UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-08283 | |||||||
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Morgan Stanley Multi-Asset Class Fund | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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522 Fifth Avenue, New York, New York |
| 10036 | ||||||
(Address of principal executive offices) |
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Ronald E. Robison 522 Fifth Avenue, New York, New York 10036 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | 212-296-6990 |
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Date of fiscal year end: | September 30, 2007 |
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Date of reporting period: | September 30, 2007 |
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Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Multi-Asset Class Fund performed during the annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being offered.
Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.
Fund Report
For the year ended September 30, 2007
Total Return for the 12 Months Ended September 30, 2007 | |||||||||||||||||||||||
Class A | Class B | Class C | Class D | S&P 500® Index1 | Lipper Flexible Portfolio Funds Index2 | ||||||||||||||||||
15.51 | % | 14.52 | % | 14.65 | % | 15.74 | % | 16.44 | % | 16.37 | % |
The performance of the Fund's four share classes varies because each has different expenses. The Fund's total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information.
Market Conditions
For the 12-month period ended September 30, 2007, global equity markets posted positive returns. In the U.S., the benchmark S&P 500® Index returned 16.44 percent, including dividends, while internationally, the MSCI EAFE Index returned 24.86 percent, including (net) dividends. Remarkably, the year began on a rather negative note, as investors entered 2007 with a high degree of uncertainty. First quarter gross domestic product (GDP) was weak, posting its slowest growth rate since 2002 and placing at risk the global recovery that had powered profitability for the past three years. Growth recovered gradually in the second quarter, fueled by exports and steady consumer demand. Corporate profits, already well into a multi-year recovery, climbed further as well. Fixed income, especially U.S. Treasuries, reversed course in the second quarter as investors rotated away from these "safe harbors" back into more speculati ve credits.
At mid-year, equity returns were running above historical averages, but investor focus quickly shifted to the mortgage markets, where global dislocations began to shake investor confidence once again. The housing sector, long a source of global spending and investment, began to show signs of exhaustion, and the large financing complex that had been balanced on the back of this juggernaut froze. While initially affecting only the mortgage originators and housing sectors, this credit deterioration spread to more diversified financial services companies around the world. The pace of asset write-downs quickened, and, by mid August, it became increasingly clear that these secondary effects could impact both the U.S. and foreign economies.
The Federal Reserve clearly sensed these risks as well, and, in a series of steps, reduced both the discount and federal funds rates, and joined the European Central Bank in providing overnight liquidity as needed throughout August and September. While risks of further deterioration in the housing sector, as well as concerns over global consumption remained, equity markets rallied back to new highs by September's end, confident that global central banks would provide liquidity as needed.
Performance Analysis
All share classes of Morgan Stanley Multi-Asset Class Fund underperformed the S&P 500® Index and the Lipper Flexible Portfolio Funds Index for the 12 months ended September 30, 2007, assuming no deduction of applicable sales charges.
The Fund's asset allocation favored equity investments, as over 80 percent of holdings were in diversified equity
2
funds as of the end of the period. During the year, the Fund's assets shifted to large capitalization equity growth sectors, international equities, and hard asset-based sectors (such as energy and real estate) at the expense of short-term credits, passive equity, and long-term fixed income.
The Fund's allocation at period end featured exposures to U.S. growth equities (approximately 44 percent of total Fund assets), natural resource securities (approximately 13 percent), short-term fixed income investments and cash equivalents (approximately 12 percent), global equities (approximately 10 percent), real estate securities (approximately 10 percent), long-term U.S. fixed income investments (approximately 6 percent), and global value equities (approximately 5 percent).
There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
TOP FIVE FUNDS | |||||||
Morgan Stanley Health Sciences Trust | 15.2 | % | |||||
Morgan Stanley Natural Resource Development Securities Inc. | 12.9 | ||||||
Morgan Stanley Focus Growth Fund | 12.8 | ||||||
Morgan Stanley Financial Services Trust | 10.7 | ||||||
Morgan Stanley Real Estate Fund | 9.9 |
Data as of September 30, 2007. Subject to change daily. All percentages for top five funds are as a percentage of net assets. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.
Investment Strategy
The Fund is a "fund of funds" that normally invests at least 80 percent of its assets in shares of affiliated mutual funds ("Underlying Funds"). In deciding how to allocate Fund assets among Underlying Funds, the Fund's "Investment Adviser," Morgan Stanley Investment Advisors Inc., considers its outlook for the U.S. and global economies and financial markets and the relative market valuations of the Underlying Funds. The Fund normally expects to invest between 50 percent and 100 percent of its net assets in Underlying Funds which invest primarily in U.S. equity securities, between 0 percent and 50 percent of its net assets in Underlying Funds which invest primarily in non-U.S. equity securities and between 0 percent and 50 percent of its net assets in Underlying Funds which invest primarily in fixed income securities. The Inve stment Adviser then determines the combination of Underlying Funds that it believes best represents the selected asset allocation strategy. The Investment Adviser continuously monitors the Fund's asset allocation strategy and the selection of individual Underlying Funds and may make adjustments to both as market changes warrant. The Fund generally sells the securities of an Underlying Fund when such Underlying Fund is no longer representative of the selected asset allocation strategy. There are no minimum or maximum percentages in which the Fund must invest in any Underlying Fund. The investment adviser for each Underlying Fund is responsible for deciding which securities to purchase and sell for each respective Underlying Fund. For more information about the Underlying Funds, see "Fund Management — Management of the Underlying Funds" below. In addition, the Fund may invest up to 20 percent of its assets directly in government securities and cash equivalents when the Investment Adviser believes market c onditions so warrant.
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For More Information About Portfolio Holdings
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by access ing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.
Proxy Voting Policy and Procedures and Proxy Voting Record
You may obtain a copy of the Fund's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Householding Notice
To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 869-NEWS, 8:00 a.m. to 8:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.
