N-CSRS 1 file1.htm





                                  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: 811-06711

Morgan Stanley Special Growth 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: February 28, 2007

Date of reporting period: August 31, 2006


Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Special Growth Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments.

This material must be preceded or accompanied by a prospectus for the fund being offered.

Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.



	Fund Report
	For the six months ended August 31, 2006

Total Return for the 6 Months Ended August 31, 2006

Class A

Class B

Class C

Class D

Russell
2000^®
Growth
Index¹

Lipper
Small-Cap
Growth
Funds
Index²

−9.24%

−9.57%

−9.58%

−9.11%

−5.09

−6.25

The performance of the Fund's four share classes varies because each has different expenses. The Fund's total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information.

Market Conditions

Comments made by the Federal Open Market Committee (the ‘‘Fed’’) regarding future federal funds target rate hikes helped to fuel a market advance early in the first quarter, and higher-volatility segments of the market such as small-cap stocks were the beneficiaries of this renewed optimism. However, this enthusiasm was short-lived, and uneven performance characterized the months of February, March and April as investors digested a series of mixed signals from the economic and corporate fronts. Conditions turned volatile in May and June, as the market encountered a steep sell-off amid the Fed's 16^thand 17^th consecutive rate increases since June 2004. Yet the Fed did leave the rate unchanged in its August meeting. The pause from its monetary tightening policy was well received, and the markets turned modestly positive in August.

The uncertainty overhanging the markets over the past six months proved a difficult hurdle for growth stocks, especially those in the small-capitalization segment, as investors took a ‘‘flight to quality’’ and became more risk averse in the market's more turbulent months. Anticipating a slower economy, investors began rotating out of economically sensitive, or cyclical, sectors such as energy, industrials and materials, and into more defensive sectors such as health care and consumer staples. For the six-month period ending August 31, 2006, small-capitalization stocks, in which the Fund primarily invests, trailed large- and mid-cap stocks.

Performance Analysis

Morgan Stanley Special Growth Fund underperformed the Russell 2000^® Growth Index and the Lipper Small-Cap Growth Funds Index for the six months ended August 31, 2006, assuming no deduction of applicable sales charges.

Overall, the Fund's underperformance during the period relative to the Russell 2000 Growth Index was caused by stock selection, although certain sector allocation decisions did moderately offset the Fund's negative returns.

For the six month period, the Fund's positions in the consumer discretionary, materials and processing and other energy sectors proved detrimental to overall performance. Within the consumer discretionary sector, stock selection in consumer products, restaurants and retail companies combined with a large sector overweight had an adverse impact on relative

returns. In the materials and processing sector, stock selection in construction companies, real estate firms and miscellaneous metals and materials significantly detracted from performance. Within the energy sector, holdings in the select crude oil producers and missed opportunities in the oil equipment industry coupled with a sector underweight proved unfavorable to the Fund.

Despite these drags on overall performance, there were positive decisions that benefited the Fund, specifically in the technology and producer durables sectors. Within the technology sector, stock selection in computer service companies and software firms boosted returns, along with an underweight in this sector. Strategic stock selection of wireless companies coupled with an avoidance of production technology equipment also helped to mitigate declines in the Fund's overall performance.

As of the end of the period, the consumer discretionary sector represented the largest weight in the Fund, and it was also the largest overweight sector relative to the Russell 2000 Growth Index. The heath care and technology sectors also held significant weights within the Fund, although these sectors were underweighted relative to this index.

There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.


TOP 10 HOLDINGS
Advisory Board Co. (The)	3.1	%
Strayer Education, Inc.	3.0
Greenhill & Co., Inc.	2.8
SBA Communications Corp.	2.6
Equinix Inc.	2.5
Stericycle, Inc.	2.5
Desarrolladora Homex S.A. de C.V. (ADR) (Mexico)	2.5
Blue Nile Inc.	2.4
Morningstar, Inc.	2.4
Techne Corp.	2.4


TOP FIVE INDUSTRIES
Other Consumer Services	8.4	%
Restaurants	7.8
Miscellaneous Commercial Services	7.2
Services to the Health Industry	6.2
Internet Software/Services	4.8

Data as of August 31, 2006. Subject to change daily. All percentages for top 10 holdings and top five industries are as a percentage of net assets. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

Investment Strategy

The Fund will normally invest at least 65 percent of its assets in a diversified portfolio of common stocks and other equity securities of small companies with market capitalizations, at the time of purchase, within the capitalization range of securities comprising the Russell 2000^® Growth Index (approximately $24 million to $5.609 billion as of May 31, 2006). The Fund's ‘‘Investment Adviser,’’ Morgan Stanley Investment Advisors Inc., follows a flexible investment program in seeking to achieve the Fund's investment objective. The U.S. Growth Team seeks to invest in high quality companies it believes have sustainable competitive advantages and the ability to redeploy capital at high rates of return. The U.S. Growth Team typically favors companies with rising returns on invested capital, above average business visibility, strong free cash flow generation and attractive risk/reward characteristics. The U.S. Growth Team generally considers selling an investment when it determines the company no longer satisfies its investment criteria.

