INVESTMENT MANAGEMENT Société d’Investissement Morgan Stanley à Capital Variable incorporated under Investment Funds the laws of Luxembourg Annual Report December 31, 2020 UCITS DO NOT HAVE A GUARANTEED RETURN AND PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RETURNS R.C.S. Luxembourg: B-29. 192 Morgan Stanley Investment Funds 31 December 2020 Table of contents 1 Shareholders’ information 145 Euro Strategic Bond Fund 2 Board of Directors’ Report 157 European Fixed Income Opportunities Fund 168 European High Yield Bond Fund SCHEDULE OF INVESTMENTS 173 Global Asset Backed Securities Fund Equity Funds 187 Global Bond Fund 7 Asia Opportunity Fund 202 Global Convertible Bond Fund 9 Asian Property Fund 207 Global Credit Fund 11 China A-shares Fund 215 Global Fixed Income Opportunities Fund 14 China Equity Fund 232 Global High Yield Bond Fund 16 Counterpoint Global Fund* 240 Short Maturity Euro Bond Fund 20 Developing Opportunity Fund 246 Sustainable Euro Corporate Bond Fund 22 Emerging Europe, Middle East and Africa Equity Fund 250 Sustainable Euro Strategic Bond Fund 24 Emerging Leaders Equity Fund 256 US Dollar Corporate Bond Fund 26 Emerging Markets Equity Fund 265 US Dollar High Yield Bond Fund 29 Emerging Markets Small Cap Equity Fund 274 US Dollar Short Duration Bond Fund 32 Europe Opportunity Fund** 280 US Dollar Short Duration High Yield Bond Fund 34 European Property Fund Asset Allocation Funds 36 Global Active Factor Equity Fund 286 Global Balanced Defensive Fund 38 Global Advantage Fund 297 Global Balanced Fund 40 Global Brands Fund 311 Global Balanced Income Fund 42 Global Brands Equity Income Fund 324 Global Balanced Risk Control Fund of Funds 45 Global Endurance Fund 327 Global Balanced Sustainable Fund 47 Global Infrastructure Fund 337 Global Multi-Asset Income Fund 50 Global Infrastructure Unconstrained Fund 351 Global Multi-Asset Opportunities Fund 53 Global Opportunity Fund 358 Multi-Asset Risk Control Fund 56 Global Permanence Fund 366 Real Assets Fund 59 Global Property Fund Alternative Investment Funds 63 Global Property Unconstrained Fund 372 Liquid Alpha Capture Fund 65 Global Quality Fund 68 Global Sustain Fund STATEMENTS AND NOTES 70 Indian Equity Fund 374 Statement of assets and liabilities 73 International Equity (ex US) Fund 388 Statement of operations and changes in net assets 76 Japanese Equity Fund 403 Statement of share and net assets statistics 79 Latin American Equity Fund 419 Notes to the financial statements 81 Sustainable Asian Equity Fund*** 83 US Active Factor Equity Fund OTHER INFORMATION 85 US Advantage Fund 436 Independent Auditor’s Report 88 US Growth Fund 438 Directors and service providers 91 US Insight Fund 440 Paying and information agents 94 US Permanence Fund 441 Appendix 1: Fund expense ratios (unaudited) 97 US Property Fund 446 Appendix 2: Portfolio turnover rate (unaudited) Bond Funds 447 Appendix 3: Sub-Advisers (unaudited) 100 Emerging Markets Corporate Debt Fund 449 Appendix 4: Hedged Share Classes (unaudited) 107 Emerging Markets Debt Fund 451 Appendix 5: Performance Summary (unaudited) 114 Emerging Markets Domestic Debt Fund 456 Appendix 6: Risk Measurement and Global Exposure (unaudited) 117 Emerging Markets Fixed Income Opportunities Fund 458 Appendix 7: Remuneration Policy of the Management 124 Euro Bond Fund Company (unaudited) 131 Euro Corporate Bond Fund 462 Appendix 8: Securities Financing Transactions (unaudited) 139 Euro Corporate Bond – Duration Hedged Fund * Formerly known as Global Counterpoint Fund prior to 15 May 2020. ** Formerly known as European Champions Fund prior to 20 April 2020. *** Formerly known as Asian Equity Fund prior to 31 December 2020. 1 Morgan Stanley Investment Funds 31 December 2020 Shareholders’ information The annual general meeting of shareholders Carnegie Fund Services S.A., 11, rue du Général-Dufour, 1204 Geneva, web: carnegie-fund-services-ch, is the representative of Morgan Stanley Investment Funds in Switzerland and Banque Cantonale de Genève, 17, quai de l’Ile, (the “Company”) is held at the registered office 1204 Geneva is the paying agent in Switzerland. The Prospectus, the latest Key Investor Information Document, the Articles and of the Company and will be held on the second the annual and semi-annual reports of the Company may Tuesday of the month of May at 10.30 am. be obtained free of charge from the representative in Switzerland. If such day is a legal or a bank holiday A list of purchases and sales (securities transactions) carried out in Luxembourg, the annual general meeting shall by the Company during the reporting period may be obtained free of charge from the representative in Switzerland. be held on the next following business day. The investment objectives set out in this annual report are Notices of all general meetings are sent by mail to all registered summaries only. The complete investment objectives and policies shareholders at their registered address at least 8 days prior to the for each Fund are set out in the Company’s current prospectus. meeting. Such