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Performance Summary
Performance of $10,000 Investment
6
Average Annual Total Returns—Period Ended September 30, 2007 | |||||||||||||||||||||||||||||||||||
Symbol | Class A Shares* (since 11/25/97) MAFAX | Class B Shares** (since 11/25/97) MAFBX | Class C Shares† (since 11/25/97) MAFCX | Class D Shares†† (since 11/25/97) MAFDX | |||||||||||||||||||||||||||||||
1 Year | 15.51% 9.45 | 3 4 | 14.52% 9.52 | 3 4 | 14.65% 13.65 | 3 4 | 15.74% — | 3 | |||||||||||||||||||||||||||
5 Years | 15.91 14.67 | 3 4 | 15.03 14.80 | 3 4 | 15.04 15.04 | 3 4 | 16.19 — | 3 | |||||||||||||||||||||||||||
Since Inception | 6.41 5.83 | 3 4 | 5.76 5.76 | 3 4 | 5.67 5.67 | 3 4 | 6.67 — | 3 |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please visit www.morganstanley.com/msim or speak with your Financial Advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or 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 B, Class C, and Class D shares will vary due to differences in sales charges and expenses.
* 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. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion.
† The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase.
†† Class D has no sales charge.
(1) The Standard & Poor's 500® Index (S&P 500®) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.
(2) The Lipper Flexible Portfolio Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Flexible Portfolio Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. The Fund is in the Lipper Flexible Portfolio Funds classification as of the date of this report.
(3) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.
(4) 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.
‡ Ending value assuming a complete redemption on September 30, 2007.
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Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees; and (2) ongoing costs, including distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 04/01/07 – 09/30/07.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses Paid | |||||||||||||
Account Value | Account Value | During Period * | |||||||||||||
04/01/07 | 09/30/07 | 04/01/07 – 09/30/07 | |||||||||||||
Class A | |||||||||||||||
Actual (7.15% return) | $ | 1,000.00 | $ | 1,071.50 | $ | 1.30 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,023.82 | $ | 1.27 | |||||||||
Class B | |||||||||||||||
Actual (6.77% return) | $ | 1,000.00 | $ | 1,067.70 | $ | 5.18 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.05 | $ | 5.06 | |||||||||
Class C | |||||||||||||||
Actual (6.78% return) | $ | 1,000.00 | $ | 1,067.80 | $ | 5.18 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.05 | $ | 5.06 | |||||||||
Class D | |||||||||||||||
Actual (7.35% return) | $ | 1,000.00 | $ | 1,073.50 | $ | 0.00 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,025.07 | $ | 0.00 |
* Expenses are equal to the Fund's annualized expense ratios of 0.25%, 1.00%, 1.00% and 0.00% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratios would have been 0.89%, 1.64%, 1.64% and 0.64% for Class A, Class B, Class C and Class D shares, respectively.
8
Investment Advisory Agreement Approval
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser under the Advisory Agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund's Administrator under the Administration Agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser's expense. (The Investment Adviser and the Administrator together are referred to as the "Adviser" and the Advisory and Administration Agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advi sers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the advisory and administrative services to the Fund. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory.
Performance Relative to Comparable Funds Managed by Other Advisers
On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund's performance for the one-, three- and five-year periods ended November 30, 2006, as shown in a report provided by Lipper (the "Lipper Report"), compared to the performance of comparable funds selected by Lipper (the "performance peer group"). The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. The Board concluded that the Fund's performance was competitive with that of its performance peer group.
Fees Relative to Other Proprietary Funds Managed by the Adviser with Comparable Investment Strategies
The Board noted that the Adviser did not manage any other proprietary funds with investment strategies comparable to those of the Fund.
Fees and Expenses Relative to Comparable Funds Managed by Other Advisers
The Board reviewed the advisory and administrative fee (together, the "management fee") rate paid by the Fund under the Management Agreement and the total expense ratio of the Fund. The Board noted that the Fund was not
9
paying any management fee and did not incur expenses, other than brokerage and 12b-1 fees, during the periods measured in the Lipper Report since the Adviser had agreed to waive all fees and assume all expenses, excluding brokerage and 12b-1 fees, until April 30, 2007. The Board concluded that the Fund's management fee rate and total expense ratio were competitive with those of its expense peer group.
Breakpoints and Economies of Scale
The Board noted that the Adviser does not receive a management fee from the Fund.
Profitability of the Adviser and Affiliates
The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund.
Fall-Out Benefits
The Board considered so-called "fall-out benefits" derived by the Adviser and affiliates from their relationship with the Fund and the Morgan Stanley Fund Complex, such as "float" benefits derived from handling of checks for purchases and sales of Fund shares, through a broker-dealer affiliate of the Adviser. The Board also considered that a broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for distribution and shareholder services. The Board concluded that the float benefits were relatively small and the 12b-1 fees were competitive with those of other broker-dealers.
Soft Dollar Benefits
The Board considered whether the Adviser realizes any benefits from commissions paid to brokers who execute securities transactions for the Fund ("soft dollars"). The Board noted that the Fund invests only in other Morgan Stanley funds and fixed income securities, which do not generate soft dollars.
Adviser Financially Sound and Financially Capable of Meeting the Fund's Needs
The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement.
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Historical Relationship Between the Fund and the Adviser
The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund's operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that it is beneficial for the Fund to continue its relationship with the Adviser.
Other Factors and Current Trends
The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business.
General Conclusion
On April 25, 2007, after considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year until April 30, 2008. On June 20, 2007, the Board again considered and weighed all of the above factors and concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement to continue until June 30, 2008.
