-----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, Hb1Eencf5UAJfiDl0mdrkU5COMkAv8YHuqFtjN54/A+R4ECup7JjR+EMU7xqrwUS 6kQhVrCRyk73uwj8oE45+Q== 0001047469-03-041210.txt : 20031217 0001047469-03-041210.hdr.sgml : 20031217 20031217123757 ACCESSION NUMBER: 0001047469-03-041210 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031217 EFFECTIVENESS DATE: 20031217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY MID CAP VALUE FUND CENTRAL INDEX KEY: 0001137876 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-10359 FILM NUMBER: 031059366 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBOSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 N-CSR/A 1 a2124357zn-csra.txt N-CSR/A 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) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: August 31, 2003 Date of reporting period: August 31, 2003 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 ANNUAL 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 THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. FUND REPORT FOR THE YEAR ENDED AUGUST 31, 2003 TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
S&P LIPPER MID-CAP MID-CAP CORE CLASS A CLASS B CLASS C CLASS D 400 INDEX(1) FUNDS INDEX(2) 23.44% 22.45% 22.45% 23.63% 18.42% 20.49%
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE FUND'S TOTAL RETURN FIGURES ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS, BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE INFORMATION. MARKET CONDITIONS At the beginning of the 12-month period ended August 31, 2003, corporate malfeasance, geopolitical and terrorism concerns and a sluggish economy all weighed heavily on the market. Equities recovered briefly during October and November; however, as investors responded positively to third-quarter earnings announcements and the Federal Reserve cut short-term interest rates to levels not seen since 1961, stocks went on to give back much of their gains during the next three months amid ongoing concerns about Iraq. Starting in mid-March, though, equity markets staged a powerful rally. Investors reacted positively to the swift U.S. victory in Iraq as well as encouraging economic data and reports of corporate earnings that exceeded expectations. Long-term bond yields declined and mortgage rates fell to record lows (before subsequently rising again), triggering an increase in refinancing activity. By the end of the period, investor pessimism about exogenous issues had largely been replaced by cautious optimism, buoyed by a nascent economic and capital markets recovery. PERFORMANCE ANALYSIS The Fund's outperformance of its benchmark, the Standard & Poor's Mid-Cap 400 Index, was driven primarily by stock selection, particularly within the technology, financial services, and utilities sectors. The Fund benefited from a number of technology stocks that rallied strongly from the depressed levels at which we'd initiated or increased positions. We focused on companies with strong balance sheets, particularly software and semiconductor-related names that were among the top contributors within the sector. Within financial services, the Fund enjoyed solid performance in the areas of insurance and reinsurance as well as credit and finance. Finally, a number of the Fund's utilities holdings benefited from a reduction in liquidity fears as many companies took significant steps to improve their balance sheets through debt refinancing or asset sales. Sector allocations also contributed somewhat to relative performance during the period, particularly the Fund's overweightings in technology and health care. On the negative side, a slight overweighting in basic resources and underweighting in retail were marginal detractors. Stock selection within a number of consumer-oriented sectors, including retail and consumer services, also hurt the Fund's relative performance. During the period, we increased the Fund's focus on companies with high levels of free cash flow. We view free cash flow as a valuable attribute because it enables companies to initiate or increase dividends, repurchase stock or reinvest in their businesses. We slightly increased the extent of the Fund's technology overweighting, reflecting our more favorable outlook for growth in business spending versus growth in consumer spending. We also increased exposure to financial services and 2 utilities, in each case moving from an underweighting to a slight overweighting. We reduced exposure to consumer services and nondurables, and continued to underweight consumer-related sectors generally. Finally, we moved from an overweighting to a modest underweighting in health care, primarily by reducing exposure to health care services and health technology. TOP 10 HOLDINGS Gilead Sciences Inc. 1.7% Williams Companies Inc. 1.5 Jones Apparel Group Inc. 1.3 The BISYS Group Inc. 1.2 SPX Corp. 1.2 Nationwide Financial Services Inc. 1.0 Siebel Systems Inc. 1.0 Noble Corp. 1.0 National Commerce Financial Corp. 1.0 Compuware Corp. 1.0
TOP FIVE INDUSTRIES Regional Banks 5.6% Biotechnology 5.5 Electric Utilities 4.5 Data Processing Services 4.1 Semiconductors 3.7
SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A PERCENTAGE OF NET ASSETS. PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED AS A RECOMMENDATION TO BUY 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 1. THE FUND'S INVESTMENT MANAGER SEEKS TO IDENTIFY COMPANIES WHOSE EQUITY APPEARS UNDERVALUED, AND MEASURES THE RELATIVE ATTRACTIVENESS OF THE FUND'S CURRENT HOLDINGS AGAINST POTENTIAL PURCHASES. 2. TO IDENTIFY A LIST OF POTENTIAL INVESTMENTS, THE INVESTMENT MANAGER UTILIZES A SCREENING PROCESS AND THEN APPLIES A FUNDAMENTAL ANALYSIS, WHICH INCLUDES SUCH FACTORS AS EARNINGS GROWTH, EARNINGS ESTIMATE REVISIONS, GROWTH STABILITY AND MARKET VALUATION IN ORDER TO ARRIVE AT OVERALL STOCK SELECTION. ANNUAL 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 AND 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) 350-6414, 8:00 AM TO 8:00 PM, ET. ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT http://www.sec.gov. 3 PERFORMANCE SUMMARY [CHART] PERFORMANCE OF A $10,000 INVESTMENT
