-----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, RaGbK7f8FD+l5fk98F9HdDcUCfrkE8BFe4VLmSqpnaSuo9b9raZzDOn383qxdJ12 ccQwC6MOD75TeYgY5hFtdw== 0000950123-08-005405.txt : 20080509 0000950123-08-005405.hdr.sgml : 20080509 20080509105208 ACCESSION NUMBER: 0000950123-08-005405 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080229 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 EFFECTIVENESS DATE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY MID CAP VALUE FUND CENTRAL INDEX KEY: 0001137876 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-10359 FILM NUMBER: 08816580 BUSINESS ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 800-869-6397 MAIL ADDRESS: STREET 1: 522 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10036 0001137876 S000002365 Morgan Stanley Mid Cap Value Fund C000006227 A MDFAX C000006228 B MDFBX C000006229 C MDFCX C000006230 I MDFDX N-CSRS 1 y51173nvcsrs.txt FORM 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: 811-10359 Morgan Stanley Mid-Cap Value Fund (Exact name of registrant as specified in charter) 522 Fifth Avenue, New York, New York 10036 (Address of principal executive offices) (Zip code) Ronald E. Robison 522 Fifth Avenue, New York, New York 10036 (Name and address of agent for service) Registrant's telephone number, including area code: 212-296-6990 Date of fiscal year end: August 31, 2008 Date of reporting period: February 29, 2008 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Mid-Cap Value Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE INFORMATION ON INVESTMENT RISKS. FUND REPORT For the six months ended February 29, 2008 TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 29, 2008
LIPPER RUSSELL MID-CAP MIDCAP(R) VALUE VALUE FUNDS CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) -8.81% -9.15% -9.11% -8.71% -11.07% -8.83%
The performance of the Fund's four share classes varies because each has different expenses. The Fund's total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information. MARKET CONDITIONS The broad stock market declined during the six months ended February 29, 2008. In this period, investors grappled with whether the U.S. was entering a recession and how deep it was likely to be. The economy continued to slow, according to a number of metrics. Although gross domestic product (GDP) growth for the third quarter was a robust 4.9 percent, the economic growth rate slowed drastically to 0.6 percent for the fourth quarter. The housing market continued to slide, amid rising foreclosures and mounting inventories of unsold homes, reducing homeowners' ability to withdraw equity to finance other purchases. Consumers also felt the pain of soaring energy and food prices--price pressures which, along with the weakening U.S. dollar, contributed to inflation fears. Jobs and manufacturing data were also disappointing during the period. Moreover, the effects of the subprime mortgage market collapse rippled through the economy, as credit markets tightened significantly and large financial institutions suffered multi-billion dollar losses in related investments. The Federal Open Market Committee (the "Fed") remained responsive, easing monetary conditions through several reductions in the target federal funds rate and taking other actions to encourage liquidity in the capital markets. However, the Fed's official statements continued to signal caution about the future risks to economic growth. The federal government created an economic stimulus plan to bolster consumer spending, but any potential long-term benefit remains to be seen. Mid-cap value stocks (which comprise the Russell Midcap(R) Value Index and generally represent the Fund's universe of investable stocks) underperformed the broad market during the period. Given the uncertainties about economic growth, investors turned away from value stocks toward growth stocks, which are perceived to have greater potential for above-average growth in less robust economic conditions. PERFORMANCE ANALYSIS All share classes of Morgan Stanley Mid-Cap Value Fund outperformed the Russell Midcap(R) Value Index, and Class A and D shares outperformed while Class B and C shares underperformed the Lipper Mid-Cap Value Funds Index for the six months ended February 29, 2008, assuming no deduction of applicable sales charges. The Fund's outperformance relative to the Russell Midcap Value Index was driven by stock selection and an underweight position in the financial services sector. Specifically, the Fund held limited exposure to banks in general, which were one of the hardest hit segments within the financial services sector during the period. Yet, one of the Fund's few bank holdings performed very well for a number of company specific reasons. The Fund also added value with an underweight in diversified financial stocks, which performed poorly, and an overweight in insurance stocks, which declined less severely than other areas within the financial sector. Elsewhere, stock selection in the energy sector bolstered relative gains. One of the Fund's energy holdings benefited from its exposure to Brazil, in which a significant offshore oil reserve was recently discovered. The utilities sector was another strong point for the Fund's relative performance. Our stock selection in the sector focused mainly on nuclear and coal power generation companies, which gained pricing power from rising commodity prices. However, other investments turned out to be disadvantageous for the Fund. In the consumer discretionary sector, stock selection had a negative effect on relative performance, namely due to a holding in an entertainment stock with volatile earnings during the period. The materials sector also hurt relative results. In 2 this sector, a paper company held by the Fund was unable to pass rising production costs through to customers, which crimped profit margins. Finally, the Fund's consumer staples sector lost ground with a holding in a pharmaceutical retailer whose financial health was under question by investors and analysts. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
