at December 31, 1995.) -- See
Note A-1
@ -- The fund is advised by an affiliate
# -- 144A Security -- certain conditions for public
sale may exist
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENTAGE OF
INDUSTRY (000) NET ASSETS
- ---------------------------------------- -------- -------------
<S> <C> <C>
Finance................................. $ 12,246 19.5%
Consumer Goods.......................... 9,928 15.9
Services................................ 6,689 10.7
Capital Equipment....................... 5,671 9.1
Energy.................................. 5,296 8.5
Materials............................... 4,930 7.9
Multi-Industry.......................... 4,445 7.1
Loan Agreements......................... 2,218 3.5
-------- ---
51,423 82.2%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL GLOBAL WORLDWIDE
EQUITY FIXED ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in
Securities, at Value*
(Note 1) -- See
accompanying
portfolios $ 93,498 $ 16,693 $ 315,165 $ 43,317 $ 76,063 $ 15,417 $ 61,762
Foreign Currency at
Value 130 10 1,060 -- -- 43 76
Cash -- 78 15,582 -- -- 2 --
Receivable for:
Investments Sold -- -- 1,926 86 -- 55 114
Fund Shares Sold 1,364 22 2,733 193 1,038 484 1,051
Dividends 171 -- 489 90 -- 41 86
Interest 1 380 5 1 1,484 11 10
Foreign Withholding
Tax Reclaim 46 1 21 -- -- -- 2
Unrealized Gain on
Forward Foreign
Currency Contracts 4,140 20 -- -- -- -- --
Deferred Organization
Costs 39 39 27 46 52 51 51
Receivable from
Investment Adviser -- -- -- -- -- 16 --
Other 7 -- 28 1 -- -- 6
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets 99,396 17,243 337,036 43,734 78,637 16,120 63,158
------------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable for:
Investments Purchased 6 1,149 421 -- 5,091 402 122
Fund Shares Redeemed 218 52 511 98 131 100 197
Dividends Declared 26 -- -- -- 4 -- 1
Investment Advisory
Fees 136 23 783 65 96 -- 58
Administrative Fees 31 4 85 11 16 7 15
Custody Fees 29 5 105 4 7 23 54
Professional Fees 12 5 28 6 9 5 9
Distribution Fees 145 21 451 61 90 17 87
Shareholder Reporting
Expenses 19 3 60 8 15 2 11
Filing and
Registration Fees -- -- 17 6 19 9 11
Bank Overdraft -- -- -- -- 43 -- 15
Other -- -- 1 -- -- -- --
Deferred India Tax -- -- -- -- -- 17
------------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 622 1,262 2,462 259 5,521 565 597
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 98,774 $ 15,981 $ 334,574 $ 43,475 $ 73,116 $ 15,555 $ 62,561
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Assets Consist Of:
Capital Stock at Par $ 7 $ 2 $ 21 $ 3 $ 6 $ 2 $ 6
Paid in Capital in
Excess of Par 86,556 15,782 311,536 39,635 71,340 18,955 67,717
Undistributed
(Distribution in
Excess of) Net
Investment Income (3,482) (207) (1,343) 9 (69) (18) (197)
Accumulated
(Distribution in
Excess of) Net
Realized Gain (Loss) 1,273 (183) 1,004 315 (55) (3,069) (3,611)
Unrealized Appreciation
(Depreciation) on
Investments and
Foreign Currency
Translations** 14,420 587 23,356 3,513 1,894 (315) (1,354)
------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $ 98,774 $ 15,981 $ 334,574 $ 43,475 $ 73,116 $ 15,555 $ 62,561
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS A SHARES:
Net Assets $ 47,839 $ 10,090 $ 183,658 $ 23,975 $ 38,728 $ 10,076 $ 33,562
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,540 991 11,317 1,774 3,208 1,070 3,285
Net Asset Value and
Redemption Price Per
Share $ 13.51 $ 10.18 $ 16.23 $ 13.51 $ 12.07 $ 9.42 $ 10.22
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
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) $ 14.18 $ 10.69 $ 17.04 $ 14.18 $ 12.67 $ 9.89 $ 10.73
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS B SHARES:
Net Assets $ 3,056 $ 279 $ 11,398 $ 1,467 $ 10,620 $ 424 $ 2,500
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 230 28 714 109 881 46 246
Net Asset Value and
Offering Price Per
Share $ 13.29 $ 10.15 $ 15.97 $ 13.50 $ 12.06 $ 9.32 $ 10.15
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
CLASS C SHARES:
Net Assets $ 47,879 $ 5,612 $ 139,518 $ 18,033 $ 23,768 $ 5,055 $ 26,499
Shares Issued and
Outstanding ($.001 par
value) (Authorized
2,625,000,000) 3,593 553 8,752 1,335 1,970 544 2,612
Net Asset Value and
Offering Price Per
Share $ 13.32 $ 10.14 $ 15.94 $ 13.50 $ 12.06 $ 9.30 $ 10.15
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
Investments at Cost,
Including Foreign
Currency $ 83,300 $ 16,138 $ 292,869 $ 39,804 $ 74,169 $ 15,774 $ 63,174
------------- ----------- ----------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
* Includes repurchase agreements aggregating $2,340,000, $1,365,000,
$12,076,000, $1,517,000, $4,939,000, $366,000, and $10,339,000 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.