($ IN THOUSANDS) CLASS A CLASS B CLASS C CLASS D S&P 400(1) LIPPER(2) 29-Oct-01 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 30-Nov-01 $ 10,006 $ 10,560 $ 10,560 $ 10,570 $ 10,600 $ 10,631 28-Feb-02 $ 9,829 $ 10,343 $ 10,343 $ 10,378 $ 11,103 $ 10,794 31-May-02 $ 9,592 $ 10,073 $ 10,072 $ 10,137 $ 11,642 $ 11,102 31-Aug-02 $ 7,770 $ 8,153 $ 8,152 $ 8,224 $ 9,794 $ 9,361 30-Nov-02 $ 8,017 $ 8,393 $ 8,392 $ 8,485 $ 9,840 $ 9,631 28-Feb-03 $ 7,125 $ 7,442 $ 7,442 $ 7,543 $ 9,033 $ 8,810 31-May-03 $ 8,577 $ 8,943 $ 8,942 $ 9,086 $ 10,580 $ 10,296 31-Aug-03 $ 9,592^ $ 9,584^ $ 9,982^ $ 10,167^ $ 11,598 $ 11,279
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH LESS THAN THEIR ORIGINAL COST. THE GRAPH AND TABLE DO 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. 4 AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED AUGUST 31, 2003
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++ 10/29/01 10/29/01 10/29/01 10/29/01 SYMBOL MDFAX MDFBX MDFCX MDFDX - ----------------------------------------------------------------------------------------------------------- 1 YEAR 23.44%(3) 22.45%(3) 22.45%(3) 23.63%(3) 16.96(4) 17.45(4) 21.45(4) SINCE INCEPTION 0.67(3) (0.09)(3) (0.10)(3) 0.91(3) (2.24)(4) (2.29)(4) (0.10)(4)
- ---------- Notes on Performance (1) THE STANDARD AND POOR'S MID-CAP 400 INDEX (S&P 400) IS A MARKET-VALUE WEIGHTED INDEX, THE PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 400 DOMESTIC STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. INDEXES ARE UNMANAGED AND THEIR 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 CORE FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER MID-CAP CORE FUNDS CLASSIFICATION. THE INDEX, WHICH IS ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS REPRESENTED IN THIS INDEX. (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. * 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% FOR SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE. ++ CLASS D HAS NO SALES CHARGE. ^ CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON AUGUST 31, 2003. 5 MORGAN STANLEY MID-CAP VALUE FUND PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- COMMON STOCKS (98.1%) ADVERTISING/MARKETING SERVICES (0.4%) 69,021 DoubleClick Inc.* $ 777,867 19,100 Harte-Hanks Inc. 362,900 ---------------- 1,140,767 ---------------- AEROSPACE & DEFENSE (1.3%) 57,126 Goodrich Corp. 1,486,990 26,275 Lockheed Martin Corp. 1,346,068 25,600 Raytheon Co. 820,736 ---------------- 3,653,794 ---------------- AIR FREIGHT/COURIERS (0.1%) 9,937 CNF Inc. 295,129 ---------------- APPAREL/FOOTWEAR (1.3%) 112,900 Jones Apparel Group, Inc. 3,487,481 ---------------- APPAREL/FOOTWEAR RETAIL (1.0%) 45,700 Abercrombie & Fitch Co. (Class A)* 1,391,108 45,895 Foot Locker, Inc. 760,480 41,400 Too, Inc.* 671,508 ---------------- 2,823,096 ---------------- AUTO PARTS: O.E.M. (0.5%) 15,786 ArvinMeritor, Inc. 297,093 21,825 Lear Corp.* 1,212,379 ---------------- 1,509,472 ---------------- BEVERAGES: ALCOHOLIC (0.3%) 27,100 Constellation Brands Inc. (Class A)* 779,125 ---------------- BIOTECHNOLOGY (5.5%) 31,074 Cephalon, Inc.* 1,378,132 68,425 Gilead Sciences, Inc.* 4,563,947 11,425 ICOS Corp.* 444,889 50,775 IDEC Pharmaceuticals Corp.* 1,764,431 55,400 Medicines Company (The)* 1,587,210 64,000 MGI Pharma, Inc.* 2,469,760 54,750 Trimeris, Inc.* 2,335,087 61,325 Vertex Pharmaceuticals, Inc.* 772,695 ---------------- 15,316,151 ---------------- BROADCASTING (1.3%) 25,400 Citadel Broadcasting Co.* $ 560,832 32,700 Cox Radio, Inc. (Class A)* 789,378 73,425 Westwood One, Inc.* 2,356,942 ---------------- 3,707,152 ---------------- CASINO/GAMING (0.8%) 26,950 GTECH Holdings Corp. 1,142,141 18,600 Harrah's Entertainment, Inc. 770,412 32,786 Park Place Entertainment Corp.* 287,861 ---------------- 2,200,414 ---------------- CHEMICALS: AGRICULTURAL (0.9%) 321,275 IMC Global Inc. 2,515,583 ---------------- CHEMICALS: MAJOR DIVERSIFIED (0.5%) 39,249 Eastman Chemical Co. 1,405,507 5,049 Hercules Inc.* 56,549 ---------------- 1,462,056 ---------------- CHEMICALS: SPECIALTY (0.2%) 16,200 Lubrizol Corp. (The) 550,800 ---------------- COAL (0.2%) 20,800 Arch Coal, Inc. 477,360 ---------------- COMPUTER COMMUNICATIONS (0.9%) 197,743 3Com Corp.* 1,127,135 14,400 Avocent Corp.* 420,480 24,300 Emulex Corp.* 588,303 36,100 McDATA Corp. (Class A)* 366,415 ---------------- 2,502,333 ---------------- CONTAINERS/PACKAGING (1.4%) 99,400 Crown Holdings, Inc.* 737,548 66,088 Pactiv Corp.* 1,327,047 75,038 Sonoco Products Co. 1,708,615 ---------------- 3,773,210 ---------------- CONTRACT DRILLING (1.8%) 20,400 ENSCO International Inc. 570,180 47,467 GlobalSantaFe Corp. 1,177,182 75,925 Noble Corp. (Cayman Islands)* 2,746,966
SEE NOTES TO FINANCIAL STATEMENTS 6
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- 29,875 Pride International, Inc.* $ 510,564 ---------------- 5,004,892 ---------------- DATA PROCESSING SERVICES (4.1%) 116,300 Acxiom Corp.* 1,879,408 35,924 Affiliated Computer Services, Inc. (Class A)* 1,782,190 184,286 BISYS Group, Inc. (The)* 3,381,648 9,000 Certergy Inc. 272,250 85,300 Concord EFS, Inc.* 1,181,405 67,625 DST Systems, Inc.* 2,677,950 1,600 Hewitt Associates, Inc. (Class A)* 39,920 ---------------- 11,214,771 ---------------- DEPARTMENT STORES (0.4%) 25,875 Federated Department Stores, Inc. 1,130,737 ---------------- DISCOUNT STORES (1.1%) 14,476 BJ's Wholesale Club, Inc.* 316,156 66,075 Dollar Tree Stores, Inc.* 2,592,122 ---------------- 2,908,278 ---------------- ELECTRIC UTILITIES (4.5%) 207,800 Allegheny Energy, Inc. 1,926,306 40,750 American Electric Power Co., Inc. 1,153,632 80,600 Aquila, Inc. 195,052 45,300 Constellation Energy Group, Inc. 1,648,467 55,998 DQE, Inc. 825,970 85,476 Edison International* 1,612,077 52,451 Energy East Corp. 1,132,417 41,811 Exelon Corp. 2,462,668 20,500 FirstEnergy Corp. 599,830 12,400 PNM Resources Inc. 339,760 95,700 Reliant Resources, Inc.* 442,134 ---------------- 12,338,313 ---------------- ELECTRICAL PRODUCTS (0.4%) 22,500 Cooper Industries Ltd. (Class A) 1,145,025 ---------------- ELECTRONIC COMPONENTS (2.0%) 96,000 Celestica, Inc.* $ 1,684,800 434,450 Solectron Corp.* 2,576,289 81,825 Vishay Intertechnology, Inc.* 1,347,658 ---------------- 5,608,747 ---------------- ELECTRONIC DISTRIBUTORS (2.3%) 112,300 Avnet, Inc.* 2,027,015 33,750 CDW Corp. 1,741,838 74,099 Tech Data Corp.