11
Morgan Stanley Multi-Asset Class Fund
Portfolio of Investments n September 30, 2007
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (98.4%) | |||||||||||
Investment Trusts/Mutual Funds | |||||||||||
52,666 | Morgan Stanley Developing Growth Securities Trust* | $ | 1,945,491 | ||||||||
273,951 | Morgan Stanley Financial Services Trust | 3,353,158 | |||||||||
115,348 | Morgan Stanley Focus Growth Fund* | 3,994,511 | |||||||||
249,932 | Morgan Stanley Health Sciences Trust | 4,751,202 | |||||||||
320,478 | Morgan Stanley Japan Fund* | 3,102,227 | |||||||||
336,968 | Morgan Stanley Limited Duration Fund | 3,002,385 | |||||||||
145,166 | Morgan Stanley Natural Resource Development Securities Inc. | 4,031,272 | |||||||||
193,232 | Morgan Stanley Real Estate Fund | 3,105,242 | |||||||||
85,489 | Morgan Stanley Special Value Fund | 1,675,584 | |||||||||
201,058 | Morgan Stanley U. S. Government Securities Trust | 1,807,509 | |||||||||
Total Common Stocks (Cost $28,601,427) | 30,768,581 |
NUMBER OF SHARES (000) | |||||||||||||||
Short-Term Investment (a) (1.6%) | |||||||||||||||
Investment Company | |||||||||||||||
511 | Morgan Stanley Institutional Liquidity Money Market Portfolio - Institutional Class (Cost $510,776) | 510,776 | |||||||||||||
Total Investment (Cost $29,112,203) (b) | 100.0 | % | 31,279,357 | ||||||||||||
Liabilities in Excess of Other Assets | 0.0 | (5,729 | ) | ||||||||||||
Net Assets | 100.0 | % | $ | 31,273,628 |
* Non-income producing security.
(a) See Note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Money Market Portfolio - Institutional Class.
(b) The aggregate cost for federal income tax purposes is $29,112,203. The aggregate gross unrealized appreciation is $2,232,938 and the aggregate gross unrealized depreciation is $65,784, resulting in net unrealized appreciation of $2,167,154.
See Notes to Financial Statements
12
Morgan Stanley Multi-Asset Class Fund
Financial Statements continued
Statement of Assets and Liabilities
September 30, 2007
Assets: | |||||||
Investments in securities, at value (cost $29,112,203) | $ | 31,279,357 | |||||
Cash | 13,844 | ||||||
Receivable for: | |||||||
Dividends | 5,334 | ||||||
Shares of beneficial interest sold | 485 | ||||||
Prepaid expenses and other assets | 6,762 | ||||||
Receivable from Investment Adviser | 38,182 | ||||||
Total Assets | 31,343,964 | ||||||
Liabilities: | |||||||
Payable for: | |||||||
Distribution fee | 17,168 | ||||||
Shares of beneficial interest redeemed | 8,151 | ||||||
Transfer agent fee | 4,320 | ||||||
Accrued expenses and other payables | 40,697 | ||||||
Total Liabilities | 70,336 | ||||||
Net Assets | $ | 31,273,628 | |||||
Composition of Net Assets: | |||||||
Paid-in-capital | $ | 25,339,365 | |||||
Net unrealized appreciation | 2,167,154 | ||||||
Accumulated undistributed net investment income | 315,654 | ||||||
Accumulated undistributed net realized gain | 3,451,455 | ||||||
Net Assets | $ | 31,273,628 | |||||
Class A Shares: | |||||||
Net Assets | $ | 13,243,211 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 1,039,561 | ||||||
Net Asset Value Per Share | $ | 12.74 | |||||
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) | $ | 13.45 | |||||
Class B Shares: | |||||||
Net Assets | $ | 14,329,839 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 1,149,885 | ||||||
Net Asset Value Per Share | $ | 12.46 | |||||
Class C Shares: | |||||||
Net Assets | $ | 3,563,642 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 286,157 | ||||||
Net Asset Value Per Share | $ | 12.45 | |||||
Class D Shares: | |||||||
Net Assets | $ | 136,936 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 10,647 | ||||||
Net Asset Value Per Share | $ | 12.86 |
Statement of Operations
For the year ended September 30, 2007
Net Investment Income: Income | |||||||
Dividends | $ | 555,395 | |||||
Interest | 127,183 | ||||||
Total Income | 682,578 | ||||||
Expenses | |||||||
Distribution fee (Class A shares) | 31,646 | ||||||
Distribution fee (Class B shares) | 160,587 | ||||||
Distribution fee (Class C shares) | 38,197 | ||||||
Shareholder reports and notices | 88,135 | ||||||
Transfer agent fees and expenses | 48,674 | ||||||
Registration fees | 40,379 | ||||||
Professional fees | 17,963 | ||||||
Custodian fees | 3,085 | ||||||
Trustees' fees and expenses | 549 | ||||||
Other | 11,499 | ||||||
Total Expenses | 440,714 | ||||||
Less: amounts waived/reimbursed | (210,284 | ) | |||||
Net Expenses | 230,430 | ||||||
Net Investment Income | 452,148 | ||||||
Net Realized and Unrealized Gain: | |||||||
Net realized gain | 1,264,458 | ||||||
Capital gain distribution received | 2,427,466 | ||||||
Net Realized Gain | 3,691,924 | ||||||
Net Change in Unrealized Appreciation/Depreciation | 591,282 | ||||||
Net Gain | 4,283,206 | ||||||
Net Increase | $ | 4,735,354 |
See Notes to Financial Statements
13
Morgan Stanley Multi-Asset Class Fund
Financial Statements continued
Statements of Changes in Net Assets
FOR THE YEAR ENDED SEPTEMBER 30, 2007 | FOR THE YEAR ENDED SEPTEMBER 30, 2006 | ||||||||||
Increase (Decrease) in Net Assets: Operations: | |||||||||||
Net investment income | $ | 452,148 | $ | 331,802 | |||||||
Net realized gain | 3,691,924 | 7,604,150 | |||||||||
Net change in unrealized appreciation/depreciation | 591,282 | (5,439,112 | ) | ||||||||
Net Increase | 4,735,354 | 2,496,840 | |||||||||
Dividends and Distributions to Shareholders from: | |||||||||||
Net investment income | |||||||||||
Class A shares | (233,497 | ) | (119,004 | ) | |||||||
Class B shares | (168,069 | ) | (8,653 | ) | |||||||
Class C shares | (43,741 | ) | (14,600 | ) | |||||||
Class D shares | (14,694 | ) | (8,386 | ) | |||||||
Net realized gain | |||||||||||
Class A shares | (666,597 | ) | — | ||||||||
Class B shares | (917,007 | ) | — | ||||||||
Class C shares | (216,600 | ) | — | ||||||||
Class D shares | (37,046 | ) | — | ||||||||
Total Dividends and Distributions | (2,297,251 | ) | (150,643 | ) | |||||||
Net decrease from transactions in shares of beneficial interest | (6,298,441 | ) | (6,548,924 | ) | |||||||
Net Decrease | (3,860,338 | ) | (4,202,727 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 35,133,966 | 39,336,693 | |||||||||
End of Period (Including accumulated undistributed net investment income of $315,654 and $325,635, respectively) | $ | 31,273,628 | $ | 35,133,966 |
