UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS

OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-06044

 

 

Morgan Stanley European Equity Fund Inc.

(Exact name of registrant as specified in charter)

 

 

 

522 Fifth Avenue, New York, New York   10036
(Address of principal executive offices)   (Zip code)

 

 

John H. Gernon

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 212-296-0289

Date of fiscal year end: October 31, 2014

Date of reporting period: January 31, 2014

 

 

 

Item 1. Schedule of Investments.

The Fund’s schedule of investments as of the close of the reporting period prepared pursuant to Rule 12-12 of Regulation S-X is as follows:


Morgan Stanley European Equity Fund Inc.

Portfolio of Investments n January 31, 2014 (unaudited)

 

NUMBER OF
SHARES

          VALUE  
   Common Stocks (99.2%)   
   Belgium (1.3%)   
   Chemicals   
  55,953       Umicore SA (a)    $ 2,394,329   
     

 

 

 
   Finland (1.5%)   
   Machinery   
  64,243       Kone Oyj, Class B (a)      2,613,260   
     

 

 

 
   France (18.6%)   
   Aerospace & Defense   
  41,770       Airbus Group N.V.      2,960,542   
     

 

 

 
   Commercial Banks   
  66,171       BNP Paribas SA      5,108,743   
  226,515       Credit Agricole SA (b)      3,045,888   
  71,227       Societe Generale SA      4,027,570   
     

 

 

 
        12,182,201   
     

 

 

 
   Electrical Equipment   
  46,881       Schneider Electric SA      3,780,125   
     

 

 

 
   Hotels, Restaurants & Leisure   
  70,932       Accor SA      3,380,783   
     

 

 

 
   Insurance   
  188,997       AXA SA      4,960,339   
     

 

 

 
   Media   
  93,901       SES SA      3,014,220   
     

 

 

 
   Multi-Utilities   
  151,267       Suez Environnement Co.      2,710,379   
     

 

 

 
   Total France      32,988,589   
     

 

 

 
   Germany (14.8%)   
   Automobiles   
  57,298       Daimler AG (Registered)      4,796,813   
  16,820       Volkswagen AG (Preference)      4,262,769   
     

 

 

 
        9,059,582   
     

 

 

 
   Health Care Providers & Services   
  20,738       Fresenius SE & Co., KGaA      3,233,547   
     

 

 

 
   Industrial Conglomerates   
  43,218       Siemens AG (Registered) (a)      5,476,634   
     

 

 

 
   Insurance   
  16,323       Muenchener Rueckversicherungs AG (Registered)      3,369,685   
     

 

 

 
   Pharmaceuticals   
  39,708       Bayer AG (Registered)      5,227,869   
     

 

 

 
   Total Germany      26,367,317   
     

 

 

 
   Netherlands (2.0%)   
   Media   
  169,438       Reed Elsevier N.V.      3,491,007   
     

 

 

 
   Portugal (1.0%)   
   Oil, Gas & Consumable Fuels   
  111,674       Galp Energia SGPS SA      1,727,388   
     

 

 

 
   Spain (4.2%)   
   Commercial Banks   
  301,940       Banco Bilbao Vizcaya Argentaria SA      3,607,253   
     

 

 

 
   Information Technology Services   
  96,579       Amadeus IT Holding SA, Class A (a)      3,819,192   
     

 

 

 
   Total Spain      7,426,445   
     

 

 

 

 


Morgan Stanley European Equity Fund Inc.

