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: 811-22075
Morgan Stanley Series Fund - Diversified International Equity
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-6990
Date of fiscal year end: July 31, 2008
Date of reporting period: January 31, 2008
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Diversified International Equity Fund performed during the 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 period October 9, 2007 through January 31, 2008
TOTAL RETURN FOR THE PERIOD SINCE INCEPTION (OCTOBER 9, 2007) THROUGH JANUARY
31, 2008
<Table>
<Caption>
LIPPER
INTERNATIONAL
MSCI MULTI-CAP
EAFE CORE
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
- -13.10% -13.10% -13.10% -13.10% -12.22% -11.27%
</Table>
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
The Morgan Stanley Diversified International Equity Fund launched on October 9,
2007, during a turbulent time in the global stock markets. For the period since
the Fund's inception through January 31, 2008, U.S. stocks (as represented by
the S&P 500(R) Index) fell 11.41 percent, while international stocks (as
represented by the MSCI EAFE Index) were down 12.22 percent.
In the fourth quarter of 2007 and beginning of 2008, global markets continued to
be roiled by ongoing bad news from the U.S. economy, tight credit conditions,
weak real estate markets and high commodity prices. In the U.S., the Federal
Open Market Committee (the "Fed") responded to the turbulence by lowering its
target federal funds rate five times between September and January. Although the
quick action by the Fed did bolster investor confidence at times, rallies were
short-lived as negative economic news continued to pummel the markets. U.S.
gross domestic product growth slowed to 0.6% in the fourth quarter, down from
4.9% in the third quarter. Weak manufacturing and employment data released in
January showed further evidence of a much slower economy, and rising commodity
prices and a weak U.S. dollar contributed to mounting inflationary pressures. By
the end of the period, the probability of a recession appeared very high,
although the potential length and severity continued to be debated.
Elsewhere, markets in Europe and Japan also saw declining performance during the
period under review, as growth projections for both regions were dampened by
deteriorating economic conditions in the U.S. Inflationary pressures remained a
persistent threat in Europe and, unlike the Fed, the European Central Bank was
reluctant to reduce interest rates in light of the recent market turmoil.
PERFORMANCE ANALYSIS
All share classes of Morgan Stanley Diversified International Equity Fund
underperformed the MSCI EAFE Index and the Lipper International Multi-Cap Core
Funds Index for the period since inception (October 9, 2007) through January 31,
2008, assuming no deduction of applicable sales charges.
The Fund's investment strategy seeks to value through our quantitative stock
selection process. Sector allocations are weighted more or less in line with
that of the MSCI EAFE Index, thereby minimizing the effects of sector allocation
on relative performance. As expected, performance was primarily driven by stock
2
selection during the period under review. In particular, stock selection in the
materials and consumer discretionary sectors were largely responsible for the
Fund's relative underperformance. Within the materials sector, the Fund's
exposure to a Swiss chemicals company and a Norwegian paper and forest products
company, both of which lost considerable value during the period, dampened
relative results. Weakness in the consumer discretionary sector was mostly
concentrated among auto components and household durables holdings.
Although the Fund underperformed on overall relative basis, there were some
notable bright spots during the period. Stock selection in the energy sector
contributed significantly to relative performance. Here, an overweight position
in a strongly performing U.K. oil, gas and consumable fuels company bolstered
the Fund's relative gains. The financials sector also added value, mostly due to
strong selection in Hong Kong real estate development and management stocks.
There is no guarantee that the strategy discussed above will continue to perform
as discussed herein or the securities discussed above will be held by the Fund
in the future.
<Table>
<Caption>
TOP 10 HOLDINGS
BG Group PLC 1.8%
BP PLC 1.3
Royal Dutch Shell PLC (B Shares) 1.2
Vodafone Group PLC 1.0
Unione di Banche Italiane Scpa 0.9
Rio Tinto PLC 0.9
Intesa Sanpaolo 0.9
Johnson Matthey PLC 0.9
Banco Bilbao Vizcaya Argentaria,
S.A. 0.9
GlaxoSmithKline PLC 0.8
</Table>
<Table>
<Caption>
TOP FIVE COUNTRIES
United Kingdom 22.7%
Japan 21.8
France 9.4
Germany 8.2
Switzerland 5.2
</Table>
Data as of January 31, 2008. Subject to change daily. All percentages for top 10
holdings and top five countries 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.
3
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 accessing 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.
4
PERFORMANCE SUMMARY
TOTAL RETURNS -- PERIOD ENDED JANUARY 31, 2008
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 10/09/07) (since 10/09/07) (since 10/09/07) (since 10/09/07)
SYMBOL DLIAX DLIBX DLICX DLIDX
SINCE INCEPTION (13.10)(3) (13.10)(3) (13.10)(3) (13.10)(3)
(17.66)(4) (17.44)(4) (13.97)(4) --
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 table does not reflect the
deduction of taxes that a shareholder would pay on portfolio distributions or
the redemption of portfolio 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.
+ 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 Morgan Stanley Capital International (MSCI) EAFE Index (Europe,
Australasia, Far East) is a free float-adjusted market capitalization index
that is designed to measure developed market equity performance, excluding
the United States & Canada. The term "free float" represents the portion of
shares outstanding that are deemed to be available for purchase in the
public equity markets by investors. The MSCI EAFE Index consists of the
following 21 developed market country indices: Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan,
the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. The performance of the Index is listed
in U.S. dollars and assumes reinvestment of net dividends. "Net dividends"
reflects a reduction in dividends after taking into account withholding of
taxes by certain foreign countries represented in the Index. 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 International Multi-Cap Core Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper International Multi-Cap Core 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 International
Multi-Cap Core 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.
5
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 advisory fees; 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 10/09/07 - 01/31/08.
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.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
10/09/07 -
10/09/07 01/31/08 01/31/08
------------- ------------- ---------------
CLASS A
Actual (-13.10% return)....................... $1,000.00 $ 869.00 $11.70
Hypothetical (5% annual return before
expenses)................................... $1,000.00 $1,012.62 $12.60
CLASS B
Actual (-13.10% return)....................... $1,000.00 $ 869.00 $12.64
Hypothetical (5% annual return before
expenses)................................... $1,000.00 $1,011.61 $13.60
CLASS C
Actual (-13.10% return)....................... $1,000.00 $ 869.00 $12.54
Hypothetical (5% annual return before
expenses)................................... $1,000.00 $1,011.71 $13.50
CLASS D
Actual (-13.10% return)....................... $1,000.00 $ 869.00 $11.37
Hypothetical (5% annual return before
expenses)................................... $1,000.00 $1,012.97 $12.25
</Table>
- ---------
* Expenses are equal to the Fund's annualized expense ratios of 2.49%, 2.69%,
2.68% and 2.42% for Class A, Class B, Class C and Class D shares,
respectively, multiplied by the average account value over the period
multiplied by 115/366 (to reflect the actual days in the period for the
actual example) and multiplied by 184/366 (to reflect the one-half year
period for the hypothetical example). If the Fund had borne all its
expenses, the annualized expense ratios would have been 8.10%, 8.30%, 8.29%
and 8.03% for Class A, Class B, Class C and Class D, respectively.
