Morgan Stanley Investment Funds - stockselection

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179 Morgan Stanley Investment Funds 30 June 2009 Notes to the financial statements (continued) As at 30 June 2009 recorded in the Statement of Assets and Liabilities and the Statement of Operations and Changes in Net Assets of the Indian Equity Fund. All investments held by the Subsidiary are individually disclosed in the statement of investments of the Indian Equity Fund. The Subsidiary incurs and pays certain fees and expenses relating to its investment activity in India. These fees and expenses may include brokerage costs and commissions, transaction costs associated with converting currency to and from Indian Rupee to US Dollars, fees incurred by its standing proxy, corporate and registration fees and taxes associated with the establishment and operation of the Subsidiary. 3 SECURITIES LENDING As of 30 June 2009, the Company lent securities as follows: Value in USD Collateral MV Asian Equity Fund 51,134,677 52,570,032 Emerging Markets Equity Fund 47,035,381 48,350,567 European Equity Alpha Fund 4,859,391 5,051,376 European Property Fund 41,753,108 43,768,590 Eurozone Equity Alpha Fund 3,270,278 3,361,455 Global Value Equity Fund 10,517,413 10,810,741 Japanese Equity Advantage Fund 83,310 92,955 Japanese Value Equity Fund 28,152,828 28,940,145 Euro Bond Fund 67,076,119 68,490,277 Euro Strategic Bond Fund 8,224,148 8,369,309 European Currencies High Yield Bond Fund 13,438,665 13,607,414 Global Bond Fund 8,557,260 8,717,968 Short Maturity Euro Bond Fund 9,146,320 9,421,346 Total 293,248,897 301,552,177 4 RELATED PARTY TRANSACTIONS AND AFFILIATIONS Under the terms of an investment advisory agreement, Morgan Stanley Investment Management, Inc. has been appointed Investment Adviser with responsibility for advising the Company within the scope of the day-to-day management of the various Funds. The Investment Adviser may delegate any of its responsibilities to any other party subject to approval by the Directors and the CSSF but the Investment Adviser shall remain responsible for the proper performance by such party of those responsibilities. A full list of sub-advisers can be found on page 189. The Investment Adviser is entitled to receive from the Company a fee payable monthly in arrears, and calculated on the basis of the average daily net assets (before deduction of the fee) of each Fund attributable to each Class of Shares. All expenses are paid directly by the Company and fees paid to the Investment Adviser are at the following annual rates: Fund Name Class I, IH, IX, Z, ZH and ZHX Class A, AH, AHX, B, BH and BX Class C, CH and CX Class S American Franchise Fund 0.70% 1.40% 2.20% - Asian Equity Fund 0.75% 1.40% 2.20% - Asian Property Fund 0.75% 1.40% 2.20% - Emerging Europe, Middle East and Africa Equity Fund 1.10% 1.60% 2.40% - Class I, Class A, AH, IH, IX, AHX, Z, ZH B, BH Class C, Fund Name and ZHX and BX CH and CX Class S Emerging Markets Equity Fund 1.10% 1.60% 2.40% - European Equity Alpha Fund 0.70% 1.20% 1.90% - European Property Fund 0.75% 1.40% 2.20% - European Small Cap Value Fund 0.95% 1.60% 2.40% - Eurozone Equity Alpha Fund 0.75% 1.40% 2.20% - Global Brands Fund 0.75% 1.40% 2.20% - Global Property Fund 0.85% 1.50% 2.30% - Global Small Cap Value Fund 0.95% 1.60% 2.40% - Global Value Equity Fund 0.75% 1.40% 2.20% - Indian Equity Fund 0.90% 1.60% 2.40% - Japanese Equity Advantage Fund 0.75% 1.40% 2.20% - Japanese Value Equity Fund 0.75% 1.40% 2.20% - Latin American Equity Fund 1.00% 1.60% 2.40% - US Equity Growth Fund 0.70% 1.40% 2.20% - US Property Fund 0.75% 1.40% 2.20% - US Small Cap Growth Fund 0.95% 1.60% 2.40% - US Value Equity Fund 0.70% 1.40% 2.20% - Alpha Advantage European Fixed Income Fund 0.65% 1.30% 2.10% - Emerging Markets Debt Fund 0.90% 1.40% 2.10% 0.75% Emerging