Portfolio of Investments n January 31, 2014 (unaudited) continued

 

   Sweden (3.2%)   
   Household Products   
  106,502       Svenska Cellulosa AB SCA, Class B      3,029,218   
     

 

 

 
   Wireless Telecommunication Services   
  28,047       Millicom International Cellular SA SDR (a)      2,724,503   
     

 

 

 
   Total Sweden      5,753,721   
     

 

 

 
   Switzerland (15.0%)   
   Food Products   
  112,665       Nestle SA (Registered)      8,168,953   
     

 

 

 
   Insurance   
  13,638       Zurich Insurance Group AG (b)      3,954,271   
     

 

 

 
   Pharmaceuticals   
  90,434       Novartis AG (Registered)      7,151,852   
  26,690       Roche Holding AG (Genusschein)      7,334,522   
     

 

 

 
        14,486,374   
     

 

 

 
   Total Switzerland      26,609,598   
     

 

 

 
   United Kingdom (37.6%)   
   Aerospace & Defense   
  203,127       Rolls-Royce Holdings PLC (b)      3,959,110   
     

 

 

 
   Commercial Banks   
  1,048,456       Barclays PLC      4,686,966   
  614,694       HSBC Holdings PLC      6,324,105   
     

 

 

 
        11,011,071   
     

 

 

 
   Household Products   
  55,099       Reckitt Benckiser Group PLC      4,127,543   
     

 

 

 
   Insurance   
  226,966       Prudential PLC      4,573,441   
     

 

 

 
   Media   
  181,970       British Sky Broadcasting Group PLC      2,618,042   
     

 

 

 
   Metals & Mining   
  655,520       Glencore Xstrata PLC (b)      3,470,922   
     

 

 

 
   Oil, Gas & Consumable Fuels   
  205,293       BG Group PLC      3,444,974   
  695,548       BP PLC      5,450,455   
  153,055       Royal Dutch Shell PLC, Class A      5,286,586   
  53,513       Tullow Oil PLC      694,602   
     

 

 

 
        14,876,617   
     

 

 

 
   Pharmaceuticals   
  203,225       GlaxoSmithKline PLC      5,232,388   
     

 

 

 
   Professional Services   
  144,189       Experian PLC      2,463,995   
     

 

 

 
   Tobacco   
  87,842       British American Tobacco PLC      4,205,972   
  84,069       Imperial Tobacco Group PLC      3,070,271   
     

 

 

 
        7,276,243   
     

 

 

 
   Wireless Telecommunication Services   
  1,906,193       Vodafone Group PLC      7,083,561   
     

 

 

 
   Total United Kingdom      66,692,933   
     

 

 

 
   Total Common Stocks (Cost $129,049,220)      176,064,587   
     

 

 

 


Morgan Stanley European Equity Fund Inc.

Portfolio of Investments n January 31, 2014 (unaudited) continued

 

NUMBER OF
SHARES

(000)

                VALUE  
   Short-Term Investments (9.0%)     
   Securities held as Collateral on Loaned Securities (8.0%)     
   Investment Company (5.9%)     
  10,406      

Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (c) (Cost $10,406,298)

     $ 10,406,298   
       

 

 

 

PRINCIPAL
AMOUNT

(000)

                VALUE  
   Repurchase Agreements (2.1%)     
  $              1,317      

Barclays Capital, Inc. (0.03%, dated 01/31/14, due 02/03/14; proceeds $1,316,871; fully collateralized by a U.S. Government Obligation; 1.50% due 01/31/19; valued at $1,343,213)

       1,316,868   
  2,195      

BNP Paribas Securities Corp. (0.03%, dated 01/31/14, due 02/03/14; proceeds $2,194,785; fully collateralized by various U.S. Government Agencies; 0.50% - 6.25% due 04/17/15 - 07/15/32; valued at $2,238,675)

       2,194,780   
  167      

Merrill Lynch & Co., Inc. (0.20%, dated 01/31/14, due 02/03/14; proceeds $167,245; fully collateralized by various Common Stocks and Exchange Traded Funds; valued at $183,558)

       167,242   
       

 

 

 
  

Total Repurchase Agreements (Cost $3,678,890)

       3,678,890   
       

 

 

 
  

Total Securities held as Collateral on Loaned Securities (Cost $14,085,188)

       14,085,188   
       

 

 

 

NUMBER OF
SHARES

(000)

                VALUE  
  

Investment Company (1.0%)

    
  1,750      

Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (c) (Cost $1,749,892)

       1,749,892   
       

 

