N-Q 1 y91077envq.htm FORM N-Q nvq
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-02978
Morgan Stanley Focus Growth Fund
(Exact name of registrant as specified in charter)
     
522 Fifth Avenue, New York, New York
  10036
(Address of principal executive offices)
  (Zip code)
Sara Furber
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6963
Date of fiscal year end: December 31, 2011
Date of reporting period: March 31, 2011
 
 
Item 1. Schedule of Investments.
The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:

 


 

Morgan Stanley Focus Growth Fund
Portfolio of Investments ▪ March 31, 2011 (unaudited)
                 
NUMBER OF            
SHARES         VALUE  
 
       
Common Stocks (98.2%)
       
       
Air Freight & Logistics (2.1%)
       
  749,633    
Expeditors International of Washington, Inc.
  $ 37,586,599  
       
 
     
       
Beverages (1.9%)
       
  585,136    
Anheuser-Busch InBev (ADR) (Belgium)
    33,452,225  
       
 
     
       
Chemicals (3.3%)
       
  811,816    
Monsanto Co.
    58,661,824  
       
 
     
       
Commercial Services & Supplies (4.3%)
       
  2,549,648    
Edenred (France) (a)
    76,946,167  
       
 
     
       
Communications Equipment (4.2%)
       
  1,672,448    
Motorola Solutions, Inc. (a)
    74,741,701  
       
 
     
       
Computers & Peripherals (9.0%)
       
  464,350    
Apple, Inc. (a)
    161,802,758  
       
 
     
       
Distributors (2.7%)
       
  9,352,000    
Li & Fung Ltd. (Bermuda) (b)
    47,910,883  
       
 
     
       
Diversified Financial Services (5.1%)
       
  5,941,766    
BM&F Bovespa SA (Brazil)
    43,126,161  
  1,285,351    
Leucadia National Corp.
    48,252,077  
       
 
     
       
 
    91,378,238  
       
 
     
       
Food Products (2.5%)
       
  768,308    
Mead Johnson Nutrition Co.
    44,508,083  
       
 
     
       
Health Care Equipment & Supplies (2.7%)
       
  142,307    
Intuitive Surgical, Inc. (a)
    47,453,692  
       
 
     
       
Hotels, Restaurants & Leisure (5.2%)
       
  1,192,853    
Las Vegas Sands Corp. (a)
    50,362,253  
  1,158,966    
Starbucks Corp.
    42,823,794  
       
 
     
       
 
    93,186,047  
       
 
     
       
Information Technology Services (1.7%)
       
  605,937    
Teradata Corp. (a)
    30,721,006  
       
 
     
       
Internet & Catalog Retail (11.7%)
       
  847,456    
Amazon.com, Inc. (a)
    152,652,249  
  240,776    
NetFlix, Inc. (a)
    57,143,368  
       
 
     
       
 
    209,795,617  
       
 
     
       
Internet Software & Services (18.8%)
       
  698, 804    
Baidu, Inc. (ADR) (Cayman Islands) (a)
    96,302,179  
  1,819,775    
eBay, Inc. (a)
    56,485,816  
  1,997,378    
Facebook, Inc. (a)(c)(d)
    43,942,316  
  189,824    
Google, Inc. (Class A) (a)
    111,276,727  
  1,155,800    
Tencent Holdings Ltd. (Cayman Islands) (b)
    28,157,446  
       
 
     
       
 
    336,164,484  
       
 
     
       
Life Sciences Tools & Services (3.6%)
       
  906,091    
Illumina, Inc. (a)
    63,489,796  
       
 
     
       
Media (2.1%)
       
  691,717    
Naspers Ltd. (Class N) (South Africa)
    37,218,771  
       
 
     
       
Metals & Mining (1.9%)
       
  575,683    
Molycorp, Inc. (a)
    34,552,494  
       
 
     
       
Oil, Gas & Consumable Fuels (4.3%)
       
  1,575,282    
Ultra Petroleum Corp. (Canada) (a)
    77,582,639  
       
 
     
       
Real Estate Management & Development (4.3%)
       
  2,392,198    
Brookfield Asset Management, Inc. (Class A) (Canada)
    77,650,747  
       
 
     
       
Semiconductors & Semiconductor Equipment (1.8%)
       
  1,160,637    
ARM Holdings PLC (ADR) (United Kingdom)
    32,695,144  
       
 
     
       
Software (2.7%)
       
  366,190    
Salesforce.com, Inc. (a)
    48,915,660  
       
 
     
       
Tobacco (2.3%)
       
  629,367    
Philip Morris International, Inc.
    41,305,356  
       
 
     
       
Total Common Stocks (Cost $1,231,668,863)
    1,757,719,931  
       
 
     

 


 

Morgan Stanley Focus Growth Fund
Portfolio of Investments ▪ March 31, 2011 (unaudited) continued
                 
 NUMBER OF             
SHARES         VALUE  
 
       
Convertible Preferred Stocks (0.5%)
       
       
Alternative Energy
       
  2,870,456    
Better Place, Inc. (Cost $8,611,368) (a)(c)(d)
  $ 8,611,368  
                         
NUMBER OF                      
SHARES (000)                      
 
       
Short-Term Investment (e) (0.8%)
               
       
Investment Company
               
  13,636    
Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class
(Cost $13,635,635)
    13,635,635  
       
 
             
       
Total Investments (Cost $1,253,915,866) (f)
    99.5 %     1,779,966,934  
       
 
           
       
Other Assets in Excess of Liabilities
    0.5       8,821,891  
       
 
           
       
Net Assets
    100.0 %   $ 1,788,788,825  
       
 
           
 
ADR   American Depositary Receipt.
 