See Notes to Financial Statements
14
Morgan Stanley Multi-Asset Class Fund
Notes to Financial Statements n September 30, 2007
1. Organization and Accounting Policies
Morgan Stanley Multi-Asset Class Fund (the "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 will invest in other open-end management investment companies that are either members of the Morgan Stanley Family of Funds or managed by an investment advisor that is an affiliate of Morgan Stanley Investment Advisors, Inc. (the "Investment Adviser") (individually, an "Underlying Fund" and collectively, the "Underlying Funds"). The Fund's investment objective is to maximize total investment return. The Fund was organized as a Massachusetts business trust on July 3, 1997 and commenced operations on November 25, 1997.
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 eighteen months, 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 following is a summary of significant accounting policies:
A. Valuation of Investments — (1) Investments are valued at the net asset value per share of each Underlying Fund determined as of the close of the New York Stock Exchange on valuation date; and (2) 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.
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. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income. 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. Federal Income Tax Policy — 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.
15
Morgan Stanley Multi-Asset Class Fund
Notes to Financial Statements n September 30, 2007 continued
E. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
F. Use of Estimates — 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.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement, the Fund pays no investment advisory fee. However, the Fund, through its investments in the Underlying Funds, will pay its pro rata share of the advisory or sub-advisory fees to the Investment Adviser and/or Sub-Advisers of the Underlying Funds.
Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays no administration fee. However, the Fund through its investments in the Underlying Funds, will pay its pro rata share of the administration fee to the Administrator.
The Investment Adviser agreed to assume all operating expenses (except for distribution fees) until June 30, 2008. At September 30, 2007, included in the Statements of Assets and Liabilities are receivables from an affiliate which represent expense reimbursements due to the Fund.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser and Administrator. 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 Class A shares; (ii) Class B — up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C — up to 1.0% of the average daily net assets of Class C shares.
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 $3,426,042 at September 30, 2007.
16
Morgan Stanley Multi-Asset Class Fund
Notes to Financial Statements n September 30, 2007 continued
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 and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the year ended September 30, 2007, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24% and 0.96%, respectively.
The Distributor has informed the Fund that for the year ended September 30, 2007, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $1,632, $35,819 and $851, respectively and received $5,969 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 Fund invests in Morgan Stanley Institutional Liquidity Money Market Portfolio — Institutional Class, an open-end management investment company managed by the Investment Adviser. Income distributions earned by the Fund are recorded as dividends in the Statement of Operations and totaled $10,156 for the year ended September 30, 2007. During the year ended September 30, 2007, cost of purchases and sales in investments in Morgan Stanley Institutional Liquidity Money Market Portfolio — Institutional Class aggregated $3,378,928 and $2,868,152, respectively.
The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended September 30, 2007 aggregated $23,888,558 and $28,374,803, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.
17
Morgan Stanley Multi-Asset Class Fund
Notes to Financial Statements n September 30, 2007 continued
5. Shares of Beneficial Interest
FOR THE YEAR ENDED SEPTEMBER 30, 2007 | FOR THE YEAR ENDED SEPTEMBER 30, 2006 | ||||||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | ||||||||||||||||
CLASS A SHARES | |||||||||||||||||||
Sold | 63,599 | $ | 766,919 | 133,957 | $ | 1,561,078 | |||||||||||||
Conversion from Class B | 137,592 | 1,670,963 | 407,348 | 4,721,300 | |||||||||||||||
Reinvestment of dividends | 71,392 | 833,141 | 9,504 | 108,246 | |||||||||||||||
Redeemed | (295,750 | ) | (3,609,022 | ) | (245,662 | ) | (2,843,626 | ) | |||||||||||
Net increase (decrease) — Class A | (23,167 | ) | (337,999 | ) | 305,147 | 3,546,998 | |||||||||||||
CLASS B SHARES | |||||||||||||||||||
Sold | 103,972 | 1,245,680 | 165,562 | 1,881,521 | |||||||||||||||
Conversion to Class A | (140,313 | ) | (1,670,963 | ) | (416,747 | ) | (4,721,300 | ) | |||||||||||
Reinvestment of dividends | 83,787 | 961,872 | 708 | 7,937 | |||||||||||||||
Redeemed | (422,111 | ) | (5,044,206 | ) | (587,210 | ) | (6,650,042 | ) | |||||||||||
Net decrease — Class B | (374,665 | ) | (4,507,617 | ) | (837,687 | ) | (9,481,884 | ) | |||||||||||
CLASS C SHARES | |||||||||||||||||||
Sold | 35,999 | 425,436 | 40,193 | 455,602 | |||||||||||||||
Reinvestment of dividends | 21,406 | 245,531 | 1,167 | 13,076 | |||||||||||||||
Redeemed | (126,761 | ) | (1,530,817 | ) | (92,970 | ) | (1,055,805 | ) | |||||||||||
Net decrease — Class C | (69,356 | ) | (859,850 | ) | (51,610 | ) | (587,127 | ) | |||||||||||
Class D Shares | |||||||||||||||||||
Sold | 920 | 11,176 | 2,801 | 33,180 | |||||||||||||||
Reinvestment of dividends | 4,383 | 51,543 | 724 | 8,302 | |||||||||||||||
Redeemed | (53,681 | ) | (655,694 | ) | (5,977 | ) | (68,393 | ) | |||||||||||
Net decrease — Class D | (48,378 | ) | (592,975 | ) | (2,452 | ) | (26,911 | ) | |||||||||||
Net decrease in Fund | (515,566 | ) | $ | (6,298,441 | ) | (586,602 | ) | $ | (6,548,924 | ) |
6. Federal Income Tax Status
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 capital gains for tax purposes are reported as distributions of paid-in-capital.
