-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SKQ/NO7uB0KTXjC/lFt3Y3dllS7bw3LihJvRS8p38AlS7tylLDt2zzBoCyCAa/Vh OyDBTtvAuhnxJj7OV8RyaQ== 0001047469-03-023230.txt : 20030702 0001047469-03-023230.hdr.sgml : 20030702 20030702131920 ACCESSION NUMBER: 0001047469-03-023230 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030702 EFFECTIVENESS DATE: 20030702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY EUROPEAN GROWTH FUND INC CENTRAL INDEX KEY: 0000860720 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06044 FILM NUMBER: 03770812 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER EUROPEAN GROWTH FUND INC DATE OF NAME CHANGE: 19980622 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN EUROPEAN GROWTH FUND INC DATE OF NAME CHANGE: 19920703 N-CSR 1 a2113435zn-csr.txt N-CSR 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: 811-06044 Morgan Stanley European Growth Fund Inc. (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: October 31, 2003 Date of reporting period: April 30, 2003 Item 1. Report to Stockholders. Morgan Stanley European Growth Fund Inc. LETTER TO THE SHAREHOLDERS / / APRIL 30, 2003 Dear Shareholder: The six-month period ended April 30, 2003, was a mixed one for European equities. After a recovery at the beginning of the period, many equity markets reached new lows as geopolitical developments and weakening macroeconomic trends dominated investors' agendas. On the various domestic fronts, Germany, the European Union's largest economy, faced recession. Other leading economies such as France and Italy slowed significantly. To add to the gloom, there was growing mistrust of CEO compensation levels and concerns about accounting irregularities. Nonetheless, U.S. dollar returns were positive on the back of a recovery in the value of the euro. In this challenging environment, previously beaten down sectors such as telecommunications services and information technology performed much better than defensive ones. Investors rewarded the new-found focus on balance-sheet rebuilding and debt reduction. With improving cash flow generation, these cyclical sectors were expected to benefit from a moderate upturn in demand for their products and services. Performance and Portfolio Strategy For the six-month period ended April 30, 2003, Morgan Stanley European Growth Fund's Class A, B, C and D shares returned 0.61 percent, 0.36 percent, 0.27 percent and 0.85 percent, respectively. During the same period, the Morgan Stanley Capital International (MSCI) Europe Index(1) returned 4.17 percent, the MSCI World Index(2) returned 3.62 percent and the Lipper European Region Fund Index(3) returned 3.17 percent. THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE TOTAL RETURN FIGURES GIVEN ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES. IF SALES CHARGES WERE INCLUDED, PERFORMANCE WOULD BE LOWER. Stock selection in the industrial, consumer staple, consumer discretionary, health-care and financial sectors was the primary reason for the Fund's underperformance. The Fund benefited from overweighted positions - ---------------- (1) The Morgan Stanley Capital International (MSCI) Europe Index measures the performance of a diverse range of global stock markets within Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, 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 does not include any expenses, fees or charges. The Index is unmanaged and one cannot invest directly in an index. (2) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. 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 does not include any expenses, fees or charges. The Index is unmanaged and one cannot invest directly in an index. (3) The Lipper European Region Fund Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper European Region Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and one cannot invest directly in an index. There are currently 30 funds represented in this Index. Morgan Stanley European Growth Fund Inc. LETTER TO THE SHAREHOLDERS / / APRIL 30, 2003 CONTINUED in telecommunications services and information technology. Another positive was strong stock selection per se in telecommunications services. We have continued to add to the Fund's weighting in health-care stocks. Negative sentiment on new drug development and the threat of generics has driven the prices of a number of what we consider strong pharmaceutical franchises down, creating an opportunity to increase exposure to long-term-growth stocks at attractive valuations. The dramatic declines in many economically sensitive sectors such as telecommunications services, information technology and consumer discretionary issues gave rise to opportunities to add stocks in those areas at very attractive prices. We appreciate your ongoing support of Morgan Stanley European Growth Fund and look forward to continuing to serve your investment needs. Very truly yours, [/S/ CHARLES A. FIUMEFREDDO] [/S/ MITCHELL M. MERIN] Charles A. Fiumefreddo Mitchell M. Merin CHAIRMAN OF THE BOARD PRESIDENT 2 Morgan Stanley European Growth Fund Inc. FUND PERFORMANCE / / APRIL 30, 2003
