<PAGE>
As filed with the Securities and Exchange Commission on
April 21, 1998
File No. 33-51294
File No. 811-7140
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 23 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 25 /X/
--------------
MORGAN STANLEY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Office)
Registrant's Telephone Number (630) 684-6000
Ronald A. Nyberg, Esquire
Executive Vice President, General Counsel and Secretary
Van Kampen American Capital, Inc.
One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Name and Address of Agent for Service)
--------------
COPIES TO:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
--------------
-------------------------------------------------------------------------
IT IS PROPOSED THAT THIS FILING BE EFFECTIVE
(CHECK APPROPRIATE BOX)
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
------------------------------------------------------------------------
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR
VALUE $0.001 PER SHARE
<PAGE>
EXPLANATORY NOTE
The purpose of this Post-Effective Amendment No. 23 to the Registrant's
Registration Statement is to comply with the undertaking to file an amendment
containing financial statements within four to six months after the effective
date of the Registrant's Registration Statement for the following funds:
Morgan Stanley Value Fund
and
Morgan Stanley Global Equity Fund
Morgan Stanley Funds, Inc. is comprised of 22 portfolios, this
Post-Effective Amendment supplements the Morgan Stanley Value Fund and
Morgan Stanley Global Equity Fund only.
The Registration Statement is organized as follows:
Facing Page
Cross Reference Pages
Explanatory Note
Supplements to Prospectus
Statement of Additional Information
Audited Financial Information dated June 30, 1997
Unaudited Financial Information dated December 31, 1997
The Prospectuses included in Post-Effective Amendment No. 22 to the
Registration Statement is incorporated herein by reference in its entirety
and no changes to the Prospectuses are effected by this Post-Effective
Amendment No. 23.
The Statement of Additional Information is being filed to include the
most current financial information dated December 31, 1997 for the Morgan
Stanley Value Fund and Morgan Stanley Global Equity Fund.
<PAGE>
MORGAN STANLEY FUND, INC.
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
PART A -
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses; Prospectus
Summary
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies;
Additional Investment
Information; Investment
Limitations; General
Information
Item 5. Management of the Fund Management of the Company;
Portfolio Transactions;
General Information
Item 5A Management's Discussion of Fund
Performance **
Item 6. Capital Stock and Other Securities Purchase of Shares; Redemption
of Shares; Shareholder
Services; Valuation of Shares;
Dividends and Distributions;
Taxes; General Information
Item 7. Purchase of Securities Being Offered Cover Page; Prospectus
Summary; Management of the
Company; Purchase of Shares;
Valuation of Shares
Item 8. Redemption or Repurchase Redemption of Shares;
Shareholder Services
Item 9. Pending Legal Proceedings *
- ---------------
* Omitted since the answer is negativ or the Item is not applicable.
** Information required by Item 5A is contained in the 1997 Annual Report to
Shareholders, except for the following portfolios which were not
operational at December 30, 1997: Morgan Stanley Emerging Markets Debt,
Morgan Stanley Equity Growth, Morgan Stanley European Equity, Morgan Stanley
Growth and Income, Morgan Stanley Japanese Equity, Morgan Stanley Mid Cap
Growth and Morgan Stanley Tax-Free Money Market Funds.
<PAGE>
N-1A ITEM NO. LOCATION
PART B - ALL FUNDS
CROSS REFERENCE PAGE
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History *
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Limitations; Determining
Maturities of Certain
Instruments; Description of
Securities and Ratings
Item 14. Management of the Fund Management of the Company
Item 15. Control Persons and Principal Holders
of Securities Management of the Company;
General Information
Item 16. Investment Advisory and Other Services Management of the Company;
General Information
Item 17. Brokerage Allocation and Other
Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered Purchase of Shares; Redemption
of Shares; Money Market Fund
Net Asset Value; General
Information
Item 20. Tax Status Investment Objectives and
Policies; Federal Income Tax;
Federal Tax Treatment of
Forward Currency Contracts and
Exchange Rate Changes; Taxes
and Foreign Shareholders;
General Information
Item 21. Underwriters Management of the Company
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
- ---------------
* Omitted since the answer is negative or the Item is not applicable.
PART C - OTHER INFORMATION
Part C contains the information required by the Items of the Form-N-1A under
such Items as set forth in the Form N-1A.
<PAGE>
SUPPLEMENT DATED APRIL 21, 1998
TO THE PROSPECTUS DATED OCTOBER 28, 1997
MORGAN STANLEY AGGRESSIVE EQUITY FUND
MORGAN STANLEY AMERICAN VALUE FUND
MORGAN STANLEY EQUITY GROWTH FUND
MORGAN STANLEY MID CAP GROWTH FUND
MORGAN STANLEY U.S. REAL ESTATE FUND
MORGAN STANLEY VALUE FUND
Portfolios of the
MORGAN STANLEY FUND, INC.
P.O. Box 418256
Kansas City, Missouri 64141
The Prospectus dated October 28, 1997 (the "Prospectus") of the Morgan
Stanley Fund, Inc. (the "Fund") is hereby amended and supplemented as follows:
FUND EXPENSES
1. Although the total operating expenses of each class of shares of the
Value Fund has not changed, the following amendments have been made to
the "Annual Fund Operating Expenses" table appearing on pages 2 and 3 of
the Prospectus under the "FUND EXPENSES" section. Each entry under the
"Investment Advisory Fee" (after expense reimbursement and/or fee waiver)
category for each class shares of the Value Fund appearing in the table
is changed from 0.74% to 0.47%.
2. In addition, each entry under the "Other Expenses (after expense
reimbursement and/or fee waiver) category for each class of shares of the
Value Fund appearing in the table is changed from 0.46% to 0.73%.
3. Although the Investment Advisory Fees (absent fee waivers and/or expense
reimbursements) category of each class of shares of the Value Fund has
not changed, each class of shares of the Value Fund's expected total
operating expenses (absent fee waivers and/or expense reimbursements) has
been amended as follows: Class A shares is changed from 1.51% to 1.78%;
Class B shares is changed from 2.26% to 2.53%; and Class C shares is
changed from 2.26% to 2.53%.
<PAGE>
FINANCIAL HIGHLIGHTS
The following paragraph is added under the heading "FINANCIAL HIGHLIGHTS" on
Page 6 of the Prospectus.
Additionally, the following table provides financial highlights for the
Morgan Stanley Value Fund, from July 7, 1997, commencement of operations, to the
period ended December 31, 1997 and is part of the Company's unaudited financial
statements which are included in the Company's Statement of Additional
Information.
VALUE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------ ------------------ ------------------
JULY 7, 1997* JULY 7, 1997* JULY 7, 1997*
SELECTED PER SHARE DATA AND RATIOS DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 10.00 $ 10.00 $ 10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.03 0.01 0.01
Net Realized and Unrealized Gain...................... 0.15 0.14 0.13
------ ------ ------
Total From Investment Operations...................... 0.18 0.15 0.14
------ ------ ------
DISTRIBUTIONS
Net Investment Income................................. (0.03) (0.01) (0.01)
Net Realized Gain..................................... (0.05) (0.05) (0.05)
------ ------ ------
Total Distributions................................... (0.08) (0.06) (0.06)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.......................... $10.10 $10.09 $10.08
------ ------ ------
------ ------ ------
TOTAL RETURN (1)........................................ 1.84 % 1.51 % 1.43 %
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....................... $102,701 $88,112 $19,466
Ratio of Expenses to Average Net Assets................. 1.45 %** 2.20 %** 2.20 %**
Ratio of Net Investment Income to Average Net Assets.... 1.01 %** 0.26 %** 0.27 %**
Portfolio Turnover Rate................................. 15 % 15 % 15 %
Average Commission Rate................................. $0.0587 $0.0587 $0.0587
- -------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income............ $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets........................ 1.78 %** 2.53 %** 2.53 %**
Net Investment Income to Average Net Assets........... 0.70 %** 0.06 %** 0.06 %**
- -------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
(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.
<PAGE>
SUPPLEMENT DATED APRIL 21, 1998
TO THE PROSPECTUS DATED OCTOBER 28, 1997
MORGAN STANLEY ASIAN GROWTH FUND
MORGAN STANLEY EMERGING MARKETS FUND
MORGAN STANLEY GLOBAL EQUITY FUND
MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND
MORGAN STANLEY INTERNATIONAL MAGNUM FUND
MORGAN STANLEY JAPANESE EQUITY FUND
MORGAN STANLEY LATIN AMERICAN FUND
Portfolios of the
MORGAN STANLEY FUND, INC.
P.O. Box 418256
Kansas City, Missouri 64141
The Prospectus dated October 28, 1997 (the "Prospectus") of the Morgan
Stanley Fund, Inc. (the "Fund") is hereby amended and supplemented as follows:
FUND EXPENSES
1. The following amendments have been made to the "Annual Fund Operating
Expenses" table appearing on pages 2, 3 and 4 of the Prospectus under the
"FUND EXPENSES" section. Each entry under "Other Expenses" (after expense
reimbursement and/or fee waiver) category for each class shares of the
Global Equity Fund appearing in the table is changed from 0.55% to 0.31%.
2. In addition, under the "Total Operating Expenses" (after expense
reimbursement and/or fee waiver) category for Class A shares of the
Global Equity Fund appearing in the table is changed from 1.80% to 1.56%
and Class B shares is changed from 2.55% to 2.31%.
3. The Investment Advisory Fees (absent fee waivers and/or expense
reimbursements) category of each class of shares of the Global Equity
Fund has been amended as follows: Class A, B and C shares is changed from
1.80%, 2.55% and 2.55% to 1.56%, 2.31% and 2.31%, respectively.
4. In addition, the example table under "Shareholder Transaction Expenses"
for the Global Equity Fund has been amended and replaced with the
following: Class A shares for one year is changed from $75 to $72, and
three years is changed from $111 to $104; Class B shares (assuming
complete redemption at end of period) for one year is changed from $76 to
$73, and three years is changed from $109 to $102; Class B shares
(assuming no redemption) for one year is changed from $26 to $23 and
three years is changed from $79 to $72; Class C shares (assuming complete
redemption immediately prior to the end of period) for one year is
changed from $36 to $33, and three years is changed from $79 to $72; and
Class C shares (assuming no redemption) for one year is changed from $26
to $23 and three years is changed from $79 to $72.
<PAGE>
FINANCIAL HIGHLIGHTS
The following paragraph is added under the heading "FINANCIAL HIGHLIGHTS" on
page 5 of the Prospectus.
Additionally, the follow table provides financial highlights for the Morgan
Stanley Global Equity Fund, from October 30, 1997, commencement of operations,
to the period ended December 31, 1997 and is part of the Company's unaudited
financial statements that are included in the Company's Statement of Additional
Information.
GLOBAL EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------ ------------------ ------------------
OCTOBER 30, 1997* OCTOBER 30, 1997* OCTOBER 30, 1997*
SELECTED PER SHARE DATA AND RATIOS DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 10.00 $ 10.00 $ 10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.02 0.00+ 0.00+
Net Realized and Unrealized (Loss).................... (0.09) (0.09) (0.09)
------ ------ ------
Total From Investment Operations...................... (0.07) (0.09) (0.09)
------ ------ ------
DISTRIBUTIONS
Net Investment Income................................. (0.02) (0.00)+ (0.00)+
------ ------ ------
Total Distributions................................... (0.02) 0.00+ 0.00+
------ ------ ------
NET ASSET VALUE, END OF PERIOD.......................... $ 9.91 $ 9.91 $ 9.91
------ ------ ------
------ ------ ------
TOTAL RETURN (1)........................................ (0.74)% (0.86)% (0.86)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....................... $55,372 $467,465 $45,801
Ratio of Expenses to Average Net Assets................. 1.56 %** 2.31 %** 2.31 %**
Ratio of Net Investment Income to Average Net Assets.... 0.92 %** 0.24 %** 0.25 %**
Portfolio Turnover Rate................................. 0 % 0 % 0 %
Average Commission Rate................................. $0.0099 $0.0099 $0.0099
As a Percentage of Trade Amount......................... 0.07 % 0.07 % 0.07 %
- -------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation During the Period
Per Share Benefit to Net Investment Income............ $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets........................ -- -- --
Net Investment Income to Average Net Assets........... -- -- --
- -------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations
** Annualized
+ The amount is less than $0.01 per share.
(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.
<PAGE>
MORGAN STANLEY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Morgan Stanley Fund, Inc. (the "Company") is an open-end management
investment company. The Company currently consists of twenty-two investment
portfolios designed to offer a range of investment choices (each, a "Fund" and
collectively, the "Funds"). The Company is designed to make available to
investors the expertise of (i) Van Kampen American Capital Investment Advisory
Corp. as adviser (the "Adviser") and administrator (the "Administrator") to the
Funds, (ii) Morgan Stanley Asset Management Inc. ("MSAM"), a sub-adviser (a
"Sub-Adviser") to the Funds, other than the Mid Cap Growth and Value Funds and
(iii) Miller, Anderson & Sherrerd, LLP ("MAS"), a sub-adviser (a "Sub-Adviser")
to the Mid Cap Growth and Value Funds. As of the date hereof, the Morgan Stanley
Emerging Markets Debt, Morgan Stanley Equity Growth, Morgan Stanley European
Equity, Morgan Stanley Global Equity, Morgan Stanley Growth and Income, Morgan
Stanley Japanese Equity, Morgan Stanley Mid Cap Growth and Morgan Stanley
Tax-Free Money Market Funds have not commenced a continuous offering of shares.
This Statement of Additional Information "SAI" is not a prospectus but
should be read in conjunction with the Company's prospectuses dated October 28,
1997, as amended and supplemented from time to time (each a "Prospectus" and
together, the "Prospectuses"). To obtain the Prospectuses, please call the
Morgan Stanley Fund, Inc. Services Group at:
1-800-341-2911
--------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
INVESTMENT OBJECTIVES AND POLICIES...... 2
FEDERAL INCOME TAX...................... 15
FEDERAL TAX TREATMENT OF FORWARD
CURRENCY CONTRACTS AND EXCHANGE RATE
CONTRACTS.............................. 18
TAXES AND FOREIGN SHAREHOLDERS.......... 18
PURCHASE OF SHARES...................... 19
REDEMPTION OF SHARES.................... 19
INVESTMENT LIMITATIONS.................. 21
DETERMINING MATURITIES OF CERTAIN
INSTRUMENTS............................ 25
MANAGEMENT OF THE COMPANY............... 25
MONEY MARKET FUND NET ASSET VALUE....... 36
PORTFOLIO TRANSACTIONS.................. 36
PERFORMANCE INFORMATION................. 37
GENERAL INFORMATION..................... 44
DESCRIPTION OF SECURITIES AND RATINGS... 44
AUDITED FINANCIAL STATEMENTS............ 47
UNAUDITED FINANCIAL DATED NOVEMBER 30,
1997................................... 116
ON BEHALF OF MORGAN STANLEY VALUE FUND
</TABLE>
Date: October 28, 1997
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies (listed in alphabetical order) supplement the
investment objectives and policies set forth in the Company's Prospectuses with
respect to the Company's twenty-two Funds: Morgan Stanley Global Fixed Income
Fund, Morgan Stanley Worldwide High Income Fund, Morgan Stanley High Yield Fund,
Morgan Stanley American Value Fund, Morgan Stanley Aggressive Equity Fund,
Morgan Stanley U.S. Real Estate Fund, Morgan Stanley Global Equity Allocation
Fund, Morgan Stanley Asian Growth Fund, Morgan Stanley Emerging Markets Fund,
Morgan Stanley Latin American Fund, Morgan Stanley International Magnum Fund,
Morgan Stanley Japanese Equity Fund, Morgan Stanley Growth and Income Fund,
Morgan Stanley European Equity Fund, Morgan Stanley Equity Growth Fund, Morgan
Stanley Global Equity Fund, Morgan Stanley Emerging Markets Debt Fund, Morgan
Stanley Mid Cap Growth Fund, Morgan Stanley Value Fund (collectively, the
"Non-Money Funds") and Morgan Stanley Money Market Fund, Morgan Stanley Tax-Free
Money Market Fund and Morgan Stanley Government Obligations Money Market Fund
(collectively, the "Money Market Funds"). For ease of reference, the words
"Morgan Stanley," which begin the name of each Fund, are not used hereinafter.
EMERGING COUNTRY DEBT SECURITIES
GENERAL. The Emerging Markets Debt and Worldwide High Income Funds'
definition of emerging country debt securities includes securities of companies
that may have characteristics and business relationships common to companies in
a country or countries other than an emerging country. As a result, the value of
the securities of such companies may reflect economic and market forces
applicable to other countries, as well as to an emerging country. The
Sub-Adviser believes, however, that investment in such companies will be
appropriate because the Funds will invest in those emerging market companies
which, in its view, have sufficiently strong exposure to economic and market
forces in an emerging country such that their value will tend to reflect
developments in such emerging country to a greater extent than developments in
another country or countries. For example, the Funds may invest in companies
organized and located in countries other than an emerging country, including
companies having their entire production facilities outside of an emerging
country, when securities of such companies meet one or more elements of the
Funds' definition of an emerging country debt security and so long as the
Sub-Adviser believes at the time of investment that the value of the company's
securities will reflect principally conditions in such emerging country.
The Emerging Markets Debt Fund and Worldwide High Income Fund are subject to
no restrictions on the maturities of the emerging country debt securities they
hold; those maturities may range from overnight to 30 years. The value of debt
securities held by a Fund generally will vary inversely to changes in prevailing
interest rates. A Fund's investments in fixed-rated debt securities with longer
terms to maturity are subject to greater volatility than the Fund's investments
in shorter-term obligations. Debt obligations acquired at a discount are subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which are not subject to such
discount.
Government, government-related and restructured debt securities in emerging
markets will consist of (i) debt securities or obligations issued or guaranteed
by governments, governmental agencies or instrumentalities and political
subdivisions located in emerging countries (including participations in loans
between governments and financial institutions), (ii) debt securities or
obligations issued by government owned, controlled or sponsored entities located
in emerging countries, and (iii) interests in issuers organized and operated for
the purpose of restructuring the investment characteristics of instruments
issued by any of the entities described above. Such type of restructuring
involves the deposit with or purchase by an entity of specific instruments and
the issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. Certain issuers of such
structured securities may be deemed to be "investment companies" as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). As a result, a
Fund's investment in such securities may be limited by certain investment
restrictions contained in the 1940 Act.
Investments in emerging country government debt securities involve special
risks. Certain emerging countries have historically experienced, and may
continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. The issuer or governmental
authority that controls the repayment of an emerging country's debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. As a result of the foregoing, a government obligor
may default on its obligations. If such an event occurs, a Fund may have limited
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign government debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government debt obligations in the
event of default under their commercial bank loan agreements.
Debt securities of corporate issuers in emerging countries may include debt
securities or obligations issued (i) by banks located in emerging countries or
by branches of emerging country banks located outside the country or (ii) by
companies organized under the laws of an emerging country. Determinations as to
eligibility will be made by the Sub-Adviser based on publicly available
information and inquiries made to the issuer.
Ratings of a non-U.S. debt instrument, to the extent that those ratings are
undertaken, are related to evaluations of the country in which the issuer of the
instrument is located. Ratings generally take into account the currency in which
a non-U.S. debt instrument is denominated. Instruments issued by a foreign
government in other than the local currency, for example,
2
<PAGE>
typically have a lower rating than local currency instruments due to the
existence of an additional risk that the government will be unable to obtain the
required foreign currency to service its foreign currency-denominated debt. In
general, the ratings of debt securities or obligations issued by a non-U.S.
public or private entity will not be higher than the rating of the currency or
the foreign currency debt of the central government of the country in which the
issuer is located, regardless of the intrinsic creditworthiness of the issuer.
The Funds do not intend to invest in any security in a country where the
currency is not freely convertible to U.S. Dollars, unless the Fund has obtained
the necessary governmental licensing to convert such currency or other
appropriately licensed or sanctioned contractual guarantee to protect such
investment against loss of that currency's external value, or the Fund has a
reasonable expectation at the time the investment is made that such governmental
licensing or other appropriately licensed or sanctioned guarantee would be
obtained or that the currency in which the security is quoted would be freely
convertible at the time of any proposed sale of the security by the Fund.
The governments of some countries have been engaged in programs of selling
part or all of their stakes in government owned or controlled enterprises
("privatization"). The Sub-Adviser believes that privatization may offer
investors opportunities for significant capital appreciation and intends to
invest assets of the Fund in privatization in appropriate circumstances. In
certain countries, the ability of foreign entities, such as the Fund, to
participate in privatization may be limited by local law, or the terms on which
the Fund may be permitted to participate may be less advantageous than those for
local investors. There can be no assurance that governments will continue to
sell companies currently owned or controlled by them or that any privatization
programs in which the Fund participates will be successful.
Several Latin American countries have adopted debt conversion programs,
pursuant to which investors may use sovereign debt of a country, directly or
indirectly, to make investments in local companies. The terms of the various
programs vary from country to country although each program includes significant
restrictions on the application of the proceeds received in the conversion and
on the remittance of profits on the investment and of the invested capital. The
Fund may participate in Latin American debt conversion programs. The Sub-Adviser
will evaluate opportunities to enter into debt conversion transactions as they
arise.
BRADY BONDS. The Emerging Markets Debt Fund and Worldwide High Income Fund
may invest in certain debt obligations customarily referred to as "Brady Bonds,"
which are created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt restructuring under
a plan introduced by former U.S. Secretary of the Treasury Nicholas F. Brady
(the "Brady Plan"). Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized and issued in various currencies (although most are U.S.
dollar-denominated) and they are actively traded in the over-the-counter
secondary market. A Fund may purchase Brady Bonds either in the primary or
secondary markets. The price and yield of Brady Bonds purchased in the secondary
market will reflect the market conditions at the time of purchase, regardless of
the stated face amount and the stated interest rate. With respect to Brady Bonds
with no or limited collateralization, a Fund will rely for payment of interest
and principal primarily on the willingness and ability of the issuing government
to make payment in accordance with the terms of the bonds.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In the event of
a default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held to the scheduled maturity of the
defaulted Brady Bonds by the collateral agent, at which time the face amount of
the collateral will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of the residual
risk of the Brady Bonds and, among other factors, the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds should be viewed as speculative.
EQUITY-LINKED SECURITIES
The Value, Mid Cap Growth, Global Equity, Equity Growth, Growth and Income
and Aggressive Equity Funds may invest in equity-linked securities, including,
among others, PERCS, ELKS, or LYONs, which are securities that are convertible
into, or the value of which is based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
such securities is not fixed but is based on the price of the underlying common
stock. It is not possible to predict how equity-linked securities will trade in
the secondary market or whether such market will be liquid or illiquid. The
3
<PAGE>
following are three examples of equity-linked securities. The Funds may invest
in the securities described below or other similar equity-linked securities.
There are certain risks of loss of principal in connection with investing in
equity-linked securities, as described in the following examples of certain
equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") convert into common
stock within three years regardless of the price at which the common stock
trades. If the common stock is trading at a price that is at or below the cap, a
Fund receives one share of common stock for each PERCS share. If the common
stock is trading at a price that is above the cap, the Fund receives less than
one share, with the conversion ratio adjusted so that the market value of the
common stock received by the Fund equals the cap. Accordingly, a Fund is subject
to the risk that if the price of the common stock is above the cap price at the
maturity of the PERCS, the Fund will lose the amount of the difference between
the price of the common stock and the cap. Such a loss could substantially
reduce the Fund's initial investment in the PERCS and any dividends that were
paid on the PERCS. PERCS also present risks based on payment expectations. If a
PERCS issuer redeems the PERCS, the Fund may have to replace the PERCS with a
lower yielding security, resulting in a decreased return for investors.
The principal amount that Equity-Linked Securities ("ELKS") holders receive
at maturity is based on the price of underlying common stock. If the common
stock is trading at a price that is at or below the cap, a Fund receives for
each ELKS share an amount equal to the average price of the common stock. If the
common stock is trading at a price that is above the cap, the Fund receives the
cap amount. Accordingly, a Fund is subject to the risk that if the price of the
common stock is above the cap price at the maturity of the ELKS, the Fund will
lose the amount of the difference between the price of the common stock and the
cap. Such a loss could substantially reduce the Fund's initial investment in the
ELKS and any dividends that were paid on the ELKS. An additional risk is that
the issuer may "reopen" the issue of ELKS and issue additional ELKS at a later
time or issue additional debt securities or other securities with terms similar
to those of the ELKS, and such issuances may affect the trading value of the
ELKS.
The principal amount that Liquid Yield Option Notes ("LYONs") holders
receive for LYONs, other than the lower-than-market yield at maturity, is based
on the price of underlying common stock. If the common stock is trading at a
price that is at or below the purchase price of the LYONs plus accrued original
issue discount, a Fund receives only the lower-than-market yield, assuming the
LYONs are not in default. If the common stock is trading at a price that is
above the purchase price of the LYON's plus accrued original issue discount, the
Fund will receive an amount above the lower-than-market yield on the LYONs,
based on how well the underlying common stock performs. LYONs also present risks
based on payment expectations. If a LYON's issuer redeems the LYONs, the Fund
may have to replace the LYONs with a lower yielding security, resulting in a
decreased return for investors.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across its borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issuers.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign currency warrants are warrants which entitle the holder to receive
from their issuer an amount of cash (generally, for warrants issued in the
United States, in U.S. Dollars) which is calculated pursuant to a predetermined
formula and based on the exchange rate between a specified foreign currency and
the U.S. Dollar as of the exercise date of the warrant. Foreign currency
warrants generally are exercisable upon their issuance and expire as of a
specified date and time. Foreign currency warrants have been issued in
connection with U.S. Dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
Dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. Dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of
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warrants gives instructions to exercise and the time the exchange rate relating
to exercise is determined, during which time the exchange rate could change
significantly, thereby affecting both the market and cash settlement values of
the warrants being exercised. The expiration date of the warrants may be
accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the OCC. Unlike foreign
currency options issued by the OCC, the terms of foreign exchange warrants
generally will not be amended in the event of governmental or regulatory actions
affecting exchange rates or in the event of the imposition of other regulatory
controls affecting the international currency markets. The initial public
offering price of foreign currency warrants is generally considerably in excess
of the price that a commercial user of foreign currencies might pay in the
interbank market for a comparable option involving significantly larger amounts
of foreign currencies. Foreign currency warrants are subject to complex
political or economic factors.
Principal exchange rate linked securities are debt obligations the principal
on which is payable at maturity in an amount that may vary based on the exchange
rate between the U.S. Dollar and a particular foreign currency at or about that
time. The return on "standard" principal exchange rate linked securities is
enhanced if the foreign currency to which the security is linked appreciates
against the U.S. Dollar, and is adversely affected by increases in the foreign
exchange value of the U.S. Dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. Dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. Dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). Principal exchange rate linked securities may in limited cases
be subject to acceleration of maturity (generally, not without the consent of
the holders of the securities), which may have an adverse impact on the value of
the principal payment to be made at maturity.
Performance indexed paper is U.S. Dollar-denominated commercial paper the
yield of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is between the U.S. Dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. Dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The U.S. Dollar value of the assets of the Global Equity, Global Equity
Allocation, Global Fixed Income, Asian Growth, Emerging Markets, Emerging
Markets Debt, Latin American, European Equity, Japanese Equity and International
Magnum Funds and to the extent they invest in assets denominated in foreign
currencies, the Value, Mid Cap Growth, American Value, Aggressive Equity, Growth
and Income, Equity Growth, Worldwide High Income and High Yield Funds may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Funds may incur costs in connection
with conversions between various currencies. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract (a "forward contract") involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
The Funds may enter into forward contracts in several circumstances. When a
Fund enters into a contract for the purchase or sale of a security denominated
in a foreign currency, or when a Fund anticipates the receipt in a foreign
currency of dividends or interest payments on a security which it holds, the
Fund may desire to "lock-in" the U.S. Dollar price of the security or the U.S.
Dollar equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when any of these Funds anticipates that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward contract for a fixed amount of dollars, to
sell the amount of foreign currency approximating the value of some or all of
such Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency
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market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. A Fund will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate such Fund to deliver an amount of
foreign currency in excess of the value of such Fund's securities or other
assets denominated in that currency.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the long-term investment decisions made with
regard to overall diversification strategies. However, the management of the
Company believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the performance
of each Fund will thereby be served. Except in circumstances where segregated
accounts are not required by the 1940 Act and the rules adopted thereunder, the
Company's Custodian will place cash or liquid assets into a segregated account
of a Fund in an amount equal to the value of such Fund's total assets committed
to the consummation of forward contracts. If the value of the securities placed
in the segregated account declines, additional cash or assets will be placed in
the account on a daily basis so that the value of the account will be at least
equal to the amount of such Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Fund may either
accept or make delivery of the currency specified in the contract or, prior to
maturity, enter into a closing purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract. A Fund will only enter into such a forward
contract if it is expected that there will be a liquid market in which to close
out such contract. There can, however, be no assurance that such a liquid market
will exist in which to close a forward contract, in which case the Fund may
suffer a loss.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between a Fund entering into a forward contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, such Fund will realize a gain
to the extent that the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
such Fund would suffer a loss to the extent that the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
In addition, Funds may cross-hedge currencies by entering into a transaction
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a portfolio has or expects to have
portfolio exposure. These Funds may also engage in proxy hedging, which is
defined as entering into positions in one currency to hedge investments
denominated in another currency, where two currencies are economically linked. A
Fund's entry into forward contracts, as well as any use of proxy or cross
hedging techniques, will generally require the Fund to hold liquid securities or
cash equal to the Fund's obligations in a segregated account throughout the
duration of the contract.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security or a specific
currency at a specified future time and at a specified price. Futures contracts,
which are standardized as to maturity date and underlying financial instrument,
index or currency, traded in the United States are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
Government agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currencies, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold" or "selling" a
contract previously "purchased") in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
The Funds may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result. An index futures
contract is an agreement to
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take or make delivery of an amount of cash equal to the difference between the
value of the index at the beginning and at the end of the contract period.
Successful use of index futures will be subject to the Adviser's ability to
predict correctly movements in the direction of the relevant securities market.
No assurance can be given that the Adviser's judgment in this respect will be
correct.
The Emerging Markets, Latin American, European Equity, American Value,
Equity Growth, Emerging Markets Debt, Global Equity, Global Equity Allocation,
Aggressive Equity, Growth and Income, Value, Mid Cap Growth and Worldwide High
Income Funds may sell indexed financial futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
securities in its portfolio that might otherwise result. If the Adviser believes
that a portion of a Fund's assets should be invested in emerging country
securities but such investments have not been fully made and the Adviser
anticipates a significant market advance, the Fund may purchase index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of securities that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of such securities.
Futures traders are required to make a good faith margin deposit in cash or
liquid securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold for prices that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of an
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the underlying securities with futures contracts that they trade, and use
futures contracts with the expectation of realizing profits from market
fluctuations. The Funds intend to use futures contracts only for hedging
purposes.
Regulations of the CFTC applicable to the Funds require generally that all
futures transactions constitute bona fide hedging transactions. A Fund may
engage in futures transactions for other purposes so long as the aggregate
initial margin and premiums required for such transaction will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Funds will only sell futures contracts to protect securities owned
against declines in price or purchase contracts to protect against an increase
in the price of securities intended for purchase. As evidence of this hedging
interest, the Funds expect that approximately 75% of their respective futures
contracts will be "completed"; that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Fund upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Funds will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. None of the Funds will enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, none of the Funds will enter into
futures contracts and options on futures contracts to the extent that the
notional value of its outstanding obligations to purchase securities under such
contracts would exceed 20% (50% for the Mid Cap Growth, Value, Equity Growth,
Emerging Markets Debt and Global Equity Funds) of its total assets. See also,
"Investment Limitations" for further restrictions applicable to the Funds.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet its daily margin
requirement at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge.
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The Funds will minimize the risk that they will be unable to close out a
futures contract by generally entering into futures which are traded on
recognized international or national futures exchanges and for which there
appears to be a liquid secondary market, however, the Funds may enter into
over-the-counter futures transactions to the extent permitted by applicable law.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if, at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the Funds engage
in futures strategies only for hedging purposes, the Sub-Adviser does not
believe that the Funds are subject to the risks of loss frequently associated
with futures transactions. The Fund would presumably have sustained comparable
losses if, instead of the futures contract, the Fund had invested in the
underlying security or currency and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities or currencies being
hedged. It is also possible that a Fund could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by a Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a futures
contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
OPTIONS ON FOREIGN CURRENCIES
The Funds may attempt to accomplish objectives similar to those described
above with respect to forward foreign currency exchange contracts and futures
contracts for currency by means of purchasing put or call options on foreign
currencies on exchanges. A put option gives a Fund the right to sell a currency
at the exercise price until the expiration of the option. A call option gives a
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
The Funds noted above may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminution in the value of
portfolio securities, the Funds may purchase put options on the foreign
currency. If the value of the currency does decline, the Funds will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on their portfolios which
otherwise would have resulted. Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Funds may purchase call
options thereon. The purchase of such options could offset, at least partially,
the effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Funds derived from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Funds could sustain
losses on transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such rates.
Funds may write options on foreign currencies for the same purposes. For
example, where a Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the anticipated decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received. Similarly, instead of purchasing a call
option to hedge against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and allow
the portfolio to hedge such increased cost up to the amount of the premium. As
in the case of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the amount of the
premium, and only if rates move in the expected direction. If this does not
occur, the option may be exercised and the Fund would be required to purchase or
sell the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Fund also
may be required to forego all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
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Funds may only write covered call options on foreign currencies. A call
option written on a foreign currency by the portfolio is "covered" if the Fund
owns the underlying foreign currency covered by the call, an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) or upon conversion or exchange of other foreign currency held
in its portfolio. A written call option is also covered if the Fund has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or other
liquid securities in a segregated account with the Custodian, or (c) maintains
in a segregated account cash or other liquid securities in an amount not less
than the value of the underlying foreign currency in U.S. Dollars,
marked-to-market daily.
Funds may also write call options on foreign currencies for cross-hedging
purposes. A call option on a foreign currency is for cross-hedging purposes if
it is designed to provide a hedge against a decline in the U.S. Dollar value of
a security which the portfolio owns or has the right to acquire due to an
adverse change in the exchange rate and which is denominated in the currency
underlying the option. In such circumstances, the Fund will either "cover" the
transaction as described above or collateralize the option by maintaining in a
segregated account with the Custodian, cash or other liquid securities in an
amount not less than the value of the underlying foreign currency in U.S.
Dollars marked-to-market daily.
Funds may combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a Fund may purchase a U.S.
dollar-denominated security and at the same time enter into a forward contract
to exchange U.S. dollars for the contract's underlying currency at a future
date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, the Fund may be able
to lock in the foreign currency value of the security and adopt a synthetic
position reflecting the credit quality of the U.S. dollar-denominated security.
To the extent required by the rules and regulations of the Securities and
Exchange Commission ("SEC"), the Custodian of the Funds will place cash or other
liquid assets into a segregated account of a Fund in an amount equal to the
value of such Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or liquid assets will be placed
in the account on a daily basis so that the value of the account will be at
least equal to the amount of such Fund's commitments with respect to such
contracts.
OPTIONS TRANSACTIONS
The Non-Money Market Funds may write (i.e., sell) covered call options which
give the purchaser the right to buy the underlying security covered by the
option from the Fund at the stated exercise price. A "covered" call option means
that so long as a Fund is obligated as the writer of the option, it will own (i)
the underlying securities subject to the option, or (ii) securities convertible
or exchangeable without the payment of any consideration into the securities
subject to the option.
A Fund will receive a premium from writing call options, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund will limit
its opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. Thus, in some periods a Fund will
receive less total return and in other periods greater total return from writing
covered call options than it would have received from its underlying securities
had it not written call options.
A Fund may sell put options to receive the premiums paid by purchasers and
to close out a long put option position. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, a Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
A Fund 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 Fund may purchase put options on securities which it holds in its
portfolio to protect itself against a decline in the value of the security. If
the value of the underlying security were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. A Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on a Fund's ability to purchase
call and put options.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC Option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
Option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Sub-Adviser must assess the creditworthiness of
each such Counterparty or any guarantor of credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
Options will be satisfied. The staff of the SEC currently takes the position
that OTC Options purchased by a Fund or sold by it (the cost of the sell-back
plus the in-the-money amount, if any) are illiquid unless the Fund has entered
into a special arrangement to dispose of the security, and are subject to the
Fund's limitation on investing in illiquid securities.
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Investments in options involve some of the same considerations that are
involved in connection with investments in futures contracts (e.g., the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying security or
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
or securities, an option may or may not be less risky than ownership of the
futures contract or actual securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract or securities. In the opinion of the Sub-Adviser, the risk that
a Fund will be unable to close out an options contract will be minimized by only
entering into options transactions for which there appears to be a liquid
secondary market.
COMBINED TRANSACTIONS
Funds may enter into multiples of the forwards, futures and options
transactions described above in which they are permitted to engage, including
multiple options transactions, multiple futures transactions, multiple foreign
currency transactions (including forward foreign currency exchange contracts)
and any combination of futures, options and foreign currency transactions,
instead of a single transaction, as part of a single hedging strategy when, in
the opinion of the Sub-Adviser, it is in the best interest of the Fund to do so.
A combined transaction, while part of a single strategy, may contain elements of
risk that are present in each of its component transactions and will be
structured in accordance with applicable Securities and Exchange Commission (the
"SEC") regulations and SEC staff guidelines.
RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES
Options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchase of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Furthermore, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting a
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effect of other
political and economic events. In addition, exchange-traded options of foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decision, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during non
business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
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GLOBAL INVESTING
Investors should recognize that investing in foreign securities involves
special considerations which are not typically associated with investing in
domestic securities. Since the securities of foreign issuers are frequently
denominated in foreign currencies, and since a Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, a Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of certain Funds permit entering
into forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.
Although the Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of a
Fund's foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling the U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Additional risks of
foreign investing are set forth in the appropriate Prospectuses.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price they are being carried on a Fund's
books. This lack of a liquid secondary market may have an adverse impact on the
value of such securities and a Fund's ability to dispose of particular
securities when necessary to meet the Fund's liquidity needs or in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for securities also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
INVESTMENT COMPANY SECURITIES
The 1940 Act, generally prohibits a Fund from acquiring more than 3% of the
outstanding voting shares of an investment company and limits such investments
to no more than 5% of the Fund's total assets in any one investment company and
no more than 10% in any combination of investment companies. The 1940 Act also
prohibits a Fund from acquiring in the aggregate more than 10% of the
outstanding voting shares of any registered closed-end investment company. A
Fund may not purchase shares of any affiliated investment company except as
permitted by the 1940 Act or other applicable law.
MORTGAGE-RELATED DEBT SECURITIES
Mortgage-related debt securities represent ownership interests in individual
pools of residential mortgage loans. These securities are designed to provide
monthly payments of interest and principal to the investor. Each mortgagor's
monthly payment to his lending institution on his residential mortgage is
"passed-through" to investors. Mortgage pools consist of whole mortgage loans or
participations in loans. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools.
Lending institutions which originate mortgages for the pools are subject to
certain standards, including credit and underwriting criteria for individual
mortgages included in the pools.
The coupon rate of interest on mortgage-related securities is lower than the
interest rates paid on the mortgages included in the underlying pool, but only
by the amount of the fees paid to the mortgage pooler, issuer, and/or guarantor
of payment of the securities for the guarantee of the services of passing
through monthly payments to investors. Actual yield may vary from the coupon
rate, however, if mortgage-related securities are purchased at a premium or
discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
The International Magnum Fund seeks to achieve its objective by investing
primarily in equity securities of non-U.S. issuers in accordance with the EAFE
country (defined below) weightings determined by the Sub-Adviser. After
establishing regional allocation strategies, the Sub-Adviser then selects equity
securities among issuers of a region. The Fund invests in countries (each an
"EAFE country") comprising the Morgan Stanley Capital International EAFE
(Europe, Australia and the Far East) Index (the "EAFE Index") and any countries
which have been publicly announced will be added to the EAFE Index.
The EAFE Index is one of seven International Indices, twenty National
Indices and thirty-eight Industry Indices making up the Morgan Stanley Capital
International Indices. The Morgan Stanley Capital International EAFE Index is
based on the share prices of 1,066 companies listed on the stock exchanges of
Europe, Australia, New Zealand and the Far East. "Europe" includes Austria,
Belgium, Denmark, Finland, France, Germany, Italy,
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The Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom.
"Far East" includes Japan, Hong Kong and Singapore/Malaysia. It was announced
publicly that Portugal will be added to the EAFE Index in December, 1997.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
The investment objective of the Global Equity Allocation Fund is to provide
long-term capital appreciation by investing in equity securities of U.S. and
non-U.S. issuers in accordance with country weightings determined by the
Sub-Adviser and with stock selection within each country designed to replicate a
broad market index. The Sub-Adviser determines country allocations for the Fund
on an ongoing basis within policy ranges dictated by each country's market
capitalization and liquidity. The Fund will invest in the United States and
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International World Index (the "World Index"). The World Index is one of
the indices making up the Morgan Stanley Capital International Indices.
The World Index is based on the share prices of companies listed on the
stock exchanges of Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/ Malaysia, Spain, Sweden, Switzerland, the United Kingdom and the
United States.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS
For purposes of the Funds' investment policies with respect to bank
obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Investments in bank
obligations will include obligations of domestic branches of foreign banks and
foreign branches of domestic banks. Such investments may involve risks that are
different from investments in securities of domestic branches of U.S. banks. See
the Prospectuses for a discussion of the risks of foreign investments. These
institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and record keeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Funds will
invest in U.S. Dollar-denominated obligations of domestic branches of foreign
banks and foreign branches of domestic banks only when the Sub-Adviser believes
that the risks associated with such investment are minimal and that all
applicable quality standards have been satisfied.
PORTFOLIO TURNOVER
The portfolio turnover rate for a year is the lesser of the value of the
purchases or sales for the year divided by the average monthly market value of
the Fund for the year, excluding securities with maturities of one year or less.
The rate of portfolio turnover will not be a limiting factor when a Fund deems
it appropriate to purchase or sell securities for the portfolio. High rates of
portfolio turnover necessarily result in correspondingly heavier brokerage and
portfolio trading costs which are paid by the Funds. In addition to portfolio
trading costs, higher rates of portfolio turnover may result in the realization
of capital gains. See "Taxes" in the Prospectus for more information on
taxation.
REPURCHASE AGREEMENTS
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository.
SECURITIES LENDING
Each Fund may lend its investment securities to qualified institutional
investors who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its investment securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms, structure and the aggregate amount of such loans are not
inconsistent with the 1940 Act, or the Rules and Regulations or interpretations
of the SEC thereunder, which currently require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit issued by a domestic U.S. bank, or liquid securities having a value at
all times not less than 100% of the value of the securities loaned, including
accrued interest, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund receive reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments), any
distributions on the loaned securities and any increase in their market value.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Sub-Adviser to be of
good standing and when, in the judgment of
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the Sub-Adviser, the consideration which can be earned currently from such
securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Directors.
At the present time, the Staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Directors. In addition, voting rights may pass with the
loaned securities, but if a material event will occur affecting an investment on
loan, the loan must be called and the securities voted.
STAND-BY COMMITMENTS
A Fund may enter into stand-by commitments with respect to obligations
issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase,
at a Fund's option, a specified Municipal Obligation at its amortized cost value
to the Fund plus accrued interest, if any. Stand-by commitments may be
exercisable by a Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund will not exceed 1/2
of 1% of the value of that Fund's total assets calculated immediately after each
stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers, banks
and broker-dealers which, in the Sub-Adviser's opinion, present minimal credit
risks and otherwise satisfy applicable quality standards. The Funds' reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their right thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where a Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by that Fund and will be reflected in realized gain or loss
when the commitment is exercised or expires.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.
SWAP CONTRACTS
The Non-Money Market Funds may enter into Swap Contracts. A swap is an
agreement to exchange the return generated by one instrument for the return
generated by another instrument. The payment streams are calculated by reference
to a specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices, total return on interest rate
indices, fixed income indices, stock indices and commodity indices (as well as
amounts derived from arithmetic operations on these indices). For example, a
Fund may agree to swap the return generated by a fixed-income index for
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the return generated by a second fixed-income index. The currency swaps in which
a Fund may enter will generally involve an agreement to pay interest streams in
one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
The swaps in which the noted Funds may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities, to avoid any potential leveraging of the Fund. To the extent
that these swaps, caps, floors, and collars are entered into for hedging
purposes, the Sub-Adviser believes such obligations do not constitute "senior
securities" under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. Funds may enter into OTC
derivatives transactions (Swaps, Caps, Floors, Puts, etc., but excluding foreign
exchange contracts) with counterparties that are approved by the Sub-Adviser in
accordance with guidelines established by the Board of Directors. These
guidelines provide for a minimum credit rating for each counterparty and various
credit enhancement techniques (for example, collateralization of amounts due
from counterparties) to limit exposure to counterparties with ratings below AA.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Sub-Adviser is incorrect in its forecasts of
market values, interest rates, and currency exchange rates, the investment
performance of the portfolio would be less favorable than it would have been if
this investment technique were not used.
U.S. GOVERNMENT OBLIGATIONS
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments held by each Money Market Fund may have
maturities of more than 397 days, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 days, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 397 days. In determining the weighted average maturity of
a Fund and whether a variable rate demand instrument has a remaining maturity of
397 days or less, each instrument will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable rate demand
instrument is of comparable quality at the time of purchase to instruments rated
"high quality," the Sub-Adviser will follow guidelines adopted by the Company's
Board of Directors.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Delivery of and payment for these securities may take as long as a month or
more after the date of the purchase commitment but will take place no more than
120 days after the trade date. Each Fund will maintain with the appropriate
Custodian a separate account with a segregated portfolio of cash or liquid
securities in an amount at least equal to these commitments. It is possible that
the market value at the time of settlement would be higher or lower than the
purchase price if the general level of interest rates has changed.
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ZERO COUPON BONDS
Zero coupon bonds is a term used to describe notes and bonds which have been
stripped of their unmatured interest coupons, or the coupons themselves, and
also receipts or certificates representing interest in such stripped debt
obligations and coupons. The timely payment of coupon interest and principal on
zero coupon bonds issued by the U.S. Treasury remains guaranteed by the "full
faith and credit" of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
to be income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of the Fund's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.
Zero Coupon Treasury Bonds are sold under a variety of different names, such
as: Certificate of Accrual on Treasury Securities ("CATS"), Treasury Receipts
("TRs"), Separate Trading of Registered Interest and Principal of Securities
("STRIPS") and Treasury Investment Growth Receipts ("TIGERS").
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax
considerations generally affecting the Company and its shareholders that are not
described in the Company's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Company
or its shareholders, and the discussion here and in the Company's prospectuses
are not intended as tax advice or as a substitute for careful tax planning.
Each Fund is generally treated as a separate corporation for federal income
tax purposes, and thus the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), generally will be applied to each Fund separately, rather
than to the Company as a whole. Each Fund has qualified and intends to continue
to qualify to be treated for each taxable year as a regulated investment company
("RIC") under subchapter M of the Code.
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. Legislation and administrative changes or
court decisions may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
In order to qualify for the special tax treatment afforded to RICs under
Subchapter M of the Code, each Fund must, among other things, (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, gains from options, futures and forward
contracts (the "90% Gross Income Test"); (b) derive less than 30% of its gross
income each taxable year from the sale or other disposition of (i) stocks or
securities, (ii) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies) and (iii) foreign currencies
(or options, futures or forward contracts on foreign currencies), but only if
not directly related to the Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities) held
less than three months (the "Short-Short Gain Test"), and (c) diversify its
holdings so that, at the end of each fiscal quarter of the Company's taxable
year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, United States Government securities, securities of other
RICs, and other securities and cash items, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the value of
the Fund's total assets or 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer or two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses (other than U.S. Government securities or the securities of other
RICs). For purposes of the 90% gross income requirement described above, foreign
currency gains may be excluded by regulation from income that qualifies under
the 90% requirement. The Short-Short Gain Test will no longer be applicable to
the Funds beginning on July 1, 1998.
In addition to the requirements described above, in order to qualify as a
RIC, a Fund must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and net short-term capital gains
less operating expenses) to shareholders. If a Fund meets all of the RIC
requirements, it will not be subject to federal income tax on any of its net
investment income or net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders.
If a Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such case, distributions (including capital gain
dividends, which are distributions of net capital gains) will be taxable as
ordinary dividends to the extent of the Fund's current and accumulated earnings
and profits and such distributions generally will be eligible for the corporate
dividends received deductions.
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Each Fund will decide whether to distribute or to retain all or part of any
net capital gains in any year for reinvestment. If any such gains are retained,
the Fund will pay federal income tax thereon, and, if the Fund makes an
election, the shareholders will include such undistributed gains in their income
and shareholders subject to tax will be able to claim their share of the tax
paid by the Fund as a credit against their federal income tax liability.
A gain or loss realized by a shareholder on the sale or exchange of shares
of a Fund held as a capital asset will be capital gain or loss. For a summary of
the rates applicable to capital gains (including capital gain dividends), see
"Capital Gains Rates Under the 1997 Tax Act" below. Any loss recognized on a
sale or exchange will be disallowed to the extent the shares disposed of are
replaced within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of. Any loss recognized by a shareholder on the
disposition of shares held 6 months or less is treated as a long-term capital
loss to the extent of any capital gain dividends received by the shareholder
with respect to such shares or any inclusion of undistributed capital gain with
respect to such shares.
Each Fund will generally be subject to a nondeductible 4% federal excise tax
to the extent it fails to distribute by the end of any calendar year at least
98% of its ordinary income and 98% of its capital gain net income (the excess of
short and long-term capital gains over short and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
Each Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains dividends and redemptions) paid to
shareholders who have not certified on the Account Registration Form or on a
separate form supplied by the Fund, that the Social Security or Taxpayer
Identification Number provided is correct and that the shareholder is exempt
from backup withholding or is not currently subject to backup withholding.
CAPITAL GAINS RATES UNDER THE 1997 TAX ACT
Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other
non-corporate taxpayers are (i) the same as ordinary income rates for capital
assets held for one year or less, (ii) 28% for capital assets held for more than
one year but not more than 18 months and (iii) 20% for capital assets held for
more than 18 months. The maximum long-term capital gains rate for corporations
remains at 35%. Under the 1997 Tax Act, the Treasury is authorized to issue
regulations that address the application of the new capital gains rates to sales
and exchanges by RICs and to sales and exchanges of interests in RICs, but no
such regulations have been issued as of the date hereof. It is expected that the
new tax rates for capital gains under the 1997 Tax Act described above will
apply to distributions of capital gain dividends by the Funds as well as to
sales and exchanges of shares in the Funds. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gain
dividends received on such shares (see discussion above regarding gains or
losses recognized on the sale or exchange of shares), it is unclear how such
capital losses offset the capital gains referred to above. Shareholders should
consult their own tax advisers as to the application of the new capital gains
rates to their particular circumstances.
ADDITIONAL CONSIDERATIONS FOR THE TAX-FREE MONEY MARKET FUND
In order for the Tax-Free Money Market Fund to pay exempt-interest dividends
during any taxable year, at the close of each quarter of its taxable year at
least 50% of the value of the Fund's assets must consist of certain tax-exempt
obligations. Exempt-interest dividends distributed to shareholders are not
included in the shareholder's gross income for regular federal income tax
purposes. Exempt-interest dividends may, however, be subject to the alternative
minimum tax (the "AMT") imposed by Section 55 of the Code and, in the case of
corporate taxpayers, the environmental tax (the "Environmental Tax") imposed by
Section 59A of the Code. The AMT and the Environmental Tax may be imposed in two
circumstances. First, exempt-interest dividends derived from certain "private
activity bonds" issued after August 7, 1986, will generally be an item of tax
preference (and therefore potentially subject to the AMT and/or the
Environmental Tax) for both corporate and non-corporate taxpayers. Second, in
the case of exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the AMT and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. Up to 85% (depending on the
taxpayer's income) of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year may be included in
the gross income of such individual depending upon the individual's "modified
adjusted gross income" (which includes exempt-interest dividends).
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The Tax-Free Money Market Fund may not be an appropriate investment for
persons (including corporations and other business entities) who are
"substantial users" (or persons related to such users) of facilities financed by
industrial development or private activity bonds. A "substantial user" is
defined generally to include certain persons who regularly use such a facility
in their trade or business. Such entities or persons should consult their tax
advisors before purchasing shares of this Fund.
Issuers of bonds purchased by the Tax-Free Money Market Fund (or the
beneficiary of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such bonds
may become subject to federal income taxation retroactively to the date of
issuance thereof if such representations are determined to have been inaccurate
or if the issuer of such bonds (or the beneficiary of such bonds) fails to
comply with such covenants.
Distributions of net investment income received by the Tax-Free Money Market
Fund from investments in debt securities (other than interest on tax-exempt
Municipal Obligations) and any net short-term capital gains distributed by the
Fund will be taxable to shareholders as ordinary income and will not be eligible
for the dividends received deduction for corporate shareholders. Although the
Tax-Free Money Market Fund generally does not expect to receive net investment
income other than Tax-Exempt Interest, up to 20% of the net assets of the Fund
may be invested in Municipal Obligations that do not bear Tax-Exempt Interest,
and any taxable income recognized by the Fund will be distributed and taxed to
its shareholders.
PASSIVE FOREIGN INVESTMENT COMPANIES
A Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (i) at least 75% of its gross income is passive income or (ii)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a RIC that holds stock of a
PFIC will be subject to federal income tax on (i) a portion of any "excess
distribution" received on such stock or (ii) any gain from a sale or disposition
of such stock (collectively, "PFIC income"), plus interest on such amounts, even
if the RIC distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the RIC's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. If a Fund invests in
a PFIC and elects to treat the PFIC as a "qualified electing fund," then in lieu
of the foregoing tax and interest obligation, the Fund would be required to
include in income each year its pro rata share of the qualified electing fund's
annual ordinary earnings and net capital gain, which most likely would have to
be distributed to satisfy the 90% distribution requirement and the distribution
requirement for avoiding income and excise taxes. In most instances it will be
very difficult to make this election due to certain requirements imposed with
respect to the election.
Under provisions of the 1997 Tax Act generally effective for taxable years
ending after 1997, a Fund that invests in PFIC stock may make an election to
annually mark-to-market certain publicly traded PFIC stock (a "PFIC
Mark-to-Market Election"). "Marking-to-market," in this context, means
recognizing as ordinary income or loss each year an amount equal to the
difference between the Fund's adjusted tax basis in such PFIC stock and its fair
market value. Losses will be allowed only to the extent of net mark-to-market
gain previously included by the Fund pursuant to the election for prior taxable
years. The Fund may be required to include in its taxable income for the first
taxable year in which it makes a PFIC Mark-to-Market Election an amount equal to
the interest charge that would otherwise accrue with respect to distributions
on, or dispositions of, the PFIC stock. This amount would not be deductible from
the Fund's taxable income. The PFIC Mark-to-Market Election applies to the
taxable year for which made and to all subsequent taxable years, unless the PFIC
stock ceases to be publicly traded or the Internal Revenue Service consents to
revocation of the election. By making the PFIC Mark-to-Market Election, the Fund
could ameliorate the adverse tax consequences arising from its ownership of PFIC
stock, but in any particular year may be required to recognize income in excess
of the distributions it receives from the PFIC and proceeds from the disposition
of PFIC stock.
FOREIGN INCOME TAX
It is expected that each Fund will be subject to foreign withholding taxes
with respect to its dividend and interest income from foreign countries, if any,
and a Fund may be subject to foreign income or other taxes with respect to other
income. So long as more than 50% in value of a Fund's total assets at the close
of the taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat certain foreign income taxes imposed on it under U.S.
federal income tax law as paid directly by its shareholders. A Fund will make
such an election only if it deems it to be in the best interest of its
shareholders and will notify shareholders in writing each year if it makes an
election and of the amount of foreign income taxes, if any, to be treated as
paid by the shareholders. If a Fund makes the election, shareholders will be
required to include in income their proportionate shares of the amount of
foreign income taxes treated as imposed on the Fund and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they
itemize deductions, a deduction for their shares of the foreign income taxes in
computing their federal income tax liability. No deductions will be allowed in
computing alternative minimum tax liability.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to foreign source taxable income. For this purpose, the
portion of dividends and distributions paid by a Fund from its foreign source
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income will be treated as foreign source income. A Fund's gains from the sale of
securities will generally be treated as derived from U.S. sources and certain
foreign currency gains and losses likewise will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
The foregoing is only a general description of the treatment of foreign
income taxes under the U.S. federal income tax laws. Because the availability of
a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
CERTAIN INVESTMENT PRACTICES
Some of a Fund's investment practices, including those involving certain
risk management transactions and foreign currency transactions, may be subject
to special provisions of the Code that, among other things, defer the use of
certain losses of the Fund and affect the holding period of securities held by
the Fund and the character of gains or losses realized by the Fund. These
provisions may also require the Fund to recognize income or gain without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for avoiding federal income and excise taxes.
Thus, these provisions could affect the amount, timing and character of
distributions to shareholders. Each Fund engaging in such investment practices
will monitor its transactions and may make certain tax elections in order to
mitigate the effect of these rules and prevent disqualification of the Fund as a
RIC.
FEDERAL TAX TREATMENT OF FORWARD CURRENCY
CONTRACTS AND EXCHANGE RATE CONTRACTS
Except for certain hedging transactions, each Fund is required for federal
income tax purposes to recognize as gain or loss for each taxable year its net
unrealized gains and losses on certain forward currency and futures contracts as
of the end of each taxable year, as well as those actually realized during the
year. In most cases, any such gain or loss recognized with respect to a
regulated futures contract is considered to be 60% long-term capital gain or
loss and 40% short-term capital gain or loss, without regard to the holding
period of the contract. Proposed legislation would provide that amounts treated
as capital gain or loss pursuant to the foregoing sentence would be attributable
to property held for more than 18 months. See "Capital Gains Rates Under the
1997 Tax Act" above for a summary of the tax rates applicable to capital gains.
Forward currency futures contracts which are intended to hedge against a change
in the value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
Any net gain realized from the closing out of futures contracts will
generally be qualifying income for purposes of the 90% Gross Income test. In
order to satisfy the Short-Short Gain test, however, a Fund will have to avoid
realizing gains on futures contracts and certain forward contracts held less
than three months and may be required to defer the closing out of futures
contracts beyond the time when it would otherwise be advantageous to do so. It
is anticipated that unrealized gains of such contracts that have been open for
less than three months as of the end of a Fund's taxable year and which are
treated as recognized for tax purposes at the end of the taxable year will not
be considered gains on securities held less than three months for purposes of
the Short-Short Gain test. The Short-Short Gain test will no longer be
applicable to the Funds beginning on July 1, 1998.
Gains or losses attributable to foreign currency contracts, or to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or loss.
Similarly, gains or losses on disposition of debt securities denominated in a
foreign currency attributable to fluctuations in the value of the foreign
currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses
increase or decrease the amount of a Fund's net investment income, if any,
available to be distributed to its shareholders as ordinary income.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, a foreign trust or estate, foreign corporation, or foreign
partnership ("Foreign Shareholder") depends on whether the income from the
Company is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Company is not effectively connected with a U.S.
trade or business carried on by a Foreign Shareholder, distributions of ordinary
income will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Furthermore, Foreign
Shareholders will generally be exempt from United States federal income tax on
gains realized on the sale of shares of the Company, distributions of net
long-term capital gains, and amounts retained by the Company which are
designated as undistributed capital gains.
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If the income from the Company is effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, then distributions of net
investment income and net long-term capital gains, and any gains realized upon
the sale of shares of the Company, will be subject to U.S. federal income tax at
the rates applicable to United States citizens and residents or domestic
corporations.
The Company may be required to withhold U.S. federal income tax on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the Foreign Shareholder complies with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described here. Furthermore,
Foreign Shareholders are strongly urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in the
Company.
PURCHASE OF SHARES
For Class A shares of the Non-Money Funds, the purchase price of shares is
based upon the net asset value per share plus the applicable sales charge, if
any, next determined after the purchase order is received. Class B shares and
Class C shares of the Non-Money Funds may be purchased at the net asset value
per share next determined after the purchase order is received. For all classes
of such Funds an order received prior to the regular close of the New York Stock
Exchange (the "NYSE") (currently, 4:00 p.m., Eastern Time) will be executed at
the price computed on the date of receipt; and an order received after the
regular close of the NYSE will be executed at the price computed on the next day
the NYSE is open. The purchase price of shares of the Non-Money Funds is based
on such price as further described in the Prospectuses under "Purchase of
Shares."
The purchase price of shares of the Money Market Funds is the net asset
value per share next determined after Federal Funds are available to such Fund.
A purchase of a Money Market Fund's shares by check is credited to the
shareholder's account at the price next determined after receipt of Federal
Funds on the day of receipt and will begin receiving dividends the following
day.
Shares of the Company may be purchased on any day the NYSE is open, except
that shares of the Money Market Funds may be purchased on any day when both the
NYSE and the Federal Reserve Banks are open. The NYSE is closed when the
following holidays are observed: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when any of these holidays falls on a Saturday or Sunday, respectively.
Federal Reserve Banks are closed on Columbus Day and Veterans Day, in addition
to such NYSE holidays.
The Fund has authorized certain brokers to accept on its behalf purchase and
redemption orders, and such brokers are, in turn, authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order, and such orders will be priced at the Fund's net asset value next
computed after they are so accepted.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Company, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Fund's shares.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the SEC may permit. Additionally, if the Board of Directors determines that
payment wholly or partly in cash would be detrimental to the best interests of
the remaining shareholders of the Fund, the Company may pay the redemption
proceeds in whole or in part by a distribution-in-kind of readily marketable
securities held by the Funds in lieu of cash in conformity with applicable rules
of the SEC. Shareholders may incur brokerage charges upon the sale of portfolio
securities so received in payment of redemptions.
Any redemption may be more or less than the shareholder's cost depending on,
among other factors, the market value of the securities held by the Fund(s).
To protect your account and the Company from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Company to
verify the identity of the person who has authorized a redemption from your
account. Signature guarantees are required in connection with: (1) all
redemptions, regardless of the amount involved, when the proceeds are to be paid
to someone other than the registered owner(s) and/or registered address; and (2)
share transfer requests.
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Eligible signature guarantor institutions generally include banks,
broker-dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations, provided
that the institution is a member of the Securities Transfer Agents Medallion
Program or another recognized signature guarantee program. Notaries public are
not acceptable guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Company are also
being redeemed, on the letter or stock power.
Redemption of shares held in broker street name may not be accomplished by
mail or telephone as described above. Shares held in broker street name may be
redeemed only by contacting the investment dealer, bank or financial services
firm ("Participating Dealer") that handles your account.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) retirement plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Non-Money Funds
("Qualified Purchaser"), the front-end sales charge will be waived and a
contingent deferred sales charge ("CDSC -- Class A") of 1.00% is imposed in the
event of certain redemptions within one year of the purchase. If a CDSC -- Class
A is imposed upon redemption, the amount of the CDSC -- Class A will be equal to
the lesser of 1.00% of the net asset value of the shares at the time of purchase
or 1.00% of the net asset value of the shares at the time of redemption.
The CDSC -- Class A will be imposed only if a Qualified Purchaser redeems an
amount which caused the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one year period prior to the redemption. The CDSC --
Class A will be waived in connection with redemptions by certain Qualified
Purchasers (e.g., in retirement plans qualified under Section 401(a) of the Code
and deferred compensation plans under Section 457 of the Code) required to
obtain funds to pay distributions to beneficiaries pursuant to the terms of the
plans. Such payments include, but are not limited to, death, disability,
retirement or separation from service. No CDSC -- Class A will be imposed on
exchanges between funds. For purposes of the CDSC -- Class A, when shares of one
fund are exchanged for shares of another fund, the purchase date for the shares
of the fund exchanged into will be assumed to be the date on which shares were
purchased in the fund from which the exchange was made. If the exchanged shares
themselves are acquired through an exchange, the purchase date is assumed to
carry over from the date of the original election to purchase shares subject to
a CDSC -- Class A rather than a front-end load sales charge. In determining
whether a CDSC -- Class A is payable, it is assumed that shares held the longest
are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of the Participating Funds described in
the Prospectus.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC -- CLASS B
AND C")
As described in the Prospectus under "Purchase of Shares," redemptions of
Class B shares and Class C shares of the Non-Money Funds will be subject to a
CDSC. The CDSC -- Class B and C may be waived on redemptions of Class B shares
and Class C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
The Non-Money Funds will waive the CDSC -- Class B and C on redemptions
following the death or disability of a Class B shareholder and Class C
shareholder. An individual will be considered disabled for this purpose if he or
she meets the definition thereof in Section 72(m)(7) of the Internal Revenue
Code of 1986, as amended (the "Code"), which in pertinent part defines a person
as disabled if such person "is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or to be of long-continued and
indefinite duration." While the Company does not specifically adopt the balance
of the Code's definition which pertains to furnishing the Secretary of Treasury
with such proof as he or she may require, the Distributor will require
satisfactory proof of death or disability before it determines to waive the CDSC
- -- Class B and C.
In cases of disability or death, the CDSC -- Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC -- Class B and C applies to a total or partial
redemption, but only to redemptions of shares held at the time of the death or
initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement
Plans
The Company will waive the CDSC -- Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another
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retirement plan invested in one or more of the Participating Funds; in such
event, as described below, the Non-Money Fund will "tack" the period for which
the original shares were held on to the holding period of the shares acquired in
the transfer or rollover for purposes of determining what, if any, CDSC -- Class
B and C is applicable in the event that such acquired shares are redeemed
following the transfer or rollover. The charge also will be waived on any
redemption which results from the return of an excess contribution pursuant to
Section 408(d)(4) or (5) of the Code, the return of excess deferral amounts
pursuant to Code Section 401(k)(8) or 402(g)(2), or from the death or disability
of the employee (see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition,
the charge will be waived on any minimum distribution required to be distributed
in accordance with Code Section 401(a)(9).
The Company does not intend to waive the CDSC -- Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
INVESTMENT LIMITATIONS
Each current Fund of the Company has adopted certain investment policies
which are either fundamental investment limitations or non-fundamental
investment limitations. Fundamental investment limitations may not be changed
without the approval of the lesser of: (1) at least 67% of the voting securities
of the Fund present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of the Fund.
Non-fundamental investment limitations may be changed by the Board of Directors
of the Company.
For the purpose of adopting fundamental investment limitations the current
Funds have been divided into three separate groups, which limitations apply only
to the Funds that form a part of that group. The groups are comprised as
follows:
Category I Funds: Global Fixed Income, Worldwide High
Income, High Yield, American Value,
Aggressive Equity, U.S. Real Estate,
Global Equity Allocation, Asian Growth,
Emerging Markets, Latin American,
International Magnum, Japanese Equity,
Growth and Income and European Equity
Funds.
Category II Funds: Equity Growth, Global Equity, Emerging
Markets Debt, Mid Cap Growth and Value
Funds.
Money Market Funds: Money Market, Tax-Free Money Market and
Government Obligations Money Market
Funds.
CATEGORY I FUNDS
The following are fundamental investment limitations with respect to the
Category I Funds. No Category I Fund will:
(1) invest in commodities, except that each of the Emerging Markets Fund,
Latin American Fund, European Equity Fund, American Value Fund, Aggressive
Equity Fund, Growth and Income and Worldwide High Income Fund may invest in
futures contracts and options to the extent that not more than 5% of its total
assets are required as deposits to secure obligations under futures contracts
and not more than 20% of its total assets are invested in futures contracts and
options at any time;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate, and except that the U.S. Real Estate Fund may invest in real estate
limited partnership interests, but may not invest in such interests that are not
publicly traded;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation;
(6) except with respect to the Latin American Fund and U.S. Real Estate
Fund, acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Fund's total assets would be
invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) purchase on margin or sell short except as specified above in (1) and
except that the Emerging Markets Fund, Latin American Fund, European Equity
Fund, Aggressive Equity Fund and Worldwide High Income Fund may enter into short
sales in accordance with its investment objective and policies;
(9) purchase or retain securities of an issuer if those officers and
Directors of the Company or its investment adviser owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(10) borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 10% of the Fund's
total assets valued at the lower of market or cost and a Fund may not purchase
additional securities when borrowings exceed 5% of total assets, except that the
Worldwide High Income Fund, Latin American Fund and Growth and Income Fund may
enter into reverse repurchase agreements in accordance with its investment
objective and policies
21
<PAGE>
and except that each of the Latin American Fund, Aggressive Equity Fund and
Worldwide High Income Fund may borrow amounts up to 33 1/3% of its total assets
(including the amount borrowed), less all liabilities and indebtedness other
than the borrowing;
(11) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that each of the Latin
American, Aggressive Equity and Worldwide High Income Funds may pledge, mortgage
or hypothecate its assets to secure borrowings in amounts up to 33 1/3% of its
assets (including the amount borrowed);
(12) invest more than an aggregate of 15% of the total assets of the Fund,
determined at the time of investment, in illiquid assets, including repurchase
agreements having maturities of more than seven days or invest in fixed time
deposits with a duration of from two business days to seven calendar days if
more than 10% of the Fund's total assets would be invested in these time
deposits; provided, however, that no Fund shall invest (i) more than 10% of its
total assets in securities subject to legal or contractual restrictions on
resale and (ii) in fixed time deposits with a duration of over seven calendar
days;
(13) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(14) issue senior securities;
(15) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (12) above) which are publicly distributed, and (ii) by lending its
portfolio securities to banks, brokers, dealers and other financial institutions
so long as such loans are not inconsistent with the 1940 Act or the Rules and
Regulations or interpretations of the SEC thereunder;
(16) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
American Fund, Aggressive Equity Fund and U.S. Real Estate Fund, purchase more
than 10% of any class of the outstanding securities of any issuer; and
(17) except for the Global Fixed Income Fund, Emerging Markets Fund, Latin
American Fund, U.S. Real Estate Fund and Worldwide High Income Fund, purchase
securities of an issuer (except obligations of the U.S. Government and its
instrumentalities) if as the result, with respect to 75% of its total assets,
more than 5% of the Funds total assets, at market value, would be invested in
the securities of such issuer.
The following are non-fundamental investment limitations with respect to the
Category I Funds. As a matter of non-fundamental policy, no Category I Fund
will:
(1) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange;
(2) invest in oil, gas or other mineral leases; and invest up to 25% of its
total assets in privately placed securities, provided that it may not invest
more than 15% of its total assets in illiquid securities, including securities
for which there is no readily available market, and provided further that it
will not invest more than 10% of its total assets in securities which are
restricted from sale to the public without registration under the Securities Act
of 1933, as amended (the "1933 Act"), except securities that are not registered
under the 1933 Act but that can be offered and sold to qualified institutional
buyers under Rule 144A under the 1933 Act.
Each of the Global Fixed Income, Latin American, Aggressive Equity, U.S.
Real Estate and Worldwide High Income Funds will diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the market
value of the Fund's total assets is represented by cash (including cash items
and receivables), U.S. Government securities, and other securities, with such
other securities limited, in respect of any one issuer, for purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities).
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future Funds of the Company may adopt different
limitations.