** Net of accrual for Indian tax of U.S. $17,000 for Emerging Markets Fund.
40 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL GLOBAL WORLDWIDE
EQUITY FIXED ASIAN AMERICAN HIGH LATIN EMERGING
ALLOCATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS
FUND FUND FUND FUND FUND FUND FUND
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1995 31, 1995 31, 1995 31, 1995 31, 1995 31, 1995 31, 1995
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 919 $ -- $ 2,253 $ 627 $ -- $ 117 $ 417
Interest 31 550 159 67 3,286 55 169
Less: Foreign Taxes
Withheld (38) -- (187) -- -- (7) (34)
---------- ----- ---------- ---------- ---------- ---------- ----------
Total Income 912 550 2,225 694 3,286 165 552
---------- ----- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory
Fees
Basic Fee 452 60 1,580 173 197 87 348
Less: Fees Waived (171) (44) -- (59) (43) (87) (172)
---------- ----- ---------- ---------- ---------- ---------- ----------
Investment Advisory
Fees -- Net 281 16 1,580 114 154 -- 176
Administrative Fees 179 30 490 66 82 31 95
Custodian Fees 91 10 256 11 17 72 143
Filing and Registration
Fees 3 2 6 2 16 3 6
Directors' Fees and
Expenses 3 1 9 2 2 1 20
Professional Fees 27 5 57 12 18 8 24
Shareholder Reports 37 8 143 19 24 10 27
Distribution Fees
Class A 57 13 220 29 39 11 36
Class B 5 1 18 4 19 1 6
Class C 218 29 682 84 88 24 130
Amortization of
Organizational Costs 10 10 6 8 8 7 7
Blue Sky Fees
Class A 5 4 3 5 4 4 3
Class B -- -- -- -- -- -- --
Class C 5 2 3 4 3 1 3
Other 14 8 95 10 12 16 26
Expenses Reimbursed by
Adviser -- -- -- -- -- (24) --
---------- ----- ---------- ---------- ---------- ---------- ----------
Net Expenses 935 139 3,568 370 486 165 702
---------- ----- ---------- ---------- ---------- ---------- ----------
Net Investment Income
(Loss) (23) 411 (1,343) 324 2,800 -- (150)
---------- ----- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS)
ON:
Investments 2,456 215 2,372 775 473 (762) (2,560)
Foreign Currency
Transactions (33) 126 14 -- -- (1) (21)
---------- ----- ---------- ---------- ---------- ---------- ----------
Net Realized Gain
(Loss) 2,423 341 2,386 775 473 (763) (2,581)
---------- ----- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION
ON:
Investments 5,532 53 (4,929) 1,558 1,927 1,132 348
Foreign Currency
Translations 3,830 55 2 -- -- (1) (20)
---------- ----- ---------- ---------- ---------- ---------- ----------
Change in Unrealized
Appreciation/Depreciation 9,362 108 (4,927) 1,558 1,927 1,131 328
---------- ----- ---------- ---------- ---------- ---------- ----------
Net Realized Gain (Loss)
and Change in Unrealized
Appreciation/Depreciation 11,785 449 (2,541) 2,333 2,400 368 (2,253)
---------- ----- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $ 11,762 $ 860 $ (3,884) $ 2,657 $ 5,200 $ 368 $ (2,403)
---------- ----- ---------- ---------- ---------- ---------- ----------
---------- ----- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements. 41
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income (Loss) $ 487 $ (23)
Net Realized Gain 137 2,423
Change in Unrealized Appreciation/Depreciation 3,795 9,362
------------- --------
Net Increase in Net Assets from Operations 4,419 11,762
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (1,293)
Class B+ -- (69)
Class C -- (1,107)
In Excess of Net Investment Income:
Class A (168) --
Class C (82) --
------------- --------
(250) (2,469)
------------- --------
Net Realized Gain:
Class A (427) (1,592)
Class B+ -- (96)
Class C (407) (1,624)
------------- --------
(834) (3,312)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (1,084) (5,781)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Issued 32,645 15,988
Distributions Reinvested 996 5,242
Redeemed (17,247) (11,483)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 16,394 9,747
------------- --------
Total Increase in Net Assets 19,729 15,728
NET ASSETS -- Beginning of Period 63,317 83,046
------------- --------
NET ASSETS -- End of Period (including distributions in excess of net investment income of
$990 and $3,482, respectively) $ 83,046 $ 98,774
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 1,341 484
Distributions Reinvested 45 196
Redeemed (794) (519)
------------- --------
Net Increase in Class A Shares Outstanding 592 161
------------- --------
------------- --------
Dollars:
Issued $ 16,461 $ 6,582
Distributions Reinvested 546 2,640
Redeemed (9,697) (7,090)
------------- --------
Net Increase in Class A Shares Outstanding $ 7,310 $ 2,132
------------- --------
------------- --------
Class B+:
--------
Shares:
Issued -- 218
Distributions Reinvested -- 12
------------- --------
Net Increase in Class B Shares Outstanding -- 230
------------- --------
------------- --------
Dollars:
Issued $ -- $ 2,923
Distributions Reinvested -- 156
------------- --------
Net Increase in Class B Shares Outstanding $ -- $ 3,079
------------- --------
------------- --------
Class C:
--------
Shares:
Issued 1,329 485
Distributions Reinvested 38 184
Redeemed (623) (332)
------------- --------
Net Increase in Class C Shares Outstanding 744 337
------------- --------
------------- --------
Dollars:
Issued $ 16,184 $ 6,483
Distributions Reinvested 450 2,446
Redeemed (7,550) (4,393)
------------- --------
Net Increase in Class C Shares Outstanding $ 9,084 $ 4,536
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
42 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 869 $ 411
Net Realized Gain (Loss) (435) 341
Change in Unrealized Appreciation/Depreciation 1,228 108
------------- -------
Net Increase in Net Assets Resulting from Operations 1,662 860
------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (369) (605)
Class B+ -- (13)
Class C (173) (330)
------------- -------
Net Decrease in Net Assets Resulting from Distributions (542) (948)
------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 8,903 2,123
Distributions Reinvested 328 505
Redeemed (9,070) (3,616)
------------- -------
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions 161 (988)
------------- -------
Total Increase (Decrease) in Net Assets 1,281 (1,076)
NET ASSETS -- Beginning of Period 15,776 17,057
------------- -------
NET ASSETS -- End of Period (including undistributed (distributions in excess of) net
investment income of $330 and $(207), respectively) $ 17,057 $ 15,981
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 682 146
Distributions Reinvested 27 37
Redeemed (712) (276)
------------- -------
Net Decrease in Class A Shares Outstanding (3) (93)
------------- -------
------------- -------
Dollars:
Issued $ 6,628 $ 1,508
Distributions Reinvested 258 375
Redeemed (6,878) (2,829)
------------- -------
Net Increase (Decrease) in Class A Shares Outstanding $ 8 $ (946)
------------- -------
------------- -------
Class B+:
--------
Shares:
Issued -- 27
Distributions Reinvested -- 1
------------- -------
Net Increase in Class B Shares Outstanding -- 28
------------- -------
------------- -------
Dollars:
Issued $ -- $ 274
Distributions Reinvested -- 7
------------- -------
Net Increase in Class B Shares Outstanding $ -- $ 281
------------- -------
------------- -------
Class C:
--------
Shares:
Issued 239 33
Distributions Reinvested 7 12
Redeemed (228) (77)
------------- -------
Net Increase (Decrease) in Class C Shares Outstanding 18 (32)
------------- -------
------------- -------
Dollars:
Issued $ 2,275 $ 341
Distributions Reinvested 70 123
Redeemed (2,192) (787)
------------- -------
Net Increase (Decrease) in Class C Shares Outstanding $ 153 $ (323)
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
The accompanying notes are an integral part of the financial statements. 43
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (944) $ (1,343)
Net Realized Gain 5,252 2,386
Change in Unrealized Appreciation/Depreciation 19,182 (4,927)
