-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KC+RpKGMmhuvfOh3y0CPgOsd6yBZyxn0qB/yQOILhAVJaccJjQe8ZlwB5kUH6+6C LBFzZMwr37QTnyVqSfoZ3Q== 0000912057-02-011641.txt : 20020415 0000912057-02-011641.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-011641 CONFORMED SUBMISSION TYPE: N-30D/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY LATIN AMERICAN GROWTH FUND CENTRAL INDEX KEY: 0000885410 IRS NUMBER: 136993838 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: N-30D/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-06608 FILM NUMBER: 02586837 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: 70TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123921600 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER STREET 2: C/O MORGAN STANLEY INVESTMENT ADVISORS CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: TCW/DW LATIN AMERICAN GROWTH FUND DATE OF NAME CHANGE: 19920929 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER LATIN AMERICAN GROWTH FUND DATE OF NAME CHANGE: 19990628 N-30D/A 1 a2074788zn-30da.txt N-30D/A Morgan Stanley Latin American Growth Fund LETTER TO THE SHAREHOLDERS / / JANUARY 31, 2002 Dear Shareholder: Despite strong country returns from Colombia, Peru and Mexico, the Latin American equity markets declined -16.36 percent during the 12-month period ended January 31, 2002. The region nevertheless outperformed the developed international markets, as measured by the Morgan Stanley Capital International (MSCI) EAFE Index, which fell -25.58 percent. Market Overview The Latin American equity markets, along with the global equity markets, fell sharply in the aftermath of the September 11 attacks in the United States, driven by heightened risk aversion and a deteriorating economic outlook worldwide. In September, Latin American equities fell 16 percent to end the third quarter down 23.5 percent. Prior to the September 11 events, the region's markets were led lower because of default fears in Argentina and concerns over economic slowdowns in Mexico and Brazil. During the fourth quarter of 2001, Latin American equities returned 22.5 percent, rebounding from the sharp downturn that followed the events of September 11. Since hitting a low on September 21, 2001, the region's markets rallied 26.8 percent through the end of January, fueled by encouraging U.S. economic data. Market sentiment then improved as expectations grew for a U.S.-led global economic recovery in 2002. Global monetary easing, anti-terrorist success in Afghanistan and a fall in energy prices all helped support economic recovery in the United States. Argentina The Argentine market (down -51.45 percent over this period) led the region lower as investors remained concerned about the country's financial problems, given its economic conditions, particularly following the attacks in the United States. During the period under review, the Argentine government officially defaulted on $141 billion in debt and abandoned its decade-old currency convertibility law. Economic data continued to decline and social tensions remained high as controversial banking controls were passed. In December, the Argentine assembly named a new president, Senator Eduardo Duhalde, the fifth following the resignation of Fernando de la Rua. Duhalde is expected to remain in power until December 2003, ending the four-year mandate that started under former president De la Rua. In January the Argentine market remained closed for nine days due to the country's financial concerns. On January 6, President Duhalde officially ended convertibility and established a dual exchange rate system, one for trade and a separate free-floating rate for all other transactions. The free-floating peso, as measured by the MSCI, depreciated 49.4 percent in January. On the economic front, Duhalde's appointment has done nothing to instill confidence that the country will move forward in a positive manner from here and we can expect political upheaval to continue. We anticipate little global contagion, as most investors have been aware of Morgan Stanley Latin American Growth Fund Letter to the Shareholders / / January 31, 2002 CONTINUED the Argentine risk for many months. While some short-term regional spillover is possible, we believe that the rest of Latin America, namely Mexico, is well positioned to withstand the crisis. The Fund remains on the sideline in regards to the Argentine equity market, given our expectations that economic activity will remain weak, undermining the outlook for corporate earnings growth. Mexico In Mexico (up 12 percent) market gains were driven by expectations of a quick U.S. economic recovery and by the growing U.S. convergence story. Mexico continues to be viewed as a regional safe haven supported by historically low interest rates, a strong peso, increased corporate activity and an improved credit and economic outlook. As of this writing, three major credit agencies -- Moody's Investors Services, Fitch and Standard & Poor's Corporation -- have recently upgraded or rated Mexican debt investment grade. On December 31, 2001, the long-awaited budget for 2002 was passed. It included taxes on various industries such as wireless telecom services and beverages. In the near term, we expect the combination of low real interest rates, a relatively stable currency and fiscal discipline to help support the Mexican economic recovery once conditions in the United States (especially industrial production) start to improve. Mexico, given its ties to the U.S. economy, is expected to be the country in the region to benefit the most from an improvement in U.S. economic conditions. In 2002, we will continue to monitor the reaction to fiscal reform and the 2002 budget and its further impact on Mexico's credit rating. In addition, we will closely watch developments in oil price trends, U.S. economic data and the slipping popularity of the Fox administration. Brazil Despite improvement in Brazil's trade balance and lower energy prices, its equity market fell -31.38 percent on Argentine concerns, weakness in the Real and political uncertainty. Adding to investor concerns were the announcement of changes to electricity regulation in January and a Brazilian central bank decision to leave rates unchanged due to a slower than expected decline in inflation. Nevertheless, the Brazilian market rallied 28.9 percent from its September 21 lows as the local currency showed some decoupling from Argentine risk and appreciated 15.5 percent. While equity market valuations are currently cheap using the strengthened exchange rate against the U.S. dollar, we believe that the Real may weaken somewhat over the next few months, thus diminishing the attraction of these stocks. The noise surrounding the presidential election in October 2002 and potential further fallout from the Argentine default and devaluation may cause capital in the form of foreign direct investment to be withheld, thus creating the 2 Morgan Stanley Latin American Growth Fund Letter to the Shareholders / / January 31, 2002 CONTINUED need for a weaker currency to fund the current-account deficit. However, our long-term outlook