* 2,471,202 ---------------- 6,240,055 ---------------- ELECTRONIC PRODUCTION EQUIPMENT (0.8%) 71,600 ASML Holding NV (Netherlands)* 1,138,440 47,500 Cadence Design Systems, Inc.* 675,450 12,300 Credence Systems Corp.* 141,327 14,150 Lam Research Corp.* 363,938 ---------------- 2,319,155 ---------------- ELECTRONICS/APPLIANCE STORES (0.3%) 51,700 Hollywood Entertainment Corp.* 898,029 ---------------- ENGINEERING & CONSTRUCTION (0.3%) 23,100 Fluor Corp. 851,004 ---------------- ENVIRONMENTAL SERVICES (0.7%) 45,374 Allied Waste Industries, Inc.* 501,836 41,600 Waste Connections, Inc.* 1,465,568 ---------------- 1,967,404 ---------------- FINANCE/RENTAL/LEASING (2.1%) 195,900 AmeriCredit Corp.* 2,102,007 19,200 CapitalSource, Inc.* 337,920 24,200 CIT Group, Inc. 659,450 21,100 Countrywide Financial Corp. 1,431,635 38,425 GATX Corp. 813,842 26,739 United Rentals, Inc.* 451,354 ---------------- 5,796,208 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 7
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- FINANCIAL CONGLOMERATES (0.4%) 22,700 State Street Corp. $ 997,665 ---------------- FOOD DISTRIBUTORS (0.5%) 51,600 ARAMARK Corp. (Class B)* 1,290,000 ---------------- FOOD RETAIL (1.0%) 87,338 Kroger Co.* 1,677,763 44,500 Safeway Inc.* 1,086,245 ---------------- 2,764,008 ---------------- FOOD: MAJOR DIVERSIFIED (0.3%) 43,675 Sara Lee Corp. 828,952 ---------------- FOOD: MEAT/FISH/DAIRY (0.4%) 34,824 Smithfield Foods, Inc.* 705,186 36,400 Tyson Foods, Inc. (Class A) 407,680 ---------------- 1,112,866 ---------------- GAS DISTRIBUTORS (1.7%) 148,700 Dynegy, Inc. (Class A)* 459,483 50,686 Equitable Resources, Inc. 2,000,576 2,437 KeySpan Corp. 82,249 9,350 Nicor Inc. 317,807 59,073 Sempra Energy 1,757,422 ---------------- 4,617,537 ---------------- HOME FURNISHINGS (0.5%) 55,200 Leggett & Platt, Inc. 1,278,432 ---------------- HOSPITAL/NURSING MANAGEMENT (1.3%) 55,700 Community Health Care* 1,280,543 41,050 LifePoint Hospitals, Inc.* 1,182,651 23,949 Universal Health Services, Inc. (Class B)* 1,192,181 ---------------- 3,655,375 ---------------- HOUSEHOLD/PERSONAL CARE (0.4%) 53,600 Dial Corp. (The) 1,086,472 ---------------- INDUSTRIAL CONGLOMERATES (1.2%) 64,976 SPX Corp.* 3,206,566 ---------------- INDUSTRIAL MACHINERY (1.3%) 21,174 Flowserve Corp.* 445,713 28,749 Kennametal Inc. $ 1,130,411 26,400 Parker-Hannifin Corp. 1,307,328 15,300 Tecumseh Products Co. (Class A) 600,066 ---------------- 3,483,518 ---------------- INDUSTRIAL SPECIALTIES (0.7%) 93,587 GrafTech International Ltd..* 748,696 89,147 RPM International, Inc. 1,215,965 ---------------- 1,964,661 ---------------- INFORMATION TECHNOLOGY SERVICES (1.0%) 162,536 BearingPoint, Inc.* 1,332,795 62,521 PeopleSoft, Inc.* 1,131,630 48,700 Wind River Systems, Inc.* 362,815 ---------------- 2,827,240 ---------------- INSURANCE BROKERS/SERVICES (0.3%) 3,350 Gallagher (Arthur J.) & Co. 90,450 23,700 Willis Group Holdings Ltd. 687,063 ---------------- 777,513 ---------------- INTERNET RETAIL (0.2%) 14,600 InterActiveCorp* 540,346 ---------------- INTERNET SOFTWARE/SERVICES (1.7%) 65,900 Internet Security Systems, Inc.* 823,091 276,204 Siebel Systems, Inc.* 2,784,136 80,100 VeriSign, Inc.* 1,199,097 ---------------- 4,806,324 ---------------- INVESTMENT BANKS/BROKERS (1.9%) 10,700 Bear Stearns Companies, Inc. (The) 748,786 156,200 E*TRADE Group, Inc.* 1,441,726 36,600 LaBranche & Co., Inc. 637,938 5,700 Legg Mason, Inc. 409,431 28,924 Lehman Brothers Holdings, Inc. 1,901,175 ---------------- 5,139,056 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 8
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- INVESTMENT MANAGERS (2.3%) 15,749 Affiliated Managers Group, Inc.* $ 1,067,782 69,700 Amvescap PLC (ADR) (United Kingdom) 1,117,988 69,575 Investors Financial Services Corp. 2,079,597 62,060 Mellon Financial Corp. 1,945,581 7,599 Waddell & Reed Financial, Inc. (Class A) 195,674 ---------------- 6,406,622 ---------------- LIFE/HEALTH INSURANCE (1.0%) 48,200 Lincoln National Corp. 1,707,244 84,200 UnumProvident Corp. 1,187,220 ---------------- 2,894,464 ---------------- MAJOR BANKS (0.7%) 37,463 Comerica, Inc. 1,848,424 ---------------- MAJOR TELECOMMUNICATIONS (0.2%) 95,862 Cincinnati Bell Inc.* 541,620 ---------------- MANAGED HEALTH CARE (2.8%) 34,425 Anthem, Inc.* 2,519,910 101,521 Caremark Rx, Inc.* 2,551,223 41,325 Coventry Health Care, Inc.* 1,939,796 19,000 Health Net Inc.* 604,770 ---------------- 7,615,699 ---------------- MEDICAL SPECIALTIES (1.1%) 20,476 St. Jude Medical, Inc.* 1,066,185 84,800 STERIS Corp.* 1,986,016 ---------------- 3,052,201 ---------------- METAL FABRICATIONS (0.3%) 19,025 Harsco Corp. 741,785 ---------------- MISCELLANEOUS COMMERCIAL SERVICES (0.4%) 7,600 Fair Isaac Corp. 445,360 38,250 The Brink's Co. 625,388 ---------------- 1,070,748 ---------------- MOVIES/ENTERTAINMENT (0.4%) 6,200 International Speedway Corp. (Class A) $ 248,620 64,000 Metro-Goldwyn-Mayer Inc.* 926,720 ---------------- 1,175,340 ---------------- MULTI-LINE INSURANCE (1.7%) 34,700 Hartford Financial Services Group, Inc. (The) 1,846,734 94,725 Nationwide Financial Services, Inc. (Class A) 2,794,388 ---------------- 4,641,122 ---------------- OIL & GAS PIPELINES (1.7%) 16,126 Kinder Morgan Management, LLC* 601,500 447,200 Williams Companies, Inc. (The) 4,082,936 ---------------- 4,684,436 ---------------- OIL & GAS PRODUCTION (1.2%) 15,607 Apache Corp. 1,076,571 821 Cross Timbers Royalty Trust 18,341 110,966 XTO Energy Inc. 2,329,176 ---------------- 3,424,088 ---------------- OIL REFINING/MARKETING (0.7%) 46,099 Valero Energy Corp. 1,816,301 ---------------- OILFIELD SERVICES/EQUIPMENT (2.4%) 9,500 Baker Hughes Inc. 317,870 6,199 Cooper Cameron Corp.* 301,023 85,787 FMC Technologies, Inc.* 2,030,578 10,600 National-Oilwell, Inc.* 207,548 27,087 Schlumberger Ltd. 1,341,077 4,575 Smith International, Inc.* 178,837 18,200 Tidewater, Inc. 522,704 52,412 Varco International, Inc.* 904,107 20,862 Weatherford International Ltd.* 783,994 ---------------- 6,587,738 ----------------
SEE NOTES TO FINANCIAL STATEMENTS 9