------------- --------
Net Increase (Decrease) in Net Assets Resulting from Operations 23,490 (3,884)
------------- --------
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 109,249 62,328
Distributions Reinvested 8,260 --
Redeemed (68,507) (42,034)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 49,002 20,294
------------- --------
Total Increase in Net Assets 63,063 16,410
NET ASSETS -- Beginning of Period 255,101 318,164
------------- --------
NET ASSETS -- End of Period (including distributions in excess of net investment income of
$1,343 at December 31, 1995.) $ 318,164 $ 334,574
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 3,855 1,962
Distributions Reinvested 299 --
Redeemed (2,192) (1,523)
------------- --------
Net Increase in Class A Shares Outstanding 1,962 439
------------- --------
------------- --------
Dollars:
Issued $ 62,609 $ 31,398
Distributions Reinvested 4,563 --
Redeemed (35,024) (24,347)
------------- --------
Net Increase in Class A Shares Outstanding $ 32,148 $ 7,051
------------- --------
------------- --------
Class B+:
--------
Shares:
Issued -- 716
Redeemed -- (2)
------------- --------
Net Increase in Class B Shares Outstanding -- 714
------------- --------
------------- --------
Dollars:
Issued $ -- $ 11,132
Redeemed -- (29)
------------- --------
Net Increase in Class B Shares Outstanding $ -- $ 11,103
------------- --------
------------- --------
Class C:
--------
Shares:
Issued 2,904 1,260
Distributions Reinvested 245 --
Redeemed (2,123) (1,123)
------------- --------
Net Increase in Class C Shares Outstanding 1,026 137
------------- --------
------------- --------
Dollars:
Issued $ 46,640 $ 19,798
Distributions Reinvested 3,697 --
Redeemed (33,483) (17,658)
------------- --------
Net Increase in Class C Shares Outstanding $ 16,854 $ 2,140
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
44 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 474 $ 324
Net Realized Gain 362 775
Change in Unrealized Appreciation/Depreciation 2,637 1,558
------------- --------
Net Increase in Net Assets Resulting from Operations 3,473 2,657
------------- --------
DISTRIBUTIONS:
Net Investment Income:
Class A (350) (220)
Class B+ -- (6)
Class C (143) (102)
------------- --------
(493) (328)
------------- --------
Net Realized Gain:
Class A (260) (331)
Class B+ -- (20)
Class C (167) (252)
------------- --------
(427) (603)
------------- --------
Net Decrease in Net Assets Resulting from Distributions (920) (931)
------------- --------
CAPITAL SHARE TRANSACTIONS (1):
Issued 15,936 9,856
Distributions Reinvested 472 622
Redeemed (2,373) (3,271)
------------- --------
Net Increase in Net Assets Resulting from Capital Share Transactions 14,035 7,207
------------- --------
Total Increase in Net Assets 16,588 8,933
NET ASSETS -- Beginning of Period 17,954 34,542
------------- --------
NET ASSETS -- End of Period (Including undistributed net investment income of $13 and $9,
respectively) $ 34,542 $ 43,475
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 794 293
Distributions Reinvested 29 29
Redeemed (135) (152)
------------- --------
Net Increase in Class A Shares Outstanding 688 170
------------- --------
------------- --------
Dollars:
Issued $ 9,738 $ 3,957
Distributions Reinvested 351 388
Redeemed (1,647) (2,067)
------------- --------
Net Increase in Class A Shares Outstanding $ 8,442 $ 2,278
------------- --------
------------- --------
Class B+:
--------
Shares:
Issued -- 107
Distributions Reinvested -- 2
------------- --------
Net Increase in Class B Shares Outstanding -- 109
------------- --------
------------- --------
Dollars:
Issued $ -- $ 1,441
Distributions Reinvested -- 25
------------- --------
Net Increase in Class B Shares Outstanding $ -- $ 1,466
------------- --------
------------- --------
Class C:
--------
Shares:
Issued 506 333
Distributions Reinvested 11 15
Redeemed (60) (89)
------------- --------
Net Increase in Class C Shares Outstanding 457 259
------------- --------
------------- --------
Dollars:
Issued $ 6,198 $ 4,458
Distributions Reinvested 121 209
Redeemed (726) (1,204)
------------- --------
Net Increase in Class C Shares Outstanding $ 5,593 $ 3,463
------------- --------
------------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
The accompanying notes are an integral part of the financial statements. 45
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income $ 2,264 $ 2,800
Net Realized Gain (Loss) (470) 473
Change in Unrealized Appreciation/Depreciation 82 1,927
------------- -------
Net Increase in Net Assets Resulting from Operations 1,876 5,200
------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (1,262) (1,793)
Class B+ -- (256)
Class C (906) (985)
------------- -------
(2,168) (3,034)
------------- -------
Net Realized Gain:
Class A (104) --
Class C (97) --
------------- -------
(201) --
------------- -------
Net Decrease in Net Assets Resulting from Distributions (2,369) (3,034)
------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,132 52,358
Distributions Reinvested 918 1,657
Redeemed (7,796) (9,764)
------------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 14,254 44,251
------------- -------
Total Increase in Net Assets 13,761 46,417
NET ASSETS -- Beginning of Period 12,938 26,699
------------- -------
NET ASSETS -- End of Period (including undistributed (distributions in excess of) net
investment income of $165 and $(69), respectively.) $ 26,699 $ 73,116
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 1,277 2,585
Distributions Reinvested 51 92
Redeemed (611) (750)
------------- -------
Net Increase in Class A Shares Outstanding 717 1,927
------------- -------
------------- -------
Dollars:
Issued $ 14,466 $ 30,377
Distributions Reinvested 542 1,080
Redeemed (6,987) (8,718)
------------- -------
Net Increase in Class A Shares Outstanding $ 8,021 $ 22,739
------------- -------
------------- -------
Class B+:
--------
Shares:
Issued -- 873
Distributions Reinvested -- 11
Redeemed -- (3)
------------- -------
Net Increase in Class B Shares Outstanding -- 881
------------- -------
------------- -------
Dollars:
Issued $ -- $ 10,297
Distributions Reinvested -- 129
Redeemed -- (37)
------------- -------
Net Increase in Class B Shares Outstanding $ -- $ 10,389
------------- -------
------------- -------
Class C:
--------
Shares:
Issued 564 992
Distributions Reinvested 35 38
Redeemed (73) (86)
------------- -------
Net Increase in Class C Shares Outstanding 526 944
------------- -------
------------- -------
Dollars:
Issued $ 6,666 $ 11,684
Distributions Reinvested 376 448
Redeemed (809) (1,009)
------------- -------
Net Increase in Class C Shares Outstanding $ 6,233 $ 11,123
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
46 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
JULY 6, 1994* SIX MONTHS ENDED
TO DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Loss $ (58) $ --
Net Realized Loss (2,340) (763)
Change in Unrealized Appreciation/Depreciation (1,446) 1,131
------------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations (3,844) 368
------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (18)
Paid in Capital:
Class A (124) --
Class C (50) --
------------- -------
(174) --
------------- -------
Net Decrease in Net Assets Resulting from Distributions (174) (18)
------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 21,076 7,163
Distributions Reinvested 135 15
Redeemed (5,450) (3,716)
------------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 15,761 3,462
------------- -------
Total Increase in Net Assets 11,743 3,812
NET ASSETS -- Beginning of Period -- 11,743
------------- -------
NET ASSETS -- End of Period (including distributions in excess of net investment income of
$18 at December 31, 1995.) $ 11,743 $ 15,555