TOP 10 HOLDINGS Hudson City Bancorp, Inc. 3.6% Hess Corp. 3.5 Beckman Coulter, Inc. 3.4 Newfield Exploration Co. 3.2 Estee Lauder Companies, Inc. (The) (Class A) 3.1 Marsh & McLennan Companies, Inc. 3.1 ACE Ltd. (Cayman Islands) 2.9 Aspen Insurance Holdings Ltd. (Bermuda) 2.9 Diebold, Inc. 2.9 ConAgra Foods Inc. 2.8
TOP FIVE INDUSTRIES Electric Utilities 9.2% Property/Casualty Insurance 7.3 Household/Personal Care 5.1 Savings Banks 3.6 Integrated Oil 3.5
Data as of February 29, 2008. Subject to change daily. All percentages for top 10 holdings and top five industries are as a percentage of net assets. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. INVESTMENT STRATEGY THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCK AND OTHER EQUITY SECURITIES, INCLUDING DEPOSITARY RECEIPTS AND SECURITIES CONVERTIBLE INTO COMMON STOCK, OF COMPANIES TRADED ON A U.S. SECURITIES EXCHANGE WITH MARKET CAPITALIZATIONS THAT FALL WITHIN THE RANGE OF COMPANIES INCLUDED IN THE RUSSELL MIDCAP(R) VALUE INDEX. AS OF NOVEMBER 30, 2007, THESE MARKET CAPITALIZATIONS RANGED BETWEEN $703 MILLION AND $30.8 BILLION. IN PURSUING ITS INVESTMENT OBJECTIVE, THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC., SEEKS ATTRACTIVELY VALUED COMPANIES EXPERIENCING A CHANGE THAT THE INVESTMENT ADVISER BELIEVES COULD HAVE A POSITIVE IMPACT ON A COMPANY'S OUTLOOK, SUCH AS A CHANGE IN MANAGEMENT, INDUSTRY DYNAMICS OR OPERATIONAL EFFICIENCY. IN DETERMINING WHETHER SECURITIES SHOULD BE SOLD, THE INVESTMENT ADVISER CONSIDERS A NUMBER OF FACTORS, INCLUDING APPRECIATION TO FAIR VALUE, FUNDAMENTAL CHANGES IN THE COMPANY OR CHANGES IN ECONOMIC OR MARKET TRENDS. THE INVESTMENT ADVISER MAY PURCHASE STOCKS THAT TYPICALLY DO NOT PAY DIVIDENDS. THE FUND MAY ALSO USE DERIVATIVE INSTRUMENTS AS DISCUSSED IN THE PROSPECTUS. THESE DERIVATIVE INSTRUMENTS WILL BE COUNTED TOWARD THE 80 PERCENT POLICY DISCUSSED ABOVE TO THE EXTENT THEY HAVE ECONOMIC CHARACTERISTICS SIMILAR TO THE SECURITIES INCLUDED WITHIN THAT POLICY. 3 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC- 0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. IT IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV. YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30 WITHOUT CHARGE BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV. HOUSEHOLDING NOTICE TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE DOCUMENTS BY CALLING (800) 869-NEWS, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS. 4 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED FEBRUARY 29, 2008
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++ (since 10/29/01) (since 10/29/01) (since 10/29/01) (since 10/29/01) SYMBOL MDFAX MDFBX MDFCX MDFDX 1 YEAR (3.32)%(3) (4.02)%(3) (4.00)%(3) (3.07)%(3) (8.39) (4) (7.65) (4) (4.72) (4) -- 5 YEARS 17.57 (3) 16.67 (3) 16.74 (3) 17.85 (3) 16.30 (4) 16.45 (4) 16.74 (4) -- SINCE INCEPTION 8.62 (3) 7.80 (3) 7.85 (3) 8.88 (3) 7.70 (4) 7.80 (4) 7.85 (4) --
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please visit www.morganstanley.com/msim or speak with your Financial Advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses. * The maximum front-end sales charge for Class A is 5.25%. ** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. + The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase. ++ Class D has no sales charge. (1) The Russell Midcap(R) Value Index measures the performance of those Russell Midcap(R) Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value Index. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. (2) The Lipper Mid-Cap Value Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Mid-Cap Value Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. The Fund is in the Lipper Mid-Cap Value Funds classification as of the date of this report. (3) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. (4) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. 5 EXPENSE EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 09/01/07 - 02/29/08. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------- ------------- -------------- 09/01/07 - 09/01/07 02/29/08 02/29/08 ------------- ------------- -------------- CLASS A Actual (-8.81% return)......................... $1,000.00 $ 911.90 $ 6.70 Hypothetical (5% annual return before expenses).................................... $1,000.00 $1,017.85 $ 7.07 CLASS B Actual (-9.15% return)......................... $1,000.00 $ 908.50 $10.25 Hypothetical (5% annual return before expenses).................................... $1,000.00 $1,014.12 $10.82 CLASS C Actual (-9.11% return)......................... $1,000.00 $ 908.90 $10.20 Hypothetical (5% annual return before expenses).................................... $1,000.00 $1,014.17 $10.77 CLASS D Actual (-8.71% return)......................... $1,000.00 $ 912.90 $ 5.52 Hypothetical (5% annual return before expenses).................................... $1,000.00 $1,019.10 $ 5.82
- --------- * Expenses are equal to the Fund's annualized expense ratios of 1.40%, 2.15%, 2.14% and 1.16% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). 6 Morgan Stanley Mid-Cap Value Fund PORTFOLIO OF INVESTMENT - FEBRUARY 29, 2008 (UNAUDITED)