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- OTHER CONSUMER SERVICES (0.9%) 250,447 Bally Total Fitness Holding Corp.* $ 2,424,327 ---------------- OTHER METALS/MINERALS (0.3%) 48,697 Olin Corp. 886,772 ---------------- PACKAGED SOFTWARE (3.1%) 3,775 Ascential Software Corp.* 66,063 94,825 BMC Software, Inc.* 1,392,031 456,262 Compuware Corp.* 2,714,759 51,900 Informatica Corp.* 461,391 61,400 NetIQ Corp.* 826,444 105,200 Network Associates, Inc.* 1,464,384 91,400 Quest Software, Inc.* 969,754 46,400 Sybase, Inc.* 784,624 ---------------- 8,679,450 ---------------- PERSONNEL SERVICES (0.4%) 29,899 Manpower, Inc. 1,163,370 ---------------- PHARMACEUTICALS: GENERIC DRUGS (0.4%) 14,399 Barr Laboratories, Inc.* 974,380 ---------------- PHARMACEUTICALS: OTHER (1.2%) 13,800 Biovail Corp. (Canada)* 573,114 81,500 Endo Pharmaceuticals Holdings, Inc.* 1,381,425 63,200 United Therapeutics Corp.* 1,448,544 ---------------- 3,403,083 ---------------- PROPERTY - CASUALTY INSURERS (1.0%) 20,338 American Financial Group, Inc. 444,995 11,536 Everest Re Group, Ltd. (ADR) (Bermuda) 845,589 34,549 Ohio Casualty Corp.* 476,776 34,113 Platinum Underwriters Holdings Ltd. (Bermuda) 926,168 ---------------- 2,693,528 ---------------- PUBLISHING: BOOKS/MAGAZINES (0.2%) 44,475 Reader's Digest Assoc., Inc. (The) (Class A) 541,261 ---------------- PUBLISHING: NEWSPAPERS (0.3%) 35,100 Belo Corp. (Series A) $ 818,532 ---------------- PULP & PAPER (0.7%) 43,525 Bowater, Inc. 1,885,068 ---------------- RECREATIONAL PRODUCTS (0.5%) 40,043 Activision, Inc.* 516,955 42,689 Hasbro, Inc. 789,747 ---------------- 1,306,702 ---------------- REGIONAL BANKS (5.6%) 52,800 Banknorth Group, Inc. 1,483,680 64,553 Charter One Financial, Inc. 2,001,143 17,700 City National Corp. 915,090 25,900 Colonial BancGroup, Inc. (The) 379,435 41,900 Commerce Bancorp, Inc. 1,696,950 31,475 Compass Bancshares, Inc. 1,082,111 39,600 FirstMerit Corp. 1,003,068 32,425 Greater Bay Bancorp 666,982 47,624 Hibernia Corp. (Class A) 988,198 19,974 Mercantile Bankshares Corp. 815,938 109,351 National Commerce Financial Corp. 2,733,775 200 Provident Financial Group, Inc. 5,342 30,876 Zions Bancorporation 1,719,793 ---------------- 15,491,505 ---------------- RESTAURANTS (0.8%) 37,300 Brinker International, Inc.* 1,275,660 10,525 CBRL Group, Inc. 367,112 27,950 Darden Restaurants, Inc. 609,310 ---------------- 2,252,082 ---------------- SAVINGS BANKS (1.6%) 53,700 Astoria Financial Corp. 1,725,918 21,900 GreenPoint Financial Corp. 741,972 7,725 Independence Community Bank Corp. 255,311 89,400 Sovereign Bancorp, Inc. 1,759,392 ---------------- 4,482,593 ---------------- SEMICONDUCTORS (3.7%) 116,144 Fairchild Semiconductor Corp. (Class A)* 2,055,749
SEE NOTES TO FINANCIAL STATEMENTS 10
NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------- 39,800 GlobespanVirata, Inc.* $ 302,878 154,417 Integrated Device Technology, Inc.* 2,154,117 33,164 Intersil Corp. (Class A)* 966,067 25,649 Microchip Technology Inc. 718,428 68,900 National Semiconductor Corp.* 2,007,746 66,137 RF Micro Devices, Inc.* 583,328 162,700 Silicon Storage Technology, Inc.* 1,371,561 ---------------- 10,159,874 ---------------- SPECIALTY INSURANCE (1.9%) 69,374 PMI Group, Inc. (The) 2,454,452 56,672 Radian Group, Inc. 2,697,020 ---------------- 5,151,472 ---------------- SPECIALTY STORES (2.3%) 43,326 Barnes & Noble, Inc.* 1,135,141 110,425 Borders Group, Inc.* 2,135,620 41,413 Linens 'N Things, Inc.* 1,196,836 26,750 Michaels Stores, Inc. 1,215,788 18,975 Pier 1 Imports, Inc. 390,316 9,062 Williams-Sonoma, Inc.* 277,388 ---------------- 6,351,089 ---------------- STEEL (0.1%) 94,525 AK Steel Holding Corp.* 249,546 ---------------- TELECOMMUNICATION EQUIPMENT (1.0%) 57,400 Andrew Corp.* 710,612 571,000 Lucent Technologies Inc.* 1,090,610 54,161 Polycom, Inc.* 929,403 15,074 Powerwave Technologies, Inc.* 127,375 ---------------- 2,858,000 ---------------- TOOLS/HARDWARE (0.6%) 51,800 Stanley Works (The) 1,567,986 ---------------- TRUCKING (0.2%) 20,062 Yellow Corp.* 562,538 ---------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (1.8%) 63,675 AGCO Corp.* 1,405,944 99,800 Federal Signal Corp. $ 2,005,980 32,589 Navistar International Corp.* 1,457,706 ---------------- 4,869,630 ---------------- WHOLESALE DISTRIBUTORS (0.2%) 14,000 Fisher Scientific International, Inc.* 549,080 ---------------- WIRELESS TELECOMMUNICATIONS (0.4%) 130,650 AT&T Wireless Services Inc.* 1,126,203 ---------------- TOTAL COMMON STOCKS (COST $223,044,281) 270,941,731 ---------------- PRINCIPAL AMOUNT IN THOUSANDS - ----------- SHORT-TERM INVESTMENT (1.5%) REPURCHASE AGREEMENT $ 4,284 Joint repurchase agreement account 1.05% due 09/02/03 (dated 08/29/03; proceeds $4,284,500) (a) (COST $4,284,000) 4,284,000 ---------------- TOTAL INVESTMENTS (COST $227,328,281) (b) 99.6% 275,225,731 OTHER ASSETS IN EXCESS OF LIABILITIES 0.4 1,042,395 ----- ---------------- NET ASSETS 100.0% $ 276,268,126 ===== ================
- ---------- ADR AMERICAN DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $235,800,935. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $41,145,806 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,721,010, RESULTING IN NET UNREALIZED APPRECIATION OF $39,424,796. SEE NOTES TO FINANCIAL STATEMENTS 11 MORGAN STANLEY MID-CAP VALUE FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2003 ASSETS: Investments in securities, at value (cost $227,328,281) $ 275,225,731 Receivable for: Investments sold 5,111,042 Shares of beneficial interest sold 1,364,292 Dividends 201,325 Prepaid expenses and other assets 91,340 --------------- TOTAL ASSETS 281,993,730 --------------- LIABILITIES: Payable for: Investments purchased 5,252,675 Investment management fee 177,646 Shares of beneficial interest redeemed 142,615 Distribution fee 52,267 Accrued expenses and other payables 100,401 --------------- TOTAL LIABILITIES 5,725,604 --------------- NET ASSETS $ 276,268,126 =============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 257,448,939 Net unrealized appreciation 47,897,450 Accumulated net realized loss (29,078,263) --------------- NET ASSETS $ 276,268,126 =============== CLASS A SHARES: Net Assets $ 3,172,748 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 313,753 NET ASSET VALUE PER SHARE $ 10.11 =============== Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) $ 10.67 =============== CLASS B SHARES: Net Assets $ 56,822,517 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 5,691,894 NET ASSET VALUE PER SHARE $ 9.98 =============== CLASS C SHARES: Net Assets $ 7,238,283 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 725,050 NET ASSET VALUE PER SHARE $ 9.98 =============== CLASS D SHARES: Net Assets $ 209,034,578 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 20,590,998 NET ASSET VALUE PER SHARE $ 10.15 ===============