Markets Domestic Debt Fund 0.90% 1.40% 2.10% 0.75% Euro Bond Fund 0.45% 0.80% 1.45% 0.45% Euro Corporate Bond Fund 0.45% 0.80% 1.45% 0.40% Euro Strategic Bond Fund 0.45% 0.80% 1.45% 0.35% European Currencies High Yield Bond Fund 0.50% 0.85% 1.50% 0.45% Global Bond Fund 0.45% 0.80% 1.45% 0.35% Short Maturity Euro Bond Fund 0.45% 0.80% 1.45% 0.30% US Bond Fund 0.45% 0.80% 1.45% 0.45% Global Convertible Bond Fund 0.60% 1.00% 1.60% 0.55% Euro Liquidity Fund 0.20% 0.50% 0.85% - US Dollar Liquidity Fund 0.20% 0.50% 0.85% - Diversified Alpha Plus VaR 400 (Euro) Fund 0.80% 1.60% 2.40% - Diversified Alpha Plus VaR 800 (Euro) Fund 1.10% 2.20% 3.00% - Commodities Active GSLE Fund 0.55% 1.10% 1.70% - FX Alpha Plus RC 200 (Euro) Fund 0.45% 0.80% 1.45% - FX Alpha Plus RC 400 (Euro) Fund 0.70% 1.20% 1.90% - FX Alpha Plus RC 400 (Sterling) Fund 0.70% 1.20% 1.90% - FX Alpha Plus RC 400 (US Dollar) Fund 0.70% 1.20% 1.90% - FX Alpha Plus RC 800 (Euro) Fund 1.00% 1.50% 2.30% - FX Alpha Plus RC 800 (Sterling) Fund 1.00% 1.50% 2.30% - No investment advisory fee is payable in respect of Class “N”, “NH” and “NX” Shares. In the case of any individual Fund or Class, the Investment Adviser may choose to waive or rebate all of its fee or any portion thereof at its absolute discretion for an indefinite period, in order to reduce the impact such fee may have on the performance of the Fund or Class in instances where the net assets of the Fund or Class are of insufficient size. The Funds are subject to a monthly shareholder service fee at a maximum annual rate of 0.25% of the Funds’ aggregate average daily Net Asset Value attributable to all Classes of Shares of the Funds. The Equity Funds, Bond Funds, Asset Allocation Funds and Alternative Investment Funds are currently subject to a monthly shareholder service fee at the annual rate of 0.08% of the Funds’ aggregate average daily Net Asset Value attributable to Class I, IX, IH, IHX, Z, ZX, ZH and ZHX Shares and at the annual rate of 0.15% of the Funds’ aggregate average daily Net Asset Value attributable to Class A, AX, AH and AHX Shares and Class B, BX, BH and BHX Shares. There are no shareholder service fees for Class N, NX, NH and NHX Shares. The Company has similarly reduced the fees for shareholder service so that the Liquidity Funds will be subject to a monthly shareholder service fee at the annual rate of 0.05% of such
Notes to the financial statements (continued) As at 30 June 2009 Funds’ aggregate average daily Net Asset Value attributable to the relevant Class of Shares. Class S Shares of the Equity Funds, Bond Funds, Alternative Investment Funds and Asset Allocation Funds are subject to the monthly Shareholder Service Fee at the annual rate of 0.05% of the Funds’ aggregate average daily Net Asset Value attributable to Class S Shares. The shareholder service fee is paid to Morgan Stanley Investment Management Limited (the “Distributor”) as compensation for providing certain services to shareholders. The Distributor may choose to waive all of the shareholder service fees or any portion thereof at its absolute discretion and for an indefinite period. For each Share Class of Alpha Advantage European Fixed Income Fund, European Optimised Research Extension Fund, certain Asset Allocation and Alternative Investment Funds, the Investment Adviser may receive a 20% performance fee (“the Performance Fee”) as defined by the prospectus. The Performance Fee will be calculated and accrued daily and will become payable at 31 December each year. As at 30 June 2009, performance fees were payable in respect of the following sub-funds: Fund name Performance fee amount Alpha Advantage European Fixed Income Fund - I 6,114 EUR Alpha Advantage European Fixed Income Fund - A 5,425 EUR Alpha Advantage European Fixed Income Fund - B 6,878 EUR Alpha Advantage European Fixed Income Fund - Z 6,111 