18
Morgan Stanley Multi-Asset Class Fund
Notes to Financial Statements n September 30, 2007 continued
The tax character of distributions paid was as follows:
FOR THE YEAR ENDED SEPTEMBER 30, 2007 | FOR THE YEAR ENDED SEPTEMBER 30, 2006 | ||||||||||
Ordinary income | $ | 460,001 | $ | 150,643 | |||||||
Long- term capital gains | 1,837,250 | — | |||||||||
Total distributions | $ | 2,297,251 | $ | 150,643 | |||||||
As of September 30, 2007, the tax-basis components of accumulated earnings were as follows: | |||||||||||
Undistributed ordinary income | $ | 905,375 | |||||||||
Undistributed long-term gains | 2,861,734 | ||||||||||
Net accumulated earnings | 3,767,109 | ||||||||||
Net unrealized appreciation | 2,167,154 | ||||||||||
Total accumulated earnings | $ | 5,934,263 |
Permanent differences, due to recharacterization of distributions received from an Underlying Fund, resulted in the following reclassifications among the Fund's components of net assets at September 30, 2007:
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME | ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN | PAID-IN-CAPITAL | |||||||||
$ | (2,128 | ) | $ | 2,128 | $ | — |
7. Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The impact to the Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures.
19
Morgan Stanley Multi-Asset Class Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED SEPTEMBER 30, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
Class A Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.86 | $ | 11.17 | $ | 9.80 | $ | 8.60 | $ | 6.69 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||||
Net investment income‡ | 0.22 | 0.16 | 0.14 | 0.06 | 0.01 | ||||||||||||||||||
Net realized and unrealized gain | 1.54 | 0.65 | 1.35 | 1.14 | 1.90 | ||||||||||||||||||
Total income from investment operations | 1.76 | 0.81 | 1.49 | 1.20 | 1.91 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.23 | ) | (0.12 | ) | (0.12 | ) | – | – | |||||||||||||||
Net realized gain | (0.65 | ) | – | – | – | – | |||||||||||||||||
Total dividends and distributions | (0.88 | ) | (0.12 | ) | (0.12 | ) | – | – | |||||||||||||||
Net asset value, end of period | $ | 12.74 | $ | 11.86 | $ | 11.17 | $ | 9.80 | $ | 8.60 | |||||||||||||
Total Return† | 15.51 | % | 7.33 | % | 15.21 | % | 13.95 | % | 28.55 | % | |||||||||||||
Ratios to Average Net Assets(1)(2)(3): | |||||||||||||||||||||||
Expenses | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.23 | % | |||||||||||||
Net investment income | 1.80 | % | 1.37 | % | 1.33 | % | 0.72 | % | 0.16 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 13,243 | $ | 12,609 | $ | 8,462 | $ | 1,896 | $ | 890 | |||||||||||||
Portfolio turnover rate | 77 | % | 88 | % | 12 | % | 46 | % | 87 | % |
‡ 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) Does not include any expenses incurred as a result of investment in the Underlying Funds.
(2) Reflects overall Fund ratios for investment income and non-class specific expenses.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios would have been as follows:
PERIOD ENDED: | EXPENSE RATIO | NET INVESTMENT INCOME (LOSS) RATIO | |||||||||
September 30, 2007 | 0.87 | % | 1.17 | % | |||||||
September 30, 2006 | 0.97 | 0.64 | |||||||||
September 30, 2005 | 0.87 | 0.70 | |||||||||
September 30, 2004 | 0.64 | 0.32 | |||||||||
September 30, 2003 | 0.67 | (0.28 | ) |
See Notes to Financial Statements
20
Morgan Stanley Multi-Asset Class Fund
Financial Highlights continued
FOR THE YEAR ENDED SEPTEMBER 30, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
Class B Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.61 | $ | 10.89 | $ | 9.55 | $ | 8.44 | $ | 6.62 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||||
Net investment income (loss)‡ | 0.13 | 0.07 | 0.07 | 0.00 | (0.05 | ) | |||||||||||||||||
Net realized and unrealized gain | 1.49 | 0.65 | 1.30 | 1.11 | 1.87 | ||||||||||||||||||
Total income from investment operations | 1.62 | 0.72 | 1.37 | 1.11 | 1.82 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.12 | ) | – | (0.03 | ) | – | – | ||||||||||||||||
Net realized gain | (0.65 | ) | – | – | – | – | |||||||||||||||||
Total dividends and distributions | (0.77 | ) | 0.00 | (0.03 | ) | – | – | ||||||||||||||||
Net asset value, end of period | $ | 12.46 | $ | 11.61 | $ | 10.89 | $ | 9.55 | $ | 8.44 | |||||||||||||
Total Return† | 14.52 | % | 6.65 | % | 14.32 | % | 13.15 | % | 27.49 | % | |||||||||||||
Ratios to Average Net Assets(1)(2)(3): | |||||||||||||||||||||||
Expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | |||||||||||||
Net investment income (loss) | 1.04 | % | 0.61 | % | 0.57 | % | (0.04 | )% | (0.61 | )% | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 14,330 | $ | 17,693 | $ | 25,736 | $ | 32,309 | $ | 21,804 | |||||||||||||
Portfolio turnover rate | 77 | % | 88 | % | 12 | % | 46 | % | 87 | % |
‡ 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) Does not include any expenses incurred as a result of investment in the Underlying Funds.