6
INVESTMENT ADVISORY AGREEMENT APPROVAL
In approving the investment advisory agreement for the Diversified International
Equity Fund, a Fund of the Morgan Stanley Series Funds, the Board of Trustees,
including the Independent Trustees, considered the following factors:
NATURE, EXTENT AND QUALITY OF SERVICES
The Boards reviewed and considered the nature and extent of the investment
advisory services to be provided by the Adviser under the Investment 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 to be provided by
the Adviser under the Administration Agreement, including accounting, clerical,
bookkeeping, compliance, business management and planning, and the provision of
supplies, office space and utilities (the Investment Advisory Agreement and
Administration Agreement together are referred to as the "Management
Agreement").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
will provide the advisory and administrative services to the Fund. The Board
determined that the Investment 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 to be provided are
necessary and appropriate for the conduct of the business and investment
activities of the Fund.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER INVESTMENT ADVISERS
The Board considered that the Investment Adviser plans to arrange for a public
offering of shares of the Fund to raise assets for investment and that the
offerings had not yet begun. The Board concluded that, since the Fund had no
assets to invest (other than seed capital required under the Investment Company
Act) and had no track record of performance, this was not a factor it needed to
address at the present time.
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE INVESTMENT ADVISERS WITH
COMPARABLE INVESTMENT STRATEGIES
The Board reviewed the advisory and administrative fee (together, the
"Management fee") rates proposed to be paid by the Fund under the Management
Agreement. The Board noted that the Investment Adviser did not manage any other
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 proposed Management fee rate and the anticipated total
annual expense ratio of the Fund. The Board reviewed the average fees paid
within the Lipper International Multi Cap Category. The Board considered that
the Fund requires the Investment Adviser to develop processes, invest in
additional resources
7
and incur additional risks to successfully manage the Fund. The Board concluded
that the proposed Management fee rate and anticipated total annual expense ratio
would be competitive with those of other similar non-affiliated funds.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Management fee schedules under the
Management Agreement. The Board noted that the Management fee includes
breakpoints at $500 million, $1 billion and $1.5 billion. The Board considered
that the Fund's potential growth was uncertain and concluded that it would be
premature to consider economies of scale as a factor in approving the Management
Agreement at the present time.
PROFITABILITY OF THE INVESTMENT ADVISER AND AFFILIATES
Since the Fund has not begun operations and has not paid any fees to the
Investment Adviser, the Board concluded that this was not a factor that needed
to be considered at the present time.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Investment
Adviser and its affiliates from their relationship with the Fund and the Morgan
Stanley Fund Complex. The Board considered sales charges on sales of Class A
shares and "float" benefits derived from handling of checks for purchases and
sales of Fund shares, through a broker-dealer affiliate of the Investment
Adviser and "soft dollar" benefits (discussed in the next section). The Board
also considered that a broker-dealer affiliate of the Investment Adviser
receives from the Funds 12b-1 fees for distribution and shareholder services.
SOFT DOLLAR BENEFITS
The Board considered whether the Investment Adviser will realize any benefits as
a result of brokerage transactions executed through "soft dollar" arrangements.
Under such arrangements, brokerage commissions paid by the Fund and for other
funds managed by the Investment Adviser would be used to pay for research that a
securities broker obtains from third parties, or to pay for both research and
execution services from securities brokers who effect transactions for the Fund.
The Board recognized that the receipt of such research from brokers may reduce
the Investment Adviser's costs but concluded that the receipt of such research
strengthens the investment management resources of the Investment Adviser, which
may ultimately benefit the Fund and other funds in the Morgan Stanley Fund
Complex.
8
INVESTMENT ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE
FUND'S NEEDS
The Board considered whether the Investment Adviser is financially sound and has
the resources necessary to perform its obligations under the Management
Agreement. The Board concluded that the Investment Adviser has the financial
resources necessary to fulfill its obligations under the Management Agreement.
RELATIONSHIP WITH THE INVESTMENT ADVISER
The Boards also reviewed and considered the proposed relationship between the
Investment Adviser and the Morgan Stanley Fund Complex, including the
organizational structure of the Investment Adviser, the policies and procedures
formulated and adopted by the Investment Adviser for managing the operations and
the Board's confidence in the competence and integrity of the senior managers
and key personnel of the Investment Adviser. The Board concluded that it is
beneficial for the Fund to approve the relationship with the Investment Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Boards considered the controls and procedures adopted and implemented by the
investment advisers and monitored by the Fund's Chief Compliance Officer and
concluded that the conduct of business by each investment 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
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 future shareholders to
approve the Management Agreement, which will remain in effect for two years and
thereafter must be approved annually by the Board of the Fund if they are to
continue in effect.