SEE NOTES TO FINANCIAL STATEMENTS 12 STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2003 NET INVESTMENT LOSS: INCOME Dividends $ 2,112,052 Interest 100,909 --------------- TOTAL INCOME 2,212,961 --------------- EXPENSES Investment management fee 1,633,679 Transfer agent fees and expenses 633,786 Distribution fee (Class A shares) 6,675 Distribution fee (Class B shares) 492,459 Distribution fee (Class C shares) 59,495 Professional fees 65,721 Registration fees 62,753 Custodian fees 55,902 Shareholder reports and notices 55,345 Trustees' fees and expenses 14,079 Other 6,793 --------------- TOTAL EXPENSES 3,086,687 --------------- NET INVESTMENT LOSS (873,726) --------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss (15,371,350) Net change in unrealized depreciation 70,528,599 --------------- NET GAIN 55,157,249 --------------- NET INCREASE $ 54,283,523 ===============
SEE NOTES TO FINANCIAL STATEMENTS 13 STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (873,726) $ (730,564) Net realized loss (15,371,350) (13,706,913) Net change in unrealized depreciation 70,528,599 (22,631,149) ----------------- ----------------- NET INCREASE (DECREASE) 54,283,523 (37,068,626) ----------------- ----------------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A shares -- (2,609) Class B shares -- (10,258) Class C shares -- (946) Class D shares -- (5,688) ----------------- ----------------- TOTAL DIVIDENDS -- (19,501) ----------------- ----------------- Net increase from transactions in shares of beneficial interest 63,479,985 195,492,745 ----------------- ----------------- NET INCREASE 117,763,508 158,404,618 NET ASSETS: Beginning of period 158,504,618 100,000 ----------------- ----------------- END OF PERIOD $ 276,268,126 $ 158,504,618 ================= =================
- ---------- * Commencement of operations. SEE NOTES TO FINANCIAL STATEMENTS 14 MORGAN STANLEY MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 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. The Fund seeks to achieve its objective by investing primarily in a diversified portfolio of common stocks and other equity securities of companies with market capitalizations in the range of companies included in the S&P Mid-Cap 400 Index (effective September 30, 2003, the Russell Midcap Value Index). The Fund was organized as a Massachusetts business trust on April 12, 2001 and had no operations other than those relating to organizational matters and the issuance of 2,500 shares of beneficial interest by each class for $25,000 of each class to Morgan Stanley Investment Advisors Inc. (the "Investment Manager") to effect the Fund's initial capitalization. The Fund 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 one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded on the New York or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other equity portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) when market quotations are not readily available or the Investment Manager determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (7) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and 15 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. Interest income is accrued daily. C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. 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 MANAGEMENT AGREEMENT Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the annual rate of 0.80% to the net assets of the Fund determined as of the close of each business day. 16 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the 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 $2,123,784 at August 31, 2003. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the year ended August 31, 2003, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.23% and 1.0%, respectively. The Distributor has informed the Fund that for the year ended August 31, 2003, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $25, $188,301 and $7,725, respectively and received $19,338 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 cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended August 31, 2003 aggregated $396,206,058 and $327,131,524, respectively. For the year ended August 31, 2003 the Fund incurred brokerage commissions of $33,526 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. 17 Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At August 31, 2003, the Fund had transfer agent fees and expenses payable of approximately $15,300. 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 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. The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2003 AUGUST 31, 2002 --------------- --------------- Ordinary income -- $ 19,501
As of August 31, 2003, the tax-basis components of accumulated earnings were as follows: Net accumulated earnings -- Capital loss carryforward* $ (15,087,079) Post-October losses (5,518,530) Net unrealized appreciation 39,424,796 -------------- Total accumulated earnings $ 18,819,187 ==============
*As of August 31, 2003, the Fund had a net capital loss carryforward of $15,087,079 of which $4,185 will expire on August 31, 2010 and $15,082,894 will expire on August 31, 2011 to offset future capital gains to the extent provided by regulations. As of August 31, 2003, the Fund had temporary book/tax differences attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year) and capital loss deferrals on wash sales and permanent book/tax differences primarily attributable to a net operating loss. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged and net investment loss was credited $873,726. 18 6. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