Average Annual Total Returns -- Period Ended April 30, 2003 ------------------------------------------------------------------------------------------------------------------------------ Class A Shares* Class B Shares** ----------------------------------------------------------- ----------------------------------------------------------------- 1 Year (17.46)%(1) (21.80)%(2) 1 Year (18.00)%(1) (22.10)%(2) 5 Years (3.56)%(1) (4.59)%(2) 5 Years (4.28)%(1) (4.53)%(2) Since Inception (07/28/97) 0.67%(1) (0.27)%(2) 10 Years 9.02%(1) 9.02%(2)
Class C Shares+ Class D Shares++ ----------------------------------------------------------- ----------------------------------------------------------------- 1 Year (18.09)%(1) (18.91)%(2) 1 Year (17.15)%(1) 5 Years (4.28)%(1) (4.28)%(2) 5 Years (3.33)%(1) Since Inception (07/28/97) (0.08)%(1) (0.08)%(2) Since Inception (07/28/97) 1.10%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. THE TABLE DOES 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. - --------------------- (1) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT THE DEDUCTION OF ANY SALES CHARGES. (2) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR COMPLETE DETAILS ON FEES AND SALES CHARGES. * 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 CDSC FOR CLASS C IS 1.0% FOR SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE. ++ CLASS D HAS NO SALES CHARGE. 3 Morgan Stanley European Growth Fund Inc. PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED)
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ Common Stocks (96.2%) Finland (4.9%) TELECOMMUNICATION EQUIPMENT 2,432,273 Nokia Oyj............................... $ 41,198,492 ------------ France (14.3%) HOUSEHOLD/PERSONAL CARE 96,313 L'Oreal S.A............................. 6,892,453 ------------ INFORMATION TECHNOLOGY SERVICES 370,077 Cap Gemini S.A.*........................ 11,528,018 ------------ MAJOR BANKS 329,933 BNP Paribas S.A......................... 15,504,752 ------------ MAJOR TELECOMMUNICATIONS 391,813 France Telecom S.A...................... 9,061,894 162,450 France Telecom S.A. (New)*.............. 3,740,826 ------------ 12,802,720 ------------ OIL REFINING/MARKETING 248,996 Total Fina Elf S.A...................... 32,688,880 ------------ PHARMACEUTICALS: MAJOR 609,679 Aventis S.A............................. 31,001,155 178,520 Sanofi-Synthelabo S.A................... 10,661,158 ------------ 41,662,313 ------------ Total France............................ 121,079,136 ------------ Germany (4.3%) INDUSTRIAL CONGLOMERATES 333,768 Siemens AG.............................. 16,658,291 ------------ MAJOR TELECOMMUNICATIONS 894,634 Deutsche Telekom AG (Registered Shares)................................ 11,974,903 ------------ MOTOR VEHICLES 112,917 Volkswagen AG........................... 3,974,108 ------------ PHARMACEUTICALS: MAJOR 98,051 Schering AG............................. 4,376,618 ------------ Total Germany........................... 36,983,920 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ Italy (3.2%) BROADCASTING 814,326 Mediaset SpA............................ $ 6,969,424 ------------ INTEGRATED OIL 724,005 ENI SpA................................. 10,330,046 ------------ MAJOR BANKS 2,221,974 Unicredito Italiano SpA................. 9,731,837 ------------ Total Italy............................. 27,031,307 ------------ Netherlands (11.0%) APPAREL/FOOTWEAR 57,388 Gucci Group NV.......................... 5,527,111 ------------ BEVERAGES: ALCOHOLIC 166,554 Heineken NV............................. 6,191,240 ------------ FINANCIAL CONGLOMERATES 846,599 ING Groep NV (Share Certificates)....... 13,762,919 ------------ INDUSTRIAL CONGLOMERATES 931,702 Koninklijke (Royal) Philips Electronics NV..................................... 17,353,314 ------------ INDUSTRIAL SPECIALTIES 302,279 Akzo Nobel NV........................... 6,727,708 ------------ INTEGRATED OIL 897,579 Royal Dutch Petroleum Co................ 36,755,003 ------------ MAJOR TELECOMMUNICATIONS 1,109,445 Koninklijke (Royal) KPN NV*............. 7,387,914 ------------ Total Netherlands....................... 93,705,209 ------------ Portugal (0.8%) MAJOR TELECOMMUNICATIONS 905,093 Portugal Telecom, S.A. (Registered Shares)................................ 6,482,179 ------------ Spain (2.2%) MAJOR TELECOMMUNICATIONS 1,637,327 Telefonica S.A.*........................ 18,129,210