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 1,235 532
Distributions Reinvested 9 1
Redeemed (400) (307)
------------- -------
Net Increase in Class A Shares Outstanding 844 226
------------- -------
------------- -------
Dollars:
Issued $ 14,271 $ 5,154
Distributions Reinvested 103 15
Redeemed (3,781) (2,996)
------------- -------
Net Increase in Class A Shares Outstanding $ 10,593 $ 2,173
------------- -------
------------- -------
Class B+:
--------
Shares:
Issued -- 46
------------- -------
Net Increase in Class B Shares Outstanding -- 46
------------- -------
------------- -------
Dollars:
Issued $ -- $ 438
------------- -------
Net Increase in Class B Shares Outstanding $ -- $ 438
------------- -------
------------- -------
Class C:
--------
Shares:
Issued 613 165
Distributions Reinvested 3 --
Redeemed (162) (75)
------------- -------
Net Increase in Class C Shares Outstanding 454 90
------------- -------
------------- -------
Dollars:
Issued $ 6,805 $ 1,571
Distributions Reinvested 32 --
Redeemed (1,669) (720)
------------- -------
Net Increase in Class C Shares Outstanding $ 5,168 $ 851
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
The accompanying notes are an integral part of the financial statements. 47
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
JULY 6, 1994* SIX MONTHS ENDED
TO DECEMBER 31, 1995
JUNE 30, 1995 (UNAUDITED)
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net Investment Income (Loss) $ 119 $ (150)
Net Realized Loss (1,064) (2,581)
Change in Unrealized Appreciation/Depreciation (1,682) 328
------------- -------
Net Decrease in Net Assets Resulting from Operations (2,627) (2,403)
------------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (141)
------------- -------
Net Realized Gain:
Class A -- (2)
Class B+ -- (1)
Class C -- (2)
------------- -------
-- (5)
------------- -------
Net Decrease in Net Assets Resulting from Distributions -- (146)
------------- -------
CAPITAL SHARE TRANSACTIONS (1):
Issued 57,700 27,391
Distributions Reinvested -- 132
Redeemed (6,737) (10,749)
------------- -------
Net Increase in Net Assets Resulting from Capital Share Transactions 50,963 16,774
------------- -------
Total Increase in Net Assets 48,336 14,225
NET ASSETS -- Beginning of Period -- 48,336
------------- -------
NET ASSETS -- End of Period (including undistributed (distribution in excess of) net
investment income of $94 and $(197), respectively.) $ 48,336 $ 62,561
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------
Shares:
Issued 2,800 1,521
Distributions Reinvested -- 13
Redeemed (341) (708)
------------- -------
Net Increase in Class A Shares Outstanding 2,459 826
------------- -------
------------- -------
Dollars:
Issued $ 31,244 $ 15,940
Distributions Reinvested -- 130
Redeemed (3,679) (7,417)
------------- -------
Net Increase in Class A Shares Outstanding $ 27,565 $ 8,653
------------- -------
------------- -------
Class B+:
--------
Shares:
Issued -- 246
------------- -------
Net Increase in Class B Shares Outstanding -- 246
------------- -------
------------- -------
Dollars:
Issued $ -- $ 2,646
------------- -------
Net Increase in Class B Shares Outstanding $ -- $ 2,646
------------- -------
------------- -------
Class C:
--------
Shares:
Issued 2,392 822
Redeemed (280) (322)
------------- -------
Net Increase in Class C Shares Outstanding 2,112 500
------------- -------
------------- -------
Dollars:
Issued $ 26,456 $ 8,805
Distributions Reinvested -- 2
Redeemed (3,058) (3,332)
------------- -------
Net Increase in Class C Shares Outstanding $ 23,398 $ 5,475
------------- -------
------------- -------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
48 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
------------------------------------------------------------------------ ----------------
SIX MONTHS ENDED AUGUST 1, 1995*
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED DECEMBER 31, TO DECEMBER 31,
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 1995 (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 11.09 $ 11.99 $ 12.60 $ 13.01
-------- -------------- -------------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.04 0.10 0.12 0.05 (0.04)
Net Realized and Unrealized
Gain 1.05 0.90 0.67 1.73 1.15
-------- -------------- -------------- -------- -------
Total From Investment
Operations 1.09 1.00 0.79 1.78 1.11
-------- -------------- -------------- -------- -------
DISTRIBUTIONS
Net Investment Income -- (0.03) -- (0.39) (0.35)
In Excess of Net Investment
Income -- -- (0.05) -- --
Net Realized Gain -- (0.07) (0.13) (0.48) (0.48)
-------- -------------- -------------- -------- -------
Total Distributions -- (0.10) (0.18) (0.87) (0.83)
-------- -------------- -------------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 11.09 $ 11.99 $ 12.60 $ 13.51 $ 13.29
-------- -------------- -------------- -------- -------
-------- -------------- -------------- -------- -------
TOTAL RETURN(1) 10.90% 9.02% 6.69% 14.14% 8.53%
-------- -------------- -------------- -------- -------
-------- -------------- -------------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 10,434 $ 33,425 $ 42,586 $ 47,839 $ 3,056
Ratio of Expenses to Average Net
Assets 1.70%** 1.70% 1.70% 1.70%** 2.45%**
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.04%** 0.98% 1.01% 0.31%** (0.44)%**
Portfolio Turnover Rate 14% 30% 39% 22% 22%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income (Loss) $ 0.08 $ 0.09 $ 0.04 $ 0.06 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 3.65%** 2.58% 2.03% 2.08%** 2.83%**
Net Investment Income (Loss)
to Average Net Assets (0.91)%** 0.10% 0.68% (0.07)%** (0.82)%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS ENDED
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED DECEMBER 31,
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 1995 (UNAUDITED)
<S> <C> <C> <C> <C>
- -------------------------------- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 11.05 $ 11.90 $ 12.43
------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.01 0.06 0.04 (0.03)
Net Realized and Unrealized
Gain 1.04 0.86 0.65 1.73
------- -------- -------- --------
Total From Investment
Operations 1.05 0.92 0.69 1.70
------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- -- -- (0.33)
In Excess of Net Investment
Income -- -- (0.03) --
Net Realized Gain -- (0.07) (0.13) (0.48)
------- -------- -------- --------
Total Distributions -- (0.07) (0.16) (0.81)
------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.05 $ 11.90 $ 12.43 $ 13.32
------- -------- -------- --------
------- -------- -------- --------
TOTAL RETURN(1) 10.50% 8.34% 5.84% 13.67%
------- -------- -------- --------
------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 6,995 $ 29,892 $ 40,460 $ 47,879
Ratio of Expenses to Average Net
Assets 2.45%** 2.45% 2.45% 2.45%**
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.29%** 0.23% 0.25% (0.44)%**
Portfolio Turnover Rate 14% 30% 39% 22%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income (Loss) $ 0.07 $ 0.12 $ 0.05 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 4.40%** 3.34% 2.78% 2.83%**
Net Investment Income (Loss)
to Average Net Assets (1.66)%** (0.66)% (0.08)% (0.82)%**
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A ----------------
------------------------------------------------------------------------ AUGUST 1, 1995*
SIX MONTHS ENDED TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED 1995 1995
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.55 $ 9.53 $ 10.23 $ 10.24
------- -------------- -------------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.25 0.52 0.56 0.30 0.61
Net Realized and Unrealized
Gain (Loss) 0.55 (0.42) 0.50 0.27 (0.15)
------- -------------- -------------- -------- -------
Total From Investment
Operations 0.80 0.10 1.06 0.57 0.46