FOR THE PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 ------------------------------- ------------------------------- SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- CLASS A SHARES Sold 115,054 $ 961,173 456,608 $ 4,702,139 Reinvestment of dividends -- -- 230 2,454 Redeemed (173,866) (1,426,387) (86,773) (824,149) -------------- -------------- -------------- -------------- Net increase (decrease) -- Class A (58,812) (465,214) 370,065 3,880,444 -------------- -------------- -------------- -------------- CLASS B SHARES Sold 1,366,029 11,463,631 7,771,474 80,153,599 Reinvestment of dividends -- -- 851 9,080 Redeemed (2,293,090) (18,471,458) (1,155,870) (10,499,456) -------------- -------------- -------------- -------------- Net increase (decrease) -- Class B (927,061) (7,007,827) 6,616,455 69,663,223 -------------- -------------- -------------- -------------- CLASS C SHARES Sold 227,668 1,891,523 877,923 8,959,262 Reinvestment of dividends -- -- 83 884 Redeemed (282,157) (2,259,257) (100,967) (932,655) -------------- -------------- -------------- -------------- Net increase (decrease) -- Class C (54,489) (367,734) 777,039 8,027,491 -------------- -------------- -------------- -------------- CLASS D SHARES Sold 13,696,927 111,374,767 12,437,298 121,503,040 Reinvestment of dividends -- -- 435 4,643 Redeemed (4,701,478) (40,054,007) (844,684) (7,586,096) -------------- -------------- -------------- -------------- Net increase -- Class D 8,995,449 71,320,760 11,593,049 113,921,587 -------------- -------------- -------------- -------------- Net increase in Fund 7,955,087 $ 63,479,985 19,356,608 $ 195,492,745 ============== ============== ============== ==============
- ---------- * Commencement of operations. 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 PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 --------------- ----------------- CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.19 $ 10.00 --------------- --------------- Income (loss) from investment operations: Net investment loss++ (0.03) (0.04) Net realized and unrealized gain (loss) 1.95 (1.76) --------------- --------------- Total income (loss) from investment operations 1.92 (1.80) --------------- --------------- Less dividends from net investment income - (0.01) --------------- --------------- Net asset value, end of period $ 10.11 $ 8.19 =============== =============== TOTAL RETURN+ 23.44% (17.99)%(1) RATIOS TO AVERAGE NET ASSETS(3): Expenses 1.47% 1.45%(2)(4) Net investment loss (0.39)% (0.58)%(2)(4) SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 3,173 $ 3,053 Portfolio turnover rate 165% 121%(1)
- ---------- * COMMENCEMENT OF OPERATIONS. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (4) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS RATIOS WOULD HAVE BEEN 1.66% AND (0.79)%, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 20
FOR THE PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 --------------- ----------------- CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.15 $ 10.00 --------------- --------------- Income (loss) from investment operations: Net investment loss++ (0.09) (0.10) Net realized and unrealized gain (loss) 1.92 (1.75) --------------- --------------- Total income (loss) from investment operations 1.83 (1.85) --------------- --------------- Less dividends from net investment income - 0.00# --------------- --------------- Net asset value, end of period $ 9.98 $ 8.15 =============== =============== TOTAL RETURN+ 22.45% (18.47)%(1) RATIOS TO AVERAGE NET ASSETS(3): Expenses 2.24% 2.20%(2)(4) Net investment loss (1.16)% (1.33)%(2)(4) SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 56,823 $ 53,948 Portfolio turnover rate 165% 121%(1)
- ---------- * COMMENCEMENT OF OPERATIONS. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. # LESS THAN $0.005 PER SHARE. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (4) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS RATIOS WOULD HAVE BEEN 2.41% AND (1.54)%, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 21
FOR THE PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 --------------- ----------------- CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.15 $ 10.00 --------------- --------------- Income (loss) from investment operations: Net investment loss++ (0.09) (0.10) Net realized and unrealized gain (loss) 1.92 (1.75) --------------- --------------- Total income (loss) from investment operations 1.83 (1.85) --------------- --------------- Less dividends from net investment income - 0.00# --------------- --------------- Net asset value, end of period $ 9.98 $ 8.15 =============== =============== TOTAL RETURN+ 22.45% (18.48)%(1) RATIOS TO AVERAGE NET ASSETS(3): Expenses 2.24% 2.20%(2)(4) Net investment loss (1.16)% (1.33)%(2)(4) SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 7,238 $ 6,354 Portfolio turnover rate 165% 121%(1)
- ---------- * COMMENCEMENT OF OPERATIONS. ++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. + DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD. # LESS THAN $0.005 PER SHARE. (1) NOT ANNUALIZED. (2) ANNUALIZED. (3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (4) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS RATIOS WOULD HAVE BEEN 2.41% AND (1.54)%, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 22
FOR THE PERIOD FOR THE YEAR OCTOBER 29, 2001* ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 --------------- ----------------- CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.21 $ 10.00 --------------- --------------- Income (loss) from investment operations: Net investment loss++ (0.01) (0.04) Net realized and unrealized gain (loss) 1.95 (1.73) --------------- --------------- Total income (loss) from investment operations 1.94 (1.77) --------------- --------------- Less dividends from net investment income - (0.02) --------------- --------------- Net asset value, end of period $ 10.15 $ 8.21 =============== =============== TOTAL RETURN+ 23.63% (17.76)%(1) RATIOS TO AVERAGE NET ASSETS(3): Expenses 1.24% 1.20%(2)(4) Net investment loss (0.16)% (0.33)%(2)(4) SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 209,035 $ 95,150 Portfolio turnover rate 165% 121%(1)