9
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Common Stocks (98.6%)
Australia # (3.3%)
Airlines
1,741 Qantas Airways Ltd. .................... $ 7,386
----------
Apparel/Footwear
2,108 Pacific Brands Ltd. .................... 5,376
----------
Construction Materials
1,245 Boral Ltd. ............................. 6,762
----------
Containers/Packaging
1,214 Amcor Ltd. ............................. 7,514
----------
Financial Conglomerates
1,130 Suncorp-Metway Ltd. .................... 15,710
----------
Food: Major Diversified
6,003 Goodman Fielder Ltd. ................... 9,175
----------
Hospital/Nursing Management
1,466 Symbion Health Ltd. .................... 5,201
----------
Major Banks
414 Commonwealth Bank of Australia.......... 18,655
----------
Medical/Nursing Services
381 Sonic Healthcare Ltd. .................. 5,627
----------
Miscellaneous Manufacturing
6,632 Futuris Corp., Ltd. .................... 13,693
----------
Oil Refining/Marketing
397 Caltex Australia Ltd. .................. 5,617
----------
Pulp & Paper
3,066 PaperlinX Ltd. ......................... 6,017
----------
Real Estate Investment Trusts
1,135 Westfield Group (Stapled Securities)**.. 19,177
9,943 CFS Retail Property Trust............... 18,937
----------
38,114
----------
Total Australia......................... 144,847
----------
Austria # (1.6%)
Construction Materials
411 RHI AG*................................. 14,818
----------
Major Telecommunications
913 Telekom Austria AG (Bearer Shares)...... 25,478
----------
Oil Refining/Marketing
396 OMV AG.................................. 28,466
----------
Total Austria........................... 68,762
----------
Belgium # (2.0%)
Apparel/Footwear Retail
189 Delhaize Group.......................... 14,470
----------
Financial Conglomerates
1,337 Fortis.................................. 29,893
----------
Major Telecommunications
531 Belgacom S.A. .......................... 25,958
----------
Other Metals/Minerals
81 Umicore................................. 18,460
----------
Total Belgium........................... 88,781
----------
Bermuda # (0.5%)
Apparel/Footwear Retail
12,000 Giordano International Ltd. ............ 4,848
----------
Construction Materials
2,000 Cheung Kong Infrastructure Holdings
Ltd. .................................. 7,626
----------
Miscellaneous Manufacturing
17,500 Johnson Electric Holdings Ltd. ......... 8,516
----------
Total Bermuda........................... 20,990
----------
Denmark # (1.0%)
Marine Shipping
1 A P Moller -- Maersk A/S (B Shares)..... 9,894
----------
</Table>
See Notes to Financial Statements
10
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Pharmaceuticals: Major
530 Novo Nordisk A/S (B Shares)............. $ 33,295
----------
Total Denmark........................... 43,189
----------
Finland # (1.1%)
Pulp & Paper
1,151 Stora Enso Oyj (Registered Shares)...... 15,992
----------
Telecommunication Equipment
857 Nokia Oyj............................... 31,518
----------
Total Finland........................... 47,510
----------
France # (9.5%)
Automotive Aftermarket
133 Compagnie Generale des Etablissements
Michelin (B Shares).................... 12,767
----------
Building Products
146 Compagnie de Saint-Gobain............... 11,431
----------
Department Stores
93 PPR..................................... 13,145
----------
Electric Utilities
572 Suez S.A. .............................. 34,978
----------
Electrical Products
116 Schneider Electric S.A. ................ 13,453
----------
Engineering & Construction
205 Vinci S.A. ............................. 13,981
----------
Household/Personal Care
138 L'Oreal S.A. ........................... 17,066
----------
Integrated Oil
354 Total S.A. ............................. 25,678
----------
Major Banks
367 BNP Paribas............................. 36,284
236 Societe Generale........................ 29,281
----------
65,565
----------
Major Telecommunications
755 France Telecom S.A. .................... 26,666
----------
Media Conglomerates
431 Vivendi................................. 17,344
----------
Motor Vehicles
215 PSA Peugeot Citroen..................... 15,873
116 Renault S.A. ........................... 13,223
29,096
----------
Multi-Line Insurance
942 Axa..................................... 32,291
----------
Pharmaceuticals: Major
357 Sanofi-Aventis.......................... 29,074
----------
Publishing: Books/Magazines
218 Lagardere S.C.A. ....................... 16,000
----------
Regional Banks
1,059 Credit Agricole S.A. ................... 32,615
----------
Telecommunication Equipment
3,117 Alcatel-Lucent.......................... 19,666
----------
Total France............................ 410,816
----------
Germany # (8.2%)
Air Freight/Couriers
532 Deutsche Post AG (Registered Shares).... 17,288
----------
Airlines
537 Deutsche Lufthansa AG (Registered
Shares)................................ 12,877
----------
Auto Parts: O.E.M.
131 Continental AG.......................... 13,603
----------
Chemicals: Major Diversified
148 BASF SE................................. 19,378
----------
Electric Utilities
183 E.ON AG................................. 33,644
267 RWE AG.................................. 32,744
----------
66,388
----------
</Table>
See Notes to Financial Statements
11
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Engineering & Construction
195 Bilfinger Berger AG..................... $ 12,245
----------
Industrial Conglomerates
114 Siemens AG (Registered Shares).......... 14,771
319 ThyssenKrupp AG......................... 15,669
----------
30,440
----------
Major Banks
316 Deutsche Bank AG (Registered Shares).... 35,713
----------
Major Telecommunications
1,270 Deutsche Telekom AG (Registered
Shares)................................ 25,948
----------
Medical/Nursing Services
612 Fresenius Medical Care AG & Co. KGaA.... 31,420
----------
Motor Vehicles
178 Daimler AG (Registered Shares).......... 13,925
75 Volkswagen AG........................... 16,982
----------
30,907
----------
Multi-Line Insurance
183 Allianz SE (Registered Shares).......... 32,957
----------
Packaged Software
551 SAP AG.................................. 26,543
----------
Total Germany........................... 355,707
----------
Hong Kong # (3.9%)
Electric Utilities
1,000 CLP Holdings Ltd. ...................... 7,976
----------
Industrial Conglomerates
1,000 Hutchison Whampoa Ltd. ................. 9,818
2,000 Swire Pacific Ltd. (Class A)............ 27,299
----------
37,117
----------
Investment Banks/Brokers
500 Hong Kong Exchanges & Clearing Ltd. .... 10,373
----------
Major Banks
8,500 BOC Hong Kong (Holdings) Ltd. .......... 21,369
1,200 Hang Seng Bank Ltd. .................... 24,046
----------
45,415
----------
Real Estate Development
1,000 Cheung Kong (Holdings) Ltd. ............ 16,219
3,000 Henderson Land Development Co., Ltd. ... 25,830
1,000 Sun Hung Kai Properties Ltd. ........... 20,024
----------
62,073
----------
Tools/Hardware
5,500 Techtronic Industries Co., Ltd. ........ 5,781
----------
Total Hong Kong......................... 168,735
----------
Ireland # (1.1%)
Beverages: Alcoholic
2,160 C&C Group PLC........................... 14,423
----------
Food: Major Diversified
2,786 Greencore Group PLC..................... 16,944
----------
Food: Specialty/Candy
637 Kerry Group PLC (A Shares).............. 17,108
----------
Total Ireland........................... 48,475
----------
Italy # (4.2%)
Electric Utilities
2,951 Enel SpA................................ 32,917
----------
Integrated Oil
748 Eni SpA................................. 24,107
----------
Major Banks
5,388 Intesa Sanpaolo......................... 38,490
4,784 UniCredit SpA........................... 35,120
----------
73,610
----------
Motor Vehicles
587 Fiat SpA................................ 13,731
----------
</Table>
See Notes to Financial Statements
12
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Regional Banks
1,567 Unione di Banche Italiane Scpa.......... $ 39,230
----------
Total Italy............................. 183,595
----------
Japan # (21.8%)
Advertising/Marketing Services
170 Hakuhodo Dy Holdings Inc. .............. 8,831
----------
Agricultural Commodities/Milling
2,000 Nichirei Corp. ......................... 9,281
----------
Apparel/Footwear
1,000 Onward Holdings Co., Ltd. .............. 10,141
----------
Auto Parts: O.E.M.