 

 
  

Total Short-Term Investments (Cost $15,835,080)

       15,835,080   
       

 

 

 
  

Total Investments (Cost $144,884,300) (d)(e)

     108.2     191,899,667   
  

Liabilities in Excess of Other Assets

     (8.2     (14,476,982
     

 

 

   

 

 

 
  

Net Assets

     100.0   $ 177,422,685   
     

 

 

   

 

 

 

 

SDR Swedish Depositary Receipt.
(a) All or a portion of this security was on loan. The value of loaned securities and related collateral outstanding at January 31, 2014 were $13,219,994 and $14,086,147, respectively. The Fund received cash collateral of $14,085,188 which was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class as reported in the Portfolio of Investments. At January 31, 2014, there was uninvested cash collateral of $959, which is not reflected in the Portfolio of Investments. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
(b) Non-income producing security.
(c) The Fund invests in the Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio - Institutional Class (the “Liquidity Funds”), an open-end management investment company managed by the Adviser. Advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by the Liquidity Funds with respect to assets invested by the Fund in the Liquidity Funds.
(d) The fair value and percentage of net assets, $176,064,587 and 99.2%, respectively, represent the securities that have been fair valued under the fair valuation policy for international investments as described in the Notes to the Portfolio of Investments.
(e) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes.


Morgan Stanley European Equity Fund Inc.

Summary of Investments n January 31, 2014 (unaudited)

 

INDUSTRY

   VALUE     PERCENT OF
TOTAL
INVESTMENTS
 

Commercial Banks

   $ 26,800,525        15.1

Pharmaceuticals

     24,946,631        14.0   

Insurance

     16,857,736        9.5   

Oil, Gas & Consumable Fuels

     16,604,005        9.3   

Wireless Telecommunication Services

     9,808,064        5.5   

Media

     9,123,269        5.1   

Automobiles

     9,059,582        5.1   

Food Products

     8,168,953        4.6   

Tobacco

     7,276,243        4.1   

Household Products

     7,156,761        4.0   

Aerospace & Defense

     6,919,652        3.9   

Industrial Conglomerates

     5,476,634        3.1   

Information Technology Services

     3,819,192        2.2   

Electrical Equipment

     3,780,125        2.1   

Metals & Mining

     3,470,922        2.0   

Hotels, Restaurants & Leisure

     3,380,783        1.9   

Health Care Providers & Services

     3,233,547        1.8   

Multi-Utilities

     2,710,379        1.5   

Machinery

     2,613,260        1.5   

Professional Services

     2,463,995        1.4   

Chemicals

     2,394,329        1.3   

Investment Company

     1,749,892        1.0   
  

 

 

   

 

 

 
   $ 177,814,479     100.0
  

 

 

   

 

 

 

 

+ Does not reflect the value of securities held as collateral on loaned securities.


Morgan Stanley European Equity Fund Inc.

Notes to Portfolio of Investments n January 31, 2014 (unaudited)

 

Valuation of Investments - (1) An equity portfolio security listed or traded on an exchange is valued at its latest reported sales price (or at the exchange official closing price if such exchange reports an official closing price), if there were no sales on a given day, the security is valued at the mean between the last reported bid and asked prices; (2) all other equity portfolio securities for which over-the-counter market quotations are readily available are valued at its latest reported sales 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; (3) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the “Adviser”) or Morgan Stanley Investment Management Limited (the “Sub-Adviser”), each a wholly owned subsidiary of Morgan Stanley, determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of 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 Board of Directors (the “Directors”). 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) and the close of business on the New York Stock Exchange (“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 Directors or by the Adviser using a pricing service and/or procedures approved by the Directors; (4) certain portfolio securities may be valued by an outside pricing service approved by the Directors; (5) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; (6) short-term debt securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, unless the Adviser determines such valuation does not reflect the securities’ market value, in which case these securities will be valued at their fair market value determined by the Adviser; and (7) quotations of foreign portfolio securities, other assets and liabilities and forward contracts stated in foreign currency are translated into U.S. dollar equivalents at the prevailing market rates prior to the close of the NYSE.