CATEGORY II FUNDS
The following are fundamental investment limitations with respect to the
Category II Funds. No Category II Fund will:
(1) invest in physical commodities or contracts on physical commodities,
except that any Fund may acquire physical commodities as a result of ownership
of securities or other instruments and may purchase or sell options or futures
contracts or invest in securities or other instruments backed by physical
commodities;
(2) purchase or sell real estate, although each Fund may purchase and sell
securities of companies which deal in real estate, other than real estate
limited partnerships, and may purchase and sell marketable securities which are
secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance with
their respective investment objectives and policies, or entering into repurchase
agreements, subject to the limitations described in non-fundamental investment
limitation
22
<PAGE>
(8) below, (ii) by lending their portfolio securities, and (iii) by lending
portfolio assets to other Funds, banks, brokers, dealers and other financial
institutions, so long as such loans are not inconsistent with the 1940 Act, the
rules, regulations, interpretations or orders of the SEC and its staff
thereunder;
(4) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase a security if, as a result, the Fund would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any issuer;
(5) except for the Emerging Markets Debt Fund, with respect to 75% of each
Fund's assets, purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets, taken at market value at the time of such
investment, would be invested in the securities of such issuer except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(6) issue any class of senior security or sell any senior security of which
it is the issuer, except that each Fund may borrow money as a temporary measure
for extraordinary or emergency purposes, provided that such borrowings do not
exceed 33 1/3% of the Fund's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings) and except that the Emerging Markets Debt
Fund may borrow from banks in an amount not in excess of 33 1/3% of its total
assets (including the amount borrowed) less liabilities in accordance with its
investment objective and policies. The term "senior security" shall not include
any temporary borrowings that do not exceed 5% of the value of a Fund's total
assets at the time the Fund makes such temporary borrowing. Notwithstanding the
foregoing limitations on issuing or selling senior securities and borrowing, a
Fund may engage in investment strategies that obligate it either to purchase
securities or segregate assets, or enter into reverse repurchase agreements,
provided that it will segregate assets to cover its obligations pursuant to such
transactions in accordance with applicable rules, orders, or interpretations of
the SEC or its staff. This investment limitation shall not preclude a Fund from
issuing multiple classes of shares in reliance on SEC rules or orders.
(7) underwrite the securities of other issuers (except to the extent that a
Fund may be deemed to be an underwriter within the meaning of the 1933 Act in
connection with the disposition of restricted securities);
(8) Acquire any securities of companies within one industry, if as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, when any
such Fund adopts a temporary defensive position.
The following are non-fundamental investment limitations with respect to the
Category II Funds. As a matter of non-fundamental policy, no Category II Fund
will:
(1) purchase on margin, except for use of short-term credit as may be
necessary for the clearance of purchases and sales of securities, provided that
each Fund may make margin deposits in connection with transactions in options,
futures, and options on futures;
(2) sell short unless the Fund (i) owns the securities sold short, (ii) by
virtue of its ownership of other securities, has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, or (ii) maintains in a
segregated account on the books of the Fund's custodian an amount that, when
combined with the amount of collateral deposited with the broker in connection
with the short sale, equals the current market value of the security sold short
or such other amount as the SEC or its staff may permit by rule, regulation,
order, or interpretation, except that the Emerging Markets Debt Fund may from
time to time sell securities short without limitation but consistent with
applicable legal requirements as stated in its Prospectus; provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short;
(3) purchase or retain securities of an issuer if those Officers and
Directors of the Company or any of its investment advisers owning more than 1/2
of 1% of such securities together own more than 5% of such securities;
(4) borrow money other than from banks or other Funds of the Company,
provided that a Fund may borrow from banks or other Funds of the Company so long
as such borrowing is not inconsistent with the 1940 Act or the rules,
regulations, interpretations or orders of the SEC and its staff thereunder; or,
except for the Emerging Markets Debt Fund, purchase additional securities when
borrowings exceed 5% of total assets;
(5) pledge, mortgage or hypothecate assets in an amount greater than 10% of
its total assets in the case of the Equity Growth, Global Equity and Emerging
Markets Debt Funds or 50% of its total assets in the case of the Mid Cap Growth
and Value Funds, provided that each Fund may segregate assets without limit in
order to comply with the requirements of Section 18(f) of the 1940 Act and
applicable rules, regulations or interpretations of the SEC and its staff;
(6) invest more than an aggregate of 15% of the net assets of the Fund,
determined at the time of investment, in illiquid securities provided that this
limitation shall not apply to any investment in securities that are not
registered under the 1933 Act but that can be sold to qualified institutional
investors in accordance with Rule 144A under the 1933 Act and are determined to
be liquid securities under guidelines or procedures adopted by the Board of
Directors;
(7) invest for the purpose of exercising control over management of any
company;
23
<PAGE>
(8) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers' commissions or in
connection with mergers, acquisitions of assets or consolidations and except as
may otherwise be permitted by the 1940 Act;
(9) in the case of the Equity Growth, Global Equity, and Emerging Markets
Debt Funds, make loans as described in fundamental investment limitations 3(ii)
and 3(iii), above, in an amount exceeding 33 1/3% of its total assets; and
(10) in the case of the Emerging Markets Debt Fund, purchase a security if,
as a result, with respect to 50% of its assets, it would hold more than 10% of
the outstanding voting securities of an issuer or have more than 5% of its total
assets invested in securities of an issuer or, with respect to 100% of its
assets, it would have more than 25% of its total assets invested in securities
of the issuer, except that these limitations do not apply to investments in U.S.
Government securities.
Unless otherwise indicated, if a percentage limitation on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the value or
total cost of the Fund's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
MONEY MARKET FUNDS
The following are fundamental investment limitations with respect to the
Money Market Funds. No Money Market Fund will:
(1) invest in commodities;
(2) purchase or sell real estate or real estate limited partnerships,
although it may purchase and sell securities of companies which deal in real
estate and may purchase and sell securities which are secured by interests in
real estate;
(3) underwrite the securities of other issuers;
(4) invest for the purpose of exercising control over management of any
company;
(5) invest more than 5% of its total assets in securities of companies
which have (with predecessors) a record of less than three years' continuous
operation, except that the Tax-Free Money Market Fund may not invest in private
activity bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with less than three
years of continuous operations;
(6) acquire any securities of companies within one industry if, as a result
of such acquisition, more than 25% of the value of the Fund's total assets would
be invested in securities of companies within such industry; provided, however,
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or (in the
case of the Money Market Fund) instruments issued by U.S. banks or their
domestic branches;
(7) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases;
(8) issue senior securities or borrow money, except for borrowing money
from banks for temporary purposes or (with respect to the Money Market Fund and
Government Obligations Fund) for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Fund's total assets at the time
of such borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Fund; or mortgage, pledge, hypothecate
or in any manner transfer as security for indebtedness any securities owned or
held by the Fund, any assets except as may be necessary in connection with
permitted borrowings and then, in amounts not in excess of 10% of the value of
the Fund's total assets at the time of the borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Fund's securities by enabling the Fund to
meet redemption requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient.);
(9) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(10) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(11) with respect to the Money Market Fund, invest in other investment
companies except to the extent permitted by the 1940 Act, provided that the Fund
may invest only in investment companies that are unaffiliated with the Fund; and
with respect to the Tax-Free Money Market Fund and Government Obligations Money
Market Fund, invest more than 10% of the value of the Fund's assets in other
investment companies that are unaffiliated with the Fund and then no more than
5% of the Fund's assets may be invested in any one money market fund;
(12) with respect to the Money Market Fund, purchase any securities other
than Money-Market Instruments, some of which may be subject to repurchase
agreements, but the Fund may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Fund's assets and may make time
deposits;
(13) with respect to the Tax-Free Money Market Fund, under normal market
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular federal income tax and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
24
<PAGE>
(14) with respect to the Government Obligations Money Market Fund, purchase
securities other than U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There is no limit on the
amount of the Fund's assets which may be invested in the securities of any one
issuer of obligations that the Fund is permitted to purchase;
(15) purchase the securities of any one issuer (other than securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or
securities subject to unconditional demand features issued by a non-controlled
person) if immediately after and as a result at the time of purchase more than
5% of the Fund's total assets would be invested in the securities of such
issuer; except that, under applicable regulations, the Fund may invest more than
5% of its total assets in any one issuer for up to three business days;
(16) enter into repurchase agreements with more than seven days maturity if,
as a result, more than 10% of the value of its net assets would be invested in
these agreements and other investments for which market quotations are not
readily available or which are otherwise illiquid; and
(17) make loans, except that a Fund may purchase or hold debt obligations in
accordance with its investment objectives, policies and limitations and, with
respect to the Money Market and Government Obligations Money Market Funds, may
enter into repurchase agreements for securities, and may lend portfolio
securities against collateral, consisting of cash or securities which are
consistent with the Fund's permitted investments, which is equal at all times to
at least 100% of the value of the securities loaned. There is no investment
restriction on the amount of securities that may be loaned.
With respect to limitation (6) above concerning industry concentration, the
Money Market Fund will consider wholly-owned finance companies to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The following are non-fundamental investment limitations with respect to the
Money Market Funds. As a matter of non-fundamental policy, no Money Market Fund
will:
(1) purchase puts, calls, straddles, spreads and any combination thereof if
by reason thereof the value of its aggregate investment in such derivative
securities will exceed 5% of its respective total assets;
(2) purchase warrants if, by reason of such purchase, more than 5% of the
value of the Fund's net assets would be invested in warrants valued at the lower
of cost or market. Included in this amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on a nationally
recognized stock exchange; and
(3) invest in oil, gas or other mineral leases.
The percentage limitations contained in these restrictions apply at the time
of purchase of securities. Future Funds of the Company may adopt different
limitations.
DETERMINING MATURITIES OF CERTAIN INSTRUMENTS
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining until the date noted on the face of the instrument as the date
on which the principal amount must be paid, or in the case of an instrument
called for redemption, the date on which the redemption payment must be made.
However, instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (1) a government
obligation with a variable rate of interest readjusted no less frequently than
annually may be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate; (b) an instrument with a variable
rate of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in one year or less, may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate;
(c) an instrument with a variable rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; (d) an
instrument with a floating rate of interest that is subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified, but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
MANAGEMENT OF THE COMPANY
OFFICERS AND DIRECTORS
The Company's Officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Company. The Directors set broad
policies for the Company and choose its Officers. Two Directors and all of the
Officers of the Company are directors, officers or employees of the Adviser or
its affiliates. The other Directors have no affiliation with the Adviser,
Distributor or administrative services providers or their affiliates. The
Directors are also Trustees of other open-end
25
<PAGE>
funds advised by the Adviser or Van Kampen American Capital Asset Management,
Inc. ("Asset Management") (except for the Exchange Fund and the Common Sense
Trust) (collectively with the Company, the "Fund Complex") and Mr. Whalen is
also Trustee of many closed-end funds that are similarly managed. Officers of
the Company are generally officers of the other funds in the Fund Complex and
some or all of the other investment companies managed, administered, advised or
distributed by the Adviser or its affiliates. A list of the Directors and
Officers of the Company and a brief statement of their present positions and
principal occupations during the past five years is set forth below. Messrs.
Hegel, McDonnell, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell and Hill
are located at One Parkview Plaza, Oakbrook Terrace, IL 60181. The Company's
officers other than Messrs. Hegel, McDonnell, Nyberg, Wood, Sullivan, Dalmaso,
Martin, Wetherell, Hill and Stadler and Ms. Haigney are located at 2800 Post Oak
Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, ADDRESS AND
DATE OF BIRTH POSITION WITH COMPANY PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------- --------------------------------------------------------------------------------------
<S> <C> <C>
J. Miles Branagan Director Private investor, Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc. a subsidiary
Date of Birth: 07/14/32 of Getinge Industrier AB), a company which develops,
manufactures, markets and services medical and scientific
equipment. Director/Trustee of each of the funds in the Fund
Complex.
Richard M. DeMartini* Director President and Chief Operating Officer, Individual Asset
Dean Witter Capital Management Group, a division of Morgan Stanley, Dean Witter,
Two World Trade Center Discover & Co. ("MSDWD"). Member of the MSDWD Management
New York, NY 10048 Committee. Director of the InterCapital Funds. Trustee of
Date of Birth: 10/12/52 the TCW/DW Funds. Former Chairman of the Board of the NASDAQ
Stock Market, Inc. Former Vice Chairman of the Board of the
National Association of Securities Dealers, Inc.
Director/Trustee of each of the Funds in the Fund Complex.
Linda Hutton Heagy Director Co-Managing Partner of Heidrick & Struggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Paul Ray Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO, N.A.,
Chicago, IL 60606 a Dutch bank holding company. Prior to 1992, Executive Vice
Date of Birth: 06/03/48 President of La Salle National Bank. Trustee on The
University of Chicago Hospitals Board, The International
House Board and the Women's Board of the University of
Chicago. Director/ Trustee of each of the funds in the Fund
Complex.
R. Craig Kennedy Director President and Director, German Marshall Fund of the United
11 DuPont Circle, N.W. States. Formerly, advisor to the Dennis Trading Group Inc.
Washington, D.C. 20036 Prior to 1992, President and Chief Executive Officer.
Date of Birth: 02/29/52 Director and Member of the Investment Committee of the Joyce
Foundation, a private foundation. Director/Trustee of each
of the funds in the Fund Complex.
Jack E. Nelson Director President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Investment Brokerage Services
Date of Birth: 02/13/36 Inc., a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors Protection
Corp. ("SIPC"). Director/Trustee of each of the funds in the
Fund Complex.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
DATE OF BIRTH POSITION WITH COMPANY PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------- --------------------------------------------------------------------------------------
<S> <C> <C>
Don G. Powell* Director Chairman, President, Chief Executive Officer and a Director
2800 Post Oak Blvd. of Van Kampen American Capital, Inc. ("VKAC"). Chairman,
Houston, TX 77056 Chief Executive Officer and a Director of the Adviser, Asset
Date of Birth: 10/19/39 Management and the Distributor. Chairman and a Director of
ACCESS Investors Services, Inc. ("ACCESS"). Director or
officer of certain other subsidiaries of VKAC. Chairman of
the Board of Governors and the Executive Committee of the
Investment Company Institute. Prior to November, 1996,
President, Chief Executive Officer and a Director of VK/AC
Holding, Inc. ("VKAC Holding"). Director/Trustee of each of
the funds in the Fund Complex advised by the Adviser and
prior to July 1996 President, Chief Executive Officer and a
Trustee/Director of funds in the Fund Complex at that time.
Jerome L. Robinson Director President, Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies and
Edgewater, NJ 07020 equipment. Director, Pacesetter Software, a software
Date of Birth: 10/10/22 programming company specializing in white collar
productivity. Director, Panasia Bank. Director/Trustee of
each of the funds in the Fund Complex.
Phillip Rooney Director Vice Chairman and Director of The Servicemaster Company, a
One Service Master Way business and consumer services company, since May 1997.
Downers Grove, IL 60515 Private investor, Director, Illinois Tool Works, Inc., a
Date of Birth: 07/08/44 manufacturing company. Director, Urban Shopping Centers
Inc., a retail mall management company; Director, Stone
Container Corp., a paper manufacturing company. Trustee,
University of Notre Dame. Formerly, President and Chief
Executive Officer, Waste Management, Inc., an environmental
services company, and prior to that, President and Chief
Operating Officer, Waste Management, Inc. Director/Trustee
of each of the funds in the Fund Complex.
Fernando Sisto Director Professor Emeritus and prior to 1995, Dean of the Graduate
155 Hickory Lane School, Stevens Institute of Technology. Director, Dynalysis
Closter, NJ 07624 of Princeton, a firm engaged in engineering research.
Date of Birth: 08/02/24 Director/ Trustee of each of the funds in the Fund Complex.
Wayne W. Whalen* Director and Chairman of Partner in the law firm of Skadden, Arps, Slate, Meagher &
333 West Wacker Drive the Board Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, open-end funds advised by Van Kampen American
Date of Birth: 08/22/39 Capital Management, Inc. and closed-end funds advised by the
Adviser. Director/Trustee of each of the funds in the Fund
Complex, open-end funds advised by Van Kampen Capital
Management, Inc. and closed-end funds advised by the
Adviser.
Dennis J. McDonnell President President and Director of VKAC. President, Chief Operating
Date of Birth: 05/20/42 Officer and a Director of the Adviser and American Capital.
Director or officer of certain other subsidiaries of VKAC.
Prior to November 1996, Executive Vice President and a
Director of VKAC Holding. President of each of the funds in
the Fund Complex. President, Chairman of the Board and
Trustee of other investment companies advised by the
Adviser, Asset Management or their affiliates.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
DATE OF BIRTH POSITION WITH COMPANY PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------- --------------------------------------------------------------------------------------
<S> <C> <C>
Ronald A. Nyberg Vice President and Executive Vice President, General Counsel and Secretary of
Date of Birth: 07/29/53 Secretary VKAC. Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Adviser, Asset Management
and the Distributor. Executive Vice President, General
Counsel and Assistant Secretary of ACCESS. Director or
officer of certain other subsidiaries of VKAC. Director of
ICI Mutual Insurance Co., a provider of insurance to members
of the Investment Company Institute. Prior to November 1996,
Executive Vice President, General Counsel and Secretary of
VKAC Holding. Vice President and Secretary of each of the
funds in the Fund Complex and certain other investment
companies advised by the Adviser, Asset Management or their
affiliates.
Peter W. Hegel Vice President Executive Vice President of the Adviser. Director of Asset
Date of Birth: 06/25/56 Management. Officer of certain other subsidiaries of VKAC.
Vice President of each of the funds in the Fund Complex and
certain other investment companies advised by the Adviser,
Asset Management or their affiliates.
Alan T. Sachtleben Vice President Executive Vice President of the Adviser and Asset
Date of Birth: 04/20/42 Management. Director of Asset Management, Director or
officer of certain other subsidiaries of VKAC. Vice
President of each of the funds in the Fund Complex and
certain other investment companies advised by the Adviser,
Asset Management or their affiliates.
Joseph P. Stadler Vice President Vice President of Morgan Stanley Asset Management Inc.;
1221 Avenue of the Americas Officer of various investment companies managed by Morgan
New York, NY 10020 Stanley Asset Management Inc. Previously with Price
Date of Birth: 06/07/54 Waterhouse LLP (accounting).
Paul R. Wolkenberg Vice President Executive Vice President of VKAC, Asset Management and the
Date of Birth: 11/10/44 Distributor. President, Chief Executive Officer and a
Director of ACCESS. Director or officer of certain other
subsidiaries of VKAC. Vice President of each of the funds in
the Fund Complex and certain other investment companies
advised by the Adviser, Asset Management or their
affiliates.
Edward C. Wood, III Vice President and Chief Senior Vice President of the Adviser and Asset Management.
Date of Birth: 01/11/56 Financial Officer Vice President and Chief Financial Officer of each of the
funds in the Fund Complex and certain other investment
companies advised by the Adviser, Asset Management or their
affiliates.
Curtis W. Morell Vice President and Chief Senior Vice President of the Adviser and Asset Management.
Date of Birth: 08/04/46 Accounting Officer Vice President and Chief Accounting Officer of each of the
funds in the Fund Complex and certain other investment
companies advised by the Adviser, Asset Management or their
affiliates.
John L. Sullivan Treasurer First Vice President of the Adviser and Asset Management.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund Complex and
certain other investment companies advised by the Adviser,
Asset Management or their affiliates.
Tanya M. Loden Controller Vice President of the Adviser and Asset Management.
Date of Birth: 11/19/59 Controller of each of the funds in the Fund Complex and
other investment companies advised by the Adviser, Asset
Management or the affiliates.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND
DATE OF BIRTH POSITION WITH COMPANY PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------- --------------------------------------------------------------------------------------
<S> <C> <C>
Nicholas Dalmaso Assistant Secretary Vice President and Senior Attorney of VKAC, Vice President
Date of Birth: 03/01/65 and Assistant Secretary of the Adviser, Asset Management and
the Distributor. Officer of certain other subsidiaries of
VKAC. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Adviser, Asset Management or the affiliates.
Huey P. Falgout, Jr. Assistant Secretary Assistant Vice President and Senior Attorney of VKAC,
Date of Birth: 11/15/63 Assistant Vice President and Assistant Secretary of the
Adviser, Asset Management, the Distributor and ACCESS.
Officer of certain other subsidiaries of VKAC, Assistant
Secretary of each of the funds in the Fund Complex and other
investment companies advised by the Adviser, Asset
Management or the affiliates.
Scott E. Martin Assistant Secretary Senior Vice President, Deputy General Counsel and Assistant
Date of Birth: 08/20/56 Secretary of VKAC, Senior Vice President, Deputy General
Counsel and Secretary of the Adviser, Asset Management, the
Distributor and ACCESS. Officer of certain other
subsidiaries of VKAC. Prior to November 1996, Senior Vice
President, Deputy General Counsel and Assistant Secretary of
VKAC Holding. Assistant Secretary of each of the funds in
the Fund Complex and other investment companies advised by
the Adviser, Asset Management or the affiliates.
Weston B. Wetherell Assistant Secretary Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of VKAC, the Adviser, Asset Management and the
Distributor. Officer of certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in the Fund Complex
and other investment companies advised by the Adviser, Asset
Management or the affiliates.
Joanna Haigney Assistant Treasurer Assistant Vice President, Senior Manager of Fund
73 Tremont Street Administration and Compliance Services, Chase Global Funds
Boston, MA 02108 Services Company; Officer of various investment companies
Date of Birth: 10/10/66 managed by Morgan Stanley Asset Management Inc. Previously
with Coopers & Lybrand LLP.
Steven M. Hill Assistant Treasurer Assistant Vice President of the Adviser and Asset
Date of Birth: 10/16/64 Management. Assistant Treasurer of each of the funds in the
Fund Complex and other investment companies advised by the
Adviser, Asset Management or the affiliates.
M. Robert Sullivan Assistant Controller Assistant Vice President of the Adviser and Asset
Date of Birth: 03/30/33 Management. Assistant Controller of each of the funds in the
Fund Complex and other investment companies advised by the
Adviser, Asset Management or the affiliates.
</TABLE>
- --------------
* Such Directors are "interested persons" (within the meaning of Section
2(a)(19) of the 1940 Act). Messrs. DeMartini and Powell are interested persons
of the Adviser and the Funds because of their affiliation with the Adviser.
Mr. Whalen is an interested person of the Funds by reason of his firm acting
as legal counsel to the Funds.
Prior to the election of the current Directors on July 2, 1997, Messrs.
Barton M. Biggs, John D. Barrett, II, Gerard E. Jones, Warren J. Olsen, Andrew
McNally, IV, Samuel T. Reeves, Fergus Reid, Frederick O. Robertshaw and
Frederick B. Whittemore (the "Prior Directors") served as directors to the
Company. Until July 2, 1997, the Company was part of an open-end fund complex,
which also consisted of Morgan Stanley Institutional Fund, Inc. and Morgan
Stanley Universal Funds, Inc. (the "Prior Complex"). For the fiscal year ended
June 30, 1997, each director who was not an "interested person" of the Funds was
being paid an annual aggregate fee of $55,000 plus expenses for service as a
director of the funds in the Prior Complex and an additional annual aggregate
fee of $10,000 for service on the audit committee of the funds in the Prior
Complex. For the fiscal year ended June 30, 1997, individual trustees received
aggregate fees from the Funds and from the Prior Complex as shown in the table
below entitled "Compensation Table--Prior Directors".
As of the date of this SAI, each of the Directors is a director/trustee of
each of the 65 operating funds in the Fund Complex which includes the Funds (for
purposes of this action, the "MS Funds"), other open-end funds advised by the
Adviser (each a "VK Fund" and collectively the "VK Funds") and open-end funds
advised by Asset Management (each an "AC Fund" and
29
<PAGE>
collectively the "AC Funds"). Each director/trustee who is not an affiliated
person of VKAC, the Adviser, Asset Management, the Distributor, ACCESS or Morgan
Stanley (each a "Non-Affiliated Trustee") is compensated by an annual retainer
and meeting fees for services to the funds in the Fund Complex. Each fund in the
Fund Complex provides a deferred compensation plan to its Non-Affiliated
Trustees that allows director/trustees to defer receipt of their compensation
and earn a return on such deferred amounts based upon the return of the common
shares of the funds in the Fund Complex as more fully described below. As of the
date hereof, each VK Fund and AC Fund in the Fund Complex provides a retirement
plan to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below. As of January 1, 1998, it is anticipated
that each Fund in the Fund Complex, except the money market series of the MS
Funds, will provide such a retirement plan to its Non-Affiliated Trustee.
The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meeting.
For the period until December 31, 1997, the compensation of each
Non-Affiliated Trustee from each VK Fund in the Fund Complex includes an annual
retainer in an amount equal to $2,500 per calendar year, due in four quarterly
installments on the first business day of each calendar quarter. Each
Non-Affiliated Trustee receives a per meeting fee from each VK Fund in the
amount of $125 per regular quarterly meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a
director/trustee, provided that no compensation will be paid in connection with
certain telephonic special meetings.
For the period until December 31, 1997, the compensation of each
Non-Affiliated Trustee from the AC Funds in the Fund Complex includes an annual
retainer in an amount equal to $35,000 per calendar year, due in four quarterly
installments on the first business day of each calendar quarter. The AC Funds
pay each Non-Affiliated Trustee a per meeting fee in the amount of $2,000 per
regular quarterly meeting attended by the Non-Affiliated Trustee, due on the
date of such meeting, plus reasonable expenses incurred by the Non-Affiliated
Trustee in connection with his or her services as a director/trustee. Payment of
the annual retainer and the regular meeting fee is allocated among all of the AC
Funds (i) 50% on the basis of the relative net assets of each AC Fund to the
aggregate net assets of all the AC Funds and (ii) 50% equally to each AC Fund,
in each case as of the last business day of the preceding calendar quarter. Each
AC Fund which is the subject of a special meeting of the director/trustees
generally pays each Non-Affiliated Trustee a per meeting fee in the amount of
$125 per special meeting attended by the Non-Affiliated Trustee, due on the date
of such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee
in connection with his on her services as a director/trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds is intended to be
based generally on the compensation amounts and methodology used by such funds
prior to their joining the current Fund Complex on July 2, 1997. Each
trustee/director was elected as a director of the MS Funds on July 2, 1997.
Prior to July 2, 1997, the MS Funds were part of another fund complex (the
"Prior Complex") and the former directors of the MS Funds were paid an aggregate
fee allocated among the funds in the Prior Complex that resulted in individual
directors receiving total compensation between approximately $8,000 to $10,000
from the MS Funds during such funds' last fiscal year.
Each Non-Affiliated Trustee generally can elect to defer receipt of all or a
portion of the compensation earned by such Non-Affiliated Trustee until
retirement. Amounts deferred are retained by the fund and earn a rate of return
determined by reference to the return on the common shares of such fund or other
funds in the Fund Complex as selected by the respective Non-
Affiliated Trustee, with the same economic effect as if such Non-Affiliated
Trustee had invested in one or more funds in the Fund Complex. To the extent
permitted by the 1940 Act, the fund may invest to securities of those selected
by the Non-Affiliated Trustees in order to match the deferred compensation
obligation. The deferred compensation plan is not funded and obligations
thereunder represent general unsecured claims against the general assets of the
Company.
Each VK Fund and AC Fund in the Fund Complex has adopted a retirement plan.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
director/trustee's compensation from the fund prior to such Non-Affiliated
Trustee's retirement, has at least 10 years of service (including years of
service prior to adoption of the retirement plan) and retires at or after
attaining the age of 60, is eligible to receive a retirement benefit equal to
$2,500 per year for each of the ten years following such director/trustee's
retirement from the fund. Trustees retiring prior to the age of 60 or with fewer
than 10 years but more than 5 years of service may receive reduced retirement
benefits from the fund. The retirement plan contains a Fund Complex retirement
benefit cap of $60,000 per year.
30
<PAGE>
The following table shows aggregate compensation paid to each of the
Company's Prior Directors by the Company and the Prior Complex, respectively,
for the fiscal year from July 1, 1996 to June 30, 1997.
COMPENSATION TABLE
PRIOR DIRECTORS
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM PRIOR COMPLEX
COMPENSATION ACCRUED AS PART OF BENEFITS UPON PAID TO
NAME OF PERSON, POSITION FROM FUNDS FUND EXPENSES RETIREMENT DIRECTORS++
- -------------------------------------------------- --------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Barton M. Biggs*
Director and Chairman of the Board................ $ 0 $0 $0 $ 0
John D. Barrett, II,*
Director.......................................... $10,070 $0 $0 $73,767
Gerard E. Jones,*
Director.......................................... $10,070 $0 $0 $80,867
Warren J. Olsen,*
Director and President............................ $ 0 $0 $0 $ 0
Andrew McNally, IV,*
Director.......................................... $ 0+ $0 $0 $63,767
Samuel T. Reeves,*
Director.......................................... $ 0+ $0 $0 $63,767
Fergus Reid,*
Director.......................................... $ 0+ $0 $0 $80,867
Frederick O. Robertshaw,**
Director.......................................... $ 8,714 $0 $0 $63,767
</TABLE>
- --------------
* Elected Director as of June 28, 1995; retired as of July 2, 1997.
+ The total amount of deferred compensation for Samuel T. Reeves, Fergus Reid
and Andrew McNally, IV was $8,714, $10,070, and $8,714, respectively.
++ The Prior Complex consisted of four investment companies including the
Company.
31
<PAGE>
The following table shows aggregate compensation paid to each of the
Company's current Directors by the Company for the fiscal year from July 1, 1996
to June 30, 1997 and from the Fund Complex for the calendar year ended December
31, 1996.
COMPENSATION TABLE
CURRENT DIRECTORS
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM FUND COMPLEX
COMPENSATION ACCRUED AS PART OF BENEFITS UPON PAID TO
NAME FROM FUNDS EXPENSES RETIREMENT DIRECTOR/TRUSTEE+
- -------------------------------------------------- --------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
J. Miles Branagan*................................ $0** $0 $0 $104,875
Richard M. DeMartini*............................. $0** $0 $0 16,875
Linda Hutton Heagy*............................... $0** $0 $0 104,875
R. Craig Kennedy*................................. $0** $0 $0 104,875
Jack E. Nelson*................................... $0** $0 $0 97,875
Don G. Powell*.................................... $0** $0 $0 22,000
Jerome L. Robinson*............................... $0** $0 $0 101,625
Phillip Rooney*................................... $0** $0 $0 22,000
Dr. Fernando Sisto*............................... $0** $0 $0 104,875
Wayne W. Whalen*.................................. $0** $0 $0 104,875
</TABLE>
- --------------
* Elected Director as of July 2, 1997.
** Director received no compensation from the Funds for the fiscal year ended
June 30, 1997. See discussion preceding the table regarding anticipated
compensation for the fiscal year from July 1, 1997 to June 30, 1998.
+ The amounts in this column represent aggregate compensation from the 51 funds
in the Fund Complex as of December 31, 1996. Because funds in the Fund Complex
have different fiscal year-ends, the information for this column is presented
on a calendar year basis. The amounts for the calendar year ending December
31, 1997 will most likely be higher reflecting the addition of the Funds to
the Fund Complex. The Adviser and its affiliates also serve as investment
adviser for other investment companies; however, with the exception of Messrs.
Powell and Whalen, the director/trustees are not director/trustees of such
investment companies. Combining the Fund Complex with other investment
companies advised by the Adviser and its affiliates, Mr. Whalen received total
compensation of $243,375 during the calendar year ended December 31, 1996.
As of October 16, 1997, the Directors and officers as a group owned less
than 1% of the shares of the Funds.
INVESTMENT ADVISORY AND ADMINISTRATIVE AGREEMENTS
The Adviser is an indirect wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. ("MSDWD"). The Adviser is a registered investment adviser
under the Investment Advisers Act of 1940, as amended, and has its offices at
One Parkview Plaza, Oakbrook Terrace, IL 60181 and 2800 Post Oak Boulevard,
Houston, TX 77056. Pursuant to the advisory agreement (the "Advisory Agreement")
between the Adviser and the Company, the Adviser provides investment services to
the Funds. Additionally, pursuant to the administration agreement (the
"Administration Agreement") between the Adviser and the Company, the Adviser
(the "Administrator") provides administrative services to the Funds. The
Advisory Agreement and Administration Agreement became effective as of July 2,
1997. The current Advisory Agreement and Administration Agreement are described
in more detail in the Company's prospectus. Prior to July 2, 1997, MSAM
(described below) was the adviser and administrator of each of the Funds except
Mid Cap Growth and Value Funds which were advised by MAS (described below). The
fees and expenses under the new Advisory Agreement and new Administration
Agreement are substantially similar to the predecessor agreements.
MSAM is an indirect wholly-owned subsidiary of MSDWD and acts as sub-adviser
pursuant to an investment sub-advisory agreement between MSAM and the Adviser to
each of the Company's Funds, other than the Mid Cap Growth and Value Funds. The
principal offices of the MSAM are located at 1221 Avenue of the Americas, New
York, NY 10020. As compensation for advisory services to the non-money Funds of
the Company for the fiscal years ended June 30, 1995, June 30, 1996 and June 30,
1997, MSAM, the prior adviser, earned fees of approximately $4,571,000 (and
voluntarily waived a portion of such fees equal to approximately $868,000),
$7,177,000 (and voluntarily waived a portion of such fees equal to approximately
$1,328,000) and $10,409,000 (and voluntarily waived a portion of such fees equal
to approximately $1,716,000), respectively. Further, for the fiscal years ended
June 30, 1995, June 30, 1996 and June 30, 1997, MSAM, as adviser for the PCS
Money Market Portfolio (the "Predecessor Money Market Portfolio") the
predecessor to the Money Market Fund received $611,754, $759,398 and $882,000,
respectively (net of voluntary fee waivers of $87,105, $153,797 and $579,000,
respectively) and as adviser for the PCS Government Obligations Money Market
Portfolio (the "Predecessor Government Obligations Money Market Portfolio") the
predecessor to the Government Obligations Money Market Fund received $897,867,
$395,312 and $542,000, respectively (net of voluntary fee waivers of $0, $45,251
and $392,000, respectively). For the fiscal years ended June 30, 1995, June 30,
1996 and June 30, 1997, the Company paid administrative fees to MSAM, the prior
administrator to the Funds, of approximately $1,500,000, $2,273,000 and
$3,187,000, respectively. For the fiscal years ended June 30, 1995 and June 30,
1996 and for the fiscal
32
<PAGE>
period from July 1, 1996 to September 26, 1996, PFPC Inc., which served as
administrator to the Predecessor Money Market Portfolio and Predecessor
Government Obligations Money Market Portfolio (the "Predecessor Portfolios"),
was paid aggregate administrative fees of $346,829, $273,252 and $73,440,
respectively.
MAS is an indirect wholly-owned subsidiary of MSDWD with its principal
offices located at One Tower Bridge, West Conshohocken, PA 19428. Pursuant to an
investment sub-advisory agreement between MAS and the Adviser, MAS provides
sub-advisory services to each of the Mid Cap Growth and Value Funds. MAS
provides investment services to employee benefit plans, endowment funds,
foundations, and other institutional investors and has served as investment
adviser to the MAS Funds, a registered open-end investment company, since 1984.
At September 30, 1996, MAS managed investments totaling approximately $37.5
billion. MAS did not receive any compensation as an adviser, sub-adviser or
administrator to the Funds from the Company prior to the end of the fiscal year
ended June 30, 1997.
Under sub-administration agreements between the Administrator and The Chase
Manhattan Bank ("Chase"), Chase Global Funds Services Company ("CGFSC," formerly
Mutual Funds Service Company, a corporate affiliate of Chase) provides certain
administrative services to the Company. For the fiscal years ended June 30,
1995, June 30, 1996 and June 30, 1997, the prior Administrator paid
Sub-Administration fees to Chase of approximately $2,004,678, $2,028,244 and
$2,011,782, respectively. CGFSC provides operational and administrative services
to investment companies with approximately $116 billion in assets and having
approximately 165,479 shareholder accounts as of June 30, 1997. CGFSC's business
address is 73 Tremont Street, Boston, MA 02108-3913.
DISTRIBUTION OF FUND SHARES
Prior to January 1, 1997, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), a wholly-owned subsidiary of MSDWD, served as the distributor of the
Company's shares pursuant to a Distribution Agreement with the Company and a
Plan of Distribution for each Money Market Fund and each class of each Non-Money
Fund pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan" and collectively,
the "Plans"). Subsequent to January 1, 1997, Van Kampen American Capital
Distributors, Inc. (the "Distributor") replaced Morgan Stanley as distributor of
the Company's shares pursuant to a Distribution Agreement with the Company and
the Plans. Under each Plan the Company's distributor is entitled to receive from
the Funds a distribution fee, which is accrued daily and paid quarterly, of up
to 0.50% for each of the Money Market Funds and up to 0.75% of the Class B
shares and Class C shares of each of the Non-Money Funds, on an annualized
basis, of the average daily net assets of such Fund or classes. The Distributor
expects to allocate most of its fee to investment dealers, banks or financial
service firms that provide distribution, administrative or shareholder services
(a "Participating Dealer"). The actual amount of such compensation is agreed
upon by the Company's Board of Directors and by the Distributor. The Distributor
may, in its discretion, voluntarily waive from time to time all or any portion
of its distribution fee and the Distributor is free to make additional payments
out of its own assets to promote the sale of Fund shares.
The Plans obligate the Funds to accrue and pay to the Distributor the fee
agreed to under its Distribution Agreement. The Plans do not obligate the Funds
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under the Plan. Thus, under each Plan, even if the
Distributor's actual expenses exceed the fee payable to it thereunder at any
given time, the Funds will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee. The Plans for the Class A, Class B and
Class C shares of the Non-Money Market Funds were most recently approved by the
Company's Board of Directors, including those directors who are not "interested
persons" of the Company as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of a Plan or in any
agreements related thereto, on December 12, 1996 and the Plan for the Money
Market Funds was most recently approved at the same meeting.
33
<PAGE>
Morgan Stanley served as distributor of the Company until December 31, 1996
and the Distributor served as the distributor for the Company from January 1,
1997 through the fiscal year ended June 30, 1997. As compensation for providing
distribution services to the Company for the fiscal year ended June 30, 1997,
the Distributor and Morgan Stanley received aggregate fees of approximately
$8,204,000 which were attributable approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1997
FUND NAME (000)
- ------------------------------------------------------------------------------------------------- -------------------
<S> <C>
Global Equity Allocation Fund -- Class A......................................................... $ 160
Global Equity Allocation Fund -- Class B......................................................... 238
Global Equity Allocation Fund -- Class C......................................................... 679
Global Fixed Income Fund -- Class A.............................................................. 16
Global Fixed Income Fund -- Class B.............................................................. 16
Global Fixed Income Fund -- Class C.............................................................. 26
Asian Growth Fund -- Class A..................................................................... 509
Asian Growth Fund -- Class B..................................................................... 602
Asian Growth Fund -- Class C..................................................................... 1,424
Emerging Markets Fund -- Class A................................................................. 229
Emerging Markets Fund -- Class B................................................................. 180
Emerging Markets Fund -- Class C................................................................. 465
Latin American Fund -- Class A................................................................... 81
Latin American Fund -- Class B................................................................... 45
Latin American Fund -- Class C................................................................... 87
American Value Fund -- Class A................................................................... 58
American Value Fund -- Class B................................................................... 43
American Value Fund -- Class C................................................................... 233
Worldwide High Income Fund -- Class A............................................................ 152
Worldwide High Income Fund -- Class B............................................................ 491
Worldwide High Income Fund -- Class C............................................................ 351
Aggressive Equity Fund -- Class A................................................................ 28
Aggressive Equity Fund -- Class B................................................................ 105
Aggressive Equity Fund -- Class C................................................................ 55
High Yield Fund -- Class A....................................................................... 13
High Yield Fund -- Class B....................................................................... 57
High Yield Fund -- Class C....................................................................... 43
U.S. Real Estate Fund -- Class A................................................................. 19
U.S. Real Estate Fund -- Class B................................................................. 45
U.S. Real Estate Fund -- Class C................................................................. 22
International Magnum Fund -- Class A............................................................. 21
International Magnum Fund -- Class B............................................................. 68
International Magnum Fund -- Class C............................................................. 58
Japanese Equity Fund -- Class A(1)............................................................... N/A
Japanese Equity Fund -- Class B(1)............................................................... N/A
Japanese Equity Fund -- Class C(1)............................................................... N/A
Growth and Income Fund -- Class A(1)............................................................. N/A
Growth and Income Fund -- Class B(1)............................................................. N/A
Growth and Income Fund -- Class C(1)............................................................. N/A
European Equity Fund -- Class A(1)............................................................... N/A
European Equity Fund -- Class B(1)............................................................... N/A
European Equity Fund -- Class C(1)............................................................... N/A
Money Market Fund(2)............................................................................. 981
Tax-Free Money Market Fund(1).................................................................... N/A
Government Obligations Money Market Fund(2)...................................................... 604
Equity Growth Fund -- Class A(1)................................................................. N/A
Equity Growth Fund -- Class B(1)................................................................. N/A
Equity Growth Fund -- Class C(1)................................................................. N/A
Global Equity Fund -- Class A(1)................................................................. N/A
Global Equity Fund -- Class B(1)................................................................. N/A
Global Equity Fund -- Class C(1)................................................................. N/A
Emerging Markets Debt Fund -- Class A(1)......................................................... N/A
Emerging Markets Debt Fund -- Class B(1)......................................................... N/A
Emerging Markets Debt Fund -- Class C(1)......................................................... N/A
Mid Cap Growth Fund -- Class A(1)................................................................ N/A
Mid Cap Growth Fund -- Class B(1)................................................................ N/A
Mid Cap Growth Fund -- Class C(1)................................................................ N/A
Value Fund -- Class A(1)......................................................................... N/A
Value Fund -- Class B(1)......................................................................... N/A
Value Fund -- Class C(1)......................................................................... N/A
</TABLE>
- ------------------
(1) Not operational as of June 30, 1997.
(2) As compensation for providing distribution services to the Predecessor
Portfolios for the period from July 1, 1996 to September 26, 1996, Morgan
Stanley received fees from the Predecessor Money Market Portfolio in the
amount of $146,803 and from the Predecessor Government Obligations Money
Market Portfolio in the amount of $98,828. Such fees are included in the
amounts listed above.
CODE OF ETHICS
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act which incorporates the Code of Ethics of the Adviser
(together, the "Codes"). The Codes require that all employees of the Adviser and
Sub-Advisers preclear any personal securities investment (with limited
exceptions, such as government securities). The preclearance
34
<PAGE>
requirement and associated procedures are designed to identify any substantive
prohibition or limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Adviser include a ban on
acquiring any securities in a "hot" initial public offering and a prohibition
from profiting on short-term trading in securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Adviser or Sub-Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Company within periods of trading by the
Company in the same (or equivalent) security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of the outstanding
shares of any class of the Company as of October 16, 1997 and the percentage of
outstanding shares of such classes owned beneficially or of record by such
shareholders as of such date are, to Company management's knowledge, as follows:
AMERICAN VALUE FUND: Charles Schwab & Co., Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104-4122 owned 7.118% of
the total outstanding Class A shares of such Fund.
Merrill Lynch, Pierce, Fenner & Smith for the Sole Benefit of its Customers,
4800 Deer Lake Dr. East 3rd Floor, Jacksonville, FL 32246-6484, owned 11.140% of
the total outstanding Class B shares of such Fund.
The following each held the percentage indicated of the total outstanding
Class C shares of such Fund: Merrill Lynch, Pierce, Fenner & Smith for the Sole
Benefit of its Customers, 4800 Deer Lake Dr. East, 3rd Floor, Jacksonville, FL
32246-6484, 6.538% and Morgan Stanley Group Inc., 1221 Avenue of the Americas,
New York, NY, 10020-1001, 6.130%.
GLOBAL EQUITY ALLOCATION FUND: Scott & Stringfellow PSP, Mutual
Funds/Clearing & Custody Account, P.O. Box 1575, Richmond, VA 23213, owned
5.253% of the total outstanding Class A shares of such Fund.
GLOBAL FIXED INCOME FUND: Lehman Brothers Inc., P.O. Box 29198, Brooklyn,
NY 11202, owned 34.20% of the total outstanding Class A shares of such Fund.
Charles Schwab & Co, Inc., Exclusive Benefit of its Customers, 101 Montgomery
Street, San Francisco, CA 94104 owned 5.945% of the total outstanding Class A
shares of such Fund.
The following each held the percentage indicated of the total outstanding
Class B shares of such Fund: ADVEST, Inc., 90 State House Square, Hartford, CT
06103-3702, 9.934%; Piper Jaffray as Custodian FBO Mary Lou Concialdi, 222 So.
9th St., Minneapolis, MN 55402-3389, 7.312%; Anna E. Fulmer Trustee for Anna E.
Fulmer Trust, U/A/D 8/2/93, 1124 Marine Way West, West Palm Beach, FL,
33408-3630, 7.051%; and Frank Burstein, 211 Linden Dr., Elkins Park, PA
19027-1341, 5.184%.
The following each held the percentage indicated of the total outstanding
Class C shares of such Fund: Geraldine M. Nemeth, Trustee, Trust U/A Dated
12/5/87, Geraldine M. Falkiner 1987, 1482 Indian Trails Parkway, Baraboo, WI
53913, 5.593%; Thomas B. Congdon and Constance B. Congdon, Joint Tenants, 4 Pine
St., Nantucket, MA 02554-3721, 5.222% and Smith Barney, Inc., 388 Greenwich
Street, New York, NY 10613-2375, 5.064%.
EMERGING MARKETS FUND: Charles Schwab & Co., Inc., Exclusive Benefit of its
Customers, 101 Montgomery Street, San Francisco, CA 94104, owned 29.877% of the
total outstanding Class A shares of such Fund.
GROWTH AND INCOME FUND: Van Kampen American Capital Generations Variable
Annuities, c/o American General Life Insurance Company, P.O. Box 1591, Houston,
TX 77251 owned 93.182% of the total outstanding Class B shares of such Fund; Van
Kampen American Capital Distributors Inc., One Chase Manhattan Plaza, 37th
Floor, New York, NY 10005 owned 6.818% of the total outstanding Class B shares
of such Fund.
HIGH YIELD FUND: Morgan Stanley Group, Inc., 1221 Avenue of the Americas,
New York, NY 10020, owned 39.419% of the total outstanding Class A shares of
such Fund and 26.384% of the total outstanding Class C shares of such Fund.
Nancy J. Dinardo Trust, Dinardo Family Trust, DTD 09/01/88, 323 North Ave,
Bridgeport, CT 06808-6126 owned 6.816% of the total outstanding Class C shares
of such Fund.
LATIN AMERICAN FUND: Merrill Lynch, Pierce, Fenner & Smith for the Sole
Benefit of its Customers, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, FL
32246-6484, owned 10.293% of the total outstanding Class C shares of such Fund.
U.S. REAL ESTATE FUND: The following each held the percentage indicated of
the total outstanding Class C shares of such Fund: Dain Bosworth Inc., FBO
Lancaster Ventures LLC, P.O. Box 6368, Lincoln, NE 58508-0368, 11.158% and MFSC
FEBO #CL7-625647, Hironaru Okamoto, Shigeno Okamoto, 32 Beverly Rd, Great Neck,
NY, 11021-1330, 7.443%.
INTERNATIONAL MAGNUM FUND: Morgan Stanley Group, Inc., 1221 Avenue of the
Americas, New York, NY 10020, owned 10.216% of the total outstanding Class A
shares of such Fund; Wachovia Bank NA Cust, FBO East Carolina University
Endowment and Foundation, 301 N. Main Street, P.O. Box 3073, Winston Salem, NC
27150, owned 9.190% of the total outstanding Class A shares of such Fund and
Charles Schwab & Co. Inc., Exclusive Benefit of its Customers, 101 Montgomery
Street, San Francisco, CA 94104-4122, owned 5.854% of the total outstanding
Class A shares of such Fund.
Van Kampen American Capital Trust Company, 2800 Post Oak Blvd, Houston,
Texas 77056, owned 5.406% of the total outstanding Class B shares of such Fund.
MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway, 2nd Floor, Wilmington,
DE 19809, owned 99.514% of the total outstanding shares of the Fund.*
GOVERNMENT OBLIGATIONS MONEY MARKET FUND: PFPC, Inc., 400 Bellevue Parkway,
2nd Floor, Wilmington, DE 19809, owned 99.979% of the total outstanding shares
of the Fund.*
35
<PAGE>
WORLDWIDE HIGH INCOME FUND: The following each held the percentage
indicated of the total outstanding Class A shares of such Fund: FTC & Co., P.O.
Box 173736, Denver, CO 80217-3738, 16.548% and Charles Schwab & Co., Inc.,
Exclusive Benefit of its Customers, 101 Montgomery Street, San Francisco, CA
94104-4122, 8.338%.
TAX-FREE MONEY MARKET FUND: N/A
JAPANESE EQUITY FUND: N/A
EUROPEAN EQUITY FUND: N/A
EQUITY GROWTH FUND: N/A
GLOBAL EQUITY FUND: N/A
EMERGING MARKETS DEBT FUND: N/A
MID CAP GROWTH FUND: N/A
VALUE FUND: Van Kampen American Capital Trust Company, 2800 Post Oak Blvd,
Houston, Texas 77056, owned 5.406% of the total outstanding Class C shares of
such Fund.
*The shareholder may be deemed a "controlling person" of the particular Fund
by virtue of its power to control the voting or disposition of the shares it
owns. As a result of its ownership position, the shareholder may be able to
control the outcome of matters voted on by shareholders of the Fund.
MONEY MARKET FUND NET ASSET VALUE
Each of the Money Market Funds seeks to maintain a stable net asset value
per share of $1.00. Each Fund uses the amortized cost method of valuing its
securities, which does not take into account unrealized gains or losses. The use
of amortized cost and the maintenance of a Fund's per share net asset value at
$1.00 is based on the Fund's election to operate under the provisions of Rule
2a-7 under the 1940 Act. As a condition of operating under that Rule, each of
the Money Market Funds must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less, and invest only in securities which are of
"eligible quality" as determined in accordance with regulations of the SEC.
The Rule also requires that the Directors, as a particular responsibility
within the overall duty of care owed to shareholders, establish procedures
reasonably designed, taking into account current market conditions and the
Funds' investment objectives, to stabilize the net asset value per share as
computed for the purposes of sales and redemptions at $1.00. These procedures
include periodic review, as the Directors deem appropriate and at such intervals
as are reasonable in light of current market conditions, of the relationship
between the amortized cost value per share and a net asset value per share based
upon available indications of market value. In such review, investments for
which market quotations are readily available are valued at the most recent bid
price or quoted yield available for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by, or under procedures
adopted by, the Directors.
In the event of a deviation of over 1/2 of 1% between a Fund's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Directors will promptly consider what action,
if any, should be taken. The Directors will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redemption in kind, selling instruments
prior to maturity to realize capital gains or losses or to shorten the average
maturity, withholding dividends, paying distributions from capital or capital
gains or utilizing a net asset value per share as determined by using available
market quotations.
There are various methods of valuing the assets and of paying dividends and
distributions from a money market fund. Each of the Money Market Funds values
its assets at amortized cost while also monitoring the available market bid
price, or yield equivalents. Since dividends from net investment income will be
declared daily and paid monthly, the net asset value per share of such Funds
will ordinarily remain at $1.00, but the Funds' daily dividends will vary in
amount. Net realized short-term capital gains, if any, less any capital loss
carryforwards, will be distributed whenever the Directors determine that such
distributions would be in the best interest of shareholders, but in any event,
at least once a year. The Money Market Funds do not expect to realize any
long-term capital gains. Should any such gains be realized, they will be
distributed annually, less any capital loss carryforwards.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreement and Investment Sub-Advisory Agreements
authorize each of the Adviser and Sub-Advisers (collectively for this discussion
only, the "Adviser") to select the brokers or dealers that will execute the
purchases and sales of investment securities for the Funds and direct the
Adviser to use its best efforts to obtain the best available price and
36
<PAGE>
most favorable execution with respect to all transactions for the Funds. The
Company has authorized the Adviser to pay higher commissions in recognition of
brokerage services which, in the opinion of the Adviser, are necessary for the
achievement of better execution, provided the Adviser believes this to be in the
best interest of the Company.
In purchasing and selling securities for the Funds, it is the Company's
policy to seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Funds, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services which they provide to the Company. Some
securities considered for investment by a Fund may also be appropriate for other
clients served by the Adviser. If purchase or sale of securities consistent with
the investment policies of a Fund and one or more of these other clients served
by the Adviser is considered at or about the same time, transactions in such
securities will be allocated among the Fund and clients in a manner deemed fair
and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic review by
the Company's Directors.
Subject to the overriding objective of obtaining the best execution of
orders, the Adviser may allocate a portion of the Company's portfolio brokerage
transactions to Morgan Stanley or broker affiliates of Morgan Stanley under
procedures adopted by the Board of Directors. For the three fiscal years ended
June 30, 1995, June 30, 1996 and June 30, 1997, the Company paid brokerage
commissions of approximately $115,622, $180,458 and $464,192, respectively, to
the Morgan Stanley, an affiliated broker-dealer. For the fiscal years ended June
30, 1995, June 30, 1996 and June 30, 1997, commissions paid to Morgan Stanley
represented approximately 7%, 6% and 7.98%, respectively, of the total amount of
brokerage commissions paid in such period and which were paid on transactions
that represented 3%, 2% and 7.10%, respectively, of the aggregate dollar amount
of transactions that incurred commissions paid by the Company during such
period.
Fund securities will not be purchased from, or through, or sold to or
through, the Adviser, the Sub-Advisers or Morgan Stanley or any "affiliated
persons," as defined in the 1940 Act, of Morgan Stanley when such entities are
acting as principals, except to the extent permitted by law.
PERFORMANCE INFORMATION
The Company may from time to time quote various performance figures to
illustrate the Funds' past performance.
Performance quotations by investment companies are subject to rules adopted
by the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Company but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Company are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Company to compute or express
performance follows.
TOTAL RETURN
From time to time the Funds may advertise total return. Total return figures
are based on historical earnings and are not intended to indicate future
performance. The average annual total return is determined by finding the
average annual compounded rates of return over 1-, 5-, and 10-year periods (or
over the life of the Fund) that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes that all
dividends and distributions are reinvested when paid. The quotation assumes the
amount was completely redeemed at the end of each 1-, 5-, and 10- year period
(or over the life of the Fund) and the deduction of all applicable Company
expenses on an annual basis.
Total return figures are calculated according to the following formula:
<TABLE>
<C> <C> <S>
P(1+T)(n) = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the beginning
of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof).
</TABLE>
37
<PAGE>
Calculated using the formula above, the average annualized total return,
exclusive of a sales charge or deferred sales charge, for each of the Funds that
commenced operations prior to June 30, 1997 for the one-year period ended June
30, 1997 and for the period from the inception of each Fund through June 30,
1997 are as follows:
<TABLE>
<CAPTION>
ONE-YEAR INCEPTION
INCEPTION PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1997 30, 1997
--------- ------------- -------------
<S> <C> <C> <C>
Global Equity Allocation Fund
Class A Shares...................... 01/04/93 20.61% 15.90%
Class B Shares(1)................... 08/01/95 19.64% 19.77%
Class C Shares(1)................... 01/04/93 19.69% 15.04%
Global Fixed Income Fund
Class A Shares...................... 01/04/93 4.27% 6.48%
Class B Shares(1)................... 08/01/95 3.48% 3.78%
Class C Shares(1)................... 01/04/93 3.48% 5.64%
Asian Growth Fund
Class A Shares...................... 06/23/93 (1.10)% 9.89%
Class B Shares(1)................... 08/01/95 (1.79)% 0.00%(2)
Class C Shares(1)................... 06/23/93 (1.79)% 9.11%
American Value Fund
Class A Shares...................... 10/18/93 30.68% 16.23%
Class B Shares(1)................... 08/01/95 29.77% 21.72%
Class C Shares(1)................... 10/18/93 29.67% 15.32%
Worldwide High Income Fund
Class A Shares...................... 04/21/94 30.29% 18.35%
Class B Shares(1)................... 08/01/95 29.14% 24.02%
Class C Shares(1)................... 04/21/94 29.12% 17.39%
Emerging Markets Fund
Class A Shares...................... 07/06/94 13.54% 4.66%
Class B Shares(1)................... 08/01/95 12.67% 11.57%
Class C Shares(1)................... 07/06/94 12.66% 3.87%
Latin American Fund
Class A Shares...................... 07/06/94 57.32% 19.10%
Class B Shares(1)................... 08/01/95 56.17% 44.31%
Class C Shares(1)................... 07/06/94 56.04% 18.10%
Aggressive Equity Fund
Class A Shares...................... 01/02/96 28.93% 34.43%
Class B Shares...................... 01/02/96 28.01% 33.53%
Class C Shares...................... 01/02/96 28.04% 33.48%
U.S. Real Estate Fund
Class A Shares...................... 05/01/96 35.75% 35.17%
Class B Shares...................... 05/01/96 34.58% 33.88%
Class C Shares...................... 05/01/96 34.56% 34.05%
High Yield Fund
Class A Shares...................... 05/01/96 18.12% 15.67%
Class B Shares...................... 05/01/96 17.22% 14.83%
Class C Shares...................... 05/01/96 17.21% 14.82%
International Magnum Fund
Class A Shares...................... 07/01/96 17.30% 17.30%
Class B Shares...................... 07/01/96 16.40% 16.40%
Class C Shares...................... 07/01/96 16.27% 16.27%
Japanese Equity Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Growth and Income Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
ONE-YEAR INCEPTION
INCEPTION PERIOD ENDED THROUGH JUNE
DATE JUNE 30, 1997 30, 1997
--------- ------------- -------------
<S> <C> <C> <C>
European Equity Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Equity Growth Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Global Equity Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Emerging Markets Debt Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Mid Cap Growth Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Value Fund
Class A Shares...................... N/A N/A N/A
Class B Shares...................... N/A N/A N/A
Class C Shares...................... N/A N/A N/A
Money Market Fund....................... 08/04/89 4.60% 4.64%
Tax-Free Money Market Fund.............. N/A N/A N/A
Government Obligations Money Market
Fund................................... 03/12/92 4.53% 3.72%
</TABLE>
- ------------------
The Japanese Equity, Growth and Income, European Equity, Equity Growth, Global
Equity, Emerging Markets Debt, Mid Cap Growth, Value and Tax-Free Money Market
Funds had not commenced operations in the fiscal year ended June 30, 1997.
(1) The Class B shares listed above were created on May 1, 1995. The original
Class B shares were renamed Class C shares, as listed above, on May 1, 1995.
The Class B shares commenced operations on August 1, 1995.
(2) Amount is less than 0.01.
YIELD FOR CERTAIN FUNDS
From time to time certain of the Funds may advertise yield.
Current yield reflects the income per share earned by a Fund's investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
Current yield figures are obtained using the following formula:
<TABLE>
<S> <C> <C>
2[(a - b + 1) - 1]
Yield = ------------------
cd
</TABLE>
where:
<TABLE>
<C> <C> <S>
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were entitled
to receive income distributions
d = the maximum offering price per share on the last day of the period
</TABLE>
The respective current yields for the following Funds 30-day period ended
June 30, 1997 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND NAME SHARES SHARES SHARES
- ----------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Global Fixed Income Fund 3.79% 3.23% 3.23%
Worldwide High Income Fund 7.76% 7.40% 7.40%
High Yield Fund 7.24% 6.84% 6.84%
</TABLE>
39
<PAGE>
CALCULATION OF YIELD FOR MONEY MARKET FUNDS
The current yield of the Money Market, Tax-Free Money Market and Government
Obligations Money Market Funds are calculated daily on a base period return for
a hypothetical account having a beginning balance of one share for a particular
period of time (generally 7 days). The return is determined by dividing the net
change (exclusive of any capital changes in such account) by its average net
asset value for the period, and then multiplying it by 365/7 to determine the
annualized current yield. The calculation of net change reflects the value of
additional shares purchased with the dividends by the Fund, including dividends
on both the original share and on such additional shares. The yields of the
Money Market Fund and Government Obligations Money Market Fund for the 7-day
period ended June 30, 1997 were 4.69% and 4.62% respectively. An effective
yield, which reflects the effects of compounding and represents an annualization
of the current yield with all dividends reinvested, may also be calculated for
each Fund by dividing the base period return by 7, adding 1 to the quotient,
raising the sum to the 365th power, and subtracting 1 from the result. The
effective yields of the Money Market Fund and Government Obligations Money
Market Fund for the 7-day period ended June 30, 1997 were 4.80% and 4.73%,
respectively.
The yield of a Fund will fluctuate. The annualization of a week's dividend
is not a representation by the Fund to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Fund invests
in, changes in interest rates on instruments, changes in the expenses of the
Fund and other factors. Yields are one basis investors may use to analyze the
Funds, and other investment vehicles; however, yields of other investment
vehicles may not be comparable because of the factors set forth in the preceding
sentence, differences in the time periods compared, and differences in the
methods used in valuing fund instruments, computing net asset value and
calculating yield.
TAXABLE EQUIVALENT YIELD
It is easy to calculate your own taxable equivalent yield if you know your
tax bracket. The formula is:
<TABLE>
<C> <C> <S>
Tax Free Yield
- ------------------- = Your Taxable Equivalent
1 - Your Tax Bracket Yield
</TABLE>
For example, if you are in the 28% tax bracket and can earn a tax-free yield
of 7.5%, the taxable equivalent yield would be 10.42%. The table below indicates
the advantages of investments in Municipal Bonds for certain investors.
Tax-exempt rates of interest payable on a Municipal Bond (shown at the top of
each column) are equivalent to the taxable yields set forth opposite the
respective income tax levels, based on income tax rates effective for the tax
year 1997 under the Internal Revenue Code. There can, of course, be no guarantee
that the Tax-Free Money Market Fund will achieve a specific yield. Also, it is
possible that some portion of the Fund's dividends may be subject to federal
income taxes. A substantial portion, if not all, of such dividends may be
subject to state and local taxes.
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<CAPTION>
SAMPLE LEVEL OF FEDERAL
TAXABLE INCOME INCOME TAXABLE EQUIVALENT RATES BASED ON TAX-EXEMPT YIELD OF:
- ------------------------------------ TAX ------------------------------------------------------------------
SINGLE RETURN JOINT RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
- ----------------- ----------------- --------- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$24,650 $0-$41,200 15% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41% 10.59% 11.76% 12.94%
$24,650-$59,750 $41,200-$99,600 28% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11% 12.50% 13.89% 15.28%
$59,750-$124,650 $99,600-$151,750 31% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49% 15.94%
$124,650-$271,050 $151,750-$271,050 36% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63% 17.19%
$271,050 and up $271,050 and up 39.6% 4.97% 6.62% 8.28% 9.93% 11.59% 13.23% 14.90% 16.56% 18.21%
</TABLE>
- --------------
* Net amount subject to 1997 Federal Income Tax after deductions and exemptions,
not indexed for 1997 income tax rates.
COMPARISONS
To help investors better evaluate how an investment in a Fund of Morgan
Stanley Fund, Inc. might satisfy their investment objective, advertisements
regarding the Company may discuss various measures of Fund performance as
reported by various financial publications. Advertisements may also compare
performance (as calculated above) to performance as reported by other
investments, indices and averages. The following publications may be used:
(a) Dow Jones Composite Average or its component averages -- an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
(b) Standard & Poor's 500 Stock Index or its component indices -- unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
company stocks and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
(c) The New York Stock Exchange composite or component indices -- unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
40
<PAGE>
(d) Wilshire 5000 Equity Index or its component indices -- represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
(e) Lipper -- Capital Appreciation Index -- a composite of mutual funds
managed for maximum capital gains.
(f) Lipper -- Mutual Fund Performance Analysis and Lipper -- Fixed Income
Fund Performance Analysis -- measures total return and average current yield for
the mutual fund industry. Ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive of
any applicable sales charges.
(g) Morgan Stanley Capital International EAFE Index -- an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
(h) Goldman Sachs 100 Convertible Bond Index -- currently includes 67 bonds
and 33 preferred. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
(i) Salomon Brothers GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Association.
(j) Salomon Brothers High Grade Corporate Bond Index -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
(k) Salomon Brothers Broad Investment Grade Bond Index -- is a
market-weighted index that contains approximately 4700 individually priced
investment grade corporate bonds rated BBB or better, United States
Treasury/agency issues and mortgage pass-through securities.
(l) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
<TABLE>
<S> <C>
Australian Dollars Netherlands Guilder
Canadian Dollars Swiss Francs
European Currency Units UK Pounds Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
</TABLE>
(m) J.P. Morgan Traded Global Bond Index -- is an unmanaged index of
government bond issues and includes Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden, United Kingdom and United
States gross of withholding tax.
(n) Lehman LONG-TERM Treasury Bond Index -- is composed of all bonds covered
by the Lehman Treasury Bond Index with maturities of 10 years or greater.
(o) Lehman Aggregate Bond Index -- is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
(p) NASDAQ Industrial Index -- is composed of more than 3,000 industrial
issues. Ifmis a value-weighted index calculated on price change only and does
not include income.
(q) Composite Indices -- 70% Standard & Poor's 500 Stock Index and 30%
NASDAQ Industrial Index; 36% Standard & Poor's 500 Stock Index and 65% Salomon
Brothers High Grade Bond Index; and 65% Standard & Poor's 500 Stock Index and
35% Salomon Brothers High Grade Bond Index.
(r) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- -- analyzes price, current yield, risk, total return and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
(s) Mutual Fund Source Book, published by Morningstar, Inc. -- analyzes
price, yield, risk and total return for equity funds.
(t) Financial publications: Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Barron's, Consumer's Digest, Financial Times, Global
Investor, Investor's Daily, Lipper Analytical Services, Inc., Morningstar, Inc.,
New York Times, Personal Investor, Wall Street Journal and Weisenberger
Investment Companies Service -- publications that rate fund performance over
specified time periods.
(u) Consumer Price Index (or cost of Living Index), published by the United
States Bureau of Labor Statistics -- a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
(v) Stocks, Bonds, Bills and Inflation, published by Hobson Associates --
historical measure of yield, price and total return for common and small company
stock, long-term government bonds, Treasury bills and inflation.
(w) Savings and Loan Historical Interest Rates -- as published in the United
States Savings & Loan League Fact Book.
41
<PAGE>
(x) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers Inc. and Bloomberg L.P.
(y) The MSCI Combined Far East Free ex-Japan Index -- a
market-capitalization weighted index comprising stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Taiwan and Thailand. Korea is included in the MSCI
Combined Far East Free ex-Japan Index at 20% of its market capitalization.
(z) CS First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
(bb) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, New Zealand, the Far
East, Canada and the United States.
(cc) Morgan Stanley Capital International Emerging Markets Global Latin
American Index -- An unmanaged, arithmetic market value weighted average of the
performance of over 196 securities on the stock exchanges of Argentina, Brazil,
Chile, Colombia, Mexico, Peru and Venezuela. (Assumes reinvestment of
dividends.)
(dd) IFC Global Total Return Composite Index -- An unmanaged index of common
stocks and includes developing countries in Latin America, East and South Asia,
Europe, the Middle East and Africa (net of dividends reinvested).
(ee) EMBI+ -- Expanding on the EMBI, which includes only Bradys, the EMBI+
includes a broader group of Brady Bonds, loans, Eurobonds and U.S. Dollar local
markets instruments. A more comprehensive benchmark than EMBI, the EMBI+ covers
49 instruments from 14 countries. At $98 billion, its market cap is nearly 50%
higher than the EMBI's. The EMBI+ is not, however, intended to replace the EMBI
but rather to complement it. The EMBI continues to represent the most liquid,
most easily traded segment of the market, while the EMBI+ represents the broader
market, including more of the assets that investors typically hold in their
portfolios. Both of these indices are published daily.
(ff) The MSCI Latin America Global Index -- is a broad-based market cap
weighted composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (Assumes reinvestment of dividends).
(gg) Morgan Stanley Capital International Japan Index -- An unmanaged index
of common stocks (assumes dividends reinvested).
(hh) NAREIT Index -- An unmanaged market weighted index of tax qualified
REITs (excluding healthcare REITs) listed on the New York Stock Exchange,
American Stock Exchange and the NASDAQ National Market System, including
dividends.
(ii) Standard & Poor's 400 Mid Cap Index -- The Standard and Poor's Midcap
400 is a capitalization-weighted index that measures the performance of the
mid-range sector of the U.S. stock market where the medium market capitalization
is approximately $700 million.
(jj) Russell 2500 Index -- comprised of the bottom 500 stocks in the Russell
1000 Index which represents the universe of stocks from which most active money
managers typically select; and all the stocks in the Russell 2000 Index. The
largest security in the index has a market capitalization of approximately $1.3
billion.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the composition of investments in the Company's Funds, that the
averages are generally unmanaged, and that the items included in the
calculations of such averages may not be identical to the formula used by the
Company to calculate its performance. In addition, there can be no assurance
that the Company will continue this performance as compared to such other
averages.
GENERAL PERFORMANCE INFORMATION
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Fund's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of the
Funds to one another in appropriate categories over specific periods of time may
also be quoted in advertising.
Fund advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of
42
<PAGE>
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices. The Funds may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the Funds. The
Funds may also compare their performance to that of other compilations or
indices that may be developed and made available in the future.
The Funds may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Fund. In addition, advertisements may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund and/or other mutual funds, shareholder profiles and hypothetical investor
scenarios, timely information on financial management, tax and retirement
planning and various investment alternatives. Advertisements may include lists
of representative Morgan Stanley clients. The Funds may also from time to time
include discussions or illustrations of the effects of compounding in
advertisements. "Compounding" refers to the fact that, if dividends or other
distributions on a Fund investment are reinvested by being paid in additional
Fund shares, any future income or capital appreciation of a Fund would increase
the value, not only of the original investment in the Fund, but also of the
additional Fund shares received through reinvestment.
The Funds may include in its advertisements, discussions or illustrations of
the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Fund may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers by Morgan Stanley or its affiliates; and the
portfolio managers' goals, strategies and investment techniques.
The Funds' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Funds may include
discussions and illustrations of the growth potential of various global markets
including, but not limited to, Africa, Asia, Europe, Latin America, North
America, South America, Emerging Markets and individual countries. These
discussions may include the past performance of the various markets or market
sectors; forecasts of population, gross national product and market performance;
and the underlying data which supports such forecasts. From time to time,
advertisements, sales literature, communications to shareholders or other
materials may summarize the substance of information contained in the Funds'
shareholder reports (including the investment composition of a Fund), as well as
the views of Morgan Stanley as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund.
The Funds may quote various measures of volatility and benchmark correlation
in advertising. The Funds may compare these measures to those of other funds.
Measures of volatility seek to compare the historical share price fluctuations
or total returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. Measures of volatility and
correlation may be calculated using averages of historical data. A Fund may also
advertise its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
From time to time marketing materials may provide a portfolio manager
update, an adviser update and discuss general economic conditions and outlooks.
The Funds' marketing materials may also show each Fund's asset class
diversification, top five sector holdings and ten largest holdings. Materials
may also mention how the Adviser believes the Fund compares relative to other
funds advised by the Adviser or distributed by the Distributor. Materials may
also discuss the Dalbar Financial Services study from 1984 to 1994 which
examined investor cash flow into and out of all types of mutual funds. The ten
year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless if shareholders purchased their fund in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Funds will also be marketed on the Internet.
43
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Company's Articles of Incorporation permit the Directors to issue 27.375
billion shares of common stock, par value $.001 per share, from an unlimited
number of Funds. Currently the Company is authorized to offer shares of
twenty-two Funds, nineteen of which have Class A, Class B and Class C shares.
The shares of each Fund of the Company are fully paid and non-assessable,
and, except as described in the Prospectuses, have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of
each Fund of the Company have no pre-emptive rights. The shares of the Company
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors can elect 100% of the
Directors if they choose to do so. A shareholder is entitled to one vote for
each full share owned (and a fractional vote for each fractional share owned),
then standing in his name on the books of the Company.
DIVIDENDS AND DISTRIBUTIONS
The Company's policy is to distribute substantially all of each Fund's net
investment income, if any. Each Fund may choose to make sufficient distributions
of net capital gains to avoid liability for federal excise tax. A Fund will not
be subject to federal income tax on capital gains or ordinary income distributed
to shareholders so long as it qualifies as a RIC (see discussion under
"Dividends and Distributions" and "Taxes" in the Prospectus). However, the
Company may also choose to retain net realized capital gains and pay taxes on
such gains. The amounts of any income dividends or distributions cannot be
predicted.