NUMBER OF SHARES VALUE - -------------------------------------------------------------------- Common Stocks (96.1%) Aerospace & Defense (2.8%) 112,976 Goodrich Corp. ......................... $ 6,691,568 ------------ Biotechnology (2.2%) 275,120 Affymetrix, Inc.*....................... 5,276,802 ------------ Computer Peripherals (2.4%) 173,400 Zebra Technologies Corp. (Class A)*..... 5,777,688 ------------ Department Stores (0.7%) 65,200 Macy's, Inc. ........................... 1,609,136 ------------ Drugstore Chains (2.4%) 2,185,170 Rite Aid Corp.*......................... 5,834,404 ------------ Electric Utilities (9.2%) 153,690 American Electric Power Co., Inc. ...... 6,288,995 220,680 DPL, Inc. .............................. 5,629,547 88,404 NRG Energy, Inc.*....................... 3,648,433 149,050 Wisconsin Energy Corp. ................. 6,501,561 ------------ 22,068,536 ------------ Electronic Components (2.4%) 571,624 Flextronics International Ltd. (Singapore)*........................... 5,796,267 ------------ Electronic Equipment/Instruments (2.9%) 284,680 Diebold, Inc. .......................... 6,866,482 ------------ Finance/Rental/Leasing (1.6%) 166,700 CIT Group, Inc. ........................ 3,704,075 ------------ Food: Major Diversified (2.9%) 308,520 ConAgra Foods, Inc. .................... 6,818,293 ------------ Home Furnishings (2.0%) 215,310 Newell Rubbermaid, Inc. ................ 4,887,537 ------------ Household/Personal Care (5.1%) 173,240 Estee Lauder Companies, Inc. (The) (Class A).............................. 7,376,559 113,280 International Flavors & Fragrances, Inc. .................................. 4,885,766 ------------ 12,262,325 ------------ Industrial Specialties (2.5%) 276,480 Valspar Corp. (The)..................... 5,996,851 ------------ Information Technology Services (2.5%) 439,710 Perot Systems Corp. (Class A)*.......... 6,063,601 ------------ Insurance Brokers/Services (3.1%) 289,253 Marsh & McLennan Companies, Inc. ....... 7,367,274 ------------ Integrated Oil (3.5%) 89,180 Hess Corp. ............................. 8,309,792 ------------ Investment Banks/Brokers (2.5%) 75,133 Bear Stearns Companies, Inc. (The)...... 6,000,121 ------------ Investment Managers (2.4%) 223,272 Invesco Ltd. ........................... 5,717,996 ------------ Medical Distributors (2.4%) 135,800 Owens & Minor, Inc. .................... 5,835,326 ------------ Medical Specialties (3.5%) 122,410 Beckman Coulter, Inc. .................. 8,262,675 ------------ Miscellaneous Manufacturing (2.8%) 208,490 Pentair, Inc. .......................... 6,800,944 ------------
See Notes to Financial Statements 7 Morgan Stanley Mid-Cap Value Fund PORTFOLIO OF INVESTMENT - FEBRUARY 29, 2008 (UNAUDITED) continued
NUMBER OF SHARES VALUE - -------------------------------------------------------------------- Office Equipment/Supplies (3.3%) 37,500 Avery Dennison Corp. ................... $ 1,924,500 168,340 Pitney Bowes, Inc. ..................... 6,023,205 ------------ 7,947,705 ------------ Oil & Gas Pipelines (2.6%) 381,320 El Paso Corp. .......................... 6,215,516 ------------ Oil & Gas Production (3.2%) 140,150 Newfield Exploration Co.*............... 7,761,507 ------------ Other Consumer Services (3.1%) 69,178 Apollo Group, Inc. (Class A)*........... 4,246,146 503,210 Orbitz Worldwide, Inc.*................. 3,175,255 ------------ 7,421,401 ------------ Property -- Casualty Insurers (7.3%) 125,480 ACE Ltd. (Cayman Islands)............... 7,056,995 77,491 Allied World Assurance Holdings Ltd. ... 3,374,733 243,600 Aspen Insurance Holdings Ltd. (Bermuda).............................. 7,049,784 ------------ 17,481,512 ------------ Pulp & Paper (2.4%) 908,500 Domtar Corp............................. 5,787,145 ------------ Regional Banks (2.0%) 71,027 Northern Trust Corp. ................... 4,803,556 ------------ Savings Banks (3.6%) 551,000 Hudson City Bancorp, Inc. .............. 8,744,370 ------------ Services to the Health Industry (3.2%) 382,266 HEALTHSOUTH Corp.*...................... 6,146,837 73,300 Omnicare, Inc. ......................... 1,537,834 ------------ 7,684,671 ------------ Specialty Stores (1.8%) 377,860 Office Depot, Inc.*..................... 4,296,268 ------------ Trucks/Construction/Farm Machinery (1.8%) 245,487 Tata Motors Ltd (ADR) (India)........... 4,300,932 ------------ Total Common Stocks (Cost $232,134,204)..................... 230,392,276 ------------ Investment Trusts/Mutual Funds (2.1%) 93,900 Market Vectors Gold Miners ETF (Cost $3,462,957)............................ 4,987,968 ------------ NUMBER OF SHARES (000) - ------------ Short-Term Investment (a) (2.6%) Investment Company 6,196 Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class (Cost $6,195,892)................ 6,195,892 ------------
Total Investments (Cost $241,793,053)(b)..................... 100.8% 241,576,136 Liabilities in Excess of Other Assets...... (0.8) (1,849,925) ----- ------------ Net Assets................................. 100.0% $239,726,211 ===== ============
- ------------ ADR American Depositary Receipt * Non-income producing security. (a) See note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class. (b) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $31,566,926 and the aggregate gross unrealized depreciation is $31,783,843, resulting in net unrealized depreciation of $216,917.
See Notes to Financial Statements 8 Morgan Stanley Mid-Cap Value Fund SUMMARY OF INVESTMENTS BY INDUSTRY - FEBRUARY 29, 2008 (UNAUDITED)