For MoreInformation About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's public reference room in Washington, DC. Information on the operation of the SEC's public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.

Proxy Voting Policy and Procedures and Proxy Voting Record

You may obtain a copy of the Fund's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov.

You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov.

Householding Notice

To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 350-6414, 8:00 a.m. to 8:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.



	Performance Summary

Average Annual Total Returns — Period Ended August 31, 2006


	Class A Shares* (since 07/28/97)			Class B Shares** (since 08/02/93)			Class C Shares^† (since 07/28/97)			Class D Shares^†† (since 07/28/97)
Symbol	SMPAX			SMPBX			SMPCX			SMPDX
1 Year		2.39%	³		1.64 %	³		1.70 %	³		2.66%	³
		(2.98)	⁴		(3.36)	⁴		0.70	⁴		—
5 Years		(0.76)	³		(1.52)	³		(1.46)	³		(0.53)	³
		(1.83)	⁴		(1.92)	⁴		(1.46)	⁴		—
10 Years		—			1.19	³		—			—
		—			1.19	⁴		—			—
Since Inception		1.90	³		5.48	³		1.14	³		2.13	³
		1.30	⁴		5.48	⁴		1.14	⁴		—

Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please visit www.morganstanley.com or speak with your Financial Advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses.

The maximum front-end sales charge for Class A is 5.25%.

The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years.

†

The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase.

††

Class D has no sales charge.

(1)

The Russell 2000^® Growth Index measures the performance of those companies in the Russell 2000^® Index with higher price-to-book ratios and higher forecasted growth values. 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 Small-Cap Growth Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Small-Cap Growth 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.



	Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 03/01/06 – 08/31/06.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled ‘‘Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.


	Beginning Account Value		Ending Account Value		Expenses Paid During Period*
	03/01/06		08/31/06		03/01/06 – 08/31/06
Class A
Actual (−9.24% return)	$	1,000.00	$	907.60	$	8.56
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,016.23	$	9.05
Class B
Actual (−9.57% return)	$	1,000.00	$	904.30	$	12.14
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,012.45	$	12.83
Class C
Actual (−9.58% return)	$	1,000.00	$	904.20	$	12.14
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,012.45	$	12.83
Class D
Actual (−9.11% return)	$	1,000.00	$	908.90	$	7.36
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,017.49	$	7.78

Expenses are equal to the Fund's annualized expense ratios of 1.78%, 2.53%, 2.53% and 1.53% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). If the Fund had borne all of its expenses that were waived by the Investment Adviser and Administrator, the annualized expense ratios would have been 1.82%, 2.57%, 2.57% and 1.57%, for Class A, Class B, Class C and Class D shares, respectively.

Investment Advisory Agreement Approval

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser under the Advisory Agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund’s Administrator under the Administration Agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser’s expense. (The Investment Adviser and the Administrator together are referred to as the ‘‘Adviser’’ and the Advisory and Administration Agreements together are referred to as the ‘‘Management Agreement.’’) The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper Inc. (‘‘Lipper’’).

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the advisory and administrative services to the Fund. The Board determined that the Adviser’s portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory.

Performance Relative to Comparable Funds Managed by Other Advisers

On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund’s performance for the one-, three- and five-year periods ended November 30, 2005, as shown in a report provided by Lipper (the ‘‘Lipper Report’’), compared to the performance of comparable funds selected by Lipper (the ‘‘performance peer group’’). The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. The Board concluded that the Fund’s performance was competitive with that of its performance peer group.

Fees Relative to Other Proprietary Funds Managed by the Adviser with Comparable
Investment Strategies

The Board reviewed the advisory and administrative fee (together, the ‘‘management fee’’) rate paid by the Fund under the Management Agreement. The Board noted that the management fee rate was comparable to the management fee rates charged by the Adviser to other proprietary funds it manages with investment strategies comparable to those of the Fund.