Any dividend or distribution paid shortly after an investor purchases shares
of an Non-Money Market Fund will reduce the per share net asset value of that
Fund by the per share amount of the dividend or distribution. Furthermore, such
dividends or distributions, although in effect a return of capital, are subject
to income taxes to shareholders subject to taxes as set forth in the Prospectus.
As set forth in the Prospectus, unless the shareholder elects otherwise in
writing, all dividends and distributions of a Fund are automatically reinvested
in additional shares of that Fund at net asset value as of the business day
following the record date. This reinvestment policy will remain in effect until
the shareholder notifies the Transfer Agent in writing at least three days prior
to a record date that the shareholder has elected either the Income Option
(income dividends in cash and distributions in additional shares at net asset
value) or the Cash Option (both income dividends and distributions in cash). No
initial sales charge or CDSC is imposed on shares of any of the Funds, including
the Non-Money Funds, that are purchased through the automatic reinvestment of
dividends and distributions of a Fund.
Each Fund generally will be treated as a separate corporation (and hence as
a separate "regulated investment company") for federal tax purposes. Any net
capital gains of any Fund, whether or not distributed to investors, cannot be
offset against net capital losses of any other Fund.
CUSTODY ARRANGEMENTS
Chase serves as the Company's domestic custodian except with respect to the
Money Market Funds. Morgan Stanley Trust Company, Brooklyn, NY, acts as the
Company's custodian for foreign assets held outside the United States and
employs subcustodians who were approved by the Directors of the Company in
accordance with Rule 17f-5 adopted by the SEC under the 1940 Act. Morgan Stanley
Trust Company is an affiliate of Morgan Stanley, Dean Witter, Discover & Co. In
the selection of foreign subcustodians, the Directors consider a number of
factors, including, but not limited to, the reliability and financial stability
of the institution, the ability of the institution to provide efficiently the
custodial services required for the Company, and the reputation of the
institution in the particular country or region. PNC Bank, N.A. serves as the
Company's custodian for each of the Money Market Funds.
DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") DESCRIPTION OF
BOND RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA -- Bonds which are rated AA are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical
44
<PAGE>
modifiers 1, 2 and 3 in the Aa and A rating categories. The modifier 1 indicates
that the security ranks at a higher end of the rating category, modifier 2
indicates a mid-range rating and the modifier 3 indicates that the issue ranks
at the lower end of the rating category.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
EXCERPTS FROM STANDARD & POOR'S CORPORATION ("S&P") DESCRIPTION OF BOND
RATINGS:
AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation and indicate an extremely strong capacity to pay principal
and interest.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only to a small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC -- Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's
ratings for state and municipal notes and other short-term obligations are
designated Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1
- -- best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 -- high quality with margins of protection ample
although not so large as in the preceding group.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("P1") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTES ISSUES: S-1+ -- very strong
capacity to pay principal and interest; SP-1 -- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATING: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is very strong.
45
<PAGE>
WITH RESPECT TO RATINGS BY IBCA LTD., the designation A1 by IBCA, Ltd.
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
II. DESCRIPTION OF UNITED STATES GOVERNMENT SECURITIES
The term "United States Government securities" refers to a variety of
securities which are issued or guaranteed by the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government.
United States Treasury securities are backed by the "full faith and credit"
of the United States. Securities issued or guaranteed by federal agencies and
United States Government sponsored instrumentalities may or may not be backed by
the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. Agencies which are backed by the full faith and credit of
the United States include the Export-Import Bank, Farmers Home Administration,
Federal Financing Bank, and others. Certain agencies and instrumentalities, such
as the Government National Mortgage Associates, are, in effect, backed by the
full faith and credit of the United States through provisions in their charters
that they may make "indefinite and unlimited" drawings on the Treasury, if
needed to service debt. Debt from certain other agencies and instrumentalities,
including the Federal Home Loan Bank and Federal National Mortgage Association,
are not guaranteed by the United States, but those institutions are protected by
the discretionary authority for the United States Treasury to purchase certain
amounts of their securities to assist the institution in meeting its debt
obligations. Finally, other agencies and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the United
States Government.
Some of the United States Government agencies that issue or guarantee
securities include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and the Tennessee Valley Authority.
An instrumentality of the United States Government is a Government agency
organized under federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Association.
46
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (92.3%)
AUSTRALIA (1.2%)
9,600 Amcor Ltd........................................ $ 64
5,200 Australian Gas Light Co., Ltd.................... 31
14,200 Australian National Industries Ltd............... 17
18,524 Boral Ltd........................................ 58
3,500 Brambles Industries Ltd.......................... 69
28,159 Broken Hill Proprietary Ltd...................... 414
8,110 Burns, Philip & Co., Ltd......................... 15
7,386 Coca-Cola Amatil Ltd............................. 96
16,181 Coles Myer Ltd................................... 84
4,800 CRA Ltd.......................................... 82
(a)10,550 Crown Ltd........................................ 17
16,300 CSR Ltd.......................................... 63
27,800 Fosters Brewing Corp............................. 52
18,051 General Property Trust........................... 36
9,255 Gio Australia Holdings Ltd....................... 29
18,537 Goodman Fielder Ltd.............................. 27
4,900 ICI Australia Ltd................................ 48
(a)3,600 Leighton Holdings Ltd............................ 18
3,926 Lend Lease Corp., Ltd............................ 83
24,389 MIM Holdings Ltd................................. 36
20,137 National Australia Bank Ltd...................... 289
4,346 Newcrest Mining Ltd.............................. 12
27,757 News Corp., Ltd.................................. 133
23,154 Normandy Mining Ltd.............................. 26
11,449 North Broken Hill Peko Ltd....................... 44
13,200 Pacific Dunlop Ltd............................... 39
14,000 Pioneer International Ltd........................ 54
3,300 Plutonic Resources Ltd........................... 10
2,900 Renison Goldfields Consolidated Ltd.............. 11
10,012 Santos Ltd....................................... 42
3,000 Smith (Howard) Ltd............................... 29
1,800 Sons of Gwalia Ltd............................... 7
9,499 Southcorp Holdings Ltd........................... 36
4,800 Tabcorp Holdings Ltd............................. 26
1,098 Westfield Trust.................................. 2
25,100 Westpac Banking Corp. Ltd........................ 151
14,690 WMC Ltd.......................................... 93
--------
2,343
--------
CANADA (4.5%)
5,800 Abitibi-Consolidated, Inc........................ 104
4,600 Agrium, Inc...................................... 53
6,800 Alcan Aluminum Ltd............................... 233
2,100 Avenor, Inc...................................... 41
8,200 Bank of Montreal................................. 320
7,500 Bank of Nova Scotia.............................. 329
13,200 Barrick Gold Corp................................ 287
20,100 BCE, Inc......................................... 559
10,300 Bombardier, Inc., 'A'............................ 233
4,300 CAE Inc.......................................... 34
1,800 Cameco Corp...................................... 68
12,900 Canadian Imperial Bank of Commerce............... 325
(a)3,700 Canadian Natural Resources Ltd................... 96
4,900 Canadian Occidental Petroleum Ltd................ 110
10,800 Canadian Pacific, Ltd............................ 307
2,900 Canadian Tire Corp., 'A'......................... 57
2,900 Cominco Ltd...................................... 77
(a)2,300 Corel Corp....................................... 15
1,900 Cott Corp........................................ 20
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
3,200 Dofasco, Inc..................................... $ 61
5,000 Domtar, Inc...................................... 44
4,900 Echo Bay Mines Ltd............................... 27
1,700 George Weston Ltd................................ 109
(a)7,700 Gulf Canada Resources, Ltd....................... 63
7,600 Imasco, Ltd...................................... 220
5,200 Imperial Oil Ltd................................. 266
5,000 Inco Ltd......................................... 149
1,800 IPL Energy, Inc.................................. 60
9,000 Laidlaw, Inc. 'B'................................ 124
2,200 Loewen Group, Inc................................ 76
4,900 MacMillan Bloedel Ltd............................ 67
2,200 Magna International, Inc., 'A'................... 132
6,000 Methanex Corp.................................... 56
2,500 Molson Companies Ltd., 'A'....................... 42
3,500 Moore Corp. Ltd.................................. 69
(a)4,900 Newbridge Networks Corp.......................... 210
7,600 Noranda, Inc..................................... 164
4,100 Norcen Energy Resources Ltd...................... 98
7,600 Northern Telecom Ltd............................. 685
17,000 Nova Corp........................................ 145
9,800 Petro............................................ 159
7,400 Placer Dome, Inc................................. 120
1,700 Potash Corp. of Saskatchewan Inc................. 128
4,200 Power Corp. of Canada............................ 103
(a)4,100 Provigo, Inc..................................... 23
4,300 Ranger Oil Ltd................................... 40
(a)4,100 Renaissance Energy Ltd........................... 114
(a)4,100 Repap Enterprises, Inc........................... 2
(a)6,000 Rogers Communication, Inc., 'B'.................. 38
9,700 Royal Bank of Canada............................. 439
(a)4,100 Talisman Energy, Inc............................. 126
3,700 Teck Corp., 'B'.................................. 75
11,100 The Seagram Co., Ltd............................. 446
18,000 Thomson Corp..................................... 415
7,500 Transcanada Pipelines, Ltd....................... 151
3,900 Westcoast Energy, Inc............................ 71
--------
8,585
--------
FRANCE (4.3%)
693 Accor S.A........................................ 104
2,750 Alcatel Alsthom.................................. 345
5,324 AXA S.A.......................................... 331
3,902 Banque Nationale de Paris RFD.................... 161
2,077 Banque Paribas................................... 144
750 BIC.............................................. 123
702 Bouygues......................................... 58
(a)482 Canal Plus....................................... 94
810 Carrefour S.A.................................... 589
1,700 Casino Guichard Perrachon........................ 84
25 Chargeurs International S.A...................... 1
500 Cie Bancaire S.A................................. 64
1,867 Cie de Saint-Gobain.............................. 272
67,520 Cie de Suez S.A.................................. 166
2,073 Cie Generale des Eaux............................ 266
5,650 Elf Aquitaine.................................... 610
750 Eridania Beghin-Say S.A.......................... 112
250 Essilor International............................ 67
1,568 Groupe Danone RFD................................ 259
1,239 Havas S.A........................................ 89
1,907 L'Air Liquide.................................... 303
</TABLE>
-----------------------
47
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FRANCE (CONT.)
<TABLE>
<C> <S> <C>
(a)1,342 L'Oreal.......................................... $ 566
2,243 Lafarge Coppee S.A............................... 140
585 Legrand S.A...................................... 103
1,905 LVMH Moet Hennessy Louis Vuitton................. 512
1,231 Lyonnaise des Eaux S.A........................... 124
3,287 Michelin (C.G.D.E.) 'B'.......................... 197
25 Pathe S.A........................................ 5
1,325 Pernod-Ricard.................................... 68
430 Pinault S.A...................................... 207
440 Promodes......................................... 171
1,155 PSA Peugeot Citroen S.A.......................... 112
6,762 Rhone-Poulenc S.A. 'A'........................... 276
60 Sagem............................................ 30
2,036 Sanofi S.A....................................... 200
2,997 Schneider S.A.................................... 160
729 Simco S.A........................................ 58
(a,d)30 Simco S.A. (New)................................. 2
65 Societe Eurafrance S.A........................... 27
1,589 Societe Generale................................. 177
125 Sodexho S.A...................................... 64
2,608 Thomson CSF S.A.................................. 67
4,705 Total S.A. 'B'................................... 476
5,590 Usinor Sacilor................................... 101
680 Worms et Compagnie............................... 40
--------
8,125
--------
GERMANY (5.1%)
900 adidas AG........................................ 101
(a)850 Agiv AG.......................................... 19
4,500 Allianz AG....................................... 962
50 AMB Aachener & Muenchener
Beteiligungs AG................................ 45
10,700 BASF AG.......................................... 395
13,600 Bayer AG......................................... 524
4,550 Bayerische Hypotheken Bank AG.................... 138
4,750 Bayerische Vereinsbank AG........................ 195
(a)1,600 Beiersdorf AG.................................... 86
(a)900 Bilfinger & Berger Bau AG........................ 38
150 Brau und Brunnen AG.............................. 12
550 CKAG Colonia Konz AG............................. 52
1,750 Continental AG................................... 44
9,200 Daimler-Benz AG.................................. 749
2,000 Degussa AG....................................... 106
9,200 Deutsche Bank AG................................. 540
38,770 Deutsche Telekom AG.............................. 953
8,050 Dresdner Bank AG................................. 282
850 Heidelberger Zement AG........................... 82
1,650 Hochtief AG...................................... 74
200 Karstadt AG...................................... 72
(a)1,150 Kloeckner-Humboldt-Deutz AG...................... 11
200 Linde AG......................................... 155
6,950 Lufthansa AG..................................... 134
250 MAN AG........................................... 78
650 Mannesmann AG.................................... 290
2,923 Merck KGAA....................................... 127
(a)1,860 METRO AG......................................... 203
153 Muenchener Rueckversicherungs (Registered)....... 434
300 Preussag AG...................................... 88
6,100 RWE AG........................................... 262
1,110 SAP AG........................................... 223
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
1,350 Schering AG...................................... $ 145
10,300 Siemens AG....................................... 617
(a)50 Starbag AG....................................... 5
750 Thyssen AG....................................... 180
9,050 VEBA AG.......................................... 511
550 Viag AG.......................................... 251
(a)128 Viag AG RFD...................................... 59
550 Volkswagen AG.................................... 417
--------
9,659
--------
HONG KONG (2.0%)
(a)10,000 Applied International Holdings Ltd............... 1
22,600 Bank of East Asia Ltd............................ 94
52,000 Cathay Pacific Airways Ltd....................... 108
37,000 Cheung Kong Holdings Ltd......................... 365
39,500 China Light & Power Co. Ltd...................... 224
28,000 Chinese Estate Holdings Ltd...................... 26
11,200 Giordano Holdings Ltd............................ 8
22,000 Hang Lung Development Corp....................... 40
31,100 Hang Seng Bank Ltd............................... 443
58,697 Hong Kong & China Gas Co......................... 117
3,200 Hong Kong Aircraft Engineering Co., Ltd.......... 12
22,500 Hong Kong Shanghai Hotels........................ 36
187,200 Hong Kong Telecomunications Ltd.................. 447
70,000 Hopewell Holdings Ltd............................ 44
61,000 Hutchison Whampoa Ltd............................ 528
17,000 Hysan Development Co............................. 50
7,000 Johnson Electric Holdings Ltd.................... 21
8,000 Miramar Hotel Investment Ltd..................... 15
30,133 New World Development Co., Ltd................... 180
26,000 Oriental Press Goup.............................. 11
7,000 Peregrine Investment Holdings.................... 14
28,000 Shangri-La Asia Ltd.............................. 34
22,961 Shun Tak Holdings Ltd............................ 14
30,000 South China Morning Post......................... 29
13,000 Stelux Holdings Ltd.............................. 3
38,000 Sun Hung Kai Properties Ltd...................... 457
25,500 Swire Pacific Ltd. 'A'........................... 230
8,000 Television Broadcasting Ltd...................... 36
37,000 Wharf Holdings Ltd............................... 160
6,000 Windsor Industrial............................... 2
4,300 Wing Lung Bank................................... 27
--------
3,776
--------
ITALY (2.8%)
25,672 Assicurazioni Generali S.p.A..................... 467
40,300 Banca Commerciale Italiana....................... 83
15,900 Banco Ambrosiano Veneto.......................... 46
5,660 Benetton Group S.p.A............................. 90
4,700 Cartiere Burgo S.p.A............................. 26
71,000 Credito Italiano S.p.A........................... 130
19,000 Edison S.p.A..................................... 95
222,000 Ente Nazionale Idrocarburi S.p.A................. 1,257
4,500 Falck............................................ 17
93,300 Fiat S.p.A....................................... 336
20,700 Fiat S.p.A. Di Risp NCS.......................... 39
(a)11,000 Impreglio S.p.A.................................. 7
24,600 Istituto Bancario San Paolo di Torina S.p.A...... 179
17,950 Istituto Mobiliare Italiano S.p.A................ 162
118,200 Istituto Nazionale delle Assicurazioni (INA)..... 180
6,800 Italcementi S.p.A................................ 42
</TABLE>
- --------------
48
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
ITALY (CONT.)
<TABLE>
<C> <S> <C>
4,650 Italcementi S.p.A. NCS........................... $ 11
19,400 Italgas.......................................... 63
6,565 La Rinascente S.p.A.............................. 36
14,000 Magneti Marelli S.p.A............................ 24
33,500 Mediaset S.p.A................................... 142
14,050 Mediobanca S.p.A................................. 85
(a)83,108 Montedison S.p.A................................. 55
(a)28,900 Montedison S.p.A. Di Risp NCS.................... 19
(a)100,750 Olivetti Group................................... 29
44,640 Parmalat Finanziaria S.p.A....................... 63
45,000 Pirelli S.p.A.................................... 111
8,301 R.A.S............................................ 66
4,100 S.A.I............................................ 32
2,300 Sasib S.p.A...................................... 8
8,500 Sirti S.p.A...................................... 49
21,000 Snia BPD S.p.A................................... 19
42,500 Telecom Italia Di Risp S.p.A..................... 84
182,800 Telecom Italia Mobile S.p.A...................... 592
45,000 Telecom Italia Mobile S.p.A...................... 80
179,200 Telecom Italia S.p.A............................. 537
--------
5,261
--------
JAPAN (16.1%)
1,580 Advantest Corp................................... 121
20,000 Ajinomoto Co., Inc............................... 215
(a)12,000 Aoki Corp........................................ 14
1,600 Aoyama Trading Co., Ltd.......................... 51
39,000 Asahi Bank Ltd................................... 332
12,000 Asahi Breweries Ltd.............................. 179
36,000 Asahi Chemical Industry Co., Ltd................. 215
34,000 Asahi Glass Co................................... 338
70,000 Bank of Tokyo-Mitsubishi......................... 1,405
12,000 Bridgestone Corp................................. 279
15,000 Canon, Inc....................................... 408
7,000 Casio Computer Co., Ltd.......................... 61
19,000 Chiba Bank Ltd................................... 113
12,000 Chugai Pharmaceutical Ltd........................ 108
14,000 Dai Nippon Printing Co., Ltd..................... 317
13,000 Daiei, Inc....................................... 83
12,000 Daikin Industries Ltd............................ 109
12,000 Daiwa House Industry............................. 147
24,000 Daiwa Securities Co., Ltd........................ 189
70 East Japan Railway Co............................ 359
8,000 Ebara Corp....................................... 120
5,100 Fanuc Co......................................... 196
42,000 Fuji Bank........................................ 631
7,000 Fuji Photo Film Ltd.............................. 282
31,000 Fujitsu Ltd...................................... 430
9,000 Furukawa Electric................................ 57
16,000 Hankyu Corp...................................... 88
12,000 Hazama-Gumi...................................... 25
60,000 Hitachi Ltd...................................... 670
16,000 Honda Motor Co................................... 482
38,000 Industrial Bank of Japan......................... 590
7,000 Ito-Yokado Co., Ltd.............................. 406
37,000 Japan Airlines Co................................ 168
30,000 Japan Energy Corp................................ 79
13,000 Joyo Bank........................................ 72
6,000 Jusco Co......................................... 203
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
24,000 Kajima Corp...................................... $ 141
15,900 Kansai Electric Power Co......................... 307
22,000 KAO Corp......................................... 305
19,000 Kawasaki Steel Corp.............................. 62
29,000 Kinki Nippon Railway............................. 177
24,000 Kirin Brewery Co., Ltd........................... 249
24,000 Komatsu Ltd...................................... 195
36,000 Kubota Corp...................................... 176
24,000 Kumagai Gumi Co. Ltd............................. 40
3,600 Kyocera Corp..................................... 286
12,000 Kyowa Hakko Kogyo................................ 90
36,000 Marubeni Corp.................................... 163
3,000 Marui Co......................................... 56
36,000 Matsushita Electric Industries Ltd............... 726
36,000 Mitsubishi Chemical Corp......................... 118
33,000 Mitsubishi Corp.................................. 412
42,000 Mitsubishi Electric Corp......................... 235
26,000 Mitsubishi Estate Co., Ltd....................... 377
65,000 Mitsubishi Heavy Industries Ltd.................. 499
24,000 Mitsubishi Materials Corp........................ 96
22,000 Mitsubishi Trust & Banking Corp.................. 348
36,000 Mitsui & Co...................................... 346
24,000 Mitsui Engineering & Shipbuilding Co., Ltd....... 52
19,000 Mitsui Fudosan Co., Ltd.......................... 262
18,000 Mitsui Trust & Banking Corp...................... 136
13,000 Mitsukoshi Ltd................................... 93
4,000 Murata Manufacturing Co., Ltd.................... 159
(a)8,000 Mycal Corp....................................... 115
21,000 NEC Corp......................................... 293
12,000 NGK Insulators Ltd............................... 132
15,000 Nippon Denko Co., Ltd............................ 359
9,000 Nippon Express Co., Ltd.......................... 72
12,000 Nippon Fire & Marine Insurance Co................ 65
12,000 Nippon Light Metal Co............................ 44
12,000 Nippon Meat Packers, Inc......................... 155
34,000 Nippon Oil Co.................................... 186
133,000 Nippon Steel Corp................................ 425
179 Nippon Telegraph & Telephone ADR................. 1,719
36,000 Nippon Yusen Kabushiki Kaisha.................... 140
45,000 Nissan Motor Co., Ltd............................ 349
70,000 NKK Corp......................................... 150
31,000 Nomura Securities Co., Ltd....................... 428
14,000 Odakyu Electric Railway Co....................... 83
24,000 OJI Paper Co., Ltd............................... 149
53,000 Osaka Gas Co..................................... 152
12,000 Penta-Ocean Construction......................... 39
4,000 Pioneer Electronic Corp.......................... 97
1,000 Rohm Co.......................................... 103
47,000 Sakura Bank Ltd.................................. 360
9,000 Sankyo Co., Ltd.................................. 302
36,000 Sanyo Electric Co., Ltd.......................... 162
3,000 Secom Co......................................... 220
2,300 Sega Enterprises Ltd............................. 76
12,000 Sekisui House Ltd................................ 121
24,000 Sharp Corp....................................... 331
3,000 Shimano, Inc..................................... 63
5,000 Shin-Etsu Chemical Co............................ 133
17,000 Shinizu Corp..................................... 102
5,000 Shiseido Co., Ltd................................ 83
16,000 Shizuoka Bank.................................... 183
</TABLE>
-----------------------
49
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
(a)24,000 Showa Denko K.K.................................. $ 63
5,500 Sony Corp........................................ 480
47,000 Sumitomo Bank.................................... 771
48,000 Sumitomo Chemical Co............................. 217
24,000 Sumitomo Corp.................................... 228
16,000 Sumitomo Electric Industries..................... 268
5,000 Sumitomo Forestry................................ 55
43,000 Sumitomo Metal Industries........................ 122
11,000 Sumitomo Metal Mining Co......................... 78
12,000 Sumitomo Osaka Cement Co., Ltd................... 38
24,000 Taisei Corp., Ltd................................ 111
7,000 Taisho Pharmaceutical Co......................... 189
15,000 Takeda Chemical Industries....................... 422
24,000 Teijin Ltd....................................... 113
16,000 Tobu Railway Co.................................. 74
8,600 Tohoku Electric Power............................ 153
36,000 Tokai Bank....................................... 371
36,000 Tokio Marine & Fire Insurance Co................. 471
22,200 Tokyo Electric Power Co.......................... 467
1,000 Tokyo Electron Ltd............................... 48
48,000 Tokyo Gas Co..................................... 133
20,000 Tokyu Corp....................................... 124
16,000 Toppan Printing Co., Ltd......................... 251
36,000 Toray Industries, Inc............................ 257
12,300 Toto Ltd......................................... 151
24,000 Toyobo Ltd....................................... 64
52,000 Toyota Motor Corp................................ 1,534
24,000 Ube Industries Ltd............................... 70
24,000 Yamaichi Securities.............................. 71
22,000 Yasuda Trust & Banking........................... 84
--------
30,517
--------
KOREA (0.7%)
4,440 Cho Hung Bank Co................................. 30
(a)3,990 Commericial Bank of Korea........................ 21
3,080 Daewoo Corp...................................... 25
9,650 Daewoo Heavy Industries.......................... 79
(a)1,330 Daewoo Securities, Co............................ 24
980 Dong-Ah Construction Industrial Co............... 19
(a)4,530 Hanil Bank....................................... 25
(a)1,366 Hyundai Engineering & Construction Co. RFD....... 35
(d)1,090 Hyundai Motor Co., Ltd........................... 36
13,650 Korea Electric Power Corp........................ 407
4,100 Korea First Bank................................. 17
(a,d)100 Korea Mobile Telecommunications Corp.
(Foreign)...................................... 75
(d)3 Korea Mobile Telecommunications Corp............. 2
2,100 L.G. Chemical Ltd................................ 29
(d)2,550 Pohang Iron & Steel Ltd.......................... 261
1,600 Samsung Corp..................................... 22
(d)670 Samsung Display Devices Co....................... 37
(d)1,900 Samsung Electronics Co........................... 213
260 Tong Yang Cement Co.............................. 5
2,009 Yukong Ltd....................................... 49
--------
1,411
--------
NETHERLANDS (1.5%)
11,500 ABN-Amro Holdings N.V............................ 214
700 Akzo Nobel N.V................................... 96
5,800 Elsevier N.V..................................... 97
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
350 Heineken N.V..................................... $ 60
7,011 ING Groep N.V.................................... 323
813 KLM Royal Dutch Airlines N.V..................... 25
1,251 Koninklijke Ahold N.V............................ 106
287 Koninklijke Hoogovens............................ 16
900 Koninklijke KNP BT............................... 20
9,213 Koninklijke PTT Nederland N.V.................... 362
200 Nedlloyd Groep N.V............................... 6
2,900 Phillips Electronics N.V......................... 208
18,800 Royal Dutch Petroleum N.V........................ 979
296 Stork N.V........................................ 12
1,400 Unilever N.V..................................... 295
640 Wolters Kluwer N.V............................... 78
--------
2,897
--------
SINGAPORE (1.8%)
(d)11,000 Amcol Holdings Ltd............................... --
35,000 City Developments Ltd............................ 343
(a)4,000 Creative Technology Ltd.......................... 69
10,000 Cycle & Carriage Ltd............................. 104
41,000 DBS Land Ltd..................................... 130
21,000 Development Bank of Singapore.................... 264
13,000 First Capital Corp............................... 34
13,200 Fraser & Neave Ltd............................... 94
25,000 Hai Sun Hup Group Ltd............................ 18
21,000 Hotel Properties Ltd............................. 36
9,000 Inchcape Bhd..................................... 32
5,000 Jurong Shipyard Ltd.............................. 22
(a)32,000 Keppel Corp...................................... 142
(a)2,750 Keppel Corp. 'A'................................. 12
5,000 Metro Holdings Ltd............................... 16
15,000 NatSteel Ltd..................................... 38
38,000 Neptune Orient Lines Ltd......................... 34
37,920 Oversea-Chinese Banking Corp..................... 392
6,000 Overseas Union Enterprise Ltd.................... 28
14,000 Parkway Holdings Ltd............................. 63
3,000 Robinson & Co. Ltd............................... 16
6,600 Shangri-La Hotel Ltd............................. 20
39,000 Singapore Airlines Ltd. (Foreign)................ 349
8,600 Singapore Press Holdings (Foreign)............... 173
32,000 Singapore Technologies Industrial Corp........... 82
270,000 Singapore Telecommunications Ltd................. 499
15,000 Straits Trading Co., Ltd......................... 33
63,000 United Industrial Corp. Ltd...................... 48
36,000 United Overseas Bank Ltd. (Foreign).............. 370
24,000 United Overseas Land Ltd......................... 32
--------
3,493
--------
SPAIN (3.0%)
340 Acerinox S.A..................................... 64
4,800 Argentaria S.A................................... 269
7,820 Autopistas Concesionaria Espanola S.A............ 106
8,000 Banco Bilbao Vizcaya (Registered)................ 650
6,100 Banco Central Hispanoamericano S.A............... 223
21,900 Banco Santander S.A.............................. 675
400 Corporacion Financiera Alba S.A.................. 51
849 Corporacion Mapfre S.A........................... 45
1,550 Dragados y Construcciones S.A.................... 32
1,300 Ebro Agricolas, Compania de Alimentacion S.A..... 25
550 Empresa Nacional de Cellulosas S.A............... 10
10,000 Empresa Nacional de Electricidad S.A............. 840
</TABLE>
- --------------
50
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SPAIN (CONT.)
<TABLE>
<C> <S> <C>
317 Energia y Indsutrias Aragonesas.................. $ 2
(a)4,700 Ercros S.A....................................... 5
400 Fomento de Construcciones y Contratas S.A........ 51
1,300 Gas Natural SDG 'E'.............................. 284
(a)200 Gines Navarro Construction Co.................... 4
35,300 Iberdrola S.A.................................... 446
625 Inmobiliaria Metropolitana Vasco Central S.A..... 23
200 Portland Vaderrivas S.A.......................... 16
11,600 Repsol S.A....................................... 491
1,591 Sociedade General de Aguas
de Barcelona S.A............................... 65
(a)44 Sociedade General de Aguas de Barcelona, S.A.
RFD............................................ 2
1,000 Tabacalera S.A. 'A'.............................. 54
34,600 Telefonica de Espana............................. 1,001
8,100 Union Electrica Fenosa S.A....................... 74
2,400 Uralita S.A...................................... 27
1,376 Vallehermoso S.A................................. 37
650 Viscofan Industria Navarra de Envolturas
Celulosicas S.A................................ 15
348 Zardoya-Otis S.A................................. 46
--------
5,633
--------
SWEDEN (1.9%)
19,000 ABB AB 'A'....................................... 267
1,300 AGA AG 'A'....................................... 18
3,000 AGA AG 'B'....................................... 40
36,266 Astra AB 'A'..................................... 675
4,450 Atlas Copco AB 'A'............................... 116
1,700 Electrolux AB 'B'................................ 123
900 Esselte AB 'A'................................... 21
(a)850 Granges AB....................................... 11
5,000 Hennes & Mauritz AB 'B'.......................... 179
100 Scancem AB....................................... 4
2,100 Securitas AB, 'B'................................ 59
2,700 Skandia Group Forsakrings AB..................... 99
12,700 Skandinaviska Enskilda Banken, 'A'............... 137
3,000 Skanska AB, 'B'.................................. 133
3,000 SKF AB 'B'....................................... 78
7,350 Stora Kopparbergs Bergslags Aktiebolag........... 119
4,600 Svenska Cellulosa AB, 'B'........................ 98
5,000 Svenska Handelsbanken 'A'........................ 160
11,300 Swedish Match AB................................. 38
22,100 Telefonaktiebolaget LM Ericsson.................. 870
3,200 Trelleborg AB, 'B'............................... 52
9,400 Volvo AB, 'B'.................................... 252
--------
3,549
--------
SWITZERLAND (2.1%)
180 Adia S.A. (Bearer)............................... 69
60 Alusuisse-Lonza Holding AG (Registered).......... 62
95 BBC Brown Boveri AG (Bearer)..................... 144
1,850 CS Holding AG (Registered)....................... 238
5 Georg Fischer AG (Bearer)........................ 7
65 Holderbank Financiere Glaris AG, 'B' (Bearer).... 61
(a)65 Merkur Holding AG (Registered)................... 14
385 Nestle S.A. (Registered)......................... 508
630 Novartis AG (Registered)......................... 1,007
16 Roche Holding AG (Bearer)........................ 220
69 Roche Holding AG-Genusshein...................... 624
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
145 Schweizerische Rueckversicherungs-Gesellschaft
(Registered)................................... $ 205
55 SMH AG (Bearer).................................. 31
20 Societe Generale de Surveillance Holding S.A.
(Bearer)....................................... 43
40 Sulzer AG (Registered)........................... 34
(a)750 Swiss Bank Corp. (Registered).................... 201
35 SwissAir AG (Registered)......................... 39
205 Union Bank of Switzerland (Bearer)............... 234
200 Union Bank of Switzerland (Registered)........... 46
465 Zuerich Versicherungs-Gesellschaft
(Registered)................................... 185
--------
3,972
--------
UNITED KINGDOM (7.3%)
18,200 Abbey National plc............................... 249
11,665 Argyll Group plc................................. 67
9,100 Arjo Wiggins Appleton plc........................ 27
6,500 Associated British Foods plc..................... 56
22,589 Barclays plc..................................... 448
14,300 Bass plc......................................... 175
40,266 B.A.T Industries plc............................. 360
57,200 BG plc........................................... 210
9,127 BICC plc......................................... 27
16,856 Blue Circle Industries plc....................... 120
9,055 BOC Group plc.................................... 157
14,300 Boots Co. plc.................................... 168
9,100 BPB Industries plc............................... 49
6,468 British Aerospace plc............................ 144
15,628 British Airways plc.............................. 178
74,927 British Petroleum Co. plc........................ 932
20,800 British Sky Broadcasting Group plc............... 152
26,000 British Steel plc................................ 65
75,400 British Telecommunications plc................... 560
54,606 BTR plc.......................................... 187
3,856 Burmah Castrol plc............................... 65
32,462 Cable & Wireless plc............................. 297
14,335 Cadbury Schweppes plc............................ 128
9,360 Caradon plc...................................... 31
(a)57,200 Centrica plc..................................... 70
11,671 Coats Viyella plc................................ 24
9,056 Commercial Union plc............................. 95
6,500 Courtaulds plc................................... 37
1,272 De La Rue plc.................................... 8
37,700 General Electric plc............................. 225
7,767 GKN plc.......................................... 133
41,600 Glaxo Wellcome plc............................... 861
9,090 Granada Group plc................................ 120
28,572 Grand Metropolitan plc........................... 275
15,600 Great Universal Stores plc....................... 158
10,369 Guardian Royal Exchange plc...................... 47
28,600 Guinness plc..................................... 280
(a)7,768 Hanson plc....................................... 39
16,900 Harrisons & Crosfield plc........................ 31
28,570 HSBC Holdings plc................................ 847
11,700 Imperial Chemical Industries plc................. 163
15,613 Ladbroke Group plc............................... 61
10,400 Land Securities plc.............................. 147
10,400 Lasmo plc........................................ 45
15,600 Legal & General Group plc........................ 106
71,500 Lloyds TSB Group plc............................. 735
</TABLE>
-----------------------
51
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
10,418 Lonrho plc....................................... $ 22
45,500 Marks & Spencer plc.............................. 377
7,800 MEPC plc......................................... 64
18,200 National Power plc............................... 158
9,098 North West Water plc............................. 100
10,757 Peninsular & Oriental Steam Navigation Co........ 107
19,478 Pilkington plc................................... 45
26,009 Prudential Corp. plc............................. 254
11,700 Rank Organization plc............................ 74
7,751 Redland plc...................................... 44
18,200 Reed International plc........................... 176
22,100 Reuters Holdings plc............................. 233
7,800 Rexam plc........................................ 33
3,900 RMC Group plc.................................... 63
18,212 Royal & Sun Alliance Insurance Group plc......... 135
6,454 Royal Bank of Scotland plc....................... 60
15,760 RTZ Corp. plc (Registered)....................... 275
20,772 Sainsbury (J) plc................................ 126
2,600 Schroders plc.................................... 71
12,993 Scottish Power plc............................... 84
26,000 Sears plc........................................ 29
8,051 Sedwick Group plc................................ 17
6,500 Slough Estates plc............................... 32
32,448 Smithkline Beecham plc........................... 597
6,476 Southern Electric plc............................ 48
18,185 Tarmac plc....................................... 38
10,354 Taylor Woodrow plc............................... 30
24,742 Tesco plc........................................ 153
9,144 Thames Water plc................................. 105
6,500 Thorn plc........................................ 18
6,517 Thorne EMI plc................................... 117
6,466 TI Group plc..................................... 56
9,100 Unilever plc..................................... 261
42,892 Vodafone Group plc............................... 209
11,700 Zeneca Group plc................................. 387
--------
13,957
--------
UNITED STATES (38.0%)
13,300 Abbott Laboratories.............................. 888
(a)13,000 Airtouch Communications, Inc..................... 356
5,800 Aluminum Co. of America.......................... 437
12,000 American Express Co.............................. 894
10,500 American Home Products Corp...................... 803
11,000 American International Group, Inc................ 1,643
29,500 American Telephone & Telegraph Co................ 1,034
9,300 Amoco Corp....................................... 809
(a)5,800 AMR Corp......................................... 537
(a)3,600 Applied Material, Inc............................ 255
3,100 Atlantic Richfield Co............................ 219
5,800 Automatic Data Processing, Inc................... 273
11,710 Banc One Corp.................................... 567
11,700 BankAmerica Corp................................. 755
1,900 Bankers Trust New York Corp...................... 165
10,800 Bell Atlantic Corp............................... 820
11,700 BellSouth Corp................................... 543
13,220 Boeing Co........................................ 701
14,900 Bristol-Myers Squibb Co.......................... 1,207
4,400 Campbell Soup Co................................. 220
5,800 Caterpillar, Inc................................. 623
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
12,800 Chevron Corp..................................... $ 946
9,700 Chrysler Corp.................................... 318
5,800 Chubb Corp....................................... 388
2,300 CIGNA Corp....................................... 408
(a)10,500 Cisco Systems, Inc............................... 705
9,500 Citicorp......................................... 1,145
44,300 Coca-Cola Co..................................... 2,990
13,600 Columbia HCA/Healthcare Corp..................... 535
11,700 Consolidated Edison Co. of New York, Inc......... 344
5,800 Cooper Industries, Inc........................... 289
5,800 Corning, Inc..................................... 323
4,100 CSX Corp......................................... 228
2,900 Deere & Co....................................... 159
8,600 Dow Chemical Co.................................. 749
(a)2,700 DSC Communications Corp.......................... 60
16,100 Du Pont (EI) de Nemours Co....................... 1,012
11,700 Duke Power Co.................................... 561
4,400 Dun & Bradstreet Corp............................ 116
11,700 Eastman Kodak Co................................. 898
2,200 Edison International............................. 55
9,600 Electronic Data Systems Corp..................... 394
9,048 Eli Lilly & Co................................... 989
7,800 Enron Corp....................................... 318
35,600 Exxon Corp....................................... 2,189
21,300 Federal National Mortgage Association............ 929
8,100 First Data Corp.................................. 356
5,400 Fleet Financial Group, Inc....................... 342
11,700 FPL Group, Inc................................... 539
4,500 Gannett Co., Inc................................. 444
44,300 General Electric Co.............................. 2,896
18,900 General Motors Corp.............................. 1,052
2,100 General RE Corp.................................. 382
5,800 Goodyear Tire & Rubber Co........................ 367
2,300 H&R Block, Inc................................... 74
10,850 H.J. Heinz Co.................................... 501
(a)900 Harrah's Entertainment, Inc...................... 16
17,800 Hewlett-Packard Co............................... 997
11,600 Home Depot, Inc.................................. 800
11,400 Intel Corp....................................... 1,617
11,100 International Business Machines Corp............. 1,001
8,800 International Paper Co........................... 427
6,900 J.C. Penney Co., Inc............................. 360
18,900 Johnson & Johnson................................ 1,217
(a)2,400 Kmart Corp....................................... 29
7,222 Lucent Technologies, Inc......................... 520
14,600 McDonald's Corp.................................. 705
22,100 Merck & Co., Inc................................. 2,287
(a)20,100 Microsoft Corp................................... 2,540
7,900 Minnesota Mining & Manufacturing Co.............. 806
9,000 Mobil Corp....................................... 629
3,500 Monsanto......................................... 151
5,800 Morgan (J.P.) & Co., Inc......................... 605
9,700 Motorola, Inc.................................... 737
11,700 NationsBank Corp................................. 755
4,600 Norfolk Southern Corp............................ 464
12,600 Norwest Corp..................................... 709
(a)7,200 Novell, Inc...................................... 50
2,500 Nucor Corp....................................... 141
(a)15,400 Oracle System Corp............................... 776
9,000 Pacific Gas & Electric Co........................ 218
</TABLE>
- --------------
52
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
11,300 Pfizer, Inc...................................... $ 1,350
12,300 Philip Morris Cos., Inc.......................... 546
3,600 PPG Industries, Inc.............................. 209
13,600 Procter & Gamble Co.............................. 1,921
11,600 Public Service Enterprise Group, Inc............. 290
7,200 Rockwell International Corp...................... 425
3,700 Salomon, Inc..................................... 206
13,243 SBC Communications, Inc.......................... 819
9,300 Schering-Plough Corp............................. 445
11,700 Sears, Roebuck & Co.............................. 629
17,600 Southern Co...................................... 385
10,600 Sprint Corp...................................... 558
5,800 Suntrust Banks, Inc.............................. 319
(a)10,300 Tele-Communications, Inc., 'A'................... 153
5,300 Texas Instruments, Inc........................... 446
11,700 Texas Utilities Co............................... 403
4,374 The Limited, Inc................................. 89
11,800 Time Warner, Inc................................. 569
(a)7,000 Toys `R' Us, Inc................................. 245
9,133 Travelers, Inc................................... 576
5,500 Union Pacific Corp............................... 388
(a)6,600 Viacom, Inc. 'B'................................. 198
33,200 Wal-Mart Stores, Inc............................. 1,123
12,609 Walt Disney Co................................... 1,012
3,400 Warner-Lambert Co................................ 422
1,500 Waste Management Inc............................. 48
1,700 Wells Fargo & Co................................. 458
15,600 Westinghouse Electric Corp....................... 361
6,000 Weyerhaeuser Co.................................. 312
9,000 WMX Technologies, Inc............................ 289
7,100 XEROX Corp....................................... 560
--------
72,061
--------
TOTAL COMMON STOCKS (COST $143,451)............................. 175,239
--------
PREFERRED STOCKS (0.2%)
AUSTRALIA (0.0%)
21,599 News Corp., Ltd.................................. 85
--------
GERMANY (0.2%)
4,150 RWE AG........................................... 145
776 SAP AG........................................... 160
--------
305
--------
ITALY (0.0%)
31,500 Fiat S.p.A....................................... 58
--------
UNITED STATES (0.0%)
(a)141 Aetna Life & Casualty 'C'........................ 13
--------
TOTAL PREFERRED STOCKS (COST $410).............................. 461
--------
INVESTMENT COMPANIES (5.1%)
UNITED STATES (5.1%)
(a,g)100,000 Morgan Stanley India Investment Fund, Inc........ 1,294
(g)70,000 Morgan Stanley Africa Investment Fund, Inc....... 1,251
(g)224,333 Morgan Stanley Asia-Pacific Fund, Inc............ 2,355
92,664 The Korea Fund, Inc.............................. 1,367
(g)95,900 The Latin American Discovery Fund, Inc........... 1,894
(g)92,853 The Thai Fund, Inc............................... 1,428
--------
TOTAL INVESTMENT COMPANIES (COST $9,653)........................ 9,589
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<C> <S> <C>
- --------------------------------------------------------------------------
RIGHTS (0.0%)
FRANCE (0.0%)
(a,d)30 Simco S.A., expiring 7/2/97...................... $ --
--------
ITALY (0.0%)
(a)4,565 Rinascente S.p.A., expiring 7/23/97.............. 1
--------
KOREA (0.0%)
(a,d)31 Samsung Electronics Co., expiring 7/1/97......... 2
--------
SPAIN (0.0%)
(a,d)625 Immobiliaria Metropolitana Vasco Central S.A.,
expiring 7/26/97............................... --
--------
SWITZERLAND (0.0%)
(a)40 Sulzer AG (Resistered), expiring 7/17/97......... --
--------
TOTAL RIGHTS (COST $0).......................................... 3
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)320 Casino Guichard Perrachon, expiring 12/31/99..... 5
(a)2,073 Compagnie Generale des Eaux, expiring 5/2/01..... 1
(a)5 Sodexho S.A., expiring 6/7/04.................... 1
--------
7
--------
HONG KONG (0.0%)
(a)2,000 Applied International Holdings Ltd., expiring
12/30/99....................................... --
(a)4,000 Hong Kong Shanghai Hotels, expiring 10/12/98..... 1
(a)1,400 Hysan Development Co., expiring 4/30/98.......... 1
(a)5,300 Oriental Press Group, expiring 10/2/98........... --
(a)1,230 Peregine Investment Holdings Ltd., expiring
5/15/98........................................ 1
(a)4,400 Stelux Holdings International Ltd., expiring
2/28/98........................................ --
--------
3
--------
ITALY (0.0%)
(a,d)578 La Rinascente S.p.A., expiring 12/31/99.......... --
(a)420 R.A.S. S.p.A. (Savings Shares), expiring
12/31/97....................................... 1
(a)880 R.A.S. S.p.A., expiring 12/31/97................. 2
--------
3
--------
SINGAPORE (0.0%)
(a)6,750 Keppel Land Ltd., expiring 12/12/00.............. 6
--------
SWITZERLAND (0.0%)
(a)45 Roche Holdings, expiring 5/5/98.................. 3
--------
TOTAL WARRANTS (COST $5)........................................ 22
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ------------
UNITS (0.0%)
AUSTRALIA (0.0%)
(a)18,212 Westfield Trust (COST $31)....................... 37
--------
</TABLE>
-----------------------
53
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
FRF 32 Casino Guichard Perrachon 4.50%, 7/12/01......... $ 16
29 Sanofi S.A. 4.00%, 1/1/00........................ 31
1 Sodexho S.A. 6.00%, 6/7/04....................... 4
--------
51
--------
ITALY (0.0%)
ITL 2,125 Mediobanca S.p.A. 6.00%, 12/31/02................ 1
--------
TOTAL CONVERTIBLE DEBENTURES (COST $38)......................... 52
--------
TOTAL FOREIGN & U.S. SECURITIES (97.6%) (COST $153,588)......... 185,403
--------
SHORT-TERM INVESTMENT (4.7%)
REPURCHASE AGREEMENT (4.7%)
UNITED STATES
$ 8,897 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $8,898,
collateralized by $9,420 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $9,050 (COST
$8,897)........................................ 8,897
--------
TOTAL INVESTMENT IN SECURITIES (102.3%) (COST $162,485)......... 194,300
--------
FOREIGN CURRENCY (0.3%)
AUD 18 Australian Dollar................................ 14
ATS 4 Austrian Schilling............................... --
GBP 8 British Pound.................................... 13
CAD 67 Canadian Dollar.................................. 48
DEM 82 Deutsche Mark.................................... 47
FRF 540 French Franc..................................... 92
HKD 213 Hong Kong Dollar................................. 27
INR 98,939 Indonesian Rupiah................................ 41
ITL 362 Italian Lira..................................... --
JPY 8,611 Japanese Yen..................................... 75
NLG 65 Netherlands Guilder.............................. 33
SGD 12 Singapore Dollar................................. 8
KRW 18,262 South Korean Won................................. 21
SEK 329 Swedish Krona.................................... 43
CHF 46 Swiss Franc...................................... 32
--------
TOTAL FOREIGN CURRENCY (COST $498).............................. 494
--------
TOTAL INVESTMENTS (102.6%) (COST $162,983)...................... 194,794
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.6%)................... (4,929)
--------
NET ASSETS (100%)............................................... $189,865
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(g) -- The Fund is advised by an affiliate.
ADR -- American Depositary Receipt.
NCS -- Non Convertible Shares.
RFD -- Ranked for Dividend.
- --------------
54
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL EQUITY ALLOCATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE NET UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- ---------- ------- ---------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 9 $ 9 7/1/97 ESP 1,393 $ 10 $ 1
JPY 3,492 31 7/1/97 $ 30 30 (1)
$ 1,886 1,886 7/2/97 ITL 3,174,993 1,868 (18)
$ 1,879 1,879 7/3/97 CAD 2,593 1,878 (1)
$ 2,241 2,241 7/30/97 DEM 3,861 2,220 (21)
DEM 1,931 1,110 7/30/97 $ 1,150 1,150 40
DEM 1,930 1,109 7/30/97 $ 1,150 1,150 41
$ 400 400 8/18/97 NLG 773 395 (5)
$ 890 890 8/18/97 CHF 1,238 853 (37)
$ 1,478 1,478 8/18/97 CHF 2,113 1,456 (22)
CHF 3,350 2,308 8/18/97 $ 2,358 2,358 50
NLG 2,206 1,129 8/18/97 $ 1,162 1,162 33
$ 7,077 7,077 8/25/97 JPY 803,534 7,072 (5)
JPY 803,534 7,072 8/25/97 $ 7,200 7,200 128
$ 2,193 2,193 8/29/97 DEM 3,764 2,169 (24)
DEM 3,764 2,168 8/29/97 $ 2,198 2,198 30
$ 1,770 1,770 9/15/97 FRF 10,246 1,753 (17)
FRF 21,933 3,753 9/15/97 $ 3,870 3,870 117
ESP 203,563 1,384 9/26/97 $ 1,400 1,400 16
------- ------- -----
$39,887 $40,192 $305
------- ------- -----
------- ------- -----
</TABLE>
- ---------------
CAD -- Canadian Dollar
DEM -- Deutsche Mark
FRF -- French Franc
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherlands Guilder
ESP -- Spanish Peseta
CHF -- Swiss Franc
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Consumer Goods............................................................... $ 40,454 21.3%
Finance...................................................................... 37,011 19.4
Services..................................................................... 32,912 17.3
Capital Equipment............................................................ 28,015 14.8
Energy....................................................................... 18,745 9.9
Materials.................................................................... 13,023 6.9
Investment Companies......................................................... 9,589 5.1
Multi-Industry............................................................... 4,989 2.6
Gold Mines................................................................... 665 0.3
--------- ---
$ 185,403 97.6%
--------- ---
--------- ---
</TABLE>
-----------------------
55
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
FIXED INCOME SECURITIES (90.4%)
AUSTRALIAN DOLLAR (1.2%)
GOVERNMENT BOND
AUD 150 Government of Australia 9.75%, 3/15/02........... $ 128
-------
BRITISH POUND (7.2%)
GOVERNMENT BOND
GBP 400 United Kingdom 9.50%, 4/18/05.................... 760
-------
CANADIAN DOLLAR (2.7%)
GOVERNMENT BONDS
CAD 300 Government of Canada 7.50%, 3/1/01............... 232
60 Government of Canada 9.75%, 6/1/21............... 58
-------
TOTAL CANADIAN DOLLAR........................................ 290
-------
DANISH KRONE (2.4%)
GOVERNMENT BOND
DKK 1,500 Kingdom of Denmark 8.00%, 5/15/03................ 256
-------
DEUTSCHE MARK (16.5%)
CORPORATE BONDS
DEM 150 KFW International Finance, Inc. 7.50%, 1/24/00... 93
650 Landeskreditbank Baden-Wuerttemberg Financial
6.63%, 8/20/03................................. 402
-------
495
-------
GOVERNMENT BONDS
1,300 Bundesobligation 7.00%, 1/13/00.................. 803
100 Deutschland Republic 6.25%, 1/4/24............... 56
590 Treuhandanstalt 7.50%, 9/9/04.................... 383
-------
1,242
-------
TOTAL DEUTSCHE MARK.......................................... 1,737
-------
IRISH PUNT (1.1%)
GOVERNMENT BOND
IEP 70 Government of Ireland 8.00%, 8/18/06............. 116
-------
ITALIAN LIRA (5.2%)
GOVERNMENT BONDS
ITL 380,000 Buoni Poliennali Del Tes 10.50%, 7/15/00......... 250
60,000 Buoni Poliennali Del Tes 10.00%, 8/1/03.......... 41
150,000 Buoni Poliennali Del Tes 9.50%, 1/1/05........... 102
230,000 Buoni Poliennali Del Tes 9.50%, 2/1/06........... 158
-------
TOTAL ITALIAN LIRA........................................... 551
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
JAPANESE YEN (11.9%)
EUROBONDS
JPY 15,000 European Investment Bank 6.63%, 3/15/00.......... $ 150
30,000 European Investment Bank 3.00%, 9/20/06.......... 273
25,000 Export Import Bank of Japan 4.38%, 10/1/03....... 246
27,000 Japan Development Bank 6.50%, 9/20/01............ 282
30,000 World Bank 4.75%, 12/20/04....................... 306
-------
TOTAL JAPANESE YEN........................................... 1,257
-------
SPANISH PESETA (3.4%)
GOVERNMENT BOND
ESP 50,000 Government of Spain 8.30%, 12/15/98.............. 354
-------
SWEDISH KRONA (7.9%)
GOVERNMENT BONDS
SEK 3,100 Government of Sweden 13.00%, 6/15/01............. 506
2,600 Government of Sweden 6.00%, 2/9/05............... 329
-------
TOTAL SWEDISH KRONA.......................................... 835
-------
UNITED STATES DOLLAR (30.9%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (30.9%)
U.S. TREASURY BONDS
$ 665 8.13%, 8/15/19................................... 758
40 7.63%, 2/15/25................................... 44
-------
802
-------
U.S. TREASURY NOTES
615 5.13%, 11/30/98.................................. 608
250 6.25%, 10/31/01.................................. 249
1,538 7.25%, 5/15/04................................... 1,603
-------
2,460
-------
TOTAL UNITED STATES DOLLAR................................... 3,262
-------
TOTAL FIXED INCOME SECURITIES (COST $9,641).................... 9,546
-------
FOREIGN CURRENCY (0.0%)
DEM 4 Deutsche Mark.................................... 2
ESP 193 Spanish Peseta................................... 1
-------
TOTAL FOREIGN CURRENCY (COST $3)............................... 3
-------
TOTAL INVESTMENTS (90.4%) (COST $9,644)........................ 9,549
OTHER ASSETS IN EXCESS OF LIABILITIES (9.6%)................... 1,019
-------
NET ASSETS (100%).............................................. $10,568
-------
-------
</TABLE>
- --------------
56
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
DEM 718 $ 412 7/11/97 $ 415 $ 415 $ 3
ITL 180,000 106 7/11/97 $ 106 106 --
JPY 36,250 317 7/11/97 $ 317 317 --
JPY 48,923 428 7/11/97 $ 425 425 (3)
$ 106 106 7/11/97 ITL 180,000 106 --
$ 210 210 7/11/97 JPY 23,981 209 (1)
$ 328 328 7/11/97 JPY 36,250 317 (11)
$ 425 425 7/11/97 DEM 718 412 (13)
DEM 550 316 7/18/97 $ 318 318 2
ITL 175,000 103 7/18/97 $ 104 104 1
$ 103 103 7/18/97 ITL 175,000 103 --
$ 319 319 7/18/97 DEM 550 316 (3)
GBP 32 53 7/25/97 $ 53 53 --
IEP 80 121 7/25/97 $ 121 121 --
SEK 4,550 589 7/25/97 $ 593 593 4
--------- --------- ---
$ 3,936 $ 3,915 $ (21)
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
GBP -- British Pound
DEM -- Deutsche Mark
IEP -- Irish Punt
ITL -- Italian Lira
JPY -- Japanese Yen
SEK -- Swedish Krona
-----------------------
57
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (96.1%)
CHINA (1.1%)
2,048,000 Guangshen Railway Co., Ltd. 'H'.................. $ 899
3,105,000 Qingling Motors Co., 'H'......................... 1,603
147,000 Shenzhen Fangda Co., Ltd. 'B'.................... 213
(a)5,268,000 Zhejiang Expressway Co., Ltd. 'H'................ 1,278
--------
3,993
--------
HONG KONG (34.9%)
2,270,000 Cheung Kong Holdings Ltd......................... 22,415
432,000 China Merchants Holdings International Co.,
Ltd............................................ 1,344
3,068,000 China Resources Enterprises Ltd.................. 15,048
360,000 Dao Heng Bank Group Ltd.......................... 1,970
433,300 Hang Seng Bank Ltd............................... 6,180
1,517,000 Henderson Land Development Co., Ltd.............. 13,462
651,424 HSBC Holdings plc................................ 19,592
1,826,000 Hutchison Whampoa Ltd............................ 15,792
1,130,000 New World Development Co., Ltd................... 6,739
1,103,000 Ng Fung Hong Ltd................................. 1,651
1,831,000 Shanghai Industrial Holdings Ltd................. 11,392
613,100 Sun Hung Kai Properties Ltd...................... 7,379
--------
122,964
--------
INDONESIA (6.9%)
(a)1,271,000 Astra International (Foreign).................... 5,226
(a,d)3,226,697 Bank International Indonesia (Foreign)........... 2,786
(d)4,194,000 Bank Negara Indonesia (Foreign).................. 2,673
(d)788,000 Bimantara Citra (Foreign)........................ 1,377
(d)419,000 Gudang Garam (Foreign)........................... 1,757
(d)434,700 Hanjaya Mandala Sampoerna (Foreign).............. 1,658
(a,d)1,168,800 Indofood Sukses Makmur (Foreign)................. 2,692
(d)1,263,000 Matahari Putra Prima (Foreign)................... 2,545
(d)1,433,000 Mayora Indah (Foreign)........................... 810
(a,d)478,000 Putra Surya Multidana (Foreign).................. 762
(d)1,307,500 Telekomunikasi (Foreign)......................... 2,137
--------
24,423
--------
KOREA (7.6%)
(a)54,170 Hansol Paper Co.................................. 1,373
(d)114,420 Housing & Commercial Bank (Foreign).............. 2,136
(a)86,079 Kookmin Bank GDR................................. 1,818
(a,d)80,085 Kookmin Bank..................................... 1,477
111,720 Korea Electric Power............................. 3,334
23,980 LG Information & Communication (Foreign)......... 2,970
(d)35,362 Pohang Iron & Steel Ltd. (Foreign)............... 3,622
(d)58,419 Samsung Electronics Co. (Foreign)................ 6,540
(a,e)22,895 Samsung Electronics Co. GDR (New)................ 1,357
(d)136,257 Shinhan Bank Co., Ltd............................ 1,975
--------
26,602
--------
MALAYSIA (15.3%)
303,000 Arab Malaysian Corporation Bhd................... 1,129
3,292,000 Berjaya Group Bhd................................ 4,043
(a)255,000 Berjaya Sports Toto Bhd.......................... 1,202
1,201,000 Commerce Asset Holdings Bhd...................... 3,164
223,000 Dialog Group Bhd................................. 3,225
377,000 Edaran Otomobil Nasional Bhd..................... 3,211
665,400 Genting Bhd...................................... 3,190
880,000 IJM Corp. Bhd.................................... 1,848
521,000 Jaya Tiasa Holdings Bhd.......................... 2,622
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
850,000 Leader Universal Holdings Bhd.................... $ 1,529
(a)62,000 Lityan Bhd....................................... 755
412,500 Malayan Banking Bhd.............................. 4,331
105,000 Malaysian International Shipping (Foreign)....... 273
(a)285,000 Malaysian Pacific Industries Bhd................. 1,242
323,000 Malaysian Resources Corp. Bhd.................... 889
742,000 Multi-Purpose Holdings Bhd....................... 1,041
580,000 Rashid Hussain Bhd............................... 3,677
1,391,000 Resorts World Bhd................................ 4,189
2,696,000 Sime Darby Bhd................................... 8,972
494,000 United Engineers Bhd............................. 3,562
--------
54,094
--------
PHILIPPINES (3.9%)
4,914,296 Ayala Land, Inc. 'B'............................. 4,518
(a)15,431,000 Digital Telecommunications Philippines, Inc...... 1,492
(a)5,118,400 DMCI Holdings, Inc............................... 1,688
(a)2,775,000 Fil-Estate Land, Inc............................. 810
3,048,200 JG Summit Holding 'B'............................ 624
529,365 Manila Electric 'B'.............................. 2,609
7,107,180 SM Prime Holdings, Inc........................... 2,102
--------
13,843
--------
SINGAPORE (11.7%)
239,500 Development Bank of Singapore (Foreign).......... 3,015
574,000 Electronic Resources Ltd......................... 903
431,000 Jurong Shipyard Ltd.............................. 1,869
2,712,000 NatSteel Ltd..................................... 6,905
313,238 Oversea-Chinese Banking Corp. (Foreign).......... 3,243
(a)889,000 Pacific Century Regional Development............. 1,237
642,000 Parkway Holdings Ltd............................. 2,874
415,400 Singapore Press Holdings (Foreign)............... 8,368
2,258,000 SM Summit Holdings Ltd........................... 1,706
(a)1,015,000 Super Coffeemix Manufacturing Ltd................ 845
282,000 United Overseas Bank Ltd. (Foreign).............. 2,900
(a)1,317,600 Want Want Holdings............................... 4,374
1,087,000 Wing Tai Holdings Ltd............................ 3,132
--------
41,371
--------
TAIWAN (11.4%)
(a)1,300,000 Acer, Inc........................................ 4,676
(a)522,000 Asustek Computer, Inc............................ 6,910
(a)288,600 Cathay Life Insurance Co., Ltd................... 1,651
(a)1,005,000 China Development Corp........................... 5,188
851,850 China Steel Corp................................. 901
(a)1,888,900 Compal Electronics, Inc.......................... 7,474
2,578,000 Far Eastern Textile, Ltd......................... 4,052
1,264,400 Formosa Plastics Corp............................ 3,047
1,000,000 Great Wall Enterprises Co........................ 791
(a)701,500 Kuoyang Construction............................. 1,691
1,120,000 Siliconware Precision Industries Co.............. 3,787
--------
40,168
--------
THAILAND (3.3%)
454,300 Bangkok Bank Co., Ltd. (Foreign)................. 3,122
197,000 Big C Supercenter Co., Ltd....................... 62
302,700 Eastern Water Resources Development.............. 351
61,000 ICC International Co., PCL (Foreign)............. 191
5,800 International Cosmetics (Foreign)................ 19
27,000 Matichon Public Co., Ltd......................... 63
</TABLE>
- -----------------------
58
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
THAILAND (CONT.)
(d)219,000 Nation Multimedia Group Public Co., Ltd.
(Foreign)...................................... $ 465
(d)983,000 National Petrochemical Co., Ltd. (Foreign)....... 1,006
44,000 Quality House Co., Ltd. (Foreign)................ 16
267,000 Quality House Co., Ltd........................... 91
93,000 Robinson Department Store Co., Ltd. (Foreign).... 33
539,600 Siam Commercial Bank Co., Ltd. (Foreign)......... 2,208
(a,d)22,000 Sino Thai Engineering & Construction Co., Ltd.
(Foreign)...................................... 61
(a)42,000 Sino Thai Engineering & Construction Co., Ltd.... 117
546,000 Thai Farmer's Bank Public Co. (Foreign).......... 2,318
41,000 Thai Rung Union Car Co., Ltd..................... 148
(d)69,100 Thai Rung Union Car Co., Ltd. (Foreign).......... 249
35,000 Thai Storage Battery Co., Ltd. (Foreign)......... 35
174,900 Thai Theparos Food Product Co., Ltd. (Foreign)... 270
(d)149,000 United Communication Industry (Foreign).......... 615
--------
11,440
--------
TOTAL COMMON STOCKS (COST $303,930)................................ 338,898
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ---------------
RIGHTS (0.1%)
MALAYSIA (0.0%)
(a)239,200 Commerce Asset Holdings Bhd., expiring
7/23/97........................................ 8
(a,d)82,857 Rashid Hussain Bhd., expiring 12/31/02........... --
--------
8
--------
SINGAPORE (0.1%)
(a,d)287,000 Electronic Resources Ltd., expiring 7/21/97...... 191
--------
TOTAL RIGHTS (COST $0)............................................. 199
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ---------------
WARRANTS (0.0%)
INDONESIA (0.0%)
(a)286,818 PT Bank International Indonesia, expiring
1/17/00........................................ 112
--------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
MALAYSIA (0.0%)
(a,d)149,500 Commerce Asset Holdings Bhd., expiring 6/27/98... $ 23
--------
TOTAL WARRANTS (COST $0)........................................... 135
--------
TOTAL FOREIGN SECURITIES (96.2%) (COST $303,930)................... 339,232
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ---------------
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT
$ 15,266 Chase Securities, Inc., 5.70%, dated
6/30/97, due 7/1/97, to be repurchased at
$15,268, collateralized by $16,160 U.S.
Treasury Bonds, 5.625%, due 2/15/06, valued at
$15,527 (COST $15,266)......................... 15,266
--------
TOTAL INVESTMENTS IN SECURITIES (100.5%) (COST $319,196)........... 354,498
--------
FOREIGN CURRENCY (0.9%)
HKD 15,383 Hong Kong Dollar................................. 1,986
IDR 889,930 Indonesian Rupiah................................ 366
MYR 904 Malaysian Ringgit................................ 358
PHP 1,403 Philippine Peso.................................. 53
SGD 19 Singapore Dollar................................. 13
KRW 391,442 South Korean Won................................. 441
--------
TOTAL FOREIGN CURRENCY (COST $3,217)............................... 3,217
--------
TOTAL INVESTMENTS (101.4%) (COST $322,413)......................... 357,715
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.4%)...................... (5,029)
--------
NET ASSETS (100%).................................................. $352,686
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
GDR -- Global Depositary Receipt.
-----------------------
59
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
ASIAN GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------- --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1,542 $ 1,542 7/1/97 SGD 2,206 $ 1,542 $ --
$ 363 363 7/2/97 IDR 882,845 363 --
$ 91 91 7/2/97 THB 2365 91 --
THB 319,450 12,110 8/18/97 $ 12,032 12,032 (78)
--------- --------- ---
$ 14,106 $ 14,028 $ (78)
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------
IDR -- Indonesian Rupiah
SGD -- Singapore Dollar
THB -- Thai Baht
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Finance................................. $136,255 38.6%
Multi-Industry.......................... 52,458 14.9
Capital Equipment....................... 38,279 10.9
Consumer Goods.......................... 34,897 9.9
Services................................ 28,956 8.2
Energy.................................. 26,415 7.5
Materials............................... 21,972 6.2
-------- ---
$339,232 96.2%
-------- ---
-------- ---
</TABLE>
- -----------------------
60
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------
COMMON STOCKS (99.0%)
AEROSPACE (1.3%)
(a)3,500 Coltec Industries, Inc........................... $ 68
(a)7,400 Doncasters plc ADR............................... 171
10,300 Thiokol Corp..................................... 721
2,700 Triumph Group, Inc............................... 84
-------
1,044
-------
BANKING (9.2%)
4,800 AmSouth Bancorp.................................. 182
6,100 Astoria Financial Corp........................... 290
8,200 Comerica, Inc.................................... 558
13,600 Community First Bankshares, Inc.................. 522
14,400 First Hawaiian, Inc.............................. 491
9,200 Greenpoint Financial Corp........................ 612
4,600 MAF Bancorp, Inc................................. 193
13,200 National Commerce Bancorp........................ 290
22,800 North Fork Bancorp., Inc......................... 487
9,300 ONBANCorp, Inc................................... 474
7,919 Peoples Heritage Financial Group, Inc............ 300
14,300 Southtrust Corp.................................. 592
9,600 Summit Bancorp................................... 481
21,500 Trustmark Corp................................... 602
14,800 Union Planters Corp.............................. 768
5,700 UnionBanCal Corp................................. 410
6,500 Wilmington Trust Corp............................ 297
-------
7,549
-------
BUILDING (2.3%)
13,200 Ameron, Inc...................................... 747
10,900 Champion Enterprises, Inc........................ 164
4,300 City National Corp............................... 103
5,600 JLG Industries, Inc.............................. 76
9,300 Southdown, Inc................................... 406
(a)10,700 USG Corp......................................... 391
-------
1,887
-------
CAPITAL GOODS (2.9%)
19,100 Crane Co......................................... 799
18,600 Danka Business Systems plc....................... 760
7,900 Tecumseh Products 'A'............................ 473
(a)7,800 Tower Automotive, Inc............................ 335
-------
2,367
-------
CHEMICALS (2.7%)
26,000 Crompton & Knowles Corp.......................... 579
16,500 Dexter Corp...................................... 528
6,400 Fuller (H.B.) Co................................. 352
17,400 Quaker Chemical Corp............................. 302
12,000 Witco Corp....................................... 455
-------
2,216
-------
COMMUNICATIONS (1.0%)
(a)1,400 ADC Telecom, Inc................................. 47
(a)15,100 General Cable Corp............................... 387
(a)8,700 Hirsch International Corp. 'A'................... 194
10,600 Nextel Communications Inc. 'A'................... 201
-------
829
-------
COMPUTERS (3.9%)
(a)3,300 BMC Software, Inc................................ 183
(a)12,200 Cadence Design Systems, Inc...................... 409
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------
(a)8,500 Ceridian Corp.................................... $ 359
(a)18,600 Gateway 2000, Inc................................ 603
(a)5,400 InaCom Corp...................................... 168
(a)26,500 Overland Data, Inc............................... 143
(a)9,300 Seagate Technology, Inc.......................... 327
(a)12,400 Tech Data Corp................................... 390
(a)18,700 Western Digital Corp............................. 591
-------
3,173
-------
CONSUMER--DURABLES (6.1%)
14,100 A.O. Smith Corp. 'B'............................. 501
24,400 Arvin Industries, Inc............................ 665
5,700 Callaway Golf Co................................. 202
(a)11,100 Furniture Brands International, Inc.............. 215
26,700 Guilford Mills, Inc.............................. 556
33,000 Herman Miller, Inc............................... 1,188
13,200 Interface, Inc................................... 292
(a)13,700 Lear Corp........................................ 608
7,700 MascoTech, Inc................................... 161
19,000 Stanhome, Inc.................................... 625
-------
5,013
-------
CONSUMER--RETAIL (9.5%)
6,800 Brylane, Inc..................................... 262
23,000 CVS Corp......................................... 1,179
6,900 Dean Foods Co.................................... 279
(a)2,900 Designer Holdings Ltd............................ 30
8,800 Family Dollar Stores, Inc........................ 240
(a)4,100 Fred Meyer, Inc.................................. 212
18,600 Hughes Supply, Inc............................... 744
2,300 Jostens, Inc..................................... 62
(a)15,300 Office Depot, Inc................................ 297
22,700 Pier 1 Imports, Inc.............................. 602
5,300 Polo Ralph Lauren Corp........................... 145
13,600 Richfood Holdings, Inc........................... 354
22,200 Ross Stores, Inc................................. 726
10,300 Springs Industries, Inc. 'A'..................... 543
31,600 TJX Companies, Inc............................... 833
(a)7,600 Valassis Communications, Inc..................... 182
8,100 VF Corp.......................................... 686
(a)21,000 Zale Corp........................................ 416
-------
7,792
-------
CONSUMER--SERVICE & GROWTH (0.4%)
4,800 Hertz Corp. 'A'.................................. 173
(a)7,000 Renters Choice, Inc.............................. 139
-------
312
-------
CONSUMER--STAPLES (3.3%)
(a)11,300 Boston Chicken, Inc.............................. 158
6,700 Consolidated Cigar Holdings, Inc................. 186
24,000 DIMON, Inc....................................... 636
3,300 Interstate Bakeries Corp......................... 196
(a)16,000 Standard Commercial Corp......................... 278
19,400 Tyson Foods, Inc. 'A'............................ 371
28,600 Universal Corp................................... 908
-------
2,733
-------
ENERGY (9.5%)
5,400 Apache Corp...................................... 176
1,800 Black Hills Corp................................. 51
</TABLE>
-----------------------
61
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<C> <S> <C>
ENERGY (CONT.)