PERCENT OF TOTAL INDUSTRY VALUE INVESTMENTS - ----------------------------------------------------------------------------------- Electric Utilities..................................... $ 22,068,536 9.1% Property -- Casualty Insurers.......................... 17,481,512 7.2 Household/Personal Care................................ 12,262,325 5.1 Savings Banks.......................................... 8,744,370 3.6 Integrated Oil......................................... 8,309,792 3.4 Medical Specialties.................................... 8,262,675 3.4 Office Equipment/Supplies.............................. 7,947,705 3.3 Oil & Gas Production................................... 7,761,507 3.2 Services To The Health Industry........................ 7,684,671 3.2 Other Consumer Services................................ 7,421,401 3.1 Insurance Brokers/Services............................. 7,367,274 3.0 Electronic Equipment/Instruments....................... 6,866,482 2.8 Food: Major Diversified................................ 6,818,293 2.8 Miscellaneous Manufacturing............................ 6,800,944 2.8 Aerospace & Defense.................................... 6,691,568 2.8 Oil & Gas Pipelines.................................... 6,215,516 2.6 Investment Company..................................... 6,195,892 2.6 Information Technology Services........................ 6,063,601 2.5 Investment Banks/Brokers............................... 6,000,121 2.5 Industrial Specialties................................. 5,996,851 2.5 Medical Distributors................................... 5,835,326 2.4 Drugstore Chains....................................... 5,834,404 2.4 Electronic Components.................................. 5,796,267 2.4 Pulp & Paper........................................... 5,787,145 2.4 Computer Peripherals................................... 5,777,688 2.4 Investment Managers.................................... 5,717,996 2.4 Biotechnology.......................................... 5,276,802 2.2 Investment Trusts/Mutual Funds......................... 4,987,968 2.1 Home Furnishings....................................... 4,887,537 2.0 Regional Banks......................................... 4,803,556 2.0 Trucks/Construction/Farm Machinery..................... 4,300,932 1.8 Specialty Stores....................................... 4,296,268 1.8 Finance/Rental/Leasing................................. 3,704,075 1.5 Department Stores...................................... 1,609,136 0.7 ------------ ----- $241,576,136 100.0% ============ =====
See Notes to Financial Statements 9 Morgan Stanley Mid-Cap Value Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities February 29, 2008 (unaudited) Assets: Investments in securities, at value (cost $235,597,161)......... $235,380,244 Investment in affiliate, at value (cost $6,195,892)............. 6,195,892 Cash............................................................ 24,572 Receivable for: Dividends.................................................... 439,982 Investments sold............................................. 271,976 Shares of beneficial interest sold........................... 265,545 Dividends from affiliate..................................... 24,489 Interest..................................................... 1,950 Prepaid expenses and other assets............................... 20,564 Receivable from Distributor..................................... 893 ------------ Total Assets................................................. 242,626,107 ------------ Liabilities: Payable for: Investments purchased........................................ 2,197,781 Shares of beneficial interest redeemed....................... 373,763 Investment advisory fee...................................... 140,825 Distribution fee............................................. 36,121 Administration fee........................................... 15,744 Transfer agent fee........................................... 5,246 Accrued expenses and other payables............................. 130,416 ------------ Total Liabilities............................................ 2,899,896 ------------ Net Assets................................................... $239,726,211 ============ Composition of Net Assets: Paid-in-capital................................................. $238,566,748 Net unrealized depreciation..................................... (216,917) Accumulated undistributed net investment income................. 387,218 Accumulated undistributed net realized gain..................... 989,162 ------------ Net Assets................................................... $239,726,211 ============ Class A Shares: Net Assets...................................................... $17,074,381 Shares Outstanding (unlimited authorized, $.01 par value)....... 1,923,085 Net Asset Value Per Share.................................... $8.88 ===== Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value).............. $9.37 ===== Class B Shares: Net Assets...................................................... $32,092,400 Shares Outstanding (unlimited authorized, $.01 par value)....... 3,893,715 Net Asset Value Per Share.................................... $8.24 ===== Class C Shares: Net Assets...................................................... $7,210,126 Shares Outstanding (unlimited authorized, $.01 par value)....... 871,303 Net Asset Value Per Share.................................... $8.28 ===== Class D Shares: Net Assets...................................................... $183,349,304 Shares Outstanding (unlimited authorized, $.01 par value)....... 20,263,930 Net Asset Value Per Share.................................... $9.05 =====