Fees and Expenses Relative to Comparable Funds Managed by Other Advisers

The Board reviewed the management fee rate and total expense ratio of the Fund as compared to the average management fee rate and average total expense ratio for funds, selected by Lipper (the ‘‘expense peer group’’), managed by other advisers with investment strategies comparable to those of the Fund, as shown in the Lipper Report. The Board concluded that the Fund’s management fee rate and total expense ratio were competitive with those of its expense peer group.

Breakpoints and Economies of Scale

The Board reviewed the structure of the Fund’s management fee schedule under the Management Agreement and noted that it includes breakpoints. The Board also reviewed the level of the Fund's management fee and noted that the fee, as a percentage of the Fund's net assets, would decrease as net assets increase because the management fee includes breakpoints. The Board concluded that the Fund's management fee would reflect economies of scale as assets increase.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund.

Fall-Out Benefits

The Board considered so-called ‘‘fall-out benefits’’ derived by the Adviser and affiliates from their relationship with the Fund and the Morgan Stanley Fund Complex, such as sales charges on sales of Class A shares and ‘‘float’’ benefits derived from handling of checks for purchases and sales of Fund shares, through a broker-dealer affiliate of the Adviser and ‘‘soft dollar’’ benefits (discussed in the next section). The Board also considered that a broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for distribution and shareholder services. The Board also considered that an affiliate of the Adviser sold a joint venture that owned an electronic trading system network (‘‘ECN’’), which may be used by the Adviser for trading on behalf of the Fund. As part of the sale of the joint venture, the affiliate receives a 10-year payout based on the revenue stream from trading on the ECN. Although the affiliate disgorges the portion of the payout that is comprised of commissions received from trades executed by the Adviser on the ECN to a charitable organization, the Board considered the fact that trades by the Adviser would increase order flow, and, thus, result in a potential fall-out benefit to the affiliate. The Board concluded that the float benefits were relatively small, the sales charges and 12b-1 fees were competitive with those of other broker-dealers, the affiliate disgorged revenues in connection with the ECN-related revenue and the potential fall-out benefit from increased order flow was relatively small.

Soft Dollar Benefits

The Board considered whether the Adviser realizes any benefits as a result of brokerage transactions executed through ‘‘soft dollar’’ arrangements. Under such arrangements, brokerage commissions paid by the Fund and/or other funds managed by the Adviser would be used to pay for research that a securities broker obtains from third parties, or to pay for both research and execution services from securities brokers who effect transactions for the Fund. The Adviser informed the Board that it does not use Fund commissions to pay for third party research. It does use commissions to pay for research which is bundled with execution services. The Board recognized that the receipt of such research from brokers may reduce the Adviser’s costs but concluded that the receipt of such research strengthens the investment management resources of the Adviser, which may ultimately benefit the Fund and other funds in the Morgan Stanley Fund Complex.

Adviser Financially Sound and Financially Capable of Meeting the Fund’s Needs

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board noted that the Adviser’s operations remain profitable, although increased expenses in recent years have reduced the Adviser’s profitability. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement.

Historical Relationship Between the Fund and the Adviser

The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund’s operations and the Board’s confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that it is beneficial for the Fund to continue its relationship with the Adviser.

Other Factors and Current Trends

The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund’s Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund’s business.

General Conclusion

After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year.

Morgan Stanley Special Growth Fund

Portfolio of Investments August 31, 2006 (unaudited)