------- -------------- -------------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.25) (0.50) (0.36) (0.62) (0.55)
In Excess of Net Investment
Income -- (0.12) -- -- --
Net Realized Gain -- (0.47) -- -- --
In Excess of Realized Gain -- (0.03) -- -- --
------- -------------- -------------- -------- -------
Total Distributions (0.25) (1.12) (0.36) (0.62) (0.55)
------- -------------- -------------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.53 $ 10.23 $ 10.18 $ 10.15
------- -------------- -------------- -------- -------
------- -------------- -------------- -------- -------
TOTAL RETURN(1) 8.02% 0.41% 11.41% 5.71% 4.58%
------- -------------- -------------- -------- -------
------- -------------- -------------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Asets, End of Period (000s) $ 6,633 $ 10,369 $ 11,092 $ 10,090 $ 279
Ratio of Expenses to Average
Net Assets 1.45%** 1.45% 1.45% 1.45%** 2.20%**
Ratio of Net Investment Income
to Average Net Assets 5.00%** 4.70% 5.84% 5.36%** 4.61%**
Portfolio Turnover Rate 55% 168% 169% 81% 81%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.11 $ 0.07 $ 0.03 $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.88%** 2.48% 2.22% 2.00%** 2.75%**
Net Investment Income to
Average Net Assets 3.57%** 3.67% 5.07% 4.81%** 4.06%**
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31,
SELECTED PER SHARE DATA AND JANUARY 4, 1993* YEAR ENDED YEAR ENDED 1995
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED)
<S> <C> <C> <C> <C>
- ------------------------------- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.56 $ 9.54 $ 10.20
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.21 0.43 0.49 0.24
Net Realized and Unrealized
Gain (Loss) 0.55 (0.40) 0.47 0.29
------- ------- ------- -------
Total From Investment
Operations 0.76 0.03 0.96 0.53
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.20) (0.44) (0.30) (0.59)
In Excess of Net Investment
Income -- (0.11) -- --
Net Realized Gain -- (0.47) -- --
In Excess of Realized Gain -- (0.03) -- --
------- ------- ------- -------
Total Distributions (0.20) (1.05) (0.30) (0.59)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.56 $ 9.54 $ 10.20 $ 10.14
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN(1) 7.61% (0.25)% 10.24% 5.30%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Asets, End of Period (000s) $ 6,120 $ 5,407 $ 5,965 $ 5,612
Ratio of Expenses to Average
Net Assets 2.20%** 2.20% 2.20% 2.20%**
Ratio of Net Investment Income
to Average Net Assets 4.25%** 3.95% 5.09% 4.61%**
Portfolio Turnover Rate 55% 168% 169% 81%
- ------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.07 $ 0.12 $ 0.08 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.63%** 3.29% 2.97% 2.75%**
Net Investment Income to
Average Net Assets 2.82%** 2.86% 4.32% 4.06%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
(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.
The accompanying notes are an integral part of the financial statements. 49
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A ----------------
------------------------------------------------------------------------ AUGUST 1, 1995*
SIX MONTHS ENDED TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND JUNE 23, 1993* YEAR ENDED YEAR ENDED 1995 1995
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 15.50 $ 16.42 $ 16.51
-------- -------------- -------------- ---------------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss -- (0.03) -- (0.04) (0.03)
Net Realized and Unrealized
Gain (Loss) -- 3.53 1.43 (0.15) (0.51)
-------- -------------- -------------- ---------------- --------
Total From Investment
Operations -- 3.50 1.43 (0.19) (0.54)
-------- -------------- -------------- ---------------- --------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) -- --
In Excess of Net Realized Gain -- -- (0.02) -- --
-------- -------------- -------------- ---------------- --------
-- -- (0.51) -- --
-------- -------------- -------------- ---------------- --------
NET ASSET VALUE, END OF PERIOD $ 12.00 $ 15.50 $ 16.42 $ 16.23 $ 15.97
-------- -------------- -------------- ---------------- --------
-------- -------------- -------------- ---------------- --------
TOTAL RETURN (1) 0.00% 29.17% 9.50% (1.16)% (3.27)%
-------- -------------- -------------- ---------------- --------
-------- -------------- -------------- ---------------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 11,770 $ 138,212 $ 178,667 $ 183,658 $ 11,398
Ratio of Expenses to Average Net
Assets 1.90%** 1.90% 1.90% 1.90%** 2.65%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.81)%** (0.24)% 0.04% (0.46)%** (1.21)%**
Portfolio Turnover Rate 0% 34% 34% 10% 10%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss $ 0.01 $ 0.03 -- -- --
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 11.83%** 2.17% 1.90% 1.90%** 2.65%**
Net Investment Income (Loss)
to Average Net Assets (10.74)%** (0.51)% 0.04% (0.46)%** (1.21)%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31,
SELECTED PER SHARE DATA AND JUNE 23, 1993* YEAR ENDED YEAR ENDED 1995
RATIOS TO JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED)
<S> <C> <C> <C> <C>
- -------------------------------- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.00 $ 15.40 $ 16.19
------- ---------------- ---------------- ----------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss -- (0.10) (0.12) (0.10)
Net Realized and Unrealized
Gain (Loss) -- 3.50 1.42 (0.15)
------- ---------------- ---------------- ----------------
Total From Investment
Operations -- 3.40 1.30 (0.25)
------- ---------------- ---------------- ----------------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) --
In Excess of Net Realized Gain -- -- (0.02) --
------- ---------------- ---------------- ----------------
-- -- (0.51) --
------- ---------------- ---------------- ----------------
NET ASSET VALUE, END OF PERIOD $ 12.00 $ 15.40 $ 16.19 $ 15.94
------- ---------------- ---------------- ----------------
------- ---------------- ---------------- ----------------
TOTAL RETURN (1) 0.00% 28.33% 8.71% (1.54)%
------- ---------------- ---------------- ----------------
------- ---------------- ---------------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 8,491 $ 116,889 $ 139,497 $ 139,518
Ratio of Expenses to Average Net
Assets 2.65%** 2.65% 2.65% 2.65%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.56)%** (0.99)% (0.77)% (1.21)%**
Portfolio Turnover Rate 0% 34% 34% 10%
- -------------------------------- ----------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss $ 0.02 $ 0.03 -- --
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 12.64%** 2.92% 2.65% 2.65%**
Net Investment Income (Loss)
to Average Net Assets (11.55)%** (1.26)% (0.77)% (1.21)%**
- -------------------------------- ----------------------------------------------------------------------------
</TABLE>
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS B+
CLASS A ----------------
-------------------------------------------------------- AUGUST 1, 1995*
SIX MONTHS ENDED TO
OCTOBER 18, DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND 1993* YEAR ENDED 1995 1995
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 11.70 $ 12.89 $ 13.37
-------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.17 0.27 0.13 0.06
Net Realized and Unrealized
Gain (Loss) (0.30) 1.44 0.81 0.34
-------- -------- -------- -------
Total from Investment
Operations (0.13) 1.71 0.94 0.40
-------- -------- -------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (0.28) (0.13) (0.08)
Net Realized Gain -- (0.24) (0.19) (0.19)
-------- -------- -------- -------
Total Distributions (0.17) (0.52) (0.32) (0.27)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 11.70 $ 12.89 $ 13.51 $ 13.50
-------- -------- -------- -------
-------- -------- -------- -------