300 Toyota Industries Corp. ................ 11,697
----------
Building Products
700 JS Group Corp. ......................... 12,182
2,000 Nippon Sheet Glass Co., Ltd. ........... 9,143
2,000 Sanwa Holdings Corp. ................... 9,612
----------
30,937
----------
Chemicals: Major Diversified
1,500 Mitsubishi Chemical Holdings Corp. ..... 10,903
----------
Chemicals: Specialty
2,000 Dainippon Ink & Chemicals, Inc. ........ 8,929
1,000 Mitsui Chemicals, Inc. ................. 6,697
3,000 Showa Denko K.K......................... 10,273
----------
25,899
----------
Computer Processing Hardware
2,000 Fujitsu Ltd. ........................... 12,950
----------
Construction Materials
3,000 Taiheiyo Cement Corp. .................. 6,440
----------
Department Stores
2,000 H20 Retailing Corp. .................... 14,327
----------
Electric Utilities
800 Kansai Electric Power Co., Inc. (The)... 20,018
800 Tokyo Electric Power Co., Inc. (The).... 20,777
----------
40,795
----------
Electrical Products
3,000 Fuji Electric Holdings Co., Ltd. ....... 10,062
----------
Electronic Components
1,000 Alps Electric Co., Ltd. ................ 11,533
----------
Electronic Distributors
600 Canon Marketing Japan Inc. ............. 9,878
----------
Electronic Equipment/Instruments
200 Canon Inc. ............................. 8,632
100 Kyocera Corp. .......................... 7,989
1,000 Matsushita Electric Industrial Co.,
Ltd. .................................. 21,373
6,000 Oki Electric Industry Co., Ltd.*........ 9,834
1,000 Ricoh Co., Ltd. ........................ 15,617
----------
63,445
----------
Electronics/Appliance Stores
1,100 Edion Corp. ............................ 12,456
----------
Electronics/Appliances
200 FUJIFILM Holdings Corp. ................ 7,841
1,000 Pioneer Corp. .......................... 7,252
300 Sony Corp. ............................. 14,344
----------
29,437
----------
Engineering & Construction
3,000 Kajima Corp. ........................... 9,597
2,000 Shimizu Corp. .......................... 10,249
4,000 Taisei Corp. ........................... 11,750
----------
31,596
----------
Finance/Rental/Leasing
60 ORIX Corp. ............................. 10,210
----------
</Table>
See Notes to Financial Statements
13
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Food Retail
500 Aeon Co., Ltd. ......................... $ 6,064
500 Circle K Sunkus Co., Ltd. .............. 7,236
200 Lawson, Inc. ........................... 7,130
300 Matsumotokiyoshi Holdings Co., Ltd.*.... 7,261
300 Seven & I Holdings Co., Ltd. ........... 7,425
----------
35,116
----------
Food: Meat/Fish/Dairy
1,000 Meiji Dairies Corp. .................... 5,376
----------
Home Building
2,000 Sekisui Chemical Co., Ltd. ............. 13,088
----------
Industrial Conglomerates
2,000 Hitachi, Ltd. .......................... 14,999
----------
Industrial Machinery
2,000 Mitsubishi Heavy Industries, Ltd. ...... 8,201
----------
Industrial Specialties
1,000 Asahi Glass Co., Ltd. .................. 12,467
----------
Information Technology Services
600 TIS Inc. ............................... 10,370
----------
Integrated Oil
100 Idemitsu Kosan Co, Ltd. ................ 8,577
----------
Investment Banks/Brokers
1,000 Daiwa Securities Group Inc. ............ 8,844
800 Nomura Holdings, Inc. .................. 11,730
----------
20,574
----------
Major Banks
1,300 Mitsubishi UFJ Financial Group, Inc. ... 12,876
2,000 Chuo Mitsui Trust Holdings, Inc. ....... 13,760
1 Sumitomo Mitsui Financial Group, Inc. .. 7,902
2,000 Sumitomo Trust & Banking Co., Ltd.
(The).................................. 12,709
----------
47,247
----------
Major Telecommunications
5 Nippon Telegraph & Telephone Corp. ..... 23,928
----------
Marine Shipping
2,000 Nippon Yusen Kabushiki Kaisha........... 16,337
----------
Medical Specialties
600 Suzuken Co., Ltd. ...................... 21,850
----------
Metal Fabrications
3,000 Mitsui Mining & Smelting Co., Ltd. ..... 11,278
----------
Metals
5,000 Nippon Light Metal Co., Ltd. ........... 8,668
----------
Motor Vehicles
400 Honda Motor Co., Ltd. .................. 12,620
1,200 Nissan Motor Co., Ltd. ................. 11,517
200 Toyota Motor Corp. ..................... 10,883
----------
35,020
----------
Office Equipment/Supplies
1,100 Kokuyo Co., Ltd. ....................... 9,011
----------
Office/Plant Automation
2,000 Dainippon Screen Manufacturing Co.,
Ltd. .................................. 10,064
----------
Oil Refining/Marketing
1,000 Nippon Oil Corp. ....................... 6,770
----------
Packaged Software
600 Fuji Soft Inc. ......................... 8,334
----------
Pharmaceuticals: Major
300 Takeda Pharmaceutical Co., Ltd. ........ 18,219
----------
Pharmaceuticals: Other
400 Eisai Co., Ltd. ........................ 16,458
----------
</Table>
See Notes to Financial Statements
14
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Property -- Casualty Insurers
300 Millea Holdings, Inc. .................. $ 11,454
1,000 Mitsui Sumitomo Insurance Co., Ltd. .... 10,319
----------
21,773
----------
Pulp & Paper
3 Nippon Paper Group, Inc. ............... 7,017
2,000 Oji Paper Co., Ltd. .................... 8,528
----------
15,545
----------
Real Estate Development
1,000 Mitsubishi Estate Co., Ltd. ............ 26,595
1,000 Mitsui Fudosan Co., Ltd. ............... 22,921
1,000 Sumitomo Realty & Development Co.,
Ltd. .................................. 24,663
----------
74,179
----------
Semiconductors
2,000 Sanken Electric Co., Ltd................ 10,187
----------
Textiles
2,000 Teijin Ltd. ............................ 7,892
5,000 Toyobo Co., Ltd. ....................... 10,832
----------
18,724
----------
Trucks/Construction/Farm Machinery
300 Komatsu Ltd. ........................... 7,242
----------
Wholesale Distributors
500 Autobacs Seven Co., Ltd. ............... 10,472
500 Hitachi High-Technologies Corp. ........ 9,418
1,000 Itochu Corp. ........................... 9,173
1,000 Marubeni Corp. ......................... 6,865
400 Mitsubishi Corp. ....................... 10,484
1,000 Mitsui & Co., Ltd. ..................... 20,583
600 Sumitomo Corp. ......................... 8,292
----------
75,287
----------
Total Japan............................. 945,707
----------
Luxembourg # (0.4%)
Steel
265 ArcelorMittal........................... 17,615
----------
Netherlands # (3.3%)
Aerospace & Defense
502 European Aeronautic Defence & Space
Co. ................................... 12,717
----------
Air Freight/Couriers
377 TNT NV.................................. 13,965
----------
Financial Conglomerates
939 ING Groep NV (Share Certificates)....... 30,570
----------
Food: Major Diversified
600 Unilever NV (Share Certificates)........ 19,523
----------
Industrial Conglomerates
418 Koninklijke (Royal) Philips Electronics
NV..................................... 16,398
----------
Personnel Services
664 Vedior NV -- CVA (Share Certificates)... 16,290
----------
Semiconductors
1,915 STMicroelectronics NV................... 23,929
----------
Wholesale Distributors
1,401 Corporate Express....................... 8,182
----------
Total Netherlands....................... 141,574
----------
New Zealand # (0.1%)
Electronics/Appliances
2,154 Fisher & Paykel Appliances Holdings
Ltd. .................................. 4,767
----------
Norway # (1.0%)
Agricultural Commodities/Milling
15,889 Marine Harvest*......................... 8,523
----------
Integrated Oil
867 StatoilHydro ASA........................ 22,668
----------
</Table>
See Notes to Financial Statements
15