(a)5,200 Cooper Cameron Corp.............................. $ 243
(a)5,300 Diamond Offshore Drilling, Inc................... 414
10,500 Eastern Enterprises.............................. 364
(a)19,400 ENSCO International Inc.......................... 1,023
16,200 National Fuel Gas Co............................. 679
14,700 Nicor, Inc....................................... 527
(a)40,100 Noble Drilling Corp.............................. 905
16,300 Oneok, Inc....................................... 525
10,000 Parker & Parsley Petroleum Co.................... 354
12,000 Santa Fe International Corp...................... 408
6,300 Sun Co., Inc..................................... 195
7,500 Transocean Offshore, Inc......................... 545
(a)5,800 Tuboscope Vetco International Corp............... 115
8,900 Ultramar Diamond Shamrock Corp................... 290
9,000 Union Texas Petroleum Holdings, Inc.............. 188
(a)6,100 Varco International, Inc......................... 197
14,000 Washington Gas Light Co.......................... 352
(a)4,800 Weatherford Enterra, Inc......................... 185
-------
7,736
-------
ENTERTAINMENT (0.3%)
(a)9,300 Imax Corp........................................ 230
-------
FINANCIAL--DIVERSIFIED (9.4%)
9,500 Bear Stearns Companies, Inc...................... 325
10,500 Capital One Financial Corp....................... 396
13,125 Equity Residential Properties Trust.............. 624
25,600 Everen Capital Corp.............................. 798
3,700 Duke Realty Investment, Inc. REIT................ 150
6,900 FINOVA Group, Inc................................ 528
12,900 First Financial Corp. (Wisconsin)................ 379
20,700 Franklin Resources, Inc.......................... 1,502
11,600 GATX Corp........................................ 670
6,800 Hartford Life, Inc. 'A'.......................... 255
(a)3,100 HealthCare Financial Partners, Inc............... 63
8,000 Kilroy Realty Corp. REIT......................... 202
21,000 Nationwide Financial Services, Inc. 'A'.......... 558
5,000 Paine Webber Group, Inc.......................... 175
3,400 Post Properties, Inc............................. 138
5,100 Torchmark Corp................................... 363
17,600 United Asset Management Co....................... 498
5,250 Wellsford Real Properties Inc.................... 58
-------
7,682
-------
HEALTH CARE (8.7%)
22,500 Beckman Instruments, Inc......................... 1,086
17,500 Bergen Brunswig Corp. 'A'........................ 488
(a)7,300 Biogen, Inc...................................... 247
13,514 Block Drug Co. 'A'............................... 591
(a)8,800 Coherent, Inc.................................... 392
(a)29,200 FPA Medical Management, Inc...................... 692
(a)5,700 Health Care & Retirement Corp.................... 190
11,100 Kinetic Concepts, Inc............................ 200
(a)7,700 Marquette Medical Systems........................ 169
(a)29,200 Nellcor Puritan Bennett, Inc..................... 529
(a)2,600 RoTech Medical Corp.............................. 52
42,300 Sullivan Dental Products, Inc.................... 772
13,600 Universal Health Services, Inc................... 524
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------
(a)8,500 Vencor, Inc...................................... $ 359
(a)18,400 Wellpoint Health Networks, Inc................... 844
-------
7,135
-------
INDUSTRIAL (2.0%)
6,900 AGCO Corp........................................ 248
19,500 Barnes Group, Inc................................ 578
9,000 PACCAR, Inc...................................... 418
(a)7,800 Precision Drilling Corp.......................... 377
-------
1,621
-------
INSURANCE (1.3%)
6,700 Progressive Corp................................. 583
16,600 Reliance Group Holdings, Inc..................... 197
11,900 Western National Corp............................ 319
-------
1,099
-------
METALS (1.7%)
31,500 Birmingham Steel Corp............................ 488
10,300 Cleveland-Cliffs Iron Co......................... 420
8,800 Precision Castparts Corp......................... 525
-------
1,433
-------
PAPER & PACKAGING (2.8%)
16,500 Ball Corp........................................ 496
(a)14,200 Owens-Illinois, Inc.............................. 440
27,500 P.H. Glatfelter Co............................... 550
10,900 Potlatch Corp.................................... 493
8,700 Schweitzer-Mauduit International, Inc............ 327
-------
2,306
-------
SERVICES (11.5%)
(a)42,100 AccuStaff, Inc................................... 997
18,200 Angelica Corp.................................... 319
(a)14,700 BJ Services Co................................... 788
20,300 Bowne & Co....................................... 708
(a)25,400 CDI Corp......................................... 1,059
(a)5,300 Data Processing Resources Corp................... 124
(a)19,000 Fiserv, Inc...................................... 848
32,000 Journal Register Co.............................. 636
22,100 New England Business Services, Inc............... 582
26,800 Ogden Corp....................................... 583
13,600 McClatchy Newspapers, Inc........................ 399
3,300 New York Times Co., 'A'.......................... 163
27,000 Russ Berrie & Co., Inc........................... 592
(a)13,100 TETRA Technologies, Inc.......................... 324
(a)15,000 Tracor, Inc...................................... 377
14,300 True North Communications, Inc................... 354
(a)11,000 USA Waste Services, Inc.......................... 425
400 Washington Post Co. 'B'.......................... 159
-------
9,437
-------
TECHNOLOGY (5.6%)
8,100 Adobe Systems, Inc............................... 284
(a)10,600 Altera Corp...................................... 535
8,600 Dallas Semiconductor Corp........................ 338
(a)9,100 ESS Technology, Inc.............................. 122
(a)20,700 HMT Technology Corp.............................. 268
20,400 National Computer Systems, Inc................... 543
16,000 Park Electrochemical Corp........................ 421
21,800 Penn Engineering & Manufacturing Corp............ 428
(a)5,400 Solectron Corp................................... 378
</TABLE>
- --------------
62
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AMERICAN VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY (CONT.)
(a)17,400 Symantec Corp.................................... $ 339
7,500 Tektronix, Inc................................... 450
(a)8,600 Teradyne, Inc.................................... 338
6,200 Vishay Intertechnology, Inc...................... 179
-------
4,623
-------
TRANSPORTATION (2.5%)
20,000 Air Express International Corp................... 795
10,900 Airborne Freight Corp............................ 456
10,000 Arnold Industries, Inc........................... 170
(a)10,100 Offshore Logistics, Inc.......................... 191
(a)50,000 OMI Corp......................................... 478
-------
2,090
-------
UTILITIES (1.1%)
6,300 Public Service Co. (Colorado).................... 261
5,300 SJW Corp......................................... 278
19,600 Washington Water Power Co........................ 385
-------
924
-------
TOTAL COMMON STOCKS (COST $68,529)........................... 81,231
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT (3.0%)
$ 2,523 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $2,523,
collateralized by $2,675 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $2,570 (COST
$2,523)........................................ $ 2,523
-------
TOTAL INVESTMENTS (102.0%) (COST $71,052).................... 83,754
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.0%)................ (1,667)
-------
NET ASSETS (100%)............................................ $82,087
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing.
ADR -- American Depositary Receipt
REIT -- Real Estate Investment Trust.
-----------------------
63
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
FIXED INCOME SECURITIES (86.7%)
CORPORATE BONDS & NOTES (32.2%)
ARGENTINA(0.8%)
$ 1,500 Impsa S.A. 11.75%, 3/27/98....................... $ 1,559
--------
BRAZIL (2.4%)
(e)4,800 Banco Do Brasil 9.375%, 6/15/07.................. 4,788
--------
CANADA (0.7%)
100 Rogers Cablesystems, 10.125%, 9/1/12............. 107
865 Rogers Cablesystems, Series B, 10.00%, 3/15/05... 936
250 Rogers Communications, Inc. 9.125%,
1/15/06........................................ 252
--------
1,295
--------
COLOMBIA (0.5%)
(n)1,225 Occidente Y Caribe 0.00%, 3/15/04................ 909
--------
ECUADOR (1.6%)
(e)3,000 Consorcio Ecuadoriano 14.00%, 5/1/02............. 3,188
--------
JAMAICA (1.1%)
2,000 Mechala Group Jamaica, Ltd. Series B, 12.75%,
12/30/99....................................... 2,115
--------
MEXICO (3.1%)
(e)2,000 Cemex S.A. 12.75%, 7/15/06....................... 2,318
(e)2,000 Empresas ICA Sociedad Controladora S.A. 11.875%,
5/30/01........................................ 2,185
(n)2,200 Grupo Televisa S.A. 0.00%, 5/15/08............... 1,526
--------
6,029
--------
UNITED STATES (22.0%)
795 Advanced Micro Devices 11.00%, 8/1/03............ 886
660 Amersco Inc., Series 97-A 10.00%,
3/15/04........................................ 677
(e)1,100 Anthem Insurance 9.00%, 4/1/27................... 1,132
(e)870 Big Flower Press 8.875%, 7/1/07.................. 855
(n)1,350 Brooks Fiber Properties 0.00%, 3/1/06............ 920
(n)720 Brooks Fiber Properties 0.00%, 11/1/06........... 469
(e)150 Brooks Fiber Properties 10.00%, 6/1/07........... 153
(e)497 CA FM Lease Trust 8.50%, 7/15/17................. 509
1,115 Cablevision Systems Corp. 9.875%,
5/15/06........................................ 1,187
630 Cleveland Electric Illuminating Co. 8.375%,
12/1/11........................................ 635
(e)850 ComcastCorp. 9.50%, 5/1/07....................... 861
640 Courtyard By Marriott, Series B, 10.75%,
2/1/08......................................... 693
(n)390 Dial Call Communications Series B, 0.00%,
12/15/05....................................... 306
670 Digital Equipment Corp. 8.625%,
11/1/12........................................ 667
419 DR Securitized Lease Trust, Series 1993-K1, Class
A1, 6.66%, 8/15/10............................. 366
1,030 DR Securitized Lease Trust, Series 1994-K1, Class
A1, 7.60%, 8/15/07............................. 968
250 DR Securitized Lease Trust, Series 1994-K1, Class
A2, 8.38%, 8/15/15............................. 232
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
$ (n)500 Echostar Satellite Broadcast 0.00%,
3/15/04........................................ $ 356
(e)300 EES Coke Battery Co., Inc. 9.382%,
4/15/07........................................ 307
370 First Nationwide Bank 9.125%, 1/15/03............ 382
(e)365 First Nationwide Bank 10.625%, 10/1/03........... 401
825 Gaylord Container Corp. 11.50%,
5/15/01........................................ 868
(e)1,280 Globalstar LP/Capital 11.375%, 2/15/04........... 1,282
1,130 Grand Casinos, Inc. 10.125%, 12/1/03............. 1,181
625 HMC Acquisition Properties 9.00%,
12/15/07....................................... 635
(e)785 Horseshoe Gaming L.L.C. 9.375%,
6/15/07........................................ 795
950 Host Marriott Travel, Series B, 9.50%, 5/15/05... 992
(e)1,230 ISP Holdings, Inc. Series B, 9.00%, 10/15/03..... 1,272
635 IXC Communications, Inc. 12.50%,
10/1/05........................................ 726
(e)300 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13........................................ 375
(e)300 Jet Equipment Trust, Series 1995-D, 11.44%,
11/1/14........................................ 374
265 Kmart Corp. 7.75%, 10/1/12....................... 243
350 Kmart Funding Corp. 8.80%, 7/1/10................ 346
188 Midland Cogeneration Ventures, Series C-91,
10.33%, 7/23/02................................ 201
482 Midland Cogeneration Ventures, Series C-94,
10.33%, 7/23/02................................ 516
305 Midland Funding II, Series A, 11.75%, 7/23/05.... 353
(e)200 Navistar Financial Corp. 9.00%, 6/1/02........... 205
(n)2,550 Nextel Communications 0.00%, 8/15/04............. 1,951
(n)990 Norcal Waste Systems, Inc. 13.00%,
11/15/05....................................... 1,124
660 Nuevo Energy Co. 9.50%, 4/15/06.................. 690
(e)750 Outdoor Systems 8.875%, 6/15/07.................. 728
900 Paramount Communications 8.25%,
8/1/22......................................... 861
(e)620 Qwest Communications International 10.875%,
4/1/07......................................... 673
(e)750 Riggs Capital Trust II 8.875%, 3/15/27........... 763
850 RJR Nabisco, Inc. 8.75%, 4/15/04................. 867
800 SD Warren Co., Series B, 12.00%,
12/15/04....................................... 896
(e)550 Sinclair Broadcast Group 9.00%, 7/15/07.......... 534
710 Snyder Oil Corp. 8.75%, 6/15/07.................. 706
1,345 Southland Corp. 5.00%, 12/15/03.................. 1,143
(e)825 Station Casinos, Inc. 9.75%, 4/15/07............. 816
(e,n)1,990 TCI Satellite Entertainment 0.00%,
2/15/07........................................ 1,184
1,225 Tele-Communications Inc. 9.25%,
1/15/23........................................ 1,275
(n)1,975 Teleport Communications 0.00%, 7/1/07............ 1,427
880 Tenet Healthcare Corp. 8.625%, 1/15/07........... 897
930 TLC Beatrice International Holdings 11.50%,
10/1/05........................................ 1,045
(e,n)350 Transamerican Energy 0.00%, 6/15/02.............. 252
</TABLE>
- --------------
64
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
$ 1,290 Viacom, Inc. 8.00%, 7/7/06....................... $ 1,255
900 Vintage Petroleum 8.625%, 2/1/09................. 897
--------
43,310
--------
TOTAL CORPORATE BONDS & NOTES (COST $60,490)...................... 63,193
--------
ASSET BACKED SECURITIES (0.8%)
UNITED STATES (0.8%)
(e)499 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D, 12.75%, 6/15/06........ 538
(e)950 Long Beach Auto Trust 1997-1, Class B, 14.22%,
10/26/03....................................... 963
--------
TOTAL ASSET BACKED SECURITIES (COST $1,463)....................... 1,501
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
UNITED STATES (0.3%)
(e,h)1,045 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, IO, 1.64%, 11/12/21................... 94
(e)550 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.9289%, 11/1/18.............. 487
(d,f)103 PNC Mortgage Securities Corp. Series 1995-2,
Class B4, REMIC, 7.50%, 9/25/25................ 91
--------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $643)............. 672
--------
EUROBONDS (16.2%)
ARGENTINA (6.3%)
(e)2,500 Acindar Industria Argentina 11.75%,
11/12/98....................................... 2,606
3,500 Acindar Industria Argentina 11.25%,
2/15/04........................................ 3,725
(e)5,500 Republic of Argentina 11.75%, 2/12/07............ 6,134
--------
12,465
--------
BRAZIL (5.0%)
1,350 Comp Brazil De Projertos 12.50%,
12/22/97....................................... 1,377
(h)3,000 Federative Republic of Brazil 6.94%,
4/15/09........................................ 2,631
(n)7,284 Federative Republic of Brazil Series C, PIK
8.00%, 4/15/14................................. 5,857
--------
9,865
--------
BULGARIA (2.5%)
(h)2,250 Republic of Bulgaria Discount Bonds, 'A' 6.563%,
7/28/24........................................ 1,659
(h)4,500 Republic of Bulgaria Past Due Interest Bond
6.56%, 7/28/11................................. 3,254
--------
4,913
--------
VENEZUELA (2.4%)
(h)5,000 Republic of Venezuela Front Loaded Interest
Reduction Bond, 'A' 6.75%, 3/31/07............. 4,652
--------
TOTAL EUROBONDS (COST $28,073).................................... 31,895
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS (25.8%)
ARGENTINA (2.0%)
$ (e)3,600 City of Buenos Aires 11.25%, 4/11/07............. $ 3,915
--------
BRAZIL (1.3%)
(h)2,000 Federative Republic of Brazil Debt Conversion 'L'
Bond, 6.938%, 4/15/12.......................... 1,655
920 Federative Republic of Brazil 10.125%, 5/15/27... 887
--------
2,542
--------
BULGARIA (2.5%)
8,500 Republic of Bulgaria Front Loaded Interest
Reduction Bond 2.25%, 7/28/12.................. 4,856
--------
CAYMAN ISLANDS (0.9%)
ZAR 8,000 National Financiera 17.00%, 2/26/99.............. 1,763
--------
ECUADOR (2.5%)
$ (h)7,000 Republic of Ecuador Past Due Interest Bond, PIK,
6.44%, 2/28/25................................. 5,005
--------
IVORY COAST (1.2%)
(e,n)6,800 Republic of Ivory Coast Front Loaded Interest
Reduction Bond 0.00%, 12/29/49................. 2,269
--------
JAMAICA (1.5%)
3,000 Government of Jamaica 12.00%, 7/19/99............ 3,000
--------
JORDAN (1.3%)
(e,h)3,000 Kingdom of Jordan 6.75%, 12/23/23................ 2,535
--------
MEXICO (2.7%)
4,800 United Mexican States 11.375%, 9/15/16........... 5,399
--------
PERU (4.3%)
(e,h)14,200 Republic of Peru Front Loaded Interest Reduction
Bond 3.25%, 3/7/17............................. 8,484
--------
RUSSIA (3.7%)
(e)6,764 Ministry of Finance Tranche IV GDR 3.00%,
5/14/03........................................ 4,539
(e)5,000 Ministry of Finance Tranche VI GDR 3.00%,
5/14/06........................................ 2,715
--------
7,254
--------
VENEZUELA (1.9%)
4,000 Republic of Venezuela Discount Bond 'L', 6.75%,
12/18/07....................................... 3,712
--------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
(COST $47,427).................................................. 50,734
--------
LOAN AGREEMENTS (7.9%)
ALGERIA (2.9%)
(h,r)6,500 Algeria Reprofiled Loan Agreement, 'A', 7.25%,
12/31/00....................................... 5,700
--------
GABON (2.6%)
(h)6,217 Republic of Gabon Syndicated Loan, 6.69%,
4/1/04......................................... 5,067
--------
</TABLE>
-----------------------
65
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ------------------------------------------------------------------------------
<C> <S> <C>
IVORY COAST (1.9%)
$ 750 Republic of Ivory Coast Syndicated Loan, Zero
Coupon, 12/31/00............................... $ 315
FRF 35,644 Republic of Ivory Coast Syndicated Loan, Zero
Coupon, 12/31/00............................... 2,874
DEM 2,210 Republic of Ivory Coast Syndicated Loan, Zero
Coupon, 12/31/00............................... 532
--------
3,721
--------
JAMAICA (0.5%)
$ (h)1,000 Republic of Jamaica Syndicated Loan, 6.63%,
12/1/05........................................ 930
--------
TOTAL LOAN AGREEMENTS (COST $14,313).............................. 15,418
--------
YANKEE BONDS (3.5% )
ARGENTINA (1.6%)
1,850 Bridas Corp. 12.50%, 11/15/99.................... 2,028
1,000 Metrogas S.A., Series A, 12.00%, 8/15/00......... 1,115
--------
3,143
--------
BRAZIL (1.7%)
3,000 Tevecap S.A. 12.625%, 11/26/04................... 3,244
--------
MEXICO (0.2%)
400 Grupo Industrial Durango 12.625%,
8/1/03......................................... 450
--------
TOTAL YANKEE BONDS (COST $6,240).................................. 6,837
--------
TOTAL FIXED INCOME SECURITIES (COST $158,649)....................... 170,250
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<C> <S> <C>
- ----------------
EQUITY SECURITIES (1.8%)
PREFERRED STOCK (1.5%)
UNITED STATES (1.5%)
(e)5,610 Sinclair Capital 11.625%......................... 595
2,084 Time Warner, Inc., 'M', PIK 10.25%............... 2,287
--------
2,882
--------
CONVERTIBLE PREFERRED STOCK (0.3%)
UNITED STATES (0.3%)
6,800 TCI Communications, Inc. 5.00%, 7/31/06.......... 704
--------
NO. OF WARRANTS
WARRANTS (0.0%)
COLOMBIA (0.0%)
(a)4,900 Occidente Y Caribe, expiring 3/15/04............. --
--------
TOTAL EQUITY SECURITIES (COST $3,372)............................... 3,586
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
STRUCTURED INVESTMENT (3.4%)
BRAZIL (3.4%)
$ (f)8,000 Salomon Bros. Federative Republic of Brazil
Credit Linked Enhanced Access Note 9.00%,
1/5/99 (COST $6,844)........................... $ 6,768
--------
TOTAL FOREIGN AND U.S. SECURITIES (91.9%) (COST $168,865)........... 180,604
--------
SHORT-TERM INVESTMENTS (7.7%)
DISCOUNT NOTES (6.1%)
BULGARIA (3.7%)
(v)12,750 Republic of Bulgaria Stripped Discount Notes,
6.5625%, 8/20/97............................... 7,329
--------
ECUADOR (1.7%)
(v)6,000 Republic of Ecuador Stripped Discount Notes,
6.4375%, 9/29/97............................... 3,311
--------
MEXICO (0.7%)
(v)1,750 United Mexican States Stripped Discount Notes,
6.375%, 9/9/97................................. 1,268
--------
TOTAL DISCOUNT NOTES.............................................. 11,908
--------
REPURCHASE AGREEMENT (1.6%)
3,146 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $3,146
collateralized by $3,330, U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $3,200.......... 3,146
--------
TOTAL SHORT-TERM INVESTMENTS (COST $13,042)......................... 15,054
--------
TOTAL INVESTMENTS (99.6%) (COST $181,907)........................... 195,658
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)........................ 830
--------
NET ASSETS (100%)................................................... $196,488
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security is valued at fair value -- see note A-1 to financial
statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
(f) -- Restricted as to public resale. Total value of restricted securities
at June 30, 1997 was $6,859 or 3.49% of net assets (Total cost
$6,926).
(h) -- Variable/floating rate security -- rate disclosed is as of June 30,
1997.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1997. Maturity date disclosed is the
ultimate maturity date.
(r) -- Issuer is making partial interest payments.
(v) -- Yield at time of purchase.
DEM -- Deutsche Mark
FRF -- French Franc
GDR -- Global Depositary Receipt
IO -- Interest Only.
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
REMIC -- Real Estate Mortgage Investment Conduit
ZAR -- South African Rand
- --------------
66
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
WORLDWIDE HIGH INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- -------------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Foreign Government & Agency Obligations............................................... $ 82,630 42.1%
Loan Agreements....................................................................... 15,418 7.9
Materials............................................................................. 12,074 6.1
Services.............................................................................. 10,924 5.5
Telecommunications.................................................................... 10,746 5.5
Finance............................................................................... 10,522 5.3
Broadcast--Radio & Television......................................................... 8,247 4.2
Multi-Industry........................................................................ 7,065 3.6
Structured Investment................................................................. 6,768 3.4
Consumer Goods........................................................................ 5,065 2.6
Capital Equipment..................................................................... 2,310 1.2
Collateralized Mortgage Obligations & Asset Backed Securities......................... 2,173 1.1
Utilities............................................................................. 1,705 0.9
Energy................................................................................ 1,648 0.8
Technology............................................................................ 1,554 0.8
Insurance............................................................................. 1,132 0.6
Transportation........................................................................ 623 0.3
--------- ---
$ 180,604 91.9%
--------- ---
--------- ---
</TABLE>
-----------------------
67
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (78.8%)
ARGENTINA (6.9%)
(a)604,405 Acindar.......................................... $ 1,548
216,577 Banco del Suquia................................. 843
(a)15,557 Disco ADR........................................ 616
5,499 Quilmes ADR...................................... 56
39,015 Quilmes Industrial ADR........................... 454
269,077 Siderar 'A'...................................... 1,103
(e)10,470 Siderar ADR...................................... 340
8,585 Telecom Argentina ADR............................ 451
36,271 Telefonica de Argentina ADR...................... 1,256
50,695 YPF ADR.......................................... 1,559
--------
8,226
--------
BRAZIL (29.6%)
84,100 Brahma ADR....................................... 1,288
23,059 CEMIG ADR........................................ 1,161
(e)683 CEMIG ADR........................................ 35
(a)9,835,918 CRT 'A'.......................................... 14,800
12,910 CVRD ADR......................................... 288
8,850,000 Eletrobras....................................... 4,949
63,195 Eletrobras ADR................................... 1,763
10,020 Eletrobras 'B' ADR............................... 298
19,723,000 Ericsson Telecomunicacoes........................ 1,172
780,000 Iven............................................. 533
1,317,000 Lightpar......................................... 525
(e)10,410 Lojas Arupua ADR................................. 173
30,050 Pao de Acucar ADR................................ 689
17,568,000 Telebras......................................... 2,382
27,081 Telebras ADR..................................... 4,110
30,250 Unibanco GDR..................................... 1,123
--------
35,289
--------
CHILE (8.2%)
20,250 Andina 'B' ADR................................... 423
76,455 CCU ADR.......................................... 1,677
51,085 Chilectra ADR.................................... 1,470
14,793 Enersis ADR...................................... 526
(a)32,805 Quinenco ADR..................................... 607
139,263 Santa Isabel ADR................................. 4,492
30,360 Unimarc ADR...................................... 569
--------
9,764
--------
COLOMBIA (2.0%)
2,676,443 Banco de Colombia................................ 981
193,250 Bavaria.......................................... 1,387
--------
2,368
--------
MEXICO (27.2%)
(a)272,607 Banacci 'B'...................................... 701
(a)166,310 Banacci 'L'...................................... 388
(a)399,810 Bancomer 'B'..................................... 193
(a,e)14,306 Bancomer 'B' ADR................................. 139
(a)448,015 Banorte 'B'...................................... 467
85,398 Carso 'A1'....................................... 595
552,354 Cemex CPO........................................ 2,402
28,435 Cemex CPO ADR.................................... 247
112,980 Cemex 'B'........................................ 553
102,320 Cemex 'B' ADR.................................... 985
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
70,645 Cifra 'B'........................................ $ 132
86,907 Cifra 'B' ADR.................................... 159
111,590 Cifra 'C'........................................ 179
24,155 Coca-Cola Femsa ADR.............................. 1,247
(a)1 Desc ADR......................................... --
(e)23,400 FEMSA ADR........................................ 139
1,059,645 FEMSA 'B'........................................ 6,319
38,250 Grupo Modelo 'C'................................. 265
16,065 Hylsamex GDR..................................... 480
1,278,645 Kimberly 'A'..................................... 5,126
175,725 Maseca 'B'....................................... 192
60,750 Maseca 'B' ADR................................... 1,002
22,025 Panamco.......................................... 724
462,930 Soriana 'B'...................................... 1,164
(a)29,265 TAMSA ADR........................................ 540
96,075 Telemex ADR...................................... 4,588
(a)114,849 Televisa CPO ADR................................. 3,489
--------
32,415
--------
PERU (2.0%)
66,725 Banco Weise ADR.................................. 433
8,010 Credicorp Ltd.................................... 176
431,857 Ferreyros........................................ 497
21,140 Luz Del Sur...................................... 25
46,200 Tel Peru 'B' ADR................................. 1,210
--------
2,341
--------
VENEZUELA (2.9%)
35,632 CANTV ADR........................................ 1,537
1,139,084 Electricidad de Caracas.......................... 1,825
7,785 Mavesa ADR....................................... 79
--------
3,441
--------
TOTAL COMMON STOCKS (COST $81,747)................................. 93,844
--------
PREFERRED STOCKS (17.7%)
BRAZIL (NON-VOTING STOCKS) (17.7%)
(a,d)8,115,000 Banco Nacional................................... --
3,012,000 Brahma........................................... 2,294
77,444,200 CEMIG............................................ 3,992
3,397,000 Coteminas........................................ 1,325
3,163,771 CPFL............................................. 526
41,187 CVRD............................................. 911
(a,d)31,997 CVRD 'B' ADR..................................... --
1,572,000 Eletrobras 'B'................................... 937
56,805,300 Lojas Arapua..................................... 923
24,618,000 Lojas Renner..................................... 1,262
13,872,000 Petrobras........................................ 3,853
33,506,383 Telebras......................................... 5,082
--------
TOTAL PREFERRED STOCKS (COST $19,314).............................. 21,105
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ---------------
RIGHTS (0.0%)
BRAZIL (0.0%)
(a)121 Lojas Arapua, expiring 12/31/97 (COST $0)........ --
--------
TOTAL FOREIGN SECURITIES (96.5%) (COST $101,061)................... 114,949
--------
</TABLE>
- --------------
68
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
LATIN AMERICAN FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT (4.0%)
$ 4,769 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $4,770,
collateralized by $5,050 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $4,852 (COST
$4,769)........................................ $ 4,769
--------
TOTAL INVESTMENT IN SECURITIES (100.5%) (COST $105,830)............ 119,718
--------
FOREIGN CURRENCY (0.1%)
ARP 14 Argentine Peso................................... 15
COP 37,481 Colombian Peso................................... 34
MXP 740 Mexican Peso..................................... 93
VEB 2,254 Venezuelan Bolivar............................... 5
--------
TOTAL FOREIGN CURRENCY (COST $147)................................. 147
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%) (COST $105,977)......................... $119,865
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%)...................... (805)
--------
NET ASSETS (100%).................................................. $119,060
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT
OF
VALUE NET
INDUSTRY (000) ASSETS
- ---------------------------------------- -------- --------
<S> <C> <C>
Telecommunications...................... $ 35,415 29.7%
Energy.................................. 22,894 19.2
Consumer Goods.......................... 17,771 14.9
Materials............................... 14,522 12.2
Services................................ 12,829 10.8
Finance................................. 5,446 4.6
Capital Equipment....................... 3,075 2.6
Multi-Industry.......................... 2,997 2.5
-------- ---
$114,949 96.5%
-------- ---
-------- ---
</TABLE>
-----------------------
69
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (82.4%)
ARGENTINA (2.4%)
(a)12,975 Nortel Inversora ADR............................. $ 352
36,212 Quilmes ADR...................................... 371
10,847 Telecom Argentina ADR............................ 569
81,130 Telefonica Argentina ADR......................... 2,809
35,145 YPF ADR.......................................... 1,081
--------
5,182
--------
BRAZIL (6.3%)
77,330 Brahma ADR....................................... 1,184
(a,e)2,140 Celesc GDS....................................... 297
(a)389,600 CRT 'A'.......................................... 586
5,020 CVRD ADR......................................... 112
5,517,000 Eletrobras....................................... 3,085
9,140 Eletrobras ADR................................... 271
35,990 Eletrobras ADR................................... 1,004
927,000 Lightpar......................................... 369
(e)14,225 Lojas Arupua ADR................................. 236
1,960 Pao de Acucar.................................... 45
(e)14,961 Pao de Acucar ADR................................ 340
9,198,000 Telebras......................................... 1,247
20,845 Telebras ADR..................................... 3,163
(a)550,397 Telesp........................................... 162
34,420 Unibanco GDR..................................... 1,278
--------
13,379
--------
CHILE (0.6%)
16,645 CCU ADR.......................................... 365
8,290 Enersis ADR...................................... 295
18,649 Santa Isabel ADR................................. 601
--------
1,261
--------
CHINA (0.3%)
412,000 Guangshen Railway Co. Ltd. 'H'................... 181
6,000 Guangshen Railway Co. Ltd. ADR................... 131
696,000 Zhenhai Refining & Chemical Co., Ltd............. 252
--------
564
--------
COLOMBIA (0.0%)
215,412 Banco de Colombia................................ 79
--------
EGYPT (1.5%)
7,916 Ameriyah Cement Co............................... 193
34,430 Commercial International Bank.................... 720
(a)24,250 Commercial International Bank GDR................ 506
9,170 Eastern Tobacco.................................. 232
(a)1,895 Egypt American Bank.............................. 75
5,775 Egyptian Finance & Industrial.................... 345
10,800 General Silo Storage............................. 281
10,475 Helwan Portland Cement........................... 222
3,200 Madinet Housing & Development.................... 226
1,950 North Cairo Flour Mills.......................... 102
7,375 Tora H. Portland Cement.......................... 187
--------
3,089
--------
HONG KONG (2.5%)
82,000 Cheung Kong Holdings Ltd......................... 810
(a)338,000 China Everbright Ltd. -- IHD Pacific Ltd......... 1,010
778,000 China Resources Beijing Land..................... 577
272,000 China Resources Enterprises Ltd.................. 1,334
50,000 Hutchison Whampoa Ltd............................ 432
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
68,000 New World Development Co., Ltd................... $ 406
130,000 Shanghai Industrial Holdings Ltd................. 809
--------
5,378
--------
HUNGARY (0.4%)
(a)3,601 BorsodChem Rt. GDR............................... 140
(a)16,416 MOL Magyar Olaj-es Gazipari Rt. GDR.............. 365
1,790 Pannonplast Rt................................... 90
(a)12,850 Tiszai Vegyi Kombinat Rt. GDR.................... 220
--------
815
--------
INDIA (9.2%)
413,150 Automotive Axles Ltd............................. 548
181,400 Bharat Heavy Electricals Ltd..................... 1,960
12,369 Century Textiles & Industries GDR................ 656
(a)75,000 Container Corp. of India Ltd..................... 1,095
50 E.I.D. Parry Ltd. GDR............................ --
(e)150,000 E.I.D. Parry Ltd. GDR............................ 375
201,600 Great Eastern Shipping GDR....................... 1,613
100,000 Gujarat Ambuja Cement GDR........................ 1,163
214,816 Gujarat Narmada Valley Fertilizers Co., Ltd.
GDR............................................ 537
504,000 Hindustan Development Corp. Ltd. GDR............. 126
24,400 Hoechst Shering Agrevo Ltd....................... 460
12,500 Housing Development Finance Corp., Ltd........... 1,426
75,000 India Cements Ltd. GDR........................... 244
13,700 Indian Rayon & Industries GDR.................... 173
(d,e)108,750 Indo Rama Synthetics Ltd. GDR.................... 544
152,000 ITC Ltd.......................................... 2,389
145,000 ITC Ltd. GDS..................................... 2,647
4,320 JCT Ltd. GDR..................................... 7
(e)160 JCT Ltd. GDR..................................... --
230,750 JK Corp. GDR..................................... 121
150,000 Mahanagar Telephone Nigam, Ltd................... 1,273
50,000 Mahindra & Mahindra Ltd. GDR..................... 744
100,000 Philips India Ltd................................ 243
21,150 Rane Madras Ltd.................................. 151
(a)27,750 Raymond Ltd. GDR................................. 120
(a)280,000 Sanghi Polyester Ltd. GDR........................ 147
317,000 SIV Industries GDR............................... 127
302,600 Tube Investments of India Ltd. GDR............... 265
60,550 United Phosphorus Ltd. GDR....................... 394
--------
19,548
--------
INDONESIA (4.7%)
(a)648,000 Astra International (Foreign).................... 2,664
(a,d)1,424,202 Bank International Indonesia (Foreign)........... 1,230
(d)1,998,000 Bank Negara Indonesia (Foreign).................. 1,273
(d)456,500 Bimantara Citra (Foreign)........................ 798
(d)248,000 Gudang Garam (Foreign)........................... 1,040
(a,d)309,000 Hanjaya Mandala Sampoerna (Foreign).............. 1,179
(d)501,203 Indah Kiat Pulp & Paper (Foreign)................ 294
(a,d)226,800 Indofood Sukses Makmur (Foreign)................. 522
(a,d)476,000 Matahari Putra Prima (Foreign)................... 959
99,000 Mayora Indah (Foreign)........................... 56
41,000 Putra Surya Multidana (Foreign).................. 65
--------
10,080
--------
ISRAEL (2.1%)
(a)112,600 Bank Hapoalim Ltd................................ 234
1 Elbit Medical Imaging Ltd........................ --
37,500 Elbit Systems Ltd................................ 448
</TABLE>
- --------------
70
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
ISRAEL (CONT.)
<TABLE>
<C> <S> <C>
680 First International Bank of Israel Ltd. '1'...... $ 98
893 First International Bank of Israel Ltd. '5'...... 688
8,600 Koor Industries Ltd.............................. 761
16,500 Koor Industries Ltd. ADR......................... 291
91,800 Osem Investment Ltd.............................. 487
467,800 Super Sol Ltd.................................... 1,501
--------
4,508
--------
KOREA (6.0%)
37,900 Cho Hung Bank Co., Ltd. GDR...................... 275
15,195 Cho Hung Bank Co., Ltd. (Foreign)................ 101
(a)19,760 Hansol Paper Co.................................. 501
(a)657 Hanwha Chemical Corp............................. 5
(a,d)47,810 Housing & Commercial Bank, Korea................. 892
(a)30,592 Hyundai Engineering & Construction Co.
(Foreign)...................................... 785
(a,d)31,292 Kookmin Bank..................................... 577
(a)37,775 Kookmin Bank GDR................................. 798
45,097 Korea Electric Power Corp........................ 1,346
25,600 Korea Exchange Bank.............................. 169
13,920 LG Information & Communication Ltd............... 1,724
11,070 Pohang Iron & Steel Co., Ltd. ADR................ 354
(d)10,026 Pohang Iron & Steel Co., Ltd..................... 1,027
(a,e)16,184 Samsung Electronics Co. GDS (New)................ 908
(d)23,691 Samsung Electronics Co. (Foreign)................ 2,652
(d)49,945 Shinhan Bank Co., Ltd. (Foreign)................. 724
--------
12,838
--------
MALAYSIA (1.1%)
214,000 Commerce Asset Holdings Bhd...................... 564
125,000 Genting Bhd...................................... 599
52,000 Rashid Hussain Bhd............................... 330
174,000 Resorts World Bhd................................ 524
45,000 United Engineers Bhd............................. 324
--------
2,341
--------
MEXICO (11.0%)
44,710 Apasco........................................... 320
(a)266,176 Banacci 'B'...................................... 685
(a)193,888 Banacci 'L'...................................... 453
600,692 Bancomer 'B'..................................... 290
(a,e)93,470 Bancomer 'B' ADR................................. 911
103,755 Carso 'A1'....................................... 723
29,110 Carso ADR........................................ 410
293,969 Cemex CPO........................................ 1,279
63,369 Cemex CPO ADR.................................... 550
64,440 Cemex 'B'........................................ 315
87,780 Cemex 'B' ADR.................................... 845
15,004 Cifra 'A'........................................ 28
122,675 Cifra 'C'........................................ 196
15,226 Desc ADR......................................... 443
851,140 FEMSA 'B'........................................ 5,076
(a)36,726 Gruma 'B'........................................ 170
(a,e)3,953 Gruma ADR........................................ 73
299,297 Kimberly 'A'..................................... 1,200
107,474 Maseca 'B'....................................... 118
125,040 Telemex 'L' ADR.................................. 5,971
(a)113,787 Televisa CPO GDR................................. 3,457
--------
23,513
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
PAKISTAN (3.3%)
1,042,000 Fauji Fertilizer Co., Ltd........................ $ 2,049
(a)453,400 Hub Power Co..................................... 459
(a)181,500 Karachi Electric................................. 54
(a)150,000 Nishat Mills Ltd................................. 74
96,870 Pakistan State Oil Co., Ltd...................... 780
3,492,500 Pakistan Telecommunication Co.................... 2,657
(a)1,300,850 Sui Northern Gas Pipelines....................... 1,022
--------
7,095
--------
PERU (0.5%)
39,045 Tele Peru 'B' ADR................................ 1,022
--------
POLAND (1.5%)
(a)16,340 Agros Holdings S.A. 'D'.......................... 413
(a)8,300 Bank of Handlowy W Warszawie S.A................. 88
12,500 Bank Rozwoju Eksportu S.A........................ 262
(a)6,436 Bank Slaski S.A.................................. 460
223,822 Big Bank Inicjatyw............................... 269
15,750 Debica S.A....................................... 324
1,800 E. Wedel S.A..................................... 97
77,100 Elektrim S.A..................................... 671
(a)34,700 Exbud S.A........................................ 350
94,000 Polifarb Wroclaw S.A............................. 352
--------
3,286
--------
RUSSIA (7.6%)
(a)11,618,000 Edinaya Energetiches............................. 4,205
(a)23,900 Gazprom ADR...................................... 396
(a)1,622,000 Irkutskenergo.................................... 552
(a)110,000 Lukoil Holdings Co............................... 2,159
(a)14,000 Lukoil Holdings Co. ADR.......................... 1,105
(a)1,377,000 Moscow Energy (Mosenergo)........................ 1,929
(a)354,200 Rostelekom....................................... 1,374
(a,d,f)600 Storyfirst Communications........................ 1,500
42,000 Surgutneftegaz ADR............................... 2,248
(a)6,000 Tatneft ADR...................................... 639
--------
16,107
--------
SINGAPORE (0.4%)
(a)223,200 Want Want Holdings............................... 741
--------
SOUTH AFRICA (7.1%)
43,200 Amalgamated Banks of South Africa................ 310
110,800 Barlow Ltd....................................... 1,205
33,502 Bidvest Group Ltd................................ 258
13,300 De Beers Centenary AG............................ 491
4,100 Dreifontein Consolidation Ltd.................... 28
146,500 Ellerine Holdings, Ltd........................... 1,043
106,800 First National Bank Holdings, Ltd................ 918
(a)11,058 Foodcorp Limited................................. 84
300,600 Gencor Ltd....................................... 1,385
182,400 Illovo Sugar Ltd................................. 418
98,600 Malbak Ltd....................................... 156
2,454 New Clicks Holdings Ltd.......................... 3
90,000 Persetel Holdings Ltd............................ 633
246,000 Rembrandt Group Ltd.............................. 2,624
241,700 Reunert Ltd...................................... 828
349,100 Sasol Ltd........................................ 4,578
16,258 South African Druggists Ltd...................... 136
--------
15,098
--------
</TABLE>
-----------------------
71
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
TAIWAN (4.0%)
(a)254,000 Acer, Inc........................................ $ 914
(a)202,500 Asustek Computer, Inc............................ 2,681
(a)98,000 China Development Corp........................... 506
(a)383,500 Compal Electronics, Inc.......................... 1,517
827,000 Far Eastern Textile, Ltd......................... 1,300
153,690 Formosa Plastics Corp............................ 370
(a)203,740 Kuoyang Construction............................. 491
203,000 Siliconware Precision Industries Co.............. 686
--------
8,465
--------
THAILAND (4.8%)
32,000 Advanced Information Services Co. Ltd............ 279
125,100 Advanced Information Services Co., Ltd.
(Foreign)...................................... 893
356,500 Bangkok Bank Co., Ltd. (Foreign)................. 2,450
5,000 Banpu Public Co., Ltd (Foreign).................. 73
88,700 Central Pattana Public Co., Ltd.................. 123
127,000 Industrial Finance (Foreign)..................... 162
(a)19,000 Lanna Lignite Public Co., Ltd.................... 134
3,000 Lanna Lignite Public Co., Ltd (Foreign).......... 20
95,000 National Finance & Securities Co................. 60
183,000 National Finance & Securities Co., Ltd.
(Foreign)...................................... 115
201,700 National Petrochemical Public Co., Ltd........... 206
(d)30,700 National Petrochemical Public Co., Ltd.
(Foreign)...................................... 31
5,000 Shinawatra Computer Co. Ltd...................... 35
(d)126,440 Shinawatra Computer Co., Ltd. (Foreign).......... 874
15,550 Siam Cement Co., Ltd. (Foreign).................. 269
324,800 Siam Commercial Bank Co. Ltd. (Foreign).......... 1,329
(a)537,300 Thai Farmers Bank Public Co., Ltd (Foreign)...... 2,282
43,000 Tipco Asphalt Public Company Ltd................. 224
141,000 United Communication Industry.................... 582
(d)9,000 United Communication Industry (Foreign).......... 37
--------
10,178
--------
TURKEY (4.1%)
5,388,750 Arcelik A.S...................................... 726
5,306,500 Bossa Ticaret ve Sanayii Isletmeleri A.S......... 120
1,545,750 Ege Biracilik Ve Malt Sanayii.................... 359
5,670,000 Erciyas Biracilik Ve Malt Sanayii................ 678
12,391,000 Eregli Demir Ve Celik Fabrikalari A.S............ 2,065
1,333,000 Guney Biraculik Ve Malt Sana..................... 75
(a)53,109,383 Turkiye Garanti Bankasi.......................... 2,002
(a)4,075,000 Vestel Elektronik Sanayii ve Ticaret A.S......... 228
(a)105,904,330 Yapi Ve Kredi Bankasi A.S........................ 2,424
--------
8,677
--------
VENEZUELA (0.2%)
75,000 C.A. La Electricidad de Caracas.................. 120
9,195 CANTV ADR........................................ 397
--------
517
--------
ZIMBABWE (0.8%)
550,450 Delta Corp....................................... 845
339,900 Meikles Africa Ltd............................... 836
--------
1,681
--------
TOTAL COMMON STOCKS (COST $160,489)..................................
175,442
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
PREFERRED STOCKS (11.0%)
BRAZIL (NON-VOTING STOCKS) (10.5%)
41,968,584 Banco Bradesco................................... $ 423
(a,d)11,156,000 Banco Nacional................................... 1
4,609,099 Brahma........................................... 3,511
65,899,110 CEMIG............................................ 3,397
31,430 CEMIG ADR........................................ 1,582
(a)3,780,500 CRT.............................................. 5,689
1,256,000 Coteminas........................................ 490
1,697,000 Eletrobras 'B'................................... 1,012
1,948,200 Itaubanco........................................ 1,091
12,437,000 Lojas Arapua S.A................................. 202
6,448,000 Lojas Renner S.A................................. 331
(a)4,660,000 Pao de Acucar.................................... 106
8,858,000 Petrobras........................................ 2,460
11,381,390 Telebras......................................... 1,726
734,661 Telesp........................................... 240
--------
22,261
--------
RUSSIA (0.5%)
(a)450,000 Rostelekom....................................... 1,125
--------
TOTAL PREFERRED STOCKS (COST $18,578)................................ 23,386
--------
INVESTMENT COMPANIES (1.4%)
UNITED STATES (1.4%)
(g)34,265 Morgan Stanley Africa Investment Fund, Inc....... 612
(a,g)186,045 Morgan Stanley India Investment Fund, Inc........ 2,407
--------
TOTAL INVESTMENT COMPANIES (COST $2,379)............................. 3,019
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- -----------------
RIGHTS (0.0%)
BRAZIL (0.0%)
(a,d)130,370 CRT.............................................. 30
--------
INDONESIA (0.0%)
(a,d)451,083 Indah Kiat Pulp & Paper, expiring 7/11/02........ 79
--------
MALAYSIA (0.0%)
(a,d)42,800 Commerce Asset Holdings Bhd., expiring 7/23/97... 3
(a,d) Rashid Hussain Bhd., expiring 12/31/02........... --
--------
TOTAL RIGHTS (COST $0)............................................... 112
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- -----------------
WARRANTS (0.1%)
INDONESIA (0.0%)
(a)126,596 Bank International Indonesia, expiring 1/17/00... 49
(a,d)80,192 Indah Kiat Pulp & Paper, expiring 7/11/02........ 14
--------
63
--------
MALAYSIA (0.0%)
(a,d)26,750 Commerce Asset Holdings Bhd., expiring 7/23/97... --
--------
</TABLE>
- --------------
72
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
THAILAND (0.1%)
(a)88,000 Thai Farmers Bank Public Co., Ltd, expiring
9/30/99........................................ $ 26
(a)102,487 Thai Farmers Bank Public Co., Ltd, expiring
9/15/02........................................ 45
--------
71
--------
TOTAL WARRANTS (COST $120)........................................... 134
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------------
FOREIGN GOVERNMENT BONDS (0.4%)
BULGARIA (0.4%)
$ (n)750 Bulgaria Front Loaded Interest Reduction Bond,
'A' 2.25%, 7/28/24............................. 428
400 Bulgaria Discount Bonds, 'A' (Euro) 6.563%,
7/28/24........................................ 295
--------
TOTAL FOREIGN GOVERNMENT BONDS (COST $495)........................... 723
--------
CONVERTIBLE DEBENTURE (0.1%)
INDIA (0.0%)
(a)120 Tata Iron & Steel Co. 2.25%, 4/1/99.............. 112
--------
SOUTH AFRICA (0.1%)
(a)14,600 Sasol 8.50%, 12/15/2099.......................... 182
--------
TOTAL CONVERTIBLE DEBENTURES (COST $306)............................. 294
--------
TOTAL FOREIGN SECURITIES (95.4%) (COST $182,367)..................... 203,110
--------
SHORT-TERM INVESTMENT (4.7%)
REPURCHASE AGREEMENT (4.7%)
9,936 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $9,938,
collateralized by $10,520 U.S. Treasury Bonds,
5.625%, due 2/15/06, value at $10,108 (COST
$9,936)........................................ 9,936
--------
TOTAL INVESTMENT IN SECURITIES (100.1%) (COST $192,303).............. 213,046
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
FOREIGN CURRENCY (1.6%)
ARP 14 Argentine Peso................................... $ 14
BRL 745 Brazilian Real................................... 692
COP 7,025 Colombian Peso................................... 6
EGP 6 Egyptian Pound................................... 2
HKD 356 Hong Kong Dollar................................. 46
INR 60,094 Indian Rupee..................................... 1,679
IDR 147,154 Indonesian Rupiah................................ 61
MYR 27 Malaysian Ringgit................................ 11
MXP 245 Mexican Peso..................................... 31
PHP 343 Philippine Peso.................................. 13
PLZ 954 Polish Zloty..................................... 290
ZAR 4 South African Rand............................... 1
KRW 91,547 South Korean Won................................. 103
TWD 9,787 Taiwan Dollar.................................... 352
THB 4,960 Thai Baht........................................ 191
TRL 2,088,265 Turkish Lira..................................... 14
VEB 12,177 Venezuelan Bolivar............................... 25
--------
TOTAL FOREIGN CURRENCY (COST $3,537)................................. 3,531
--------
TOTAL INVESTMENTS (101.7%) (COST $195,840)........................... 216,577
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)........................ (3,631)
--------
NET ASSETS (100%).................................................... $212,946
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Securities valued at fair value -- see note A-1 to financial
statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
(f) -- Restricted as to public resale. Total value of restricted securities
at June 30, 1997 was $1,500 or 0.70% of net assets (Total cost
$1,500).
(g) -- The Fund is advised by an affiliate.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1997. Maturity date disclosed is the
ultimate maturity.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
-----------------------
73
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ------------ --------- ----------- ------------ --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 344 $ 344 7/1/97 ZAR 1,552 $ 342 $ (2)
$ 182 182 7/1/97 ZAR 823 181 (1)
$ 303 303 7/2/97 THB 7,841 303 --
THB 10,728 407 8/18/97 $ 400 400 (7)
THB 50,782 1,925 8/18/97 $ 1,900 1,900 (25)
$ 925 925 8/19/97 THB 24,929 945 20
THB 54,917 2,081 8/19/97 $ 2,040 2,040 (41)
THB 42,767 1,602 9/16/97 $ 1,613 1,613 11
THB 76,873 2,881 9/16/97 $ 2,897 2,897 16
--------- --------- -----
$ 10,650 $ 10,621 $ (29)
--------- --------- -----
--------- --------- -----
</TABLE>
- ---------------
THB -- Thai Baht
ZAR -- South African Rand
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ----------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Consumer Goods............................................................... $ 41,477 19.4%
Services..................................................................... 40,458 19.0
Finance...................................................................... 35,032 16.5
Energy....................................................................... 25,925 12.2
Multi-Industry............................................................... 20,185 9.5
Materials.................................................................... 20,033 9.4
Capital Equipment............................................................ 19,249 9.0
Foreign Government Bonds..................................................... 723 0.4
Gold Mines................................................................... 28 0.0
--------- ---
$ 203,110 95.4%
--------- ---
--------- ---
</TABLE>
- --------------
74
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (94.9%)
CAPITAL GOODS (13.1%)
AEROSPACE & DEFENSE (13.1%)
17,500...... Boeing Co........................................ $ 929
(a)11,000... Litton Industries, Inc........................... 532
10,400...... McDonnell Douglas Corp........................... 712
21,700...... Textron, Inc..................................... 1,440
14,100...... Thiokol Corp..................................... 987
49,600...... United Technologies Corp......................... 4,117
--------
8,717
--------
CONSUMER--CYCLICAL (31.8%)
BROADCAST--RADIO & TELEVISION (1.9%)
(a)20,400... Clear Channel Communications, Inc................ 1,255
--------
FOOD SERVICE & LODGING (20.7%)
34,200...... Cracker Barrel Old Country Store, Inc............ 907
(a)212,700.. HFS, Inc......................................... 12,337
10,500...... McDonald's Corp.................................. 507
--------
13,751
--------
LEISURE RELATED (3.9%)
(a)61,500... GTECH Holdings Corp.............................. 1,983
34,700...... International Game Technology.................... 616
--------
2,599
--------
PUBLISHING (2.8%)
(a)126,100.. K-III Communications Corp........................ 1,513
6,700....... Time Warner, Inc................................. 323
--------
1,836
--------
RETAIL--GENERAL (2.5%)
24,200...... Home Depot, Inc.................................. 1,668
--------
TOTAL CONSUMER--CYCLICAL...................................... 21,109
--------
CONSUMER--STAPLES (13.0%)
BEVERAGES (3.9%)
113,700..... Coca-Cola Enterprises, Inc....................... 2,615
--------
HEALTH CARE SUPPLIES & SERVICES (2.0%)
12,900...... AETNA, Inc....................................... 1,321
--------
TOBACCO (7.1%)
106,300..... Philip Morris Cos., Inc.......................... 4,717
--------
TOTAL CONSUMER--STAPLES....................................... 8,653
--------
DIVERSIFIED (12.0%)
DIVERSIFIED (12.0%)
17,000...... Allied Signal, Inc............................... 1,428
(a)63 Berkshire Hathaway, Inc.......................... 2,974
27,000 ITT Industries, Inc.............................. 695
19,700 Loews Corp....................................... 1,972
45,500 Viad Corp........................................ 876
--------
7,945
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
ENERGY (1.3%)
COAL, GAS, & OIL (1.3%)
(a)11,000 Diamond Offshore Drilling, Inc................... $ 859
--------
FINANCE (19.4%)
BANKING (7.0%)
15,000 BankAmerica Corp................................. 968
2,600 Chase Manhattan Corp............................. 252
10,300 Citicorp......................................... 1,242
8,133 Wells Fargo Co................................... 2,192
--------
4,654
--------
FINANCIAL SERVICES (4.4%)
14,000 American Express Co.............................. 1,043
7,700 Franklin Resources, Inc.......................... 559
10,100 Student Loan Marketing Association............... 1,283
--------
2,885
--------
INSURANCE (8.0%)
14,200 ACE Ltd.......................................... 1,049
21,700 CMAC Investment Corp............................. 1,036
(a)14,800 CNA Financial Corp............................... 1,560
13,100 MGIC Investment Corp............................. 628
7,500 Progressive Corp................................. 653
15,600 USF&G Corp....................................... 374
--------
5,300
--------
TOTAL FINANCE................................................. 12,839
--------
MATERIALS (1.0%)
CHEMICALS (1.0%)
11,000 Du Pont (EI) de Nemours Co....................... 692
--------
SERVICES (2.9%)
BUSINESS SERVICES (1.0%)
8,300 Xerox Corp....................................... 655
--------
TRANSPORTATION (1.9%)
(a)6,900 AMR Corp......................................... 638
(a)17,400 U.S. Airways Group Inc........................... 609
--------
1,247
--------
TOTAL SERVICES................................................ 1,902
--------
TECHNOLOGY (0.4%)
ELECTRONICS (0.4%)
8,600 Watkins Johnson Co............................... 264
--------
TOTAL COMMON STOCKS (COST $59,265)............................ 62,980
--------
</TABLE>
-----------------------
75
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
AGGRESSIVE EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (7.6%)
REPURCHASE AGREEMENT (7.6%)
$ 5,014 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $5,015,
collaterallized by $5,310 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $5,102 (COST
$5,014)........................................ $ 5,014
--------
TOTAL INVESTMENTS (102.5%) (COST $64,279)....................... 67,994
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.5%)................... (1,681)
--------
NET ASSETS (100%)............................................... $ 66,313
--------
--------
</TABLE>
- ---------------
(a) -- Non-income producing.
SECURITIES SOLD SHORT (NOTE A-6)
<TABLE>
<C> <S> <C>
VALUE
SHARES (000)
- ----------- ---------
98,300 CUC International, Inc. (TOTAL PROCEEDS $2,301) $ 2,537
---------
---------
</TABLE>
- --------------
76
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
COMMON STOCKS (86.9%)
APARTMENT (19.7%)
2,500 Amli Residential Properties Trust REIT........... $ 59
13,700 Associated Estates Realty Corp. REIT............. 322
21,500 Avalon Properties, Inc. REIT..................... 615
20,200 Bay Apartment Communities, Inc. REIT............. 747
1,500 Columbus Realty Trust REIT....................... 34
26,700 Essex Property Trust, Inc. REIT.................. 858
13,400 Gables Residential Trust REIT.................... 338
18,800 Merry Land & Investment Co., Inc. REIT........... 408
15,900 Oasis Residential, Inc. REIT..................... 374
18,900 Security Capital Atlantic, Inc................... 452
2,600 Summit Properties, Inc. REIT..................... 54
(a)47,451 Wellsford Properties Inc......................... 522
-------
4,783
-------
HEALTHCARE (9.7%)
6,900 Alexandria Real Estate Equities, Inc. REIT....... 151
(a)15,600 ARV Assisted Living, Inc......................... 172
7,500 Health Care Property Investors, Inc. REIT........ 264
1,600 LTC Properties, Inc.............................. 29
43,200 Nationwide Health Properties, Inc................ 950
24,000 Omega Healthcare Investors, Inc.................. 785
-------
2,351
-------
LAND (1.9%)
45,424 Atlantic Gulf Communities Corp................... 289
(a)9,700 Catellus Development Corp........................ 176
-------
465
-------
LODGING/LEISURE (12.5%)
44,500 American General Hospitality Corp................ 1,101
(a)26,100 Extended Stay of America, Inc.................... 411
(a)24,500 Host Marriott Corp............................... 437
(a)31,700 John Q. Hammons Hotels, Inc...................... 293
(a)15,400 Servico, Inc..................................... 229
13,300 Starwood Lodging Trust REIT...................... 568
-------
3,039
-------
MANUFACTURED HOMES (6.6%)
41,148 Chateau Properties, Inc. REIT.................... 1,178
18,100 Manufactured Home Communities, Inc. REIT......... 417
-------
1,595
-------
OFFICE & INDUSTRIAL (20.7%)
INDUSTRIAL (3.3%)
2,750 EastGroup Properties, Inc. REIT.................. 55
8,800 Meridian Industrial Trust REIT................... 207
25,000 Pacific Gulf Properties, Inc. REIT............... 550
-------
812
-------
OFFICE (16.1%)
20,400 Arden Realty Group, Inc.......................... 530
14,500 Beacon Properties Corp. REIT..................... 484
6,400 Boston Properties, Inc........................... 176
39,466 Brandywine Realty Trust REIT..................... 799
500 Brookfield Properties Corp....................... 6
(a)19,900 Brookfield Properties Corp. Installment
Receipts....................................... 139
15,600 CarrAmerica Realty Corp. REIT.................... 449
10,400 Cornerstone Properties, Inc. REIT................ 160
24,400 Great Lakes REIT, Inc............................ 401
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
10,600 Koger Equity, Inc................................ $ 193
27,216 Trizec Hahn Corp................................. 582
-------
3,919
-------
OFFICE & INDUSTRIAL (1.3%)
6,400 Kilroy Realty Corp. REIT......................... 162
6,200 Prentiss Properties Trust REIT................... 159
-------
321
-------
TOTAL OFFICE & INDUSTRIAL..................................... 5,052
-------
RETAIL (14.5%)
REGIONAL MALL (9.8%)
44,100 First Union Real Estate Investments REIT......... 623
30,200 Taubman Center, Inc. REIT........................ 400
25,700 Urban Shopping Centers, Inc. REIT................ 819
32,500 Westfield America, Inc. REIT..................... 548
-------
2,390
-------
SHOPPING CENTER (4.7%)
11,300 Alexander Haagen Properties, Inc. REIT........... 184
40,500 Burnham Pacific Property Trust REIT.............. 557
6,200 Federal Realty Investment Trust REIT............. 167
2,700 IRT Property Co.................................. 32
900 Price, Inc. REIT................................. 33
200 Ramco-Gershenson Properties Trust REIT........... 4
11,900 Western Investment Real Estate Trust REIT........ 165
-------
1,142
-------
TOTAL RETAIL.................................................. 3,532
-------
SELF STORAGE (1.3%)
11,000 Shurgard Storage Centers, Inc. 'A' REIT.......... 308
-------
TOTAL COMMON STOCKS (COST $19,346)............................ 21,125
-------
PREFERRED STOCKS (1.0%)
LAND (0.3%)
(d,f)8,207 Atlantic Gulf Communities Corp................... 82
-------
RETAIL (0.7%)
SHOPPING CENTER (0.7%)
5,500 First Washington Realty Trust, Inc. 'A'.......... 168
-------
TOTAL PREFERRED STOCKS (COST $236)............................ 250
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
CONVERTIBLE BONDS (0.5%)
OFFICE (0.5%)
$ 224 Brookfield Properties Corp. 6.00%, 2/14/07
(COST $86)..................................... 125
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------
WARRANTS (0.0%)
LAND (0.0%)
(a,d)5,724 Atlantic Gulf Communities Class A, expiring
6/23/04........................................ --
(a,d)5,724 Atlantic Gulf Communities Class B, expiring
6/23/04........................................ --
(a,d)5,724 Atlantic Gulf Communities Class C, expiring
6/23/04........................................ --
-------
--
-------
TOTAL WARRANTS (COST $0)...................................... --
-------
</TABLE>
-----------------------
77
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
$ 665 Chase Securities Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $665,
collateralized by $705 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $677
(COST $665).................................... $ 665
-------
TOTAL INVESTMENTS (91.1%) (COST $20,333)...................... 22,165
OTHER ASSETS IN EXCESS OF LIABILITIES (8.9%).................. 2,151
-------
NET ASSETS (100%)............................................. $24,316
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(f) -- Restricted as to public resale. Total value of restricted securities
at June 30, 1997 was $82 or 0.34% of net assets. (Total cost $82)
REIT -- Real Estate Investment Trust.
- --------------
78
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
HIGH YIELD FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
CORPORATE BONDS AND NOTES (64.2%)
AEROSPACE & DEFENSE (2.8%)
$ (e)200 Jet Equipment Trust, Series 1994-C1,
11.79%, 6/15/13.............................. $ 253
(e)300 Jet Equipment Trust, Series 1995-D,
11.44%, 11/1/14.............................. 374
-------
627
-------
BANKING (1.5%)
95 First Nationwide Holdings 9.125%, 1/15/03...... 98
225 First Nationwide Holdings 10.625%, 10/1/03..... 247
-------
345
-------
BROADCAST -- RADIO & TELEVISION (8.1%)
410 Cablevision Systems Corp. 9.875%, 5/15/06...... 437
(e)110 Comcast Cellular Corp. 9.50%, 5/1/07........... 111
(n)170 Echostar Satellite Broadcast 0.00%, 3/15/04.... 121
200 Paramount Communications 8.25%, 8/1/22......... 191
150 Rogers Cablesystems Ltd., 'B', 10.00%,
3/15/05...................................... 162
60 Rogers Communications, Inc. 9.125%, 1/15/06.... 61
(e)165 TV Azteca S.A. 10.50%, 2/15/07................. 169
600 Viacom, Inc. 8.00%, 7/7/06..................... 584
-------
1,836
-------
BUSINESS SERVICES (0.8%)
(e)205 Outdoor Systems 8.875%, 6/15/07................ 199
-------
CHEMICALS (1.4%)
315 ISP Holdings, Inc., Series B 9.00%, 10/15/03... 326
-------
COAL, GAS & OIL (1.1%)
255 Snyder Oil Corp. 8.75%, 6/15/07................ 254
-------
COMPUTERS (2.0%)
230 Advanced Micro Devices 11.00%, 8/1/03.......... 257
190 Digital Equipment Corp. 8.625%, 11/1/12........ 189
-------
446
-------
CONSUMER STAPLES (1.4%)
300 RJR Nabisco, Inc. 8.75%, 4/15/04............... 306
-------
DIVERSIFIED (1.0%)
225 Kmart Funding Corp. 8.80%, 7/1/10.............. 223
-------
ELECTRICAL EQUIPMENT (0.6%)
(e)125 EES Coke Battery Co., Inc. 9.382%, 4/15/07..... 128
-------
ENERGY (3.9%)
240 Nuevo Energy Co. 9.50%, 4/15/06................ 251
325 Quezon Power Ltd., 8.86%, 6/15/17.............. 325
(e,n)130 Transamerican Energy 0.00%, 6/15/02............ 93
220 Vintage Petroleum 8.625%, 2/1/09............... 219
-------
888
-------
ENVIRONMENTAL CONTROLS (2.7%)
103 Midland Cogeneration Ventures, Series C-91,
10.33%, 7/23/02.............................. 109
(n)450 Norcal Waste Systems, 'B', 13.00%, 11/15/05.... 511
-------
620
-------
FINANCE (2.4%)
140 Amersco Inc., Series 97-A, 10.00%, 3/15/04..... 144
150 HMC Acquisition Properties,'B', 9.00%,
12/15/07..................................... 152
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------
$ (e)75 Navistar Financial Corp. 9.00%, 6/1/02......... $ 77
(e)170 Riggs Capital Trust II 8.875%, 3/15/27......... 173
-------
546
-------
FOOD SERVICE & LODGING (1.7%)
200 Courtyard By Marriott 10.75%, 2/1/08........... 216
150 Host Marriott Travel Plaza, 'B', 9.50%,
5/15/05...................................... 157
-------
373
-------
FOREST PRODUCTS & PAPER (2.5%)
(e)215 Asia Pulp & Paper Company Ltd. 12.00%,
12/29/49..................................... 220
305 SD Warren Co.,'B', 12.00%, 12/15/04............ 341
-------
561
-------
GAMING & LODGING (3.5%)
445 Grand Casinos, Inc. 10.125%, 12/1/03........... 465
320 Station Casinos Inc. 10.125%, 3/15/06.......... 323
-------
788
-------
HEALTH CARE SUPPLIES & SERVICES (1.0%)
220 Tenet Healthcare Corp. 8.625%, 1/15/07......... 224
-------
INSURANCE (1.5%)
(e)325 Anthem Insurance 9.00%, 4/1/27................. 335
-------
MULTI--INDUSTRY (2.0%)
(e)210 Multicanal S.A. 10.50%, 2/1/07................. 226
200 TLC Beatrice International Holdings 11.50%,
10/1/05...................................... 224
-------
450
-------
PACKAGING & CONTAINER (1.2%)
250 Gaylord Container Corp. 11.50%, 5/15/01........ 263
-------
RETAIL--GENERAL (2.3%)
95 Kmart Corp. 7.75%, 10/1/12..................... 87
500 Southland Corp. 5.00%, 12/15/03................ 425
-------
512
-------
TELECOMMUNICATIONS (17.6%)
(n)495 Brooks Fiber Properties, Inc. 0.00%, 3/1/06.... 337
(n)375 Brooks Fiber Properties, Inc. 0.00%, 11/1/06... 244
(n)185 Dial Call Communications 0.00%, 12/15/05....... 145
(e)360 Globalstar LP/Capital 11.375%, 2/15/04......... 361
175 IXC Communications, Inc., 'B', 12.50%,
10/1/05...................................... 200
100 Net Sat Servicos LTDA 12.75%, 8/5/04........... 109
(n)910 Nextel Communications 0.00%, 8/15/04........... 696
(n)400 Occidente Y Caribe 0.00%, 3/15/04.............. 297
(e)190 Qwest Communications International 10.875%,
4/1/07....................................... 207
(e,n)645 TCI Satellite Entertainment 0.00%, 2/15/07..... 384
420 Tele-Communications Inc. 9.25%, 1/15/23........ 437
25 Tele-Communications Inc. 8.75%, 2/15/23........ 25
(n)745 Teleport Communications 0.00%, 7/1/07.......... 538
-------
3,980
-------
UTILITIES (1.2%)
120 Cleveland Electric Illuminating 8.375%,
12/1/11...................................... 121
125 Midland Funding II, 'A', 11.75%, 7/23/05....... 145
-------
266
-------
TOTAL CORPORATE BONDS AND NOTES (COST $13,984)................ 14,496
-------
</TABLE>
-----------------------
79
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
HIGH YIELD FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES (6.8%)
AEROSPACE & DEFENSE (0.8%)
$ 175 Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class D, 12.75%, 6/15/06...... $ 188
-------
FINANCE (6.0%)
(e)248 CA FM Lease Trust 8.50%, 7/15/17............... 254
(e,h)323 DLJ Mortgage Acceptance Corp., Series 1996-CF2,
Class S, 1.64%, 11/12/21 IO.................. 29
150 DR Securitized Lease Trust, Series 1993-K1,
Class A2, 7.43%, 8/15/18..................... 125
504 DR Securitized Lease Trust, Series 1994-K1,
Class A1, 7.60%, 8/15/07..................... 474
100 DR Securitized Lease Trust, Series 1994-K1,
Class A2, 8.375%, 8/15/15.................... 93
(e)125 First Home Mortgage Acceptance Corp., Series
1996-B, Class C, 7.929%, 11/1/18............. 111
(e)250 Long Beach Auto Trust 1997-1, Class B, 14.22%,
10/26/03..................................... 254
-------
1,340
-------
TOTAL ASSET BACKED SECURITIES (COST $1,468)................... 1,528
-------
FOREIGN GOVERNMENT BONDS (7.6%)
BONDS (7.3%)
(h)350 Brazil Front Loaded Interest Reduction Bond,
Series 15, 4.50%, 4/15/09.................... 274
(n)625 Republic of Argentina 5.50%, 3/31/23........... 434
(h)90 Republic of Argentina BOCON, Series 2, PIK,
5.375%, 9/1/02............................... 106
245 Republic of Colombia 8.70%, 2/15/16............ 249
(h)500 Republic of Venezuela, Series W-A, 6.75%,
3/31/20...................................... 394
(h)250 United Mexican States Discount Bond, 'B',
6.25%, 12/31/19.............................. 193
-------
1,650
-------
LOAN AGREEMENTS (0.3%)
(v)75 Russia Interest Arrears Note, 12/31/99......... 57
-------
TOTAL FOREIGN GOVERNMENT BONDS (COST $1,576).................. 1,707
-------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<C> <S> <C>
- ------------
CONVERTIBLE PREFERRED STOCK (1.2%)
BROADCAST--RADIO & TELEVISION (1.2%)
2,540 TCI Pacific Communications 5.00%, 7/31/06 (COST
$231)........................................ 263
-------
PREFERRED STOCKS (4.7%)
ENTERTAINMENT (3.7%)
755 Time Warner, Inc., 'M', 10.25%................. 829
-------
FINANCE (1.0%)
(e)2,150 Sinclair Capital, 11.625%...................... 228
-------
TOTAL PREFERRED STOCKS (COST $997)............................ 1,057
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
<C> <S> <C>
- -----------------------------------------------------------------------
WARRANTS (0.0%)
TELECOMMUNICATIONS (0.0%)
(a,d,e)1,600 Occidente Y Caribe, expiring 3/15/04 (COST
$0).......................................... $ --
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
FOREIGN GOVERNMENT (0.0%)
(a,d)2,500 Republic of Venezuela, expiring 3/31/20........ --
(a,d)500,000 United Mexican States, expiring 12/31/19....... --
-------
TOTAL RIGHTS (COST $0)........................................ --
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
SHORT-TERM INVESTMENTS (14.8%)
COMMERCIAL PAPER (12.1%)
$ 500 Case Equipment Loan Trust 5.58%, 8/7/97........ 496
500 Eiger Capital Corp. 5.54%, 7/15/97............. 499
500 J.C. Penney Inc. 5.45%, 8/11/97................ 497
500 Monsanto Co. 5.60%, 7/8/97..................... 499
500 Pacific Gas & Electric 5.57%, 8/1/97........... 498
250 RR Donnelly & Sons Corp. 5.53%, 7/8/97......... 250
-------
2,739
-------
REPURCHASE AGREEMENT (2.7%)
615 Chase Securities Inc., 5.70%, dated 6/30/97,
due 7/1/97, to be repurchased at $615,
collateralized by $655 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $629.......... 615
-------
TOTAL SHORT-TERM INVESTMENTS (COST $3,354).................... 3,354
-------
TOTAL INVESTMENTS (99.3%) (COST $21,610)...................... 22,405
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%).................. 162
-------
NET ASSETS (100%)............................................. $22,567
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
(h) -- Variable/Floating rate securities -- rate disclosed is as of June 30,
1997.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1997. Maturity date disclosed is the
ultimate maturity date.