Under procedures approved by the Directors, the Fund’s Adviser has formed a Valuation Committee. The Valuation Committee provides administration and oversight of the Fund’s valuation policies and procedures, which are reviewed at least annually by the Directors. These procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.


Fair Valuation Measurements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs); and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.

• Level 1 – unadjusted quoted prices in active markets for identical investments

• Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 – significant unobservable inputs including the Fund’s own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer’s financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

The following is a summary of the inputs used to value the Fund’s investments as of January 31, 2014.

 

Investment Type   

Level 1
Unadjusted
quoted

prices

    

Level 2

Other
significant
observable
inputs

     Level 3
Significant
unobservable
inputs
     Total  

Assets:

           

Common Stocks

           

Aerospace & Defense

   $ —         $ 6,919,652       $ —         $ 6,919,652   

Automobiles

     —           9,059,582         —           9,059,582   

Chemicals

     —           2,394,329         —           2,394,329   

Commercial Banks

     —           26,800,525         —           26,800,525   

Electrical Equipment

     —           3,780,125         —           3,780,125   

Food Products

     —           8,168,953         —           8,168,953   

Health Care Providers & Services

     —           3,233,547         —           3,233,547   

Hotels, Restaurants & Leisure

     —           3,380,783         —           3,380,783   

Household Products

     —           7,156,761         —           7,156,761   

Industrial Conglomerates

     —           5,476,634         —           5,476,634   

Information Technology Services

     —           3,819,192         —           3,819,192   

Insurance

     —           16,857,736         —           16,857,736   

Machinery

     —           2,613,260         —           2,613,260   

Media

     —           9,123,269         —           9,123,269   

Metals & Mining

     —           3,470,922         —           3,470,922   

Multi-Utilities

     —           2,710,379         —           2,710,379   

Oil, Gas & Consumable Fuels

     —           16,604,005         —           16,604,005   

Pharmaceuticals

     —           24,946,631         —           24,946,631   

Professional Services

     —           2,463,995         —           2,463,995   

Tobacco

     —           7,276,243         —           7,276,243   

Wireless Telecommunication Services

     —           9,808,064         —           9,808,064   

Total Common Stocks

     —           176,064,587         —           176,064,587   

Short-Term Investments

           

Investment Company

     12,156,190         —           —           12,156,190   

Repurchase Agreements

     —           3,678,890         —           3,678,890   

Total Short-Term Investments

     12,156,190         3,678,890         —           15,835,080   

Total Assets

   $ 12,156,190       $ 179,743,477       $  —         $ 191,899,667   

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Fund recognizes transfers between the levels as of the end of the period. As of January 31, 2014, securities with a total value of $176,064,587 transferred from Level 1 to Level 2. At January 31, 2014, the fair value of certain securities were adjusted due to developments which occurred between the time of the close of the foreign markets on which they trade and the close of business on the NYSE which resulted in their Level 2 classification.

Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

 

     Common
Stock
 

Beginning Balance

   $ 28,042   

Purchases

     —     

Sales

     (28,389

Amortization of discount

     —     

Transfers in

     —     

Transfers out

     —     

Change in unrealized appreciation/depreciation

     347   

Realized gains (losses)

     —     
  

 

 

 

Ending Balance

   $ —     
  

 

 

 

Net change in unrealized appreciation/depreciation from investments still held as of January 31, 2014.

   $ —     
  

 

 

 


Item 2. 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-Q 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 Fund’s internal control over financial reporting that occurred during the registrant’s fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

Item 3. Exhibits.

(a) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto.


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 Equity Fund Inc.

/s/ John H. Gernon

John H. Gernon

Principal Executive Officer

March 20, 2014

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/ John H. Gernon

John H. Gernon

Principal Executive Officer

March 20, 2014

/s/ Francis Smith

Francis Smith

Principal Financial Officer

March 20, 2014

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