notices will indicate the time and place of the meeting as well as the conditions of admission thereto. Said notices will also contain the agenda and requirements of Luxembourg law with regard to the necessary quorum and majorities at the meeting. To the extent required by law, further notices will be published in the Mémorial and in one Luxembourg newspaper. Audited financial statements in respect of the preceding financial period are made available at the registered office of the Company and are available to shareholders upon request. In addition, unaudited semi-annual reports are also made available at the registered office. The annual and semi-annual reports are also available on the Company’s website (www.morganstanleyinvestmentfunds.com). The Company’s financial year end is 31 December. Any other notices relevant to the Company are also published in a Luxembourg newspaper or mailed to affected shareholders. The net asset value per share of each Class of Share is available on each dealing day during Luxembourg business hours at the registered office of the Company. Net asset value per share information is also available from market information providers, such as Bloomberg, www.fundinfo.com and Morningstar, as well as being available at www.morganstanleyinvestmentfunds.com. No subscriptions can be received on the basis of financial reports alone. Subscriptions are only valid if made on the basis of the current prospectus and the latest Key Investor Information Document. Morgan Stanley Investment Funds 31 December 2020 2 Board of Directors’ Report Activities and Outlook Directors Overall, 2020 was a positive year for the Morgan Stanley HENRY KELLY Investment Funds range. Assets under Management increased Independent Non-Executive Director and Chairman by $36.35bn (48.5%) from $74.91bn on 31 December 2019 Henry Kelly is an independent board member of several investment to $111.26bn on 31 December 2020. funds and investment management companies domiciled in Luxembourg and internationally. He is the Managing Director Morgan Stanley Investment Funds Overview of the Luxembourg-based consultancy firm that he founded A number of important changes to Morgan Stanley Investment in 1999, KellyConsult Sàrl, which provides advisory services Funds occurred during 2020. These changes included: to the investment fund sector. He is a member and was the founding Chairman of the Fund Governance Forum for ALFI • In the twelve months to 31 December 2020, four sub-funds (Association of the Luxembourg Fund Industry). He is a member were launched: of the Management Committee of the Luxembourg Institute of Directors (ILA) and is a founding member of the ILA Investment – On 30 June 2020, the Global Balanced Sustainable Fund Funds Committee. He is a regular speaker at conferences commenced operations. on investment funds and corporate governance matters. – On 31 July 2020, the Sustainable Euro Corporate Bond From 1993 – 1999 he was a Managing Director of Flemings Fund commenced operations. Luxembourg (now JP Morgan Asset Management) following – On 31 July 2020, the Sustainable Euro Strategic Bond Fund 5 years’ experience in the capital markets division of BNP Paribas commenced operations. based in Paris. Prior to these posts, he acquired seven years’ – On 30 October 2020, the US Permanence Fund experience with Price Waterhouse in Paris, Frankfurt and New York. commenced operations. He has a master’s degree in Modern Languages from Cambridge University, is a Member of the Institute of Chartered Accountants • In the twelve months to 31 December 2020, one sub-fund and holds the INSEAD Certificate in Corporate Governance. was closed: He obtained the qualification of ILA certified director in 2013. – On 16 October 2020, Breakout Nations Fund was closed. WILLIAM JONES • In the twelve months to 31 December 2020, 49 share classes Independent Non-Executive Director were launched. For a complete list, please refer to note 1 William Jones is the founder of Beaumont Governance (“BG”) of the Annual Report. which provides directorship and corporate governance services from Luxembourg. Mr. Jones has over 30 years’ experience in the • In the twelve months to 31 December 2020, 27 share classes funds industry and has held senior positions with Commodities were closed. For a complete list, please refer to note 1 Corporation, Goldman Sachs Asset Management International of the Annual Report. and Bank of Bermuda/HSBC. Mr. Jones acts as director of investment funds and related entities sponsored by major • In the twelve months to 31 December 2020, two funds US international banks and asset managers. He also acts as advisor merged: and director of non-financial start-up and early stage companies. He completed the first cohort of the INSEAD International – On 20 April 2020, Eurozone Equity Alpha Fund merged Directors Program (“IIDP”) in 2011, was a member of the IIDP into European Champions Fund. Advisory Board (2011-2017) and served as its first President – On 9 November 2020, Global Buy and Hold 2020 Bond Fund (2011-2015).