(v) -- When-issued security -- see note A-9 to financial statements.
IO -- Interest Only.
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
- --------------
80
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------
COMMON STOCKS (90.1%)
AUSTRALIA (3.0%)
25,927 Amcor Ltd........................................ $ 172
28,800 Broken Hill Proprietary Co., Ltd................. 424
14,100 Commonwealth Bank of Australia................... 170
8,200 Lend Lease Corp. Ltd............................. 174
11,600 National Australia Bank Ltd...................... 166
35,640 News Corp., Ltd.................................. 171
35,200 WMC Ltd.......................................... 222
-------
1,499
-------
AUSTRIA (0.6%)
3,300 Boehler-Uddeholm AG.............................. 256
380 Radex-Heraklith Industriebet AG.................. 16
-------
272
-------
BELGIUM (0.5%)
5,300 G.I.B. Holdings Ltd.............................. 254
-------
DENMARK (1.3%)
6,100 BG Bank A/S...................................... 337
5,740 Unidanmark A/S 'A' (Registered).................. 323
-------
660
-------
FINLAND (1.9%)
(a)7,150 Amer-Yhtymae Oy.................................. 129
4,500 Huhtamaki Oy 'I'................................. 194
550 Kone Oy 'B'...................................... 66
39,200 Merita Ltd. 'A'.................................. 131
25,000 Rautaruukki Oy................................... 262
7,600 Valmet Oy........................................ 131
-------
913
-------
FRANCE (6.4%)
1,000 Alcatel Alsthom.................................. 125
3,100 Banque Nationale de Paris........................ 128
640 Bongrain S.A..................................... 250
2,600 Cie de Saint Gobain.............................. 379
2,900 Elf Aquitaine S.A................................ 313
1,640 Eridania Beghin-Say S.A.......................... 246
1,900 Groupe Danone RFD................................ 314
4,400 Lafarge S.A...................................... 274
5,400 Legris Industries S.A............................ 255
(a)2,500 SGS-Thomson Microelectronics N.V................. 198
3,900 Total S.A. 'B'................................... 394
14,650 Usinor Sacilor................................... 264
-------
3,140
-------
GERMANY (7.1%)
7,100 BASF AG.......................................... 262
6,600 Bayer AG......................................... 254
1,240 Buderus AG....................................... 689
15,500 Gerresheimer Glas AG............................. 260
19,300 Lufthansa AG..................................... 371
220 Mannesmann AG.................................... 98
(a)1,800 Metro AG......................................... 196
5,600 Veba AG.......................................... 316
860 Viag AG.......................................... 393
870 Volkswagen AG.................................... 660
-------
3,499
-------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------
HONG KONG (3.6%)
35,000 Cheung Kong Holdings Ltd......................... $ 345
45,000 China Resources Enterprises Ltd.................. 221
21,000 Dao Heng Bank Group Ltd.......................... 115
19,000 Henderson Land Development Co., Ltd.............. 169
10,000 Hong Kong & Shanghai Bank Holdings plc........... 301
28,000 Hutchison Whampoa Ltd............................ 242
17,000 New World Development Co., Ltd................... 101
31,000 Shanghai Industrial Holdings Ltd................. 193
9,000 Sun Hung Kai Properties Ltd...................... 108
-------
1,795
-------
ITALY (2.1%)
34,000 Editoriale L'Expresso S.p.A...................... 113
22,300 Marzotto (Gaetano) & Figli S.p.A................. 187
(a)25,300 Olivetti......................................... 7
97,000 Sogefi S.p.A..................................... 245
72,000 Stet Societa Finanziaria Telefonica S.p.A........ 250
125,000 Telecom Italia S.p.A............................. 248
-------
1,050
-------
JAPAN (28.0%)
23,000 Amada Co., Ltd................................... 203
31,000 Asahi Tec Corp................................... 151
14,000 Canon, Inc....................................... 381
10,000 Dai Nippon Printing Co., Ltd..................... 226
40,000 Daicel Chemical Industries Ltd................... 155
15,000 Daifuku Co., Ltd................................. 198
20,000 Daikin Industries Ltd............................ 182
4,190 Family Mart...................................... 206
10,000 Fuji Machine Manufacturing Co.................... 362
9,000 Fuji Photo Film Ltd.............................. 362
15,000 Fujitec Co., Ltd................................. 178
28,000 Fujitsu Ltd...................................... 389
50,000 Furukawa Electric................................ 318
10,000 Hitachi Credit Corp.............................. 194
38,000 Hitachi Ltd...................................... 424
13,000 Inabata & Co..................................... 89
36,000 Kaneka Corp...................................... 226
10,000 Kurita Water Industries.......................... 266
4,700 Kyocera Ltd...................................... 373
18,000 Kyudenko Co., Ltd................................ 152
8,000 Lintec........................................... 146
19,000 Matsushita Electric Industries Ltd............... 383
50,000 Mitsubishi Chemical Corp......................... 163
13,000 Mitsubishi Estate Co., Ltd....................... 188
47,000 Mitsubishi Heavy Industries Ltd.................. 361
14,000 Mitsumi Electric Co., Ltd........................ 334
9,000 Murata Manufacturing Co., Ltd.................... 358
30,000 NEC Corp......................................... 419
13,000 Nifco, Inc....................................... 136
4,000 Nintendo Corp., Ltd.............................. 335
1,000 Nippon Pillar Packing............................ 9
39 Nippon Telegraph & Telephone Corp................ 374
27,000 Nissan Motor Co.................................. 209
12,000 Nissha Printing.................................. 138
30,000 Obayashi Corp.................................... 201
32,000 Ricoh Co., Ltd................................... 419
7,000 Rinnai........................................... 150
5,000 Sangetsu Co., Ltd................................ 105
13,000 Sankyo Co. Ltd................................... 437
</TABLE>
-----------------------
81
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
25,000 Sanwa Shutter.................................... $ 227
15,000 Sekisui Chemical Co.............................. 152
20,000 Sekisui House Ltd................................ 202
3,000 Shimamura Co., Ltd............................... 107
5,600 Sony Corp........................................ 488
12,000 Sumitomo Marine & Fire Insurance Co.............. 98
18,000 Suzuki Motor Co., Ltd............................ 228
44,000 Taisei Corp., Ltd................................ 204
6,000 TDK Corp......................................... 440
8,500 Tokyo Electron Ltd............................... 407
56,000 Toshiba Corp..................................... 360
13,000 Toyota Motor Corp................................ 383
24,000 Tsubakimoto Chain................................ 147
8,000 Yamaha Corp...................................... 147
12,000 Yamanuchi Pharmaceutical Co...................... 323
-------
13,813
-------
MALAYSIA (1.9%)
73,000 Berjaya Group Bhd................................ 90
16,000 Berjaya Sports Toto Bhd.......................... 75
16,000 Commerce Asset Holding Bhd....................... 42
2,000 Dialog Group Bhd................................. 29
5,000 Edaran Otomobil Nasional Bhd..................... 43
6,000 Genting Bhd...................................... 29
4,000 Lityan Holdings Bhd.............................. 49
17,000 Magnum Corp. Bhd................................. 26
13,000 Malayan Banking Bhd.............................. 136
17,000 Malaysian Resources Corp. Bhd.................... 47
16,000 Rashid Hussain Bhd............................... 101
9,000 Resorts World Bhd................................ 27
40,000 Sime Darby Bhd................................... 133
14,000 United Engineers Ltd............................. 101
-------
928
-------
NETHERLANDS (4.6%)
13,600 ABN Amro Holding N.V............................. 253
2,900 Akzo Nobel N.V................................... 398
8,300 ING Groep N.V.................................... 383
4,200 KLM Royal Dutch Airlines N.V..................... 130
2,400 Koninklijke Bijenkorf Beheer..................... 168
4,700 Koninklijke Van Ommeren N.V...................... 183
12,700 N.V. Koninklijke KNP BT.......................... 289
6,500 Phillips Electronics N.V......................... 466
-------
2,270
-------
NEW ZEALAND (0.2%)
1,840 Fletcher Challenge Forest........................ 3
46,000 Fletcher Challenge Paper......................... 113
-------
116
-------
NORWAY (1.2%)
24,300 Den Norske Bank ASA.............................. 95
25,400 Saga Petroleum ASA 'B'........................... 444
(a)11,800 Storebrand ASA................................... 70
-------
609
-------
SINGAPORE (1.9%)
18,000 Datacraft Asia Ltd............................... 57
6,000 Development Bank of Singapore Ltd. (Foreign)..... 76
52,000 Electronic Resources Ltd......................... 82
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------
44,000 NatSteel Ltd..................................... $ 112
7,600 Oversea-Chinese Banking Corp., Ltd. (Foreign).... 79
(a)34,000 Pacific Century Regional Development............. 47
10,000 Parkway Holdings Ltd............................. 45
58,000 SM Summit Holdings Ltd........................... 44
5,000 Singapore Press Holdings (Foreign)............... 101
71,000 Super Coffeemix Manufacturing Ltd................ 59
8,000 United Overseas Bank Ltd. (Foreign).............. 82
(a)19,200 Want Want Holdings............................... 64
22,000 Wing Tai Holdings Ltd............................ 63
-------
911
-------
SPAIN (2.9%)
3,900 Banco Bilbao Vizcaya............................. 317
25,100 Iberdrola S.A.................................... 317
13,400 Telefonica de Espana S.A......................... 388
34,400 Uralita S.A...................................... 384
-------
1,406
-------
SWEDEN (3.3%)
5,500 Esselte AB 'B'................................... 129
12,200 Nordbanken AB.................................... 410
3,900 Pharmacia & Upjohn, Inc. Depositary Shares....... 132
6,400 S.K.F. AB 'B'.................................... 166
5,300 Skandia Forsakrings AB........................... 195
9,000 Sparbanken Sverige AB 'A'........................ 200
10,100 Spectra-Physics AB 'A'........................... 182
6,400 Svenska Handelsbanken 'A'........................ 205
-------
1,619
-------
SWITZERLAND (7.1%)
(a)65 Ascom Holding AG (Bearer)........................ 91
(a)110 Baloise Holdings Ltd............................. 262
190 Bobst AG (Bearer)................................ 323
880 Forbo Holding AG (Registered).................... 380
410 Holderbank Financiere Glaris AG, 'B' (Bearer).... 387
390 Nestle S.A. (Registered)......................... 514
163 Novartis AG (Registered)......................... 261
1,080 Oerlikon-Buehrle Holding AG (Registered)......... 127
80 Schindler Holding AG (Participating
Certificates).................................. 100
85 Schindler Holding AG (Registered)................ 109
140 Schweizerische Industrie-Gesellschaft Holding AG
(Registered)................................... 208
550 Sulzer AG (Registered)........................... 471
790 Valora Holding AG (Registered)................... 168
270 Zuerich Versicherungs-Gesellschaft Holdings
(Registered)................................... 107
-------
3,508
-------
UNITED KINGDOM (12.5%)
30,400 Associated British Foods plc..................... 262
29,061 BAT Industries plc............................... 260
19,600 Bank of Scotland................................. 126
26,500 Bass plc......................................... 324
32,500 BG plc........................................... 119
37,400 British Telecommunications plc................... 278
23,050 Burmah Castrol plc............................... 390
55,122 Christian Salvesen plc........................... 259
64,400 Courtaulds Textiles plc.......................... 329
46,000 Grand Metropolitan plc........................... 443
61,300 Imperial Tobacco Group plc....................... 394
</TABLE>
- --------------
82
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
38,300 John Mowlem & Co. plc............................ $ 79
66,300 Kwik Save Group plc.............................. 334
12,700 Peninsular & Oriental Steam Navigation Co........ 126
5,400 Premier Farnell plc.............................. 42
32,600 Racal Electronics plc............................ 130
31,068 Reckitt & Coleman plc............................ 464
44,097 Royal & Sun Alliance Insurance Group plc......... 326
32,700 Scottish Hydro-Electric plc...................... 226
13,600 Southern Electric plc............................ 100
52,850 Tate & Lyle plc.................................. 393
15,900 Unilever plc..................................... 455
68,600 WPP Group plc.................................... 280
-------
6,139
-------
TOTAL COMMON STOCKS (COST $40,461).............................. 44,401
-------
PREFERRED STOCKS (1.4%)
GERMANY (1.4%)
725 Dyckerhoff AG.................................... 263
3,200 Hornbach Holding AG.............................. 267
340 Suedzucker AG.................................... 182
-------
TOTAL PREFERRED STOCKS (COST $610).............................. 712
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
MALAYSIA (0.0%)
(a,d)5,600 Commerce Asset Holdings Bhd., expiring 7/23/97... --
-------
SINGAPORE (0.0%)
(a,d)26,000 Electronic Resources Ltd., expiring 7/21/97...... 17
-------
SWITZERLAND (0.0%)
(a,d)330 Sulzer Media, expiring 7/17/97................... --
-------
TOTAL RIGHTS (COST $0).......................................... 17
-------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ------------
WARRANTS (0.0%)
MALAYSIA (0.0%)
(a,d)3,500 Commerce Asset Holdings Bhd., expiring 7/23/97... --
(a,d)2,285 Rashid Hussain Bhd., expiring 12/31/02........... --
-------
TOTAL WARRANTS (COST $0)........................................ --
-------
TOTAL FOREIGN SECURITIES (91.5%) (COST $41,071)................. 45,130
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENT (17.5%)
REPURCHASE AGREEMENT (17.5%)
$ 8,624 Chase Securities, Inc., 5.70%, dated 6/30/97, due
7/1/97, to be repurchased at $8,625,
collateralized by $9,130 U.S. Treasury Bonds,
5.625%, due 2/15/06, valued at $8,772 (COST
$8,624)........................................ $ 8,624
-------
TOTAL INVESTMENTS IN SECURITIES (109%) (COST $49,695)........... 53,754
-------
FOREIGN CURRENCY (0.3%)
ATS 19 Austrian Schilling............................... 2
BEF 727 Belgian Franc.................................... 20
FRF 564 French Franc..................................... 96
ITL 10,064 Italian Lira..................................... 6
JPY 3,355 Japanese Yen..................................... 29
MYR 3 Malaysian Ringgit................................ 1
ESP 1,299 Spanish Peseta................................... 9
-------
TOTAL FOREIGN CURRENCY (COST $164).............................. 163
-------
TOTAL INVESTMENTS (109.3%) (COST $49,859)....................... 53,917
LIABILITIES IN EXCESS OF OTHER ASSETS (-9.3%)................... (4,585)
-------
NET ASSETS (100%)............................................... $49,332
-------
-------
</TABLE>
- ---------------
(a) -- Non-income producing.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
RFD -- Ranked for Dividend.
-----------------------
83
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
INTERNATIONAL MAGNUM FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency contracts open at June 30, 1997, the Fund is
obligated to deliver or is to receive foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
CURRENCY IN EXCHANGE
TO DELIVER VALUE SETTLEMENT FOR VALUE NET UNREALIZED
(000) (000) DATE (000) (000) GAIN (LOSS) (000)
- ----------- --------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C>
$ 45 $ 45 7/02/97 GBP 27 $ 45 $ --
CHF 117 80 8/18/97 $ 80 80 --
CHF 1,203 828 8/18/97 $ 846 846 18
FRF 325 56 8/18/97 $ 56 56 --
NLG 1,442 738 8/18/97 $ 758 758 20
$ 200 200 8/18/97 CHF 285 197 (3)
$ 250 250 8/18/97 NLG 484 248 (2)
JPY 364,376 3,207 8/25/97 $ 3,260 3,260 53
BEF 4,100 115 8/29/97 $ 116 116 1
DEM 1,101 634 8/29/97 $ 643 643 9
DEM 814 469 8/29/97 $ 475 475 6
$ 70 70 8/29/97 BEF 2,481 69 (1)
$ 300 300 8/29/97 DEM 515 297 (3)
FRF 4,501 770 9/15/97 $ 794 794 24
$ 200 200 9/15/97 FRF 1,158 198 (2)
--------- --------- -----
$ 7,962 $ 8,082 $ 120
--------- --------- -----
--------- --------- -----
</TABLE>
- ---------------
BEF -- Belgian Franc
GBP -- British Pound
DEM -- Deutsche Mark
FRF -- French Franc
JPY -- Japanese Yen
NLG -- Netherlands Guilder
CHF -- Swiss Franc
- --------------------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION (UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- ------------------------------------------------------------------------------ --------- -------------
<S> <C> <C>
Capital Equipment............................................................. $ 13,097 26.5%
Consumer Goods................................................................ 10,089 20.5
Finance....................................................................... 6,784 13.8
Materials..................................................................... 5,300 10.7
Services...................................................................... 4,739 9.6
Energy........................................................................ 2,871 5.8
Multi-Industry................................................................ 2,027 4.1
Gold Mines.................................................................... 223 0.5
--------- ---
$ 45,130 91.5%
--------- ---
--------- ---
</TABLE>
- --------------
84
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
AGENCY OBLIGATIONS (87.0%)
FEDERAL HOME LOAN BANK DISCOUNT NOTES (15.7%)
$ 5,000 5.42%, 8/14/97................................... $ 4,967
10,000 5.56%, 9/2/97.................................... 9,903
---------
14,870
---------
FEDERAL HOME LOAN MORTGAGE CORPORATION DISCOUNT NOTES
(25.2%)
10,000 5.42%, 7/21/97................................... 9,970
5,000 5.44%, 8/1/97.................................... 4,977
4,000 5.53%, 8/5/97.................................... 3,978
5,000 5.43%, 8/6/97.................................... 4,973
---------
23,898
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (46.1%)
DISCOUNT NOTES (40.8%)
5,000 5.53%, 7/2/97.................................... 4,999
10,000 5.52%, 7/18/97................................... 9,974
4,500 5.41%, 7/24/97................................... 4,484
5,000 5.53%, 8/11/97................................... 4,968
4,500 5.42%, 8/28/97................................... 4,461
10,000 5.59%, 10/20/97.................................. 9,828
---------
38,714
---------
DEBENTURE (5.3%)
5,000 5.69%, Series 97 AD, 11/13/97.................... 5,000
---------
TOTAL AGENCY OBLIGATIONS (COST $82,482)...................... 82,482
---------
REPURCHASE AGREEMENT (13.2%)
12,495 Goldman Sachs, 5.82%, dated 6/30/97, due 7/1/97,
to be repurchased at $12,497, collateralized by
$12,450 U.S. Treasury Bonds, 6.875%, due
8/15/25 valued at $12,830 (COST $12,495)....... 12,495
---------
TOTAL INVESTMENTS (100.2%) (COST $94,977).................... 94,977
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%)................ (209)
---------
NET ASSETS (100%)............................................ $ 94,768
---------
---------
</TABLE>
-----------------------
85
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
AGENCY OBLIGATIONS (2.2%)
FEDERAL HOME LOAN MORTGAGE CORPORATION DISCOUNT NOTES
(2.2%)
$ 3,000 5.98%, 4/8/98 (COST $2,995)...................... $ 2,995
---------
CERTFICATES OF DEPOSIT (22.0%)
BANKS (22.0%)
5,000 ABN-AMRO Bank (NY), Yankee, 6.12%, 7/14/97....... 5,000
2,500 ANZ (Delaware), Inc. 5.88%, 10/28/97............. 2,500
5,000 Credit Suisse (First Boston) 6.25%, 4/8/98....... 5,000
5,000 Deutsche Bank AG, Yankee, 5.85%, 3/13/98......... 5,000
2,500 Natwest plc, Yankee, 5.89%, 10/2/97.............. 2,500
5,000 Rabobank Nederland, Yankee, 6.20%, 4/10/98....... 4,998
3,000 Societe Generale Bank 6.16%, 9/8/97.............. 3,000
2,500 Sun Trust Banks 5.85%, 10/22/97.................. 2,500
---------
TOTAL CERTIFICATES OF DEPOSITS (COST $30,498)................ 30,498
---------
COMMERCIAL PAPER (41.8%)
AUTOMOBILES (3.6%)
5,000 Daimler-Benz AG 5.42%, 8/4/97.................... 4,974
---------
FINANCE (31.0%)
10,000 Asset Backed Capital Finance 5.66%, 7/22/97...... 9,967
6,000 Asset Securitization Corp. 5.63%, 7/1/97......... 6,000
6,000 CIT Group Holdings, Inc. 5.54%, 7/28/97.......... 5,975
6,000 John Deere Capital Inc. 5.58%, 7/3/97............ 5,998
10,000 Norwest Financial, Inc. 5.60%, 7/1/97............ 10,000
5,000 UBS Finance (Delaware) 6.20%, 7/1/97............. 5,000
---------
42,940
---------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
SERVICES (7.2%)
$ 10,000 Dun & Bradstreet Corp. 5.67%, 7/29/97............ $ 9,956
---------
TOTAL COMMERCIAL PAPER (COST $57,870)........................ 57,870
---------
VARIABLE RATE OBLIGATIONS (21.7%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (10.8%)
(h)15,000 Federal Home Loan Mortgage 5.36%, 9/2/97......... 15,000
---------
STUDENT LOAN MARKETING ASSOCIATION (10.9%)
(h)15,000 Student Loan Marketing Association 5.42%,
10/30/97....................................... 15,002
---------
TOTAL VARIABLE RATE OBLIGATIONS (COST $30,002)............... 30,002
---------
REPURCHASE AGREEMENT (11.8%)
16,375 Goldman Sachs, 5.82%, dated 6/30/97, due 7/1/97,
to be repurchased at $16,378, collateralized by
$16,378 U.S. Treasury Bonds, 11.625%, due
11/15/04 valued at $16,815 (COST $16,375)...... 16,375
---------
TOTAL INVESTMENTS (99.5%) (COST $137,740).................... 137,740
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%)................. 682
---------
NET ASSETS (100%)............................................ $138,422
---------
---------
</TABLE>
- ---------------
(h) -- Variable or floating rate security -- rate disclosed is as of June 30,
1997.
- --------------
86
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1997
<TABLE>
<CAPTION>
GLOBAL
EQUITY GLOBAL WORLDWIDE U.S.
ALLO- FIXED ASIAN AMERICAN HIGH LATIN EMERGING AGGRESSIVE REAL
CATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS EQUITY ESTATE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at
Value* (Note 1) -- See
accompanying portfolios $ 194,300 $ 9,546 $354,498 $ 83,754 $195,658 $119,718 $ 213,046 $ 67,994 $22,165
Foreign Currency 494 3 3,217 -- -- 147 3,531 -- --
Cash 9 679 -- -- 127 1,438 1,164 271 258
Receivable for:
Investments Sold 10,009 132 4,268 426 368 3,757 2,785 1,932 992
Securities Sold Short -- -- -- -- -- -- -- 2,301 --
Fund Shares Sold 1,974 63 549 2,286 2,176 2,859 1,280 1,315 988
Dividends 416 -- 245 91 48 297 674 54 87
Interest 2 214 -- -- 3,968 1 21 1 3
Security Lending Income 8 -- -- -- -- -- -- -- --
Foreign Withholding Tax Reclaim 53 3 21 -- -- -- 1 -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts 305 -- -- -- -- -- -- -- --
Deferred Organizational Costs 6 6 5 5 6 7 6 37 21
Due from Broker -- -- -- -- -- -- -- 1,155 --
Receivable from Investment Adviser -- 3 -- -- -- -- -- -- --
Securities, at Value, Held as
Collateral for Securities Loaned 29,822 -- -- -- -- -- -- -- --
Other 3 -- 26 -- 64 -- -- -- --
--------- ------- -------- -------- -------- -------- --------- ---------- -------
Total Assets 237,401 10,649 362,829 86,562 202,415 128,224 222,508 75,060 24,514
--------- ------- -------- -------- -------- -------- --------- ---------- -------
LIABILITIES:
Payable for:
Investments Purchased 15,821 -- 6,159 2,881 3,750 8,067 3,812 5,303 103
Securities Sold Short, at Value
(Proceeds -- $2,301) -- -- -- -- -- -- -- 2,537 --
Fund Shares Redeemed 1,091 6 1,760 1,053 1,354 367 4,210 684 1
Bank Overdraft 9 -- 316 284 -- 298 -- -- --
Dividends Declared -- -- -- -- -- -- -- -- --
Investment Advisory Fees 337 -- 862 96 327 176 472 85 20
Administrative Fees 43 3 73 16 40 28 50 13 5
Custody Fees 75 6 179 8 57 82 265 12 17
Professional Fees 45 27 91 27 49 31 61 22 22
Distribution Fees 211 9 365 77 227 73 201 70 20
Shareholder Reporting Expenses 55 4 151 29 47 12 47 14 7
Directors' Fees and Expenses 5 1 16 2 5 1 5 -- 1
Securities Lending Expense 18 -- -- -- -- -- -- -- --
Filing and Registration Fees 4 -- -- 2 12 11 4 6 2
Deferred Country Tax -- -- 93 -- -- 18 406 -- --
Collateral on Securities Loaned 29,822 -- -- -- -- -- -- -- --
Net Unrealized Loss on Foreign
Currency Exchange Contracts -- 21 78 -- -- -- 29 -- --
Other -- 4 -- -- 59 -- -- 1 --
--------- ------- -------- -------- -------- -------- --------- ---------- -------
Total Liabilities 47,536 81 10,143 4,475 5,927 9,164 9,562 8,747 198
--------- ------- -------- -------- -------- -------- --------- ---------- -------
NET ASSETS $ 189,865 $10,568 $352,686 $ 82,087 $196,488 $119,060 $ 212,946 $ 66,313 $24,316
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
<CAPTION>
GOVERNMENT
INTER- OBLIGATIONS
HIGH NATIONAL MONEY MONEY
YIELD MAGNUM MARKET MARKET
FUND FUND FUND FUND
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -------------------------------------
ASSETS:
Investments in Securities, at
Value* (Note 1) -- See
accompanying portfolios $22,405 $53,754 $ 94,977 $137,740
Foreign Currency -- 163 -- --
Cash -- -- -- --
Receivable for:
Investments Sold 771 94 -- --
Securities Sold Short -- -- -- --
Fund Shares Sold 149 1,197 -- --
Dividends 42 92 -- --
Interest 326 1 38 1,020
Security Lending Income -- -- -- --
Foreign Withholding Tax Reclaim -- 30 -- --
Net Unrealized Gain on Foreign
Currency Exchange Contracts -- 120 -- --
Deferred Organizational Costs 19 29 -- --
Due from Broker -- -- -- --
Receivable from Investment Adviser -- -- 4 69
Securities, at Value, Held as
Collateral for Securities Loaned -- -- -- --
Other -- -- 1 1
------- ------- ---------- --------
Total Assets 23,712 55,480 95,020 138,830
------- ------- ---------- --------
LIABILITIES:
Payable for:
Investments Purchased 709 5,356 -- --
Securities Sold Short, at Value
(Proceeds -- $2,301) -- -- -- --
Fund Shares Redeemed 176 417 -- --
Bank Overdraft 183 225 -- --
Dividends Declared -- -- 94 149
Investment Advisory Fees 12 12 -- --
Administrative Fees 5 11 9 12
Custody Fees 7 44 4 9
Professional Fees 22 25 44 56
Distribution Fees 25 45 66 114
Shareholder Reporting Expenses 4 6 26 48
Directors' Fees and Expenses -- -- 4 7
Securities Lending Expense -- -- -- --
Filing and Registration Fees 2 7 -- --
Deferred Country Tax -- -- -- --
Collateral on Securities Loaned -- -- -- --
Net Unrealized Loss on Foreign
Currency Exchange Contracts -- -- -- --
Other -- -- 5 13
------- ------- ---------- --------
Total Liabilities 1,145 6,148 252 408
------- ------- ---------- --------
NET ASSETS $22,567 $49,332 $ 94,768 $138,422
------- ------- ---------- --------
------- ------- ---------- --------
</TABLE>
-----------------------
87
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
JUNE 30, 1997 (CONT.)
<TABLE>
<CAPTION>
GLOBAL
EQUITY GLOBAL WORLDWIDE U.S.
ALLO- FIXED ASIAN AMERICAN HIGH LATIN EMERGING AGGRESSIVE REAL
CATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS EQUITY ESTATE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Capital Stock at Par $ 12 $ 1 $ 22 $ 5 $ 14 $ 7 $ 16 $ 4 $ 2
Paid in Capital in Excess of Par 147,222 10,700 327,144 63,598 173,493 96,171 181,049 59,979 20,569
Undistributed (Distributions in
Excess of) Net Investment Income 2,666 (63) (1,153) (1) 311 (11) (659) -- 55
Accumulated (Distributions in
Excess of) Net Realized Gain
(Loss) 7,878 48 (8,456) 5,783 8,928 9,027 12,215 2,851 1,858
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 32,087 (118) 35,129 12,702 13,742 13,866 20,325 3,479 1,832
--------- ------- -------- -------- -------- -------- --------- ---------- -------
NET ASSETS $ 189,865 $10,568 $352,686 $ 82,087 $196,488 $119,060 $ 212,946 $ 66,313 $24,316
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
CLASS A SHARES:
Net Assets $ 72,704 $ 6,407 $175,440 $ 34,331 $ 76,439 $ 84,401 $ 119,022 $ 22,521 $14,827
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 4,388 644 10,554 1,951 5,362 4,855 8,838 1,326 905
Net Asset Value and Redemption
Price Per Share $ 16.57 $ 9.95 $ 16.62 $ 17.59 $ 14.26 $ 17.39 $ 13.47 $ 16.98 $ 16.39
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
Maximum Sales Charge 5.75% 4.75% 5.75% 5.75% 4.75% 5.75% 5.75% 5.75% 5.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share X
100-maximum sales charge) $ 17.58 $ 10.45 $ 17.64 $ 18.66 $ 14.97 $ 18.45 $ 14.29 $ 18.02 $ 17.39
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
CLASS B SHARES:
Net Assets $ 38,962 $ 1,716 $ 62,786 $ 15,331 $ 78,340 $ 14,314 $ 35,966 $ 34,382 $ 7,120
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 2,412 173 3,884 872 5,515 842 2,716 2,041 435
Net Asset Value and Offering Price
Per Share*** $ 16.15 $ 9.91 $ 16.17 $ 17.59 $ 14.20 $ 16.99 $ 13.24 $ 16.85 $ 16.36
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
CLASS C SHARES:
Net Assets $ 78,199 $ 2,445 $114,460 $ 32,425 $ 41,709 $ 20,345 $ 57,958 $ 9,410 $ 2,369
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 4,814 247 7,093 1,844 2,935 1,196 4,372 559 145
Net Asset Value and Offering Price
Per Share*** $ 16.24 $ 9.90 $ 16.14 $ 17.59 $ 14.21 $ 17.01 $ 13.26 $ 16.83 $ 16.36
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
Investments at Cost, Including
Foreign Currency $ 162,983 $ 9,644 $322,413 $ 71,052 $181,907 $105,977 $ 195,840 $ 64,279 $20,333
--------- ------- -------- -------- -------- -------- --------- ---------- -------
--------- ------- -------- -------- -------- -------- --------- ---------- -------
<CAPTION>
GOVERNMENT
INTER- OBLIGATIONS
HIGH NATIONAL MONEY MONEY
YIELD MAGNUM MARKET MARKET
FUND FUND FUND FUND
(000) (000) (000) (000)
- -------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS CONSIST OF:
Capital Stock at Par $ 18 $ 3 $ 95 $ 139
Paid in Capital in Excess of Par 21,471 44,357 94,764 138,382
Undistributed (Distributions in
Excess of) Net Investment Income 38 767 -- --
Accumulated (Distributions in
Excess of) Net Realized Gain
(Loss) 245 21 (91) (99)
Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Translations** 795 4,184 -- --
------- ------- ---------- --------
NET ASSETS $22,567 $49,332 $ 94,768 $138,422
------- ------- ---------- --------
------- ------- ---------- --------
CLASS A SHARES:
Net Assets $ 8,980 $21,961 $ 94,768 $138,422
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 698 1,579 94,859 138,521
Net Asset Value and Redemption
Price Per Share $ 12.86 $ 13.91 $ 1.00 $ 1.00
------- ------- ---------- --------
------- ------- ---------- --------
Maximum Sales Charge 4.75% 5.75% -- --
Maximum Offering Price Per Share
(Net Asset Value Per Share X
100-maximum sales charge) $ 13.50 $ 14.76 -- --
------- ------- ---------- --------
------- ------- ---------- --------
CLASS B SHARES:
Net Assets $ 8,617 $18,215 -- --
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 670 1,317 -- --
Net Asset Value and Offering Price
Per Share*** $ 12.86 $ 13.84 -- --
------- ------- ---------- --------
------- ------- ---------- --------
CLASS C SHARES:
Net Assets $ 4,970 $ 9,156 -- --
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 386 662 -- --
Net Asset Value and Offering Price
Per Share*** $ 12.86 $ 13.83 -- --
------- ------- ---------- --------
------- ------- ---------- --------
Investments at Cost, Including
Foreign Currency $21,610 $49,859 $ 94,977 $137,740
------- ------- ---------- --------
------- ------- ---------- --------
</TABLE>
- ---------------
* Includes repurchase agreements aggregating $8,897,000, $15,266,000,
2,523,000, $3,146,000, $4,769,000, $9,936,000, $5,014,000, $665,000,
$615,000, $8,624,000, $12,495,000 and $16,375,000 for Global Equity
Allocation Fund, Asian Growth Fund, American Value Fund, Worldwide
High Income Fund, Latin American Fund, Emerging Markets Fund,
Aggressive Equity Fund, U.S. Real Estate Fund, High Yield Fund,
International Magnum Fund, Government Obligations Money Market Fund
and Money Market Fund, respectively.
** Net of accrual for country tax of U.S. $93,000 for Asian Growth Fund
and $401,000 for Emerging Markets Fund.
*** Redemption price may be subject to a contingent deferred sales charge.
- ------------------
88
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
GLOBAL GLOBAL WORLDWIDE U.S.
EQUITY FIXED ASIAN AMERICAN HIGH LATIN EMERGING AGGRESSIVE REAL
ALLOCATION INCOME GROWTH VALUE INCOME AMERICAN MARKETS EQUITY ESTATE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 3,489 $ -- $ 6,912 $ 1,309 $ 170 $ 893 $ 3,086 $ 295 $ 476
Interest 259 632 340 82 16,119 106 467 116 78
Security Lending 107 -- -- -- -- -- -- -- --
Less Foreign Taxes Withheld (254) (10) (963) -- -- -- (160) -- --
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Total Income 3,601 622 6,289 1,391 16,289 999 3,393 411 554
---------- -------- -------- -------- --------- -------- -------- ---------- --------
EXPENSES:
Investment Advisory Fees 1,557 79 4,057 432 1,086 572 1,955 245 145
Less: Fees Waived (293) (79) -- (135) -- (248) (331) (204) (145)
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Net Investment Advisory Fees 1,264 -- 4,057 297 1,086 324 1,624 41 --
Administrative Fees 473 34 1,080 139 388 151 445 76 42
Custody Fees 224 17 682 18 77 191 581 34 44
Filing and Registration Fees 5 -- 1 4 13 11 6 8 2
Directors' Fees and Expenses 8 2 21 3 7 3 9 2 2
Professional Fees 95 30 207 38 84 45 107 28 21
Shareholder Reports 92 11 262 47 77 20 76 30 4
Security Lending Fees 23 -- -- -- -- -- -- -- --
Dividend Expense for Securities
Sold Short -- -- -- -- -- -- -- 1 --
Distribution Fees
Class A 160 16 509 58 152 81 229 28 19
Class B 238 16 602 43 491 45 180 105 45
Class C 679 26 1,424 233 351 87 465 55 22
Amortization of Organizational
Costs 37 37 31 46 52 51 52 78 49
Blue Sky Fees 44 35 69 36 39 40 47 36 30
Country Tax Expense 3 -- -- -- -- 57 58 -- --
Interest Expense 1 3 64 -- 23 18 37 21 --
Other 10 3 28 5 14 6 15 3 2
Expenses Reimbursed by Adviser -- (44) -- -- -- -- -- -- (8)
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Net Expenses 3,356 186 9,037 967 2,854 1,130 3,931 546 274
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Net Investment Income (Loss) 245 436 (2,748) 424 13,435 (131) (538) (135) 280
---------- -------- -------- -------- --------- -------- -------- ---------- --------
NET REALIZED GAIN (LOSS) ON:
Investments 8,119 113 (4,389) 6,719 10,103 14,026 15,276 3,674 2,077
Foreign Currency Transactions 5,051 (2) (415) -- (741) (45) (283) -- --
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Net Realized Gain (Loss) 13,170 111 (4,804) 6,719 9,362 13,981 14,993 3,674 2,077
---------- -------- -------- -------- --------- -------- -------- ---------- --------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 18,089 (60) (2,600) 7,544 14,410 10,222 7,857 3,365 1,622
Foreign Currency Translations (838) (24) (19) -- 2 (22) (382) -- --
Securities Sold Short -- -- -- -- -- -- -- (160) --
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Change in Unrealized
Appreciation/ Depreciation 17,251 (84) (2,619) 7,544 14,412 10,200 7,475 3,205 1,622
---------- -------- -------- -------- --------- -------- -------- ---------- --------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 30,421 27 (7,423) 14,263 23,774 24,181 22,468 6,879 3,699
---------- -------- -------- -------- --------- -------- -------- ---------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 30,666 $ 463 $(10,171) $ 14,687 $ 37,209 $ 24,050 $ 21,930 $ 6,744 $ 3,979
---------- -------- -------- -------- --------- -------- -------- ---------- --------
---------- -------- -------- -------- --------- -------- -------- ---------- --------
<CAPTION>
GOVERNMENT
HIGH INTERNATIONAL MONEY MONEY
YIELD MAGNUM MARKET MARKET
FUND FUND FUND FUND
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------
INVESTMENT INCOME:
Dividends $ 54 $ 498 $ -- $ --
Interest 1,454 175 6,529 10,791
Security Lending -- -- -- --
Less Foreign Taxes Withheld -- (65) -- --
-------- ------ ---------- --------
Total Income 1,508 608 6,529 10,791
-------- ------ ---------- --------
EXPENSES:
Investment Advisory Fees 113 168 542 882
Less: Fees Waived (113) (168) (392) (579)
-------- ------ ---------- --------
Net Investment Advisory Fees -- -- 150 303
Administrative Fees 42 73 123 194
Custody Fees 17 97 25 46
Filing and Registration Fees 2 -- -- --
Directors' Fees and Expenses 2 2 1 5
Professional Fees 21 39 86 122
Shareholder Reports 1 6 23 45
Security Lending Fees -- -- -- --
Dividend Expense for Securities
Sold Short -- -- -- --
Distribution Fees
Class A 13 21 604 981
Class B 57 68 -- --
Class C 43 58 -- --
Amortization of Organizational
Costs 49 68 41 41
Blue Sky Fees 26 36 60 103
Country Tax Expense -- -- -- --
Interest Expense -- 1 -- --
Other 1 2 41 92
Expenses Reimbursed by Adviser (12) (33) -- --
-------- ------ ---------- --------
Net Expenses 262 438 1,154 1,932
-------- ------ ---------- --------
Net Investment Income (Loss) 1,246 170 5,375 8,859
-------- ------ ---------- --------
NET REALIZED GAIN (LOSS) ON:
Investments 312 33 8 13
Foreign Currency Transactions -- 737 -- --
-------- ------ ---------- --------
Net Realized Gain (Loss) 312 770 8 13
-------- ------ ---------- --------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 881 4,060 -- --
Foreign Currency Translations -- 124 -- --
Securities Sold Short -- -- -- --
-------- ------ ---------- --------
Change in Unrealized
Appreciation/ Depreciation 881 4,184 -- --
-------- ------ ---------- --------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation 1,193 4,954 8 13
-------- ------ ---------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,439 $ 5,124 $ 5,383 $ 8,872
-------- ------ ---------- --------
-------- ------ ---------- --------
</TABLE>
-----------------------
89
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 245 $ 364
Net Realized Gain 13,170 11,649
Change in Unrealized
Appreciation/Depreciation 17,251 9,778
------------- -------------
Net Increase in Net Assets from
Operations 30,666 21,791
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (2,358) (1,295)
Class B (759) (69)
Class C (2,093) (1,106)
------------- -------------
(5,210) (2,470)
------------- -------------
Net Realized Gain:
Class A (2,101) (1,591)
Class B (751) (96)
Class C (2,262) (1,624)
------------- -------------
(5,114) (3,311)
------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (10,324) (5,781)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 54,525 58,409
Distributions Reinvested 9,826 5,268
Redeemed (36,345) (21,216)
------------- -------------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 28,006 42,461
------------- -------------
Total Increase in Net Assets 48,348 58,471
NET ASSETS -- Beginning of Year 141,517 83,046
------------- -------------
NET ASSETS -- End of Year (Including
undistributed net investment income
of $2,666 and $2,710, respectively) $ 189,865 $ 141,517
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,091 1,702
Distributions Reinvested 293 197
Redeemed (1,314) (960)
------------- -------------
Net Increase in Class A Shares
Outstanding 70 939
------------- -------------
------------- -------------
Dollars:
Subscribed $ 16,569 $ 23,872
Distributions Reinvested 4,157 2,639
Redeemed (19,605) (13,331)
------------- -------------
Net Increase $ 1,121 $ 13,180
------------- -------------
------------- -------------
Class B:
---------------------
Shares:
Subscribed 1,444 1,017
Distributions Reinvested 106 12
Redeemed (160) (7)
------------- -------------
Net Increase in Class B Shares
Outstanding 1,390 1,022
------------- -------------
------------- -------------
Dollars:
Subscribed $ 21,138 $ 14,112
Distributions Reinvested 1,475 158
Redeemed (2,336) (100)
------------- -------------
Net Increase $ 20,277 $ 14,170
------------- -------------
------------- -------------
Class C:
---------------------
Shares:
Subscribed 1,160 1,482
Distributions Reinvested 300 186
Redeemed (995) (575)
------------- -------------
Net Increase in Class C Shares
Outstanding 465 1,093
------------- -------------
------------- -------------
Dollars:
Subscribed $ 16,818 $ 20,425
Distributions Reinvested 4,194 2,471
Redeemed (14,404) (7,785)
------------- -------------
Net Increase $ 6,608 $ 15,111
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
- -----------
90
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>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 436 $ 772
Net Realized Gain 111 489
Change in Unrealized
Appreciation/Depreciation (84) (513)
------- -------------
Net Increase in Net Assets
Resulting from Operations 463 748
------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (218) (771)
Class B (46) (21)
Class C (74) (399)
In Excess of Net Investment Income:
Class A (41) (23)
Class B (9) (1)
Class C (14) (12)
------- -------------
Net Decrease in Net Assets
Resulting from Distributions (402) (1,227)
------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 4,760 8,720
Distributions Reinvested 335 676
Redeemed (6,304) (14,258)
------- -------------
Net Decrease in Net Assets
Resulting from Capital Share
Transactions (1,209) (4,862)
------- -------------
Total Decrease in Net Assets (1,148) (5,341)
NET ASSETS -- Beginning of Year 11,716 17,057
------- -------------
NET ASSETS -- End of Year (Including
distributions in excess of net
investment income of $(63) and
$(36), respectively) $ 10,568 $ 11,716
------- -------------
------- -------------
- -----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------------------
Shares:
Subscribed 256 589
Distributions Reinvested 22 50
Redeemed (382) (975)
------- -------------
Net Decrease in Class A Shares
Outstanding (104) (336)
------- -------------
------- -------------
Dollars:
Subscribed $ 2,529 $ 5,929
Distributions Reinvested 225 507
Redeemed (3,839) (9,791)
------- -------------
Net Decrease $ (1,085) $ (3,355)
------- -------------
------- -------------
Class B:
--------------------
Shares:
Subscribed 100 150
Distributions Reinvested 4 1
Redeemed (76) (6)
------- -------------
Net Increase in Class B Shares
Outstanding 28 145
------- -------------
------- -------------
Dollars:
Subscribed $ 999 $ 1,496
Distributions Reinvested 41 14
Redeemed (758) (63)
------- -------------
Net Increase $ 282 $ 1,447
------- -------------
------- -------------
Class C:
--------------------
Shares:
Subscribed 123 130
Distributions Reinvested 7 15
Redeemed (170) (443)
------- -------------
Net Decrease in Class C Shares
Outstanding (40) (298)
------- -------------
------- -------------
Dollars:
Subscribed $ 1,232 $ 1,295
Distributions Reinvested 69 155
Redeemed (1,707) (4,404)
------- -------------
Net Decrease $ (406) $ (2,954)
------- -------------
------- -------------
- -----------------------------------------------------------------------
</TABLE>
-----------------------
91
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (2,748) $ (1,844)
Net Realized Gain (Loss) (4,804) 5,364
Change in Unrealized
Appreciation/Depreciation (2,619) 9,465
----------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (10,171) 12,985
----------------- -------------
DISTRIBUTIONS:
Net Realized Gain:
Class A (33) --
Class B (10) --
Class C (24) --
In Excess of Net Realized Gain:
Class A (4,110) --
Class B (1,274) --
Class C (3,072) --
----------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (8,523) --
----------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 114,562 241,482
Distributions Reinvested 8,035 --
Redeemed (220,149) (103,699)
----------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Capital
Share Transactions (97,552) 137,783
----------------- -------------
Total Increase (Decrease) in Net
Assets (116,246) 150,768
NET ASSETS -- Beginning of Year 468,932 318,164
----------------- -------------
NET ASSETS -- End of Year (Including
net investment loss of $(1,153) and
$(160), respectively) $ 352,686 $ 468,932
----------------- -------------
----------------- -------------
- -----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,724 7,522
Distributions Reinvested 243 --
Redeemed (8,877) (3,936)
----------------- -------------
Net Increase (Decrease) in Class A
Shares Outstanding (3,910) 3,586
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 77,015 $ 127,388
Distributions Reinvested 3,930 --
Redeemed (144,501) (65,894)
----------------- -------------
Net Increase (Decrease) $ (63,556) $ 61,494
----------------- -------------
Class B:
---------------------
Shares:
Subscribed 1,466 3,225
Distributions Reinvested 77 --
Redeemed (803) (81)
----------------- -------------
Net Increase in Class B Shares
Outstanding 740 3,144
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 23,406 $ 54,005
Distributions Reinvested 1,210 --
Redeemed (12,628) (1,375)
----------------- -------------
Net Increase $ 11,988 $ 52,630
----------------- -------------
----------------- -------------
Class C:
---------------------
Shares:
Subscribed 883 3,629
Distributions Reinvested 184 --
Redeemed (3,989) (2,229)
----------------- -------------
Net Increase (Decrease) in Class C
Shares Outstanding (2,922) 1,400
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 14,140 $ 60,089
Distributions Reinvested 2,895 --
Redeemed (63,019) (36,430)
----------------- -------------
Net Increase (Decrease) $ (45,984) $ 23,659
----------------- -------------
----------------- -------------
- -----------------------------------------------------------------------
</TABLE>
- -----------
92
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>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 424 $ 666
Net Realized Gain 6,719 2,783
Change in Unrealized
Appreciation/Depreciation 7,544 3,203
------------- -------------
Net Increase in Net Assets
Resulting from Operations 14,687 6,652
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (309) (443)
Class B (25) (17)
Class C (133) (209)
In Excess of Net Investment Income:
Class A (1) (12)
Class B -- (1)
Class C -- (10)
------------- -------------
(468) (692)
------------- -------------
Net Realized Gain:
Class A (1,555) (331)
Class B (209) (20)
Class C (1,482) (252)
------------- -------------
(3,246) (603)
------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (3,714) (1,295)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 38,027 18,813
Distributions Reinvested 3,292 900
Redeemed (13,557) (16,260)
------------- -------------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 27,762 3,453
------------- -------------
Total Increase in Net Assets 38,735 8,810
NET ASSETS -- Beginning of Year 43,352 34,542
------------- -------------
NET ASSETS -- End of Year (Including
distributions in excess of net
investment income of $(1) and
$(23), respectively) $ 82,087 $ 43,352
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,025 515
Distributions Reinvested 119 42
Redeemed (538) (816)
------------- -------------
Net Increase (Decrease) in Class A
Shares Outstanding 606 (259)
------------- -------------
------------- -------------
Dollars:
Subscribed $ 16,463 $ 7,053
Distributions Reinvested 1,785 573
Redeemed (8,501) (11,471)
------------- -------------
Net Increase (Decrease) $ 9,747 $ (3,845)
------------- -------------
------------- -------------
Class B:
---------------------
Shares:
Subscribed 714 174
Distributions Reinvested 15 3
Redeemed (27) (7)
------------- -------------
Net Increase in Class B Shares
Outstanding 702 170
------------- -------------
------------- -------------
Dollars:
Subscribed $ 11,773 $ 2,376
Distributions Reinvested 228 36
Redeemed (420) (93)
------------- -------------
Net Increase $ 11,581 $ 2,319
------------- -------------
------------- -------------
Class C:
---------------------
Shares:
Subscribed 623 685
Distributions Reinvested 85 21
Redeemed (312) (334)
------------- -------------
Net Increase in Class C Shares
Outstanding 396 372
------------- -------------
------------- -------------
Dollars:
Subscribed $ 9,791 $ 9,384
Distributions Reinvested 1,279 291
Redeemed (4,636) (4,696)
------------- -------------
Net Increase $ 6,434 $ 4,979
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
-----------------------
93
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 13,435 $ 8,304
Net Realized Gain 9,362 4,060
Change in Unrealized Appreciation
/Depreciation 14,412 (637)
------------- -------------
Net Increase in Net Assets
Resulting from Operations 37,209 11,727
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A (5,678) (3,806)
Class B (4,269) (1,176)
Class C (3,020) (2,325)
------------- -------------
(12,967) (7,307)
------------- -------------
Realized Gain:
Class A (2,320) --
Class B (1,708) --
Class C (1,293) --
------------- -------------
(5,321) --
------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (18,288) (7,307)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 133,028 103,978
Distributions Reinvested 11,818 3,981
Redeemed (63,040) (43,317)
------------- -------------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 81,806 64,642
------------- -------------
Total Increase in Net Assets 100,727 69,062
NET ASSETS -- Beginning of Year 95,761 26,699
------------- -------------
NET ASSETS -- End of Year (Including
undistributed net investment income
of $311 and $1,157, respectively) $ 196,488 $ 95,761
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 5,082 4,713
Distributions Reinvested 423 190
Redeemed (3,469) (2,858)
------------- -------------
Net Increase in Class A Shares
Outstanding 2,036 2,045
------------- -------------
------------- -------------
Dollars:
Subscribed $ 67,886 $ 56,635
Distributions Reinvested 5,651 2,294
Redeemed (46,537) (34,479)
------------- -------------
Net Increase $ 27,000 $ 24,450
------------- -------------
------------- -------------
Class B:
---------------------
Shares:
Subscribed 3,787 2,125
Distributions Reinvested 246 44
Redeemed (622) (65)
------------- -------------
Net Increase in Class B Shares
Outstanding 3,411 2,104
------------- -------------
------------- -------------
Dollars:
Subscribed $ 50,939 $ 25,745
Distributions Reinvested 3,287 538
Redeemed (8,415) (797)
------------- -------------
Net Increase $ 45,811 $ 25,486
------------- -------------
------------- -------------
Class C:
---------------------
Shares:
Subscribed 1,057 1,792
Distributions Reinvested 217 95
Redeemed (596) (656)
------------- -------------
Net Increase in Class C Shares
Outstanding 678 1,231
------------- -------------
------------- -------------
Dollars:
Subscribed $ 14,203 $ 21,598
Distributions Reinvested 2,880 1,149
Redeemed (8,088) (8,041)
------------- -------------
Net Increase $ 8,995 $ 14,706
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
- -----------
94
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>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (131) $ 163
Net Realized Gain 13,981 752
Change in Unrealized
Appreciation/Depreciation 10,200 5,112
----------------- -------------
Net Increase in Net Assets
Resulting from Operations 24,050 6,027
----------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (18)
In Excess of Net Investment Income:
Class A (117) --
Class B (17) --
Class C (13) --
----------------- -------------
(147) (18)
----------------- -------------
Net Realized Gain:
Class A (2,192) --
Class B (359) --
Class C (727) --
----------------- -------------
(3,278) --
----------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (3,425) (18)
----------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 114,111 19,885
Distributions Reinvested 3,304 15
Redeemed (46,502) (10,130)
----------------- -------------
Net Increase in Net Assets
Resulitng from Capital Share
Transactions 70,913 9,770
----------------- -------------
Total Increase in Net Assets 91,538 15,779
NET ASSETS -- Beginning of Year 27,522 11,743
----------------- -------------
NET ASSETS -- End of Year (Including
undistributed (distribution in
excess of) net investment income of
$(11) and $132, respectively) $ 119,060 $ 27,522
----------------- -------------
----------------- -------------
- -----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 6,162 1,373
Distributions Reinvested 187 1
Redeemed (2,975) (737)
----------------- -------------
Net Increase in Class A Shares
Outstanding 3,374 637
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 90,337 $ 14,772
Distributions Reinvested 2,243 15
Redeemed (41,558) (7,673)
----------------- -------------
Net Increase $ 51,022 $ 7,114
----------------- -------------
----------------- -------------
Class B:
---------------------
Shares:
Subscribed 752 169
Distributions Reinvested 30 --
Redeemed (104) (5)
----------------- -------------
Net Increase in Class B Shares
Outstanding 678 164
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 11,139 $ 1,858
Distributions Reinvested 353 --
Redeemed (1,385) (52)
----------------- -------------
Net Increase $ 10,107 $ 1,806
----------------- -------------
----------------- -------------
Class C:
---------------------
Shares:
Subscribed 856 316
Distributions Reinvested 60 --
Redeemed (266) (224)
----------------- -------------
Net Increase in Class C Shares
Outstanding 650 92
----------------- -------------
----------------- -------------
Dollars:
Subscribed $ 12,635 $ 3,255
Distributions Reinvested 708 --
Redeemed (3,559) (2,405)
----------------- -------------
Net Increase $ 9,784 $ 850
----------------- -------------
----------------- -------------
- -----------------------------------------------------------------------
</TABLE>
-----------------------
95
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (538) $ 465
Net Realized Gain (Loss) 14,993 (518)
Change in Unrealized
Appreciation/Depreciation 7,475 14,532
------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Operations 21,930 14,479
------------- -------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (142)
In Excess of Net Investment Income:
Class A (291) --
Class B (52) --
Class C (44) --
------------- -------------
(387) (142)
------------- -------------
Net Realized Gain:
Class A (871) --
Class B (182) --
Class C (503) --
------------- -------------
(1,556) --
------------- -------------
In Excess of Net Realized Gain:
Class A -- (3)
Class C -- (2)
------------- -------------
-- (5)
------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (1,943) (147)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 133,953 141,283
Distributions Reinvested 1,855 133
Redeemed (111,716) (35,217)
------------- -------------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 24,092 106,199
------------- -------------
Total Increase in Net Assets 44,079 120,531
NET ASSETS -- Beginning of Year 168,867 48,336
------------- -------------
NET ASSETS -- End of Year (Including
undistributed (distributions in
excess of) net investment income of
$(659) and $306, respectively.) $ 212,946 $ 168,867
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 7,637 9,551
Distributions Reinvested 104 13
Redeemed (8,424) (2,502)
------------- -------------
Net Increase (Decrease) in Class A
Shares Outstanding (683) 7,062
------------- -------------
------------- -------------
Dollars:
Subscribed $ 89,680 $ 106,764
Distributions Reinvested 1,103 131
Redeemed (96,827) (27,528)
------------- -------------
Net Increase (Decrease) $ (6,044) $ 79,367
------------- -------------
------------- -------------
Class B:
---------------------
Shares:
Subscribed 2,028 883
Distributions Reinvested 20 --
Redeemed (205) (10)
------------- -------------
Net Increase in Class B Shares
Outstanding 1,843 873
------------- -------------
------------- -------------
Dollars:
Subscribed $ 23,982 $ 9,848
Distributions Reinvested 223 --
Redeemed (2,355) (116)
------------- -------------
Net Increase $ 21,850 $ 9,732
------------- -------------
------------- -------------
Class C:
---------------------
Shares:
Subscribed 1,753 2,245
Distributions Reinvested 51 --
Redeemed (1,086) (703)
------------- -------------
Net Increase in Class C Shares
Outstanding 718 1,542
------------- -------------
------------- -------------
Dollars:
Subscribed $ 20,292 $ 24,671
Distributions Reinvested 528 2
Redeemed (12,534) (7,573)
------------- -------------
Net Increase $ 8,286 $ 17,100
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
- -----------
96
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1996* TO
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (135) $ 27
Net Realized Gain 3,674 943
Change in Unrealized
Appreciation/Depreciation 3,205 274
------- -------
Net Increase in Net Assets
Resulting from Operations 6,744 1,244
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (16) (17)
Class B (5) (6)
Class C (5) (7)
------- -------
(26) (30)
------- -------
Net Realized Gain:
Class A (711) --
Class B (452) --
Class C (439) --
------- -------
(1,602) --
------- -------
Net Decrease in Net Assets
Resulting from Distributions (1,628) (30)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 57,588 9,793
Distributions Reinvested 1,037 10
Redeemed (7,818) (627)
------- -------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 50,807 9,176
------- -------
Total Increase in Net Assets 55,923 10,390
NET ASSETS -- Beginning of Year 10,390 --
------- -------
NET ASSETS -- End of Year $ 66,313 $ 10,390
------- -------
------- -------
- -----------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,309 410
Distributions Reinvested 35 1
Redeemed (392) (37)
------- -------
Net Increase in Class A Shares
Outstanding 952 374
------- -------
------- -------
Dollars:
Subscribed $ 20,966 $ 5,351
Distributions Reinvested 522 9
Redeemed (6,373) (479)
------- -------
Net Increase $ 15,115 $ 4,881
------- -------
------- -------
Class B:
---------------------
Shares:
Subscribed 1,905 170
Distributions Reinvested 18 --
Redeemed (51) (1)
------- -------
Net Increase in Class B Shares
Outstanding 1,872 169
------- -------
------- -------
Dollars:
Subscribed $ 30,344 $ 2,086
Distributions Reinvested 262 --
Redeemed (818) (11)
------- -------
Net Increase $ 29,788 $ 2,075
------- -------
------- -------
Class C:
---------------------
Shares:
Subscribed 404 190
Distributions Reinvested 17 --
Redeemed (42) (10)
------- -------
Net Increase in Class C Shares
Outstanding 379 180
------- -------
------- -------
Dollars:
Subscribed $ 6,278 $ 2,356
Distributions Reinvested 252 1
Redeemed (626) (137)
------- -------
Net Increase $ 5,904 $ 2,220
------- -------
------- -------
- -----------------------------------------------------------------------------
* Commencement of operations
</TABLE>
-----------------------
97
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1996* TO
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 280 $ 32
Net Realized Gain 2,077 --
Change in Unrealized
Appreciation/Depreciation 1,622 210
------------- ------
Net Increase in Net Assets
Resulting from Operations 3,979 242
------------- ------
DISTRIBUTIONS:
Net Investment Income:
Class A (162) (5)
Class B (57) (4)
Class C (31) (4)
------------- ------
(250) (13)
------------- ------
Net Realized Gain:
Class A (100) --
Class B (71) --
Class C (48) --
------------- ------
(219) --
------------- ------
Net Decrease in Net Assets
Resulting from Distributions (469) (13)
------------- ------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 23,984 5,578
Distributions Reinvested 268 1
Redeemed (9,254) --
------------- ------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 14,998 5,579
------------- ------
Total Increase in Net Assets 18,508 5,808
NET ASSETS -- Beginning of Year 5,808 --
------------- ------
NET ASSETS -- End of Year (Including
undistributed net investment income
of $55 and $19, respectively.) $ 24,316 $ 5,808
------------- ------
------------- ------
- ---------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,003 146
Distributions Reinvested 13 --
Redeemed (257) --
------------- ------
Net Increase in Class A Shares
Outstanding 759 146
------------- ------
------------- ------
Dollars:
Subscribed $ 15,148 $ 1,753
Distributions Reinvested 187 1
Redeemed (3,998) --
------------- ------
Net Increase $ 11,337 $ 1,754
------------- ------
------------- ------
Class B:
---------------------
Shares:
Subscribed 441 175
Distributions Reinvested 4 --
Redeemed (185) --
------------- ------
Net Increase in Class B Shares
Outstanding 260 175
------------- ------
------------- ------
Dollars:
Subscribed $ 6,607 $ 2,116
Distributions Reinvested 54 --
Redeemed (2,916) --
------------- ------
Net Increase $ 3,745 $ 2,116
------------- ------
------------- ------
Class C:
---------------------
Shares:
Subscribed 150 142
Distributions Reinvested 2 --
Redeemed (149) --
------------- ------
Net Increase in Class C Shares
Outstanding 3 142
------------- ------
------------- ------
Dollars:
Subscribed $ 2,229 $ 1,709
Distributions Reinvested 26 --
Redeemed (2,339) --
------------- ------
Net Increase $ (84) $ 1,709
------------- ------
------------- ------
- ---------------------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
98
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
<TABLE>
<CAPTION>
YEAR ENDED MAY 1, 1996* TO
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,246 $ 110
Net Realized Gain (Loss) 312 (3)
Change in Unrealized Appreciation
/Depreciation 881 (86)
------- -------
Net Increase in Net Assets
Resulting from Operations 2,439 21
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (434) (38)
Class B (454) (27)
Class C (338) (27)
------- -------
(1,226) (92)
------- -------
Realized Gain:
Class A (20) --
Class B (24) --
Class C (20) --
------- -------
(64) --
------- -------
Net Decrease in Net Assets
Resulting from Distributions (1,290) (92)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 12,562 10,709
Distributions Reinvested 237 6
Redeemed (2,025) --
------- -------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 10,774 10,715
------- -------
Total Increase in Net Assets 11,923 10,644
NET ASSETS -- Beginning of Year 10,644 --
------- -------
NET ASSETS -- End of Year (Including
undistributed net investment income
of $38 and $18, respectively.) $ 22,567 $ 10,644
------- -------
------- -------
- -------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 461 327
Distributions Reinvested 10 --
Redeemed (101) --
------- -------
Net Increase in Class A Shares
Outstanding 370 327
------- -------
------- -------
Dollars:
Subscribed $ 5,790 $ 3,930
Distributions Reinvested 131 5
Redeemed (1,282) --
------- -------
Net Increase $ 4,639 $ 3,935
------- -------
------- -------
Class B:
---------------------
Shares:
Subscribed 397 287
Distributions Reinvested 6 --
Redeemed (20) --
------- -------
Net Increase in Class B Shares
Outstanding 383 287
------- -------
------- -------
Dollars:
Subscribed $ 4,971 $ 3,443
Distributions Reinvested 72 1
Redeemed (249) --
------- -------
Net Increase $ 4,794 $ 3,444
------- -------
------- -------
Class C:
---------------------
Shares:
Subscribed 144 278
Distributions Reinvested 3 --
Redeemed (39) --
------- -------
Net Increase in Class C Shares
Outstanding 108 278
------- -------
------- -------
Dollars:
Subscribed $ 1,800 $ 3,336
Distributions Reinvested 35 --
Redeemed (494) --
------- -------
Net Increase $ 1,341 $ 3,336
------- -------
------- -------
- -------------------------------------------------------------------------
* Commencement of operations
</TABLE>
-----------------------
99
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
JULY 1, 1996* TO
JUNE 30, 1997
(000)
<S> <C>
- -------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 170
Net Realized Gain 770
Change in Unrealized
Appreciation/Depreciation 4,184
-------
Net Increase in Net Assets
Resulting from Operations 5,124
-------
DISTRIBUTIONS:
Net Investment Income:
Class A (52)
Class B (45)
Class C (43)
-------
(140)
-------
Net Realized Gain:
Class A (4)
Class B (4)
Class C (4)
-------
(12)
-------
Net Decrease in Net Assets
Resulting from Distributions (152)
-------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 47,034
Distributions Reinvested 50
Redeemed (2,724)
-------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 44,360
-------
Total Increase in Net Assets 49,332
NET ASSETS -- Beginning of Period --
-------
NET ASSETS -- End of Period
(Including undistributed net
investment income of $767) $ 49,332
-------
-------
- -------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,722
Distributions Reinvested 1
Redeemed (144)
-------
Net Increase in Class A Shares
Outstanding 1,579
-------
-------
Dollars:
Subscribed $ 21,512
Distributions Reinvested 14
Redeemed (1,786)
-------
Net Increase $ 19,740
-------
-------
Class B:
---------------------
Shares:
Subscribed 1,321
Distributions Reinvested 2
Redeemed (6)
-------
Net Increase in Class B Shares
Outstanding 1,317
-------
-------
Dollars:
Subscribed $ 16,670
Distributions Reinvested 18
Redeemed (73)
-------
Net Increase $ 16,615
-------
-------
Class C:
---------------------
Shares:
Subscribed 728
Distributions Reinvested 1
Redeemed (67)
-------
Net Increase in Class C Shares
Outstanding 662
-------
-------
Dollars:
Subscribed $ 8,852
Distributions Reinvested 18
Redeemed (865)
-------
Net Increase $ 8,005
-------
-------
- -------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
100
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 5,375 $ 4,114
Net Realized Gain (Loss) 8 (99)
------------- -------------
Net Increase in Net Assets
Resulting from Operations 5,383 4,015
------------- -------------
DISTRIBUTIONS:
Net Investment Income (5,375) (4,114)
Net Realized Gain -- (12)
------------- -------------
Net Decrease in Net Assets
Resulting from Distributions (5,375) (4,126)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 359,068 1,373,640
Distributions Reinvested 4,349 3,511
Redeemed (414,635) (1,298,567)
------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Capital
Share Transactions (51,218) 78,584
------------- -------------
Total Increase (Decrease) in Net
Assets (51,210) 78,473
NET ASSETS -- Beginning of Year 145,978 67,505
------------- -------------
NET ASSETS -- End of Year $ 94,768 $ 145,978
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Shares:
Subscribed 359,068 1,373,640
Distributions Reinvested 4,349 3,511
Redeemed (414,635) (1,298,567)
------------- -------------
Net Increase (Decrease) in Shares
Outstanding (51,218) 78,584
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
-----------------------
101
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
(000) (000)
<S> <C> <C>
- -------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,859 $ 7,849
Net Realized Gain (Loss) 13 (100)
------------- -------------
Net Increase in Net Assets
Resulting from Operations 8,872 7,749
------------- -------------
DISTRIBUTIONS:
Net Investment Income (8,859) (7,849)
------------- -------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 677,641 1,390,774
Distributions Reinvested 7,110 7,425
Redeemed (717,315) (1,398,641)
------------- -------------
Net Increase (Decrease) in Net
Assets Resulting from Capital
Share Transactions (32,564) (442)
------------- -------------
Total Increase (Decrease) in Net
Assets (32,551) (542)
NET ASSETS -- Beginning of Year 170,973 171,515
------------- -------------
NET ASSETS -- End of Year $ 138,422 $ 170,973
------------- -------------
------------- -------------
- -------------------------------------------------------------------
Capital Share Transactions:
(1) Shares:
Subscribed 677,641 1,390,774
Distributions Reinvested 7,110 7,425
Redeemed (717,315) (1,398,641)
------------- -------------
Net Increase (Decrease) in Shares
Outstanding (32,564) (442)
------------- -------------
------------- -------------
- -------------------------------------------------------------------
</TABLE>
- -----------
102
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.75 $ 12.60 $ 11.99 $ 11.09
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.10 0.19 0.12 0.10
Net Realized and Unrealized Gain
(Loss) 2.76 2.82 0.67 0.90
------- ------- ------- -------
Total From Investment Operations 2.86 3.01 0.79 1.00
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.55) (0.39) -- (0.03)
In Excess of Net Investment Income -- -- (0.05) --
Net Realized Gain (0.49) (0.47) (0.13) (0.07)
------- ------- ------- -------
Total Distributions (1.04) (0.86) (0.18) (0.10)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 16.57 $ 14.75 $ 12.60 $ 11.99
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) 20.61% 24.62% 6.69% 9.02%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 72,704 $ 63,706 $ 42,586 $ 33,425
Ratio of Expenses to Average Net
Assets 1.70% 1.70% 1.70% 1.70%
Ratio of Net Investment Income to
Average Net Assets 0.59% 0.71% 1.01% 0.98%
Portfolio Turnover Rate 45% 44% 39% 30%
Average Commission Rate #
Per Share $ 0.0021 N/A N/A N/A
As a Percentage of Trade Amount 0.83% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.03 $ 0.10 $ 0.04 $ 0.09
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.90% 2.06% 2.03% 2.58%
Net Investment Income (Loss) to
Average Net Assets 0.40% 0.35% 0.68% 0.10%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------
JANUARY 4, 1993* YEAR ENDED AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1993 JUNE 30, 1997 TO JUNE 30, 1996
<S> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 14.46 $ 13.01
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.04 (0.05) 0.30
Net Realized and Unrealized Gain
(Loss) 1.05 2.73 1.98
------- ------- -------
Total From Investment Operations 1.09 2.68 2.28
------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.50) (0.35)
In Excess of Net Investment Income -- -- --
Net Realized Gain -- (0.49) (0.48)
------- ------- -------
Total Distributions -- (0.99) (0.83)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.09 $ 16.15 $ 14.46
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 10.90% 19.64% 18.08%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 10,434 $ 38,962 $ 14,786
Ratio of Expenses to Average Net
Assets 1.70%** 2.45% 2.45%**
Ratio of Net Investment Income to
Average Net Assets 1.04%** (0.11)% 0.45%**
Portfolio Turnover Rate 14% 45% 44%
Average Commission Rate #
Per Share N/A $ 0.0021 N/A
As a Percentage of Trade Amount N/A 0.83% N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.08 $ 0.09 $ 0.22
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.65%** 2.65% 2.81%**
Net Investment Income (Loss) to
Average Net Assets (0.91)%** (0.30)% 0.09%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.49 $ 12.43 $ 11.90 $ 11.05
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) 0.12 0.04 0.06
Net Realized and Unrealized Gain
(Loss) 2.73 2.75 0.65 0.86
------- ------- ------- -------
Total From Investment Operations 2.70 2.87 0.69 0.92
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.46) (0.33) -- --
In Excess of Net Investment Income -- -- (0.03) --
Net Realized Gain (0.49) (0.48) (0.13) (0.07)
------- ------- ------- -------
Total Distributions (0.95) (0.81) (0.16) (0.07)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 16.24 $ 14.49 $ 12.43 $ 11.90
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) 19.69% 23.65% 5.84% 8.34%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 78,199 $ 63,025 $ 40,460 $ 29,892
Ratio of Expenses to Average Net
Assets 2.45% 2.45% 2.45% 2.45%
Ratio of Net Investment Income to
Average Net Assets (0.16)% (0.04)% 0.25% 0.23%
Portfolio Turnover Rate 45% 44% 39% 30%
Average Commission Rate #
Per Share $ 0.0021 N/A N/A N/A
As a Percentage of Trade Amount 0.83% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.03 $ 1.16 $ 0.05 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.65% 2.81% 2.78% 3.34%
Net Investment Income (Loss) to
Average Net Assets (0.34)% (0.40)% (0.08)% (0.66)%
<CAPTION>
JANUARY 4, 1993*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1993
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gain
(Loss) 1.04
-------
Total From Investment Operations 1.05
-------
DISTRIBUTIONS
Net Investment Income --
In Excess of Net Investment Income --
Net Realized Gain --
-------
Total Distributions --
-------
NET ASSET VALUE, END OF PERIOD $ 11.05
-------
-------
TOTAL RETURN (1) 10.50%
-------
-------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,995
Ratio of Expenses to Average Net
Assets 2.45%**
Ratio of Net Investment Income to
Average Net Assets 0.29%**
Portfolio Turnover Rate 14%
Average Commission Rate #
Per Share N/A
As a Percentage of Trade Amount N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 4.40%**
Net Investment Income (Loss) to
Average Net Assets (1.66)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
-----------------------
103
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.94 $ 10.23 $ 9.53 $ 10.55
------ ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.44 0.53 0.56 0.52
Net Realized and Unrealized Gain
(Loss) (0.02) (0.01) 0.50 (0.42)
------ ------ ------- -------
Total From Investment Operations 0.42 0.52 1.06 0.10
------ ------ ------- -------
DISTRIBUTIONS
Net Investment Income (0.35) (0.79) (0.36) (0.50)
In Excess of Net Investment Income (0.06) (0.02) -- (0.12)
Net Realized Gain -- -- -- (0.47)
In Excess of Net Realized Gain -- -- -- (0.03)
------ ------ ------- -------
Total Distributions (0.41) (0.81) (0.36) (1.12)
------ ------ ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53
------ ------ ------- -------
------ ------ ------- -------
TOTAL RETURN (1) 4.27% 5.20% 11.41% 0.41%
------ ------ ------- -------
------ ------ ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,407 $ 7,432 $ 11,092 $ 10,369
Ratio of Expenses to Average Net
Assets 1.45% 1.45% 1.45% 1.45%
Ratio of Net Investment Income to
Average Net Assets 4.40% 5.02% 5.84% 4.70%
Portfolio Turnover Rate 170% 223% 169% 168%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.12 $ 0.07 $ 0.07 $ 0.11
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.57% 2.16% 2.22% 2.48%
Net Investment Income to Average
Net Assets 3.25% 4.31% 5.07% 3.67%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
------------------------------------------
JANUARY 4, 1993* YEAR ENDED AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1993 JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.91 $ 10.24
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.41 0.64
Net Realized and Unrealized Gain
(Loss) 0.55 (0.07) (0.26)
------ ------ ------
Total From Investment Operations 0.80 0.34 0.38
------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.25) (0.29) (0.69)
In Excess of Net Investment Income -- (0.05) (0.02)
Net Realized Gain -- -- --
In Excess of Net Realized Gain -- -- --
------ ------ ------
Total Distributions (0.25) (0.34) (0.71)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 9.91 $ 9.91
------ ------ ------
------ ------ ------
TOTAL RETURN (1) 8.02% 3.48% 3.76%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,633 $ 1,716 $ 1,440
Ratio of Expenses to Average Net
Assets 1.45%** 2.20% 2.20%**
Ratio of Net Investment Income to
Average Net Assets 5.00%** 3.65% 3.38%**
Portfolio Turnover Rate 55% 170% 223%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.07 $ 0.13 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.88%** 3.37% 3.57%**
Net Investment Income to Average
Net Assets 3.57%** 2.45% 2.01%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.90 $ 10.20 $ 9.54 $ 10.56
------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.39 0.37 0.49 0.43
Net Realized and Unrealized Gain
(Loss) (0.05) 0.08 0.47 (0.40)
------ ------ ------ -------
Total From Investment Operations 0.34 0.45 0.96 0.03
------ ------ ------ -------
DISTRIBUTIONS
Net Investment Income (0.29) (0.73) (0.30) (0.44)
In Excess of Net Investment Income (0.05) (0.02) -- (0.11)
Net Realized Gain -- -- -- (0.47)
In Excess of Net Realized Gain -- -- -- (0.03)
------ ------ ------ -------
Total Distributions (0.34) (0.75) (0.30) (1.05)
------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54
------ ------ ------ -------
------ ------ ------ -------
TOTAL RETURN (1) 3.48% 4.47% 10.24% (0.25)%
------ ------ ------ -------
------ ------ ------ -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,445 $ 2,844 $ 5,965 $ 5,407
Ratio of Expenses to Average Net
Assets 2.20% 2.20% 2.20% 2.20%
Ratio of Net Investment Income to
Average Net Assets 3.65% 4.35% 5.09% 3.95%
Portfolio Turnover Rate 170% 223% 169% 168%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.12 $ 0.06 $ 0.08 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.35% 2.87% 2.97% 3.29%
Net Investment Income to Average
Net Assets 2.48% 3.68% 4.32% 2.86%
<CAPTION>
JANUARY 4, 1993*
SELECTED PER SHARE DATA AND RATIOS TO JUNE 30, 1993
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21
Net Realized and Unrealized Gain
(Loss) 0.55
------
Total From Investment Operations 0.76
------
DISTRIBUTIONS
Net Investment Income (0.20)