remains positive. Performance For the 12-month period ended January 31, 2002, Morgan Stanley Latin American Growth Fund's Class B shares posted a total return of -16.36 percent compared to - -13.32 percent for the Standard & Poor's/ IFC Latin American Index and -13.82 percent for the MSCI Emerging Markets Free Latin American (EMF LA) Net Index. For the same period, the Fund's Class A, C and D shares had total returns of - -15.80 percent, -16.34 percent and -15.54 percent, respectively. The performance of the Fund's four share classes varies because of differing expenses. Total return figures assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Positive stock selection in Brazil relative to the MSCI EMF LA Net Index was reduced by stock selection in Mexico, Argentina and Venezuela. On a country allocation basis the Fund's overweighted stance in Mexico, coupled with our underweighted positions in Argentina, Chile and Venezuela, added positively to relative performance. Country allocations in Brazil, Peru and Colombia detracted from performance. Portfolio Strategy On January 31, 2002, the Fund's largest country allocations were Mexico and Brazil. On a relative basis, our key overweighting remains in Mexico, while in Brazil we have a slight overweighting. The Fund remains underweighted in the rest of the region. Within Mexico we are focused on telecommunications and consumer noncyclicals (such as select beverage and consumer staples). We expect the combination of low real interest rates and fiscal discipline to help support the Mexican economic recovery once conditions in the United States start to improve. In Brazil we are focused on telecommunications, electric utilities and banking stocks, which we believe can offer a relatively stable earnings outlook in the current environment. Short-term equity market conditions in Brazil are expected to remain difficult, given the country's lowered growth expectations, the pending elections and concerns over Argentina. Brazilian interest rates are expected to remain high due to uncertainty over Argentina and the weakness in the Real. Weak economic data, a poor political environment, relatively expensive valuations and low liquidity have led us to underweight Chile, Colombia, Peru and Venezuela. 3 Morgan Stanley Latin American Growth Fund Letter to the Shareholders / / January 31, 2002 CONTINUED Looking Ahead Overall, our long-term outlook for the Latin American region remains positive. In the near term, we believe that Brazil has only limited upside potential given the political uncertainty ahead of the October elections, the market's outperformance since the September 21 low and its mixed fundamental outlook. Nevertheless, this near-term trading environment does not change our positive long-term posture, given the strong global liquidity, relatively cheap valuations and corporate restructuring that could continue to support selected Latin American countries. We believe the cyclical bottom is forming in the United States and as a result maintain our global view that the turnaround in growth (and thus in the Latin American markets) has begun to point to a recovery. We appreciate your ongoing support of Morgan Stanley Latin American Growth Fund and look forward to continuing to serve your investment needs. Very truly yours, /s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin Charles A. Fiumefreddo Mitchell M. Merin CHAIRMAN OF THE BOARD PRESIDENT 4 Morgan Stanley Latin American Growth Fund FUND PERFORMANCE / / JANUARY 31, 2002 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC GROWTH OF $10,000-CLASS B ($ in Thousands)
FUND S&P/IFCI(4) MSCI EMF LA(5) December 1992 $10,000 $10,000 $10,000 January 1993 $9,570 $9,707 $9,856 April 1993 $9,480 $10,047 $9,962 July 1993 $10,200 $11,051 $11,160 October 1993 $11,800 $13,041 $12,820 January 1994 $16,220 $18,234 $17,925 April 1994 $12,572 $15,046 $14,987 July 1994 $12,610 $16,017 $16,264 October 1994 $14,209 $18,351 $18,746 January 1995 $9,712 $12,253 $13,799 April 1995 $8,829 $11,761 $13,037 July 1995 $9,172 $12,683 $13,960 October 1995 $8,268 $11,488 $12,873 January 1996 $9,847 $13,254 $14,887 April 1996 $9,940 $13,427 $14,992 July 1996 $10,148 $13,405 $15,246 October 1996 $10,439 $13,773 $15,877 January 1997 $11,914 $15,509 $18,126 April 1997 $13,077 $17,013 $19,983 July 1997 $16,079 $20,967 $24,539 October 1997 $12,942 $16,893 $19,696 January 1998 $12,558 $16,232 $19,310 April 1998 $13,856 $17,996 $21,266 July 1998 $11,924 $15,466 $18,283 October 1998 $8,985 $11,774 $14,182 January 1999 $7,520 $10,477 $12,427 April 1999 $10,792 $15,393 $18,199 July 1999 $9,868 $14,417 $17,049 October 1999 $9,888 $14,527 $17,184 January 2000 $12,423 $18,458 $21,440 April 2000 $11,976 $18,049 $20,765 July 2000 $12,132 $18,338 $21,110 October 2000 $11,197 $17,050 $19,631 January 2001 $11,997 $18,525 $21,399 April 2001 $10,543 $16,540 $19,443 July 2001 $10,107 $16,099 $18,690 October 2001 $8,528 $13,346 $15,758 January 2002 $10,034(3) $15,965 $18,549
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PERFORMANCE FOR CLASS A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
Average Annual Total Returns ---------------------------------------------------------------------------------------------- Class A* Class B** -------------------------------------------- --------------------------------------------- Period Ended 1/31/02 Period Ended 1/31/02 ------------------------- ------------------------- 1 Year (15.80)%(1) (20.22)%(2) 1 Year (16.36)%(1) (20.55)%(2) Since Inception (7/28/97) (8.85)%(1) (9.93)%(2) 5 Years (3.38)%(1) (3.77)%(2) Since Inception (12/30/92) 0.04%(1) 0.04%(2)
Class C+ Class D++ --------------------------------------------- --------------------------------------------- Period Ended 1/31/02 Period Ended 1/31/02 ------------------------- ------------------------- 1 Year (16.34)%(1) (17.17)%(2) 1 Year (15.54)%(1) Since Inception (7/28/97) (9.54)%(1) (9.54)%(2) Since Inception (7/28/97) (8.67)%(1)
- --------------------- (1) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT THE DEDUCTION OF ANY SALES CHARGES. (2) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR COMPLETE DETAILS ON FEES AND SALES CHARGES. (3) CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON JANUARY 31, 2002. (4) THE S&P/IFCI LATIN AMERICA INDEX IS A BROAD, NEUTRAL AND HISTORICALLY CONSISTENT BENCHMARK FOR THE LATIN AMERICAN MARKETS. THE INDEX INCLUDES SELECTED SECURITIES FROM ARGENTINA, BRAZIL, CHILE, COLOMBIA, MEXICO, PERU AND VENEZUELA REFLECTING RESTRICTIONS ON FOREIGN INVESTMENT, MARKET CAPITALIZATION, AND LIQUIDITY. THE INDEX DOES NOT INCLUDE ANY EXPENSES, FEES OR CHARGES. THE INDEX IS UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. (5) THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE LATIN AMERICA INDEX (MSCI EMF LA INDEX) IS A MARKET CAPITALIZATION WEIGHTED INDEX THAT INCLUDES SELECT SECURITIES FROM ARGENTINA, BRAZIL, CHILE, COLOMBIA, MEXICO, PERU, AND VENEZUELA. FOR THE PERIOD FROM THE FUND'S INCEPTION THROUGH DECEMBER 31, 2000, THE INDEX'S RETURNS INCLUDE THOSE OF THE MSCI EMF LA'S "GROSS" INDEX WHICH ASSUMES DIVIDENDS GROSS OF WITHHOLDING TAXES BUT NET OF DOMESTIC TAX CREDITS. FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH JANUARY 31, 2002, THE INDEX'S RETURNS REFLECT THOSE OF THE "NET" INDEX WHICH REFLECTS A REDUCTION IN DIVIDENDS AFTER TAKING INTO ACCOUNT WITHHOLDING OF TAXES BY CERTAIN FOREIGN COUNTRIES REPRESENTED IN THE INDEX. PRIOR TO DECEMBER 31, 2000, THE MSCI EMF LA CALCULATED RETURNS USING ONLY THE "GROSS" INDEX. THE INDEX DOES NOT INCLUDE ANY EXPENSES, FEES OR CHARGES. THE INDEX IS UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. * THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%. ** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE CDSC DECLINES TO 0% AFTER SIX YEARS. + THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE. ++ CLASS D SHARES HAVE NO SALES CHARGE. 5 Morgan Stanley Latin American Growth Fund PORTFOLIO OF INVESTMENTS / / JANUARY 31, 2002