NUMBER OF SHARES			VALUE
		Common Stocks (98.4%)
		Advertising/Marketing Services (1.0%)
	18,405	Focus Media Holdings Ltd. (ADR) (Cayman Islands)*	$	1,085,895
		Apparel/Footwear (0.7%)
	34,747	Carter's, Inc.*		802,656
		Apparel/Footwear Retail (2.8%)
	41,413	Citi Trends Inc.*		1,301,611
	68,172	J. Crew Group, Inc.*		1,726,797
				3,028,408
		Biotechnology (3.9%)
	32,738	Gen-Probe Inc.*		1,591,394
	52,037	Techne Corp.*		2,648,683
				4,240,077
		Commercial Printing/Forms (0.9%)
	38,543	VistaPrint Ltd. (Bermuda)*		945,460
		Computer Communications (0.5%)
	126,609	3Com Corp.*		560,878
		Construction Materials (1.3%)
	31,091	Texas Industries, Inc.		1,459,411
		Electrical Products (0.6%)
	77,363	Spectrum Brands, Inc.*		615,809
		Electronic Components (0.4%)
	29,107	OmniVision Technologies, Inc.*		483,176
		Electronic Production Equipment (1.9%)
	62,978	Tessera Technologies, Inc.*		2,071,976
		Financial Publishing/Services (2.4%)
	69,425	Morningstar, Inc.*		2,656,200
		Food Retail (0.8%)
	19,653	Pantry, Inc. (The)*		920,940
		Forest Products (0.7%)
	16,602	Deltic Timber Corp.		787,433
		Home Building (3.9%)
	30,536	Brookfield Homes Corp.		720,650
	73,099	Desarrolladora Homex S.A. de C.V. (ADR) (Mexico)*		2,709,049
	21,975	Meritage Homes Corp.*		899,876
				4,329,575
		Home Furnishings (1.8%)
	97,275	Select Comfort Corp.*	$	1,930,909
		Hotels/Resorts/Cruiselines (3.2%)
	53,051	Gaylord Entertainment Co.*		2,319,390
	31,177	Vail Resorts, Inc.*		1,172,879
				3,492,269
		Industrial Machinery (1.5%)
	9,768	Middleby Corp.*		767,179
	54,972	Mueller Water Products Inc. (Class A)*		934,524
				1,701,703
		Internet Retail (3.6%)
	77,415	Blue Nile Inc.*		2,656,883
	25,060	Ctrip.com International Ltd. (ADR) (Cayman Islands)		1,293,848
				3,950,731
		Internet Software/Services (4.8%)
	130,682	CNET Networks, Inc.*		1,232,331
	48,737	Equinix Inc.*		2,810,663
	59,871	Websense, Inc.*		1,237,534
				5,280,528
		Investment Banks/Brokers (2.8%)
	55,761	Greenhill & Co., Inc.		3,068,528
		Investment Trusts/Mutual Funds (1.6%)
	53,320	Macquarie Infrastructure Company Trust		1,732,900
		Medical Specialties (3.1%)
	27,347	Adams Respitory Therapeutics, Inc.*		1,115,758
	26,052	Flamel Technologies S.A. (ADR) (France)*		471,281
	17,261	Hologic, Inc.*		745,330
	11,732	IDEXX Laboratories, Inc.*		1,079,461
				3,411,830
		Miscellaneous Commercial Services (7.2%)
	45,125	Copart, Inc.*		1,266,659
	50,660	Costar Group, Inc.*		2,040,585

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Portfolio of Investments August 31, 2006 (unaudited) continued


NUMBER OF SHARES			VALUE
	86,957	IHS Inc. (Class A)*	$	2,609,579
	308,099	SkillSoft PLC (ADR) (Ireland)*		1,956,429
				7,873,252
		Oil & Gas Production (3.3%)
	26,307	GMX Resources Inc.*		838,141
	41,931	Quicksilver Resources Inc.*		1,577,444
	42,255	Range Resources Corp.		1,182,295
				3,597,880
		Other Consumer Services (8.4%)
	73,585	Ambassadors Group, Inc.		2,069,946
	23,706	Bankrate, Inc.*		673,724
	34,799	Coinstar, Inc.*		913,474
	50,110	GMarket, Inc. (ADR) (South Korea)*		677,487
	70,708	HouseValues, Inc.*		419,298
	30,536	Steiner Leisure Ltd.*		1,175,025
	31,351	Strayer Education, Inc.		3,304,395
				9,233,349
		Other Transportation (2.1%)
	68,679	Grupo Aeroportuario del Pacifico SA de CV (ADR) (Mexico)		2,331,652
		Packaged Software (1.3%)
	41,385	Blackboard Inc.*		1,102,910
	51,402	Convera Corp.*		320,234
				1,423,144
		Pharmaceuticals: Other (2.7%)
	69,825	Medicis Pharmaceutical Corp. (Class A)		2,045,174
	37,399	Noven Pharmaceuticals, Inc.*		933,479
				2,978,653
		Real Estate Development (1.1%)
	2,462	Consolidated-Tomoka Land Co.		164,068
	13,233	Jones Lang LaSalle, Inc.		1,101,780
				1,265,848
		Recreational Products (2.3%)
	63,221	Marvel Entertainment, Inc.*		1,355,458
	42,841	WMS Industries, Inc.*		1,148,139
				2,503,597
		Restaurants (7.8%)
	104,602	AFC Enterprises, Inc.	$	1,564,846
	68,449	BJ'S Restaurants Inc.*		1,261,515
	30,628	Chipotle Mexican Grill, Inc. (Class A)*		1,511,185
	64,307	Krispy Kreme Doughnuts, Inc.*		530,533
	72,003	P.F. Chang's China Bistro, Inc.*		2,538,106
	45,717	Peet's Coffee & Tea, Inc.*		1,152,526
				8,558,711
		Services to the Health Industry (6.2%)
	66,410	Advisory Board Co. (The)*		3,374,956
	41,210	Stericycle, Inc.*		2,748,295
	59,696	Visicu Inc.*		724,112
				6,847,363
		Specialty Stores (2.8%)
	59,166	Build-A-Bear-Workshop, Inc.*		1,291,594
	75,283	CKX, Inc.*		750,571
	23,749	Tractor Supply Co.*		1,011,232
				3,053,397
		Specialty Telecommunications (0.8%)
	59,623	IDT Corp. (Class B)*		851,416
		Trucking (2.3%)
	58,567	Landstar System, Inc.		2,500,811
		Wholesale Distributors (2.9%)
	60,673	Beacon Roofing Supply, Inc.*		1,115,170
	55,525	Pool Corp.		2,113,837
				3,229,007
		Wireless Telecommunications (3.0%)
	57,309	FiberTower Corp.*		445,291
	111,659	SBA Communications Corp.*		2,874,103
				3,319,394
		Total Common Stocks (Cost $106,712,205)		108,124,766