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Pulp & Paper
2,008 Norske Skogindustrier ASA............... $ 11,609
----------
Total Norway............................ 42,800
----------
Portugal # (0.5%)
Major Telecommunications
1,743 Portugal Telecom, SGPS, S.A. (Registered
Shares)................................ 22,471
----------
Singapore # (1.7%)
Airlines
1,000 Singapore Airlines Ltd. ................ 11,013
----------
Electronic Components
1,000 Venture Corp., Ltd. .................... 7,393
----------
Industrial Conglomerates
1,000 Keppel Corp., Ltd. ..................... 8,176
----------
Major Telecommunications
6,000 Singapore Telecommunications Ltd. ...... 15,589
----------
Marine Shipping
3,000 Neptune Orient Lines Ltd. .............. 6,905
----------
Oil Refining/Marketing
2,000 Singapore Petroleum Co., Ltd. .......... 8,911
----------
Semiconductors
6,000 Chartered Semiconductor Manufacturing
Ltd.*.................................. 3,276
----------
Specialty Stores
1,000 Jardine Cycle & Carriage Ltd. .......... 13,908
----------
Total Singapore......................... 75,171
----------
Spain # (2.7%)
Engineering & Construction
289 ACS, Actividades de Construccion y
Servicios, S.A. ....................... 15,170
----------
Food: Specialty/Candy
903 Ebro Puleva, S.A. ...................... 16,198
----------
Integrated Oil
761 Repsol YPF, S.A. ....................... 24,269
----------
Major Banks
1,744 Banco Bilbao Vizcaya Argentaria, S.A. .. 36,785
----------
Major Telecommunications
902 Telefonica S.A. ........................ 26,412
----------
Total Spain............................. 118,834
----------
Sweden # (1.8%)
Food Retail
531 Axfood AB............................... 20,155
----------
Miscellaneous Manufacturing
641 Trelleborg AB (B Shares)................ 11,645
----------
Regional Banks
2,459 Nordea Bank AB.......................... 33,288
----------
Trucks/Construction/Farm Machinery
846 Volvo AB (B Shares)..................... 11,302
----------
Total Sweden............................ 76,390
----------
Switzerland # (5.2%)
Auto Parts: O.E.M.
32 Rieter Holding AG (Registered Shares)... 11,609
----------
Chemicals: Specialty
389 Ciba Specialty Chemicals AG (Registered
Shares)................................ 15,745
1,590 Clariant AG (Registered Shares)*........ 12,668
----------
28,413
----------
Financial Conglomerates
736 UBS AG (Registered Shares).............. 30,458
----------
Food: Major Diversified
42 Nestle S.A. (Registered Shares)......... 18,771
----------
</Table>
See Notes to Financial Statements
16
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Industrial Conglomerates
583 ABB Ltd. (Registered Shares)............ $ 14,587
----------
Major Banks
614 Credit Suisse Group (Registered
Shares)................................ 34,798
----------
Other Consumer Specialties
295 Swatch Group AG (Registered Shares)..... 15,463
----------
Personnel Services
248 Adecco S.A. (Registered Shares)......... 12,994
----------
Pharmaceuticals: Major
580 Novartis AG (Registered Shares)......... 29,351
174 Roche Holding AG........................ 31,525
----------
60,876
----------
Total Switzerland....................... 227,969
----------
United Kingdom # (22.7%)
Aerospace & Defense
983 BAE Systems PLC......................... 9,158
----------
Agricultural Commodities/Milling
119 Lighthouse Caledonia ASA*............... 91
----------
Airlines
1,146 British Airways PLC*.................... 7,608
----------
Chemicals: Major Diversified
998 Johnson Matthey PLC..................... 37,132
----------
Department Stores
818 Marks & Spencer Group PLC............... 7,218
----------
Electric Utilities
2,189 British Energy Group PLC................ 22,563
2,721 International Power PLC................. 21,589
----------
44,152
----------
Electrical Products
1,084 Premier Farnell PLC..................... 3,043
----------
Electronic Equipment/Instruments
1,487 Invensys PLC*........................... 6,755
----------
Electronics/Appliance Stores
3,655 DSG International PLC................... 5,540
----------
Food Retail
3,399 Tesco PLC............................... 28,359
----------
Food: Specialty/Candy
3,688 Tate & Lyle PLC......................... 35,885
----------
Home Building
689 Barratt Developments PLC................ 5,848
478 Bellway PLC............................. 7,588
500 Persimmon PLC........................... 7,718
1,811 Taylor Wimpey PLC....................... 6,512
----------
27,666
----------
Home Improvement Chains
2,711 Kingfisher PLC.......................... 7,929
310 Travis Perkins PLC...................... 7,203
----------
15,132
----------
Hotels/Resorts/Cruiselines
217 Carnival PLC............................ 9,428
----------
Industrial Machinery
4,926 FKI PLC................................. 4,977
----------
Information Technology Services
1,245 LogicaCMG PLC........................... 2,691
----------
Integrated Oil
3,553 BG Group PLC............................ 78,189
5,156 BP PLC.................................. 54,693
1,515 Royal Dutch Shell PLC (B Shares)........ 52,413
----------
185,295
----------
Life/Health Insurance
2,215 Prudential PLC.......................... 28,612
----------
</Table>
See Notes to Financial Statements
17
Morgan Stanley Diversified International Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------
Major Banks
2,593 Barclays PLC............................ $ 24,446
1,794 HBOS PLC................................ 24,776
1,818 HSBC Holdings PLC (Registered Shares)... 27,258
3,062 Royal Bank of Scotland Group PLC........ 23,392
----------
99,872
----------
Major Telecommunications
6,591 BT Group PLC............................ 34,241
----------
Miscellaneous Commercial Services
2,331 G4S PLC................................. 10,233
----------
Other Metals/Minerals
502 Anglo American PLC...................... 27,452
955 BHP Billiton PLC........................ 28,306
392 Rio Tinto PLC........................... 39,124
----------
94,882
----------
Pharmaceuticals: Major
788 AstraZeneca PLC......................... 32,870
1,538 GlaxoSmithKline PLC..................... 36,301
----------
69,171
----------
Publishing: Books/Magazines
686 Pearson PLC............................. 9,491
----------
Pulp & Paper
3,795 Mondi PLC............................... 29,311
----------
Real Estate Investment Trusts
1,572 British Land Company PLC................ 31,559
1,499 Hammerson PLC........................... 34,062
----------
65,621
----------
Tobacco
935 British American Tobacco PLC............ 33,485
712 Imperial Tobacco Group PLC.............. 34,688
----------
68,173
----------
Wholesale Distributors
547 Wolseley PLC............................ 7,544
----------
Wireless Telecommunications
11,848 Vodafone Group PLC...................... 41,581
----------
Total United Kingdom.................... 988,862
----------
United States (0.4%)
Financial Conglomerates
602 Citigroup, Inc. ........................ 16,988
----------
Total Common Stocks
(Cost $4,863,841) 4,260,555
----------
United States (0.6%)
Investment Trusts/Mutual Funds
350 iShares MSCI EAFE Index
(Cost $29,197).......................... 25,316
----------
</Table>
<Table>
Total Investments
(Cost $4,893,038) (a)...................... 98.6% $4,285,871
Other Assets in Excess of Liabilities...... 1.4 62,973
----- ----------
Net Assets................................. 100.0% $4,348,844
===== ==========
</Table>
<Table>
<Caption>
- --------------------------------------------------------------------
* Non-income producing security.