SEE NOTES TO FINANCIAL STATEMENTS 4 Morgan Stanley European Growth Fund Inc. PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ 1,869,673 Telefonica S.A. (Bonus Rights)*......... $ 414,037 ------------ Total Spain............................. 18,543,247 ------------ Sweden (2.1%) INDUSTRIAL MACHINERY 773,586 Assa Abloy AB (B Shares)................ 7,389,682 ------------ MISCELLANEOUS COMMERCIAL SERVICES 891,773 Securitas AB (B Shares)................. 10,484,509 ------------ Total Sweden............................ 17,874,191 ------------ Switzerland (17.6%) CHEMICALS: AGRICULTURAL 196,011 Syngenta AG*............................ 10,123,041 ------------ FINANCIAL CONGLOMERATES 522,587 UBS AG (Registered Shares).............. 24,810,737 ------------ FOOD: MAJOR DIVERSIFIED 180,450 Nestle S.A. (Registered Shares)......... 36,811,587 ------------ MAJOR BANKS 416,558 Credit Suisse Group*.................... 9,957,562 ------------ MAJOR TELECOMMUNICATIONS 14,435 Swisscom AG (Registered Shares)......... 4,467,672 ------------ MISCELLANEOUS MANUFACTURING 23,232 Kaba Holding AG - Reg B................. 3,299,513 ------------ PERSONNEL SERVICES 329,311 Adecco SA............................... 12,634,036 ------------ PHARMACEUTICALS: MAJOR 1,205,076 Novartis AG (Registered Shares)......... 47,566,450 ------------ Total Switzerland....................... 149,670,598 ------------ United Kingdom (35.8%) ADVERTISING/MARKETING SERVICES 1,837,714 WPP Group PLC........................... 13,077,964 ------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------ BEVERAGES: ALCOHOLIC 2,357,465 Allied Domecq PLC....................... $ 13,225,456 912,612 Diageo PLC.............................. 10,122,877 ------------ 23,348,333 ------------ CHEMICALS: SPECIALTY 353,337 BOC Group PLC........................... 4,455,787 ------------ ELECTRONIC EQUIPMENT/ INSTRUMENTS 5,522,318 Invensys PLC............................ 1,301,882 ------------ ELECTRONICS/APPLIANCE STORES 2,428,427 HMV Group PLC........................... 4,541,185 ------------ FOOD DISTRIBUTORS 2,275,964 Compass Group PLC....................... 10,476,499 ------------ FOOD: SPECIALTY/CANDY 1,204,539 Cadbury Schweppes PLC................... 6,709,373 ------------ INTEGRATED OIL 2,113,462 Shell Transport & Trading Co. PLC....... 12,658,854 ------------ INVESTMENT MANAGERS 1,521,537 Amvescap PLC............................ 8,268,367 ------------ LIFE/HEALTH INSURANCE 705,600 Prudential PLC.......................... 4,319,323 ------------ MAJOR BANKS 3,105,251 Barclays PLC............................ 21,453,098 3,108,011 HSBC Holdings PLC....................... 34,052,445 ------------ 55,505,543 ------------ MISCELLANEOUS COMMERCIAL SERVICES 6,871,645 Hays PLC................................ 9,170,763 2,218,022 Rentokil Initial PLC.................... 6,629,271 ------------ 15,800,034 ------------ PHARMACEUTICALS: MAJOR 502,678 AstraZeneca PLC......................... 19,724,213 2,600,398 GlaxoSmithKline PLC..................... 52,118,950 ------------ 71,843,163 ------------
SEE NOTES TO FINANCIAL STATEMENTS 5 Morgan Stanley European Growth Fund Inc. PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
NUMBER OF SHARES VALUE - ------------------------------------------------------------------ PUBLISHING: BOOKS/ MAGAZINES 1,683,308 Reed Elsevier PLC....................... $ 13,425,252 ------------ TOBACCO 1,214,809 British American Tobacco PLC............ 11,649,775 ------------ WIRELESS TELECOMMUNICATIONS 23,621,097 Vodafone Group PLC...................... 46,625,695 ------------ Total United Kingdom.................... 304,007,029 ------------ Total Common Stocks (COST $779,633,425).................... 816,575,308 ------------ PRINCIPAL AMOUNT IN THOUSANDS VALUE - ------------------------------------------------------------------ Short-Term Investment (2.9%) Repurchase Agreement $ 24,598 Joint repurchase agreement account 1.34% due 05/01/03 (dated 04/30/03; proceeds $24,598,916)(a) (Cost $24,598,000)...... $ 24,598,000 ------------
Total Investments (COST $804,231,425) (b)................ 99.1% 841,173,308 Other Assets in Excess of Liabilities... 0.9 8,039,710 ------ ------------ Net Assets.............................. 100.0% $849,213,018 ====== ============
- --------------------------------------------------- * NON-INCOME PRODUCING SECURITY. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $94,708,754 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $57,766,871, RESULTING IN NET UNREALIZED APPRECIATION OF $36,941,883. SEE NOTES TO FINANCIAL STATEMENTS 6 Morgan Stanley European Growth Fund Inc. SUMMARY OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED)
PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Advertising/Marketing Services.......... $ 13,077,964 1.5% Apparel/Footwear........................ 5,527,111 0.6 Beverages: Alcoholic.................... 29,539,573 3.5 Broadcasting............................ 6,969,424 0.8 Chemicals: Agricultural................. 10,123,041 1.2 Chemicals: Specialty.................... 4,455,787 0.5 Electronic Equipment/ Instruments....... 1,301,882 0.2 Electronics/Appliance Stores............ 4,541,185 0.5 Financial Conglomerates................. 38,573,656 4.5 Food Distributors....................... 10,476,499 1.2 Food: Major Diversified................. 36,811,587 4.3 Food: Specialty/Candy................... 6,709,373 0.8 Household/Personal Care................. 6,892,453 0.8 Industrial Conglomerates................ 