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ Common and Preferred Stocks (96.2%) Brazil (36.7%) AEROSPACE & DEFENSE 28,500 Empresa Brasileira de Aeronautica S.A. (ADR) (Pref.).......................... $ 625,575 ----------- BEVERAGES: ALCOHOLIC 117,630 Companhia de Bebidas das Americas (ADR) (Pref.)................................ 2,245,557 ----------- ELECTRIC UTILITIES 16,419,000 Centrais Electricas Brasileiras S.A..... 246,013 200 Centrais Electricas Brasileiras S.A. (Class B) (ADR) (Pref.)................ 1,350 114,812,000 Centrais Electricas Brasileiras S.A. (Class B) (Pref.)...................... 1,540,973 63,400 Companhia Energetica de Minas Gerais (ADR) (Pref.).......................... 938,320 26,642,284 Companhia Energetica de Minas Gerais (Pref.)................................ 386,059 94,139,000 Companhia Paranaense de Energia - Copel (Pref.)................................ 662,951 ----------- 3,775,666 ----------- INDUSTRIAL CONGLOMERATES 697,050 Itausa - Investimentos Itau S.A. (Pref.)................................ 609,269 ----------- INTEGRATED OIL 1,706 Petroleo Brasileiro S.A................. 35,046 135,180 Petroleo Brasileiro S.A. (ADR).......... 2,832,021 10,071 Petroleo Brasileiro S.A. (ADR) (Pref.)................................ 205,247 105,815 Petroleo Brasileiro S.A. (Pref.)........ 2,108,410 ----------- 5,180,724 ----------- MAJOR TELECOMMUNICATIONS 33,816,000 Brasil Telecom Participacoes S.A. (Pref.)................................ 237,580 NUMBER OF SHARES VALUE - ------------------------------------------------------------------ 48,381,000 Brasil Telecom S.A. (Pref.)............. $ 242,506 21,432,000 Telemar Norte Leste S.A. (Class A) (Pref.)................................ 472,498 ----------- 952,584 ----------- OTHER METALS/MINERALS 70,748 Companhia Vale do Rio Doce (Pref.) (Class A).............................. 1,568,238 48,620 Companhia Vale do Rio Doce (Class A)(ADR) (Pref.)................. 1,084,226 266,358 Companhia Vale do Rio Doce (Debentures)*.......................... -- ----------- 2,652,464 ----------- PULP & PAPER 9,640 Aracruz Celulose S.A. (Class B) (ADR) (Pref.)................................ 169,182 9,100 Votorantim Celulose e Papel S.A. (ADR) (Pref.)*............................... 145,600 6,031,000 Votorantim Celulose e Papel S.A. (Pref.)................................ 193,297 ----------- 508,079 ----------- REGIONAL BANKS 19,680 Banco Bradesco S.A. (ADR) (Pref.)....... 495,936 213,238,258 Banco Bradesco S.A. (Pref.)............. 1,064,425 29,022,960 Banco Itau S.A. (Pref.)................. 2,037,619 22,895 Unibanco-Uniao de Bancos Brasileiros S.A. (GDR) (Units)+.................... 523,380 ----------- 4,121,360 ----------- SPECIALTY TELECOMMUNICATIONS 38,100 Embratel Participacoes S.A. (ADR) (Pref.)................................ 137,160 52,604,000 Embratel Participacoes S.A. (Pref.)..... 187,404 26,253 Tele Norte Leste Participacoes S.A. (ADR) (Pref.).......................... 351,265
SEE NOTES TO FINANCIAL STATEMENTS 6 Morgan Stanley Latin American Growth Fund PORTFOLIO OF INVESTMENTS / / JANUARY 31, 2002 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ 10,383,000 Tele Norte Leste Participacoes S.A. (Pref.)................................ $ 137,551 ----------- 813,380 ----------- STEEL 40,767,000 Companhia Siderurgica Nacional S.A...... 629,913 9,900 Companhia Siderurgica Nacional S.A. (ADR).................................. 154,242 67,494,000 Gerdau S.A. (Pref.)..................... 651,174 ----------- 1,435,329 ----------- WIRELESS TELECOMMUNICATIONS 1,850,000 Celular CRT Participacoes S.A. (Class A) (Pref.)...................... 344,863 117,300 Tele Centro Oesto Celular Participacoes S.A. (ADR) (Pref.)..................... 674,475 295,931,000 Tele Norte Celular Participacoes S.A. (Pref.)................................ 106,653 71,947,000 Telemig Celular Participacoes S.A. (Pref.)................................ 107,593 1,700 Telemig Celular Participacoes S.A. (ADR) (Pref.)................................ 51,170 36,450 Telesp Celular Participacoes S.A. (ADR) (Pref.)................................ 277,020 ----------- 1,561,774 ----------- Total Brazil............................ 24,481,761 ----------- Chile (6.4%) BEVERAGES: ALCOHOLIC 31,350 Compania Cervecerias Unidas S.A. (ADR).................................. 500,032 ----------- ELECTRIC UTILITIES 40,800 Empresa Nacional de Electricidad S.A. (ADR).................................. 387,600 50,500 Enersis S.A. (ADR)...................... 532,775 ----------- 920,375 ----------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------ FOOD RETAIL 20,900 Distribucion y Servicio D&S S.A. (ADR).................................. $ 270,655 ----------- INDUSTRIAL CONGLOMERATES 31,100 Quinenco S.A. (ADR)*.................... 209,303 ----------- MAJOR TELECOMMUNICATIONS 100,348 Cia de Telecommunicaciones de Chile S.A. (Series A) (ADR)*...................... 1,384,802 ----------- REGIONAL BANKS 31,907 Banco de Chile (Series F)*.............. 572,731 12,000 Banco Santander Chile (ADR)............. 204,000 8,700 Banco Santiago S.A. (ADR)............... 188,790 ----------- 965,521 ----------- Total Chile............................. 4,250,688 ----------- Luxembourg (0.6%) BEVERAGES: ALCOHOLIC 39,950 Quilmes Industrial S.A. (Quinsa) (Class B) (ADR)........................ 399,899 ----------- Mexico (52.0%) BEVERAGES: ALCOHOLIC 281,430 Grupo Modelo S.A. de C.V. (Series C).... 682,143 ----------- BEVERAGES: NON-ALCOHOLIC 42,570 Fomento Economico Mexicano, S.A. de C.V. (ADR) (Units)+......................... 1,728,342 89,300 Fomento Economico Mexicano, S.A. de C.V. (Units)+............................... 361,529 48,300 Panamerican Beverages, Inc. (Class A).. 728,364 ----------- 2,818,235 ----------- BROADCASTING 70,925 Grupo Televisa S.A. (ADR)*.............. 3,163,255 -----------