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Portfolio of Investments August 31, 2006 (unaudited) continued


PRINCIPAL AMOUNT IN THOUSANDS			VALUE
		Short-Term Investment (1.8%)
		Repurchase Agreement
$	1,946	Joint repurchase agreement account 5.27% due 09/01/06 (dated 08/31/06; proceeds $1,946,285) (a) (Cost $1,946,000)	$	1,946,000


Total Investments (Cost $108,658,205) (b)	100.2	%		110,070,766
Liabilities in Excess of Other Assets	(0.2	)		(222,817	)
Net Assets	100.0	%	$	109,847,949

ADR

American Depositary Receipt.

Non-income producing security.

(a)

Collateralized by federal agency and U.S. Treasury obligations.

(b)

The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $11,787,326 and the aggregate gross unrealized depreciation is $10,374,765, resulting in net unrealized appreciation of $1,412,561.

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Summary of Investments August 31, 2006 (unaudited)


INDUSTRY	VALUE	PERCENT OF NET ASSETS
Other Consumer Services	$ 9,233,349		8.4	%
Restaurants	8,558,711		7.8
Miscellaneous Commercial Services	7,873,252		7.2
Services to the Health Industry	6,847,363		6.2
Internet Software/Services	5,280,528		4.8
Home Building	4,329,575		3.9
Biotechnology	4,240,077		3.9
Internet Retail	3,950,731		3.6
Oil & Gas Production	3,597,880		3.3
Hotels/Resorts/Cruiselines	3,492,269		3.2
Medical Specialties	3,411,830		3.1
Wireless Telecommunications	3,319,394		3.0
Wholesale Distributors	3,229,007		2.9
Investment Banks/Brokers	3,068,528		2.8
Specialty Stores	3,053,397		2.8
Apparel/Footwear Retail	3,028,408		2.8
Pharmaceuticals: Other	2,978,653		2.7
Financial Publishing/Services	2,656,200		2.4
Recreational Products	2,503,597		2.3
Trucking	2,500,811		2.3
Other Transportation	$ 2,331,652		2.1	%
Electronic Production Equipment	2,071,976		1.9
Repurchase Agreement	1,946,000		1.8
Home Furnishings	1,930,909		1.8
Investment Trusts/Mutual Funds	1,732,900		1.6
Industrial Machinery	1,701,703		1.5
Construction Materials	1,459,411		1.3
Packaged Software	1,423,144		1.3
Real Estate Development	1,265,848		1.1
Advertising/Marketing Services	1,085,895		1.0
Commercial Printing/Forms	945,460		0.9
Food Retail	920,940		0.8
Specialty Telecommunications	851,416		0.8
Apparel/Footwear	802,656		0.7
Forest Products	787,433		0.7
Electrical Products	615,809		0.6
Computer Communications	560,878		0.5
Electronic Components	483,176		0.4
	$110,070,766		100.2	%

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Statements

Statement of Assets and Liabilities

August 31, 2006 (unaudited)