34,011,605 4.0 Industrial Machinery.................... 7,389,682 0.9 Industrial Specialties.................. 6,727,708 0.8 Information Technology Services......... 11,528,018 1.4 Integrated Oil.......................... 59,743,903 7.0 Investment Managers..................... 8,268,367 1.0 Life/Health Insurance................... 4,319,323 0.5 Major Banks............................. 90,699,694 10.7 Major Telecommunications................ 61,658,636 7.3 PERCENT OF INDUSTRY VALUE NET ASSETS - ------------------------------------------------------------------ Miscellaneous Commercial Services....... $ 26,284,543 3.1% Miscellaneous Manufacturing............. 3,299,513 0.4 Motor Vehicles.......................... 3,974,108 0.5 Oil Refining/Marketing.................. 32,688,880 3.8 Personnel Services...................... 12,634,036 1.5 Pharmaceuticals: Major.................. 165,448,543 19.5 Publishing: Books/Magazines............. 13,425,252 1.6 Repurchase Agreement.................... 24,598,000 2.9 Telecommunication Equipment............. 41,198,492 4.9 Tobacco................................. 11,649,775 1.4 Wireless Telecommunications............. 46,625,695 5.5 ------------ ------- $841,173,308 99.1% ============ ======= PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS - ------------------------------------------------------------------ Common Stocks........................... $816,161,271 96.1% Rights.................................. 414,037 0.1 Short-Term Investments.................. 24,598,000 2.9 ------------ ------- $841,173,308 99.1% ============ =======
SEE NOTES TO FINANCIAL STATEMENTS 7 Morgan Stanley European Growth Fund Inc. FINANCIAL STATEMENTS Statement of Assets and Liabilities APRIL 30, 2003 (UNAUDITED) Assets: Investments in securities, at value (cost $804,231,425).................................... $ 841,173,308 Receivable for: Investments sold................................ 8,586,115 Foreign withholding taxes reclaimed............. 5,040,948 Dividends....................................... 3,691,585 Capital stock sold.............................. 209,655 Prepaid expenses and other assets................. 96,160 ------------- Total Assets.................................. 858,797,771 ------------- Liabilities: Payable for: Investments purchased........................... 5,217,703 Capital stock redeemed.......................... 2,917,412 Investment management fee....................... 622,255 Distribution fee................................ 622,122 Accrued expenses and other payables............... 205,261 ------------- Total Liabilities............................. 9,584,753 ------------- Net Assets.................................... $ 849,213,018 ============= Composition of Net Assets: Paid-in-capital................................... $1,178,340,427 Net unrealized appreciation....................... 37,709,907 Accumulated undistributed net investment income... 1,492,825 Accumulated net realized loss..................... (368,330,141) ------------- Net Assets.................................... $ 849,213,018 ============= Class A Shares: Net Assets........................................ $25,688,742 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)....................................... 2,217,736 Net Asset Value Per Share..................... $ 11.58 ============= Maximum Offering Price Per Share, (NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)....................................... $ 12.22 ============= Class B Shares: Net Assets........................................ $762,646,549 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)....................................... 68,365,149 Net Asset Value Per Share..................... $ 11.16 ============= Class C Shares: Net Assets........................................ $18,203,492 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)....................................... 1,633,681 Net Asset Value Per Share..................... $ 11.14 ============= Class D Shares: Net Assets........................................ $42,674,235 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)....................................... 3,578,623 Net Asset Value Per Share..................... $ 11.92 =============