In Excess of Net Investment Income --
Net Realized Gain --
In Excess of Net Realized Gain --
------
Total Distributions (0.20)
------
NET ASSET VALUE, END OF PERIOD $ 10.56
------
------
TOTAL RETURN (1) 7.61%
------
------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 6,120
Ratio of Expenses to Average Net
Assets 2.20%**
Ratio of Net Investment Income to
Average Net Assets 4.25%**
Portfolio Turnover Rate 55%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.63%**
Net Investment Income to Average
Net Assets 2.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
- ------------------
104
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 23, 1993*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 TO JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 17.15 $ 16.42 $ 15.50 $ 12.00 $ 12.00
------------- ------------- ------------- ------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.06) (0.04) -- (0.03) --
Net Realized and Unrealized Gain
(Loss) (0.14) 0.77 1.43 3.53 --
------------- ------------- ------------- ------------- -------
Total From Investment Operations (0.20) 0.73 1.43 3.50 --
------------- ------------- ------------- ------------- -------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) -- --
In Excess of Net Realized Gain (0.33) -- (0.02) -- --
------------- ------------- ------------- ------------- -------
(0.33) -- (0.51) -- --
------------- ------------- ------------- ------------- -------
NET ASSET VALUE, END OF PERIOD $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00
------------- ------------- ------------- ------------- -------
------------- ------------- ------------- ------------- -------
TOTAL RETURN (1) (1.10)% 4.45% 9.50% 29.17% 0.00%
------------- ------------- ------------- ------------- -------
------------- ------------- ------------- ------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 175,440 $ 248,009 $ 178,667 $ 138,212 $ 11,770
Ratio of Expenses to Average Net
Assets 1.84% 1.88% 1.90% 1.90% 1.90%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.31)% (0.16)% 0.04% (0.24)% (0.81)%**
Portfolio Turnover Rate 74% 38% 34% 34% 0%
Average Commission Rate #
Per Share $ 0.0110 N/A N/A N/A N/A
As a Percentage of Trade Amount 0.51% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss -- -- -- $ 0.03 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- -- -- 2.17% 11.83%**
Net Investment Income (Loss) to
Average Net Assets -- -- -- (0.51)% (10.74)%**
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
---------------------------------------
YEAR ENDED AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
- ----------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.81 $ 16.51
------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.16) (0.03)
Net Realized and Unrealized Gain
(Loss) (0.15) 0.33
------------- -------
Total From Investment Operations (0.31) 0.30
------------- -------
DISTRIBUTIONS
Net Realized Gain -- --
In Excess of Net Realized Gain (0.33) --
------------- -------
(0.33) --
------------- -------
NET ASSET VALUE, END OF PERIOD $ 16.17 $ 16.81
------------- -------
------------- -------
TOTAL RETURN (1) (1.79)% 1.82%
------------- -------
------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 62,786 $ 52,853
Ratio of Expenses to Average Net
Assets 2.59% 2.61%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.04)% (0.52)%**
Portfolio Turnover Rate 74% %38
Average Commission Rate #
Per Share $ 0.0110 N/A
As a Percentage of Trade Amount 0.51% N/A
- ----------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss -- --
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- --
Net Investment Income (Loss) to
Average Net Assets -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA AND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 23, 1993*
RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 TO JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 16.78 $ 16.19 $ 15.40 $ 12.00 $ 12.00
------------- ------------- ------------- ------------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.21) (0.13) (0.12) (0.10) --
Net Realized and Unrealized
Gain (Loss) (0.10) 0.72 1.42 3.50 --
------------- ------------- ------------- ------------- ------
Total From Investment
Operations (0.31) 0.59 1.30 3.40 --
------------- ------------- ------------- ------------- ------
DISTRIBUTIONS
Net Realized Gain -- -- (0.49) -- --
In Excess of Net Realized Gain (0.33) -- (0.02) -- --
------------- ------------- ------------- ------------- ------
(0.33) -- (0.51) -- --
------------- ------------- ------------- ------------- ------
NET ASSET VALUE, END OF PERIOD $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00
------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------
TOTAL RETURN (1) (1.79)% 3.64% 8.71% 28.33% 0.00%
------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's) $ 114,460 $ 168,070 $ 139,497 $ 116,889 $ 8,491
Ratio of Expenses to Average Net
Assets 2.59% 2.63% 2.63% 2.65% 2.65%**
Ratio of Net Investment Income
(Loss) to Average Net Assets (1.06)% (0.94)% (0.77)% (0.99)% (1.56)%**
Portfolio Turnover Rate 74% 38% 34% 34% % 0
Average Commission Rate #
Per Share $ 0.0110 N/A N/A N/A N/A
As a Percentage of Trade
Amount 0.51% N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net
Investment Loss -- -- -- $ 0.03 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net Assets -- -- -- 2.92% 12.64%**
Net Investment Income (Loss)
to Average Net Assets -- -- -- (1.26)% (11.55)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for a periods of less than one year are
not annualized.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
-----------------------
105
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 18, 1993*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.63 $ 12.89 $ 11.70 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.20 0.27 0.27 0.17
Net Realized and Unrealized Gain
(Loss) 4.05 1.94 1.44 (0.30)
------- ------- ------- -------
Total from Investment Operations 4.25 2.21 1.71 (0.13)
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.20) (0.27) (0.28) (0.17)
In Excess of Net Investment Income (0.00)++ (0.01) -- --
Net Realized Gain (1.09) (0.19) (0.24) --
------- ------- ------- -------
Total Distributions (1.29) (0.47) (0.52) (0.17)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) 30.68% 17.41% 15.01% (1.12)%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 34,331 $ 19,674 $ 20,675 $ 10,717
Ratio of Expenses to Average Net
Assets 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment Income to
Average Net Assets 1.25% 1.90% 2.29% 2.14%**
Portfolio Turnover Rate 73% 41% 23% 17%
Average Commission Rate # $ 0.0452 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.76% 1.81% 1.96% 2.48%**
Net Investment Income to Average
Net Assets 0.98% 1.59% 1.83% 1.16%**
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
------------------------------------------
YEAR ENDED AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.63 $ 13.37
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.15
Net Realized and Unrealized Gain
(Loss) 4.05 1.46
------- ------
Total from Investment Operations 4.14 1.61
------- ------
DISTRIBUTIONS
Net Investment Income (0.09) (0.15)
In Excess of Net Investment Income (0.00)++ (0.01)
Net Realized Gain (1.09) (0.19)
------- ------
Total Distributions (1.18) (0.35)
------- ------
NET ASSET VALUE, END OF PERIOD $ 17.59 $ 14.63
------- ------
------- ------
TOTAL RETURN (1) 29.77% 12.29%
------- ------
------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 15,331 $ 2,485
Ratio of Expenses to Average Net
Assets 2.25% 2.25%**
Ratio of Net Investment Income to
Average Net Assets 0.40% 1.18%**
Portfolio Turnover Rate 73% 41%
Average Commission Rate # $ 0.0452 N/A
- -----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.06 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.48% 2.61%**
Net Investment Income to Average
Net Assets 0.14% 0.82%**
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 18, 1993*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.64 $ 12.89 $ 11.69 $ 12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.16 0.17 0.11
Net Realized and Unrealized Gain
(Loss) 4.05 1.94 1.44 (0.31)
------- ------- ------- ------
Total from Investment Operations 4.13 2.10 1.61 (0.20)
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.09) (0.15) (0.17) (0.11)
In Excess of Net Investment Income (0.00)++ (0.01) -- --
Net Realized Gain (1.09) (0.19) (0.24) --
------- ------- ------- ------
Total Distributions (1.18) (0.35) (0.41) (0.11)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69
------- ------- ------- ------
------- ------- ------- ------
TOTAL RETURN (1) 29.67% 16.50% 14.13% (1.70)%
------- ------- ------- ------
------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to Average Net
Assets 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment Income to
Average Net Assets 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 73% 41% 23% 17%
Average Commission Rate # $ 0.0452 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.47% 2.58% 2.71% 3.28%**
Net Investment Income to Average
Net Assets 0.22% 0.84% 1.08% 0.36%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share
(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.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
- ------------------
106
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
----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 21, 1994*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.47 $ 11.57 $ 12.17 $ 12.00
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.25 1.36 1.26 0.18
Net Realized and Unrealized Gain
(Loss) 2.30 0.80 (0.52) 0.16
------- ------- ------- -------
Total From Investment Operations 3.55 2.16 0.74 0.34
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (1.25) (1.26) (1.22) (0.17)
Net Realized Gain (0.51) -- (0.12) --
------- ------- ------- -------
Total Distributions (1.76) (1.26) (1.34) (0.17)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) 30.29% 19.61% 6.87% 2.86%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 76,439 $ 41,493 $ 14,819 $ 6,857
Ratio of Expenses to Average Net
Assets 1.52% 1.55% 1.55% 1.55%**
Ratio of Net Investment Income to
Average Net Assets 9.73% 11.95% 11.53% 8.29%**
Portfolio Turnover Rate 157% 220% 178% 19%
- ----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ -- $ 0.02 $ 0.05 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- 1.69% 1.97% 3.23%**
Net Invesment Income to Average Net
Assets -- 11.81% 11.11% 6.61%**
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------
YEAR ENDED AUGUST 1, 1995+
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 TO JUNE 30, 1996
<S> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.44 $ 11.63
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.07 1.18
Net Realized and Unrealized Gain
(Loss) 2.35 0.72
------- -------
Total From Investment Operations 3.42 1.90
------- -------
DISTRIBUTIONS
Net Investment Income (1.15) (1.09)
Net Realized Gain (0.51) --
------- -------
Total Distributions (1.66) (1.09)
------- -------
NET ASSET VALUE, END OF PERIOD $ 14.20 $ 12.44
------- -------
------- -------
TOTAL RETURN (1) 29.14% 17.07%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 78,340 $ 26,174
Ratio of Expenses to Average Net
Assets 2.27% 2.30%**
Ratio of Net Investment Income to
Average Net Assets 8.86% 12.06%**
Portfolio Turnover Rate 157% 220%
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ -- $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- 2.47%**
Net Invesment Income to Average Net
Assets -- 11.89%**
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 21, 1994*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 TO JUNE 30, 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 12.45 $ 11.58 $ 12.16 $ 12.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.16 1.30 1.17 0.17
Net Realized and Unrealized Gain
(Loss) 2.26 0.77 (0.50) 0.15
------- ------- ------- ------
Total From Investment Operations 3.42 2.07 0.67 0.32
------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (0.51) -- (0.12) --
------- ------- ------- ------
Total Distributions (1.66) (1.20) (1.25) (0.16)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 14.21 $ 12.45 $ 11.58 $ 12.16
------- ------- ------- ------
------- ------- ------- ------
TOTAL RETURN (1) 29.12% 18.71% 6.20% 2.62%
------- ------- ------- ------
------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to Average Net
Assets 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment Income to
Average Net Assets 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 157% 220% 178% 19%
- ----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ -- $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- 2.44% 2.74% 4.00%**
Net Invesment Income to Average Net
Assets -- 11.26% 10.28% 5.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
-----------------------
107
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------------- ----------------
YEAR ENDED YEAR ENDED JULY 6, 1994* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.63 $ 9.08 $ 12.00 $ 12.45
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.10 (0.02) (0.03)
Net Realized and Unrealized Gain
(Loss) 6.46 3.47 (2.70) 6.28
------- ------- ------- -------
Total From Investment Operations 6.48 3.57 (2.72) 6.25
------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income -- (0.02) -- --
In Excess of Net Investment Income (0.09) -- -- (0.08)
Net Realized Gain (1.63) -- -- (1.63)
Return of Capital -- -- (0.20) --
------- ------- ------- -------
Total Distributions (1.72) (0.02) (0.20) (1.71)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 17.39 $ 12.63 $ 9.08 $ 16.99
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN (1) 57.32% 39.35% (23.07)% 56.17%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 84,401 $ 18,701 $ 7,658 $ 14,314
Ratio of Expenses to Average Net
Assets 2.24% 2.11% 2.46%** 2.99%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.08)% 1.18% (0.44)%** (0.78)%
Portfolio Turnover Rate 241% 131% 107% 241%
Average Commission Rate #
Per Share $ 0.0006 N/A N/A $ 0.0006
As a Percentage of Trade Amount 0.31% N/A N/A 0.31%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.10 $ 0.09 $ 0.13 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.77% 3.28% 4.30%** 3.55%
Net Investment Income (Loss) to
Average Net Assets (0.61)% 0.01% (2.26)%** (1.34)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.10% 2.10% 2.10%** 2.85%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Realized and Unrealized Gain
(Loss) 2.84
------
Total From Investment Operations 2.87
------
DISTRIBUTIONS
Net Investment Income --
In Excess of Net Investment Income --
Net Realized Gain --
Return of Capital --
------
Total Distributions --
------
NET ASSET VALUE, END OF PERIOD $ 12.45
------
------
TOTAL RETURN (1) 29.26%
------
------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,041
Ratio of Expenses to Average Net
Assets 2.87%**
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.88%**
Portfolio Turnover Rate 131%
Average Commission Rate #
Per Share N/A
As a Percentage of Trade Amount N/A
- --------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.89%**
Net Investment Income (Loss) to
Average Net Assets (0.14)%**
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.85%**
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------
YEAR ENDED YEAR ENDED JULY 6, 1994*
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.43 $ 8.99 $ 12.00
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (0.07) 0.04 (0.08)
Net Realized and Unrealized Gain
(Loss) 6.31 3.40 (2.73)
------- ------ ------
Total From Investment Operations 6.24 3.44 (2.81)
------- ------ ------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net Investment Income (0.03) -- --
Net Realized Gain (1.63) -- --
Return of Capital -- -- (0.20)
------- ------ ------
Total Distributions (1.66) -- (0.20)
------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 17.01 $ 12.43 $ 8.99
------- ------ ------
------- ------ ------
TOTAL RETURN (1) 56.04% 38.26% (23.83)%
------- ------ ------
------- ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 20,345 $ 6,780 $ 4,085
Ratio of Expenses to Average Net
Assets 2.99% 2.86% 3.20%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.79)% 0.42% (1.16)%**
Portfolio Turnover Rate 241% 131% 107%
Average Commission Rate #
Per Share $ 0.0006 N/A N/A
As a Percentage of Trade Amount 0.31% N/A N/A
- ----------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.56% 4.06% 5.20%**
Net Investment Income (Loss) to
Average Net Assets (1.36)% (0.78)% (3.16)%**
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.85% 2.85% 2.85%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
- ------------------
108
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------- ----------------
YEAR ENDED YEAR ENDED JULY 6, 1994* YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.06 $ 10.61 $ 12.00 $ 11.94
---------------- ------------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01 0.05 0.05 (0.03)
Net Realized and Unrealized Gain
(Loss) 1.57 1.44 (1.44) 1.50
---------------- ------------- -------- --------
Total From Investment Operations 1.58 1.49 (1.39) 1.47
---------------- ------------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.04) -- --
In Excess of Net Investment Income (0.04) -- -- (0.04)
Net Realized Gain (0.13) -- -- (0.13)
---------------- ------------- -------- --------
Total Distributions (0.17) (0.04) -- (0.17)
---------------- ------------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.47 $ 12.06 $ 10.61 $ 13.24
---------------- ------------- -------- --------
---------------- ------------- -------- --------
TOTAL RETURN (1) 13.54% 14.16% (11.58)% 12.67%
---------------- ------------- -------- --------
---------------- ------------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 119,022 $ 114,850 $ 26,091 $ 35,966
Ratio of Expenses to Average Net
Assets 2.21% 2.16% 2.33%** 2.96%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.06)% 0.93% 0.81%** (0.64)%
Portfolio Turnover Rate 82% 42% 32% 82%
Average Commission Rate #
Per Share $ 0.0007 N/A N/A $ 0.0007
As a Percentage of Trade Amount 0.39% N/A N/A 0.39%
- ----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.03 $ 0.02 $ 0.04 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.41% 2.56% 3.10%** 3.17%
Net Invesment Income (Loss) to
Average Net Assets (0.27)% 0.53% 0.04%** (0.87)%
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.15% 2.15% 2.15%** 2.90%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
AUGUST 1, 1995+ TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.91
--------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gain
(Loss) 1.02
--------
Total From Investment Operations 1.03
--------
DISTRIBUTIONS
Net Investment Income --
In Excess of Net Investment Income --
Net Realized Gain --
--------
Total Distributions --
--------
NET ASSET VALUE, END OF PERIOD $ 11.94
--------
--------
TOTAL RETURN (1) 9.45%
--------
--------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 10,416
Ratio of Expenses to Average Net
Assets 2.91%**
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.30%**
Portfolio Turnover Rate 42%
Average Commission Rate #
Per Share N/A
As a Percentage of Trade Amount N/A
- ----------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.31%**
Net Invesment Income (Loss) to
Average Net Assets (0.10)%**
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.90%**
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED YEAR ENDED JULY 6, 1994* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.93 $ 10.53 $ 12.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.01) --
Net Realized and Unrealized Gain
(Loss) 1.55 1.41 (1.47)
-------- -------- --------
Total From Investment Operations 1.47 1.40 (1.47)
-------- -------- --------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net Investment Income (0.01) -- --
Net Realized Gain (0.13) -- --
-------- -------- --------
Total Distributions (0.14) -- --
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.26 $ 11.93 $ 10.53
-------- -------- --------
-------- -------- --------
TOTAL RETURN (1) 12.66% 13.30% (12.25)%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 57,958 $ 43,601 $ 22,245
Ratio of Expenses to Average Net
Assets 2.96% 2.91% 3.08%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.79)% (0.11)% 0.06%**
Portfolio Turnover Rate 82% 42% 32%
Average Commission Rate #
Per Share $ 0.0007 N/A N/A
As a Percentage of Trade Amount 0.39% N/A N/A
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.17% 3.34% 3.90%**
Net Invesment Income (Loss) to
Average Net Assets (1.00)% (0.54)% (0.76)%**
Ratio of Expenses to Average Net
Assets excluding country tax
expense 2.90% 2.90% 2.90%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
-----------------------
109
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------- ----------------
YEAR ENDED JANUARY 2, 1996* TO YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.40 $ 12.00 $ 14.38
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01 0.06 (0.02)
Net Realized and Unrealized Gain 3.95 2.40 3.86
------- ------ -------
Total From Investment Operations 3.96 2.46 3.84
------- ------ -------
DISTRIBUTION:
Net Investment Income (0.03) (0.06) (0.02)
Net Realized Gain (1.35) -- (1.35)
------- ------ -------
Total Distributions (1.38) (0.06) (1.37)
------- ------ -------
NET ASSET VALUE, END OF PERIOD $ 16.98 $ 14.40 $ 16.85
------- ------ -------
------- ------ -------
TOTAL RETURN (1) 28.93% 20.52% 28.01%
------- ------ -------
------- ------ -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 22,521 $ 5,382 $ 34,382
Ratio of Expenses to Average Net
Assets 1.57% 2.03%** 2.32%
Ratio of Net Investment Income (Loss)
to
Average Net Assets (0.04)% 1.22%** (0.83)%
Portfolio Turnover Rate 241% 204% 241%
Average Commission Rate # $ 0.0536 N/A $ 0.0536
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.22 $ 0.06 $ 0.02
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.38% 3.26%** 2.88%
Net Investment Income to Average
Net Assets (0.85)% (0.01)%** (1.43)%
Ratio of Expenses to Average Net
Assets
excluding dividend expense on
securities sold short 1.50% 1.50%** 2.25%
<CAPTION>
CLASS C
-------------------------------------------
JANUARY 2, 1996* TO YEAR ENDED JANUARY 2, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 14.37 $ 12.00
------ ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.03 (0.06) 0.03
Net Realized and Unrealized Gain 2.39 3.89 2.38
------ ------- ------
Total From Investment Operations 2.42 3.83 2.41
------ ------- ------
DISTRIBUTION:
Net Investment Income (0.04) (0.02) (0.04)
Net Realized Gain -- (1.35) --
------ ------- ------
Total Distributions (0.04) (1.37) (0.04)
------ ------- ------
NET ASSET VALUE, END OF PERIOD $ 14.38 $ 16.83 $ 14.37
------ ------- ------
------ ------- ------
TOTAL RETURN (1) 20.18% 28.04% 20.10%
------ ------- ------
------ ------- ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 2,426 $ 9,410 $ 2,582
Ratio of Expenses to Average Net
Assets 2.67%** 2.32% 2.67%**
Ratio of Net Investment Income (Loss)
to
Average Net Assets 0.43%** (0.77)% 0.44%**
Portfolio Turnover Rate 204% 241% 204%
Average Commission Rate # N/A $ 0.0536 N/A
- ----------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.07 $ 0.07 $ 0.07
Ratios Before Expense Limitation:
Expenses to Average Net Assets 3.79%** 3.23% 3.80%**
Net Investment Income to Average
Net Assets (0.69)%** (1.67)% (0.69)%**
Ratio of Expenses to Average Net
Assets
excluding dividend expense on
securities sold short 2.25%** 2.25% 2.25%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
- ------------------
110
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------- --------------------------------- -------------
YEAR ENDED MAY 1, 1996* TO YEAR ENDED MAY 1, 1996* TO YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.52 $ 12.00 $ 12.52 $ 12.00 $ 12.52
------------- ------ ------------- ------ -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.08 0.15 0.07 0.20
Net Realized and Unrealized Gain 4.03 0.48 4.12 0.48 4.07
------------- ------ ------------- ------ -------------
Total From Investment Operations 4.40 0.56 4.27 0.55 4.27
------------- ------ ------------- ------ -------------
DISTRIBUTION:
Net Investment Income (0.29) (0.04) (0.19) (0.03) (0.19)
Net Realized Gain (0.24) -- (0.24) -- (0.24)
------------- ------ ------------- ------ -------------
Total Distributions (0.53) (0.04) (0.43) (0.03) (0.43)
------------- ------ ------------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 16.39 $ 12.52 $ 16.36 $ 12.52 $ 16.36
------------- ------ ------------- ------ -------------
------------- ------ ------------- ------ -------------
TOTAL RETURN (1) 35.75% 4.63% 34.58% 4.54% 34.56%
------------- ------ ------------- ------ -------------
------------- ------ ------------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 14,827 $ 1,829 $ 7,120 $ 2,197 $ 2,369
Ratio of Expenses to Average Net
Assets 1.55% 1.55%** 2.30% 2.30%** 2.30%
Ratio of Net Investment Income to
Average Net Assets 2.33% 4.11%** 1.49% 3.35%** 1.46%
Portfolio Turnover Rate 143% 0% 143% 0% 143%
Average Commission Rate # $ 0.0582 N/A $ 0.0582 N/A $ 0.0582
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.16 $ 0.08 $ 0.11 $ 0.07 $ 0.17
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.51% 5.58%** 3.39% 6.34%** 3.58%
Net Investment Income to Average
Net Assets 1.36% 0.08%** 0.39% (0.69)%** 0.16%
<CAPTION>
MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1996
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.07
Net Realized and Unrealized Gain 0.48
------
Total From Investment Operations 0.55
------
DISTRIBUTION:
Net Investment Income (0.03)
Net Realized Gain --
------
Total Distributions (0.03)
------
NET ASSET VALUE, END OF PERIOD $ 12.52
------
------
TOTAL RETURN (1) 4.54%
------
------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 1,782
Ratio of Expenses to Average Net
Assets 2.30%**
Ratio of Net Investment Income to
Average Net Assets 3.39%**
Portfolio Turnover Rate 0%
Average Commission Rate # N/A
- --------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.08
Ratios Before Expense Limitation:
Expenses to Average Net Assets 6.32%**
Net Investment Income to Average
Net Assets (0.63)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
trades on which commissions were charged.
-----------------------
111
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------- ---------------------------------------
YEAR ENDED MAY 1, 1996* TO YEAR ENDED MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.92 $ 12.00 $ 11.93 $ 12.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.07 0.13 0.98 0.12
Net Realized and Unrealized Gain
(Loss) 0.99 (0.09) 0.99 (0.09)
------ ------ ------ ------
Total From Investment Operations 2.06 0.04 1.97 0.03
------ ------ ------ ------
DISTRIBUTION:
Net Investment Income (1.07) (0.12) (0.99) (0.10)
Net Realized Gain (0.05) -- (0.05) --
------ ------ ------ ------
Total Distributions (1.12) (0.12) (1.04) (0.10)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 12.86 $ 11.92 $ 12.86 $ 11.93
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN (1) 18.12% 0.29% 17.22% 0.21%
------ ------ ------ ------
------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 8,980 $ 3,907 $ 8,617 $ 3,421
Ratio of Expenses to Average Net
Assets 1.25% 1.25%** 2.00% 2.00%**
Ratio of Net Investment Income to
Average Net Assets 8.83% 6.85%** 7.99% 6.08%**
Portfolio Turnover Rate 104% 10% 104% 10%
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.10 $ 0.04 $ 0.10 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.04% 3.51%** 2.82% 4.25%**
Net Investment Income to Average
Net Assets 8.04% 4.59%** 7.17% 3.83%**
<CAPTION>
CLASS C
---------------------------------------
YEAR ENDED MAY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.93 $ 12.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.99 0.12
Net Realized and Unrealized Gain
(Loss) 0.98 (0.09)
------ ------
Total From Investment Operations 1.97 0.03
------ ------
DISTRIBUTION:
Net Investment Income (0.99) (0.10)
Net Realized Gain (0.05) --
------ ------
Total Distributions (1.04) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD $ 12.86 $ 11.93
------ ------
------ ------
TOTAL RETURN (1) 17.21% 0.21%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 4,970 $ 3,316
Ratio of Expenses to Average Net
Assets 2.00% 2.00%**
Ratio of Net Investment Income to
Average Net Assets 8.03% 6.07%**
Portfolio Turnover Rate 104% 10%
- -----------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.11 $ 0.04
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.88% 4.25%**
Net Investment Income to Average
Net Assets 7.15% 3.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
- ------------------
112
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------- ------------------- -------------------
JULY 1, 1996* TO JULY 1, 1996* TO JULY 1, 1996* TO
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00 $ 12.00 $ 12.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 0.10 0.06
Net Realized and Unrealized Gain 1.88 1.85 1.88
------- ------- -------
Total From Investment Operations 2.05 1.95 1.94
------- ------- -------
DISTRIBUTION:
Net Investment Income (0.13) (0.10) (0.10)
Net Realized Gain (0.01) (0.01) (0.01)
------- ------- -------
Total Distributions (0.14) (0.11) (0.11)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.91 $ 13.84 $ 13.83
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 17.30% 16.40% 16.27%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 21,961 $ 18,215 $ 9,156
Ratio of Expenses to Average Net
Assets 1.65% 2.40% 2.40%
Ratio of Net Investment Income to
Average Net Assets 1.39% 0.54% 0.29%
Portfolio Turnover Rate 22% 22% 22%
Average Commission Rate #
Per Share $ 0.0318 $ 0.0318 $ 0.0318
As a Percentage of Trade Amount 0.33% 0.33% 0.33%
- -------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.11 $ 0.17 $ 0.21
Ratios Before Expense Limitation:
Expenses to Average Net Assets 2.50% 3.34% 3.45%
Net Investment Income (Loss) to
Average Net Assets 0.52% (0.42)% (0.77)%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
(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.
-----------------------
113
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0443 0.0464 0.0448 0.0243 0.0246
Net Realized and Unrealized Gain
(Loss) -- (0.0011) -- 0.0011 0.0002
------------- ------------- ------------- ------------- -------------
Total From Investment Operations 0.0443 0.0453 0.0448 0.0254 0.0248
------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS:
Net Investment Income (0.0443) (0.0464) (0.0448) (0.0243) (0.0246)
Net Realized Gain -- (0.0001) -- (0.0011) (0.0002)
------------- ------------- ------------- ------------- -------------
Total Distributions (0.0443) (0.0465) (0.0448) (0.0254) (0.0248)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
TOTAL RETURN 4.53% 4.72% 4.58% 2.45% 2.51%
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 94,768 $ 145,978 $ 67,505 $ 102,551 $ 101,736
Ratio of Expenses to Average Net
Assets 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment Income to
Average Net Assets 4.43% 4.68% 4.61% 2.40% 2.50%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.27% 1.24% 1.12% 1.22% 1.19%
Net Investment Income to Average
Net Assets 4.10% 4.39% 4.44% 2.13% 2.26%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
114
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0450 0.0463 0.0446 0.0246
Net Realized and Unrealized Gain
(Loss) -- (0.0006) 0.0001 --
-------- -------- -------- --------
Total From Investment Operations 0.0450 0.0457 0.0447 0.0246
-------- -------- -------- --------
DISTRIBUTIONS:
Net Investment Income (0.0450) (0.0463) (0.0446) (0.0246)
Net Realized Gain -- -- (0.0001) --
-------- -------- -------- --------
Total Distributions (0.0450) (0.0463) (0.0447) (0.0246)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL RETURN 4.60% 4.72% 4.55% 2.49%
-------- -------- -------- --------
-------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 138,422 $ 170,973 $ 171,515 $ 176,599
Ratio of Expenses to Average Net
Assets 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment Income to
Average Net Assets 4.50% 4.65% 4.45% 2.45%
- -------------------------------------------------------------------------------------------------------------------------
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.27% 1.22% 1.18% 1.19%
Net Investment Income to Average
Net Assets 4.20% 4.41% 4.25% 2.24%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
SELECTED PER SHARE DATA AND RATIOS JUNE 30, 1993
<S> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
--------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0243
Net Realized and Unrealized Gain
(Loss) 0.0001
--------
Total From Investment Operations 0.0244
--------
DISTRIBUTIONS:
Net Investment Income (0.0243)
Net Realized Gain (0.0001)
--------
Total Distributions (0.0244)
--------
NET ASSET VALUE, END OF PERIOD $ 1.00
--------
--------
TOTAL RETURN 2.47%
--------
--------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 156,310
Ratio of Expenses to Average Net
Assets 0.98%
Ratio of Net Investment Income to
Average Net Assets 2.44%
- --------------------------------------------------------------------------
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.20%
Net Investment Income to Average
Net Assets 2.22%
- -------------------------------------------------------------------------------------------
</TABLE>
-----------------------
115
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
COMMON STOCKS (79.9%)
CONSUMER GOODS (3.9%)
12,880 Bergen Brunswig Corp. 'A'........................ $ 553
63,970 Columbia HCA/Healthcare Corp..................... 1,887
38,510 Mallinckrodt, Inc................................ 1,425
34,710 Maxicare Health Plans, Inc....................... 447
35,300 National Steel Corp. 'B'......................... 530
43,620 Owens Corning.................................... 1,603
4,900 Reynolds Metals Co............................... 279
28,100 Vencor, Inc...................................... 681
--------
7,405
--------
CAPITAL EQUIPMENT (23.2%)
15,140 AMR Corp......................................... 1,835
84,890 Aeroquip-Vickers Inc............................. 4,334
43,760 Arrow Electronics, Inc........................... 1,340
47,630 Beckman Instruments, Inc......................... 1,864
55,400 Case Corp........................................ 3,435
21,800 Caterpillar, Inc................................. 1,045
59,200 Cummins Engine................................... 3,811
30,680 DTE Energy Co.................................... 1,006
17,360 Deere & Co....................................... 952
17,000 Dow Chemical Co.................................. 1,679
23,210 Du Pont (EI) de Nemours Co....................... 1,406
20,200 Eaton Corp....................................... 1,908
31,490 Entergy Corp..................................... 819
18,310 FMC Corp......................................... 1,338
54,800 Goodyear Tire & Rubber Co........................ 3,325
70,660 Harnischfeger Industries, Inc.................... 2,698
39,150 Kennametal, Inc.................................. 2,063
100,270 Olsten Corp...................................... 1,491
41,625 Parker-Hannifin Corp............................. 1,852
18,260 Rohm & Haas Co................................... 1,679
18,970 Standard Register Co............................. 650
29,770 Tecumseh Products Co. 'A'........................ 1,466
39,210 Tektronix, Inc................................... 1,644
--------
43,640
--------
CONSUMER PRODUCTS--MISCELLANEOUS (20.7%)
32,590 Dana Corp........................................ 1,524
35,220 Dillards Inc. 'A'................................ 1,288
41,610 Federated Department Stores...................... 1,896
113,430 Ford Motor Co.................................... 4,877
48,780 General Motors Corp.............................. 2,976
44,100 International Business Machines Corp............. 4,832
81,740 Philip Morris Cos., Inc.......................... 3,556
78,340 RJR Nabisco Holdings Corp........................ 2,854
36,330 Russell Corp..................................... 1,110
43,830 Seagate Technology, Inc.......................... 994
49,600 Sears, Roebuck & Co.............................. 2,272
27,820 Springs Industries, Inc. 'A'..................... 1,403
60,700 Stratus Computer, Inc............................ 1,977
28,260 TRW, Inc......................................... 1,604
48,240 Toys 'R' Us, Inc................................. 1,646
34,310 Tupperware Corp.................................. 819
48,640 VF Corp.......................................... 2,247
49,890 Western Digital Corp............................. 1,007
--------
38,882
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------
ENERGY (7.5%)
19,880 Amoco Corp....................................... $ 1,789
23,210 Atlantic Richfield Co............................ 1,892
18,970 Cinergy Corp..................................... 676
15,900 Duke Power Co.................................... 827
7,990 El Paso Natural Gas.............................. 490
26,540 GPU, Inc......................................... 1,048
19,980 Mapco, Inc....................................... 862
39,660 Phillips Petroleum Co............................ 1,921
36,130 Repsol S.A. ADR.................................. 1,558
42,870 Ultramar Diamond Shamrock Corp................... 1,305
55,200 YPF S.A. ADR..................................... 1,853
--------
14,221
--------
FINANCE (16.0%)
26,140 Allstate Corp.................................... 2,245
26,440 American General Corp............................ 1,424
16,410 Bank of New York Co., Inc........................ 882
13,400 CIGNA Corp....................................... 2,241
11,350 Capital One Financial Corp....................... 514
26,820 Chase Manhattan Corp............................. 2,913
16,140 Chubb Corp....................................... 1,145
14,230 Citicorp......................................... 1,707
16,350 Crestar Financial Corp........................... 840
45,010 Everest Reinsurance Holdings, Inc................ 1,708
19,140 Fannie Mae....................................... 1,011
29,460 First Union Corp. (N.C.)......................... 1,436
20,220 Hartford Financial Services Group................ 1,693
29,160 Mellon Bank Corp................................. 1,653
40,770 Old Republic International Corp.................. 1,470
41,080 Reliastar Financial Corp......................... 1,520
13,520 Republic New York Corp........................... 1,470
31,690 Signet Banking Corp.............................. 1,709
37,960 TIG Holdings, Inc................................ 1,222
18,865 Transatlantic Holdings, Inc...................... 1,348
--------
30,151
--------
MATERIALS (4.1%)
22,930 British Petroleum ADR............................ 1,903
34,510 Cabot Corp....................................... 904
47,330 Great Lakes Chemical Corp........................ 2,124
35,800 IMC Global, Inc.................................. 1,128
45,900 Inland Steel Industries, Inc..................... 878
24,220 Westvaco Corp.................................... 790
--------
7,727
--------
SERVICES (4.5%)
25,380 CSX Corp......................................... 1,328
24,700 Delta Airlines Inc............................... 2,753
58,600 Foundation Health Systems 'A'.................... 1,644
44,810 IBP, Inc......................................... 1,022
39,660 Universal Foods Corp............................. 1,646
--------
8,393
--------
TOTAL COMMON STOCKS (COST $154,272)........................... 150,419
--------
</TABLE>
- --------------
116
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY
VALUE FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONT.)
NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENT (17.4%)
REPURCHASE AGREEMENT (17.4%)
$ 32,772 Chase Securities, Inc., 5.53%, dated 11/28/97,
due 12/01/97, to be repurchased at $32,787,
collateralized by $33,305 U.S. Treasury Notes,
6.125%, due 5/15/98, valued at $33,484
(COST $32,772)................................. $ 32,772
--------
TOTAL INVESTMENTS (97.3%) (COST $187,044)..................... 183,191
OTHER ASSETS IN EXCESS OF LIABILITIES (2.7%).................. 4,995
--------
NET ASSETS (100%)............................................. $188,186
--------
--------
</TABLE>
- ---------------
ADR -- American Depositary Receipt
-----------------------
117
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
FUND
(000)
<S> <C>
- -----------------------------------------------
ASSETS:
Investments in Securities, at
Value*
(Note 1) $183,191
Receivable for:
Investments Sold 960
Fund Shares Sold 4,111
Dividends 331
Interest 15
Deferred Organizational Costs 38
--------
Total Assets 188,646
--------
LIABILITIES:
Payable for:
Fund Shares Redeemed 23
Bank Overdraft 107
Investment Advisory Fees 143
Administrative Fees 36
Custody Fees 7
Professional Fees 9
Distribution Fees 84
Shareholder Reporting Expenses 6
Filing and Registration Fees 44
Other 1
--------
Total Liabilities 460
--------
NET ASSETS $188,186
--------
--------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 19
Paid in Capital in Excess of Par 190,335
Undistributed Net Investment Income 328
Accumulated Net Realized Gain 1,357
Unrealized Depreciation on
Investments (3,853)
--------
NET ASSETS $188,186
--------
--------
CLASS A SHARES:
Net Assets $ 94,426
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 9,342
Net Asset Value and Redemption
Price Per Share $ 10.11
--------
--------
Maximum Sales Charge 5.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share X
100-maximum sales charge) $ 10.73
--------
--------
CLASS B SHARES:
Net Assets $ 76,892
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 7,630
Net Asset Value and Offering Price
Per Share** $ 10.08
--------
--------
CLASS C SHARES:
Net Assets $ 16,868
Shares Issued and Outstanding
($.001 par value) (Authorized
2,625,000,000) 1,675
Net Asset Value and Offering Price
Per Share** $ 10.07
--------
--------
Investments at Cost $187,044
--------
--------
</TABLE>
- ---------------
* Including repurchase agreement aggregating $32,772,000.
** Redemption price may be subject to a contingent deferred sales charge.
- ------------------
118
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 7, 1997* TO
NOVEMBER 30, 1997
(UNAUDITED)
VALUE
FUND
(000)
<S> <C>
- --------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 717
Interest 416
-------
Total Income 1,133
-------
EXPENSES:
Investment Advisory Fees 354
Less: Fees Waived (96)
-------
Net Investment Advisory Fees 258
Administrative Fees 113
Custodian Fees 7
Filing and Registration Fees 45
Professional Fees 15
Shareholder Reports 11
Distribution Fees
Class A 57
Class B 178
Class C 36
Amortization of Organizational
Costs 25
Blue Sky Fees 59
Other 1
-------
Net Expenses 805
-------
Net Investment Income 328
-------
NET REALIZED GAIN (LOSS) ON:
Investments 1,357
-------
CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (3,853)
-------
Net Realized Gain (Loss) and Change
in Unrealized
Appreciation/Depreciation (2,496)
-------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (2,168)
-------
-------
</TABLE>
- -----------------
* Commencement of Operations
-----------------------
119
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
VALUE FUND
<TABLE>
<CAPTION>
JULY 7, 1997* TO
NOVEMBER 30, 1997
(UNAUDITED)
(000)
<S> <C>
- --------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 328
Net Realized Gain on Investments 1,357
Change in Unrealized
Appreciation/Depreciation (3,853)
-----------------
Net Decrease in Net Assets from
Operations (2,168)
-----------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 196,556
Redeemed (6,202)
-----------------
Net Increase in Net Assets
Resulting from Capital Share
Transactions 190,354
-----------------
Total Increase in Net Assets 188,186
NET ASSETS -- Beginning of Year --
-----------------
NET ASSETS -- End of Year (Including
undistributed net investment income
of $328) $ 188,186
-----------------
-----------------
- --------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 9,721
Redeemed (379)
-----------------
Net Increase in Class A Shares
Outstanding 9,342
-----------------
-----------------
Dollars:
Subscribed $ 99,328
Redeemed (3,878)
-----------------
Net Increase $ 95,450
-----------------
-----------------
Class B:
---------------------
Shares:
Subscribed 7,791
Redeemed (161)
-----------------
Net Increase in Class B Shares
Outstanding 7,630
-----------------
-----------------
Dollars:
Subscribed $ 79,467
Redeemed (1,647)
-----------------
Net Increase $ 77,820
-----------------
-----------------
Class C:
---------------------
Shares:
Subscribed 1,742
Redeemed (67)
-----------------
Net Increase in Class C Shares
Outstanding 1,675
-----------------
-----------------
Dollars:
Subscribed $ 17,761
Redeemed (677)
-----------------
Net Increase $ 17,084
-----------------
-----------------
- --------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
120
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
VALUE FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------- -------------------- --------------------
JULY 7, 1997* JULY 7, 1997* JULY 7, 1997*
TO NOVEMBER 30, 1997 TO NOVEMBER 30, 1997 TO NOVEMBER 30, 1997
SELECTED PER SHARE DATA AND RATIOS (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.01 0.01
Net Realized and Unrealized Gain 0.08 0.07 0.06
------- ------- -------
Total From Investment Operations 0.11 0.08 0.07
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 10.08 $ 10.07
------- ------- -------
------- ------- -------
TOTAL RETURN (1) 2.77% 2.01% 1.76%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 94,426 $ 76,892 $ 16,868
Ratio of Expenses to Average Net
Assets 1.50%** 2.25%** 2.25%**
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.13%** 0.37%** 0.39%**
Portfolio Turnover Rate 13% 13% 13%
Average Commission Rate $ 0.0590 $ 0.0590 $ 0.0590
- ----------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Limitation During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.72%** 2.47%** 2.47%**
Net Investment Income to Average
Net Assets 0.91%** 0.14%** 0.16%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
-----------------------
121
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
(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 November 30, 1997, the Fund had fifteen 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, Morgan Stanley Emerging Markets Fund, Morgan Stanley Aggressive
Equity Fund, Morgan Stanley U.S. Real Estate Fund, Morgan Stanley High Yield
Fund, Morgan Stanley International Magnum Fund, Morgan Stanley Value Fund,
Morgan Stanley Global Equity Fund, Morgan Stanley Government Obligations Money
Market Fund and Morgan Stanley Money Market 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," "Emerging Markets Fund," "Aggressive Equity Fund," "U.S. Real
Estate Fund," "High Yield Fund," "International Magnum Fund," "Value Fund,"
"Global Equity Fund," "Government Obligations Money Market Fund" and "Money
Market Fund" individually a "Portfolio" and collectively as the "Portfolios").
The Fund currently offers three classes of shares Class A, Class B and Class C
shares (with the exception of the Government Obligations Money Market and Money
Market Funds). Class A shares are sold with a front-end sales charge of up to
5.75%. Class B shares are sold with a contingent deferred sales charge on
redemptions made within 5 years of purchase which declines annually from 5% for
redemptions made in year one, down to 1.50% in year five. The contingent
deferred sales charge is based on the lesser of the current market value of the
shares redeemed or the total cost of such shares. 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 of 1%
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.
The Value Fund commenced operations on July 7, 1997. The financial statements
presented here are for the Value Fund only.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. 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 obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be 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 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 the Portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: The Portfolio may enter into repurchase agreements
under which the Portfolio lends excess cash and takes possession of securities
with an agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian for
the Portfolio takes possession of the underlying securities, with a market value
at least equal to the amount of the repurchase transaction, including principal
and 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 Portfolio 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 counterparty to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
4. ORGANIZATIONAL COSTS: The organizational costs of the Portfolio are being
amortized on a straight line basis over a
- ------------------
122
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOVEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
period of five years beginning with the Portfolio's commencement of operations.
Morgan Stanley Asset Management, Inc. has agreed that in the event any of its
initial shares in a Portfolio which comprised the Fund at its inception 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 the same time of redemption.
5. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date 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 Portfolio are recorded on the
ex-distribution date.
The amount and the character of income and capital gain distributions to be paid
by the Portfolio are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
B. ADVISER: Van Kampen American Capital Investment Advisory Corp., (the
"Adviser") a wholly owned subsidiary of Van Kampen American Capital, Inc. (an
indirect wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.)
and Morgan Stanley Asset Management, Inc. ("MSAM" or a "Sub-Adviser") a wholly
owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., provide the
Portfolio with investment advisory services for a fee computed daily and paid
monthly at the annual rate based on average daily net assets as follows:
<TABLE>
<CAPTION>
ASSETS
----------------------------------------------------
FROM
FIRST $500
$500 MILLION TO MORE THAN
PORTFOLIO MILLION $1 BILLION $1 BILLION
- ------------------------- ------- ---------- ---------------
<S> <C> <C> <C>
Value Fund............... 0.80% 0.75% 0.70%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Portfolio, if necessary, if the annual operating expenses, as defined,
expressed as a percentage of average daily net assets, exceed the maximum ratio
indicated as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE EXPENSE
PORTFOLIO RATIO RATIO
- ------------------------------------- ------------------ ---------------------------
<S> <C> <C>
Value Fund........................... 1.50% 2.25%
</TABLE>
C. ADMINISTRATOR: Van Kampen American Capital Investment Advisory Corp. (the
"Administrator") also provides the Portfolio 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 the Portfolio, plus
reimbursement of out-of-pocket expenses. Under an agreement between the Adviser
and The Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC"), Chase provides certain administrative services to
the Fund. Chase is compensated for such services by the Adviser from the fee it
receives from the Fund. Transfer Agency services are provided to the Fund by
ACCESS Investor Services, Inc., an affiliate of MSAM.
D. DISTRIBUTOR: Van Kampen American Capital Distributors, Inc. ("the
Distributor") a wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover
& Co., serves as the Distributor of the Portfolio's shares. The Distributor is
entitled to receive from the Portfolio a distribution fee, which is accrued
daily and paid quarterly, of an amount of 0.25% of the Class A shares and up to
1.00%, on an annualized basis, of the average daily net assets attributable to
the Class B and Class C shares of the Portfolio.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition the distributor may receive a contingent deferred sales
charge for certain purchases of Class B and Class C shares of the Portfolio
redeemed within one to five years following such purchase. For the period ended
November 30, 1997, the Distributor has advised the Portfolio that it earned
initial sales charges of $600,753 for Class A shares and deferred sales charges
of $27,897 and $1,061 for Class B shares and Class C shares, respectively.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co., acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held,
investments purchased and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses.
For the period ended November 30, 1997, the Portfolio incurred custody fees of
$7,381 that were payable to MSTC at November 30, 1997.
------------------
123
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOVEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
F. PURCHASES AND SALES: For the period ended November 30, 1997, purchases and
sales of investment securities other than long-term U.S. Government securities
and short-term investments were $163,282,495 and $10,367,603, respectively.
There were no purchases and sales of long term U.S. Government securities for
the period ended November 30, 1997 for the Portfolio.
G. OTHER: At November 30, 1997, cost and unrealized appreciation (depreciation)
for U.S. Federal income tax purposes of the investments was as follows:
<TABLE>
<CAPTION>
NET
COST APPREC. (DEPREC.) (DEPRECIATION)
PORTFOLIO (000) (000) (000) (000)
- --------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Value Fund........... $ 187,044 $ 3,685 $ (7,538) $ (3,853)
</TABLE>
- ------------------
124
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
- --------------------------------------------------------------------------------
Morgan Stanley Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on August 14, 1992 and commenced operations on January 4, 1993. The
Fund is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company which offers redeemable shares of
diversified and non-diversified investment portfolios.
As of June 30, 1997, the Fund had thirteen 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, Morgan Stanley Emerging Markets Fund, Morgan Stanley Aggressive
Equity Fund, Morgan Stanley U.S. Real Estate Fund, Morgan Stanley High Yield
Fund, Morgan Stanley International Magnum Fund, Morgan Stanley Government
Obligations Money Market Fund and Morgan Stanley Money Market 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," "Emerging Markets Fund," "Aggressive Equity Fund," "U.S.
Real Estate Fund," "High Yield Fund," "International Magnum Fund," "Government
Obligations Money Market Fund" and "Money Market Fund," individually a
"Portfolio" and collectively as the "Portfolios").
The Fund currently offers three classes of shares, Class A, Class B and Class C
Shares (with the exception of the Government Obligations Money Market and Money
Market Funds). Class A shares are sold with a front-end sales charge of up to
5.75%. Class B shares are sold with a contingent deferred sales charge on
redemptions made within 5 years of purchase which declines annually from 5% for
redemptions made in year one, down to 1.50% in year five. The contingent
deferred sales charge is based on the lesser of the current market value of the
shares redeemed or the total cost of such shares. 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 of 1%
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.
On July 16, 1996, The Boards of Directors of the PCS Cash Fund, Inc. approved an
Agreement and Plan of Reorganization and Liquidation by and between the PCS Cash
Fund, Inc. (comprised of the PCS Government-Obligations Money Market Portfolio,
PCS Money Market Portfolio and PCS Tax-Free Money Market Portfolio) and Morgan
Stanley Fund, Inc. On September 26, 1996, all or substantially all of the PCS
Cash Fund, Inc.'s assets and liabilities were transferred to Morgan Stanley
Fund, Inc. in exchange for shares of Morgan Stanley Fund, Inc.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. 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 obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be 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. Securities owned by the Government Obligations Money Market and
Money Market Funds are stated at amortized cost, which approximates market
value. All other securities and assets for which market values are not readily
available 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 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. A portfolio 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. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income and/or capital gains are
earned.
At June 30, 1997, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by U.S.
Federal income tax regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
JUNE 30, 2004
PORTFOLIOS (000)
- ------------------------------------- -----------------------
<S> <C>
Government Obligations Money
Market............................. $ 90
Money Market......................... $ 98
</TABLE>
------------------
125
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1996 to June 30, 1997 certain
Portfolios incurred and elected to defer until July 1, 1997, for U.S. Federal
income tax purposes, net currency and capital losses of approximately:
<TABLE>
<CAPTION>
CURRENCY
AND CAPITAL
LOSSES
PORTFOLIO (000)
- ------------------------------------- -------------------
<S> <C>
Global Fixed Income.................. $ 83
Asian Growth......................... 8,841
Latin American....................... 11
Emerging Markets..................... 223
</TABLE>
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and 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 counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. 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
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, the foreign currency portion of gains and losses realized on
sales and maturities of foreign denominated debt securities is 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 exchange
contracts, disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. 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) on
investments and foreign currency translations in the Statement of Assets and
Liabilities. The change in net unrealized currency gains (losses) for the period
is reflected on the Statement of Operations.
The net assets of certain Portfolios include issuers located in emerging
markets. There will be certain considerations and risks of these investments not
typically associated with investments in the United States. Changes in currency
exchange rates will affect the value of and investment income from such
securities. The smaller size of the markets themselves, lesser liquidity and
greater volatility contribute to risks in valuation as compared with the U.S.
securities markets. Also there is often substantially less publicly available
information about these issuers. Emerging markets may be subject to a greater
degree of governmental involvement in the economy and greater economic and
political uncertainty. Accordingly the price which the Fund realizes upon the
sale of securities in such markets may not be equal to its value as presented in
the financial statements.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
domestic companies may be subject to limitations in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies 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. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
- -----------------------
126
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
rates. A currency exchange 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 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 of the contract at the time
it was closed. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts but
is generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from the unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
6. SHORT SALES: The Aggressive Equity Fund may sell securities short. A short
sale is a transaction in which the Portfolio sells securities it may or may not
own, but has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolio is obligated to purchase securities at the market
price to replace the borrowed securities at the time of replacement. The
Portfolio may have to pay a premium to borrow the securities as well as pay
dividends or interests payable on the securities until they are replaced. The
Portfolio's obligation to replace the securities borrowed in connection with a
short sale will generally be secured by collateral deposited with the broker
that consists of cash, U.S. government securities or other liquid, high grade
debt obligations. In addition, the Portfolio will place in a segregated account
with its Custodian an amount of cash, U.S. government securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by the Portfolio involve
certain risks and special considerations. Possible losses from short sales
differ from losses that could be incurred from the purchase of a security,
because losses from short sales may be unlimited, whereas losses from purchases
cannot exceed the total amount invested.
7. PURCHASED OPTIONS: Certain Portfolios may purchase call or put options on
their portfolio securities. A Portfolio may purchase call options 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 an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
8. SECURITY LENDING: Certain Portfolios may lend investment securities to
qualified institutional investors who borrow securities in order to complete
certain transactions. By lending its investment securities, a Portfolio attempts
to increase its net investment income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that might
occur and any interest earned or dividends declared during the term of the loan
would accrue to the account of the Portfolio. Risks of delay in recovery of the
securities or even loss of rights in the collateral may occur should the
borrower of the securities fail financially. Risks may also arise to the extent
that the value of the collateral decreases below the value of the securities
loaned.
Portfolios that lend securities receive cash, securities issued or guaranteed by
the U.S. Government or letters of credit as collateral in an amount equal to or
exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in interest bearing repurchase agreements
with approved counterparties. A portion of the interest received on the
repurchase agreements is retained by the Fund and the remainder is rebated to
the borrower of the securities. The net amount of interest earned and interest
rebated is included in the Statement of Operations as interest income. The value
of loaned securities and related collateral outstanding at June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- ------------------------------------- ----------------------- ----------
<S> <C> <C>
Global Equity Allocation............. $ 26,175 $ 29,822
</TABLE>
At June 30, 1997, the Fund had invested the cash collateral in a repurchase
agreement with Goldman Sachs. Such repurchase agreement was collateralized by
U.S. Treasury obligations.
Morgan Stanley Trust Company, an affiliate of the Investment Adviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $23,000 for the year ended June 30, 1997.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not exceeding 120 days) after
the date of the transaction. Additionally each Portfolio may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and no income accrues to the Portfolio
on such securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed basis, it establishes a segregated
account in which it maintains liquid assets in an amount at least equal in value
to the Portfolio's commitments to purchase such securities. Purchasing
securities on a
------------------
127
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
forward commitment or when-issued or delayed delivery basis may involve a risk
that the market price at the time of delivery may be lower than the agreed upon
purchase price, in which case there could be an unrealized loss at the time of
delivery.
10. STRUCTURED SECURITIES: The Worldwide High Income Fund may invest in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. Structured Securities generally will expose the
Portfolio to credit risks equivalent to that of the underlying instruments.
Structured Securities are typically sold in private placement transactions with
no active trading market. Investments in Structured Securities may be more
volatile than their underlying instruments, however, any loss is limited to the
amount of the original investment.
11. 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 respective Portfolio's commencement of operations. Morgan Stanley Asset
Management, Inc. has agreed that in the event any of its initial shares in a
Portfolio which comprised the Fund at its inception 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 the same time of redemption.
12. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Portfolio 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.
Certain Portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A portion of
distributions received from REITs during the year is estimated to be a return of
capital and is recorded as a reduction of the cost of those securities.
The amount and the character of income and capital gain distributions to be paid
by the Fund are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing book and tax treatment for foreign
currency transactions, net operating losses, foreign taxes on net realized
gains, deductibility of interest expense on short sales and gains on certain
securities of corporations designated as "passive foreign investment companies."
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income (loss),
accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of presenting net investment income (loss) per share in the Financial
Highlights.
B. ADVISER: Morgan Stanley Asset Management, Inc. (the "Adviser" or "MSAM"), a
wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., provides
the Fund with investment advisory services at a fee paid quarterly (monthly for
the Government Obligations Money Market and Money Market Funds) 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 as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
PORTFOLIO ADVISORY FEE EXPENSE RATIO EXPENSE 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%
Aggressive Equity.................... 0.90% 1.50% 2.25%
U.S. Real Estate..................... 1.00% 1.55% 2.30%
High Yield........................... 0.75% 1.25% 2.00%
International Magnum................. 1.00% 1.65% 2.40%
Government Obligations Money Market.. 0.45% 0.95% N/A
Money Market......................... 0.45% 0.98% N/A
</TABLE>
- -----------------------
128
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
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, plus
reimbursement of out-of-pocket expenses. Under an agreement between MSAM and The
Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC"), Chase provides certain administrative services to
the Fund. Chase is compensated for such services by MSAM from the fee it
receives from the Fund.
Through December 13, 1996, the Administrative services provided by CGFSC
included transfer agency services. Effective December 14, 1996, transfer agency
services are provided to the Fund by ACCESS Investor Services, Inc., an
affiliate of MSAM.
Prior to September 26, 1996, Morgan Stanley Government Obligations Money Market
Fund and Morgan Stanley Money Market Fund, formerly referred to as PCS
Government Obligations Money Market Fund and PCS Money Market Fund, had an
Administration and Accounting Services Agreement with PFPC Inc., a wholly owned
subsidiary of the PNC Bank Corp. For administration services provided, PFPC Inc.
was entitled to receive from each Fund a fee, computed daily and payable
monthly, at an annual rate of 0.10% of the first $200 million of daily net
assets, 0.075% of the next $200 million of daily net assets, 0.05% of the next
$200 million of daily net assets and 0.03% of the daily net assets in excess of
$600 million.
Also, prior to September 26, 1996, PNC Bank Corp. served as custodian for each
of the Funds, and, PFPC Inc. served as the Fund's transfer agent.
D. DISTRIBUTOR: Through December 31, 1996 Morgan Stanley & Co. Incorporated,
then a wholly-owned subsidiary of Morgan Stanley Group, Inc. and an affiliate of
MSAM, served as the distributor of the Fund and provided all classes of each
Portfolio with distribution services pursuant to separate Distribution Plans in
accordance with Rule 12b-1 under the Investment Company Act of 1940 as amended.
Effective January 1, 1997, Van Kampen American Capital Distributors, Inc. ("the
Distributor"), a wholly owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co., serves as the Distributor of the Fund's shares. The Distributor
is entitled to receive from the Portfolios a distribution fee, which is accrued
daily and paid quarterly, of an amount of 0.25% of the Class A shares and up to
1.00%, on an annualized basis, of the average daily net assets attributable to
the Class B and Class C shares of each Portfolio. The Government Obligations
Money Market and Money Market Funds pay the Distributor a fee which is accrued
daily and paid monthly, up to 0.50%, on an annualized basis, of the average
daily net assets of those Portfolios.
Prior to September 26, 1996, Morgan Stanley Government Obligations Money Market
Fund and Morgan Stanley Money Market Fund, formerly referred to as PCS
Government Obligations Money Market Fund and PCS Money Market Fund, had a
Distribution Agreement with Morgan Stanley & Co. Incorporated (the
"Distributor"), a wholly owned subsidiary of Morgan Stanley Group, Inc. Under
the Agreement the Distributor was entitled to receive from each PCS Portfolio
compensation of its distribution costs at an annual rate of up to 0.50% of daily
net assets.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain purchases of Class B and Class C shares of each Portfolio
redeemed within one to five years following such purchase. For the year ended
June 30, 1997, the Distributor has advised the Fund that it earned initial sales
charges of $4,004,439 for Class A shares and deferred sales charges of $73,809
and $207,030 for Class B shares and Class C shares, respectively.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co., acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held, investment
purchase and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses.
For the year ended June 30, 1997, the following Portfolios incurred custody fees
and had amounts payable to MSTC at June 30, 1997:
<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
FUND (000) (000)
- ------------------------------------- -------------------- -----------------------
<S> <C> <C>
Global Equity Allocation............. $ 202 $ 19
Global Fixed Income.................. 10 1
Asian Growth......................... 649 59
Worldwide High Income................ 40 4
Latin American....................... 174 13
Emerging Markets..................... 380 31
International Magnum................. 85 7
</TABLE>
In addition, a Portfolio may earn interest income or incur interest expense
relating to cash balances with MSTC.
F. PURCHASES AND SALES: For the year ended June 30, 1997, 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............. $ 94,822 $ 68,059
Global Fixed Income.................. 15,402 15,361
Asian Growth......................... 293,880 397,476
American Value....................... 62,195 36,646
Worldwide High Income................ 278,203 210,400
Latin American....................... 175,549 111,367
Emerging Markets..................... 156,210 122,696
Aggressive Equity.................... 106,672 61,287
U.S. Real Estate..................... 31,254 18,652
High Yield........................... 22,803 14,303
International Magnum................. 44,778 3,740
</TABLE>
------------------
129
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1997
- --------------------------------------------------------------------------------
Purchases and sales of long term U.S. Government securities during the year
ended June 30, 1997 occurred in the Global Fixed Income Fund and totaled
$3,483,000 and $2,452,000 respectively.
G. OTHER: At June 30, 1997, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
Foreign denominated assets and liabilities, including Portfolio securities and
foreign currency holdings, were translated at the following exchange rates as of
June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentine Peso................ 0.99984 = $1.00
Australian Dollar............. 1.32450 = $1.00
Austrian Shilling............. 12.25850 = $1.00
Belgian Franc................. 35.93000 = $1.00
Brazilian Real................ 1.07650 = $1.00
British Pound................. 0.60074 = $1.00
Canadian Dollar............... 1.38050 = $1.00
Colombian Peso................ 1,090.00000 = $1.00
Danish Krone.................. 6.63590 = $1.00
Deutsche Mark................. 1.74310 = $1.00
Egyptian Pound................ 3.39750 = $1.00
Finnish Markka................ 5.18660 = $1.00
French Franc.................. 5.87420 = $1.00
Hong Kong Dollar.............. 7.74680 = $1.00
Hungarian Forint.............. 187.21000 = $1.00
Indian Rupee.................. 35.75000 = $1.00
Indonesian Rupiah............. 2,431.00000 = $1.00
Irish Punt.................... 0.66094 = $1.00
Israeli Shekel................ 3.58440 = $1.00
Italian Lira.................. 1,699.20000 = $1.00
Japanese Yen.................. 114.54000 = $1.00
Malaysian Ringgit............. 2.52350 = $1.00
Mexican Peso.................. 7.94200 = $1.00
Netherlands Guilder........... 1.96080 = $1.00
New Zealand Dollar............ 1.47275 = $1.00
Norwegian Krona............... 7.32460 = $1.00
Pakistan Rupee................ 40.41950 = $1.00
Peruvian Sol.................. 2.65000 = $1.00
Philippine Peso............... 26.35000 = $1.00
Polish Zloty.................. 3.28500 = $1.00
Singapore Dollar.............. 1.42920 = $1.00
South Korean Won.............. 886.00000 = $1.00
South African Rand............ 4.53550 = $1.00
Spanish Peseta................ 147.20000 = $1.00
Swedish Krona................. 7.73080 = $1.00
Swiss Franc................... 1.45950 = $1.00
Taiwan Dollar................. 27.78000 = $1.00
Thai Baht..................... 25.88000 = $1.00
Turkish Lira.................. 148,450.00000 = $1.00
Venezuelan Bolivar............ 486.31000 = $1.00
</TABLE>
During the year ended June 30, 1997, the Asian Growth Fund, American Value Fund,
Latin American Fund, Emerging Markets Fund and International Magnum Fund
incurred approximately $326,000, $1,000, $41,000, $80,000 and $15,000,
respectively, as brokerage commissions with Morgan Stanley & Co. Incorporated,
an affiliated broker/ dealer.
At June 30, 1997 the Global Equity Allocation Fund and Emerging Markets Fund
owned shares of affiliated funds for which the Funds earned dividend income of
approximately $277,000 and $38,000, respectively. The Global Equity Allocation
Fund incurred losses totaling $40,000 on sales of shares in affiliated funds
during the period.
At June 30, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments 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............. $162,933 $ 37,092 $ (5,725) $ 31,367
Global Fixed Income...... 9,641 80 (175) (95)
Asian Growth............. 320,218 63,343 (29,063) 34,280
American Value........... 71,159 13,694 (1,099) 12,595
Worldwide High Income.... 181,907 14,332 (581) 13,751
Latin American........... 106,111 14,672 (1,064) 13,608
Emerging Markets......... 192,835 41,940 (21,729) 20,211
Aggressive Equity........ 64,703 4,073 (782) 3,291
U.S. Real Estate......... 20,342 1,897 (74) 1,823
High Yield............... 21,617 814 (26) 788
International Magnum..... 49,695 4,657 (598) 4,059
Government Obligations
Money Market........... 94,977 -- -- --
Money Market............. 137,740 -- -- --
</TABLE>
H. SUBSEQUENT EVENTS: At a Special Meeting of Shareholders held on July 2, 1997,
the Shareholders elected a new Board of Directors and approved, effective July
2, 1997, a new investment advisory agreement with Van Kampen American Capital
Investment Advisory Corp., a wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co., and a new sub-advisory agreement with Morgan Stanley
Asset Management Inc. Also effective July 2, 1997, the responsibilities of MSAM
as administrator to the Fund were assumed by Van Kampen American Capital
Investment Advisory Corp.
The Morgan Stanley Value Fund, an additional series of the Fund, has commenced
operations effective July 7, 1997.