SEE NOTES TO FINANCIAL STATEMENTS 7 Morgan Stanley Latin American Growth Fund PORTFOLIO OF INVESTMENTS / / JANUARY 31, 2002 CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ CONSTRUCTION MATERIALS 143,400 Cemex S.A. de C.V. - CPO................ $ 758,099 77,057 Cemex S.A. de C.V. - CPO (ADR).......... 2,034,305 ----------- 2,792,404 ----------- DISCOUNT STORES 189 Wal-Mart de Mexico S.A. C.V. (Series V)..................................... 545 ----------- HOUSEHOLD/PERSONAL CARE 677,000 Kimberly-Clark de Mexico, S.A. de C.V. (A Shares)............................. 1,855,301 ----------- INDUSTRIAL CONGLOMERATES 578,100 Alfa, S.A. (Class A).................... 930,994 ----------- MAJOR TELECOMMUNICATIONS 166,500 Carso Global Telecom (Series A1)*....... 405,570 217,592 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)....................... 8,355,533 ----------- 8,761,103 ----------- MISCELLANEOUS COMMERCIAL SERVICES 97,600 Grupo Mexico S.A. (Series B)............ 161,867 ----------- MISCELLANEOUS MANUFACTURING 130,200 Grupo Carso S.A. de C.V. (Series A1)*........................... 506,073 ----------- OILFIELD SERVICES/EQUIPMENT 64,280 Tubos de Acero de Mexico S.A. (ADR)..... 639,586 ----------- OTHER TRANSPORTATION 52,400 Grupo Aeroportuario del Sureste S.A. de C.V. (ADR) (Series B)*................. 754,560 ----------- REGIONAL BANKS 326,000 Grupo Financiero Banorte S.A. de C.V. (O Shares)*............................... 729,309 NUMBER OF SHARES VALUE - ------------------------------------------------------------------ 2,286,843 Grupo Financiero BBVA Bancomer, S.A. de C.V. (O Shares)*....................... $ 2,491,832 ----------- 3,221,141 ----------- SPECIALTY STORES 1,588,418 Wal-Mart de Mexico S.A. de C.V. (Series C)............................. 3,988,821 ----------- WIRELESS TELECOMMUNICATIONS 222,753 America Movil S.A. de C.V. (Series L) (ADR).................................. 4,410,509 ----------- Total Mexico............................ 34,686,537 ----------- Venezuela (0.5%) MAJOR TELECOMMUNICATIONS 19,660 Compania Anonima Nacional Telefonos de Venezuela (ADR)........................ 312,594 -----------
Total Investments (COST $64,907,723) (a)................. 96.2% 64,131,479 Other Assets in Excess of Liabilities... 3.8 2,533,229 ------ ----------- Net Assets.............................. 100.0% $66,664,708 ====== ===========
- --------------------------------------------------- ADR AMERICAN DEPOSITORY RECEIPT. GDR GLOBAL DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. + CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; STOCKS WITH ATTACHED WARRANTS. (a) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $7,882,730 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $8,658,974, RESULTING IN NET UNREALIZED DEPRECIATION OF $776,244. SEE NOTES TO FINANCIAL STATEMENTS 8 Morgan Stanley Latin American Growth Fund SUMMARY OF INVESTMENTS / / JANUARY 31, 2002
PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Aerospace & Defense..................... $ 625,575 0.9% Beverages: Alcoholic.................... 3,827,631 5.7 Beverages: Non-Alcoholic................ 2,818,235 4.2 Broadcasting............................ 3,163,255 4.7 Construction Materials.................. 2,792,404 4.2 Discount Stores......................... 545 0.0 Electric Utilities...................... 4,696,041 7.0 Food Retail............................. 270,655 0.4 Household/Personal Care................. 1,855,301 2.8 Industrial Conglomerates................ 1,749,566 2.6 Integrated Oil.......................... 5,180,724 7.8 Major Telecommunications................ 11,411,083 17.1 Miscellaneous Commercial Services....... 161,867 0.2 Miscellaneous Manufacturing............. 506,073 0.8 Oilfield Services/Equipment............. 639,586 1.0 Other Metals/Minerals................... 2,652,464 4.0 PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Other Transportation.................... $ 754,560 1.1% Pulp & Paper............................ 508,079 0.8 Regional Banks.......................... 8,308,022 12.5 Specialty Stores........................ 3,988,821 6.0 Specialty Telecommunications............ 813,380 1.2 Steel................................... 1,435,329 2.2 Wireless Telecommunications............. 5,972,283 9.0 ----------- ------- $64,131,479 96.2% =========== ======= PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS - ----------------------------------------------------------------- Common Stocks........................... $44,070,333 66.1% Preferred Stocks........................ 20,061,146 30.1 ----------- ------- $64,131,479 96.2% =========== =======
SEE NOTES TO FINANCIAL STATEMENTS 9 Morgan Stanley Latin American Growth Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities JANUARY 31, 2002 Assets: Investments in securities, at value (cost $64,907,723)..................................... $ 64,131,479 Cash.............................................. 890,641 Receivable for: Investments sold................................ 1,504,324 Dividends....................................... 392,812 Shares of beneficial interest sold.............. 2,359 Prepaid expenses and other assets................. 74,984 ------------ Total Assets.................................. 66,996,599 ------------ Liabilities: Payable for: Investments purchased........................... 74,171 Investment management fee....................... 71,389 Shares of beneficial interest repurchased....... 64,657 Distribution fee................................ 51,599 Accrued expenses and other payables............... 70,075 ------------ Total Liabilities............................. 331,891 ------------ Net Assets.................................... $ 66,664,708 ============ Composition of Net Assets: Paid-in-capital................................... $151,180,680 Net unrealized depreciation....................... (774,684) Accumulated undistributed net investment income... 150,082 Accumulated net realized loss..................... (83,891,370) ------------ Net Assets.................................... $ 66,664,708 ============ Class A Shares: Net Assets........................................ $547,050 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)........................................... 54,575 Net Asset Value Per Share..................... $ 10.02 ============ Maximum Offering Price Per Share, (NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)....................................... $ 10.58 ============ Class B Shares: Net Assets........................................ $60,158,567 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)........................................... 6,224,647 Net Asset Value Per Share..................... $ 9.66 ============ Class C Shares: Net Assets........................................ $503,997 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)........................................... 52,009 Net Asset Value Per Share..................... $ 9.69 ============ Class D Shares: Net Assets........................................ $5,455,094 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)........................................... 539,580 Net Asset Value Per Share..................... $ 10.11 ============