** Comprised of securities in separate entities that are traded as
a single stapled security.
# Securities with total market value equal to $4,243,567 have
been valued at their fair value as determined in good faith
under procedures established by and under the general
supervision of the Fund's Trustees.
(a) The aggregate cost for federal income tax purposes approximates
the aggregate cost for book purposes. The aggregate gross
unrealized appreciation is $83,083 and the aggregate gross
unrealized depreciation is $690,250, resulting in net
unrealized depreciation of $607,167.
</Table>
See Notes to Financial Statements
18
Morgan Stanley Diversified International Equity Fund
SUMMARY OF INVESTMENTS - JANUARY 31, 2008 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
TOTAL
INDUSTRY VALUE INVESTMENTS
- ----------------------------------------------------
Major Banks............... $ 457,660 10.7%
Integrated Oil............ 290,594 6.8
Electric Utilities........ 227,206 5.3
Major Telecommunications.. 226,691 5.3
Pharmaceuticals: Major.... 210,635 4.9
Real Estate Development... 136,252 3.2
Financial Conglomerates... 123,619 2.9
Industrial Conglomerates.. 121,717 2.8
Other Metals/Minerals..... 113,342 2.7
Motor Vehicles............ 108,754 2.5
Regional Banks............ 105,133 2.5
Real Estate Investment
Trusts.................. 103,735 2.4
Wholesale Distributors.... 91,013 2.1
Food Retail............... 83,630 2.0
Pulp & Paper.............. 78,474 1.8
Engineering &
Construction............ 72,992 1.7
Electronic Equipment/
Instruments............. 70,200 1.6
Food: Specialty/Candy..... 69,191 1.6
Tobacco................... 68,173 1.6
Chemicals: Major
Diversified............. 67,413 1.6
Multi-Line Insurance...... 65,248 1.5
Food: Major Diversified... 64,413 1.5
Chemicals: Specialty...... 54,312 1.3
Telecommunication
Equipment............... 51,184 1.2
Oil Refining/Marketing.... 49,764 1.2
Building Products......... 42,368 1.0
Wireless
Telecommunications...... 41,581 1.0
Home Building............. 40,754 1.0
Airlines.................. 38,884 0.9
Semiconductors............ 37,392 0.9
Medical/Nursing Services.. 37,047 0.9
Auto Parts: O.E.M. ....... 36,909 0.9
Construction Materials.... 35,646 0.8
Packaged Software......... 34,877 0.8
Department Stores......... 34,690 0.8
Electronics/Appliances.... 34,204 0.8
Miscellaneous
Manufacturing........... 33,854 0.8
Marine Shipping........... 33,136 0.8
Air Freight/Couriers...... 31,253 0.7
Investment Banks/Brokers.. 30,947 0.7
Personnel Services........ 29,284 0.7
Life/Health Insurance..... 28,612 0.7
Electrical Products....... 26,558 0.6
Publishing:
Books/Magazines......... 25,491 0.6
Investment Trusts/Mutual
Funds................... 25,316 0.6
Aerospace & Defense....... 21,875 0.5
Medical Specialties....... 21,850 0.5
Property -- Casualty
Insurers................ 21,773 0.5
Apparel/Footwear Retail... 19,318 0.5
Electronic Components..... 18,926 0.4
Textiles.................. 18,724 0.4
Trucks/Construction/Farm
Machinery............... 18,544 0.4
Electronics/Appliance
Stores.................. 17,996 0.4
Agricultural
Commodities/Milling..... 17,895 0.4
Steel..................... 17,615 0.4
Media Conglomerates....... 17,344 0.4
Household/Personal Care... 17,066 0.4
Pharmaceuticals: Other.... 16,458 0.4
Apparel/Footwear.......... 15,517 0.4
Other Consumer
Specialties............. 15,463 0.4
Home Improvement Chains... 15,132 0.4
Beverages: Alcoholic...... 14,423 0.3
Specialty Stores.......... 13,908 0.3
Industrial Machinery...... 13,178 0.3
Information Technology
Services................ 13,061 0.3
Computer Processing
Hardware................ 12,950 0.3
Automotive Aftermarket.... 12,767 0.3
Industrial Specialties.... 12,467 0.3
Metal Fabrications........ 11,278 0.3
Miscellaneous Commercial
Services................ 10,233 0.2
Finance/Rental/Leasing.... 10,210 0.2
Office/Plant Automation... 10,064 0.2
Electronic Distributors... 9,878 0.2
Hotels/Resorts/Cruise-
lines................... 9,428 0.2
Office
Equipment/Supplies...... 9,011 0.2
Advertising/Marketing
Services................ 8,831 0.2
Metals.................... 8,668 0.2
Containers/Packaging...... 7,514 0.2
Tools/Hardware............ 5,781 0.1
Food: Meat/Fish/Dairy..... 5,376 0.1
Hospital/Nursing
Management.............. 5,201 0.1
---------- -----
$4,285,871 100.0%
========== =====
</Table>
See Notes to Financial Statements
19
Morgan Stanley Diversified International Equity Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2008 (unaudited)
<Table>
Assets:
Investments in securities, at value (cost $4,893,038).................. $4,285,871
Receivable for:
Dividends........................................................... 3,531
Foreign withholding taxes reclaimed................................. 610
Dividends from affiliate............................................ 7
Prepaid expenses and other assets...................................... 8,665
Deferred offering costs................................................ 59,133
Receivable from Distributor............................................ 321
Receivable from Investment Adviser..................................... 80,527
----------
Total Assets........................................................ 4,438,665
----------
Liabilities:
Transfer agent fee payable............................................. 2,197
Accrued expenses and other payables.................................... 19,481
Payable to bank........................................................ 11,620
Offering costs......................................................... 56,523
----------
Total Liabilities................................................... 89,821
----------
Net Assets.......................................................... $4,348,844
==========
Composition of Net Assets:
Paid-in-capital........................................................ $5,001,678
Net unrealized depreciation............................................ (607,147)
Net investment loss.................................................... (14,665)
Net realized loss...................................................... (31,022)
----------
Net Assets.......................................................... $4,348,844
==========
Class A Shares:
Net Assets............................................................. $88,472
Shares Outstanding (unlimited authorized, $.01 par value).............. 10,177
Net Asset Value Per Share........................................... $8.69
=====
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)..................... $9.17
=====
Class B Shares:
Net Assets............................................................. $86,897
Shares Outstanding (unlimited authorized, $.01 par value).............. 10,000
Net Asset Value Per Share........................................... $8.69
=====
Class C Shares:
Net Assets............................................................. $86,897
Shares Outstanding (unlimited authorized, $.01 par value).............. 10,000
Net Asset Value Per Share........................................... $8.69
=====
Class D Shares:
Net Assets............................................................. $4,086,578
Shares Outstanding (unlimited authorized, $.01 par value).............. 470,000
Net Asset Value Per Share........................................... $8.69
=====
</Table>
See Notes to Financial Statements
20
Morgan Stanley Diversified International Equity Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the period October 9, 2007* through January 31, 2008 (unaudited)
<Table>
Net Investment loss:
Income
Dividends (net of $1,918 foreign withholding tax)....................... $ 19,040
Dividends from affiliate................................................ 2,209
Interest................................................................ 11
---------
Total Income......................................................... 21,260
---------
Expenses
Professional fees....................................................... 73,151
