Morgan Stanley Investment Funds - stockselection

Notes to the financial statements (continued)
As at 30 June 2009
TRS contracts are valued by reference to the market value of
the underlying asset together with the net present value of
the funding costs and arrangement fees, if any.
These market values are recorded under “Unrealised
gain/loss on total return swap contracts” in the Combined
statement of assets and liabilities. The changes in such
amounts are recorded under “Net change in unrealised
appreciation/(depreciation) on total return swap contracts”
and the realised gain/loss under “Net realised gain/(loss) on
total return swap contracts” in the Combined statement of
operations and changes in net assets.
e) Valuation of Options
Options are contractual agreements that convey the right, but
not the obligation, for the purchaser either to buy or sell a
specific amount of a financial instrument at a fixed price, either
at a fixed future date or at any time within a specified period.
Options are valued by reference to the performance of the
underlying asset, the volatility of that underlying asset, the
period of the contract and the strike price of the option.
Options purchased are recorded as investments; Options
written or sold are recorded as liabilities. When the exercise
of an option results in a cash settlement, the difference
between the premium paid and the settlement proceeds is
accounted for as a realised gain or loss.
When securities are acquired or delivered upon exercise of an
option, the acquisition cost or sale proceeds are adjusted by
the amount of the premium paid. When an option is closed,
the difference between the premium and the cost to close the
position is accounted for as a realised gain or loss. When an
option expires, the premium is accounted for as a realised gain
for options written or as a realised loss for options purchased.
The market values of options are recorded under “Options
purchased” or “Options premium received” in the Combined
Statement of Net Assets.
f) Valuation of Forward foreign exchange contracts
A forward foreign exchange contract is an agreement
between two parties to exchange one currency for another at
a specific price and date in the future.
Open forward contracts are valued based by reference to the
last available currency rates prevailing at the relevant
valuation date.
These market values are recorded under “Unrealised
gain/loss on open forward foreign exchange contracts” in the
Combined statement of assets and liabilities. The changes in
such amounts are recorded under “Net change in unrealised
appreciation/(depreciation) on forward foreign exchange
contracts” and the realised gain/loss under “Net realised
gain/(loss) on forward foreign exchange contracts” in the
Combined statement of operations and changes in net assets.
Morgan Stanley Investment Funds 30 June 2009 178
g) Valuation of Futures contracts
A futures contract is a contractual agreement, to buy or sell
a particular commodity or financial instrument at a
pre-determined price in the future. Futures contracts detail
the quality and quantity of the underlying asset and they are
standardised to facilitate trading on a futures exchange.
Futures contracts are valued at the last available prices on the
exchanges for which the contracts are traded on.
These market values are recorded under “Unrealised
gain/loss on open futures contracts” in the Combined
statement of assets and liabilities. The changes in such
amounts are recorded under “Net change in unrealised
appreciation/(depreciation) on financial futures contracts”
and the realised gain/loss under “Net realised gain/(loss) on
financial futures contracts” in the Combined statement of
operations and changes in net assets.
h) Income and securities transactions
Dividend income is recorded on the ex dividend date.
Interest income is accrued daily. Discounts and premiums
are accreted as adjustments to interest income. Income from
securities lending is recorded on a cash receipts basis.
Securities transactions are accounted for on the date the
securities are purchased or sold. Realised gains or losses on
the sale of securities are determined on the basis of the
average cost method.
i) Translation of foreign currencies
Transactions in foreign currencies are translated into the
currency of each Fund at the last available rate of exchange
prevailing in a recognised market at the date of the
transactions. Assets and liabilities denominated in foreign
currencies are translated into the currency of each Fund at
the last available rate of exchange prevailing in a recognised
market at the date of the Statement of Assets and Liabilities.
The combined Statement of Assets and Liabilities is presented
in US dollars at the last available rate of exchange prevailing in
a recognised market at the date of the Statement of Assets and
Liabilities, while the combined Statement of Operations and
Changes in Net Assets is presented in US dollars at the average
exchange rates ruling during the period.
j) Valuation of repurchase agreements
Under a repurchase agreement, the Company purchases
securities and agrees to re-sell them at a mutually agreed upon
date and price. Repurchase agreements are valued at cost with
interest accrued from the date of purchase.
k) Mauritian subsidiary
The Indian Equity Fund currently invests through Morgan
Stanley SICAV (Mauritius) Limited (the “Subsidiary”) where
the Indian Equity Fund is the sole shareholder. All assets and
liabilities, income and expenses of the Subsidiary are