Assets:
Investments in securities, at value (cost $108,658,205)	$	110,070,766
Cash		446
Receivable for:
Investments sold		220,732
Dividends		31,918
Shares of beneficial interest sold		6,001
Prepaid expenses and other assets		38,572
Total Assets		110,368,435
Liabilities:
Payable for:
Shares of beneficial interest redeemed		277,543
Investment advisory fee		85,031
Transfer agent fee		52,606
Distribution fee		52,137
Administration fee		7,440
Accrued expenses and other payables		45,729
Total Liabilities		520,486
Net Assets	$	109,847,949
Composition of Net Assets:
Paid-in-capital	$	309,791,842
Net unrealized appreciation		1,412,561
Accumulated net investment loss		(1,037,388	)
Accumulated net realized loss		(200,319,066	)
Net Assets	$	109,847,949
Class A Shares:
Net Assets	$	54,459,723
Shares Outstanding (unlimited authorized, $.01 par value)		2,829,192
Net Asset Value Per Share	$	19.25
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)	$	20.32
Class B Shares:
Net Assets	$	42,650,344
Shares Outstanding (unlimited authorized, $.01 par value)		2,376,285
Net Asset Value Per Share	$	17.95
Class C Shares:
Net Assets	$	5,357,199
Shares Outstanding (unlimited authorized, $.01 par value)		298,568
Net Asset Value Per Share	$	17.94
Class D Shares:
Net Assets	$	7,380,683
Shares Outstanding (unlimited authorized, $.01 par value)		375,590
Net Asset Value Per Share	$	19.65

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Statements continued

Statement of Operations

For the six months ended August 31, 2006 (unaudited)


Net Investment Loss:
Income
Dividends	$	267,200
Interest		40,306
Total Income		307,506
Expenses
Investment advisory fee		588,866
Distribution fee (Class A shares)		75,414
Distribution fee (Class B shares)		256,638
Distribution fee (Class C shares)		33,279
Transfer agent fees and expenses		231,737
Administration fee		51,206
Shareholder reports and notices		50,816
Professional fees		28,586
Registration fees		27,564
Custodian fees		16,680
Trustees' fees and expenses		955
Other		10,966
Total Expenses		1,372,707
Less: amounts waived/reimbursed		(27,093	)
Less: expense offset		(975	)
Net Expenses		1,344,639
Net Investment Loss		(1,037,133	)
Net Realized and Unrealized Gain (Loss):
Net realized gain		8,633,813
Net change in unrealized appreciation		(19,676,161	)
Net Loss		(11,042,348	)
Net Decrease	$	(12,079,481	)

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Statements continued

Statements of Changes in Net Assets


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			FOR THE YEAR ENDED FEBRUARY 28, 2006
	(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment loss	$	(1,037,133	)	$	(2,341,534	)
Net realized gain		8,633,813			46,299,619
Net change in unrealized appreciation		(19,676,161	)		(16,587,958	)
Net Increase (Decrease)		(12,079,481	)		27,370,127
Net decrease from transactions in shares of beneficial interest		(18,275,599	)		(80,285,066	)
Net Decrease		(30,355,080	)		(52,914,939	)
Net Assets:
Beginning of period		140,203,029			193,117,968
End of Period
(Including accumulated net investment losses of $1,037,388 and $255, respectively)	$	109,847,949		$	140,203,029

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited)

1. Organization and Accounting Policies

Morgan Stanley Special Growth 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 capital appreciation. The Fund was organized as a Massachusetts business trust on March 11, 1992 and commenced operations on August 2, 1993. On July 28, 1997, the Fund converted to a multiple class share structure.

The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within eighteen months, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses.

The Fund will assess a 2% redemption fee, on Class A shares, Class B shares, Class C shares, and Class D shares, which is paid directly to the Fund, for shares redeemed within thirty days of purchase, subject to certain exceptions. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading.

The following is a summary of significant accounting policies:

A. Valuation of Investments — (1) an equity portfolio security listed or traded on the New York Stock Exchange (‘‘NYSE’’) or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) when market quotations are not readily available including circumstances under which Morgan Stanley Investment Advisors Inc. (the ‘‘Investment Adviser’’) determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (7) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized 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 Adviser, 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.

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

2. Investment Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement, the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.92% to the portion of the daily net assets not exceeding $1 billion; 0.85% to the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion and 0.80% of the daily net assets exceeding $1.5 billion.

Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the ‘‘Administrator’’), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund's daily net assets.