See Notes to Financial Statements 10 Morgan Stanley Mid-Cap Value Fund FINANCIAL STATEMENTS continued Statement of Operations For the six months ended February 29, 2008 (unaudited) Net Investment Income: Income Dividends....................................................... $ 1,876,800 Dividends from affiliate........................................ 176,177 Interest........................................................ 175,135 ------------ Total Income................................................. 2,228,112 ------------ Expenses Investment advisory fee......................................... 995,598 Transfer agent fees and expenses................................ 322,453 Distribution fee (Class A shares)............................... 22,897 Distribution fee (Class B shares)............................... 192,133 Distribution fee (Class C shares)............................... 40,694 Administration fee.............................................. 110,622 Shareholder reports and notices................................. 93,860 Registration fees............................................... 26,827 Professional fees............................................... 23,900 Custodian fees.................................................. 14,569 Trustees' fees and expenses..................................... 1,663 Other........................................................... 16,807 ------------ Total Expenses............................................... 1,862,023 Less: amounts waived/reimbursed................................. (5,625) Less: expense offset............................................ (1,956) ------------ Net Expenses................................................. 1,854,442 ------------ Net Investment Income........................................ 373,670 ------------ Net Realized and Unrealized Gain (Loss): Net realized gain............................................... 13,253,628 Net change in unrealized appreciation/depreciation.............. (37,052,364) ------------ Net Loss..................................................... (23,798,736) ------------ Net Decrease.................................................... $(23,425,066) ============
See Notes to Financial Statements 11 Morgan Stanley Mid-Cap Value Fund FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 29, 2008 AUGUST 31, 2007 ----------------- --------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income............................. $ 373,670 $ 977,609 Net realized gain................................. 13,253,628 59,974,331 Net change in unrealized appreciation/depreciation....................... (37,052,364) (2,599,661) ------------ ------------ Net (Decrease) Increase........................ (23,425,066) 58,352,279 ------------ ------------ Dividends and Distributions to Shareholders from: Net investment income Class A shares................................. (40,823) (27,967) Class D shares................................. (925,131) (834,891) Net realized gain Class A shares................................. (4,428,696) (1,747,287) Class B shares................................. (9,591,552) (5,332,448) Class C shares................................. (2,024,591) (976,501) Class D shares................................. (49,299,460) (24,088,069) ------------ ------------ Total Dividends and Distributions.............. (66,310,253) (33,007,163) ------------ ------------ Net increase (decrease) from transactions in shares of beneficial interest................... 34,860,438 (14,932,054) ------------ ------------ Net (Decrease) Increase........................ (54,874,881) 10,413,062 Net Assets: Beginning of period............................... 294,601,092 284,188,030 ------------ ------------ End of Period (Including accumulated undistributed net investment income of $387,218 and $979,502, respectively)..................................... $239,726,211 $294,601,092 ============ ============
See Notes to Financial Statements 12 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Mid-Cap Value Fund (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 above- average total return. Fund was organized as a Massachusetts business trust on April 12, 2001 and commenced operations on October 29, 2001. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within eighteen months, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. Effective March 31, 2008, Class D shares will be renamed Class I shares. The Fund will assess a 2% redemption fee, on Class A shares, Class B shares, Class C shares, and Class D shares, which is paid directly to the Fund, for shares redeemed or exchanged within seven days of purchase, subject to certain exceptions. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (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 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 including circumstances under which Morgan Stanley Investment Advisors Inc. (the "Investment Adviser"), determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. Occasionally, developments affecting the closing prices of securities and other 13 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued 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 NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; (7) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (8) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities and are included in interest income. Interest income is accrued daily. C. Multiple Class Allocations -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. D. Futures Contracts -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. E. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is 14 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund adopted the provisions of the Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48") Accounting for Uncertainty in Income Taxes on February 28, 2008. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended February 29, 2008, remains subject to examination by taxing authorities. F. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. G. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Advisory/Administration Agreements Pursuant to an Investment Advisory Agreement with the Investment Adviser, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined at the close of each business day: 0.72% to the portion of the daily net assets not exceeding $1 billion; and 0.65% to the portion of the daily net assets exceeding $1 billion. Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund's daily net assets. Under an agreement between the Administrator and State Street Bank and Trust Company ("State Street"), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund. 3. Plan of Distribution Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser and Administrator. The Fund has adopted a Plan of Distribution (the "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 15 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued the average daily net assets of Class A shares; (ii) Class B -- up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C shares. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $277,164 at February 29, 2008. At February 29, 2008, included in the Statement of Assets and Liabilities, is a receivable from the Fund's Distributor, an affiliate, which represents payments due to be reimbursed to the Fund under the Plan. Because the Plan is what is referred to as a "reimbursement plan", the Distributor reimburses to the Fund any 12b-1 fees collected in excess of the actual distribution expenses incurred. This receivable represents this excess amount as of February 29, 2008. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the six months ended February 29, 2008, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24% and 0.99%, respectively. The Distributor has informed the Fund that for the six months ended February 29, 2008, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $91, $21,268 and $1,156, respectively and received $9,210 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. Security Transactions and Transactions with Affiliates The Fund invests in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative 16 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued service fees paid by Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class. For the six months ended February 29, 2008, advisory fees paid were reduced by $5,625 relating to the Fund's investment in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class. Income distributions earned by the Fund are recorded as dividends from affiliate in the Statement of Operations and totaled $176,177 for the six months ended February 29, 2008. During the six months ended February 29, 2008, cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class aggregated $41,332,274 and $54,768,462, respectively. The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended February 29, 2008 aggregated $55,512,258 and $79,546,707, respectively. Included in the aforementioned transactions are purchases and sales of $412,819 and $1,617,759, respectively, with other Morgan Stanley funds, including realized losses of $359,327 For the six months ended February 29, 2008, the Fund incurred brokerage commissions of $2,220 with Morgan Stanley & Co., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund. Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 5. Federal Income Tax Status The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary 17 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. As of August 31, 2007, the Fund had temporary book/tax differences primarily attributable to capital loss defferals on wash sales. 6. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
FOR THE SIX MONTHS ENDED FOR THE YEAR FEBRUARY 29, 2008 ENDED ------------------------- AUGUST 31, 2007 (unaudited) ------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ CLASS A SHARES Sold.................................. 171,043 $ 2,142,517 256,736 $ 3,175,422 Conversion from Class B............... 130,929 1,337,493 209,533 2,598,416 Reinvestment of distributions......... 418,995 4,118,719 138,984 1,627,510 Redeemed.............................. (282,358) (3,139,098) (373,287) (4,664,653) ---------- ------------ ---------- ------------ Net increase - Class A................ 438,609 4,459,631 231,966 2,736,695 ---------- ------------ ---------- ------------ CLASS B SHARES Sold.................................. 108,334 1,223,861 249,242 2,937,732 Conversion to Class A................. (122,540) (1,337,493) (220,634) (2,598,416) Reinvestment of distributions......... 954,012 8,719,674 422,544 4,707,142 Redeemed.............................. (560,653) (5,698,115) (1,128,673) (13,351,355) ---------- ------------ ---------- ------------ Net increase (decrease) - Class B..... 379,153 2,907,927 (677,521) (8,304,897) ---------- ------------ ---------- ------------ CLASS C SHARES Sold.................................. 73,379 787,612 78,580 937,327 Reinvestment of distributions......... 204,707 1,879,207 83,083 928,034 Redeemed.............................. (119,284) (1,246,452) (168,502) (2,000,435) ---------- ------------ ---------- ------------ Net increase (decrease) - Class C..... 158,802 1,420,367 (6,839) (135,074) ---------- ------------ ---------- ------------ CLASS D SHARES Sold.................................. 926,970 9,973,916 1,975,192 24,806,412 Reinvestment of distributions......... 4,229,634 42,380,933 1,757,267 20,876,328 Redeemed.............................. (2,388,080) (26,282,336) (4,360,733) (54,911,518) ---------- ------------ ---------- ------------ Net increase (decrease) - Class D..... 2,768,524 26,072,513 (628,274) (9,228,778) ---------- ------------ ---------- ------------ Net increase (decrease) in Fund....... 3,745,088 $ 34,860,438 (1,080,668) $(14,932,054) ========== ============ ========== ============