(2) Reflects overall Fund ratios for investment income and non-class specific expenses.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios would have been as follows:
PERIOD ENDED: | EXPENSE RATIO | NET INVESTMENT INCOME (LOSS) RATIO | |||||||||
September 30, 2007 | 1.63 | % | 0.41 | % | |||||||
September 30, 2006 | 1.73 | (0.12 | ) | ||||||||
September 30, 2005 | 1.63 | (0.06 | ) | ||||||||
September 30, 2004 | 1.40 | (0.44 | ) | ||||||||
September 30, 2003 | 1.44 | (1.05 | ) |
See Notes to Financial Statements
21
Morgan Stanley Multi-Asset Class Fund
Financial Highlights continued
FOR THE YEAR ENDED SEPTEMBER 30, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
Class C Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.60 | $ | 10.92 | $ | 9.55 | $ | 8.45 | $ | 6.63 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||||
Net investment income (loss)‡ | 0.13 | 0.07 | 0.06 | 0.00 | (0.05 | ) | |||||||||||||||||
Net realized and unrealized gain | 1.50 | 0.65 | 1.32 | 1.10 | 1.87 | ||||||||||||||||||
Total income from investment operations | 1.63 | 0.72 | 1.38 | 1.10 | 1.82 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.13 | ) | (0.04 | ) | (0.01 | ) | – | – | |||||||||||||||
Net realized gain | (0.65 | ) | – | – | – | – | |||||||||||||||||
Total dividends and distributions | (0.78 | ) | (0.04 | ) | (0.01 | ) | – | – | |||||||||||||||
Net asset value, end of period | $ | 12.45 | $ | 11.60 | $ | 10.92 | $ | 9.55 | $ | 8.45 | |||||||||||||
Total Return† | 14.65 | % | 6.57 | % | 14.47 | % | 13.02 | % | 27.45 | % | |||||||||||||
Ratios to Average Net Assets(1)(2)(3): | |||||||||||||||||||||||
Expenses | 0.96 | % | 0.97 | % | 0.95 | % | 1.00 | % | 1.00 | % | |||||||||||||
Net investment income (loss) | 1.08 | % | 0.64 | % | 0.62 | % | (0.04 | )% | (0.61 | )% | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 3,564 | $ | 4,126 | $ | 4,447 | $ | 4,314 | $ | 2,623 | |||||||||||||
Portfolio turnover rate | 77 | % | 88 | % | 12 | % | 46 | % | 87 | % |
‡ 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) Does not include any expenses incurred as a result of investment in the Underlying Funds.
(2) Reflects overall Fund ratios for investment income and non-class specific expenses.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios would have been as follows:
PERIOD ENDED: | EXPENSE RATIO | NET INVESTMENT INCOME (LOSS) RATIO | |||||||||
September 30, 2007 | 1.59 | % | 0.45 | % | |||||||
September 30, 2006 | 1.70 | (0.09 | ) | ||||||||
September 30, 2005 | 1.58 | (0.01 | ) | ||||||||
September 30, 2004 | 1.40 | (0.44 | ) | ||||||||
September 30, 2003 | 1.44 | (1.05 | ) |
See Notes to Financial Statements
22
Morgan Stanley Multi-Asset Class Fund
Financial Highlights continued
FOR THE YEAR ENDED SEPTEMBER 30, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||
Class D Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.97 | $ | 11.26 | $ | 9.87 | $ | 8.64 | $ | 6.71 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||||
Net investment income ‡ | 0.27 | 0.19 | 0.15 | 0.09 | 0.03 | ||||||||||||||||||
Net realized and unrealized gain | 1.53 | 0.66 | 1.38 | 1.14 | 1.90 | ||||||||||||||||||
Total income from investment operations | 1.80 | 0.85 | 1.53 | 1.23 | 1.93 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.26 | ) | (0.14 | ) | (0.14 | ) | – | – | |||||||||||||||
Net realized gain | (0.65 | ) | – | – | – | – | |||||||||||||||||
Total dividends and distributions | (0.91 | ) | (0.14 | ) | (0.14 | ) | – | – | |||||||||||||||
Net asset value, end of period | $ | 12.86 | $ | 11.97 | $ | 11.26 | $ | 9.87 | $ | 8.64 | |||||||||||||
Total Return† | 15.74 | % | 7.61 | % | 15.58 | % | 14.24 | % | 28.76 | % | |||||||||||||
Ratios to Average Net Assets(1)(2)(3): | |||||||||||||||||||||||
Expenses | – | – | – | – | – | ||||||||||||||||||
Net investment income | 2.04 | % | 1.61 | % | 1.57 | % | 0.96 | % | 0.39 | % | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 137 | $ | 707 | $ | 692 | $ | 344 | $ | 70 | |||||||||||||
Portfolio turnover rate | 77 | % | 88 | % | 12 | % | 46 | % | 87 | % |
‡ 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) Does not include any expenses incurred as a result of investment in the Underlying Funds.