TOTAL RETURN (1) (1.12)% 15.01% 7.28% 3.02%
-------- -------- -------- -------
-------- -------- -------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 10,717 $ 20,675 $ 23,975 $ 1,467
Ratio of Expenses to Average Net
Assets 1.50%** 1.50% 1.50%** 2.25%**
Ratio of Net Investment Income
to Average Net Assets 2.14%** 2.29% 1.90%** 1.15%**
Portfolio Turnover Rate 17% 23% 15% 15%
- ---------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.08 $ 0.05 $ 0.02 $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 2.48%** 1.96% 1.79%** 2.54%**
Net Investment Income to
Average Net Assets 1.16%** 1.83% 1.61%** 0.86%**
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
--------------------------------------------------------
SIX MONTHS ENDED
OCTOBER 18, DECEMBER 31,
SELECTED PER SHARE DATA AND 1993* YEAR ENDED 1995
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED)
<S> <C> <C> <C>
- -------------------------------- --------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 11.69 $ 12.89
------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.11 0.17 0.07
Net Realized and Unrealized
Gain (Loss) (0.31) 1.44 0.81
------- -------- --------
Total from Investment
Operations (0.20) 1.61 0.88
------- -------- --------
DISTRIBUTIONS
Net Investment Income (0.11) (0.17) (0.08)
Net Realized Gain -- (0.24) (0.19)
------- -------- --------
Total Distributions (0.11) (0.41) (0.27)
------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.69 $ 12.89 $ 13.50
------- -------- --------
------- -------- --------
TOTAL RETURN (1) (1.70)% 14.13% 6.83%
------- -------- --------
------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 7,237 $ 13,867 $ 18,033
Ratio of Expenses to Average Net
Assets 2.25%** 2.25% 2.25%**
Ratio of Net Investment Income
to Average Net Assets 1.39%** 1.54% 1.15%**
Portfolio Turnover Rate 17% 23% 15%
- -------------------------------- --------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.08 $ 0.05 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 3.28%** 2.71% 2.54%**
Net Investment Income to
Average Net Assets 0.36%** 1.08% 0.86%**
- -------------------------------- --------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
(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.
50 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+
----------------------------------------------------- --------------- CLASS C
SIX MONTHS AUGUST 1, 1995* ----------------
ENDED TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND APRIL 21, 1994* YEAR ENDED 1995 1995 APRIL 21, 1994*
RATIOS TO JUNE 30, 1994 JUNE 30, 1995 (UNAUDITED) (UNAUDITED) TO JUNE 30, 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 12.17 $ 11.57 $ 11.63 $ 12.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.18 1.26 0.60 0.46 0.17
Net Realized and Unrealized
Gain (Loss) 0.16 (0.52) 0.56 0.49 0.15
------- -------------- --------------- --------------- -------
Total From Investment
Operations 0.34 0.74 1.16 0.95 0.32
------- -------------- --------------- --------------- -------
DISTRIBUTIONS
Net Investment Income (0.17) (1.22) (0.66) (0.52) (0.16)
Net Realized Gain -- (0.12) -- -- --
------- -------------- --------------- --------------- -------
Total Distributions (0.17) (1.34) (0.66) (0.52) (0.16)
------- -------------- --------------- --------------- -------
NET ASSET VALUE, END OF PERIOD $ 12.17 $ 11.57 $ 12.07 $ 12.06 $ 12.16
------- -------------- --------------- --------------- -------
------- -------------- --------------- --------------- -------
TOTAL RETURN(1) 2.86% 6.87% 10.30% 8.38% 2.62%
------- -------------- --------------- --------------- -------
------- -------------- --------------- --------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 6,857 $ 14,819 $ 38,728 $ 10,620 $ 6,081
Ratio of Expenses to Average Net
Assets 1.55%** 1.55% 1.55%** 2.30%** 2.30%**
Ratio of Net Investment Income
to Average Net Assets 8.29%** 11.53% 10.94%** 10.19%** 7.54%**
Portfolio Turnover Rate 19% 178% 60% 60% 19%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.02 $ 0.05 $ 0.01 $ 0.01 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 3.23%** 1.97% 1.70%** 2.45%** 4.00%**
Net Invesment Income to
Average Net Assets 6.61%** 11.11% 10.79%** 10.04%** 5.84%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
SELECTED PER SHARE DATA AND YEAR ENDED 1995
RATIOS JUNE 30, 1995 (UNAUDITED)
<S> <C> <C>
- -------------------------------- ------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.16 $ 11.58
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 1.17 0.55
Net Realized and Unrealized
Gain (Loss) (0.50) 0.56
-------- --------
Total From Investment
Operations 0.67 1.11
-------- --------
DISTRIBUTIONS
Net Investment Income (1.13) (0.63)
Net Realized Gain (0.12) --
-------- --------
Total Distributions (1.25) (0.63)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 11.58 $ 12.06
-------- --------
-------- --------
TOTAL RETURN(1) 6.20% 9.82%
-------- --------
-------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s) $ 11,880 $ 23,768
Ratio of Expenses to Average Net
Assets 2.30% 2.30%**
Ratio of Net Investment Income
to Average Net Assets 10.72% 10.19%**
Portfolio Turnover Rate 178% 60%
- --------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income $ 0.05 $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net Assets 2.74% 2.45%**
Net Invesment Income to
Average Net Assets 10.28% 10.04%**
- --------------------------------------------------------------------------------------------------------------
</TABLE>
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS C
---------------------------------- CLASS B+ ----------------------------------
SIX MONTHS --------------- SIX MONTHS
ENDED AUGUST 1, 1995* ENDED
JULY 6, 1994* DECEMBER 31, TO DECEMBER 31, JULY 6, 1994* DECEMBER 31,
SELECTED PER SHARE DATA AND TO JUNE 30, 1995 1995 TO JUNE 30, 1995
RATIOS 1995 (UNAUDITED) (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 9.08 $ 9.58 $ 12.00 $ 8.99
------- --------------- ------- ------- ---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) (0.02) 0.03 (0.02) (0.08) (0.02)
Net Realized and Unrealized
Gain (Loss) (2.70) 0.33 (0.24) (2.73) 0.33
------- --------------- ------- ------- ---------------
Total From Investment
Operations (2.72) 0.36 (0.26) (2.81) 0.31
------- --------------- ------- ------- ---------------
DISTRIBUTIONS
Net Investment Income -- (0.02) -- -- --
Paid in Capital (0.20) -- -- (0.20) --
------- --------------- ------- ------- ---------------
Total Distributions (0.20) (0.02) -- (0.20) --
------- --------------- ------- ------- ---------------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 9.42 $ 9.32 $ 8.99 $ 9.30
------- --------------- ------- ------- ---------------
------- --------------- ------- ------- ---------------
TOTAL RETURN(1) (23.07)% 3.93% (2.71)% (23.83)% 3.45%
------- --------------- ------- ------- ---------------
------- --------------- ------- ------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s) $ 7,658 $ 10,076 $ 424 $ 4,085 $ 5,055
Ratio of Expenses to Average
Net Assets 2.46%** 2.10%** 2.85%** 3.20%** 2.85%**
Ratio of Net Investment Income
(Loss) to Average Net
Assets (0.44)%** 0.31%** (0.44)%** (1.16)%** (0.44)%**
Portfolio Turnover Rate 107% 64% 64% 107% 64%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the
Period
Per Share Benefit to Net
Investment Loss $ 0.13 $ 0.15 $ 0.02 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets (Including Brazilian
Tax Expense) 4.30%** 3.66% 4.41%** 5.20%** 4.41%**
Net Investment Loss to
Average Net Assets (2.26)%** (1.25)%** (2.00)%** (3.16)%** (2.00)%**
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Annualized
+ The Fund began offering the current Class B shares on August 1, 1995. Class B
shares held prior to May 1, 1995 were renamed Class C shares.