Statement of Operations FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED) Net Investment Income: Income Dividends (net of $1,628,474 foreign withholding tax)............................................. $ 10,687,727 Interest.......................................... 129,161 ------------ Total Income.................................. 10,816,888 ------------ Expenses Investment management fee......................... 4,008,790 Distribution fee (Class A shares)................. 19,498 Distribution fee (Class B shares)................. 3,916,593 Distribution fee (Class C shares)................. 93,497 Transfer agent fees and expenses.................. 916,933 Custodian fees.................................... 166,779 Shareholder reports and notices................... 63,214 Professional fees................................. 32,539 Registration fees................................. 26,801 Directors' fees and expenses...................... 10,498 Other............................................. 11,427 ------------ Total Expenses................................ 9,266,569 ------------ Net Investment Income......................... 1,550,319 ------------ Net Realized and Unrealized Gain (Loss): Net Realized Loss on: Investments..................................... (66,927,952) Foreign exchange transactions................... (225,653) ------------ Net Realized Loss............................. (67,153,605) ------------ Net Change in Unrealized Appreciation/ Depreciation on: Investments..................................... 65,411,650 Translation of other assets and liabilities denominated in foreign currencies.............. 470,639 ------------ Net Appreciation.............................. 65,882,289 ------------ Net Loss...................................... (1,271,316) ------------ Net Increase...................................... $ 279,003 ============
SEE NOTES TO FINANCIAL STATEMENTS 8 Morgan Stanley European Growth Fund Inc. FINANCIAL STATEMENTS CONTINUED Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED APRIL 30, 2003 OCTOBER 31, 2002 -------------- ---------------- (UNAUDITED) Increase (Decrease) in Net Assets: Operations: Net investment income (loss)............ $ 1,550,319 $ (3,884,292) Net realized loss....................... (67,153,605) (105,304,885) Net change in unrealized appreciation (depreciation)......................... 65,882,289 (35,632,902) -------------- -------------- Net Increase (Decrease)............. 279,003 (144,822,079) -------------- -------------- Dividends to Shareholders from Net Investment Income: Class A shares.......................... -- (384,980) Class B shares.......................... -- (8,390,397) Class C shares.......................... -- (190,827) Class D shares.......................... -- (949,255) -------------- -------------- Total Dividends..................... -- (9,915,459) -------------- -------------- Net decrease from capital stock transactions........................... (99,885,072) (333,059,661) -------------- -------------- Net Decrease........................ (99,606,069) (487,797,199) Net Assets: Beginning of period..................... 948,819,087 1,436,616,286 -------------- -------------- END OF PERIOD (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $1,492,825 AND AN ACCUMULATED NET INVESTMENT LOSS OF $57,494, RESPECTIVELY)................. $ 849,213,018 $ 948,819,087 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 9 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley European Growth Fund Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to maximize the capital appreciation of its investments. The Fund was incorporated in Maryland on February 13, 1990 and commenced operations on June 1, 1990. On July 28, 1997, the Fund converted to a multiple class share structure. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) an equity portfolio security listed or traded on the New York or American Stock Exchange 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; (2) 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; (3) all other equity 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; (4) 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; (5) when market quotations are not readily available or Morgan Stanley Investment Advisors Inc. (the "Investment Manager") or Morgan Stanley Investment Management Inc. (the "Sub-Advisor"), an affiliate of the Investment Manager, 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 Directors; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Directors; and (7) 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 10 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED 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. Interest income is accrued daily. C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. 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. E. 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. 11 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED F. 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. G. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. H. 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 Management and Sub-Advisory Agreements Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.95% to the portion of net assets not exceeding $500 million; 0.90% to the portion of daily net assets exceeding $500 million but not exceeding $2 billion; 0.85% to the portion of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.825% to the portion of daily net assets in excess of $3 billion. Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment Manager, the Sub-Advisor provides the Fund with investment advice and portfolio management relating to the Fund's investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the Sub-Advisor compensation equal to 40% of its monthly compensation. 12 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED 3. Plan of Distribution Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager and Sub-Advisor. 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; (ii) Class B -- 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Directors will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $748,823 at April 30, 2003. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the six months ended April 30, 2003, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.20% and 1.0%, respectively. The Distributor has informed the Fund that for the six months ended April 30, 2003, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $25,516, $399,475 and $1,623, respectively and received $4,525 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. 13 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended April 30, 2003 aggregated $247,748,694 and $362,802,750, respectively. At April 30, 2003, Morgan Stanley Fund of Funds - International Portfolio, an affiliate of the Investment Manager, Sub-Advisor and Distributor, owned 3,035,392 Class D shares of capital stock of the Fund. Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor, and Distributor, is the Fund's transfer agent. At April 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $5,500. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Directors of the Fund who will have served as independent Directors for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the six months ended April 30, 2003 included in Directors' fees and expenses in the Statement of Operations amounted to $3,530. At April 30, 2003, the Fund had an accrued pension liability of $58,380 which is included in accrued expenses in the Statement of Assets and Liabilities. 5. Federal Income Tax Status At October 31, 2002, the Fund had a net capital loss carryover of approximately $264,830,000 of which $162,064,000 will be available through October 31, 2009 and $102,766,000 will be available through October 31, 2010 to offset future capital gains to the extent provided by regulations. As of October 31, 2002, the Fund had temporary book/tax differences primarily attributable to capital loss deferrals on wash sales. 6. Purposes of and Risks Relating to Certain Financial Instruments The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in 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. 14 Morgan Stanley European Growth Fund Inc. NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED At April 30, 2003, there were no outstanding forward contracts. At April 30, 2003, investments in securities of issuers in the United Kingdom represented 35.8% 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 this region. 7. Capital Stock Transactions in capital stock were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED APRIL 30, 2003 OCTOBER 31, 2002 -------------------------- -------------------------- (UNAUDITED) SHARES AMOUNT SHARES AMOUNT ----------- ------------- ----------- ------------- CLASS A SHARES Sold.......................... 9,632,676 $ 105,148,393 9,833,843 $ 121,583,658 Reinvestment of dividends..... -- -- 25,008 345,855 Redeemed...................... (9,004,562) (99,191,374) (9,961,813) (125,116,664) ----------- ------------- ----------- ------------- Net increase (decrease) -- Class A...................... 628,114 5,957,019 (102,962) (3,187,151) ----------- ------------- ----------- ------------- CLASS B SHARES Sold.......................... 1,837,520 19,686,185 7,792,547 98,323,416 Reinvestment of dividends..... -- -- 568,379 7,650,380 Redeemed...................... (11,706,844) (125,103,828) (33,838,980) (426,664,386) ----------- ------------- ----------- ------------- Net decrease -- Class B....... (9,869,324) (105,417,643) (25,478,054) (320,690,590) ----------- ------------- ----------- ------------- CLASS C SHARES Sold.......................... 469,179 4,962,721 2,512,493 31,290,984 Reinvestment of dividends..... -- -- 13,268 178,189 Redeemed...................... (715,547) (7,643,608) (2,907,554) (36,516,640) ----------- ------------- ----------- ------------- Net decrease -- Class C....... (246,368) (2,680,887) (381,793) (5,047,467) ----------- ------------- ----------- ------------- CLASS D SHARES Sold.......................... 4,366,337 49,380,879 4,390,707 52,522,878 Reinvestment of dividends..... -- -- 7,170 101,747 Redeemed...................... (4,145,448) (47,124,440) (4,647,865) (56,759,078) ----------- ------------- ----------- ------------- Net increase (decrease) -- Class D...................... 220,889 2,256,439 (249,988) (4,134,453) ----------- ------------- ----------- ------------- Net decrease in Fund.......... (9,266,689) $ (99,885,072) (26,212,797) $(333,059,661) =========== ============= =========== =============