(2) Reflects overall Fund ratios for investment income and non-class specific expenses.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income (loss) ratios would have been as follows:
PERIOD ENDED: | EXPENSE RATIO | NET INVESTMENT INCOME (LOSS) RATIO | |||||||||
September 30, 2007 | 0.63 | % | 1.41 | % | |||||||
September 30, 2006 | 0.73 | 0.88 | |||||||||
September 30, 2005 | 0.63 | 0.94 | |||||||||
September 30, 2004 | 0.40 | 0.56 | |||||||||
September 30, 2003 | 0.44 | (0.05 | ) |
See Notes to Financial Statements
23
Morgan Stanley Multi-Asset Class Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Morgan Stanley Multi-Asset Class Fund:
We have audited the accompanying statement of assets and liabilities of Morgan Stanley Multi-Asset Class Fund (the "Fund"), including the portfolio of investments, as of September 30, 2007, 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 five years in the period then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2007, by correspondence with the custodian. 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 Multi-Asset Class Fund as of September 30, 2007, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
November 21, 2007
24
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited)
Independent Trustees:
Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee | ||||||||||||||||||
Frank L. Bowman (62) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 | Trustee | Since August 2006 | President and Chief Executive Officer, Nuclear Energy Institute (policy organization) (since February 2005); Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Valuation, Insurance and Compliance Committee (since February 2007); formerly, variously, Admiral in the U.S. Navy, Director of Naval Nuclear Propulsion Program and Deputy Administrator – Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996-2004). Honorary Knight Commander of the Most Excellent Order of the British Empire. | 171 | Director of the National Energy Foundation, the U.S. Energy Association, the American Council for Capital Formation and the Armed Services YMCA of the USA. | ||||||||||||||||||
Michael Bozic (66) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 | Trustee | Since April 1994 | Private investor; Chairperson of the Valuation, Insurance and Compliance Committee (since October 2006); Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly, Chairperson of the Insurance Committee (July 2006-September 2006); Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. | 173 | Director of various business organizations. | ||||||||||||||||||
25
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee |
Kathleen A. Dennis (54) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 | Trustee | Since August 2006 | President, Cedarwood Associates (mutual fund consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006). | 171 | None. | ||||||||||||||||||
Dr. Manuel H. Johnson (58) c/o Johnson Smick Group, Inc. 888 16th Street, N.W. Suite 740 Washington, D.C. 20006 | Trustee | Since July 1991 | Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006); Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. | 173 | Director of NVR, Inc. (home construction); Director of Evergreen Energy. | ||||||||||||||||||
Joseph J. Kearns (65) c/o Kearns & Associates LLC PMB754 23852 Pacific Coast Highway Malibu, CA 90265 | Trustee | Since August 1994 | President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of the Institutional Funds (October 2001-July 2003); CFO of the J. Paul Getty Trust. | 174 | Director of Electro Rent Corporation (equipment leasing), The Ford Family Foundation, and the UCLA Foundation. | ||||||||||||||||||
26
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee |
Michael F. Klein (48) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 | Trustee | Since August 2006 | Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); Chairperson of the Fixed-Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999). | 171 | Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals). | ||||||||||||||||||
Michael E. Nugent (71) c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022 | Chairperson of the Board and Trustee | Chairperson of the Boards since July 2006 and Trustee since July 1991 | General Partner, Triumph Capital, L.P. (private investment partnership); Chairperson of the Boards of the Retail Funds and Institutional Funds (since July 2006); Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly, Chairperson of the Insurance Committee (until July 2006); Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). | 173 | None. | ||||||||||||||||||
27
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Name, Age and Address of Independent Trustee | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Independent Trustee** | Other Directorships Held by Independent Trustee | ||||||||||||||||||
W. Allen Reed (60) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036 | Trustee | Since August 2006 | Chairperson of the Equity Sub-Commitee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005). | 171 | Director of GMAC (financial services) and Temple-Inland Industries (packaging, banking and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation. | ||||||||||||||||||
Fergus Reid (75) c/o Lumelite Plastics Corporation 85 Charles Colman Blvd. Pawling, NY 12564 | Trustee | Since June 1992 | Chairman of Lumelite Plastics Corporation; Chairperson of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992). | 174 | Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc. | ||||||||||||||||||
28
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Interested Trustee:
Name, Age and Address of Interested Trustee | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Interested Trustee** | Other Directorships Held by Interested Trustee | ||||||||||||||||||
James F. Higgins (59) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311 | Trustee | Since June 2000 | Director or Trustee of the Retail Funds (since June 2000) and the Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000). | 173 | Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services). | ||||||||||||||||||
* This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the "Retail Funds") or the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds").
** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).
29
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Executive Officers:
Name, Age and Address of Executive Officer | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
Ronald E. Robison (68) 522 Fifth Avenue New York, NY 10036 | President and Principal Executive Officer | President since September 2005 and Principal Executive Officer since May 2003 | President (since September 2005) and Principal Executive Officer (since May 2003) of funds in the Fund Complex; President (since September 2005) and Principal Executive Officer (since May 2003) of the Van Kampen Funds; Managing Director, Director and/or Officer of the Investment Adviser and various entities affiliated with the Investment Adviser; Director of Morgan Stanley SICAV (since May 2004). Formerly, Executive Vice President (July 2003-September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001-July 2003); Chief Administrative Officer of the Investment Adviser; Chief Administrative Officer of Morgan Stanley Services Company Inc. | ||||||||||||
J. David Germany (53) Morgan Stanley Investment Management Limited 20 Bank Street Canary Wharf, London, England E14 4AD | Vice President | Since February 2006 | Managing Director and (since December 2005) Chief Investment Officer – Global Fixed Income of Morgan Stanley Investment Management; Managing Director and Director of Morgan Stanley Investment Management Limited; Vice President of the Retail Funds and Institutional Funds (since February 2006). | ||||||||||||
Dennis F. Shea (54) 522 Fifth Avenue New York, NY 10036 | Vice President | Since February 2006 | Managing Director and (since February 2006) Chief Investment Officer – Global Equity of Morgan Stanley Investment Management; Vice President of the Retail Funds and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley. | ||||||||||||
Amy R. Doberman (45) 522 Fifth Avenue New York, NY 10036 | Vice President | Since July 2004 | Managing Director and General Counsel, U.S. Investment Management of Morgan Stanley Investment Management (since July 2004); Vice President of the Retail Funds and Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly, Managing Director and General Counsel – Americas, UBS Global Asset Management (July 2000-July 2004). | ||||||||||||
Carsten Otto (43) 522 Fifth Avenue New York, NY 10036 | Chief Compliance Officer | Since October 2004 | Managing Director and Global Director of Compliance for Morgan Stanley Investment Management (since April 2007); Managing Director and Chief Compliance Officer of Morgan Stanley Investment Management. Formerly, U.S. Director of Compliance (October 2004-April 2007) and Assistant Secretary and Assistant General Counsel of the Retail Funds. | ||||||||||||
Stefanie V. Chang Yu (40) 522 Fifth Avenue New York, NY 10036 | Vice President | Since December1997 | Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of various entities affiliated with the Investment Adviser. | ||||||||||||
30
Morgan Stanley Multi-Asset Class Fund
Trustee and Officer Information (unaudited) continued
Name, Age and Address of Executive Officer | Position(s) Held with Registrant | Term of Office and Length of Time Served* | Principal Occupation(s) During Past 5 Years | ||||||||||||
Francis J. Smith (42) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311 | Treasurer and Chief Financial Officer | Treasurer since July 2003 and Chief Financial Officer since September 2002 | Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Treasurer and Chief Financial Officer of the Retail Funds (since July 2003). Formerly, Vice President of the Retail Funds (September 2002-July 2003). | ||||||||||||
Mary E. Mullin (40) 522 Fifth Avenue New York, NY 10036 | Secretary | Since June 1999 | Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999). | ||||||||||||
* This is the earliest date the Officer began serving the Retail Funds or Institutional Funds.
2007 Federal Tax Notice (unaudited)
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2007. For corporate shareholders, 76.73% of the dividends qualified for the dividend received deduction. The Fund designated and paid $1,837,250 as a long-term capital gain distribution. 5.77% of the Fund's dividends was attributable to qualifying U.S. Government obligations. (Please consult your tax advisor to determine if any portion of the dividends you received is exempt from state income tax.)
For Federal income tax purposes, the following information is furnished with respect to the Fund's earnings for its taxable year ended September 30, 2007. When distributed, certa in earnings may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designated up to a maximum of $224,856 as taxable at this lower rate.
In January, the Fund provides tax information to shareholders for the preceding calendar year.
31
Trustees
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
Officers
Michael E. Nugent
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Mary E. Mullin
Secretary
Transfer Agent
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
Legal Counsel
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Counsel to the Independent Trustees
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Investment Adviser
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
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 FINRA.
© 2007 Morgan Stanley
MAFANN
IU07–04778P–Y09/07
MORGAN STANLEY FUNDS
Morgan Stanley
Multi-Asset Class Fund
Annual Report
September 30, 2007
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund’s Code of Ethics is attached hereto as Exhibit 12 A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund’s Board of Trustees has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2007
|
| Registrant |
| Covered Entities(1) |
| |||
Audit Fees |
| $ | 11,000 |
| N/A |
| ||
|
|
|
|
|
| |||
Non-Audit Fees |
|
|
|
|
| |||
Audit-Related Fees |
| $ | — | (2) | $ | 5,041,000 | (2) | |
Tax Fees |
| $ | 5,700 | (3) | $ | 761,000 | (4) | |
All Other Fees |
| $ | — |
| $ |
|
| |
Total Non-Audit Fees |
| $ | 5,700 |
| $ | 5,802,000 |
| |
|
|
|
|
|
| |||
Total |
| $ | 16,700 |
| $ | 5,802,000 |
| |
2006
|
| Registrant |
| Covered Entities(1) |
| ||
Audit Fees |
| $ | 9,600 |
| N/A |
| |
|
|
|
|
|
| ||
Non-Audit Fees |
|
|
|
|
| ||
Audit-Related Fees |
| $ | 531 | (2) | $ | 3,215,745 | (2) |
Tax Fees |
| $ | 5,700 | (3) | $ | 24,000 | (4) |
All Other Fees |
| $ | — |
| $ | — |
|
Total Non-Audit Fees |
| $ | 6,231 |
| $ | 3,239,745 |
|
|
|
|
|
|
| ||
Total |
| $ | 15,831 |
| $ | 3,239,745 |
|
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities’ and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant’s tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities’ tax returns.
(e)(1) The audit committee’s pre-approval policies and procedures are as follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. Statement of Principles
The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.
The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.
The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.
The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.
2. Delegation
As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
3. Audit Services
The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
4. Audit-related Services
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters
not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
5. Tax Services
The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
6. All Other Services
The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).
7. Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.
8. Procedures
All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Chief Financial Officer and must include a detailed description of the services to be
rendered. The Fund’s Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.
The Audit Committee has designated the Fund’s Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Chief Financial Officer or any member of management.
9. Additional Requirements
The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence.
10. Covered Entities
Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee’s pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors’ independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Joseph Kearns, Michael Nugent and Allen Reed.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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-CSR 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 registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto.
(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.
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 Multi-Asset Class Fund | |
| |
/s/ Ronald E. Robison |
|
Ronald E. Robison | |
Principal Executive Officer | |
November 20, 2007 |
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/ Ronald E. Robison |
|
Ronald E. Robison | |
Principal Executive Officer | |
November 20, 2007 | |
| |
/s/ Francis Smith |
|
Francis Smith | |
Principal Financial Officer | |
November 20, 2007 |