- ---------- * COMMENCEMENT OF OPERATIONS. ++ 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) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS RATIOS WOULD HAVE BEEN 1.41% AND (0.54)%, RESPECTIVELY. SEE NOTES TO FINANCIAL STATEMENTS 23 MORGAN STANLEY MID-CAP VALUE FUND INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MORGAN STANLEY MID-CAP VALUE FUND: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Mid-Cap Value Fund (the "Fund"), including the portfolio of investments, as of August 31, 2003, and the related statements of operations for the year then ended and the statement of changes in net assets and the financial highlights for the year then ended and the period October 29, 2001 (commencement of operations) through August 31, 2002. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Mid-Cap Value Fund as of August 31, 2003, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the year then ended and the period October 29, 2001 (commencement of operations) through August 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK OCTOBER 15, 2003 24 MORGAN STANLEY MID-CAP VALUE FUND TRUSTEE AND OFFICER INFORMATION INDEPENDENT TRUSTEES:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ------------------------------------ ----------- ------------ -------------------------------------------------------------- Michael Bozic (62) Trustee Since Retired; Director or Trustee of the Retail Funds and TCW/DW c/o Mayer, Brown, Rowe & Maw LLP April 1994 Term Trust 2003 (since April 1994) and the Institutional Funds Counsel to the Independent Directors (since July 2003); formerly Vice Chairman of Kmart Corporation 1675 Broadway (December 1998-October 2000), Chairman and Chief Executive New York, NY Officer of Levitz Furniture Corporation (November 1995- November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (70) Trustee Since Director or Trustee of the Retail Funds and TCW/DW Term Trust c/o Summit Ventures LLC January 1993 2003 (since January 1993) and the Institutional Funds (since 1 Utah Center July 2003); member of the Utah Regional Advisory Board of 201 S. Main Street Pacific Corp.; formerly United States Senator (R-Utah) Salt Lake City, UT (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee of the Retail Funds and TCW/DW c/o Mayer, Brown, Rowe & Maw LLP September Term Trust 2003; (Since September 1997) and the Institutional Counsel to the Independent Directors 1997 Funds (since July 2003); formerly associated with the Allstate 1675 Broadway Companies (1966-1994), most recently as Chairman of The New York, NY Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). NUMBER OF PORTFOLIOS IN FUND COMPLEX NAME, AGE AND ADDRESS OF OVERSEEN INDEPENDENT TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------ -------------- ----------------------------------------------------- Michael Bozic (62) 216 Director of Weirton Steel Corporation. c/o Mayer, Brown, Rowe & Maw LLP Counsel to the Independent Directors 1675 Broadway New York, NY Edwin J. Garn (70) 216 Director of Franklin Covey (time management systems), c/o Summit Ventures LLC BMW Bank of North America, Inc. (industrial loan 1 Utah Center corporation), United Space Alliance (joint venture 201 S. Main Street between Lockheed Martin and the Boeing Company) and Salt Lake City, UT Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (69) 216 Director of The PMI Group Inc. (private mortgage c/o Mayer, Brown, Rowe & Maw LLP insurance); Trustee and Vice Chairman of The Field Counsel to the Independent Directors Museum of Natural History; director of various other 1675 Broadway business and charitable organizations. New York, NY
25
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ------------------------------------ ----------- ------------ -------------------------------------------------------------- Dr. Manuel H. Johnson (54) Trustee Since Chairman of the Audit Committee and Director or Trustee of c/o Johnson Smick International, Inc. July 1991 the Retail Funds and TCW/DW Term Trust 2003 (since July 1991) 2099 Pennsylvania Avenue, N.W. and the Institutional Funds (since July 2003); Senior Partner, Suite 950 Johnson Smick International, Inc., a consulting firm; Washington, D.C. Co-Chairman and a founder of the Group of Seven Council (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (61) Trustee Since Deputy Chairman of the Audit Committee and Director or PMB754 July 2003 Trustee of the Retail Funds and TCW/DW Term Trust 2003 (since 23852 Pacific Coast Highway July 2003) and the Institutional Funds (since August 1994); Malibu, CA previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); President, Kearns & Associates LLC (investment consulting); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (67) Trustee Since Chairman of the Insurance Committee and Director or Trustee c/o Triumph Capital, L.P. July 1991 of the Retail Funds and TCW/DW Term Trust 2003 (since July 445 Park Avenue 1991) and the Institutional Funds (since July 2001); General New York, NY Partner of Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (71) Trustee Since Chairman of the Governance Committee and Director or Trustee 85 Charles Colman Blvd. July 2003 of the Retail Funds and TCW/DW Term Trust 2003 (since Pawling, NY July 2003) and the Institutional Funds (since June 1992); Chairman of Lumelite Plastics Corporation. NUMBER OF PORTFOLIOS IN FUND COMPLEX NAME, AGE AND ADDRESS OF OVERSEEN INDEPENDENT TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------ -------------- ----------------------------------------------------- Dr. Manuel H. Johnson (54) 216 Director of NVR, Inc. (home construction); Chairman c/o Johnson Smick International, Inc. and Trustee of the Financial Accounting Foundation 2099 Pennsylvania Avenue, N.W. (oversight organization of the Financial Accounting Suite 950 Standards Board); Director of RBS Greenwich Capital Washington, D.C. Holdings (financial holding company). Joseph J. Kearns (61) 217 Director of Electro Rent Corporation (equipment PMB754 leasing), The Ford Family Foundation, and the UCLA 23852 Pacific Coast Highway Foundation. Malibu, CA Michael E. Nugent (67) 216 Director of various business organizations. c/o Triumph Capital, L.P. 445 Park Avenue New York, NY Fergus Reid (71) 217 Trustee and Director of certain investment companies 85 Charles Colman Blvd. in the JPMorgan Funds complex managed by JP Morgan Pawling, NY Investment Management Inc.