15 Morgan Stanley European Growth Fund Inc. FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of capital stock outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31 MONTHS ENDED ----------------------------------------------------------------------------------- APRIL 30, 2003 2002 2001 2000 1999 1998 --------------- --------------- --------------- --------------- --------------- --------------- (UNAUDITED) Class A Shares Selected Per Share Data: Net asset value, beginning of period.... $11.51 $13.35 $20.17 $20.70 $19.45 $18.46 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++............. 0.08 0.06 0.07 0.05 0.10 0.08 Net realized and unrealized gain (loss)............... (0.01) (1.67) (3.71) 2.34 3.03 2.70 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations............. 0.07 (1.61) (3.64) 2.39 3.13 2.78 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............... - (0.23) - - - (0.22) Net realized gain...... - - (3.18) (2.92) (1.88) (1.57) ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... - (0.23) (3.18) (2.92) (1.88) (1.79) ------ ------ ------ ------ ------ ------ Net asset value, end of period................. $11.58 $11.51 $13.35 $20.17 $20.70 $19.45 ====== ====== ====== ====== ====== ====== Total Return+............ 0.61%((1)) (12.41)% (21.07)% 10.92% 16.75% 16.50% Ratios to Average Net Assets((3)): Expenses................. 1.41%((2)) 1.38 % 1.27 % 1.29% 1.36% 1.44% Net investment income.... 1.10%((2)) 0.41 % 0.43 % 0.23% 0.44% 0.40% Supplemental Data: Net assets, end of period, in thousands... $25,689 $18,294 $22,604 $53,012 $26,600 $14,133 Portfolio turnover rate................... 29%((1)) 51 % 86 % 71% 56% 50%
- --------------------- ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 16 Morgan Stanley European Growth Fund Inc. FINANCIAL HIGHLIGHTS CONTINUED
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31 MONTHS ENDED ----------------------------------------------------------------------------------- APRIL 30, 2003 2002 2001 2000 1999 1998 --------------- --------------- --------------- --------------- --------------- --------------- (UNAUDITED) Class B Shares Selected Per Share Data: Net asset value, beginning of period.... $11.12 $12.88 $19.70 $20.41 $19.34 $18.43 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++............. 0.02 (0.05) (0.06) (0.11) (0.07) (0.05) Net realized and unrealized gain (loss)............... 0.02 (1.62) (3.58) 2.32 3.02 2.69 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations............. 0.04 (1.67) (3.64) 2.21 2.95 2.64 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............... - (0.09) - - - (0.16) Net realized gain...... - - (3.18) (2.92) (1.88) (1.57) ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... - (0.09) (3.18) (2.92) (1.88) (1.73) ------ ------ ------ ------ ------ ------ Net asset value, end of period................. $11.16 $11.12 $12.88 $19.70 $20.41 $19.34 ====== ====== ====== ====== ====== ====== Total Return+............ 0.36%((1)) (13.11)% (21.68)% 10.05 % 15.84 % 15.67 % Ratios to Average Net Assets((3)): Expenses................. 2.21%((2)) 2.15 % 2.10 % 2.05 % 2.13 % 2.10 % Net investment income (loss)................. 0.30%((2)) (0.36)% (0.40)% (0.53)% (0.33)% (0.26)% Supplemental Data: Net assets, end of period, in millions.... $763 $870 $1,335 $2,206 $2,090 $2,059 Portfolio turnover rate................... 29%((1)) 51 % 86 % 71 % 56 % 50 %
- --------------------- ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 17 Morgan Stanley European Growth Fund Inc. FINANCIAL HIGHLIGHTS CONTINUED
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31 MONTHS ENDED ----------------------------------------------------------------------------------- APRIL 30, 2003 2002 2001 2000 1999 1998 --------------- --------------- --------------- --------------- --------------- --------------- (UNAUDITED) Class C Shares Selected Per Share Data: Net asset value, beginning of period.... $11.11 $12.85 $19.67 $20.38 $19.31 $18.43 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++............. 0.02 (0.04) (0.06) (0.11) (0.05) (0.08) Net realized and unrealized gain (loss)............... 0.01 (1.61) (3.58) 2.32 3.00 2.71 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations............. 0.03 (1.65) (3.64) 2.21 2.95 2.63 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............... - (0.09) - - - (0.18) Net realized gain...... - - (3.18) (2.92) (1.88) (1.57) ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... - (0.09) (3.18) (2.92) (1.88) (1.75) ------ ------ ------ ------ ------ ------ Net asset value, end of period................. $11.14 $11.11 $12.85 $19.67 $20.38 $19.31 ====== ====== ====== ====== ====== ====== Total Return+............ 0.27%((1)) (12.98)% (21.76)% 10.11 % 15.87 % 15.57 % Ratios to Average Net Assets((3)): Expenses................. 2.21%((2)) 2.08 % 2.10 % 2.05 % 2.13 % 2.19 % Net investment income (loss)................. 0.30%((2)) (0.29)% (0.40)% (0.53)% (0.33)% (0.35)% Supplemental Data: Net assets, end of period, in thousands... $18,203 $20,881 $29,075 $46,886 $31,211 $22,159 Portfolio turnover rate................... 29%((1)) 51 % 86 % 71 % 56 % 50 %