Effective November 18, 2005, the Investment Adviser has agreed to cap the Fund's operating expenses (except for brokerage and 12b-1 fees) for one year by assuming the Fund's ‘‘other expenses’’ and/or waiving the Fund's advisory fees, and the Administrator has agreed to waive the Fund's administrative fees, to the extent such operating expenses on an annualized basis exceed 1.53% of the average daily net assets of the Fund.

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the ‘‘Distributor’’), an affiliate of the Investment Adviser and Administrator. The Fund has adopted a Plan of Distribution (the ‘‘Plan’’) pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A – up to 0.25% of the average daily net assets of Class A; (ii) Class B – up to 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C – up to 1.0% of the average daily net assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the 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 $21,793,128 at August 31, 2006.

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

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the six months ended August 31, 2006, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.

The Distributor has informed the Fund that for the six months ended August 31, 2006, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $52,129 and $355, respectively and received $4,123 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 six months ended August 31, 2006, aggregated $40,328,693 and $58,546,086, respectively. Included in the aforementioned are purchases of $1,171,121 with other Morgan Stanley funds.

For the six months ended August 31, 2006, the Fund incurred brokerage commissions of $3 with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent.

The Fund has an unfunded Deferred Compensation Plan (the ‘‘Compensation Plan’’) which allows each independent Trustee to defer payment of all, or a portion, of the fees they receive for serving on the Board of Trustees. Each eligible Trustee generally may elect to have their deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

5. Shares of Beneficial Interest^†

Transactions in shares of beneficial interest were as follows:


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006						FOR THE YEAR ENDED FEBRUARY 28, 2006
	(unaudited)
	SHARES			AMOUNT			SHARES			AMOUNT
CLASS A SHARES
Sold		124,558		$	2,524,906			135,773		$	2,529,406
Conversion from Class B		141,443			2,939,409			3,238,153			54,378,305
Redeemed		(423,304	)		(8,633,545	)		(988,830	)		(18,482,220	)
Net increase (decrease) – Class A		(157,303	)		(3,169,230	)		2,385,096			38,425,491
CLASS B SHARES
Sold		24,559			486,893			171,117			2,920,227
Conversion to Class A		(151,389	)		(2,939,409	)		(3,437,202	)		(54,378,305	)
Redeemed		(423,873	)		(8,132,503	)		(1,394,546	)		(24,019,845	)
Net decrease – Class B		(550,703	)		(10,585,019	)		(4,660,631	)		(75,477,923	)
CLASS C SHARES
Sold		7,223			141,916			65,266			1,088,611
Redeemed		(88,602	)		(1,687,665	)		(129,008	)		(2,251,852	)
Net decrease – Class C		(81,379	)		(1,545,749	)		(63,742	)		(1,163,241	)
CLASS D SHARES
Sold		5,464			114,788			228,732			4,328,211
Redeemed		(149,130	)		(3,090,389	)		(2,400,135	)		(46,397,604	)
Net decrease – Class D.		(143,666	)		(2,975,601	)		(2,171,403	)		(42,069,393	)
Net decrease in Fund		(933,051	)	$	(18,275,599	)		(4,510,680	)	$	(80,285,066	)

†

On August 25, 2005, the Fund suspended the offering of its shares to new investors. The Fund may recommence offering its shares to new investors at such time as the Investment Adviser determines that it would be consistent with prudent management.

6. Expense Offset

The expense offset represents a reduction of the transfer agent fees and expenses for earnings on cash balances maintained by the Fund.

7. 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

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

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.

As of February 28, 2006, the Fund had a net capital loss carryforward of $208,440,082 of which $48,979,273 will expire on February 28, 2010 and $159,460,809 will expire on February 28, 2011 to offset future capital gains to the extent provided by regulations.

As of February 28, 2006, the Fund had temporary book/tax differences primarily attributable to capital loss deferrals on wash sales.

8. Legal Matters

The Investment Adviser, certain affiliates of the Investment Adviser, certain officers of such affiliates and certain investment companies advised by the Investment Adviser or its affiliates, including the Fund, were named as defendants in a consolidated class action. This consolidated action also named as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint, filed in the United States District Court for the Southern District of New York on April 16, 2004, generally alleged that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Adviser and certain affiliates of the Investment Adviser allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Adviser or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to recommend these funds to investors. The complaint sought, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. On July 2, 2004 defendants moved to dismiss the action. On March 9, 2005, plaintiffs filed a Motion for Leave to File a Supplemental Pleading that would, among other things, expand the allegations and alleged class. On April 14, 2006, the Court granted defendants' motion to dismiss in its entirety, with prejudice. Additionally, plaintiffs' Motion for Leave to File a Supplemental Pleading was denied. The time for plaintiffs to appeal the orders granting defendants' motion to dismiss and denying plaintiffs' motion for supplemental pleading has expired. This case is now concluded.