EUR Diversified Alpha Plus VaR 400 (Euro) Fund - IH 134 EUR The Distributor is also paid a distribution fee for the Equity Funds, Bond Funds, Asset Allocation Funds and Alternative Investment Funds, accrued daily and paid monthly, at the annual rate of 1.00% of the average daily Net Asset Value of Classes B, BX, BH and BHX Shares as compensation for providing distributionrelated services to the Funds with respect to such Shares. The Liquidity Funds will pay the Distributor a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily Net Asset Value for Classes B, BX, BH and BHX Shares. Morgan Stanley Investment Management Inc. and the sub-advisers for the Company have entered into the following types of transactions in which a connected person had a material interest: i) Transactions in relation to an investment in respect of which an affiliated firm benefited from a commission, fee, mark up or mark down; or ii) Transactions in relation to a placing and/or a new issue in which the affiliated company was a member of the underwriting syndicate. All the transactions executed on behalf of the Company were entered into in the ordinary course of business and on normal commercial terms. Morgan Stanley Investment Funds 30 June 2009 180 The affiliations of the Directors are as follows: Mr. James Dilworth was a Managing Director of Morgan Stanley Investment Management Limited. (Resigned as a Director of the Company on 9 March 2009). Mrs. Laurence Magloire is an Executive Director of Morgan Stanley Investment Management Limited. Mr. Andrew Mack is a Managing Director of Morgan Stanley Investment Management Limited. (Appointed as a Director of the Company on 7 April 2009). As at 30 June 2009, the Emerging Markets Equity Fund was invested into Morgan Stanley Growth Fund, advised by an affiliate of Morgan Stanley. As at 30 June 2009, the Diversified Alpha Plus VaR 400 (Euro) Fund was invested into Morgan Stanley Funds Plc Euro Liquidity Fund, advised by an affiliate of Morgan Stanley. As at 30 June 2009, the Diversified Alpha Plus VaR 800 (Euro) Fund was invested into Morgan Stanley Funds Plc Euro Liquidity Fund, advised by an affiliate of Morgan Stanley. As at 30 June 2009, the Commodities Active GSLE Fund was invested into Morgan Stanley Alpha Plus Funds plc Commodities Alpha Plus RC4000 Fund, advised by an affiliate of Morgan Stanley. Directors’ remuneration: The Directors of the Company who are not Directors, officers or employees of the Investment Manager or any affiliate thereof will be entitled to remuneration from the Fund for their services as Directors, provided however that the aggregate emoluments of each Director in respect of any twelve month accounting period shall not exceed EUR 35,000 per annum or such higher amount as may be approved by a general meeting of the Company. Mr. Michael Griffin and Mr. William Jones are the only Directors who receive remuneration. The Fund also bears reasonable out of pocket expenses and cost of Directors insurance. These expenses are disclosed under Directors fees in the Statement of Operations and Changes in Net Assets. 5 DIVIDEND POLICY For the AX, AHX, BX, BHX, CX, CHX, IX, IHX, NX, NHX, SX, ZX and ZHX Classes of Shares of the Bond Funds, Equity Funds, Asset Allocation Funds and Alternative Investment Funds, the Company intends to declare dividends which will be equal to at least 85% of the net investment income attributable to such Classes. Such dividends, if any, will be accrued on the last Dealing Day of June and December and declared on the next Dealing Day. In the case of the NX Share Class of the Emerging Markets Debt Fund, such dividends, if any, will be accrued on the last Dealing Day of the month and declared on the next Dealing Day. During the period to 30 June 2009, the Fund paid dividends as follows:
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