SEE NOTES TO FINANCIAL STATEMENTS 10 Morgan Stanley Latin American Growth Fund Financial Statements CONTINUED Statement of Operations FOR THE YEAR ENDED JANUARY 31, 2002 Net Investment Income: Income Dividends (net of $257,517 foreign withholding tax)............................................. $ 2,633,225 Interest.......................................... 17,644 ------------ Total Income.................................. 2,650,869 ------------ Expenses Investment management fee......................... 988,996 Distribution fee (Class A shares)................. 1,759 Distribution fee (Class B shares)................. 711,482 Distribution fee (Class C shares)................. 5,511 Transfer agent fees and expenses.................. 267,314 Foreign exchange provisional tax.................. 110,342 Professional fees................................. 68,883 Shareholder reports and notices................... 45,286 Registration fees................................. 30,414 Trustees' fees and expenses....................... 12,654 Custodian fees.................................... 6,623 Other............................................. 16,726 ------------ Total Expenses................................ 2,265,990 ------------ Net Investment Income......................... 384,879 ------------ Net Realized and Unrealized Gain (Loss): Net realized gain/loss on: Investments..................................... 5,918,062 Foreign exchange transactions................... (171,336) ------------ Net Gain.................................... 5,746,726 ------------ Net change in unrealized appreciation/depreciation on: Investments..................................... (24,669,576) Translation of other assets and liabilities denominated in foreign currencies.............. 4,369 ------------ Net Depreciation.............................. (24,665,207) ------------ Net Loss...................................... (18,918,481) ------------ Net Decrease...................................... $(18,533,602) ============
SEE NOTES TO FINANCIAL STATEMENTS 11 Morgan Stanley Latin American Growth Fund Financial Statements CONTINUED Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED JANUARY 31, 2002 JANUARY 31, 2001 ---------------- ---------------- Increase (Decrease) in Net Assets: Operations: Net investment income (loss)............ $ 384,879 $ (882,463) Net realized gain....................... 5,746,726 11,678,288 Net change in unrealized depreciation... (24,665,207) (16,964,416) ------------ ------------ Net Decrease........................ (18,533,602) (6,168,591) Net decrease from transactions in shares of beneficial interest................. (25,317,703) (22,128,668) ------------ ------------ Net Decrease........................ (43,851,305) (28,297,259) Net Assets: Beginning of period..................... 110,516,013 138,813,272 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $150,082 and an accumulated net investment loss of $68,882, respectively).......................... $ 66,664,708 $110,516,013 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 12 Morgan Stanley Latin American Growth Fund NOTES TO FINANCIAL STATEMENTS / / JANUARY 31, 2002 1. Organization and Accounting Policies Morgan Stanley Latin American Growth Fund (the "Fund"), formerly Morgan Stanley Dean Witter Latin American Growth Fund, is registered under the Investment Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end management investment company. The Fund's investment objective is long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in equity securities of Latin American issuers. The Fund was organized as a Massachusetts business trust on February 25, 1992 and commenced operations on December 30, 1992. On July 28, 1997, the Fund converted to a multiple class share structure. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) an equity portfolio security listed or traded on the New York or American Stock Exchange, NASDAQ, or other exchange is valued at its latest sale price, prior to the time when assets are valued; if there were no sales that day, the security is valued at the latest bid 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 pursuant to procedures adopted by the Trustees); (2) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid price; (3) when market quotations are not readily available, including circumstances under which it is determined by Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), formerly Morgan Stanley Dean Witter Advisors Inc., that sale or bid prices are not reflective of 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 Trustees (valuation of debt securities for which market quotations are not readily available may be based upon current market prices of securities which are comparable in coupon, rating and maturity or an appropriate matrix utilizing similar factors); and (4) short-term debt securities having a 13 Morgan Stanley Latin American Growth Fund Notes to Financial Statements / / January 31, 2002 CONTINUED 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. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. The Fund amortizes premiums and accretes discounts over the life of the respective securities. Interest income is accrued daily. C. Multiple Class Allocations -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. D. Foreign Currency Translation -- The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are included in the Statement of Operations as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. 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 changes in the market prices of the securities. E. Forward Currency Contracts -- The Fund may enter into forward foreign currency contracts which are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are included in the Statement of Operations as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. 14 Morgan Stanley Latin American Growth Fund Notes to Financial Statements / / January 31, 2002 CONTINUED F. Federal Income Tax Status -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. 2. Investment Management and Sub-Advisory Agreements Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 1.25% to the portion of daily net assets not exceeding $500 million and 1.20% to the portion of the daily net assets exceeding $500 million. Prior to June 1, 2001, under a Sub-Advisory Agreement between the Investment Manager and TCW Investment Management Company ("TCW"), TCW provided the Fund with investment advice and portfolio management relating to the Fund's investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the Sub-Advisor compensation equal to 40% of its monthly compensation. 3. Plan of Distribution Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the average daily net assets of 15 Morgan Stanley Latin American Growth Fund Notes to Financial Statements / / January 31, 2002 CONTINUED Class A; (ii) Class B -- 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled approximately $21,700,000 at January 31, 2002. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the year ended January 31, 2002, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24% and 0.92%, respectively. The Distributor has informed the Fund that for the year ended January 31, 2002, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of approximately $75,000 and $100, respectively and received approximately $2,900 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended January 31, 2002 aggregated $56,212,369 and $77,468,152, respectively. For the year ended January 31, 2002, the Fund incurred brokerage commissions of $35,033 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager and Distributor, for the portfolio transactions executed on behalf of the Fund. 16 Morgan Stanley Latin American Growth Fund Notes to Financial Statements / / January 31, 2002 CONTINUED Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At January 31, 2002, the Fund had transfer agent fees and expenses payable of approximately $4,000. 5. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED JANUARY 31, 2002 JANUARY 31, 2001 ------------------------- ------------------------- SHARES AMOUNT SHARES AMOUNT ----------- ------------ ----------- ------------ CLASS A SHARES Sold.......................... 652,902 $ 6,779,875 541,846 $ 6,412,961 Redeemed...................... (677,016) (6,953,442) (524,401) (6,097,164) ----------- ------------ ----------- ------------ Net increase (decrease) -- Class A...................... (24,114) (173,567) 17,445 315,797 ----------- ------------ ----------- ------------ CLASS B SHARES Sold.......................... 388,721 4,026,402 1,370,159 17,649,840 Redeemed...................... (2,769,552) (26,787,106) (4,161,466) (49,590,950) ----------- ------------ ----------- ------------ Net decrease -- Class B....... (2,380,831) (22,760,704) (2,791,307) (31,941,110) ----------- ------------ ----------- ------------ CLASS C SHARES Sold.......................... 12,236 125,917 62,537 796,624 Redeemed...................... (36,879) (362,986) (50,442) (583,241) ----------- ------------ ----------- ------------ Net increase (decrease) -- Class C...................... (24,643) (237,069) 12,095 213,383 ----------- ------------ ----------- ------------ CLASS D SHARES Sold.......................... 2,345 25,633 947,876 11,879,492 Redeemed...................... (236,726) (2,171,996) (221,713) (2,596,230) ----------- ------------ ----------- ------------ Net increase (decrease) -- Class D...................... (234,381) (2,146,363) 726,163 9,283,262 ----------- ------------ ----------- ------------ Net decrease in Fund.......... (2,663,969) $(25,317,703) (2,035,604) $(22,128,668) =========== ============ =========== ============
6. Federal Income Tax Status During the year ended January 31, 2002, the Fund utilized approximately $3,505,000 of its net capital loss carryover. At January 31, 2002, the Fund had a net capital loss carryover of approximately $83,512,000, to offset future capital gains to the extent provided by regulations, available through January 31 of the following years:
AMOUNTS IN THOUSANDS -------------------------------- 2004 2005 2007 2008 ------- ------- ------ ------ $57,715 $19,839 $3,058 $2,900 ======= ======= ====== ======
17 Morgan Stanley Latin American Growth Fund Notes to Financial Statements / / January 31, 2002 CONTINUED As of January 31, 2002, the Fund had temporary book/tax differences primarily attributable to capital loss deferrals on wash sales and permanent book/tax differences primarily attributable to foreign currency losses. To reflect reclassifications arising from the permanent differences, accumulated undistributed net investment income was charged $165,915, paid-in-capital was charged $5,421 and accumulated net realized loss was credited $171,336. 7. Purposes of and Risks Relating to Certain Financial Instruments The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. At January 31, 2002, there were no outstanding forward contracts. At January 31, 2002, the Fund's cash balance consisted principally of interest bearing deposits with JP Morgan Chase Bank, the Fund's custodian. At January 31, 2002, investment in securities of issuers in Mexico and Brazil represented 52.0% and 36.7% of net assets, respectively. These investments, as well as other non-U.S. investments which involve risks and considerations not present with respect to U.S. securities, may be affected by economic or political developments in these regions. 18 Morgan Stanley Latin American Growth Fund FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE PERIOD FOR THE YEAR ENDED JANUARY 31, JULY 28, 1997* -------------------------------------------------------------- THROUGH 2002 2001 2000 1999 JANUARY 31, 1998 ----------- ----------- ----------- ----------- ---------------- Class A Shares++ Selected Per Share Data: Net asset value, beginning of period..... $ 11.90 $12.26 $ 7.33 $ 12.14 $ 15.22 ------- ------ ------ ------- ------- Income (loss) from investment operations: Net investment income (loss)................ 0.14 0.00 (0.01) 0.15 (0.07) Net realized and unrealized gain (loss)................ (2.02) (0.36) 4.94 (4.96) (3.01) ------- ------ ------ ------- ------- Total income (loss) from investment operations... (1.88) (0.36) 4.93 (4.81) (3.08) ------- ------ ------ ------- ------- Net asset value, end of period.................. $ 10.02 $11.90 $12.26 $ 7.33 $ 12.14 ======= ====== ====== ======= ======= Total Return+............ (15.80)% (2.62)% 66.71% (39.62)% (20.24)%(1) Ratios to Average Net Assets: Expenses................. 2.20%(3) 1.96%(3) 2.28%(3) 2.21%(3) 2.15%(2) Net investment income (loss).................. 1.15%(3) 0.05%(3) 0.16%(3) 1.26%(3) (1.04)%(2) Supplemental Data: Net assets, end of period, in thousands.... $547 $936 $751 $58 $110 Portfolio turnover rate.................... 73% 44% 59% 27% 30%
- --------------------- * THE DATE SHARES WERE FIRST ISSUED. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 19 Morgan Stanley Latin American Growth Fund Financial Highlights CONTINUED
FOR THE YEAR ENDED JANUARY 31, ------------------------------------------------------------------------------- 2002 2001 2000 1999 1998* ----------- ----------- ----------- ----------- ----------- Class B Shares++ Selected Per Share Data: Net asset value, beginning of period..... $ 11.55 $ 11.99 $ 7.24 $ 12.09 $ 11.47 ------- ------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss)................ 0.04 (0.09) (0.06) 0.05 (0.09) Net realized and unrealized gain (loss)................ (1.93) (0.35) 4.81 (4.90) 0.71 ------- ------- -------- -------- -------- Total income (loss) from investment operations... (1.89) (0.44) 4.75 (4.85) 0.62 ------- ------- -------- -------- -------- Net asset value, end of period.................. $ 9.66 $ 11.55 $ 11.99 $ 7.24 $ 12.09 ======= ======= ======== ======== ======== Total Return+............ (16.36)% (3.43)% 65.19% (40.12)% 5.41% Ratios to Average Net Assets: Expenses................. 2.96%(1) 2.77%(1) 3.06%(1) 2.98%(1) 2.81% Net investment income (loss).................. 0.39%(1) (0.76)%(1) (0.62)%(1) 0.49%(1) (0.64)% Supplemental Data: Net assets, end of period, in thousands.... $60,159 $99,431 $136,699 $105,678 $272,710 Portfolio turnover rate.................... 73% 44% 59% 27% 30%
- --------------------- * PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF THE FUND HELD PRIOR TO THAT DATE HAVE BEEN DESIGNATED CLASS B SHARES. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 20 Morgan Stanley Latin American Growth Fund Financial Highlights CONTINUED