Offering costs.......................................................... 26,952
Investment advisory fee................................................. 8,128
Transfer agent fees and expenses........................................ 2,215
Administration fee...................................................... 1,182
Shareholder reports and notices......................................... 966
Custodian fees.......................................................... 963
Registration fees....................................................... 357
Trustees' fees and expenses............................................. 207
Distribution fee (Class A shares)....................................... 20
Distribution fee (Class B shares)....................................... 81
Distribution fee (Class C shares)....................................... 75
Other................................................................... 4,571
---------
Total Expenses....................................................... 118,868
Less: amounts waived/reimbursed......................................... (82,943)
---------
Net Expenses......................................................... 35,925
---------
Net Investment Loss.................................................. (14,665)
---------
Net Realized and Unrealized Gain (Loss):
Net Realized Loss on:
Investments............................................................. (2,151)
Foreign exchange transactions........................................... (28,871)
---------
Net Realized Loss.................................................... (31,022)
---------
Net Unrealized Appreciation/Depreciation on:
Investments............................................................. (607,167)
Net translation of other assets and liabilities denominated in foreign
currencies............................................................ 20
---------
Net Unrealized Appreciation/Depreciation............................. (607,147)
---------
Net Loss............................................................. (638,169)
---------
Net Decrease............................................................ $(652,834)
=========
</Table>
- ----------
* Commencement of operations
See Notes to Financial Statements
21
Morgan Stanley Diversified International Equity Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 9, 2007*
THROUGH
JANUARY 31, 2008
----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment loss............................................... $ (14,665)
Net realized loss................................................. (31,022)
Net unrealized appreciation/depreciation.......................... (607,147)
----------
Net Decrease................................................... (652,834)
Net increase from transactions in shares of beneficial interest... 4,901,678
----------
Net Increase................................................... 4,248,844
Net Assets:
Beginning of period............................................... 100,000
----------
End of Period
(Including a net investment loss of $14,665)...................... $4,348,844
==========
</Table>
- ----------
* Commencement of operations
See Notes to Financial Statements
22
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED)
1. Organization And Accounting Policies
Morgan Stanley Diversified International Equity Fund (the "Fund") was organized
as a separate diversified fund of Morgan Stanley Series Fund, a Massachusetts
business trust, which was registered under the Investment Company Act of 1940 as
amended (the "Act"), as an open-end management investment company and commenced
operations on October 9, 2007. The Fund's investment objective is to seek
capital appreciation.
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 Fund will assess a 2% redemption fee on Class A shares, Class B shares,
Class C shares, and Class D shares, which is paid directly to the Fund, for
shares redeemed or exchanged within thirty days of purchase, subject to certain
exceptions. The redemption fee is designed to protect the Fund and its remaining
shareholders from the effects of short-term trading.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (2) an equity portfolio security listed
or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or
other exchange is valued at its latest sale price prior to the time when assets
are valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (3) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (4) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (5) futures are valued at the latest price
published by the commodities exchange on which they trade; (6) when market
quotations are not readily available including circumstances under which Morgan
Stanley Investment Advisors Inc. (the "Investment Adviser"), determines that the
latest sale price, the bid price or the mean between the last reported bid and
asked price do not reflect a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Trustees.
Occasionally, developments affecting the closing prices of securities and other
assets may occur between the times at which valuations of such securities are
determined (that is, close of the foreign market on which the securities trade)
23
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
and the close of business on the NYSE. If developments occur during such periods
that are expected to materially affect the value of such securities, such
valuations may be adjusted to reflect the estimated fair value of such
securities as of the close of the NYSE, as determined in good faith by the
Fund's Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trustees of the Fund; (7) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; (8) investments in open-end mutual funds, including the Morgan Stanley
Institutional Liquidity Funds, are valued at the net asset value as of the close
of each business day; and (9) 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
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after 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. Foreign Currency Translation and Forward Foreign Currency Contracts -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
E. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
24
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
taxable income to its shareholders. Therefore, no federal income tax provision
is required. The Fund files tax returns with the U.S. Internal Revenue Service,
New York State and New York City. The Fund adopted the provisions of the
Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48")
Accounting for Uncertainty in Income Taxes on October 9, 2007. FIN 48 sets forth
a minimum threshold for financial statement recognition of the benefit of a tax
position taken or expected to be taken in a tax return. The implementation of
FIN 48 did not result in any unrecognized tax benefits in the accompanying
financial statements. If applicable, the Fund recognizes interest accrued
related to unrecognized tax benefits in interest expense and penalties in other
expenses in the Statement of Operations. For the period ended January 31, 2008,
the Fund remains subject to examination by taxing authorities.
F. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. 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.
H. Offering Costs -- The Investment Adviser incurred offering costs on behalf of
the Fund in an amount of approximately $86,000 which will be reimbursed by the
Fund for the full amount thereof. Such expenses were deferred and are being
amortized on the straight-line method over a period of approximately one year or
less from the commencement of operations.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
annual rates to the net assets determined at the close of each business day:
0.55% to the portion of the daily net assets not exceeding $500 million; 0.50%
to the portion of the daily net assets exceeding $500 million but not exceeding
$1.5 billion; and 0.45% to the portion of the daily net assets exceeding $1.5
billion.