- -----------------------
130
<PAGE>
MORGAN STANLEY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of each of the portfolios constituting Morgan
Stanley Fund, Inc. (the "Fund") as of June 30, 1997, and the related statements
of operations and of changes in net assets and the financial highlights for the
year then ended. We have also audited the statements of changes in net assets
and the financial highlights for the Global Equity Allocation Portfolio, Global
Fixed Income Portfolio, Asian Growth Portfolio, American Value Portfolio,
Worldwide High Income Portfolio, Latin American Portfolio, Emerging Markets
Portfolio, Aggressive Equity Portfolio, U.S. Real Estate Portfolio, High Yield
Portfolio and International Magnum Portfolio (collectively the "non-money market
portfolios") for each of the earlier periods presented. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits. The
statements of changes in net assets for the year ended June 30, 1996 and the
financial highlights for each of the four years in the period ended June 30,
1996 for the Money Market Portfolio and Government Obligations Money Market
Portfolio (formerly separate portfolios of The PCS Cash Fund, Inc.) were audited
by other independent accountants whose report dated July 31, 1996 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities at June 30, 1997 by correspondence with the custodians and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of each of the portfolios constituting Morgan
Stanley Fund, Inc. at June 30, 1997, the results of their operations, the
changes in their net assets and the financial highlights for the year then
ended, and the changes in net assets and the financial highlights of the
non-money market portfolios for each of the earlier periods presented, in
conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 11, 1997
------------------
131
<PAGE>
MORGAN STANLEY FUNDS
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING: (UNAUDITED)
Morgan Stanley Fund, Inc. shareholders voted on proposals at a special meeting
held on July 2, 1997. The description of each proposal and number of shares
voted are as follows:
<TABLE>
<CAPTION>
1. To elect the following Directors to serve the Fund effective July 2, 1997 until such time as their VOTED FOR
successors have been duly appointed. (000)
-----------
<S> <C>
J. Miles Branagan........................................................................................... 278,313
Richard M. DeMartini........................................................................................ 278,320
Linda Hutton Heagy.......................................................................................... 278,324
R. Craig Kennedy............................................................................................ 278,318
Jack E. Nelson.............................................................................................. 278,315
Don G. Powell............................................................................................... 278,303
Jerome T. Robinson.......................................................................................... 278,291
Phillip Rooney.............................................................................................. 278,310
Fernando Sisto.............................................................................................. 278,255
Wayne W. Whalen............................................................................................. 278,316
<CAPTION>
1. To elect the following Directors to serve the Fund effective July 2, 1997 until such time as their WITHHELD
successors have been duly appointed. (000)
-----------
<S> <C>
J. Miles Branagan........................................................................................... 1,129
Richard M. DeMartini........................................................................................ 1,123
Linda Hutton Heagy.......................................................................................... 1,118
R. Craig Kennedy............................................................................................ 1,125
Jack E. Nelson.............................................................................................. 1,128
Don G. Powell............................................................................................... 1,139
Jerome T. Robinson.......................................................................................... 1,152
Phillip Rooney.............................................................................................. 1,132
Fernando Sisto.............................................................................................. 1,187
Wayne W. Whalen............................................................................................. 1,127
</TABLE>
<TABLE>
<CAPTION>
2. Approval of the investment advisory agreement by and between the following and Van Kampen AFFIRMATIVE AGAINST
American Capital Investment Advisory Corp. (000) (000)
----------- -----------
<S> <C> <C>
Global Equity Allocation Fund................................................................. 7,571 37
Global Fixed Income Fund...................................................................... 838 0
Asian Growth Fund............................................................................. 16,453 157
American Value Fund........................................................................... 2,723 5
Worldwide High Income Fund.................................................................... 9,498 71
Latin American Fund........................................................................... 3,181 25
Emerging Markets Fund......................................................................... 10,520 52
Aggressive Equity Fund........................................................................ 1,707 15
U.S. Real Estate Fund......................................................................... 980 2
High Yield Fund............................................................................... 1,182 --
International Magnum Fund..................................................................... 1,733 1
Government Obligations Money Market Fund...................................................... 77,583 21
Money Market Fund............................................................................. 143,488 204
<CAPTION>
2. Approval of the investment advisory agreement by and between the following and Van Kampen ABSTAIN
American Capital Investment Advisory Corp. (000)
-----------
<S> <C>
Global Equity Allocation Fund................................................................. 128
Global Fixed Income Fund...................................................................... 20
Asian Growth Fund............................................................................. 209
American Value Fund........................................................................... 32
Worldwide High Income Fund.................................................................... 150
Latin American Fund........................................................................... 57
Emerging Markets Fund......................................................................... 160
Aggressive Equity Fund........................................................................ 26
U.S. Real Estate Fund......................................................................... 10
High Yield Fund............................................................................... 4
International Magnum Fund..................................................................... 41
Government Obligations Money Market Fund...................................................... 0
Money Market Fund............................................................................. 578
</TABLE>
<TABLE>
<CAPTION>
3. Approval of the investment sub-advisory agreement by and between Van Kampen Capital AFFIRMATIVE AGAINST
Investment Advisory Corp. and Morgan Stanley Asset Management, Inc. (000) (000)
----------- -----------
<S> <C> <C>
Global Equity Allocation Fund................................................................. 7,569 41
Global Fixed Income Fund...................................................................... 838 0
Asian Growth Fund............................................................................. 16,441 162
American Value Fund........................................................................... 2,719 5
Worldwide High Income Fund.................................................................... 9,488 72
Latin American Fund........................................................................... 3,178 27
Emerging Markets Fund......................................................................... 10,514 58
Aggressive Equity Fund........................................................................ 1,702 19
U.S. Real Estate Fund......................................................................... 981 2
High Yield Fund............................................................................... 1,182 --
International Magnum Fund..................................................................... 1,735 1
Government Obligations Money Market Fund...................................................... 77,583 21
Money Market Fund............................................................................. 143,488 204
<CAPTION>
3. Approval of the investment sub-advisory agreement by and between Van Kampen Capital ABSTAIN
Investment Advisory Corp. and Morgan Stanley Asset Management, Inc. (000)
-----------
<S> <C>
Global Equity Allocation Fund................................................................. 126
Global Fixed Income Fund...................................................................... 20
Asian Growth Fund............................................................................. 216
American Value Fund........................................................................... 36
Worldwide High Income Fund.................................................................... 159
Latin American Fund........................................................................... 58
Emerging Markets Fund......................................................................... 160
Aggressive Equity Fund........................................................................ 26
U.S. Real Estate Fund......................................................................... 8
High Yield Fund............................................................................... 4
International Magnum Fund..................................................................... 39
Government Obligations Money Market Fund...................................................... 0
Money Market Fund............................................................................. 578
</TABLE>
<TABLE>
<CAPTION>
4. To eliminate the Morgan Stanley Worldwide High Income Fund's fundamental policy regarding AFFIRMATIVE
diversification and to reclassify the Fund as "non-diversified". (000) AGAINST (000)
--------------- ---------------
<S> <C> <C>
Worldwide High Income Fund.................................................................... 6,033 204
<CAPTION>
4. To eliminate the Morgan Stanley Worldwide High Income Fund's fundamental policy regarding
diversification and to reclassify the Fund as "non-diversified". ABSTAIN (000)
---------------
<S> <C>
Worldwide High Income Fund.................................................................... 204
</TABLE>
- -----------------------
132
<PAGE>
MORGAN STANLEY FUNDS
ADDITIONAL INFORMATION (CONT.)
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION: (UNAUDITED)
For the year ended June 30, 1997, the percentage of dividends that qualify for
the 70% dividend received deduction for corporate shareholders of the Global
Equity Allocation Fund, American Value Fund, Aggressive Equity Fund and High
Yield Fund is 15.81%, 92.51%, 7.28%, and 3.26%, respectively.
Global Equity Allocation Fund, Asian Growth Fund, American Value Fund, Latin
American Fund, Emerging Markets Fund and U.S. Real Estate Fund have designated
approximately $4,434,000, $8,522,000, $2,280,000, $1,429,000, $508,000 and
$1,000 as long-term capital gain for the fiscal year ended June 30, 1997.
Foreign taxes paid during the fiscal year ended June 30, 1997 amounting to
$254,000, $10,000, $963,000, $189,000 and $65,000 for Global Equity Allocation
Fund, Global Fixed Income Fund, Asian Growth Fund, Emerging Markets Fund and
International Magnum Fund, respectively, are expected to be passed through to
shareholders as foreign tax credits on Form 1099-DIV, which will be sent to
shareholders in late January 1998 for the year ended December 31, 1997. In
addition, for the year ended June 30, 1997, gross income derived from sources
within foreign countries amounted to $2,120,000, $489,000, $7,014,000,
$3,145,000 and $496,000 for Global Equity Allocation Fund, Global Fixed Income
Fund, Asian Growth Fund, Emerging Markets Fund and International Magnum Fund,
respectively.
For the year ended June 30, 1997, the percentage of income earned from direct
Treasury obligations was 22.94%, 25.73%, and 22.68% for the Global Fixed Income
Fund, Government Obligations Money Market Fund, and Money Market Fund,
respectively.
------------------
133
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL
EQUITY GLOBAL WORLDWIDE
ALLO- GLOBAL FIXED ASIAN AMERICAN HIGH LATIN
CATION EQUITY INCOME GROWTH VALUE VALUE INCOME AMERICAN
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in Securities, at Value* (Note 1)
-- See accompanying portfolios $ 208,401 $600,108 $ 9,284 $124,497 $289,405 $211,990 $ 239,548 $120,413
Foreign Currency 224 1,656 6 2,197 -- -- -- 916
Cash -- -- 6 -- -- -- 783 26
Margin Deposit on Futures 2,728 -- -- -- -- -- -- --
Receivable for:
Investments Sold -- -- -- 5,028 6,740 673 2,593 772
Daily Variation on Futures Contracts 557 -- -- -- -- -- -- --
Securities Sold Short -- -- -- -- -- -- -- --
Fund Shares Sold 851 2,078 1 938 4,852 2,514 1,283 1,888
Dividends 570 677 -- 54 208 243 5 138
Interest 6 8 180 -- 4 11 5,108 1
Security Lending Income 23 -- -- -- -- -- -- --
Foreign Withholding Tax Reclaim 59 20 2 27 -- -- -- --
Net Unrealized Gain on Foreign Currency
Exchange Contracts 867 -- 22 484 -- -- -- --
Deferred Organizational Costs -- 1 -- 2 3 38 5 5
Due from Broker -- -- -- -- -- -- -- --
Receivable from Investment Adviser -- -- 44 -- -- -- -- --
Securities, at Value, Held as Collateral for
Securities Loaned 16,567 -- -- -- -- -- -- --
Other 8 -- -- 22 22 1 -- 259
---------- -------- ------- -------- -------- -------- --------- --------
Total Assets 230,861 604,548 9,545 133,249 301,234 215,470 249,325 124,418
---------- -------- ------- -------- -------- -------- --------- --------
LIABILITIES:
Payable for:
Investments Purchased 50 33,811 -- 111 10,378 4,274 6,862 3,068
Securities Sold Short, at Value (Proceeds --
$605) -- -- -- -- -- -- -- --
Fund Shares Redeemed 373 478 4 2,621 2,250 460 378 1,801
Bank Overdraft -- 7 -- 385 763 10 -- --
Dividends Declared 38 -- 7 1 -- -- 5,410 --
Investment Advisory Fees 93 484 -- 120 123 43 150 60
Administrative Fees 47 121 2 31 57 44 50 32
Custody Fees 98 25 10 149 31 64 44 95
Professional Fees 9 17 12 14 5 12 12 10
Distribution Fees 252 848 8 159 298 193 289 106
Shareholder Reporting Expenses 26 18 5 57 23 19 9 16
Transfer Agent Fees 9 24 2 14 11 10 9 8
Directors' Fees and Expenses 6 2 1 16 2 1 6 2
Securities Lending Expense 16 -- -- -- -- -- -- --
Filing and Registration Fees 8 36 -- 1 44 60 12 1
Deferred Country Tax -- -- -- 39 -- -- -- 5
Collateral on Securities Loaned 16,567 -- -- -- -- -- -- --
Net Unrealized Loss on Foreign Currency
Exchange Contracts -- 39 -- -- -- -- -- --
Net Unrealized Loss on Swap Agreement -- -- -- -- -- -- -- --
Other 1 -- 1 4 -- 1 6 1
---------- -------- ------- -------- -------- -------- --------- --------
Total Liabilities 17,593 35,910 52 3,722 13,985 5,191 13,237 5,205
---------- -------- ------- -------- -------- -------- --------- --------
NET ASSETS $ 213,268 $568,638 $ 9,493 $129,527 $287,249 $210,279 $ 236,088 $119,213
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
</TABLE>
- ---------------
* Includes repurchase agreements aggregating $32,681,000, $25,400,000,
$649,000, $22,945,000, $31,553,000, $12,585,000, $3,861,000,
$3,601,000 $5,507,000, $598,000, $12,568,000 and $37,961,000 for
Global Equity Allocation Fund, Global Equity Fund, Global Fixed Income
Fund, American Value Fund, Value Fund, Worldwide High Income Fund,
Latin American Fund, Aggressive Equity Fund, U.S. Real Estate Fund,
High Yield Fund, International Magnum Fund, and Money Market Fund,
respectively.
-----------------------
89
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GOVERNMENT
U.S. INTER- OBLIGATIONS
EMERGING AGGRESSIVE REAL HIGH NATIONAL MONEY MONEY
MARKETS EQUITY ESTATE YIELD MAGNUM MARKET MARKET
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 $159,328 $ 103,714 $41,001 $18,299 $79,535 $ 52,742 $362,669
Foreign Currency 9,925 -- -- -- 695 -- --
Cash -- -- 122 1 -- 259 --
Margin Deposit on Futures -- -- -- -- -- -- --
Receivable for:
Investments Sold 6,120 4,766 98 -- 48 -- --
Daily Variation on Futures Contracts -- -- -- -- -- -- --
Securities Sold Short -- 605 -- -- -- -- --
Fund Shares Sold 10,355 2,387 245 243 1,223 -- --
Dividends 429 50 247 -- 173 -- --
Interest 2 1 5 299 2 161 1,133
Security Lending Income -- -- -- -- -- -- --
Foreign Withholding Tax Reclaim -- -- -- -- 49 -- --
Net Unrealized Gain on Foreign Currency
Exchange Contracts -- -- -- -- 659 -- --
Deferred Organizational Costs 4 31 14 16 26 -- --
Due from Broker -- 303 -- -- -- -- --
Receivable from Investment Adviser -- -- 17 32 12 1 --
Securities, at Value, Held as Collateral for
Securities Loaned -- -- -- -- -- -- --
Other 11 39 -- -- 4 -- --
-------- ---------- ------- ------- ------ ---------- --------
Total Assets 186,174 111,896 41,749 18,890 82,426 53,163 363,802
-------- ---------- ------- ------- ------ ---------- --------
LIABILITIES:
Payable for:
Investments Purchased 420 4,542 417 102 1,976 -- --
Securities Sold Short, at Value (Proceeds --
$605) -- 591 -- -- -- -- --
Fund Shares Redeemed 3,239 75 3,785 6 318 -- --
Bank Overdraft 3,095 211 -- -- 45 -- 25
Dividends Declared 36 -- -- 289 -- 78 573
Investment Advisory Fees 62 4 -- -- -- -- 116
Administrative Fees 45 20 8 4 18 10 27
Custody Fees 238 33 44 15 50 8 18
Professional Fees 17 10 8 5 14 10 9
Distribution Fees 205 118 34 25 86 52 169
Shareholder Reporting Expenses 27 14 5 4 11 4 --
Transfer Agent Fees 9 7 2 1 5 -- 1
Directors' Fees and Expenses 6 1 1 -- 1 4 7
Securities Lending Expense -- -- -- -- -- -- --
Filing and Registration Fees 8 5 2 -- 12 -- 44
Deferred Country Tax 22 -- -- -- -- -- --
Collateral on Securities Loaned -- -- -- -- -- -- --
Net Unrealized Loss on Foreign Currency
Exchange Contracts 5 -- -- -- -- -- --
Net Unrealized Loss on Swap Agreements 581 -- -- -- -- -- --
Other 16 -- 1 -- 1 -- --
-------- ---------- ------- ------- ------ ---------- --------
Total Liabilities 8,031 5,631 4,307 451 2,537 166 989
-------- ---------- ------- ------- ------ ---------- --------
NET ASSETS $178,143 $ 106,265 $37,442 $18,439 $79,889 $ 52,997 $362,813
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
</TABLE>
- ------------------
90
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GLOBAL
EQUITY GLOBAL WORLDWIDE
ALLO- GLOBAL FIXED ASIAN AMERICAN HIGH LATIN
CATION EQUITY INCOME GROWTH VALUE VALUE INCOME AMERICAN
FUND FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 15 $ 57 $ 1 $ 16 $ 15 $ 21 $ 18 $ 9
Paid in Capital in Excess of Par 199,344 572,646 9,648 253,790 266,632 212,383 235,378 125,412
Undistributed (Distributions in Excess of) Net
Investment Income (915) 18 (75) (2,683) (638) (7) 747 (804)
Accumulated (Distributions in Excess of) Net
Realized Gain (Loss) (1,395) 640 (74) (87,866) 6,140 (576) 528 (7,086)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations** 16,219 (4,723) (7) (33,730) 15,100 (1,542) (583) 1,682
---------- -------- ------- -------- -------- -------- --------- --------
NET ASSETS $ 213,268 $568,638 $ 9,493 $129,527 $287,249 $210,279 $ 236,088 $119,213
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
CLASS A SHARES:
Net Assets $ 74,593 $ 55,372 $ 5,851 $ 63,990 $106,826 $102,701 $ 82,139 $ 66,929
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 5,202 5,590 589 7,708 5,502 10,166 6,323 4,964
Net Asset Value and Redemption Price Per Share $ 14.34 $ 9.91 $ 9.93 $ 8.30 $ 19.41 $ 10.10 $ 12.99 $ 13.48
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
Maximum Sales Charge 5.75% 5.75% 4.75% 5.75% 5.75% 5.75% 4.75% 5.75%
Maximum Offering Price Per Share
(Net Asset Value Per Share X 100 / (100 -
maximum sales charge)) $ 15.21 $ 10.51 $ 10.43 $ 8.81 $ 20.59 $ 10.72 $ 13.64 $ 14.30
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
CLASS B SHARES:
Net Assets $ 58,639 $467,465 $ 1,539 $ 27,558 $107,301 $ 88,112 $ 103,847 $ 29,554
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 4,209 47,188 156 3,427 5,544 8,733 8,036 2,263
Net Asset Value and Offering Price Per Share*** $ 13.93 $ 9.91 $ 9.88 $ 8.04 $ 19.36 $ 10.09 $ 12.92 $ 13.06
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
CLASS C SHARES:
Net Assets $ 80,036 $ 45,801 $ 2,103 $ 37,979 $ 73,122 $ 19,466 $ 50,102 $ 22,730
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 5,688 4,623 213 4,732 3,777 1,931 3,875 1,739
Net Asset Value and Offering Price Per Share*** $ 14.07 $ 9.91 $ 9.87 $ 8.03 $ 19.36 $ 10.08 $ 12.93 $ 13.07
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
Investments at Cost, Including Foreign Currency $ 193,680 $606,694 $ 9,316 $160,851 $274,305 $213,532 $ 240,047 $119,640
---------- -------- ------- -------- -------- -------- --------- --------
---------- -------- ------- -------- -------- -------- --------- --------
</TABLE>
- ---------------
** Net of accrual for country tax of $38,000 for Asian Growth Fund,
$5,000 for Latin American Fund and $125,000 for Emerging Markets Fund.
*** Redemption price may be subject to a contingent deferred sales charge.
-----------------------
91
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GOVERNMENT
U.S. INTER- OBLIGATIONS
EMERGING AGGRESSIVE REAL HIGH NATIONAL MONEY MONEY
MARKETS EQUITY ESTATE YIELD MAGNUM MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital Stock at Par $ 19 $ 6 $ 2 $ 15 $ 6 $ 59 $ 363
Paid in Capital in Excess of Par 218,344 97,368 33,397 17,598 82,264 53,037 362,611
Undistributed (Distributions in Excess of) Net
Investment Income (1,380) (390) 12 41 (97) (7) (68)
Accumulated (Distributions in Excess of) Net
Realized Gain (Loss) (7,671) 3,627 338 154 (478) (92) (93)
Unrealized Appreciation (Depreciation) on
Investments and Foreign Currency
Translations** (31,169) 5,654 3,693 631 (1,806) -- --
-------- ---------- ------- ------- ------ ---------- --------
NET ASSETS $178,143 $ 106,265 $37,442 $18,439 $79,889 $ 52,997 $362,813
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
CLASS A SHARES:
Net Assets $ 95,359 $ 35,689 $20,768 $ 5,644 $36,918 $ 52,997 $362,813
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 10,106 2,003 1,237 448 2,915 53,096 362,974
Net Asset Value and Redemption Price Per Share $ 9.44 $ 17.82 $ 16.79 $ 12.59 $12.67 $ 1.00 $ 1.00
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
Maximum Sales Charge 5.75% 5.75% 5.75% 4.75% 5.75% -- --
Maximum Offering Price Per Share
(Net Asset Value Per Share X 100 / 100 -
maximum sales charge) $ 10.02 $ 18.91 $ 17.81 $ 13.22 $13.44 -- --
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
CLASS B SHARES:
Net Assets $ 43,549 $ 58,739 $12,764 $ 9,931 $33,824 -- --
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 4,716 3,340 763 791 2,682 -- --
Net Asset Value and Offering Price Per Share*** $ 9.23 $ 17.58 $ 16.73 $ 12.56 $12.61 -- --
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
CLASS C SHARES:
Net Assets $ 39,235 $ 11,837 $ 3,910 $ 2,864 $9,147 -- --
Shares Issued and Outstanding ($.001 par value)
(Authorized 2,625,000,000) 4,246 674 234 228 723 -- --
Net Asset Value and Offering Price Per Share*** $ 9.24 $ 17.57 $ 16.73 $ 12.56 $12.66 -- --
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
Investments at Cost, Including Foreign Currency $200,004 $ 98,075 $37,870 $17,668 $82,721 $ 52,742 $362,669
-------- ---------- ------- ------- ------ ---------- --------
-------- ---------- ------- ------- ------ ---------- --------
</TABLE>
- ------------------
92
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL
EQUITY
ALLOCATION GLOBAL GLOBAL FIXED AMERICAN
FUND EQUITY FUND INCOME FUND ASIAN GROWTH VALUE FUND VALUE FUND
SIX MONTHS OCTOBER 29, SIX MONTHS FUND SIX SIX MONTHS JULY 7,
ENDED 1997* TO ENDED MONTHS ENDED ENDED 1997* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997 1997
(000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,809 $ 1,084 $ -- $ 1,224 $ 959 $ 955
Interest 724 1,527 266 183 374 575
Security Lending 87 -- -- -- -- --
Less Foreign Taxes Withheld (89) (79) (2) (137) -- --
------------ ------------ ----- ------------ ------------ ------------
Total Income 2,531 2,532 264 1,270 1,333 1,530
------------ ------------ ----- ------------ ------------ ------------
EXPENSES:
Investment Advisory Fees 1,036 938 37 1,192 776 498
Less: Fees Waived (101) -- (37) -- (69) (193)
------------ ------------ ----- ------------ ------------ ------------
Net Investment Advisory Fees 935 938 -- 1,192 707 305
Administrative Fees 281 232 14 301 232 157
Custodian Fees 111 25 9 195 23 64
Filing and Registration Fees 8 36 -- -- 44 51
Directors' Fees and Expenses 2 1 -- 3 1 1
Professional Fees 13 20 12 1 11 18
Shareholder Reports 52 41 32 72 46 43
Transfer Agent Fees 55 24 10 115 41 16
Security Lending Fees 15 -- -- -- -- --
Distribution Fees
Class A 94 22 8 147 89 78
Class B 254 776 8 229 290 250
Class C 403 76 11 381 265 52
Amortization of Organizational Costs 6 13 6 2 2 31
Blue Sky Fees 32 16 24 55 41 68
Country Tax Expense -- -- -- 47 -- --
Interest Expense -- -- 2 52 -- --
Other 8 -- 1 8 2 1
Expenses Reimbursed by Adviser -- -- (49) -- -- --
------------ ------------ ----- ------------ ------------ ------------
Net Expenses 2,269 2,220 88 2,800 1,794 1,135
------------ ------------ ----- ------------ ------------ ------------
Net Investment Income (Loss) 262 312 176 (1,530) (461) 395
------------ ------------ ----- ------------ ------------ ------------
NET REALIZED GAIN (LOSS) ON:
Investments 13,773 -- (104) (79,275) 14,491 452
Foreign Currency Transactions 871 640 31 144 -- --
Futures 88
Securities Sold Short -- -- -- -- -- --
------------ ------------ ----- ------------ ------------ ------------
Net Realized Gain (Loss) 14,732 640 (73) (79,131) 14,491 452
------------ ------------ ----- ------------ ------------ ------------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (16,845) (4,859) 70 (69,450) 2,398 (1,542)
Foreign Currency Translations 498 136 41 591 -- --
Futures and Swaps 479
Securities Sold Short -- -- -- -- -- --
------------ ------------ ----- ------------ ------------ ------------
Change in Unrealized Appreciation/
Depreciation (15,868) (4,723) 111 (68,859) 2,398 (1,542)
------------ ------------ ----- ------------ ------------ ------------
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation (1,136) (4,083) 38 (147,990) 16,889 (1,090)
------------ ------------ ----- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (874) $ (3,771) $ 214 $ (149,520) $ 16,428 $ (695)
------------ ------------ ----- ------------ ------------ ------------
------------ ------------ ----- ------------ ------------ ------------
<CAPTION>
WORLDWIDE LATIN
HIGH INCOME AMERICAN
FUND FUND
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1997
(000) (000)
<S> <C> <C>
- ----------------------------------------
INVESTMENT INCOME:
Dividends $ 86 $ 686
Interest 10,655 116
Security Lending -- --
Less Foreign Taxes Withheld -- --
------------ ------------
Total Income 10,741 802
------------ ------------
EXPENSES:
Investment Advisory Fees 850 767
Less: Fees Waived -- (100)
------------ ------------
Net Investment Advisory Fees 850 667
Administrative Fees 285 179
Custodian Fees 12 136
Filing and Registration Fees 12 1
Directors' Fees and Expenses 2 1
Professional Fees 21 20
Shareholder Reports 57 47
Transfer Agent Fees 43 36
Security Lending Fees -- --
Distribution Fees
Class A 105 94
Class B 473 123
Class C 238 116
Amortization of Organizational Costs 2 2
Blue Sky Fees 46 44
Country Tax Expense -- 120
Interest Expense 15 4
Other 10 5
Expenses Reimbursed by Adviser -- --
------------ ------------
Net Expenses 2,171 1,595
------------ ------------
Net Investment Income (Loss) 8,570 (793)
------------ ------------
NET REALIZED GAIN (LOSS) ON:
Investments 11,335 7,053
Foreign Currency Transactions 199 (338)
Futures
Securities Sold Short -- --
------------ ------------
Net Realized Gain (Loss) 11,534 6,715
------------ ------------
CHANGE IN UNREALIZED APPRECIATION/DEPREC
Investments (14,249) (12,183)
Foreign Currency Translations (76) --
Futures and Swaps
Securities Sold Short -- --
------------ ------------
Change in Unrealized Appreciation/
Depreciation (14,325) (12,183)
------------ ------------
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation (2,791) (5,468)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,779 $ (6,261)
------------ ------------
------------ ------------
</TABLE>
- ---------------
* Commencement of operations
-----------------------
93
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GOVERNMENT
EMERGING AGGRESSIVE U.S. REAL HIGH YIELD OBLIGATIONS
MARKETS FUND EQUITY FUND ESTATE FUND FUND INTERNATIONAL MONEY MARKET
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS MAGNUM FUND FUND SIX
ENDED ENDED ENDED ENDED SIX MONTHS MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED DECEMBER DECEMBER 31,
1997 1997 1997 1997 31, 1997 1997
(000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 1,796 $ 361 $ 568 $ 39 $ 472 $ --
Interest 408 88 67 941 332 2,295
Security Lending -- -- -- -- -- --
Less Foreign Taxes Withheld (97) -- -- -- (57) --
------------ ------------ ------ ------ ------- ------
Total Income 2,107 449 635 980 747 2,295
------------ ------------ ------ ------ ------- ------
EXPENSES:
Investment Advisory Fees 1,383 378 158 85 289 183
Less: Fees Waived (208) (125) (96) (76) (69) (115)
------------ ------------ ------ ------ ------- ------
Net Investment Advisory Fees 1,175 253 62 9 220 68
Administrative Fees 293 106 41 29 97 41
Custodian Fees 421 21 27 8 71 16
Filing and Registration Fees 8 5 2 -- 12 --
Directors' Fees and Expenses 4 1 -- -- 1 1
Professional Fees 23 16 9 9 16 10
Shareholder Reports 61 38 27 33 34 29
Transfer Agent Fees 50 28 11 8 21 --
Security Lending Fees -- -- -- -- -- --
Distribution Fees
Class A 148 34 23 10 41 202
Class B 236 232 50 51 144 --
Class C 278 48 17 21 51 --
Amortization of Organizational Costs 2 5 8 3 4 --
Blue Sky Fees 59 50 18 12 27 56
Country Tax Expense 36 -- -- -- -- --
Interest Expense 21 -- -- -- -- --
Other 13 2 -- 2 1 1
Expenses Reimbursed by Adviser -- -- -- -- -- --
------------ ------------ ------ ------ ------- ------
Net Expenses 2,828 839 295 195 740 424
------------ ------------ ------ ------ ------- ------
Net Investment Income (Loss) (721) (390) 340 785 7 1,871
------------ ------------ ------ ------ ------- ------
NET REALIZED GAIN (LOSS) ON:
Investments (3,530) 11,143 1,693 679 (476) (1)
Foreign Currency Transactions 489 -- -- -- 50 --
Futures
Securities Sold Short -- (327) -- -- -- --
------------ ------------ ------ ------ ------- ------
Net Realized Gain (Loss) (3,041) 10,816 1,693 679 (426) (1)
------------ ------------ ------ ------ ------- ------
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (51,389) 1,924 1,861 (164) (6,541) --
Foreign Currency Translations 476 -- -- -- 551 --
Futures and Swaps (581)
Securities Sold Short -- 251 -- -- -- --
------------ ------------ ------ ------ ------- ------
Change in Unrealized
Appreciation/Depreciation (51,494) 2,175 1,861 (164) (5,990) --
------------ ------------ ------ ------ ------- ------
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation (54,535) 12,991 3,554 515 (6,416) (1)
------------ ------------ ------ ------ ------- ------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (55,256) $ 12,601 $ 3,894 $ 1,300 $ (6,409) $ 1,870
------------ ------------ ------ ------ ------- ------
------------ ------------ ------ ------ ------- ------
<CAPTION>
MONEY MARKET
FUND SIX
MONTHS ENDED
DECEMBER 31,
1997
(000)
<S> <C>
- ----------------------------------------
INVESTMENT INCOME:
Dividends $ --
Interest 5,451
Security Lending --
Less Foreign Taxes Withheld --
------
Total Income 5,451
------
EXPENSES:
Investment Advisory Fees 419
Less: Fees Waived (122)
------
Net Investment Advisory Fees 297
Administrative Fees 91
Custodian Fees 30
Filing and Registration Fees 44
Directors' Fees and Expenses 1
Professional Fees 10
Shareholder Reports 27
Transfer Agent Fees --
Security Lending Fees --
Distribution Fees
Class A 470
Class B --
Class C --
Amortization of Organizational Costs --
Blue Sky Fees 38
Country Tax Expense --
Interest Expense --
Other 3
Expenses Reimbursed by Adviser --
------
Net Expenses 1,011
------
Net Investment Income (Loss) 4,440
------
NET REALIZED GAIN (LOSS) ON:
Investments 6
Foreign Currency Transactions --
Futures
Securities Sold Short --
------
Net Realized Gain (Loss) 6
------
CHANGE IN UNREALIZED APPRECIATION/DEPREC
Investments --
Foreign Currency Translations --
Futures and Swaps --
Securities Sold Short --
------
Change in Unrealized
Appreciation/Depreciation --
------
Net Realized Gain (Loss) and Change in
Unrealized Appreciation/Depreciation 6
------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,446
------
------
</TABLE>
- ---------------
* Commencement of operations
- --------------
94
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 262 $ 245
Net Realized Gain 14,732 13,170
Change in Unrealized Appreciation/Depreciation (15,868) 17,251
---------- ----------
Net Increase (Decrease) in Net Assets Resulting
from Operations (874) 30,666
---------- ----------
DISTRIBUTIONS:
Net Investment Income:
Class A (1,628) (2,358)
Class B (1,028) (759)
Class C (1,187) (2,093)
---------- ----------
(3,843) (5,210)
---------- ----------
Net Realized Gain:
Class A (8,369) (2,101)
Class B (6,610) (751)
Class C (9,026) (2,262)
---------- ----------
(24,005) (5,114)
---------- ----------
Net Decrease in Net Assets Resulting from
Distributions (27,848) (10,324)
---------- ----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 47,868 54,525
Distributions Reinvested 26,341 9,826
Redeemed (22,084) (36,345)
---------- ----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 52,125 28,006
---------- ----------
Total Increase in Net Assets 23,403 48,348
NET ASSETS -- Beginning of Period 189,865 141,517
---------- ----------
NET ASSETS -- End of Period (Including
undistributed (distributions in excess of) net
investment income of $(915) and $2,666,
respectively) $ 213,268 $ 189,865
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 749 1,091
Distributions Reinvested 658 293
Redeemed (593) (1,314)
---------- ----------
Net Increase in Class A Shares Outstanding 814 70
---------- ----------
---------- ----------
Dollars:
Subscribed $ 12,383 $ 16,569
Distributions Reinvested 9,235 4,157
Redeemed (9,651) (19,605)
---------- ----------
Net Increase $ 11,967 $ 1,121
---------- ----------
---------- ----------
Class B:
---------------------
Shares:
Subscribed 1,483 1,444
Distributions Reinvested 533 106
Redeemed (219) (160)
---------- ----------
Net Increase in Class B Shares Outstanding 1,797 1,390
---------- ----------
---------- ----------
Dollars:
Subscribed $ 23,968 $ 21,138
Distributions Reinvested 7,277 1,475
Redeemed (3,518) (2,336)
---------- ----------
Net Increase $ 27,727 $ 20,277
---------- ----------
---------- ----------
Class C:
---------------------
Shares:
Subscribed 714 1,160
Distributions Reinvested 713 300
Redeemed (553) (995)
---------- ----------
Net Increase in Class C Shares Outstanding 874 465
---------- ----------
---------- ----------
Dollars:
Subscribed $ 11,517 $ 16,818
Distributions Reinvested 9,829 4,194
Redeemed (8,915) (14,404)
---------- ----------
Net Increase $ 12,431 $ 6,608
---------- ----------
---------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>
-----------------------
95
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 29, 1997* TO
DECEMBER 31, 1997
(000)
<S> <C>
- ---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 312
Net Realized Gain 640
Change in Unrealized Appreciation /Depreciation (4,723)
----------
Net Decrease in Net Assets Resulting from
Operations (3,771)
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (88)
Class B (188)
Class C (18)
----------
Net Decrease in Net Assets Resulting from
Distributions (294)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 575,992
Distributions Reinvested 276
Redeemed (3,565)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 572,703
----------
Total Increase in Net Assets 568,638
NET ASSETS -- Beginning of Period --
----------
NET ASSETS -- End of Period (Including
undistributed net investment income of $18) $ 568,638
----------
----------
- ---------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 5,643
Distributions Reinvested 8
Redeemed (61)
----------
Net Increase in Class A Shares Outstanding 5,590
----------
----------
Dollars:
Subscribed $ 56,243
Distributions Reinvested 78
Redeemed (603)
----------
Net Increase $ 55,718
----------
----------
Class B:
---------------------
Shares:
Subscribed 47,373
Distributions Reinvested 18
Redeemed (203)
----------
Net Increase in Class B Shares Outstanding 47,188
----------
----------
Dollars:
Subscribed $ 472,648
Distributions Reinvested 180
Redeemed (1,986)
----------
Net Increase $ 470,842
----------
----------
Class C:
---------------------
Shares:
Subscribed 4,721
Distributions Reinvested 2
Redeemed (100)
----------
Net Increase in Class C Shares Outstanding 4,623
----------
----------
Dollars:
Subscribed $ 47,101
Distributions Reinvested 18
Redeemed (976)
----------
Net Increase $ 46,143
----------
----------
</TABLE>
- -----------------
* Commencement of operations
- --------------------------------------------------------------------------------
- -----------
96
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 176 $ 436
Net Realized Gain (Loss) (73) 111
Change in Unrealized Appreciation/Depreciation 111 (84)
------- ---------------
Net Increase in Net Assets Resulting from
Operations 214 463
------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (123) (218)
Class B (27) (46)
Class C (38) (74)
In Excess of Net Investment Income:
Class A -- (41)
Class B -- (9)
Class C -- (14)
------- ---------------
(188) (402)
------- ---------------
Net Realized Gain:
Class A (30) --
Class B (8) --
Class C (11) --
------- ---------------
(49) --
------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (237) (402)
------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 965 4,760
Distributions Reinvested 213 335
Redeemed (2,230) (6,304)
------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (1,052) (1,209)
------- ---------------
Total Decrease in Net Assets (1,075) (1,148)
NET ASSETS -- Beginning of Period 10,568 11,716
------- ---------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $(75) and $(63), respectively) $ 9,493 $ 10,568
------- ---------------
------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
--------------------
Shares:
Subscribed 44 256
Distributions Reinvested 15 22
Redeemed (114) (382)
------- ---------------
Net Decrease in Class A Shares Outstanding (55) (104)
------- ---------------
------- ---------------
Dollars:
Subscribed $ 440 $ 2,529
Distributions Reinvested 146 225
Redeemed (1,133) (3,839)
------- ---------------
Net Decrease $ (547) $ (1,085)
------- ---------------
------- ---------------
Class B:
--------------------
Shares:
Subscribed 26 100
Distributions Reinvested 3 4
Redeemed (46) (76)
------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding (17) 28
------- ---------------
------- ---------------
Dollars:
Subscribed $ 263 $ 999
Distributions Reinvested 28 41
Redeemed (459) (758)
------- ---------------
Net Increase (Decrease) $ (168) $ 282
------- ---------------
------- ---------------
Class C:
--------------------
Shares:
Subscribed 26 123
Distributions Reinvested 4 7
Redeemed (64) (170)
------- ---------------
Net Decrease in Class C Shares Outstanding (34) (40)
------- ---------------
------- ---------------
Dollars:
Subscribed $ 262 $ 1,232
Distributions Reinvested 39 69
Redeemed (638) (1,707)
------- ---------------
Net Decrease $ (337) $ (406)
------- ---------------
------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
97
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (1,530) $ (2,748)
Net Realized Gain (Loss) (79,131) (4,804)
Change in Unrealized of
Appreciation/Depreciation (68,859) (2,619)
---------- ---------------
Net (Decrease) in Net Assets Resulting from
Operations (149,520) (10,171)
---------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A (135) (33)
Class B (60) (10)
Class C (84) (24)
In Excess of Net Realized Gain:
Class A -- (4,110)
Class B -- (1,274)
Class C -- (3,072)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (279) (8,523)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 51,643 114,562
Distributions Reinvested 258 8,035
Redeemed (125,261) (220,149)
---------- ---------------
Net (Decrease) in Net Assets Resulting from
Capital Share Transactions (73,360) (97,552)
---------- ---------------
Total (Decrease) in Net Assets (223,159) (116,246)
NET ASSETS -- Beginning of Period 352,686 468,932
---------- ---------------
NET ASSETS -- End of Period (Including net
investment loss of $(2,683) and $(1,153),
respectively) $ 129,527 $352,686
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 3,200 4,724
Distributions Reinvested 15 243
Redeemed (6,061) (8,877)
---------- ---------------
Net Decrease in Class A Shares Outstanding (2,846) (3,910)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 35,434 $ 77,015
Distributions Reinvested 125 3,930
Redeemed (74,289) (144,501)
---------- ---------------
Net Decrease $ (38,730) $(63,556)
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 885 1,466
Distributions Reinvested 7 77
Redeemed (1,349) (803)
---------- ---------------
Net Increase (Decrease) in Class B Shares
Outstanding (457) 740
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 9,957 $ 23,406
Distributions Reinvested 55 1,210
Redeemed (15,713) (12,628)
---------- ---------------
Net Increase (Decrease) $ (5,701) $ 11,988
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 616 883
Distributions Reinvested 10 184
Redeemed (2,987) (3,989)
---------- ---------------
Net Decrease in Class C Shares Outstanding (2,361) (2,922)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 6,252 $ 14,140
Distributions Reinvested 78 2,895
Redeemed (35,259) (63,019)
---------- ---------------
Net Decrease $ (28,929) $(45,984)
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
98
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (461) $ 424
Net Realized Gain 14,491 6,719
Change in Unrealized Appreciation /Depreciation 2,398 7,544
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 16,428 14,687
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (122) (309)
Class B (28) (25)
Class C (26) (133)
In Excess of Net Investment Income:
Class A -- (1)
---------- ---------------
(176) (468)
---------- ---------------
Net Realized Gain:
Class A (5,303) (1,555)
Class B (5,203) (209)
Class C (3,628) (1,482)
---------- ---------------
(14,134) (3,246)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (14,310) (3,714)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 215,106 38,027
Distributions Reinvested 12,507 3,292
Redeemed (24,569) (13,557)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 203,044 27,762
---------- ---------------
Total Increase in Net Assets 205,162 38,735
NET ASSETS -- Beginning of Period 82,087 43,352
---------- ---------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $(638) and $(1), respectively) $ 287,249 $ 82,087
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 4,128 1,025
Distributions Reinvested 269 119
Redeemed (846) (538)
---------- ---------------
Net Increase in Class A Shares Outstanding 3,551 606
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 82,860 $ 16,463
Distributions Reinvested 5,049 1,785
Redeemed (16,781) (8,501)
---------- ---------------
Net Increase $ 71,128 $ 9,747
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 4,691 714
Distributions Reinvested 239 15
Redeemed (258) (27)
---------- ---------------
Net Increase in Class B Shares Outstanding 4,672 702
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 93,977 $ 11,773
Distributions Reinvested 4,461 228
Redeemed (5,093) (420)
---------- ---------------
Net Increase $ 93,345 $ 11,581
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 1,910 623
Distributions Reinvested 160 85
Redeemed (137) (312)
---------- ---------------
Net Increase in Class C Shares Outstanding 1,933 396
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 38,269 $ 9,791
Distributions Reinvested 2,997 1,279
Redeemed (2,695) (4,636)
---------- ---------------
Net Increase $ 38,571 $ 6,434
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
99
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
VALUE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 7, 1997* TO
DECEMBER 31, 1997
(000)
<S> <C>
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 395
Net Realized Gain 452
Change in Unrealized Appreciation /Depreciation (1,542)
----------
Net Decrease in Net Assets Resulting from
Operations (695)
----------
DISTRIBUTIONS:
Net Investment Income:
Class A (305)
Class B (76)
Class C (21)
----------
(402)
----------
Net Realized Gain:
Class A (502)
Class B (431)
Class C (95)
----------
(1,028)
----------
Net Decrease in Net Assets Resulting from
Distributions (1,430)
----------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 220,549
Distributions Reinvested 1,274
Redeemed (9,419)
----------
Net Increase in Net Assets Resulting from
Capital Share Transactions 212,404
----------
Total Increase in Net Assets 210,279
NET ASSETS -- Beginning of Period --
----------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $(7)) $ 210,279
----------
----------
- ----------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 10,704
Distributions Reinvested 75
Redeemed (613)
----------
Net Increase in Class A Shares Outstanding 10,166
----------
----------
Dollars:
Subscribed $ 109,270
Distributions Reinvested 748
Redeemed (6,257)
----------
Net Increase $ 103,761
----------
----------
Class B:
---------------------
Shares:
Subscribed 8,926
Distributions Reinvested 43
Redeemed (236)
----------
Net Increase in Class B Shares Outstanding 8,733
----------
----------
Dollars:
Subscribed $ 90,944
Distributions Reinvested 429
Redeemed (2,401)
----------
Net Increase $ 88,972
----------
----------
Class C:
---------------------
Shares:
Subscribed 1,996
Distributions Reinvested 10
Redeemed (75)
----------
Net Increase in Class C Shares Outstanding 1,931
----------
----------
Dollars:
Subscribed $ 20,335
Distributions Reinvested 97
Redeemed (761)
----------
Net Increase $ 19,671
----------
----------
- ----------------------------------------------------------------------
* Commencement of operations
</TABLE>
- -----------
100
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,570 $ 13,435
Net Realized Gain 11,534 9,362
Change in Unrealized Appreciation /Depreciation (14,325) 14,412
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 5,779 37,209
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A (3,124) (5,678)
Class B (3,343) (4,269)
Class C (1,667) (3,020)
---------- ---------------
(8,134) (12,967)
---------- ---------------
Realized Gain:
Class A (6,916) (2,320)
Class B (8,787) (1,708)
Class C (4,231) (1,293)
---------- ---------------
(19,934) (5,321)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (28,068) (18,288)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 107,519 133,028
Distributions Reinvested 20,147 11,818
Redeemed (65,777) (63,040)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 61,889 81,806
---------- ---------------
Total Increase in Net Assets 39,600 100,727
NET ASSETS -- Beginning of Period 196,488 95,761
---------- ---------------
NET ASSETS -- End of Period (Including
undistributed net investment income of $747 and
$311, respectively) $ 236,088 $196,488
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 3,723 5,082
Distributions Reinvested 580 423
Redeemed (3,342) (3,469)
---------- ---------------
Net Increase in Class A Shares Outstanding 961 2,036
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 53,448 $ 67,886
Distributions Reinvested 7,700 5,651
Redeemed (47,987) (46,537)
---------- ---------------
Net Increase $ 13,161 $ 27,000
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 2,829 3,787
Distributions Reinvested 604 246
Redeemed (912) (622)
---------- ---------------
Net Increase in Class B Shares Outstanding 2,521 3,411
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 40,592 $ 50,939
Distributions Reinvested 7,924 3,287
Redeemed (12,982) (8,415)
---------- ---------------
Net Increase $ 35,534 $ 45,811
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 932 1,057
Distributions Reinvested 344 217
Redeemed (336) (596)
---------- ---------------
Net Increase in Class C Shares Outstanding 940 678
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 13,479 $ 14,203
Distributions Reinvested 4,522 2,880
Redeemed (4,807) (8,088)
---------- ---------------
Net Increase $ 13,194 $ 8,995
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
101
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (793) $ (131)
Net Realized Gain 6,715 13,981
Change in Unrealized Appreciation/Depreciation (12,183) 10,200
---------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (6,261) 24,050
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (117)
Class B -- (17)
Class C -- (13)
---------- ---------------
-- (147)
---------- ---------------
Net Realized Gain:
Class A (12,606) (2,192)
Class B (5,784) (359)
Class C (4,438) (727)
---------- ---------------
(22,828) (3,278)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (22,828) (3,425)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 93,970 114,111
Distributions Reinvested 20,741 3,304
Redeemed (85,469) (46,502)
---------- ---------------
Net Increase in Net Assets Resulitng from
Capital Share Transactions 29,242 70,913
---------- ---------------
Total Increase in Net Assets 153 91,538
NET ASSETS -- Beginning of Period 119,060 27,522
---------- ---------------
NET ASSETS -- End of Period (Including
undistributed (distribution in excess of) net
investment income of $(804) and $(11),
respectively) $ 119,213 $119,060
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 3,418 6,162
Distributions Reinvested 941 187
Redeemed (4,250) (2,975)
---------- ---------------
Net Increase in Class A Shares Outstanding 109 3,374
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 58,970 $ 90,337
Distributions Reinvested 11,770 2,243
Redeemed (71,904) (41,558)
---------- ---------------
Net Increase (Decrease) $ (1,164) $ 51,022
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 1,185 752
Distributions Reinvested 445 30
Redeemed (209) (104)
---------- ---------------
Net Increase in Class B Shares Outstanding 1,421 678
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 20,193 $ 11,139
Distributions Reinvested 5,385 353
Redeemed (3,340) (1,385)
---------- ---------------
Net Increase $ 22,238 $ 10,107
---------- ---------------
---------- ---------------
Class C:
---------------------
Shares:
Subscribed 876 856
Distributions Reinvested 296 60
Redeemed (629) (266)
---------- ---------------
Net Increase in Class C Shares Outstanding 543 650
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 14,807 $ 12,635
Distributions Reinvested 3,586 708
Redeemed (10,225) (3,559)
---------- ---------------
Net Increase $ 8,168 $ 9,784
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
102
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (721) $ (538)
Net Realized Gain (Loss) (3,041) 14,993
Change in Unrealized Appreciation/Depreciation (51,494) 7,475
---------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Operations (55,256) 21,930
---------- ---------------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (291)
Class B -- (52)
Class C -- (44)
---------- ---------------
-- (387)
---------- ---------------
Net Realized Gain:
Class A (8,584) (871)
Class B (4,292) (182)
Class C (3,969) (503)
---------- ---------------
(16,845) (1,556)
---------- ---------------
Net Decrease in Net Assets Resulting from
Distributions (16,845) (1,943)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 115,227 133,953
Distributions Reinvested 15,915 1,855
Redeemed (93,844) (111,716)
---------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions 37,298 24,092
---------- ---------------
Total Increase (Decrease) in Net Assets (34,803) 44,079
NET ASSETS -- Beginning of Period 212,946 168,867
---------- ---------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment of
$(1,380) and $(659), respectively) $ 178,143 $212,946
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 6,511 7,637
Distributions Reinvested 891 104
Redeemed (6,134) (8,424)
---------- ---------------
Net Increase (Decrease) in Class A Shares
Outstanding 1,268 (683)
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 78,917 $ 89,680
Distributions Reinvested 8,101 1,103
Redeemed (73,618) (96,827)
---------- ---------------
Net Increase (Decrease) $ 13,400 $ (6,044)
---------- ---------------
---------- ---------------
Class B:
---------------------
Shares:
Subscribed 2,075 2,028
Distributions Reinvested 457 20
Redeemed (531) (205)
---------- ---------------
Net Increase in Class B Shares Outstanding 2,001 1,843
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 26,980 $ 23,982
Distributions Reinvested 4,064 223
Redeemed (5,896) (2,355)
---------- ---------------
Net Increase $ 25,148 $ 21,850
---------- ---------------
---------- ---------------
Class C
---------------------
Shares:
Subscribed 720 1,753
Distributions Reinvested 421 51
Redeemed (1,268) (1,086)
---------- ---------------
Net Increase (Decrease) in Class C Shares
Outstanding (127) 718
---------- ---------------
---------- ---------------
Dollars:
Subscribed $ 9,330 $ 20,292
Distributions Reinvested 3,750 528
Redeemed (14,330) (12,534)
---------- ---------------
Net Increase (Decrease) $ (1,250) $ 8,286
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
103
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment (Loss) $ (390) $ (135)
Net Realized Gain 10,816 3,674
Change in Unrealized Appreciation/Depreciation 2,175 3,205
---------- -------
Net Increase in Net Assets Resulting from
Operations 12,601 6,744
---------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A -- (16)
Class B -- (5)
Class C -- (5)
---------- -------
-- (26)
---------- -------
Net Realized Gain:
Class A (3,187) (711)
Class B (5,696) (452)
Class C (1,157) (439)
---------- -------
(10,040) (1,602)
---------- -------
Net Decrease in Net Assets Resulting from
Distributions (10,040) (1,628)
---------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 41,232 57,588
Distributions Reinvested 9,563 1,037
Redeemed (13,404) (7,818)
---------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 37,391 50,807
---------- -------
Total Increase in Net Assets 39,952 55,923
NET ASSETS -- Beginning of Period 66,313 10,390
---------- -------
NET ASSETS -- End of Period (Including
undistributed (distributions in excess of) net
investment income of $(390) and $0,
respectively.) $ 106,265 $ 66,313
---------- -------
---------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 786 1,309
Distributions Reinvested 177 35
Redeemed (286) (392)
---------- -------
Net Increase in Class A Shares Outstanding 677 952
---------- -------
---------- -------
Dollars:
Subscribed $ 14,243 $ 20,966
Distributions Reinvested 3,064 522
Redeemed (5,151) (6,373)
---------- -------
Net Increase $ 12,156 $ 15,115
---------- -------
---------- -------
Class B:
---------------------
Shares:
Subscribed 1,254 1,905
Distributions Reinvested 314 18
Redeemed (269) (51)
---------- -------
Net Increase in Class B Shares Outstanding 1,299 1,872
---------- -------
---------- -------
Dollars:
Subscribed $ 22,628 $ 30,344
Distributions Reinvested 5,363 262
Redeemed (4,869) (818)
---------- -------
Net Increase $ 23,122 $ 29,788
---------- -------
---------- -------
Class C:
---------------------
Shares:
Subscribed 240 404
Distributions Reinvested 67 17
Redeemed (192) (42)
---------- -------
Net Increase in Class C Shares Outstanding 115 379
---------- -------
---------- -------
Dollars:
Subscribed $ 4,361 $ 6,278
Distributions Reinvested 1,136 252
Redeemed (3,384) (626)
---------- -------
Net Increase $ 2,113 $ 5,904
---------- -------
---------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
104
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 340 $ 280
Net Realized Gain 1,693 2,077
Change in Unrealized Appreciation/Depreciation 1,861 1,622
------- -------
Net Increase in Net Assets Resulting from
Operations 3,894 3,979
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (246) (162)
Class B (106) (57)
Class C (32) (31)
------- -------
(384) (250)
------- -------
Net Realized Gain:
Class A (1,796) (100)
Class B (1,083) (71)
Class C (334) (48)
------- -------
(3,213) (219)
------- -------
Net Decrease in Net Assets Resulting from
Distributions (3,597) (469)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 17,674 23,984
Distributions Reinvested 3,326 268
Redeemed (8,171) (9,254)
------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 12,829 14,998
------- -------
Total Increase in Net Assets 13,126 18,508
NET ASSETS -- Beginning of Period 24,316 5,808
------- -------
NET ASSETS -- End of Period (Including
undistributed net investment income of $12 and
$55, respectively.) $ 37,442 $ 24,316
------- -------
------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 603 1,003
Distributions Reinvested 118 13
Redeemed (389) (257)
------- -------
Net Increase in Class A Shares Outstanding 332 759
------- -------
------- -------
Dollars:
Subscribed $ 10,309 $ 15,148
Distributions Reinvested 1,916 187
Redeemed (6,525) (3,998)
------- -------
Net Increase $ 5,700 $ 11,337
------- -------
------- -------
Class B:
---------------------
Shares:
Subscribed 319 441
Distributions Reinvested 66 4
Redeemed (57) (185)
------- -------
Net Increase in Class B Shares Outstanding 328 260
------- -------
------- -------
Dollars:
Subscribed $ 5,549 $ 6,607
Distributions Reinvested 1,069 54
Redeemed (1,004) (2,916)
------- -------
Net Increase $ 5,614 $ 3,745
------- -------
------- -------
Class C:
---------------------
Shares:
Subscribed 104 150
Distributions Reinvested 21 2
Redeemed (36) (149)
------- -------
Net Increase in Class C Shares Outstanding 89 3
------- -------
------- -------
Dollars:
Subscribed $ 1,816 $ 2,229
Distributions Reinvested 341 26
Redeemed (642) (2,339)
------- -------
Net Increase (Decrease) $ 1,515 $ (84)
------- -------
------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
105
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 785 $ 1,246
Net Realized Gain 679 312
Change in Unrealized Appreciation /Depreciation (164) 881
------- -------
Net Increase in Net Assets Resulting from
Operations 1,300 2,439
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (286) (434)
Class B (358) (454)
Class C (138) (338)
------- -------
(782) (1,226)
------- -------
Realized Gain:
Class A (236) (20)
Class B (415) (24)
Class C (119) (20)
------- -------
(770) (64)
------- -------
Net Decrease in Net Assets Resulting from
Distributions (1,552) (1,290)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 10,819 12,562
Distributions Reinvested 860 237
Redeemed (15,555) (2,025)
------- -------
Net Increase (Decrease) in Net Assets Resulting
from Capital Share Transactions (3,876) 10,774
------- -------
Total Increase (Decrease) in Net Assets (4,128) 11,923
NET ASSETS -- Beginning of Period 22,567 10,644
------- -------
NET ASSETS -- End of Period (Including
undistributed net investment income of $41 and
$38, respectively.) $ 18,439 $ 22,567
------- -------
------- -------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 274 461
Distributions Reinvested 24 10
Redeemed (548) (101)
------- -------
Net Increase (Decrease) in Class A Shares
Outstanding (250) 370
------- -------
------- -------
Dollars:
Subscribed $ 3,629 $ 5,790
Distributions Reinvested 301 131
Redeemed (7,228) (1,282)
------- -------
Net Increase (Decrease) $ (3,298) $ 4,639
------- -------
------- -------
Class B:
---------------------
Shares:
Subscribed 425 397
Distributions Reinvested 33 6
Redeemed (337) (20)
------- -------
Net Increase in Class B Shares Outstanding 121 383
------- -------
------- -------
Dollars:
Subscribed $ 5,615 $ 4,971
Distributions Reinvested 411 72
Redeemed (4,447) (249)
------- -------
Net Increase $ 1,579 $ 4,794
------- -------
------- -------
Class C:
---------------------
Shares:
Subscribed 119 144
Distributions Reinvested 12 3
Redeemed (289) (39)
------- -------
Net Increase (Decrease) in Class C Shares
Outstanding (158) 108
------- -------
------- -------
Dollars:
Subscribed $ 1,575 $ 1,800
Distributions Reinvested 148 35
Redeemed (3,880) (494)
------- -------
Net Increase (Decrease) $ (2,157) $ 1,341
------- -------
------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
106
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 1, 1996* TO
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 7 $ 170
Net Realized Gain (Loss) (426) 770
Change in Unrealized Appreciation /Depreciation (5,990) 4,184
------- -------
Net Increase (Decrease) in Net Assets Resulting
from Operations (6,409) 5,124
------- -------
DISTRIBUTIONS:
Net Investment Income:
Class A (488) (52)
Class B (330) (45)
Class C (53) (43)
------- -------
(871) (140)
------- -------
Net Realized Gain:
Class A (33) (4)
Class B (31) (4)
Class C (9) (4)
------- -------
(73) (12)
------- -------
Net Decrease in Net Assets Resulting from
Distributions (944) (152)
------- -------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 53,554 47,034
Distributions Reinvested 849 50
Redeemed (16,493) (2,724)
------- -------
Net Increase in Net Assets Resulting from
Capital Share Transactions 37,910 44,360
------- -------
Total Increase in Net Assets 30,557 49,332
NET ASSETS -- Beginning of Period 49,332 --
------- -------
NET ASSETS -- End of Period (Including
undistributed (distributions in excess of) net
investment income of $(97) and $30,
respectively.) $ 79,889 $ 49,332
------- -------
------- -------
- ----------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Class A:
---------------------
Shares:
Subscribed 1,800 1,722
Distributions Reinvested 38 1
Redeemed (502) (144)
------- -------
Net Increase in Class A Shares Outstanding 1,336 1,579
------- -------
------- -------
Dollars:
Subscribed $ 24,479 $ 21,512
Distributions Reinvested 473 14
Redeemed (6,583) (1,786)
------- -------
Net Increase $ 18,369 $ 19,740
------- -------
------- -------
Class B:
---------------------
Shares:
Subscribed 1,712 1,321
Distributions Reinvested 26 2
Redeemed (373) (6)
------- -------
Net Increase in Class B Shares Outstanding 1,365 1,317
------- -------
------- -------
Dollars:
Subscribed $ 23,249 $ 16,670
Distributions Reinvested 322 18
Redeemed (4,938) (73)
------- -------
Net Increase $ 18,633 $ 16,615
------- -------
------- -------
Class C:
---------------------
Shares:
Subscribed 429 728
Distributions Reinvested 4 1
Redeemed (372) (67)
------- -------
Net Increase in Class C Shares Outstanding 61 662
------- -------
------- -------
Dollars:
Subscribed $ 5,826 $ 8,852
Distributions Reinvested 54 18
Redeemed (4,972) (865)
------- -------
Net Increase $ 908 $ 8,005
------- -------
------- -------
- ----------------------------------------------------------------------------------------
* Commencement of operations
</TABLE>
-----------------------
107
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,871 $ 5,375
Net Realized Gain (Loss) (1) 8
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 1,870 5,383
---------- ---------------
DISTRIBUTIONS:
Net Investment Income (1,878) (5,375)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 150,181 359,068
Distributions Reinvested 1,788 4,349
Redeemed (193,732) (414,635)
---------- ---------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions (41,763) (51,218)
---------- ---------------
Total Decrease in Net Assets (41,771) (51,210)
NET ASSETS -- Beginning of Period 94,768 145,978
---------- ---------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $(7) and $0, respectively) $ 52,997 $ 94,768
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares
Subscribed 150,181 359,068
Distributions Reinvested 1,788 4,349
Redeemed (193,732) (414,635)
---------- ---------------
Net Decrease in Shares Outstanding (41,763) (51,218)
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
- -----------
108
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
(000) (000)
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 4,440 $ 8,859
Net Realized Gain 6 13
---------- ---------------
Net Increase in Net Assets Resulting from
Operations 4,446 8,872
---------- ---------------
DISTRIBUTIONS:
Net Investment Income (4,508) (8,859)
---------- ---------------
CAPITAL SHARE TRANSACTIONS (1):
Subscribed 535,228 677,641
Distributions Reinvested 3,865 7,110
Redeemed (314,640) (717,315)
---------- ---------------
Net Increase (Decrease) in Net Assets Resulting
from Capital Share Transactions 224,453 (32,564)
---------- ---------------
Total Increase (Decrease) in Net Assets 224,391 (32,551)
NET ASSETS -- Beginning of Period 138,422 170,973
---------- ---------------
NET ASSETS -- End of Period (Including
distributions in excess of net investment income
of $(68) and $0, respectively) $ 362,813 $138,422
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
Capital Share Transactions:
(1) Shares:
Subscribed 535,228 677,641
Distributions Reinvested 3,865 7,110
Redeemed (314,640) (717,315)
---------- ---------------
Net Increase (Decrease) in Shares Outstanding 224,453 (32,564)
---------- ---------------
---------- ---------------
- ---------------------------------------------------------------------------------------
</TABLE>
-----------------------
109
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY ALLOCATION FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 4,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.06 0.10 0.19 0.12 0.10 0.04
Net Realized and
Unrealized Gain
(Loss) (0.10) 2.76 2.82 0.67 0.90 1.05
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations (0.04) 2.86 3.01 0.79 1.00 1.09
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.36) (0.55) (0.39) -- (0.03) --
In Excess of Net
Investment Income -- -- -- (0.05) -- --
Net Realized Gain (1.83) (0.49) (0.47) (0.13) (0.07) --
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (2.19) (1.04) (0.86) (0.18) (0.10) --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 14.34 $ 16.57 $ 14.75 $ 12.60 $ 11.99 $ 11.09
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) (0.07)% 20.61% 24.62% 6.69% 9.02% 10.90%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 74,593 $ 72,704 $ 63,706 $ 42,586 $ 33,425 $ 10,434
Ratio of Expenses to
Average Net Assets 1.70%** 1.70% 1.70% 1.70% 1.70% 1.70%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.73%** 0.59% 0.71% 1.01% 0.98% 1.04%**
Portfolio Turnover Rate 44% 45% 44% 39% 30% 14%
Average Commission Rate #
Per Share $ 0.0143 $ 0.0021 N/A N/A N/A N/A
As a Percentage of
Trade Amount 0.07% 0.83% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.03 $ 0.10 $ 0.04 $ 0.09 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.81%** 1.90% 2.06% 2.03% 2.58% 3.65%**
Net Investment Income
(Loss) to Average Net
Assets 0.63%** 0.41% 0.35% 0.68% 0.10% (0.91)%**
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.15 $ 14.46 $ 13.01
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.05) 0.30
Net Realized and
Unrealized Gain
(Loss) (0.03) 2.73 1.98
------------ ------------ ------------
Total From Investment
Operations (0.11) 2.68 2.28
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.28) (0.50) (0.35)
In Excess of Net
Investment Income -- -- --
Net Realized Gain (1.83) (0.49) (0.48)
------------ ------------ ------------
Total Distributions (2.11) (0.99) (0.83)
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 13.93 $ 16.15 $ 14.46
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) (0.52)% 19.64% 18.08%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 58,639 $ 38,962 $ 14,786
Ratio of Expenses to
Average Net Assets 2.45%** 2.45% 2.45%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.02)%** (0.11)% 0.45%**
Portfolio Turnover Rate 44% 45% 44%
Average Commission Rate #
Per Share $ 0.0143 $ 0.0021 N/A
As a Percentage of
Trade Amount 0.07% 0.83% N/A
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.40 $ 0.09 $ 0.22
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.56%** 2.65% 2.81%**
Net Investment Income
(Loss) to Average Net
Assets (0.12)%** (0.30)% 0.09%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 4,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.00++ (0.03) 0.12 0.04 0.06 0.01
Net Realized and
Unrealized Gain
(Loss) (0.10) 2.73 2.75 0.65 0.86 1.04
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations (0.10) 2.70 2.87 0.69 0.92 1.05
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.24) (0.46) (0.33) -- -- --
In Excess of Net
Investment Income -- -- -- (0.03) -- --
Net Realized Gain (1.83) (0.49) (0.48) (0.13) (0.07) --
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (2.07) (0.95) (0.81) (0.16) (0.07) --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 14.07 $ 16.24 $ 14.49 $ 12.43 $ 11.90 $ 11.05
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) (0.42)% 19.69% 23.65% 5.84% 8.34% 10.50%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 80,036 $ 78,199 $ 63,025 $ 40,460 $ 29,892 $ 6,995
Ratio of Expenses to
Average Net Assets 2.45%** 2.45% 2.45% 2.45% 2.45% 2.45%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.02)%** (0.16)% (0.04)% 0.25% 0.23% 0.29%**
Portfolio Turnover Rate 44% 45% 44% 39% 30% 14%
Average Commission Rate #
Per Share $ 0.0143 $ 0.0021 N/A N/A N/A N/A
As a Percentage of
Trade Amount 0.07% 0.83% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.03 $ 1.16 $ 0.05 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.56%** 2.65% 2.81% 2.78% 3.34% 4.40%**
Net Investment Income
(Loss) to Average Net
Assets (0.11)%** (0.34)% (0.40)% (0.08)% (0.66)% (1.66)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount per share is less than $0.01.
(1) Total return is calculated exclusive sale charges or deferred sales
charges. Total return for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
- ------------------
110
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
OCTOBER 29, 1997* OCTOBER 29, 1997* OCTOBER 29, 1997*
SELECTED PER SHARE DATA AND RATIOS DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------- ----------------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.00+ 0.00+
Net Realized and Unrealized (Loss) (0.09) (0.09) (0.09)
------- ----------------- -------
Total From Investment Operations (0.07) (0.09) (0.09)
------- ----------------- -------
DISTRIBUTIONS
Net Investment Income (0.02) (0.00)+ (0.00)+
------- ----------------- -------
Total Distributions (0.02) 0.00+ 0.00+
------- ----------------- -------
NET ASSET VALUE, END OF PERIOD $ 9.91 $ 9.91 $ 9.91
------- ----------------- -------
------- ----------------- -------
TOTAL RETURN (1) (0.74)% (0.86)% (0.86)%
------- ----------------- -------
------- ----------------- -------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 55,372 $ 467,465 $ 45,801
Ratio of Expenses to Average Net Assets 1.56%** 2.31%** 2.31%**
Ratio of Net Investment Income to
Average Net Assets 0.92%** 0.24%** 0.25%**
Portfolio Turnover Rate 0% 0% 0%
Average Commission Rate $ 0.0099 $ 0.0099 $ 0.0099
As a Percentage of Trade Amount 0.07% 0.07% 0.07%
- -------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ -- $ -- $ --
Ratios Before Expense Limitation:
Expenses to Average Net Assets -- -- --
Net Investment Income to Average Net
Assets -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The amount is less than $0.01 per share.
(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.
-----------------------
111
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 4,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.19 0.44 0.53 0.56 0.52 0.25
Net Realized and
Unrealized Gain
(Loss) 0.04 (0.02) (0.01) 0.50 (0.42) 0.55
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.23 0.42 0.52 1.06 0.10 0.80
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.20) (0.35) (0.79) (0.36) (0.50) (0.25)
In Excess of Net
Investment Income -- (0.06) (0.02) -- (0.12) --
Net Realized Gain (0.05) -- -- -- (0.47) --
In Excess of Net
Realized Gain -- -- -- -- (0.03) --
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (0.25) (0.41) (0.81) (0.36) (1.12) (0.25)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.93 $ 9.95 $ 9.94 $ 10.23 $ 9.53 $ 10.55
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 2.39% 4.27% 5.20% 11.41% 0.41% 8.02%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 5,851 $ 6,407 $ 7,432 $ 11,092 $ 10,369 $ 6,633
Ratio of Expenses to
Average Net Assets 1.45%** 1.45% 1.45% 1.45% 1.45% 1.45%**
Ratio of Net Investment
Income to Average Net
Assets 3.84%** 4.40% 5.02% 5.84% 4.70% 5.00%**
Portfolio Turnover Rate 37% 170% 223% 169% 168% 55%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.12 $ 0.07 $ 0.07 $ 0.11 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.23%** 2.57% 2.16% 2.22% 2.48% 2.88%**
Net Investment Income
to Average Net Assets 2.10%** 3.25% 4.31% 5.07% 3.67% 3.57%**
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.91 $ 9.91 $ 10.24
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.12 0.41 0.64
Net Realized and
Unrealized Gain
(Loss) 0.07 (0.07) (0.26)
------------ ------------ ------------
Total From Investment
Operations 0.19 0.34 0.38
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.17) (0.29) (0.69)
In Excess of Net
Investment Income -- (0.05) (0.02)
Net Realized Gain (0.05) -- --
In Excess of Net
Realized Gain -- -- --
------------ ------------ ------------
Total Distributions (0.22) (0.34) (0.71)
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.88 $ 9.91 $ 9.91
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) 1.99% 3.48% 3.76%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 1,539 $ 1,716 $ 1,440
Ratio of Expenses to
Average Net Assets 2.20%** 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 3.08%** 3.65% 3.38%**
Portfolio Turnover Rate 37% 170% 223%
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.07 $ 0.13 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.98%** 3.37% 3.57%**
Net Investment Income
to Average Net Assets 1.32%** 2.45% 2.01%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 4,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.16 0.39 0.37 0.49 0.43 0.21
Net Realized and
Unrealized Gain
(Loss) 0.03 (0.05) 0.08 0.47 (0.40) 0.55
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.19 0.34 0.45 0.96 0.03 0.76
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.17) (0.29) (0.73) (0.30) (0.44) (0.20)
In Excess of Net
Investment Income -- (0.05) (0.02) -- (0.11) --
Net Realized Gain (0.05) -- -- -- (0.47) --
In Excess of Net
Realized Gain -- -- -- -- (0.03) --
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (0.22) (0.34) (0.75) (0.30) (1.05) (0.20)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.87 $ 9.90 $ 9.90 $ 10.20 $ 9.54 $ 10.56
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 1.99% 3.48% 4.47% 10.24% (0.25)% 7.61%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 2,103 $ 2,445 $ 2,844 $ 5,965 $ 5,407 $ 6,120
Ratio of Expenses to
Average Net Assets 2.20%** 2.20% 2.20% 2.20% 2.20% 2.20%**
Ratio of Net Investment
Income to Average Net
Assets 3.09%** 3.65% 4.35% 5.09% 3.95% 4.25%**
Portfolio Turnover Rate 37% 170% 223% 169% 168% 55%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.09 $ 0.12 $ 0.06 $ 0.08 $ 0.12 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.98%** 3.35% 2.87% 2.97% 3.29% 3.63%**
Net Investment Income
to Average Net Assets 1.35%** 2.48% 3.68% 4.32% 2.86% 2.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total returns for periods of less than one year are not
annualized.