(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.
The accompanying notes are an integral part of the financial statements. 51
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B+ CLASS C
-------------------------------- --------------- ----------------------------------
SIX MONTHS AUGUST 1, 1995* SIX MONTHS
ENDED TO ENDED
JULY 6, 1994* DECEMBER 31, DECEMBER 31, JULY 6, 1994* DECEMBER 31,
SELECTED PER SHARE DATA AND TO JUNE 30, 1995 1995 TO JUNE 30, 1995
RATIOS 1995 (UNAUDITED) (UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.00 $ 10.61 $ 10.91 $ 12.00 $ 10.53
------------- --------------- ------- --------------- ---------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss) 0.05 (0.01) (0.03) -- (0.05)
Net Realized and Unrealized
Loss (1.44) (0.33) (0.73) (1.47) (0.33)
------------- --------------- ------- --------------- ---------------
Total From Investment
Operations (1.39) (0.34) (0.76) (1.47) (0.38)
------------- --------------- ------- --------------- ---------------
DISTRIBUTIONS
Net Investment Income -- (0.05) -- -- --
Net Realized Gain -- --# --# -- --#
------------- --------------- ------- --------------- ---------------
Total Distributions -- (0.05) -- -- --
------------- --------------- ------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 10.61 $ 10.22 $ 10.15 $ 10.53 $ 10.15
------------- --------------- ------- --------------- ---------------
------------- --------------- ------- --------------- ---------------
TOTAL RETURN(1) (11.58)% (3.26)% (6.96)% (12.25)% (3.60)%
------------- --------------- ------- --------------- ---------------
------------- --------------- ------- --------------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000s) $ 26,091 $ 33,562 $ 2,500 $ 22,245 $ 26,499
Ratio of Expenses to Average
Net Assets 2.33%** 2.15%** 2.90%** 3.08%** 2.90%**
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.81%** (0.26)%** (1.01)%** 0.06%** (1.01)%**
Portfolio Turnover Rate 32% 22% 22% 32% 22%
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Income (Loss) $ 0.04 $ 0.11 $ 0.02 $ 0.04 $ 0.03
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.10%** 2.77%** 3.52%** 3.90%** 3.52%**
Net Investment Income (Loss)
to Average Net Assets 0.04%** (0.88)%** (1.63)%** (0.76)%** (1.63)%**
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Amount less than $0.01 per share.
* Commencement of operations.
** Annualized
The Fund began offering the current Class B shares on August 1, 1995.
+ Class B shares held prior to May 1, 1995 were renamed Class C shares.
Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
(1) annualized.
52 The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on August 14, 1992 and commenced operations on January 4, 1993. The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company which offers redeemable shares of
diversified and non-diversified investment portfolios. As of December 31, 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 three
classes of shares, Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4.75%. Class B shares are sold with a
contingent deferred sales charge on redemptions made within 6 years of purchase
which declines annually from 5% for redemptions made in year one, down to 1% in
year six. Class B shares will automatically convert to Class A shares after the
seventh year following purchase. Class C shares are sold with a contingent
deferred sales charge at the rate of 1.00% for shares that are redeemed within
one year of purchase based on the lesser of the current market value of the
shares redeemed or the total cost of such shares. All three classes of shares
have identical voting, dividend, liquidation and other rights. The Fund began
offering the current Class B shares on August 1, 1995. Class B shares held prior
to May 1, 1995 were renamed Class C shares.
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. Generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures on the financial statements. Actual
results could differ from those estimates.
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. TAXES: It is each Portfolio's intention to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements. The
Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income and/or capital gains earned or repatriated.
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 prior period 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.
53
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
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 as follows:
- - investments, other assets and liabilities at the prevailing rates of exchange
on the valuation date;
- - investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
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 the
foreign currency portion of gain and losses realized on sales and maturities 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. Net unrealized currency gains (losses)
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of unrealized appreciation
(depreciation) in the Statement of Assets and Liabilities. The change in net
unrealized currency gains (losses) for the period is reflected in the Statement
of Operations.
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
54
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
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 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 (except certain dividends
which may be recorded as soon as the Fund is informed of such dividends) net of
applicable withholding taxes where recovery of such taxes is not reasonably
assured. 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.
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 advisory fees payable to it and to reimburse the Portfolios, if
necessary, if the annual operating expenses, as defined, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated
below:
<TABLE>
<CAPTION>
CLASS B
AND
CLASS A CLASS C
MAXIMUM MAXIMUM
OPERATING OPERATING
ADVISORY EXPENSE EXPENSE
FUND FEE RATIO RATIO
- ------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Global Equity Allocation............................... 1.00% 1.70% 2.45%
Global Fixed Income.................................... 0.75% 1.45% 2.20%
Asian Growth........................................... 1.00% 1.90% 2.65%
American Value......................................... 0.85% 1.50% 2.25%
Worldwide High Income.................................. 0.75% 1.55% 2.30%
Latin American......................................... 1.25% 2.10% 2.85%
Emerging Markets....................................... 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. Effective
September 1, 1995, The Chase Manhattan Bank, N.A. through its affiliate Chase
Global Funds Services Company ("CGFSC"), formerly Mutual Funds Service Company
("MFSC"), provides certain administrative services to the Fund under an
agreement with MSAM. CGFSC is compensated for such services by MSAM from the fee
it receives from the Fund, subject to certain fee minimums as defined in the
agreement, which for the six months ended December 31, 1995, totaled $91,000 for
Global Equity Allocation Fund, Global Fixed Income Fund, Asian Growth Fund,
American Value Fund, and Worldwide High Income Fund, and $89,000 for Latin
American Fund and Emerging Markets Fund, respectively. Certain employees of
CGFSC are officers of the Fund. Prior to September 1, 1995, MFSC was an
affiliate of the United States Trust Company of New York and provided
administrative services to the Fund under the same terms, conditions and fees as
stated above.