FOR THE PERIOD FOR THE YEAR ENDED JANUARY 31, JULY 28, 1997* -------------------------------------------------------------- THROUGH 2002 2001 2000 1999 JANUARY 31, 1998 ----------- ----------- ----------- ----------- ---------------- Class C Shares++ Selected Per Share Data: Net asset value, beginning of period..... $ 11.57 $12.02 $ 7.24 $ 12.10 $ 15.22 ------- ------ ------- ------- ------- Income (loss) from investment operations: Net investment income (loss)................ 0.04 (0.09) (0.06) 0.06 (0.12) Net realized and unrealized gain (loss)................ (1.92) (0.36) 4.84 (4.92) (3.00) ------- ------ ------- ------- ------- Total income (loss) from investment operations... (1.88) (0.45) 4.78 (4.86) (3.12) ------- ------ ------- ------- ------- Net asset value, end of period.................. $ 9.69 $11.57 $ 12.02 $ 7.24 $ 12.10 ======= ====== ======= ======= ======= Total Return+............ (16.34)% (3.42)% 65.47% (40.17)% (20.50)%(1) Ratios to Average Net Assets: Expenses................. 2.88%(3) 2.77%(3) 2.95%(3) 2.98%(3) 2.91%(2) Net investment income (loss).................. 0.47%(3) (0.76)%(3) (0.51)%(3) 0.49%(3) (1.76)%(2) Supplemental Data: Net assets, end of period, in thousands.... $504 $887 $776 $369 $792 Portfolio turnover rate.................... 73% 44% 59% 27% 30%
- --------------------- * THE DATE SHARES WERE FIRST ISSUED. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 21 Morgan Stanley Latin American Growth Fund Financial Highlights CONTINUED
FOR THE PERIOD FOR THE YEAR ENDED JANUARY 31, JULY 28, 1997* -------------------------------------------------------------- THROUGH 2002 2001 2000 1999 JANUARY 31, 1998 ----------- ----------- ----------- ----------- ---------------- Class D Shares++ Selected Per Share Data: Net asset value, beginning of period..... $ 11.97 $ 12.30 $ 7.35 $ 12.16 $ 15.22 ------- ------- ------ ------- ------- Income (loss) from investment operations: Net investment income (loss)................ 0.14 0.00 (0.02) 0.16 (0.04) Net realized and unrealized gain (loss)................ (2.00) (0.33) 4.97 (4.97) (3.02) ------- ------- ------ ------- ------- Total income (loss) from investment operations.............. (1.86) (0.33) 4.95 (4.81) (3.06) ------- ------- ------ ------- ------- Net asset value, end of period.................. $ 10.11 $ 11.97 $12.30 $ 7.35 $ 12.16 ======= ======= ====== ======= ======= Total Return+............ (15.54)% (2.37)% 66.80% (39.56)% (20.11)%(1) Ratios to Average Net Assets: Expenses................. 1.96%(3) 1.77%(3) 2.06%(3) 1.98%(3) 1.86%(2) Net investment income (loss).................. 1.39%(3) 0.24%(3) 0.38%(3) 1.49%(3) (0.52)%(2) Supplemental Data: Net assets, end of period, in thousands.... $5,455 $9,262 $588 $5 $8 Portfolio turnover rate.................... 73% 44% 59% 27% 30%
- --------------------- * THE DATE SHARES WERE FIRST ISSUED. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 22 Morgan Stanley Latin American Growth Fund INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Morgan Stanley Latin American Growth Fund: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Latin American Growth Fund (the "Fund"), formerly Morgan Stanley Dean Witter Latin American Growth Fund, including the portfolio of investments, as of January 31, 2002, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights 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 owned as of January 31, 2002, by correspondence with the custodian and broker. 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 and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Latin American Growth Fund as of January 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK MARCH 13, 2002 23 Morgan Stanley Latin American Growth Fund TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Number of Term of Portfolios in Office and Fund Position(s) Length of Complex Name, Age and Address of Held with Time Overseen Independent Trustee Registrant Served* Principal Occupation(s) During Past 5 Years by Trustee** - ------------------------- ----------- --------------- ------------------------------------------- -------------------- Michael Bozic (61) Trustee Trustee since Retired; Director or Trustee of the Morgan 129 c/o Mayer, Brown, Rowe & April 1994 Stanley Funds and the TCW/DW Term Trusts; Maw formerly Vice Chairman of Kmart Corporation Counsel to the (December 1998-October 2000), Chairman and Independent Trustees Chief Executive Officer of Levitz Furniture 1675 Broadway Corporation (November 1995-November 1998) New York, NY and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (69) Trustee Trustee since Director or Trustee of the Morgan Stanley 129 c/o Summit Ventures LLC January 1993 Funds and the TCW/DW Term Trusts; formerly 1 Utah Center United States Senator (R-Utah) (1974-1992) 201 S. Main Street and Chairman, Senate Banking Committee Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman Corporation (chemical company); member of the Utah Regional Advisory Board of Pacific Corp. Wayne E. Hedien (68) Trustee Trustee since Retired; Director or Trustee of the Morgan 129 c/o Mayer, Brown, Rowe & September 1997 Stanley Funds and the TCW/DW Term Trusts; Maw formerly associated with the Allstate Counsel to the Companies (1966-1994), most recently as Independent Trustees Chairman of The Allstate Corporation (March 1675 Broadway 1993-December 1994) and Chairman and Chief New York, NY Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - ------------------------- ----------------------------------- Michael Bozic (61) Director of Weirton Steel c/o Mayer, Brown, Rowe & Corporation. Maw Counsel to the Independent Trustees 1675 Broadway New York, NY Edwin J. Garn (69) Director of Franklin Covey (time c/o Summit Ventures LLC management systems), BMW Bank of 1 Utah Center North America, Inc. (industrial 201 S. Main Street loan corporation), United Space Salt Lake City, UT Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (68) Director of The PMI Group Inc. c/o Mayer, Brown, Rowe & (private mortgage insurance); Maw Trustee and Vice Chairman of The Counsel to the Field Museum of Natural History; Independent Trustees director of various other business 1675 Broadway and charitable organizations. New York, NY
24 Morgan Stanley Latin American Growth Fund Trustee and Officer Information CONTINUED