- ------------------
112
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
ASIAN GROWTH FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS JUNE 23,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00 $ 12.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.03) (0.06) (0.04) -- (0.03) --
Net Realized and
Unrealized Gain
(Loss) (8.27) (0.14) 0.77 1.43 3.53 --
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations (8.30) (0.20) 0.73 1.43 3.50 --
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Realized Gain (0.02) -- -- (0.49) -- --
In Excess of Net
Realized Gain -- (0.33) -- (0.02) -- --
------------ ------------ ------------ ------------ ------------ ------------
(0.02) (0.33) -- (0.51) -- --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 8.30 $ 16.62 $ 17.15 $ 16.42 $ 15.50 $ 12.00
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) (49.96)% (1.10)% 4.45% 9.50% 29.17% 0.00%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 63,990 $ 175,448 $ 248,009 $ 178,667 $ 138,212 $ 11,770
Ratio of Expenses to
Average Net Assets 1.97%** 1.84% 1.88% 1.90% 1.90% 1.90%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.91)%** (0.31)% (0.16)% 0.04% (0.24)% (0.81)%**
Portfolio Turnover Rate 71% 74% 38% 34% 34% 0%
Average Commission Rate #
Per Share $ 0.0088 $ 0.0110 N/A N/A N/A N/A
As a Percentage of
Trade Amount 0.41% 0.51% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During
the Period
Per Share Benefit to
Net Investment Loss $ -- $ -- $ -- $ -- $ 0.03 $ 0.01
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- -- -- 2.17% 11.83%**
Net Investment Income
(Loss) to Average Net
Assets -- -- -- -- (0.51)% (10.74)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 1.89%** -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.17 $ 16.81 $ 16.51
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.13) (0.15) (0.03)
Net Realized and
Unrealized Gain
(Loss) (7.98) (0.16) 0.33
------------ ------------ ------------
Total From Investment
Operations (8.11) (0.31) 0.30
------------ ------------ ------------
DISTRIBUTIONS
Net Realized Gain (0.02) -- --
In Excess of Net
Realized Gain -- (0.33) --
------------ ------------ ------------
(0.02) (0.33) --
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 8.04 $ 16.17 $ 16.81
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) (50.17)% (1.79)% 1.82%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 27,558 $ 62,786 $ 52,853
Ratio of Expenses to
Average Net Assets 2.72%** 2.59% 2.61%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.64)%** (1.04)% (0.52%)**
Portfolio Turnover Rate 71% 74% 38%
Average Commission Rate #
Per Share $ 0.0088 $ 0.0110 N/A
As a Percentage of
Trade Amount 0.41% 0.51% N/A
- ----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During
the Period
Per Share Benefit to
Net Investment Loss $ -- $ -- $ --
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- --
Net Investment Income
(Loss) to Average Net
Assets -- -- --
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.64%** -- --
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------------------
SIX MONTHS JUNE 23,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00 $ 12.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Loss (0.25) (0.24) (0.13) (0.12) (0.10) --
Net Realized and
Unrealized Gain
(Loss) (7.84) (0.07) 0.72 1.42 3.50 --
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations (8.09) (0.31) 0.59 1.30 3.40 --
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Realized Gain (0.02) -- -- (0.49) -- --
In Excess of Net
Realized Gain -- (0.33) -- (0.02) -- --
------------ ------------ ------------ ------------ ------------ ------------
(0.02) (0.33) -- (0.51) -- --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 8.03 $ 16.14 $ 16.78 $ 16.19 $ 15.40 $ 12.00
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) (50.14)% (1.79)% 3.64% 8.71% 28.33% 0.00%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 37,979 $ 114,460 $ 168,070 $ 139,497 $ 116,889 $ 8,491
Ratio of Expenses to
Average Net Assets 2.72%** 2.59% 2.63% 2.63% 2.65% 2.65%**
Ratio of Net Investment
(Loss) to Average Net
Assets (1.65)%** (1.06)% (0.94)% (0.77%) (0.99)% (1.56)%**
Portfolio Turnover Rate 71% 74% 38% 34% 34% 0%
Average Commission Rate #
Per Share $ 0.0088 $ 0.0110 N/A N/A N/A N/A
As a Percentage of
Trade Amount 0.41% 0.51% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Loss $ -- $ -- $ -- $ -- $ 0.03 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- -- -- 2.92% 12.64%**
Net Investment Income
(Loss) to Average Net
Assets -- -- -- -- (1.26)% (11.55)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.64%** -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for a periods of less than one year are
not annualized.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
-----------------------
113
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AMERICAN VALUE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS OCTOBER 18,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 12.89 $ 11.70 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) 0.03 0.20 0.27 0.27 0.17
Net Realized and
Unrealized Gain
(Loss) 2.87 4.05 1.94 1.44 (0.30)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 2.90 4.25 2.21 1.71 (0.13)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.04) (0.20) (0.27) (0.28) (0.17)
In Excess of Net
Investment Income -- (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.08) (1.29) (0.47) (0.52) (0.17)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 19.41 $ 17.59 $ 14.63 $ 12.89 $ 11.70
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 16.66% 30.68% 17.41% 15.01% (1.12)%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 106,826 $ 34,331 $ 19,674 $ 20,675 $ 10,717
Ratio of Expenses to
Average Net Assets 1.50%** 1.50% 1.50% 1.50% 1.50%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.05)%** 1.25% 1.90% 2.29% 2.14%**
Portfolio Turnover Rate 82% 73% 41% 23% 17%
Average Commission Rate # $ 0.0528 $ 0.0452 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.57%** 1.76% 1.81% 1.96% 2.48%**
Net Investment Income
to Average Net Assets (0.13)%** 0.98% 1.59% 1.83% 1.16%**
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.63 $ 13.37
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.12) 0.09 0.15
Net Realized and
Unrealized Gain
(Loss) 2.94 4.05 1.46
------------ ------------ ------
Total from Investment
Operations 2.82 4.14 1.61
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15)
In Excess of Net
Investment Income -- (0.00)++ (0.01)
Net Realized Gain (1.04) (1.09) (0.19)
------------ ------------ ------
Total Distributions (1.05) (1.18) (0.35)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 19.36 $ 17.59 $ 14.63
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 16.25% 29.77% 12.29%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 107,301 $ 15,331 $ 2,485
Ratio of Expenses to
Average Net Assets 2.25%** 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.76)%** 0.40% 1.18%**
Portfolio Turnover Rate 82% 73% 41%
Average Commission Rate # $ 0.0528 $ 0.0452 N/A
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.06 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.32%** 2.48% 2.61%**
Net Investment Income
to Average Net Assets (0.85)%** 0.14% 0.82%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS OCTOBER 18,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.59 $ 14.64 $ 12.89 $ 11.69 $ 12.00
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.04) 0.08 0.16 0.17 0.11
Net Realized and
Unrealized Gain
(Loss) 2.86 4.05 1.94 1.44 (0.31)
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 2.82 4.13 2.10 1.61 (0.20)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.01) (0.09) (0.15) (0.17) (0.11)
In Excess of Net
Investment Income -- (0.00)++ (0.01) -- --
Net Realized Gain (1.04) (1.09) (0.19) (0.24) --
------------ ------------ ------------ ------------ ------------
Total Distributions (1.05) (1.18) (0.35) (0.41) (0.11)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 19.36 $ 17.59 $ 14.64 $ 12.89 $ 11.69
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 16.24% 29.67% 16.50% 14.13% (1.70)%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 73,122 $ 32,425 $ 21,193 $ 13,867 $ 7,237
Ratio of Expenses to
Average Net Assets 2.25%** 2.25% 2.25% 2.25% 2.25%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.82)%** 0.49% 1.17% 1.54% 1.39%**
Portfolio Turnover Rate 82% 73% 41% 23% 17%
Average Commission Rate # $ 0.0528 $ 0.0452 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.00++ $ 0.04 $ 0.04 $ 0.05 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.32%** 2.47% 2.58% 2.71% 3.28%**
Net Investment Income
to Average Net Assets (0.89)%** 0.22% 0.84% 1.08% 0.36%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
++ Amount is less than $0.01 per share.
(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.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
- ------------------
114
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
VALUE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ------------ ------------
JULY 7, JULY 7, JULY 7,
1997* 1997* 1997*
DECEMBER 31, DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1997 1997 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.01 0.01
Net Realized and Unrealized Gain 0.15 0.14 0.13
------------ ------------ ------------
Total From Investment Operations 0.18 0.15 0.14
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.03) (0.01) (0.01)
Net Realized Gain (0.05) (0.05) (0.05)
------------ ------------ ------------
Total Distributions (0.08) (0.06) (0.06)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 10.09 $ 10.08
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) 1.84% 1.51% 1.43%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $ 102,701 $ 88,112 $ 19,466
Ratio of Expenses to Average Net Assets 1.45%** 2.20%** 2.20%**
Ratio of Net Investment Income to
Average Net Assets 1.01%** 0.26%** 0.27%**
Portfolio Turnover Rate 15% 15% 15%
Average Commission Rate $ 0.0587 $ 0.0587 $ 0.0587
- ----------------------------------------------------------------------------------------
Effect of Voluntary Expense Limitation
During the Period
Per Share Benefit to Net Investment
Income $ 0.01 $ 0.01 $ 0.01
Ratios Before Expense Limitation:
Expenses to Average Net Assets 1.78%** 2.53%** 2.53%**
Net Investment Income to Average Net
Assets 0.70%** 0.06%** 0.06%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
-----------------------
115
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
SIX MONTHS APRIL 21,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.26 $ 12.47 $ 11.57 $ 12.17 $ 12.00
------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.60 1.25 1.36 1.26 0.18
Net Realized and
Unrealized Gain
(Loss) (0.13) 2.30 0.80 (0.52) 0.16
------------ ------------ ------------ ------------ ------
Total From Investment
Operations 0.47 3.55 2.16 0.74 0.34
------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.55) (1.25) (1.26) (1.22) (0.17)
Net Realized Gain (1.19) (0.51) -- (0.12) --
------------ ------------ ------------ ------------ ------
Total Distributions (1.74) (1.76) (1.26) (1.34) (0.17)
------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 12.99 $ 14.26 $ 12.47 $ 11.57 $ 12.17
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
TOTAL RETURN (1) 3.36% 30.29% 19.61% 6.87% 2.86%
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 82,139 $ 76,439 $ 41,493 $ 14,819 $ 6,857
Ratio of Expenses to
Average Net Assets 1.43%** 1.52% 1.55% 1.55% 1.55%**
Ratio of Net Investment
Income to Average Net
Assets 8.05%** 9.73% 11.95% 11.53% 8.29%**
Portfolio Turnover Rate 67% 157% 220% 178% 19%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.02 $ 0.05 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 1.69% 1.97% 3.23%**
Net Investment Income
to Average Net Assets -- -- 11.81% 11.11% 6.61%**
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.20 $ 12.44 $ 11.63
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.47 1.07 1.18
Net Realized and
Unrealized Gain
(Loss) (0.06) 2.35 0.72
------------ ------------ ------------
Total From Investment
Operations 0.41 3.42 1.90
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.50) (1.15) (1.09)
Net Realized Gain (1.19) (0.51) --
------------ ------------ ------------
Total Distributions (1.69) (1.66) (1.09)
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 12.92 $ 14.20 $ 12.44
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) 2.96% 29.14% 17.07%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 103,847 $ 78,340 $ 26,174
Ratio of Expenses to
Average Net Assets 2.18%** 2.27% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 7.30%** 8.86% 12.06%**
Portfolio Turnover Rate 67% 157% 220%
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 2.47%**
Net Investment Income
to Average Net Assets -- -- 11.89%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS APRIL 21,
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 14.21 $ 12.45 $ 11.58 $ 12.16 $ 12.00
------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.53 1.16 1.30 1.17 0.17
Net Realized and
Unrealized Gain
(Loss) (0.12) 2.26 0.77 (0.50) 0.15
------------ ------------ ------------ ------------ ------
Total From Investment
Operations 0.41 3.42 2.07 0.67 0.32
------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.50) (1.15) (1.20) (1.13) (0.16)
Net Realized Gain (1.19) (0.51) -- (0.12) --
------------ ------------ ------------ ------------ ------
Total Distributions (1.69) (1.66) (1.20) (1.25) (0.16)
------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 12.93 $ 14.21 $ 12.45 $ 11.58 $ 12.16
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
TOTAL RETURN (1) 2.88% 29.12% 18.71% 6.20% 2.62%
------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 50,102 $ 41,709 $ 28,094 $ 11,880 $ 6,081
Ratio of Expenses to
Average Net Assets 2.18%** 2.27% 2.30% 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 7.31%** 9.04% 11.40% 10.72% 7.54%**
Portfolio Turnover Rate 67% 157% 220% 178% 19%
- ---------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ -- $ -- $ 0.04 $ 0.05 $ 0.06
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets -- -- 2.44% 2.74% 4.00%**
Net Investment Income
to Average Net Assets -- -- 11.26% 10.28% 5.84%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
- ------------------
116
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
LATIN AMERICAN FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
SIX MONTHS JULY 6,
ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.39 $ 12.63 $ 9.08 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) 0.02 0.10 (0.02)
Net Realized and
Unrealized Gain
(Loss) (0.60) 6.46 3.47 (2.70)
------------ ------------ ------------ ------------
Total From Investment
Operations (0.68) 6.48 3.57 (2.72)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) --
In Excess of Net
Investment Income -- (0.09) -- --
Net Realized Gain (3.23) (1.63) -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------------ ------------
Total Distributions (3.23) (1.72) (0.02) (0.20)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 13.48 $ 17.39 $ 12.63 $ 9.08
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (2.46)% 57.32% 39.35% (23.07)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 66,929 $ 84,401 $ 18,701 $ 7,658
Ratio of Expenses to
Average Net Assets 2.30%** 2.24% 2.11% 2.46%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.03)%** (0.08)% 1.18% (0.44)%**
Portfolio Turnover Rate 155% 241% 131% 107%
Average Commission Rate #
Per Share $ 0.0008 $ 0.0006 N/A N/A
As a Percentage of
Trade Amount 0.26% 0.31% N/A N/A
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.10 $ 0.09 $ 0.13
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.46%** 2.61% 3.28% 4.30%**
Net Investment Income
(Loss) to Average Net
Assets (1.18)%** (0.61)% 0.01% (2.26)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.10%** 2.10% 2.10% 2.10%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.99 $ 12.45 $ 9.58
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.07) (0.03) 0.03
Net Realized and
Unrealized Gain
(Loss) (0.63) 6.28 2.84
------------ ------------ ------
Total From Investment
Operations (0.70) 6.25 2.87
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.08) --
Net Realized Gain (3.23) (1.63) --
Return of Capital -- -- --
------------ ------------ ------
Total Distributions (3.23) (1.71) --
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 13.06 $ 16.99 $ 12.45
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) (2.66)% 56.17% 29.26%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 29,554 $ 14,314 $ 2,041
Ratio of Expenses to
Average Net Assets 3.05%** 2.99% 2.87%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.67)%** (0.78)% 0.88%**
Portfolio Turnover Rate 155% 241% 131%
Average Commission Rate #
Per Share $ 0.0008 $ 0.0006 N/A
As a Percentage of
Trade Amount 0.26% 0.31% N/A
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.21%** 3.55% 3.89%**
Net Investment Income
(Loss) to Average Net
Assets (1.85)%** (1.34)% (0.14)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85%** 2.85% 2.85%**
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------
SIX MONTHS JULY 6,
ENDED YEAR ENDED YEAR ENDED 1994*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 17.01 $ 12.43 $ 8.99 $ 12.00
------------ ------------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.11) (0.07) 0.04 (0.08)
Net Realized and
Unrealized Gain
(Loss) (0.60) 6.31 3.40 (2.73)
------------ ------------ ------ ------
Total From Investment
Operations (0.71) 6.24 3.44 (2.81)
------------ ------------ ------ ------
DISTRIBUTIONS
In Excess of Net
Investment Income -- (0.03) -- --
Net Realized Gain (3.23) (1.63) -- --
Return of Capital -- -- -- (0.20)
------------ ------------ ------ ------
Total Distributions (3.23) (1.66) -- (0.20)
------------ ------------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 13.07 $ 17.01 $ 12.43 $ 8.99
------------ ------------ ------ ------
------------ ------------ ------ ------
TOTAL RETURN (1) (2.75)% 56.04% 38.26% (23.83)%
------------ ------------ ------ ------
------------ ------------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 22,730 $ 20,345 $ 6,780 $ 4,085
Ratio of Expenses to
Average Net Assets 3.05%** 2.99% 2.86% 3.20%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.75)%** (0.79)% 0.42% (1.16)%**
Portfolio Turnover Rate 155% 241% 131% 107%
Average Commission Rate #
Per Share $ 0.0008 $ 0.0006 N/A N/A
As a Percentage of
Trade Amount 0.26% 0.31% N/A N/A
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.05 $ 0.12 $ 0.12
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.21%** 3.40% 4.06% 5.20%**
Net Investment Income
(Loss) to Average Net
Assets (1.91)%** (1.36)% (0.78)% (3.16)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense 2.85%** 2.85% 2.85% 2.85%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
** Annualized
+ The Fund began offering Class B shares on August 1, 1995
(1) Total return is calculated exclusive of sales charges or deferred
sales charges.Total return for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
-----------------------
117
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
SIX MONTHS JULY 6,
ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.47 $ 12.06 $ 10.61 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) 0.01 0.05 0.05
Net Realized and
Unrealized Gain
(Loss) (3.01) 1.57 1.44 (1.44)
------------ ------------ ------------ ------------
Total From Investment
Operations (3.03) 1.58 1.49 (1.39)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.04) --
In Excess of Net
Investment Income -- (0.04) -- --
Net Realized Gain (1.00) (0.13) -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.17) (0.04) --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.44 $ 13.47 $ 12.06 $ 10.61
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (22.19)% 13.54% 14.16% (11.58)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 95,359 $ 119,022 $ 114,850 $ 26,091
Ratio of Expenses to
Average Net Assets 2.20%** 2.21% 2.16% 2.33%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.31)%** (0.06)% 0.93% 0.81%**
Portfolio Turnover Rate 58% 82% 42% 32%
Average Commission Rate #
Per Share $ 0.0022 $ 0.0007 N/A N/A
As a Percentage of
Trade Amount 0.38% 0.39% N/A N/A
- ---------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.03 $ 0.02 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.40%** 2.41% 2.56% 3.10%**
Net Investment Income
(Loss) to Average Net
Assets (0.50)%** (0.27)% 0.53% 0.04%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.15%** 2.15% 2.15% 2.15%**
- ---------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
SIX MONTHS AUGUST 1,
ENDED YEAR ENDED 1995+ TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.24 $ 11.94 $ 10.91
------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.02) (0.03) 0.01
Net Realized and
Unrealized Gain
(Loss) (2.99) 1.50 1.02
------------ ------------ ------------
Total From Investment
Operations (3.01) 1.47 1.03
------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- --
In Excess of Net
Investment Income -- (0.04) --
Net Realized Gain (1.00) (0.13) --
------------ ------------ ------------
Total Distributions (1.00) (0.17) --
------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.23 $ 13.24 $ 11.94
------------ ------------ ------------
------------ ------------ ------------
TOTAL RETURN (1) (22.50)% 12.67% 9.45%
------------ ------------ ------------
------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 43,549 $ 35,966 $ 10,416
Ratio of Expenses to
Average Net Assets 2.95%** 2.96% 2.91%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.04)%** (0.64)% 0.30%**
Portfolio Turnover Rate 58% 82% 42%
Average Commission Rate #
Per Share $ 0.0022 $ 0.0007 N/A
As a Percentage of
Trade Amount 0.38% 0.39% N/A
- --------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.01 $ 0.02
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.15%** 3.17% 3.31%**
Net Investment Income
(Loss) to Average Net
Assets (1.25)%** (0.87)% (0.10)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90%** 2.90% 2.90%**
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------
SIX MONTHS JULY 6,
ENDED YEAR ENDED YEAR ENDED 1994* TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.26 $ 11.93 $ 10.53 $ 12.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment (Loss) (0.07) (0.08) (0.01) --
Net Realized and
Unrealized Gain
(Loss) (2.95) 1.55 1.41 (1.47)
------------ ------------ ------------ ------------
Total From Investment
Operations (3.02) 1.47 1.40 (1.47)
------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income -- -- -- --
In Excess of Net
Investment Income -- (0.01) -- --
Net Realized Gain (1.00) (0.13) -- --
------------ ------------ ------------ ------------
Total Distributions (1.00) (0.14) -- --
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 9.24 $ 13.26 $ 11.93 $ 10.53
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN (1) (22.48)% 12.66% 13.30% (12.25)%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 39,235 $ 57,958 $ 43,601 $ 22,245
Ratio of Expenses to
Average Net Assets 2.95%** 2.96% 2.91% 3.08%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.05)%** (0.79)% (0.11)% 0.06%**
Portfolio Turnover Rate 58% 82% 42% 32%
Average Commission Rate #
Per Share $ 0.0022 $ 0.0007 N/A N/A
As a Percentage of
Trade Amount 0.38% 0.39% N/A N/A
- -----------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.01 $ 0.02 $ 0.03 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 3.15%** 3.17% 3.34% 3.90%**
Net Investment Income
(Loss) to Average Net
Assets (1.23)%** (1.00)% (0.54)% (0.76)%**
Ratio of Expenses to
Average Net Assets
excluding country tax
expense. 2.90%** 2.90% 2.90% 2.90%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
** Annualized
+ The Fund began offering Class B shares on August 1, 1995.
(1) Total return is calculated exclusive of sales charges or deferred
sales charges. Total return for periods of less than one year are not
annualized.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
- ------------------
118
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- --------------------------------------------
SIX MONTHS JANUARY 2, SIX MONTHS JANUARY 2,
ENDED YEAR ENDED 1996* ENDED YEAR ENDED 1996*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, TO JUNE 30, DECEMBER 31, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.98 $ 14.40 $ 12.00 $ 16.85 $ 14.38 $ 12.00
------------ ------------ ------------ ------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.04) 0.04 0.06 (0.08) (0.02) 0.03
Net Realized and
Unrealized Gain 2.81 3.95 2.40 2.74 3.86 2.39
------------ ------------ ------------ ------------ ------------ ------
Total From Investment
Operations 2.77 3.99 2.46 2.66 3.84 2.42
------------ ------------ ------------ ------------ ------------ ------
DISTRIBUTIONS
Net Investment Income -- (0.06) (0.06) -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) -- (1.93) (1.35) --
------------ ------------ ------------ ------------ ------------ ------
Total Distributions (1.93) (1.41) (0.06) (1.93) (1.37) (0.04)
------------ ------------ ------------ ------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 17.82 $ 16.98 $ 14.40 $ 17.58 $ 16.85 $ 14.38
------------ ------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------------ ------
TOTAL RETURN (1) 16.66% 28.93% 20.52% 16.26% 28.01% 20.18%
------------ ------------ ------------ ------------ ------------ ------
------------ ------------ ------------ ------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 35,689 $ 22,521 $ 5,382 $ 58,739 $ 34,382 $ 2,426
Ratio of Expenses to
Average Net Assets 1.50%** 1.57% 2.03%** 2.25%** 2.32% 2.67%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (0.43)%** (0.04)% 1.22%** (1.17)%** (0.83)% 0.43%**
Portfolio Turnover Rate 141% 241% 204% 141% 241% 204%
Average Commission Rate # $ 0.0581 $ 0.0536 N/A $ 0.0581 $ 0.0536 N/A
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.22 $ 0.06 $ 0.02 $ 0.02 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.79%** 2.38% 3.26%** 2.54%** 2.88% 3.79%**
Net Investment Income
to Average Net Assets (0.73)%** (0.85)% (0.01)%** (1.47)%** (1.43)% (0.69)%**
Ratio of Expenses to
Average Net Assets
excluding dividend
expense on securities
sold short 1.50%** 1.50% 1.50%** 2.25%** 2.25% 2.25%**
<CAPTION>
CLASS C
--------------------------------------------
SIX MONTHS JANUARY 2,
ENDED YEAR ENDED 1996*
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, TO JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.83 $ 14.37 $ 12.00
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) (0.06) 0.03
Net Realized and
Unrealized Gain 2.75 3.89 2.38
------------ ------------ ------
Total From Investment
Operations 2.67 3.83 2.41
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.04)
Net Realized Gain (1.93) (1.35) --
------------ ------------ ------
Total Distributions (1.93) (1.37) (0.04)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 17.57 $ 16.83 $ 14.37
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 16.21% 28.04% 20.10%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 11,837 $ 9,410 $ 2,582
Ratio of Expenses to
Average Net Assets 2.25%** 2.32% 2.67%**
Ratio of Net Investment
Income (Loss) to
Average Net Assets (1.21)%** (0.77)% 0.44%**
Portfolio Turnover Rate 141% 241% 204%
Average Commission Rate # $ 0.0581 $ 0.0536 N/A
- ------------------------------------------------------------------------------------------
Effect of Voluntary
Expense
Limitation During the
Period
Per Share Benefit to
Net Investment Income $ 0.02 $ 0.07 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.54%** 3.23% 3.80%**
Net Investment Income
to Average Net Assets (1.50)%** (1.67)% (0.69)%**
Ratio of Expenses to
Average Net Assets
excluding dividend
expense on securities
sold short 2.25%** 2.25% 2.25%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
-----------------------
119
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
U.S. REAL ESTATE FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
SIX MONTHS MAY 1, 1996*
ENDED YEAR ENDED TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.39 $ 12.52 $ 12.00
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.21 0.37 0.08
Net Realized and
Unrealized Gain 2.02 4.03 0.48
------------ ------------ ------
Total From Investment
Operations 2.23 4.40 0.56
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.23) (0.29) (0.04)
Net Realized Gain (1.60) (0.24) --
------------ ------------ ------
Total Distributions (1.83) (0.53) (0.04)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 16.79 $ 16.39 $ 12.52
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 13.83% 35.75% 4.63%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 20,768 $ 14,827 $ 1,829
Ratio of Expenses to
Average Net Assets 1.55%** 1.55% 1.55%**
Ratio of Net Investment
Income to Average Net
Assets 2.51%** 2.33% 4.11%**
Portfolio Turnover Rate 59% 143% 0%
Average Commission Rate # $ 0.0596 $ 0.0582 N/A
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.05 $ 0.16 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.16%** 2.51% 5.58%**
Net Investment Income
to Average Net Assets 1.90%** 1.36% 0.08%**
- ----------------------------------------------------------------------------
<CAPTION>
CLASS B
----------------------------------------------
SIX MONTHS MAY 1, 1996*
ENDED YEAR ENDED TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- -------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.36 $ 12.52 $ 12.00
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.10 0.15 0.07
Net Realized and
Unrealized Gain 2.03 4.12 0.48
------------ ------------ ------
Total From Investment
Operations 2.13 4.27 0.55
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.16) (0.19) (0.03)
Net Realized Gain (1.60) (0.24) --
------------ ------------ ------
Total Distributions (1.76) (0.43) (0.03)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 16.73 $ 16.36 $ 12.52
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 13.40% 34.58% 4.54%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 12,764 $ 7,120 $ 2,197
Ratio of Expenses to
Average Net Assets 2.30%** 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 1.64%** 1.49% 3.35%**
Portfolio Turnover Rate 59% 143% 0%
Average Commission Rate # $ 0.0596 $ 0.0582 N/A
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.04 $ 0.11 $ 0.07
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.91%** 3.39% 6.34%**
Net Investment Income
to Average Net Assets 1.02%** 0.39% (0.69)%**
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------
SIX MONTHS MAY 1, 1996*
ENDED YEAR ENDED TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 16.36 $ 12.52 $ 12.00
------------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.10 0.20 0.07
Net Realized and
Unrealized Gain 2.03 4.07 0.48
------------ ------------ ------
Total From Investment
Operations 2.13 4.27 0.55
------------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.16) (0.19) (0.03)
Net Realized Gain (1.60) (0.24) --
------------ ------------ ------
Total Distributions (1.76) (0.43) (0.03)
------------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 16.73 $ 16.36 $ 12.52
------------ ------------ ------
------------ ------------ ------
TOTAL RETURN (1) 13.36% 34.56% 4.54%
------------ ------------ ------
------------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 3,910 $ 2,369 $ 1,782
Ratio of Expenses to
Average Net Assets 2.30%** 2.30% 2.30%**
Ratio of Net Investment
Income to Average Net
Assets 1.66%** 1.46% 3.39%**
Portfolio Turnover Rate 59% 143% 0%
Average Commission Rate # $ 0.0596 $ 0.0582 N/A
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.17 $ 0.08
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.91%** 3.58% 6.32%**
Net Investment Income
to Average Net Assets 1.09%** 0.16% (0.63)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
# For fiscal years beginning on or after September 1, 1995, a portfolio
is required to disclose the average commission rate per share it paid
for trades on which commissions were charged.
- ------------------
120
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
HIGH YIELD FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------- ----------------------------------------------
SIX MONTHS MAY 1, 1996* SIX MONTHS MAY 1, 1996*
ENDED YEAR ENDED TO ENDED YEAR ENDED TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.92 $ 12.00 $ 12.86 $ 11.93 $ 12.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.64 1.07 0.13 0.45 0.98 0.12
Net Realized and
Unrealized Gain
(Loss) 0.15 0.99 (0.09) 0.27 0.99 (0.09)
------ ------ ------ ------ ------ ------
Total From Investment
Operations 0.79 2.06 0.04 0.72 1.97 0.03
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.51) (1.07) (0.12) (0.47) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) -- (0.55) (0.05) --
------ ------ ------ ------ ------ ------
Total Distributions (1.06) (1.12) (0.12) (1.02) (1.04) (0.10)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 12.59 $ 12.86 $ 11.92 $ 12.56 $ 12.86 $ 11.93
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (1) 6.24% 18.12% 0.29% 5.67% 17.22% 0.21%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 5,644 $ 8,980 $ 3,907 $ 9,931 $ 8,617 $ 3,421
Ratio of Expenses to
Average Net Assets 1.25%** 1.25% 1.25%** 2.00%** 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 7.41%** 8.83% 6.85%** 6.70%** 7.99% 6.08%**
Portfolio Turnover Rate 37% 104% 10% 37% 104% 10%
- -------------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.06 $ 0.10 $ 0.04 $ 0.05 $ 0.10 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.90%** 2.04% 3.51%** 2.65%** 2.82% 4.25%**
Net Investment Income
to Average Net Assets 6.76%** 8.04% 4.59%** 5.98%** 7.17% 3.83%**
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------
SIX MONTHS MAY 1, 1996*
ENDED YEAR ENDED TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.86 $ 11.93 $ 12.00
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.33 0.99 0.12
Net Realized and
Unrealized Gain
(Loss) 0.39 0.98 (0.09)
------ ------ ------
Total From Investment
Operations 0.72 1.97 0.03
------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.47) (0.99) (0.10)
Net Realized Gain (0.55) (0.05) --
------ ------ ------
Total Distributions (1.02) (1.04) (0.10)
------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 12.56 $ 12.86 $ 11.93
------ ------ ------
------ ------ ------
TOTAL RETURN (1) 5.66% 17.21% 0.21%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 2,864 $ 4,970 $ 3,316
Ratio of Expenses to
Average Net Assets 2.00%** 2.00% 2.00%**
Ratio of Net Investment
Income to Average Net
Assets 6.52%** 8.03% 6.07%**
Portfolio Turnover Rate 37% 104% 10%
- ----------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.03 $ 0.11 $ 0.04
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 2.65%** 2.88% 4.25%**
Net Investment Income
to Average Net Assets 5.89%** 7.15% 3.82%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
-----------------------
121
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM FUND
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------- ---------------------------- ----------------------------
SIX MONTHS JULY 1, SIX MONTHS JULY 1, SIX MONTHS JULY 1,
ENDED 1996* TO ENDED 1996* TO ENDED 1996* TO
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
AND RATIOS 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.91 $ 12.00 $ 13.84 $ 12.00 $ 13.83 $ 12.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (0.08) 0.17 (0.12) 0.10 (0.03) 0.06
Net Realized and
Unrealized Gain
(Loss) (0.97) 1.88 (0.97) 1.85 (1.05) 1.88
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations (1.05) 2.05 (1.09) 1.95 (1.08) 1.94
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.18) (0.13) (0.13) (0.10) (0.08) (0.10)
Net Realized Gain (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (0.19) (0.14) (0.14) (0.11) (0.09) (0.11)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 12.67 $ 13.91 $ 12.61 $ 13.84 $ 12.66 $ 13.83
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) (7.52)% 17.30% (7.87)% 16.40% (7.88)% 16.27%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 36,918 $ 21,961 $ 33,824 $ 18,215 $ 9,147 $ 9,156
Ratio of Expenses to
Average Net Assets 1.65%** 1.65% 2.40%** 2.40% 2.40%** 2.40%
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.43%** 1.39% (0.33)%** 0.54% (0.31)%** 0.29%
Portfolio Turnover Rate 22% 22% 22% 22% 22% 22%
Average Commission Rate $ 0.0211 $ 0.0318 $ 0.0211 $ 0.0318 $ 0.0211 $ 0.0318
As a Percentage of Trade
Amount 0.23% 0.33% 0.23% 0.33% 0.23% 0.33%
- -------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary
Expense Limitation
During the Period
Per Share Benefit to
Net Investment Income $ 0.04 $ 0.11 $ 0.07 $ 0.17 $ 0.02 $ 0.21
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.84%** 2.50% 2.59%** 3.34% 2.59%** 3.45%
Net Investment Income
(Loss) to Average Net
Assets 0.23%** 0.52% (0.53)%** (0.42)% (0.48)%** (0.77)%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
(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.
- ------------------
122
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS MONEY MARKET FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0235 0.0443 0.0464 0.0448 0.0243 0.0246
Net Realized and
Unrealized Gain
(Loss) -- -- (0.0011) -- 0.0011 0.0002
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.0235 0.0443 0.0453 0.0448 0.0254 0.0248
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.0235) (0.0443) (0.0464) (0.0448) (0.0243) (0.0246)
Net Realized Gain -- -- (0.0001) -- (0.0011) (0.0002)
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (0.0235) (0.0443) (0.0465) (0.0448) (0.0254) (0.0248)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 2.37% 4.53% 4.72% 4.58% 2.45% 2.51%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 52,997 $ 94,768 $ 145,978 $ 67,505 $ 102,551 $ 101,736
Ratio of Expenses to
Average Net Assets 0.95%* 0.95% 0.95% 0.95% 0.95% 0.95%
Ratio of Net Investment
Income to Average Net
Assets 4.65%* 4.43% 4.68% 4.61% 2.40% 2.50%
- -------------------------------------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.24%* 1.27% 1.24% 1.12% 1.22% 1.19%
Net Investment Income
to Average Net Assets 4.37%* 4.10% 4.39% 4.44% 2.13% 2.26%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
(1) Total returns for periods of less than one year are not annualized.
-----------------------
123
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SELECTED PER SHARE DATA DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
AND RATIOS 1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.0239 0.0450 0.0463 0.0446 0.0246 0.0243
Net Realized and
Unrealized Gain
(Loss) -- -- (0.0006) 0.0001 -- 0.0001
------------ ------------ ------------ ------------ ------------ ------------
Total From Investment
Operations 0.0239 0.0450 0.0457 0.0447 0.0246 0.0244
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS
Net Investment Income (0.0239) (0.0450) (0.0463) (0.0446) (0.0246) (0.0243)
Net Realized Gain -- -- -- (0.0001) -- (0.0001)
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions (0.0239) (0.0450) (0.0463) (0.0447) (0.0246) (0.0244)
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
TOTAL RETURN (1) 2.42% 4.60% 4.72% 4.55% 2.49% 2.47%
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
(000's) $ 362,813 $ 138,422 $ 170,973 $ 171,515 $ 176,599 $ 156,310
Ratio of Expenses to
Average Net Assets 0.98%* 0.98% 0.98% 0.98% 0.98% 0.98%
Ratio of Net Investment
Income to Average Net
Assets 4.78%* 4.50% 4.65% 4.45% 2.45% 2.44%
- -------------------------------------------------------------------------------------------------------------------------
Ratios Before Expense
Limitation:
Expenses to Average Net
Assets 1.12%* 1.27% 1.22% 1.18% 1.19% 1.20%
Net Investment Income
to Average Net Assets 4.65%* 4.20% 4.41% 4.25% 2.24% 2.22%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
(1) Total returns for periods of less than one year are not annualized.
- ------------------
124
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER, 31 1997 (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, 1997, the Fund had fifteen separate, active investment
portfolios: Morgan Stanley Global Equity Allocation Fund, Morgan Stanley Global
Equity Fund, Morgan Stanley Global Fixed Income Fund, Morgan Stanley Asian
Growth Fund, Morgan Stanley American Value Fund, Morgan Stanley Value Fund,
Morgan Stanley Worldwide High Income Fund, Morgan Stanley Latin American Fund,
Morgan Stanley Emerging Markets Fund, Morgan Stanley Aggressive Equity Fund,
Morgan Stanley U.S. Real Estate Fund, Morgan Stanley High Yield Fund, Morgan
Stanley International Magnum Fund, Morgan Stanley Government Obligations Money
Market Fund and Morgan Stanley Money Market Fund (referred to herein
respectively as "Global Equity Allocation Fund," "Global Equity Fund", "Global
Fixed Income Fund," "Asian Growth Fund," "American Value Fund," " Value Fund,"
"Worldwide High Income Fund," "Latin American Fund," "Emerging Markets Fund,"
"Aggressive Equity Fund," "U.S. Real Estate Fund," "High Yield Fund,"
"International Magnum Fund," "Government Obligations Money Market Fund" and
"Money Market Fund," individually a "Portfolio" and collectively as the
"Portfolios").
The Fund currently offers three classes of shares, Class A, Class B and Class C
Shares (with the exception of the Government Obligations Money Market and Money
Market Funds). Class A shares are sold with a front-end sales charge of up to
5.75% (4.75% for shares sold in the Global Fixed Income Fund, Worldwide High
Income Fund and the High Yield Fund). For certain purchases of Class A shares
the front-end sales charge may be waived and a contingent deferred sales charge
of 1.00% imposed in the event of certain redemptions within one year of the
purchase. Class B shares are sold with a contingent deferred sales charge on
redemptions made within 5 years of purchase which declines annually from 5% for
redemptions made in year one, down to 1.50% in year five. The contingent
deferred sales charge is based on the lesser of the current market value of the
shares redeemed or the total cost of such shares. 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 of 1%
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.
The Value Fund commenced operations on July 7, 1997 and the Global Equity Fund
commenced operations on October 29, 1997.
The Board of Trustees has approved the acquisition of the assets and liabilities
of the Morgan Stanley U.S. Real Estate Fund, Morgan Stanley Global Fixed Income
Fund, and the VKAC Global Equity Fund by the VKAC Real Estate Securities Fund,
VKAC Global Government Securities Fund, and the Morgan Stanley Global Equity
Allocation Fund, respectively. These transactions, subject to shareholder
approval, are expected to be completed by June, 1998.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results may
differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. 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 obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be 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. Securities owned by the Government Obligations Money Market and
Money Market Funds are stated at amortized cost, which approximates market
value. All other securities and assets for which market values are not readily
available are valued at fair value as determined in good faith using methods
determined by the Board of Directors, although the actual calculations may be
done by others.
2. TAXES: It is each portfolio's intention to qualify as a regulated investment
company and distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements. A portfolio 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. Taxes are
accrued and applied to net
------------------
125
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
investment income, net realized capital gains and net unrealized appreciation,
as applicable, as the income and/or capital gains are earned. Taxes may also be
based on the movement of foreign currency and are accrued based on the value of
investments denominated in such currency.
At June 30, 1997, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by U.S.
Federal income tax regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
JUNE 30, 2004
PORTFOLIO (000)
- ------------------------------------- -----------------------
<S> <C>
Government Obligations Money
Market............................. $ 90
Money Market......................... 98
</TABLE>
To the extent that capital loss carryforwards are used to offset any future net
capital gains realized during the carryforward period as provided by U.S.
Federal income tax regulations, no capital gains tax liability will be incurred
by a Portfolio for gains realized and not distributed. To the extent that
capital gains are so offset, such gains will not be distributed to shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1996 to June 30, 1997 certain
Portfolios incurred and elected to defer until July 1, 1997, for U.S. Federal
income tax purposes, net currency and capital losses of approximately:
<TABLE>
<CAPTION>
CURRENCY
AND CAPITAL
LOSSES
PORTFOLIO (000)
- ------------------------------------- -------------------
<S> <C>
Global Fixed Income.................. $ 83
Asian Growth......................... 8,841
Latin American....................... 11
Emerging Markets..................... 223
</TABLE>
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the amount of the repurchase
transaction, including principal and 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 counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. 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
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, the foreign currency portion of gains and losses realized on
sales and maturities of foreign denominated debt securities is 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 exchange
contracts, disposition of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of investment income and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid. 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) on
investments and foreign currency translations in the Statement of Assets and
Liabilities. The change in net unrealized currency gains (losses) for the period
is reflected on the Statement of Operations.
The net assets of certain Portfolios include issuers located in emerging
markets. There will be certain considerations and risks of these investments not
typically associated with investments in the United States. Changes in currency
exchange rates will affect the value of and investment income from such
securities. The smaller size of the markets themselves, lesser liquidity and
greater volatility contribute to risks in valuation as compared with the U.S.
securities markets. Also there is often substantially less publicly available
information about these issuers. Emerging markets may be subject to a greater
degree of governmental involvement in the economy and greater economic and
- -----------------------
126
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
political uncertainty. Accordingly the price which the Fund realizes upon the
sale of securities in such markets may not be equal to its value as presented in
the financial statements.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
domestic companies may be subject to limitations in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies 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. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A currency exchange 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 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 of the contract at the time
it was closed. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts but
is generally limited to the amount of unrealized gain on the contracts, if any,
at the date of default. Risks may also arise from the unanticipated movements in
the value of a foreign currency relative to the U.S. dollar.
6. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolios sell securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolios are obligated to purchase securities at the market
price to replace the borrowed securities at the time of replacement. The
Portfolios may have to pay a premium to borrow the securities as well as pay
dividends or interests payable on the securities until they are replaced. The
Portfolios' obligation to replace the securities borrowed in connection with a
short sale will generally be secured by collateral deposited with the broker
that consists of cash, U.S. government securities or other liquid, high grade
debt obligations. In addition, the Portfolios will place in a segregated account
with its Custodian an amount of cash, U.S. government securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Short sales by the Portfolios involve
certain risks and special considerations. Possible losses from short sales
differ from losses that could be incurred from the purchase of a security,
because losses from short sales may be unlimited, whereas losses from purchases
cannot exceed the total amount invested.
7. PURCHASED OPTIONS: Certain Portfolios may purchase call or put options on
their portfolio securities. A Portfolio may purchase call options 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 an
imperfect correlation between the change in market value of the securities held
by the Portfolio and the prices of options relating to the securities purchased
or sold by the Portfolio and from the possible lack of a liquid secondary market
for an option. The maximum exposure to loss for any purchased option is limited
to the premium initially paid for the option.
8. SECURITY LENDING: Certain Portfolios may lend investment securities to
qualified institutional investors who borrow securities in order to complete
certain transactions. By lending its investment securities, a Portfolio attempts
to increase its net investment income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that might
occur and any interest earned or dividends declared during the term of the loan
would accrue to the account of the Portfolio. Risks of delay in recovery of the
securities or even loss of rights in the collateral may occur should the
borrower of the securities fail financially. Risks may also arise to the extent
that the value of the collateral decreases below the value of the securities
loaned.
Portfolios that lend securities receive cash, securities issued or guaranteed by
the U.S. Government or letters of credit as collateral in an amount equal to or
exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in interest bearing repurchase agreements
with approved counterparties. A portion of the interest received on the
repurchase agreements is retained by the Fund and the remainder is rebated to
the borrower of the securities. The net amount of interest earned and interest
rebated is included in the Statement of Operations as interest income. The value
of loaned securities and related collateral outstanding at December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- ------------------------------------- ----------------------- ----------
<S> <C> <C>
Global Equity Allocation............. $ 15,878 $ 16,567
</TABLE>
------------------
127
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
At December 31, 1997, the Fund had invested the cash collateral in a repurchase
agreement with Goldman Sachs. Such repurchase agreement was collateralized by
U.S. Treasury obligations.
Morgan Stanley Trust Company, an affiliate of the Investment Sub-Adviser,
administers the security lending program and for its services the Fund incurred
fees in the amount of $14,808 for the six months ended December 31, 1997.
9. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not exceeding 120 days) after
the date of the transaction. Additionally each Portfolio may purchase securities
on a when-issued or delayed delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and no income accrues to the Portfolio
on such securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed basis, it establishes a segregated
account in which it maintains liquid assets in an amount at least equal in value
to the Portfolio's commitments to purchase such securities. Purchasing
securities on a forward commitment or when-issued or delayed delivery basis may
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
10. STRUCTURED SECURITIES: The Worldwide High Income Fund may invest in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. Structured Securities generally will expose the
Portfolio to credit risks equivalent to that of the underlying instruments.
Structured Securities are typically sold in private placement transactions with
no active trading market. Investments in Structured Securities may be more
volatile than their underlying instruments, however, any loss is limited to the
amount of the original investment.
11. 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 respective Portfolio's commencement of operations. Van Kampen American
Capital, Inc. has agreed that in the event any of its initial shares in a
Portfolio which comprised the Fund at its inception 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 the same time of redemption.
12. FUTURES: Certain Portfolios may purchase and sell futures contracts. Futures
contracts provide for the sale by one party and purchase by another party of a
specified amount of a specified security, instrument or basket of instruments.
Futures contracts (secured by cash or government securities deposited with
brokers or custodians as "initial margin") are valued based upon their quoted
daily settlement prices; changes in initial settlement value (represented by
cash paid to or received from brokers as "variation margin") are accounted for
as unrealized appreciation (depreciation). When futures contracts are closed,
the difference between the opening value at the date of purchase and the value
at closing is recorded as realized gains or losses in the Statement of
Operations.
Certain Portfolios may use futures contracts in order to hedge against
unfavorable changes in the value of securities or to remain fully invested and
to reduce transaction costs. Futures contracts involve market risk in excess of
the amounts recognized in the Statement of Net Assets. Risks arise from the
possible movements in security values underlying these instruments. The change
in value of futures contracts primarily corresponds with the value of their
underlying instruments, which may not correlate with the change in value of the
hedged investments. In addition, there is the risk that a Portfolio may not be
able to enter into a closing transaction because of an illiquid secondary
market.
13. SWAP AGREEMENTS: Certain Portfolios may enter into swap agreements to
exchange the return generated by one security, instrument or basket of
instruments for the return generated by another security, instrument or basket
of instruments. The following summarizes swaps which may be entered into by the
Portfolios:
Interest Rate Swaps: Interest rate swaps involve the exchange of commitments to
pay and receive interest based on a notional principal amount. Net periodic
interest payments to be received or paid are accrued daily and are recorded in
the Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
Total Return Swaps: Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security or index underlying the transaction exceeds or
falls short of the offsetting interest obligation, the Portfolio will receive a
payment from or make a payment to the counterparty, respectively. Total return
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gains
- -----------------------
128
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
or losses in the Statement of Operations. Periodic payments received or made at
the end of each measurement period, but prior to termination, are recorded as
realized gains or losses in the Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and total
return swaps are presented in the Statement of Operations. Because there is no
organized market for these swap agreements, the value reported in the Statement
of Net Assets may differ from that which would be realized in the event the
Portfolio terminated its position in the agreement. Risks may arise upon
entering into these agreements from the potential inability of the
counterparties to meet the terms of the agreements and generally are limited to
the amount of net interest payments to be received and/or favorable movements in
the value of the underlying security, if any, at the date of default.
14. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the specific identified cost basis. Dividend income
is recorded on the ex-dividend date (except for certain foreign dividends which
may be recorded as soon as the Portfolio 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.
Certain Portfolios own shares of real estate investment trusts ("REITs") which
report information on the source of their distributions annually. A portion of
distributions received from REITs during the six months is estimated to be a
return of capital and is recorded as a reduction of the cost of those
securities.
The amount and the character of income and capital gain distributions to be paid
by the Fund are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing book and tax treatment for foreign
currency transactions, net operating losses, foreign taxes on net realized
gains, deductibility of interest expense on short sales and gains on certain
securities of corporations designated as "passive foreign investment companies."
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassification among undistributed net investment income (loss),
accumulated net realized gain (loss) and paid in capital.
Permanent book and tax basis differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income for the purpose
of presenting net investment income (loss) per share in the Financial
Highlights.
B. ADVISER: Van Kampen American Capital Investment Advisory Corp., (the
"Adviser") a wholly owned subsidiary of Van Kampen American Capital, Inc. (an
indirect wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co.), Morgan Stanley Asset Management, Inc. ("MSAM" or a "Sub-Adviser") a wholly
owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., and Miller
Anderson & Sherred, LLP (a "Sub-Adviser") a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co. provide the Fund with investment advisory
services at a fee paid monthly and calculated at the annual rates based on
average daily net assets as 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 as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
PORTFOLIO ADVISORY FEE EXPENSE RATIO EXPENSE RATIO
- ------------------------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Global Equity Allocation............. 1.00% 1.70% 2.45%
Global Equity........................ 1.00% 1.80% 2.55%
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%
Value................................ 0.80% 1.45% 2.20%
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%
Aggressive Equity.................... 0.90% 1.50% 2.25%
U.S. Real Estate..................... 1.00% 1.55% 2.30%
High Yield........................... 0.75% 1.25% 2.00%
International Magnum................. 0.80% 1.65% 2.40%
Government Obligations Money Market.. 0.45% 0.95% N/A
Money Market......................... 0.45% 0.98% N/A
</TABLE>
C. ADMINISTRATOR: Van Kampen American Capital Investment Advisory Corp. (the
"Administrator") 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, plus reimbursement of
out-of-pocket expenses. Under an agreement between the Adviser and The
------------------
129
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC"), Chase provides certain administrative services to
the Fund. Chase is compensated for such services by the Adviser from the fee it
receives from the Fund. Transfer agency services are provided to the Fund by
ACCESS Investor Services, Inc., an affiliate of the Adviser.
D. DISTRIBUTOR: Van Kampen American Capital Distributors, Inc. ("the
Distributor") a wholly owned subsidiary of Morgan Stanley, Dean Witter, Discover
& Co., serves as the Distributor of the Fund's shares. The Distributor is
entitled to receive from the Portfolios a distribution fee, which is accrued
daily and paid quarterly, of an amount of 0.25% of the Class A shares and up to
1.00%, on an annualized basis, of the average daily net assets attributable to
the Class B and Class C shares of each Portfolio. The Government Obligations
Money Market and Money Market Funds pay the Distributor a fee which is accrued
daily and paid monthly, up to 0.50%, on an annualized basis, of the average
daily net assets of those Portfolios.
The Distributor may receive a front end sales charge for purchases of Class A
shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain purchases; for Class A shares of each Portfolio redeemed less
than one year following such purchases and for Class B and Class C shares of
each Portfolio redeemed within one to five years following such purchase. For
the six months ended December 31, 1997, the Distributor has advised the Fund
that it earned initial sales charges of $1,847,924 for Class A shares and
deferred sales charges of $27,563, $1,068,171 and $144,849 for Class A shares,
Class B shares and Class C shares, respectively.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co., acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held, investment
purchase and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses.
For the six months ended December 31, 1997, the following Portfolios incurred
custody fees and had amounts payable to MSTC at December 31, 1997:
<TABLE>
<CAPTION>
MSTC CUSTODY CUSTODY FEES
FEES INCURRED PAYABLE TO MSTC
PORTFOLIO (000) (000)
- ------------------------------------- -------------------- -----------------------
<S> <C> <C>
Global Equity Allocation............. $ 108 $ 94
Global Equity........................ 25 25
Global Fixed Income.................. 6 7
Asian Growth......................... 193 148
Worldwide High Income................ 3 35
Latin American....................... 134 93
Emerging Markets..................... 417 225
International Magnum................. 68 47
</TABLE>
In addition, a Portfolio may earn interest income or incur interest expense
relating to cash balances with MSTC.
F. PURCHASES AND SALES: For the six months ended December 31, 1997, purchases
and sales of investment securities other than long-term U.S. Government
securities and short-term investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
- ------------------------------------- ----------------- --------
<S> <C> <C>
Global Equity Allocation............. $ 90,871 $ 97,476
Global Equity........................ 551,567 --
Global Fixed Income.................. 3,328 4,157
Asian Growth......................... 159,642 225,652
American Value....................... 305,357 137,017
Value................................ 195,717 14,190
Worldwide High Income................ 182,554 136,599
Latin American....................... 183,655 176,716
Emerging Markets..................... 122,995 111,868
Aggressive Equity.................... 136,310 111,569
U.S. Real Estate..................... 28,029 17,304
High Yield........................... 7,313 9,325
International Magnum................. 41,691 12,815
</TABLE>
Purchases and sales of long term U.S. Government securities during the six
months ended December 31, 1997 occurred in the Global Fixed Income Fund and
totaled $242,900 and $573,000, respectively.
G. OTHER: At December 31, 1997, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the U.S. dollar value of and investment
income from such securities.
- -----------------------
130
<PAGE>
MORGAN STANLEY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER, 31 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Foreign denominated assets and liabilities, including Portfolio securities and
foreign currency holdings, were translated at the following exchange rates as of
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Argentine Peso................ 0.99981 = $1.00
Australian Dollar............. 1.53504 = $1.00
Austrian Schilling............ 12.63150 = $1.00
Belgian Franc................. 37.05100 = $1.00
Brazilian Real................ 1,785.00000 = $1.00
British Pound................. 0.60853 = $1.00
Canadian Dollar............... 1.42945 = $1.00
Colombian Peso................ 1,296.65000 = $1.00
Danish Krone.................. 6.85190 = $1.00
Egyptian Pound................ 3.40250 = $1.00
Finnish Markka................ 5.45095 = $1.00
French Franc.................. 6.01850 = $1.00
German Mark................... 1.79895 = $1.00
Hong Kong Dollar.............. 7.74900 = $1.00
Hungarian Forint.............. 203.95500 = $1.00
Indian Rupee.................. 39.20000 = $1.00
Indonesian Rupiah............. 5,500.00000 = $1.00
Irish Punt.................... 0.70284 = $1.00
Italian Lira.................. 1,769.00000 = $1.00
Japanese Yen.................. 130.47500 = $1.00
Malaysian Ringgit............. 3.88950 = $1.00
Mexican Peso.................. 8.06000 = $1.00
Netherlands Guilder........... 2.02765 = $1.00
New Zealand Dollar............ 1.72221 = $1.00
Pakistan Rupee................ 44.00600 = $1.00
Peruvian Sol.................. 2.72550 = $1.00
Philippine Peso............... 40.50000 = $1.00
Polish Zloty.................. 3.52500 = $1.00
Portuguese Escudo............. 184.05000 = $1.00
Singapore Dollar.............. 1.68150 = $1.00
South African Rand............ 4.86650 = $1.00
South Korean Won.............. 1,695.00000 = $1.00
Spanish Peseta................ 152.35000 = $1.00
Swedish Krona................. 7.93990 = $1.00
Swiss Franc................... 1.46050 = $1.00
Taiwan Dollar................. 32.62500 = $1.00
Thai Baht..................... 48.15000 = $1.00
Turkish Lira.................. 207,250.00000 = $1.00
Venezuelan Bolivar............ 504.30000 = $1.00
</TABLE>
During the six months ended December 31, 1997, the Asian Growth Fund, Latin
American Fund, Emerging Markets Fund, International Magnum Fund and Global
Equity Fund incurred approximately $135,604, $36,936, $32,109, $167 and
$112,298, respectively, as brokerage commissions with Morgan Stanley & Co.
Incorporated, an affiliated broker/ dealer.
At December 31, 1997 the Global Equity Allocation Fund and Emerging Markets Fund
owned shares of affiliated funds for which the Funds earned dividend income of
approximately $195,000 and $87,000, respectively. The Global Equity Allocation
Fund and Emerging Markets Fund incurred losses totaling $1,465,000 and $148,000,
respectively on sales of shares in affiliated funds during the period.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom, counsel
to the Fund, of which a trustee of the Fund is an affiliated person.
At December 31, 1997, cost and unrealized appreciation (depreciation) for U.S.
Federal income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPRECIATION
COST APPREC. (DEPREC.) (DEPRECIATION)
PORTFOLIO (000) (000) (000) (000)
- ------------------------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
Global Equity
Allocation............. $193,431 $ 25,896 $ (10,926) $ 14,970
Global Equity............ 604,967 22,898 (27,757) (4,859)
Global Fixed Income...... 9,310 213 (239) (26)
Asian Growth............. 158,645 3,651 (37,799) (34,148)
American Value........... 274,305 27,218 (12,118) 15,100
Value.................... 213,532 6,865 (8,407) (1,542)
Worldwide High Income.... 240,047 6,772 (7,271) (499)
Latin American........... 118,707 9,895 (8,189) 1,706
Emerging Markets......... 189,975 18,835 (49,482) (30,647)
Aggressive Equity........ 98,075 6,945 (1,306) 5,639
U.S. Real Estate......... 37,870 3,316 (185) 3,131
High Yield............... 17,668 1,002 (371) 631
International Magnum..... 82,016 4,242 (6,723) (2,481)
Government Obligations
Money Market........... 52,742 -- -- --
Money Market............. 362,669 -- -- --
</TABLE>
------------------
131
<PAGE>
PART C
Morgan Stanley Fund, Inc.
Other Information*
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS (included in Part A)**+
The Registrant's audited financial highlights for the Funds that were
operational as of June 30, 1997 are included in Part A.
Unaudited Financial Highlights for the Morgan Stanley Value Fund and
Morgan Stanley Global Equity Fund as of December 31, 1997
(2) FINANCIAL STATEMENTS (incorporated by reference into Part B)**+
The Registrant's audited financial statements for the Funds that were
operational as of June 30, 1997, including Price Waterhouse LLP's
report thereon, are incorporated by reference into Part B (Statement of
Additional Information) and are part of the Registrant's June 30, 1997
Annual Report June 30, 1997 Annual Report to Shareholders.
The financial statements incorporated by reference into Part B are:
1. Statements of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
6. Report of Independent Accountants
The Registrant's unaudited financial statements for the funds that
were operational as of December 31, 1997 are incorporated by
reference into Part B (Statement of Additional Information) and are
part of the Registrant's December 31, 1997 Semi-Annual Report to
Shareholders.
The financial statements incorporated by reference into Part B are:
1. Statements of Net Assets
2. Statements of Operations
3. Statements of Changes in Net Assets
4. Financial Highlights
5. Notes to Financial Statements
- ------------------------
* For ease of reference, the words "Morgan Stanley," which begin the name of
each Fund, have not been included herein.
** As of December 31, 1997, the Emerging Markets Debt, Equity Growth, European
Equity, Growth and Income, Japanese Equity, Mid Cap Growth and Tax-Free
Money Market Funds were not yet operational.
+ To be filed by amendment.
<PAGE>
(B) EXHIBITS
1 (a) Articles of Amendment and Restatement. (1)
(b) Articles Supplementary (adding Registrant's High Yield, U.S. Real
Estate and Japanese Equity Funds) to the Amended and Restated Articles
of Incorporation.(2)
(c) Articles Supplementary (adding Registrant's Government Obligations
Money Market and Tax-Free Money Market Funds) to the Amended and
Restated Articles of Incorporation.(2)
(d) Articles Supplementary (adding Registrant's Global Equity, Emerging
Market Debt, Mid Cap Growth, Equity Growth and Value Funds) to the
Amended and Restated Articles of Incorporation.(3)
2 Amended and Restated By-Laws.(1)
3 Not applicable.
4 Form of Specimen Securities for shares of the Money Market Fund
("Money Market Specimen"). The Specimen Securities for the
remaining Funds have been omitted because they are substantially
identical to the Money Market Specimen and differ from the Money
Market Specimen only in references to the Fund and amount of
authorized shares to which the Specimen relates.(5)
5 (a) Form of Investment Advisory Agreement between Registrant and Van
Kampen American Capital Investment Advisory Corp.(5)
(b) Form of Investment Sub-Advisory Agreement between Van Kampen American
Capital Investment Advisory Corp. and Morgan Stanley Asset Management
Inc.(5)
(c) Form of Investment Sub-Advisory Agreement between Van Kampen American
Capital Investment Advisory Corp. and Miller Anderson & Sherrerd,
LLP.(5)
6 Distribution Agreement between Registrant and Van Kampen American
Capital Distributors, Inc.(3)
7 Not applicable.
8 (a) Registrant's Mutual Fund Custody Agreement with the Chase Manhattan
Bank, N.A.(4)
(b) Registrant's Global Custody Agreement with Morgan Stanley Trust
Company.(4)
(c) Registrant's Custody Agreement with PNC Bank, N.A. (with respect to
the Money Market Funds).(2)
9. (a) Administration Agreement between Registrant and Morgan Stanley Asset
Management Inc.(4) and as amended by Addendum to such Agreement. (1)
(b) Form of Assignment and Assumption Agreement (Administration Agreement)
between Van Kampen American Capital Investment Advisory Corp. and
Morgan Stanley Asset Management Inc.(5)
(c) Administration Agreement between Registrant and Miller Anderson &
Sherrerd, LLP.(3)
(d) Form of Assignment and Assumption Agreement (Administration Agreement)
between Van Kampen American Capital Investment Advisory Corp. and
Miller Anderson & Sherrerd, LLP.(5)
<PAGE>
(e) Sub-Administration Agreement between Morgan Stanley Asset Management
Inc. and The Chase Manhattan Bank.(3)
(f) Form of Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Morgan Stanley Asset Management Inc.(5)
(g) Sub-Administration Agreement between Miller Anderson & Sherrerd, LLP
and The Chase Manhattan Bank.(3)
(h) Form of Assignment and Assumption Agreement (Sub-Administration
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Miller Anderson & Sherrerd, LLP.(5)
(i) Amended Schedule A and Amended Administration Agreement between
Registrant and Morgan Stanley Asset Management Inc. with respect to
the Asian Growth Fund and Small Cap Value Equity Fund (currently the
American Value Fund).(4)
(j) Form of Sub-Transfer Agency Agreement between Van Kampen American
Capital Investment Advisory Corp. and PFPC, Inc.(5)
(k) Sub-Transfer Agency Agreement between Morgan Stanley Asset Management
Inc. and ACCESS Investor Services, Inc.(3)
(l) Form of Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Morgan Stanley Asset Management Inc.(5)
(m) Sub-Transfer Agency Agreement between Miller Anderson & Sherrerd, LLP
and ACCESS Investor Services, Inc.(3)
(n) Form of Assignment and Assumption Agreement (Sub-Transfer Agency
Agreement) between Van Kampen American Capital Investment Advisory
Corp. and Miller Anderson & Sherrerd, LLP.(5)
10 Opinion of Counsel.(4)
11 Consent of Independent Accountants.(5)
12 Not applicable.
13 Purchase Agreement.(4)
14 Not applicable.
15 (a) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1 for
shares of the Money Market Fund ("Money Market Plan"). The following
Rule 12b-1 distribution plan has been omitted because it is
substantially identical to the Money Market Plan and differs from the
Money Market Plan only in references to the Fund to which the plan
relates: Government Obligations Money Market Fund.(3)
(b) Form of Plan of Distribution Pursuant to Rule 12b-1 for shares of the
Tax-Free Money Market Fund.(3)
(c) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A shares
(the "Class A Plan") of the Global Fixed Income Fund. The following
plans have been omitted because they are substantially identical to
the Class A Plan and differ from the Class A Plan only in references
to the Fund to which the plan relates: Asian Growth, Small Cap Value
Equity (currently the American Value Fund),
<PAGE>
Worldwide High Income, Emerging Markets, Latin American, Global Equity
Allocation, High Yield, U.S. Real Estate, International Magnum and
Aggressive Equity Funds.(3)
(d) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class A shares
(the "Class A Plan") of the Japanese Equity Fund. The following plans
have been omitted because they are substantially identical to the
Class A Plan and differ from the Class A Plan only in references to
the Fund to which the plan relates: European Equity, Growth and
Income, Global Equity, Emerging Markets Debt, Mid Cap Growth, Equity
Growth and Value Funds.(3)
(e) Amended and Restated Plan of Distribution Pursuant to Rule 12b-1 for
Class B and Class C shares (the "Class B and Class C Plan") of the
Global Fixed Income, Asian Growth, Small Cap Value Equity (currently
the American Value Fund), Worldwide High Income, Emerging Markets,
Latin American, Global Equity Allocation, High Yield, U.S. Real Estate,
International Magnum, Aggressive Equity, Global Equity, Emerging
Markets Debt, Mid Cap Growth, Equity Growth and Value Funds.(3)
(f) Form of Plan of Distribution Pursuant to Rule 12b-1 for Class B and
Class C shares (the "Class B and Class C Plan") relating to the
Japanese Equity, European Equity and Growth and Income Funds.(3)
16 Schedules of Computation of Performance Information.(4)
18 Registrant's Rule 18f-3 Multiple Class Plan.(3)
24 Powers of Attorney.(5)
27 (g) Financial data schedules for the fiscal year ended June 30, 1997
for Morgan Stanley Value Fund and Morgan Stanley Global Equity
Fund.(5)
27 (h) Financial data schedule for the period ended December 31, 1997 for
Morgan Stanley Value Fund and Morgan Stanley Global Equity Fund.*
- --------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 4, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 18, 1996.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on December 31, 1996.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 811-7140), as filed with the SEC via EDGAR on October 30, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A (File Nos. 33-51294
and 81-7140), as filed with the SEC via EDGAR on October 28, 1997.
* Filed herewith.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the
Registrant.
Item 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of March 31, 1998:
<PAGE>
Number of
Title of Class Record Holders
-------------- --------------
Global Equity Allocation Fund-Class A 5,171
Global Equity Allocation Fund-Class B 6,183
Global Equity Allocation Fund-Class C 5,348
Global Fixed Income Fund-Class A 254
Global Fixed Income Fund-Class B 97
Global Fixed Income Fund-Class C 190
Asian Growth Fund-Class A 13,347
Asian Growth Fund-Class B 6,542
Asian Growth Fund-Class C 7,989
Emerging Markets Fund-Class A 6,275
Emerging Markets Fund-Class B 6,545
Emerging Markets Fund-Class C 3,951
Latin American Fund-Class A 4,574
Latin American Fund-Class B 3,899
Latin American Fund-Class C 1,788
European Equity Fund-Class A 0
European Equity Fund-Class B 0
European Equity Fund-Class C 0
American Value Fund-Class A 12,580
American Value Fund-Class B 19,891
American Value Fund-Class C 5,846
Worldwide High Income Fund-Class A 3,431
Worldwide High Income Fund-Class B 6,792
Worldwide High Income Fund-Class C 2,859
Aggressive Equity Fund-Class A 4,872
Aggressive Equity Fund-Class B 9,289
Aggressive Equity Fund-Class C 1,554
Growth and Income Fund-Class A 0
Growth and Income Fund-Class B 2
Growth and Income Fund-Class C 0
High Yield Fund-Class A 239
High Yield Fund-Class B 666
High Yield Fund-Class C 4,617
U.S. Real Estate Fund-Class A 885
U.S. Real Estate Fund-Class B 1,116
U.S. Real Estate Fund-Class C 339
International Magnum Fund-Class A 4,617
International Magnum Fund-Class B 4,348
International Magnum Fund-Class C 673
Japanese Equity Fund-Class A 0
Japanese Equity Fund-Class B 0
Japanese Equity Fund-Class C 0
<PAGE>
Money Market Fund 49
Government Obligations Money Market Fund 8
Tax-Free Money Market Fund 0
Value Fund-Class A 9,879
Value Fund-Class B 8,752
Value Fund-Class C 1,812
Equity Growth Fund-Class A 0
Equity Growth Fund-Class B 0
Equity Growth Fund-Class C 0
Global Equity Fund-Class A 5,707
Global Equity Fund-Class B 50,108
Global Equity Fund-Class C 5,198
Emerging Markets Debt Fund-Class A 0
Emerging Markets Debt Fund-Class B 0
Emerging Markets Debt Fund-Class C 0
Mid Cap Growth Fund-Class A 0
Mid Cap Growth Fund-Class B 0
Mid Cap Growth Fund-Class C 0
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVEN of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission (the "SEC") such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND INVESTMENT
SUB-ADVISERS
For information regarding the business of the Adviser, reference is made to
the caption "Management of the Company -- Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Management of the
Company" in Part B of this Registration Statement. For information as to the
business, profession, vocation and employment of a substantial nature of
directors and officers of the Adviser, reference is made to the Adviser's
current Form ADV (SEC File No. 801-1669) filed under the Investment Advisers Act
of 1940, as amended, incorporated herein by reference.
<PAGE>
For information regarding the business of Morgan Stanley Asset Management
Inc., reference is made to the caption "Management of the Company -- Investment
Sub-Adviser" in the Prospectus constituting Part A of this Registration
Statement and "Management of the Company" in Part B of this Registration
Statement. For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of Morgan Stanley
Asset Management Inc., reference is made to the Sub-Adviser's current Form ADV
(SEC File No. 801-15757) filed under the Investment Advisers Act of 1940, as
amended, incorporated herein by reference.
For information regarding the business of Miller Anderson & Sherrerd, LLP,
reference is made to the caption "Management of the Company -- Investment
Sub-Adviser" in the Prospectus constituting Part A of this Registration
Statement and "Management of the Company" in Part B of this Registration
Statement. For information as to the business, profession, vocation and
employment of a substantial nature of directors and officers of Miller Anderson
& Sherrerd, LLP, reference is made to the Sub-Adviser's current Form ADV (SEC
File No. 801-10437) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Van Kampen American Capital, Inc. ("VKAC") is distributor for Morgan
Stanley Fund, Inc. The information required by this Item 29 with respect to
each Director and officer of VKAC is incorporated by reference to Schedule A of
Form BD filed by VKAC pursuant to the Securities and Exchange Act of 1934 (SEC
File No. 8-19412)
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by Section 31(a) under the
Investment Company Act of 1940, as amended, and the rules promulgated thereunder
to be maintained (i) by Registrant will be maintained at its offices, located at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181 or ACCESS Investor
Services, Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153; (ii)
by the Adviser, will be maintained at its offices, located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181; and (iii) by the Distributor, the
principal underwriter, will be maintained at its offices located at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181.
ITEM 31. MANAGEMENT SERVICES
Morgan Stanley Asset Management Inc. ("MSAM") and Miller Anderson &
Sherrerd, LLP ("MAS") have entered into separate Chase Sub-Administration
Agreements with The Chase Manhattan Bank ("Chase"), successor in interest to
United States Trust Company of New York (which is incorporated by reference to
Exhibit No. 9(b) to Pre-Effective Amendment No. 2 to Registrant's Registration
Statement and Exhibit 9(d) to Post-Effective Amendment No. 18 to Registrant's
Registration Statement, respectively). Pursuant to these agreements, Chase will
provide the following services to the Registrant: (i) managing, administering
and conducting the general business activities of the Registrant, other than
those which are contracted to third parties;
<PAGE>
(ii) providing personnel and facilities to perform the foregoing; (iii)
accounting services, including the preparation of statement and reports; (iv)
transfer agent services, including processing correspondence from shareholders,
recording transfers, issuing stock certificates and handling checks; (v)
handling dividends and distributions, including disbursing, withholding and tax
reporting; and (vi) providing office facilities, statistical and research data,
office supplies and assisting the Registrant to comply with regulatory
developments. MSAM and MAS have assigned the respective Chase
Sub-Administration Agreements to and they were assumed by Van Kampen American
Capital Investment Advisory Corp. as filed herewith as Exhibits 9(f) and 9(h),
respectively.
ITEM 32. UNDERTAKINGS
1. Registrant undertakes to file a post-effective amendment containing
reasonably current financial statements, which need not be certified, for the
Emerging Markets Debt, Equity Growth, European Equity, Growth and Income,
Japanese Equity, Mid Cap Growth, Tax-Free Money Market Funds within four to
six months of their effective date or the commencement of operations of each
such Fund, whichever is later.
2. Registrant hereby undertakes that whenever a Shareholder or
Shareholders who meet the requirements of Section 16(c) of the 1940 Act
inform the Board of Directors of his, her or their desire to communicate with
other Shareholders of the Fund, the Directors will inform such Shareholder(s)
as to the approximate number of Shareholders of record and the approximate
costs of mailing or afford said Shareholders access to a list of Shareholders.
3. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Oakbrook Terrace and State of Illinois, on April 21, 1998.
MORGAN STANLEY FUND, INC.
By: /s/ Ronald A. Nyberg
---------------------------------------------
Ronald A. Nyberg
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
* /s/ Wayne W. Whalen Director (Chairman)
- -----------------------------
Wayne W. Whalen
*/s/ J. Miles Branagan Director
- -----------------------------
J. Miles Branagan
*/s/ Richard M. DeMartini Director
- -----------------------------
Richard M. DeMartini
*/s/ Linda Hutton Heagy Director
- -----------------------------
Linda Hutton Heagy
*/s/ R. Craig Kennedy Director
- -----------------------------
R. Craig Kennedy
*/s/ Jack E. Nelson Director
- -----------------------------
Jack E. Nelson
*/s/ Don G. Powell Director
- -----------------------------
Don G. Powell
<PAGE>
*/s/ Phillip Rooney Director
- -----------------------------
Phillip Rooney
*/s/ Fernando Sisto Director
- -----------------------------
Fernando Sisto
*/s/ Edward C. Wood, III Chief Financial
- ----------------------------- Officer and
Edward C. Wood, III Vice President
*By:/s/ Ronald A. Nyberg
------------------------
Ronald A. Nyberg
Attorney-In-Fact
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