18 Morgan Stanley Mid-Cap Value Fund NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2008 (UNAUDITED) continued 7. Purposes of and Risks Relating to Certain Financial Instruments To hedge against adverse interest rate, foreign currency and market risks, the Fund may purchase and sell interest rate, currency and index futures ("futures contracts"). Futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 8. Expense Offset The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent. 9. Accounting Pronouncement In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Trust's financial statement disclosures. 19 Morgan Stanley Mid-Cap Value Fund FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------- FEBRUARY 29, 2008 2007 2006 2005 2004 2003 ----------------- ------- ------- ------- ------ ------ (unaudited) Class A Shares Selected Per Share Data: Net asset value, beginning of period......... $12.67 $11.68 $12.46 $11.08 $10.11 $ 8.19 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++............ 0.01 0.04 0.03 (0.02) (0.02) (0.03) Net realized and unrealized gain (loss)... (0.84) 2.36 1.25 2.52 0.99 1.95 ------ ----- ----- ----- ----- ----- Total income (loss) from investment operations.................................. (0.83) 2.40 1.28 2.50 0.97 1.92 ------ ----- ----- ----- ----- ----- Less dividends and distributions from: Net investment income..................... (0.03) (0.02) -- -- -- -- Net realized gain......................... (2.93) (1.39) (2.06) (1.12) -- -- ------ ------ ------ ------ ----- ----- Total dividends and distributions............ (2.96) (1.41) (2.06) (1.12) -- -- ------ ------ ------ ------ ----- ----- Net asset value, end of period............... $ 8.88 $12.67 $11.68 $12.46 $11.08 $10.11 ====== ====== ====== ====== ====== ====== Total Return+................................ (8.81)%(1) 21.51 % 11.30% 23.55 % 9.50 % 23.63 % Ratios to Average Net Assets(3): Total expenses (before expense offset)....... 1.40 %(2)(4) 1.40 % (4)1.39% 1.40 % 1.40 % 1.47 % Net investment income (loss)................. 0.21 %(2)(4) 0.28 %(4) 0.23% (0.08)% (0.14)% (0.39)% Supplemental Data: Net assets, end of period, in thousands...... $17,074 $18,806 $14,634 $11,757 $3,878 $3,173 Portfolio turnover rate...................... 21 %(1) 80 % 52% 72 % 151 % 165 %
- ---------- ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized (2) Annualized (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements 20 Morgan Stanley Mid-Cap Value Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED ----------------------------------------------- FEBRUARY 29, 2008 2007 2006 2005 2004 2003 ----------------- ------- ------- ------- ------- ------- (unaudited) Class B Shares Selected Per Share Data: Net asset value, beginning of period......... $11.99 $11.18 $12.09 $10.85 $9.98 $ 8.15 ------ ------ ------ ------ ----- ------ Income (loss) from investment operations: Net investment loss++..................... (0.03) (0.06) (0.06) (0.09) (0.10) (0.09) Net realized and unrealized gain (loss)... (0.79) 2.26 1.21 2.45 0.97 1.92 ------- ----- ----- ----- ----- ----- Total income (loss) from investment operations.................................. (0.82) 2.20 1.15 2.36 0.87 1.83 ------ ----- ----- ----- ----- ----- Less distributions from net realized gain.... (2.93) (1.39) (2.06) (1.12) -- -- ------ ------ ------ ------ ----- ----- Net asset value, end of period............... $ 8.24 $11.99 $11.18 $12.09 $10.85 $ 9.98 ====== ====== ====== ====== ====== ====== Total Return+................................ (9.15)%(1) 20.48 % 10.48 % 22.58 % 8.72 % 22.45 % Ratios to Average Net Assets(3): Total expenses (before expense offset)....... 2.15 %(2)(4) 2.16 %(4) 2.15 % 2.16 % 2.16 % 2.24 % Net investment loss.......................... (0.54)%(2)(4) (0.48)%(4)(0.53)% (0.84)% (0.90)% (1.16)% Supplemental Data: Net assets, end of period, in thousands...... $32,092 $42,122 $46,862 $56,389 $60,987 $56,823 Portfolio turnover rate...................... 21 %(1) 80 % 52 % 72 % 151 % 165 %
- ---------- ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized (2) Annualized (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements 21 Morgan Stanley Mid-Cap Value Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED --------------------------------------------- FEBRUARY 29, 2008 2007 2006 2005 2004 2003 ----------------- ------- ------ ------ ------ ------ (unaudited) Class C Shares Selected Per Share Data: Net asset value, beginning of period......... $12.02 $11.21 $12.11 $10.86 $ 9.98 $ 8.15 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment loss++..................... (0.03) (0.06) (0.06) (0.08) (0.09) (0.09) Net realized and unrealized gain (loss)... (0.78) 2.26 1.22 2.45 0.97 1.92 ------ ----- ----- ----- ----- ----- Total income (loss) from investment operations.................................. (0.81) 2.20 1.16 2.37 0.88 1.83 ------ ----- ----- ----- ----- ----- Less distributions from net realized gain.... (2.93) $ (1.39) (2.06) (1.12) -- -- ------ ------- ------ ------ ----- ----- Net asset value, end of period............... $ 8.28 $12.02 $11.21 $12.11 $10.86 $ 9.98 ====== ====== ====== ====== ====== ====== Total Return+................................ (9.11)%(1) 20.52 % 10.56 % 22.66 % 8.82 % 22.45 % Ratios to Average Net Assets(3): Total expenses (before expense offset)....... 2.14 %(2)(4) 2.15 %(4) 2.13 % 2.04 % 2.08 % 2.24 % Net investment loss.......................... (0.53)%(2)(4) (0.47)%(4) (0.51)% (0.72)% (0.82)% (1.16)% Supplemental Data: Net assets, end of period, in thousands...... $7,210 $8,563 $8,061 $8,268 $8,119 $7,238 Portfolio turnover rate...................... 21 %(1) 80 % 52 % 72 % 151 % 165 %