Number of Term of Portfolios in Office and Fund Position(s) Length of Complex Name, Age and Address of Held with Time Overseen Independent Trustee Registrant Served* Principal Occupation(s) During Past 5 Years by Trustee** - ------------------------- ----------- -------------- ------------------------------------------- -------------------- Dr. Manuel H. Johnson Trustee Trustee since Chairman of the Audit Committee and 129 (53) July 1991 Director or Trustee of the Morgan Stanley c/o Johnson Smick Funds and the TCW/DW Term Trusts; Senior International, Inc. Partner, Johnson Smick International, Inc., 1133 Connecticut Avenue, a consulting firm; Co-Chairman and a N.W. founder of the Group of Seven Council Washington, D.C. (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Michael E. Nugent (65) Trustee Trustee since Chairman of the Insurance Committee and 207 c/o Triumph Capital, L.P. July 1991 Director or Trustee of the Morgan Stanley 237 Park Avenue Funds and the TCW/DW Term Trusts; New York, NY director/trustee of various investment companies managed by Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP (since July 2001); General Partner, Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). John L. Schroeder (71) Trustee Trustee since Retired; Chairman of the Derivatives 129 c/o Mayer, Brown, Rowe & April 1994 Committee and Director or Trustee of the Maw Morgan Stanley Funds and the TCW/DW Term Counsel to the Trusts; formerly Executive Vice President Independent Trustees and Chief Investment Officer of the Home 1675 Broadway Insurance Company (August 1991-September New York, NY 1995). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee - ------------------------- ----------------------------------- Dr. Manuel H. Johnson Director of NVR, Inc. (home (53) construction); Chairman and Trustee c/o Johnson Smick of the Financial Accounting International, Inc. Foundation (oversight organization 1133 Connecticut Avenue, of the Financial Accounting N.W. Standards Board). Washington, D.C. Michael E. Nugent (65) Director of various business c/o Triumph Capital, L.P. organizations. 237 Park Avenue New York, NY John L. Schroeder (71) Director of Citizens Communications c/o Mayer, Brown, Rowe & Company (telecommunications Maw company). Counsel to the Independent Trustees 1675 Broadway New York, NY
25 Morgan Stanley Latin American Growth Fund Trustee and Officer Information CONTINUED Interested Trustees:
Number of Term of Portfolios in Position(s) Office and Fund Complex Name, Age and Address of Held with Length of Overseen by Interested Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years Trustee** - ------------------------- ------------------- --------------- ------------------------------------------- ------------- Charles A. Fiumefreddo Chairman, Director Trustee since Chairman, Director or Trustee and Chief 129 (68) or Trustee and July 1991 Executive Officer of the Morgan Stanley c/o Morgan Stanley Trust Chief Executive Funds and the TCW/DW Term Trusts; formerly Harborside Financial Officer Chairman, Chief Executive Officer and Center, Director of the Investment Manager, the Plaza Two, Distributor and Morgan Stanley Services, Jersey City, NJ Executive Vice President and Director of Morgan Stanley DW, Chairman and Director of the Transfer Agent, and Director and/or officer of various Morgan Stanley subsidiaries (until June 1998). James F. Higgins (54) Trustee Trustee since Senior Advisor of Morgan Stanley (since 129 c/o Morgan Stanley Trust June 2000 August 2000); Director of the Distributor Harborside Financial and Dean Witter Realty Inc.; Director or Center, Trustee of the Morgan Stanley Funds and the Plaza Two, TCW/DW Term Trusts (since June 2000); Jersey City, NJ previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (58) Trustee Trustee since Director or Trustee of the Morgan Stanley 129 1585 Broadway April 1994 Funds and the TCW/DW Term Trusts; Chairman New York, NY of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/ or officer of various Morgan Stanley subsidiaries. Name, Age and Address of Interested Trustee Other Directorships Held by Trustee - ------------------------- ----------------------------------- Charles A. Fiumefreddo None (68) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (54) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (58) Director of American Airlines, Inc. 1585 Broadway and its parent company, AMR New York, NY Corporation.
- ---------------------------- * EACH TRUSTEE SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE FUND COMPLEX INCLUDES ALL OPEN AND CLOSED-END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF MORGAN STANLEY INVESTMENT ADVISORS INC. (INCLUDING BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND VAN KAMPEN ASSET MANAGEMENT INC.). 26 Morgan Stanley Latin American Growth Fund Trustee and Officer Information CONTINUED Officers:
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* - ----------------------------------- ----------------------------------- ----------------------------------- Mitchell M. Merin (48) President President since May 1999 1221 Avenue of the Americas New York, NY Barry Fink (47) Vice President, Secretary and Vice President, Secretary and 1221 Avenue of the Americas General Counsel General Counsel since February 1997 New York, NY Thomas F. Caloia (56) Treasurer Treasurer since April 1989 c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, NJ Name, Age and Address of Executive Officer Principal Occupation(s) During Past 5 Years - ----------------------------------- ------------------------------------------- Mitchell M. Merin (48) President and Chief Operating Officer of 1221 Avenue of the Americas Morgan Stanley Investment Management (since New York, NY December 1998); President, Director (since April 1997) and Chief Executive Officer (since June 1998) of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor (since June 1998); Chairman and Chief Executive Officer (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Morgan Stanley Funds and TCW/DW Term Trusts (since May 1999); Trustee of various Van Kampen investment companies (since December 1999); previously Chief Strategic Officer of the Investment Manager and Morgan Stanley Services and Executive Vice President of the Distributor (April 1997-June 1998), Vice President of the Morgan Stanley Funds (May 1997-April 1999), and Executive Vice President of Morgan Stanley. Barry Fink (47) General Counsel (since May 2000) and 1221 Avenue of the Americas Managing Director (since December 2000) of New York, NY Morgan Stanley Investment Management; Managing Director (since December 2000), and Secretary and General Counsel (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Vice President, Secretary and General Counsel of the Morgan Stanley Funds and TCW/DW Term Trusts (since February 1997); Vice President and Secretary of the Distributor; previously, Senior Vice President, Assistant Secretary and Assistant General Counsel of the Investment Manager and Morgan Stanley Services. Thomas F. Caloia (56) First Vice President and Assistant c/o Morgan Stanley Trust Treasurer of the Investment Manager, the Harborside Financial Center, Distributor and Morgan Stanley Services; Plaza Two Treasurer of the Morgan Stanley Funds. Jersey City, NJ
- ---------------------------- * EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. 27 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell John L. Schroeder OFFICERS Charles A. Fiumefreddo Chairman and Chief Executive Officer Mitchell M. Merin President Barry Fink Vice President, Secretary and General Counsel Thomas F. Caloia Treasurer TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Morgan Stanley Distributors Inc., member NASD. 37939RPT [MORGAN STANLEY LOGO] [PHOTO] Morgan Stanley Latin American Growth Fund ANNUAL REPORT JANUARY 31, 2002 -----END PRIVACY-ENHANCED MESSAGE-----