- --------------------- ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 18 Morgan Stanley European Growth Fund Inc. FINANCIAL HIGHLIGHTS CONTINUED
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31 MONTHS ENDED ----------------------------------------------------------------------------------- APRIL 30, 2003 2002 2001 2000 1999 1998 --------------- --------------- --------------- --------------- --------------- --------------- (UNAUDITED) Class D Shares Selected Per Share Data: Net asset value, beginning of period.... $11.83 $13.73 $20.61 $21.05 $19.72 $18.47 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++............. 0.08 0.09 0.10 0.12 0.13 0.16 Net realized and unrealized gain (loss)............... 0.01 (1.72) (3.80) 2.36 3.08 2.89 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.. 0.09 (1.63) (3.70) 2.48 3.21 3.05 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............... - (0.27) - - - (0.23) Net realized gain...... - - (3.18) (2.92) (1.88) (1.57) ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... - (0.27) (3.18) (2.92) (1.88) (1.80) ------ ------ ------ ------ ------ ------ Net asset value, end of period................. $11.92 $11.83 $13.73 $20.61 $21.05 $19.72 ====== ====== ====== ====== ====== ====== Total Return+............ 0.85%((1)) (12.20)% (20.95)% 11.19% 16.93% 18.12% Ratios to Average Net Assets((3)): Expenses................. 1.21%((2)) 1.15 % 1.10 % 1.05% 1.13% 1.19% Net investment income.... 1.30%((2)) 0.64 % 0.60 % 0.47% 0.67% 0.65% Supplemental Data: Net assets, end of period, in thousands... $42,674 $39,716 $49,539 $54,016 $5,657 $2,575 Portfolio turnover rate................... 29%((1)) 51 % 86 % 71% 56% 50%
- --------------------- ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. SEE NOTES TO FINANCIAL STATEMENTS 19 DIRECTORS Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Michael E. Nugent Philip J. Purcell OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President, Secretary and General Counsel Joseph J. McAlinden Vice President Francis Smith Vice President and Chief Financial Officer Thomas F. Caloia Treasurer TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 SUB-ADVISOR Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 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 directors. 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. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Funds are distributed by Morgan Stanley Distributors Inc. Morgan Stanley Distributors Inc., member NASD. [MORGAN STANLEY LOGO] [GRAPHIC] Morgan Stanley European Growth Fund Semiannual Report April 30, 2003 37908RPT-11187F03-AP-6/03 Item 9 - Controls and Procedures The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust 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. There were no significant changes or corrective actions with regard to siginficant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. Item 10b Exhibits A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. Items 2 - 8 and Item 10a are not applicable 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 European Growth Fund Inc. Ronald E. Robison Principal Executive Officer June 20, 2003 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. Ronald E. Robison Principal Executive Officer June 20, 2003 Francis Smith Principal Financial Officer June 20, 2003 EX-99.CERT 3 a2113435zex-99_cert.txt EXHIBIT 99.CERT EXHIBIT B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley European Growth Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 20, 2003 Ronald E. Robison Principal Executive Officer EXHIBIT B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley European Growth Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: (i) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (ii) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and (iii) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 20, 2003 Francis Smith Principal Financial Officer EX-99.1 4 a2113435zex-99_1.txt EXHIBIT 99.1 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley European Growth Fund Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended April 30, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: June 20, 2003 Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley European Growth Fund Inc. and will be retained by Morgan Stanley European Growth Fund Inc. and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley European Growth Fund Inc. In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended April 30, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: June 20, 2003 Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley European Growth Fund Inc. and will be retained by Morgan Stanley European Growth Fund Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----