D. DISTRIBUTOR: Morgan Stanley & Co. Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Group, Inc., and an affiliate of MSAM,
serves as the distributor of the Fund and provides both classes of each
Portfolio with distribution services pursuant to a Distribution Plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940. The
Distributor is entitled to receive from the Portfolios a distribution fee, which
is accrued daily and paid quarterly, of up to 0.25% for the Class A shares of
each Portfolio and up to 1.00% of the Class B and Class C shares of each
Portfolio, on an annualized basis, of the average daily net assets of such
class.
The Distributor may receive a contingent deferred sales charge for certain
purchases of Class A, Class B and Class C shares of each Portfolio redeemed
within one
55
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
year following such purchase. For the six months ended December 31, 1995, the
Distributor has advised the Fund that it earned deferred sales charges of:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND (000) (000) (000)
- ------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Global Equity Allocation............................... -- -- $ 6
Asian Growth........................................... -- 1 20
American Value......................................... -- -- 3
Worldwide High Income.................................. -- 1 5
Latin American......................................... -- -- 3
Emerging Markets....................................... -- -- 12
</TABLE>
E. 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.
Effective September 1, 1995, The Chase Manhattan Bank, N.A. serves 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 six months ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
MSTC
MSTC CUSTODIAN
CUSTODIAN FEES
FEES PAYABLE
FUND (000) (000)
- ------------------------------------------------------- --------- ---------
<S> <C> <C>
Global Equity Allocation............................... $ 87 $ 28
Global Fixed Income.................................... 7 3
Asian Growth........................................... 253 104
Worldwide High Income.................................. 11 5
Latin American......................................... 68 21
Emerging Markets....................................... 137 52
</TABLE>
Prior to September 1, 1995, the United States Trust Company of New York served
as custodian for the Fund's domestic assets under the same terms, conditions,
and fees as stated above.
F. PURCHASES AND SALES: For the six months ended December 31, 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............................... $20,868 $ 18,554
Global Fixed Income.................................... 8,732 8,986
Asian Growth........................................... 31,536 44,526
American Value......................................... 13,582 5,812
Worldwide High Income.................................. 69,676 28,431
Latin American......................................... 11,287 8,323
Emerging Markets....................................... 20,877 10,438
</TABLE>
Purchases and sales of long-term U.S. Government securities during the six
months ended December 31, 1995 occurred in the Global Fixed Income Fund and
totaled $3,667,000 and $4,145,000, respectively.
G. OTHER: At December 31, 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 December 31, 1995:
<TABLE>
<S> <C> <C> <C>
Argentine Peso......................................... 1.00015 = $1.00
Australian Dollar...................................... 1.34544 = $1.00
Belgian Franc.......................................... 29.43000 = $1.00
Brazilian Real......................................... 0.97190 = $1.00
British Pound.......................................... 0.64412 = $1.00
Canadian Dollar........................................ 1.36505 = $1.00
Danish Krone........................................... 5.55680 = $1.00
Deutsche Mark.......................................... 1.43390 = $1.00
French Franc........................................... 4.89700 = $1.00
Greek Drachma.......................................... 236.99000 = $1.00
Hong Kong Dollar....................................... 7.73250 = $1.00
Indonesian Rupiah...................................... 2,286.50000 = $1.00
Irish Punts............................................ 0.62441 = $1.00
Israeli Shekel......................................... 3.13850 = $1.00
Italian Lira........................................... 1,588.25000 = $1.00
Japanese Yen........................................... 103.25000 = $1.00
Korean Won............................................. 775.75000 = $1.00
Malaysian Ringgit...................................... 2.53970 = $1.00
Mexican Peso........................................... 7.69500 = $1.00
Moroccan Dirham........................................ 8.46890 = $1.00
Netherland Guilder..................................... 1.60470 = $1.00
New Zealand Dollar..................................... 1.52964 = $1.00
Pakistani Rupee........................................ 34.21580 = $1.00
Peruvian Sol........................................... 2.31000 = $1.00
Philippine Peso........................................ 26.23000 = $1.00
Polish Zloty........................................... 2.46550 = $1.00
Portuguese Escudo...................................... 146.67500 = $1.00
Singapore Dollar....................................... 1.41450 = $1.00
South African Rand..................................... 3.64550 = $1.00
Spanish Peseta......................................... 121.30000 = $1.00
Swedish Krona.......................................... 6.63965 = $1.00
Swiss Franc............................................ 1.15350 = $1.00
Taiwan Dollar.......................................... 27.28700 = $1.00
Thailand Baht.......................................... 25.19000 = $1.00
Turkish Lira........................................... 60,900.00000 = $1.00
</TABLE>
For the six months ended December 31, 1995, Asian Growth Fund, Latin American
Fund and Emerging Markets Fund incurred approximately $27,076, $1,021 and
$6,168, respectively, as brokerage commissions with Morgan Stanley & Co.
Incorporated, an affiliated broker/ dealer.
At December 31, 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............................... $ 83,171 $11,794 $ (1,467) $10,327
Global Fixed Income.................................... 16,128 700 (135) 565
Asian Growth........................................... 291,811 47,312 (23,958) 23,354
American Value......................................... 39,804 5,030 (1,517) 3,513
Worldwide High Income.................................. 74,169 2,907 (1,013) 1,894
Latin American......................................... 15,731 971 (1,285) (314)
Emerging Markets....................................... 63,096 3,967 (5,301) (1,334)
</TABLE>
56
<PAGE>
MORGAN STANLEY FUNDS
- -----------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Frederick B. Whittemore
VICE CHAIRMAN OF THE BOARD
Warren J. Olsen
DIRECTOR AND PRESIDENT
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Andrew McNally IV
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
James W. Grisham
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
James R. Rooney
TREASURER
Joanna M. Haigney
ASSISTANT TREASURER
Karl O. Hartmann
ASSISTANT SECRETARY
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
CUSTODIANS
Morgan Stanley Trust Company (International)
One Pierrepont Plaza
Brooklyn, New York 11210
The Chase Manhattan Bank, N.A. (Domestic)
770 Broadway
New York, NY 10003
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
DIVIDEND DISBURSING AND TRANSFER AGENT
The Chase Manhattan Bank, N.A.
73 Tremont Street
Boston, MA 02108
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
For information on how to invest, please contact your account representative or
the Fund at (800) 282-4404.
This report is authorized for distribution only when preceded or accompanied by
a prospectus of the Morgan Stanley Fund, Inc. which describes in detail each of
the Investment Funds' investment policies, fees and expenses. Please read the
prospectus carefully before you invest or send money.