- ---------- ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized (2) Annualized (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements 22 Morgan Stanley Mid-Cap Value Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED ---------------------------------------------------------- FEBRUARY 29, 2008 2007 2006 2005 2004 2003 ----------------- -------- -------- -------- ----------- ----------- (unaudited) Class D Shares Selected Per Share Data: Net asset value, beginning of period......... $12.87 $11.84 $ 4.37 $ 2.94 $ 1.94 $ 0.00 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++............ 0.03 0.07 0.06 0.02 0.01 (0.01) Net realized and unrealized gain (loss)... (0.86) 2.40 1.26 2.53 0.99 1.95 ------ ----- ----- ----- ----- ----- Total income (loss) from investment operations.................................. (0.83) 2.47 1.32 2.55 1.00 1.94 ------ ----- ----- ----- ----- ----- Less dividends and distributions from: Net investment income..................... (0.06) (0.05) -- -- -- -- Net realized gain......................... (2.93) (1.39) (2.06) (1.12) -- -- ------ ------ ------ ------ ----------- ----------- Total dividends and distributions............ (2.99) (1.44) (2.06) (1.12) -- -- ------ ------ ------ ------ ----------- ----------- Net asset value, end of period............... $ 9.05 $12.87 $ 3.63 $ 4.37 $ 2.94 $ 1.94 ====== ====== ====== ====== ====== ====== Total Return+................................ (8.71)%(1) 21.81% 11.54% 23.87% 9.75% 23.63 % Ratios to Average Net Assets(3): Total expenses (before expense offset)....... 1.16 %(2)(4) 1.16%(4) 1.15% 1.16% 1.16% 1.24 % Net investment income (loss)................. 0.45 %(2)(4) 0.52%(4) 0.47% 0.16% 0.10% (0.16)% Supplemental Data: Net assets, end of period, in thousands...... $183,349 $225,109 $214,631 $259,160 $236,039 $209,035 Portfolio turnover rate...................... 21 %(1) 80% 52% 72% 151% 165 %
- ---------- ++ 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. (4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio -- Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements 23 TRUSTEES Frank L. Bowman Michael Bozic Kathleen A. Dennis James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael F. Klein Michael E. Nugent W. Allen Reed Fergus Reid OFFICERS Michael E. Nugent Chairperson of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 LEGAL COUNSEL Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 522 Fifth Avenue New York, New York 10036 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read Prospectus carefully before investing. Morgan Stanley Distributors Inc., member FINRA. (c) 2008 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Mid-Cap Value Fund Semiannual Report February 29, 2008 MDPSAN IU08-02124-P-Y02/08 Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports filed by closed-end funds. Item 9. Closed-End Fund Repurchases Applicable to reports filed by closed-end funds. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Mid-Cap Value Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 17, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 17, 2008 /s/ Francis Smith Francis Smith Principal Financial Officer April 17, 2008 3 EX-99.CERT 2 y51173exv99wcert.txt CERTIFICATIONS EXHIBIT 12 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 Mid-Cap Value Fund; 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 4 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; 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 over financial reporting. Date: April 17, 2008 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 5 EXHIBIT 12 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 Mid-Cap Value Fund; 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-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 6 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; 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 over financial reporting. Date: April 17, 2008 /s/ Francis Smith Francis Smith Principal Financial Officer 7 EX-99.906CERT 3 y51173exv99w906cert.txt CERTIFICATIONS 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 Mid-Cap Value Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 29, 2008 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: April 17, 2008 /s/ Ronald E. Robison ---------------------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Mid-Cap Value Fund and will be retained by Morgan Stanley Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. 8 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 Mid-Cap Value Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended February 29, 2008 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: April 17, 2008 /s/ Francis Smith ---------------------------------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Mid-Cap Value Fund and will be retained by Morgan Stanley Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. 9 -----END PRIVACY-ENHANCED MESSAGE-----