26 INTERESTED TRUSTEES:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF INTERESTED TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ------------------------------------ ----------- ------------ -------------------------------------------------------------- Charles A. Fiumefreddo (70) Chairman of Since Chairman and Director or Trustee of the Retail Funds and c/o Morgan Stanley Trust the Board July 1991 TCW/DW Term Trust 2003 (since July 1991) and the Institutional Harborside Financial Center, and Trustee Funds (since July 2003); formerly Chief Executive Officer of Plaza Two, the Retail Funds and the TCW/DW Term Trust 2003 (until Jersey City, NJ September 2002). James F. Higgins (55) Trustee Since Director or Trustee of the Retail Funds and TCW/DW Term Trust c/o Morgan Stanley Trust June 2000 2003 (since June 2000) and the Institutional Funds (since Harborside Financial Center, July 2003); Senior Advisor of Morgan Stanley (since Plaza Two, August 2000); Director of the Distributor and Dean Witter Jersey City, NJ Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (59) Trustee Since Director or Trustee of the Retail Funds and TCW/DW Term Trust 1585 Broadway April 1994 2003 (since April 1994) and the Institutional Funds (since New York, NY July 2003); Chairman of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW Inc.; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries. NUMBER OF PORTFOLIOS IN FUND COMPLEX NAME, AGE AND ADDRESS OF OVERSEEN INTERESTED TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE - ------------------------------------ -------------- ----------------------------------------------------- Charles A. Fiumefreddo (70) 216 None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (55) 216 Director of AXA Financial, Inc. and The Equitable c/o Morgan Stanley Trust Life Assurance Society of the United States Harborside Financial Center, (financial services). Plaza Two, Jersey City, NJ Philip J. Purcell (59) 216 Director of American Airlines, Inc. and its parent 1585 Broadway company, AMR Corporation. New York, NY
- ---------- * THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE "RETAIL FUNDS"). ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. *** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY INVESTMENTS LP). 27 OFFICERS:
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ---------------------------- -------------- ------------------ ------------------------------------------------------------------ Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief New York, NY Executive Officer of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President Morgan Stanley Investments LP (since February 2003); President of the Institutional Funds (since July 2003) and President of the Retail Funds and TCW/DW Term Trust 2003 (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Ronald E. Robison (64) Executive Vice Since Chief Global Operations Officer and Managing Director of Morgan 1221 Avenue of the Americas President and April 2003 Stanley Investment Management Inc.; Managing DIrector of Morgan New York, NY Principal Stanley & Co. Incorporated; Managing DIrector of Morgan Stanley; Executive Managing Director, Chief Administrative Officer and Director of Officer the Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003); and the TCW/DW Term Trust 2003 (since April 2003); previously President of the Institutional Funds (March 2001-July 2003) and Director of the Institutional Funds (March 2001-July 2003). Barry Fink (48) Vice President Since General Counsel (since May 2000) and Managing Director (since 1221 Avenue of the Americas and General February 1997 December 2000) of Morgan Stanley Investment Management; Managing New York, NY Counsel Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Chief Legal Officer of Morgan Stanley Investments LP (since July 2002); Vice President of the Institutional Funds (since July 2003); Vice President and Secretary of the Distributor; previously Secretary of the Retail Funds (February 1997-July 2003); previously Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Joseph J. McAlinden (60) Vice President Since July 1995 Managing Director and Chief Investment Officer of the Investment 1221 Avenue of the Americas Manager, Morgan Stanley Investment Management Inc. and Morgan New York, NY Stanley Investments LP; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (36) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. and Morgan Stanley 1221 Avenue of the Americas Investment Management Inc. and Vice President of the New York, NY Institutional Funds (since December 1997) and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance LLP).
28
TERM OF POSITION(S) OFFICE AND NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** - ---------------------------- -------------- ----------------- ------------------------------------------------------------------ Francis Smith (38) Treasurer and Treasurer since Executive Director of the Investment Manager and Morgan Stanley c/o Morgan Stanley Trust Chief Financial July 2003 and Services (since December 2001); previously Vice President of the Harborside Financial Center, Officer Chief Financial Retail Funds (September 2002-July 2003); previously Vice Plaza Two, Officer since President of the Investment Manager and Morgan Stanley Services Jersey City, NJ September 2002 (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (57) Vice President Since July 2003 Executive Director (since December 2002) and Assistant Treasurer c/o Morgan Stanley Trust of the Investment Manager, the Distributor and Morgan Stanley Harborside Financial Center, Services; previously Treasurer of the Retail Funds (April Plaza Two, 1989-July 2003); formerly First Vice President of the Investment Jersey City, NJ Manager, the Distributor and Morgan Stanley Services. Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated and Morgan 1221 Avenue of the Americas Stanley Investment Management Inc.; Secretary of the New York, NY Institutional Funds (since June 1999) and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
- ---------- * THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. 29 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER Barry Fink VICE PRESIDENT and GENERAL COUNSEL Joseph J. McAlinden VICE PRESIDENT Stefanie V. Chang VICE PRESIDENT Francis Smith TREASURER and CHIEF FINANCIAL OFFICER Thomas F. Caloia VICE PRESIDENT Mary E. Mullin SECRETARY TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (C) 2003 Morgan Stanley [MORGAN STANLEY LOGO] 39917RPT-12333I03-AP-9/03 MORGAN STANLEY FUNDS MORGAN STANLEY MID-CAP VALUE FUND ANNUAL REPORT AUGUST 31, 2003 [MORGAN STANLEY LOGO] Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services Applicable only for reports covering fiscal years ending on or after December 15, 2003. Item 5. Audit Committee of Listed Registrants. Applicable only for reports covering periods ending on or after the earlier of (i) the first annual shareholder meeting after January 15, 2004 or (ii) October 31, 2004. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Applicable only to annual reports filed by closed-end funds. Item 8. [Reserved.] Item 9 - 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. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10 Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (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. 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 October 20, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer October 20, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer October 20, 2003 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 December 8, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer December 8, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer December 8, 2003 EX-99.CODEETH 3 a2124357zex-99_codeeth.txt EX-99.CODEETH EXHIBIT 10 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 31, 2003 I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(1) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - ---------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - -------------------------- Date: --------------------- EXHIBIT B INSTITUTIONAL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer Frank Smith - Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL Barry Fink EX-99.CERT 4 a2124357zex-99_cert.txt EX-99.CERT EXHIBIT 10 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) 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) Omitted.] 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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): 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: October 20, 2003 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer EXHIBIT 10 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 6. I have reviewed this report on Form N-CSR of Morgan Stanley Mid-Cap Value Fund; 7. 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; 8. 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; 9. 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) for the registrant and have: b) 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) Omitted.] e) 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 f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 10. 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): c) 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 d) 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: October 20, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer EXHIBIT 10 B3 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) 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) Omitted.] 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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): 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: December 8, 2003 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer EXHIBIT 10 B4 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 6. I have reviewed this report on Form N-CSR of Morgan Stanley Mid-Cap Value Fund; 7. 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; 8. 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; 9. 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) for the registrant and have: b) 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) Omitted.] e) 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 f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 10. 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): c) 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 d) 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: December 8, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer EX-99.906CERT 5 a2124357zex-99_906cert.txt EX-99.906CERT 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 August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: October 20, 2003 /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 Mid-Cap Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Mid-Cap Value Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: October 20, 2003 /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 Mid-Cap Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Mid-Cap Value Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: December 8, 2003 /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 Mid-Cap Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Mid-Cap Value Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: December 8, 2003 /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 Mid-Cap Value Fund and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----