(a)   Non-income producing security.
 
(b)   Security trades on the Hong Kong exchange.
 
(c)   Illiquid security, Resale is restricted to qualified institutional investors.
 
(d)   At March 31, 2011, the Fund held fair valued securities valued at $52,553,684, representing 2.9% of net assets. These securities have been fair valued as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees.
 
(e)   The Fund invests in the Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio — Institutional Class (the “Liquidity Fund”), an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by the Liquidity Fund with respect to assets invested by the Fund in the Liquidity Fund.
 
(f)   The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.
 

 


 

Morgan Stanley Focus Growth Fund
Notes to Portfolio of Investments ▪ March 31, 2011 (unaudited)
Fair Valuation Measurements
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
Level 1 — unadjusted quoted prices in active markets for identical investments
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 — significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used as of March 31, 2011 in valuing the Fund’s investments carried at fair value:

 


 

Morgan Stanley Focus Growth Fund
Portfolio of Investments ▪ March 31, 2011 (unaudited)
                                 
    FAIR VALUE MEASUREMENTS AT MARCH 31, 2011 USING      
            UNADJUSTED              
            QUOTED PRICES IN              
            ACTIVE MARKETS     OTHER        
            FOR     SIGNIFICANT     SIGNIFICANT  
            IDENTICAL     OBSERVABLE     UNOBSERVABLE  
            INVESTMENTS     INPUTS     INPUTS  
INVESTMENT TYPE   TOTAL     (LEVEL 1)     (LEVEL 2)     (LEVEL 3)  
Common Stocks
                               
Air Freight & Logistics
  $ 37,586,599     $ 37,586,599              
Beverages
    33,452,225       33,452,225              
Chemicals
    58,661,824       58,661,824              
Commercial Services & Supplies
    76,946,167       76,946,167              
Communications Equipment
    74,741,701       74,741,701              
Computers & Peripherals
    161,802,758       161,802,758              
Distributors
    47,910,883       47,910,883              
Diversified Financial Services
    91,378,238       91,378,238              
Food Products
    44,508,083       44,508,083              
Health Care Equipment & Supplies
    47,453,692       47,453,692              
Hotels, Restaurants & Leisure
    93,186,047       93,186,047              
Information Technology Services
    30,721,006       30,721,006              
Internet & Catalog Retail
    209,795,617       209,795,617              
Internet Software & Services
    336,164,484       292,222,168           $ 43,942,316  
Life Sciences Tools & Services
    63,489,796       63,489,796              
Media
    37,218,771       37,218,771              
Metals & Mining
    34,552,494       34,552,494              
Oil, Gas & Consumable Fuels
    77,582,639       77,582,639              
Real Estate Management & Development
    77,650,747       77,650,747              
Semiconductors & Semiconductor Equipment
    32,695,144       32,695,144              
Software
    48,915,660       48,915,660              
Tobacco
    41,305,356       41,305,356              
 
                       
Total Common Stocks
    1,757,719,931       1,713,777,615             43,942,316  
 
                       
Convertible Preferred Stocks
    8,611,368                   8,611,368  
Short-Term Investment — Investment Company
    13,635,635       13,635,635              
 
                       
Total
  $ 1,779,966,934     $ 1,727,413,250           $ 52,553,684  
 
                       

 


 

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognizes transfers between the Levels as of the end of the period. As of March 31, 2011, the Fund did not have any investments transfer between valuation levels.
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
                 
            Convertible  
    Common Stock     Preferred Stock  
     
Beginning Balance
  $ 30,975,703     $ 8,611,368  
Purchases
    9,117,423        
Sales
           
Amortization of discount
           
Transfers in
           
Transfers out
           
Change in unrealized appreciation/depreciation
    3,849,190        
Realized gains (losses)
           
     
Ending Balance
  $ 43,942,316     $ 8,611,368  
     
 
Net change in unrealized appreciation/depreciation from investments still held as of March 31, 2011
  $ 3,849,190     $  
     
Valuation of Investments — (1) An equity portfolio security listed or traded on the New York Stock Exchange (“NYSE”) or American Stock Exchange or other domestic exchange is valued at its last sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and ask price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and ask price; (3) all other portfolio securities for which over-the-

 


 

counter market quotations are readily available are valued at the mean between the last reported bid and ask price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) when market quotations are not readily available including, circumstances under which Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”) a wholly owned subsidiary of Morgan Stanley determines that the latest sale price, the bid price or the mean between the last reported bid and ask price do not reflect a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund’s Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees; (7) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (8) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost, which approximates market value.

 


 

Item 2. Controls and Procedures.
(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 3. Exhibits.
(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.

 


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Focus Growth Fund
     
/s/ Sara Furber
 
Sara Furber
   
Principal Executive Officer
   
May 24, 2011
   
     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
     
/s/ Sara Furber
 
Sara Furber
   
Principal Executive Officer
   
May 24, 2011
   
 
   
/s/ Francis Smith
 
Francis Smith
   
Principal Financial Officer
   
May 24, 2011