Effective January 9, 2008, the Investment Adviser has voluntarily agreed to cap
the Fund's operating expenses (except for brokerage and 12b-1 fees) by assuming
the Fund's "other expenses" and/or waiving the Fund's advisory fees, and Morgan
Stanley Services Company, Inc., the Fund's Administrator, has agreed to waive
the Fund's administrative fees, to the extent such operating expenses exceed
1.30% of the average daily net assets of the Fund on annualized basis. This
cap/waiver may be terminated at any time.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, accrued daily and payable monthly, by applying the
annual rate of 0.08% to the Fund's daily net assets.
25
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
Under an agreement between the Administrator and State Street Bank and Trust
Company ("State Street"), State Street provides certain administrative services
to the Fund. For such services, the Administrator pays State Street a portion of
the fee the Administrator receives from 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 "Distribution Plan") pursuant to
Rule 12b-1 under the Act regarding the payment of distribution fees by Class B
and Class C shares and a Shareholder Services Plan (the "Service Plan") pursuant
to Rule 12b-1 under the Act regarding the payment of service fees by Class A,
Class B and Class C shares. The Plans provide that the Fund will pay the
Distributor a fee, which is accrued daily and paid monthly, at the following
annual rates: (i) Class A -- a service fee of up to 0.25% of the average daily
net assets of Class A shares; (ii) Class B -- a combined distribution and
service fee of up to 1.0% of the average daily net assets of Class B shares; and
(iii) Class C -- a combined distribution and service fee of up to 1.0% of the
average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plans continue in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution and/or service fees from
the Fund pursuant to the Plans 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 Plans and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason either
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 there were no
excess amounts at January 31, 2008.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Service Plan in the case of Class A and either Plan in the case of Class C
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 period ended January 31, 2008, the distribution fee was accrued
for Class A shares and Class C shares at the annual rate of 0.07% and 0.26%,
respectively.
The Distributor has informed the Fund that for the period ended January 31,
2008, it did not received any contingent deferred sales charges from certain
redemptions of the Fund's Class A shares, Class B shares and Class C shares and
no front-end sales charges were received from sales of the Fund's Class A
shares.
26
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
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. Investment advisory fees paid by the Fund are
reduced by an amount equal to the advisory and administrative service fees paid
by Morgan Stanley Institutional Liquidity Money Market
Portfolio -- Institutional Class with respect to assets invested by the Fund in
Morgan Stanley Institutional Liquidity Portfolio -- Institutional Class. For the
period ended January 31, 2008, advisory fees paid were reduced by $53 relating
to the Fund's investment in Morgan Stanley Institutional Liquidity Money Market
Portfolio -- Institutional Class. Income distributions earned by the Fund are
recorded as dividends from affiliate in the Statement of Operations and totaled
$2,209, for the period ended January 31, 2008. During the period ended January
31, 2008, cost of purchases and sales of investments in Morgan Stanley
Institutional Liquidity Money Market Portfolio -- Institutional Class aggregated
$5,012,302 and $5,012,302, respectively.
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ended January 31, 2008 aggregated
$4,973,456, and $78,270, 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.
27
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
5. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE PERIOD
OCTOBER 9, 2007*
THROUGH
JANUARY 31, 2008
--------------------
(unaudited)
SHARES AMOUNT
------- ----------
CLASS A SHARES
Sold.............................................................. 7,677 $ 76,723
------- ----------
CLASS B SHARES
Sold.............................................................. 9,750 94,394
Redeemed.......................................................... (2,250) (19,439)
------- ----------
Net increase -- Class B........................................... 7,500 74,955
------- ----------
CLASS C SHARES
Sold.............................................................. 7,500 75,000
------- ----------
CLASS D SHARES
Sold.............................................................. 467,500 4,675,000
------- ----------
Net increase in Fund.............................................. 490,177 $4,901,678
======= ==========
</Table>
- ----------
* Commencement of operations
6. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward contracts for many purposes, including to
facilitate settlement of foreign currency denominated portfolio transactions or
to manage foreign currency exposure associated with foreign currency denominated
securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At January 31, 2008, the Fund had investments in securities of issuers in Japan
and the United Kingdom, representing 21.8% and 22.7% respectively, of the Fund's
net assets. These investments, as well as other non-U.S. investments, which
involve risks and considerations not present with respect to U.S. securities,
may be affected by economic or political developments in these regions.
28
Morgan Stanley Diversified International Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2008 (UNAUDITED) continued
7. Accounting Pronouncement
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.
29
Morgan Stanley Diversified International Equity Fund
FINANCIAL HIGHLIGHTS (UNAUDITED)
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<Table>
<Caption>
FOR THE PERIOD OCTOBER 9, 2007*
THROUGH JANUARY 31, 2008
----------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
------- ------- ------- -------
Selected Per Share Data:
Net asset value, beginning of period......... $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Loss from investment operations:
Net investment loss....................... (0.03) (0.04) (0.04) (0.03)
Net realized and unrealized loss.......... (1.28) (1.27) (1.27) (1.28)
------ ------ ------ ------
Total loss from investment operations........ (1.31) (1.31) (1.31) (1.31)
------ ------ ------ ------
Net asset value, end of period............... $8.69 $8.69 $8.69 $8.69
===== ===== ===== =====
Total Return++(1)............................ (13.10)+% (13.10)+% (13.10)+% (13.10)%
Ratios to Average Net Assets(2)(3)(4)(5):
Expenses..................................... 2.49% 2.69% 2.68% 2.42%
Net investment loss.......................... (1.05)% (1.25)% (1.24)% (0.98)%
Supplemental Data:
Net assets, end of period, in thousands...... $88 $87 $87 $4,087
Portfolio turnover rate(1)................... 3% 3% 3% 3%
</Table>
- ----------
<Table>
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge.
++ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) Reflects waivers of certain Fund expenses in connection with the
investments in Morgan Stanley Institutional Liquidity Money Market
Portfolio - Institutional Class during the period. As a result of such
waivers the expenses as a percentage of it net assets had an effect of
less than 0.005%.
(5) 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 loss ratios would have been 8.10% and (6.66)%, respectively
for Class A; 8.30% and (6.86)%, respectively for Class B; 8.29% and
(6.85)%, respectively for Class C; and 8.03% and (6.59)%, respectively for
Class D.
</Table>
See Notes to Financial Statements
30
(This Page Intentionally Left Blank)
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
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.
(c) 2008 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Diversified International
Equity Fund
Semiannual Report
January 31, 2008
ILQSAN
IU08-01639P-Y01/08
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
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 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) Code of Ethics - Not applicable for semiannual reports.
(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.
2
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 Series Fund - Diversified International Equity
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 20, 2008
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
March 20, 2008
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 20, 2008
3