Morgan Stanley Special Growth Fund

Notes to Financial Statements August 31, 2006 (unaudited) continued

9. New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund will adopt FIN 48 during 2007 and the impact to the Fund's financial statements, if any, is currently being assessed.

In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures.

Morgan Stanley Special Growth Fund

Financial Highlights

Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			FOR THE YEAR ENDED FEBRUARY 28,
	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			2006			2005			2004*			2003			2002
	(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period	$	21.21		$	17.70		$	15.21		$	9.64		$	16.45		$	24.42
Income (loss) from investment operations:
Net investment loss‡		(0.13	)		(0.22	)		(0.23	)		(0.21	)		(0.20	)		(0.30	)
Net realized and unrealized gain (loss)		(1.83	)		3.73			2.72			5.78			(6.61	)		(7.67	)
Total income (loss) from investment operations		(1.96	)		3.51			2.49			5.57			(6.81	)		(7.97	)
Net asset value, end of period	$	19.25		$	21.21		$	17.70		$	15.21		$	9.64		$	16.45
Total Return†		(9.24)	% ⁽¹⁾		19.83	%		16.37	%		57.78	%		(41.40	)%		(32.64	)%
Ratios to Average Net Assets⁽³⁾:
Total expenses (before expense offset)		1.78	%⁽²⁾⁽⁴⁾		1.77	%⁽⁴⁾		1.79	%		1.81	%		1.76	%		1.59	%
Net investment loss		(1.30)	% ⁽²⁾⁽⁴⁾		(1.09)	% ⁽⁴⁾		(1.47	)%		(1.66	)%		(1.65	)%		(1.40	)%
Supplemental Data:
Net assets, end of period, in thousands		$54,460			$63,336			$10,642			$11,026			$11,270			$14,064
Portfolio turnover rate		32	%⁽¹⁾		80	%		99	%		177	%		119	%		25	%

Year ended February 29.

‡

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 expenses that were waived by the Investment Adviser and Administrator, the annualized expense and net investment loss ratios would have been as follows:


PERIOD ENDED:	EXPENSE RATIO	NET INVESTMENT LOSS RATIO
August 31, 2006	1.82%	(1.34)%
February 28, 2006	1.81	(1.13)

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Highlights continued


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			FOR THE YEAR ENDED FEBRUARY 28,
	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			2006			2005			2004*			2003			2002
	(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period	$	19.85		$	16.69		$	14.46		$	9.23		$	15.88		$	23.76
Income (loss) from investment operations:
Net investment loss‡		(0.20	)		(0.33	)		(0.33	)		(0.29	)		(0.30	)		(0.45	)
Net realized and unrealized gain (loss)		(1.70	)		3.49			2.56			5.52			(6.35	)		(7.43	)
Total income (loss) from investment operations		(1.90	)		3.16			2.23			5.23			(6.65	)		(7.88	)
Net asset value, end of period	$	17.95		$	19.85		$	16.69		$	14.46		$	9.23		$	15.88
Total Return†		(9.57	)%⁽¹⁾		18.93	%		15.42	%		56.66	%		(41.88	)%		(33.16	)%
Ratios to Average Net Assets⁽³⁾:
Total expenses (before expense offset)		2.53	%⁽²⁾⁽⁴⁾		2.53	%⁽⁴⁾		2.54	%		2.56	%		2.55	%		2.35	%
Net investment loss		(2.05	)%⁽²⁾⁽⁴⁾		(1.85)	% ⁽⁴⁾		(2.22	)%		(2.41	)%		(2.44	)%		(2.16	)%
Supplemental Data:
Net assets, end of period, in thousands		$42,650			$58,099			$126,659			$144,850			$109,784			$260,504
Portfolio turnover rate		32	%⁽¹⁾		80	%		99	%		177	%		119	%		25	%

Year ended February 29.

‡

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 expenses that were waived by the Investment Adviser and Administrator, the annualized expense and net investment loss ratios would have been as follows:


PERIOD ENDED:	EXPENSE RATIO	NET INVESTMENT LOSS RATIO
August 31, 2006	2.57%	(2.09)%
February 28, 2006	2.57	(1.89)

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Highlights continued


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			FOR THE YEAR ENDED FEBRUARY 28,
	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			2006			2005			2004*			2003			2002
	(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period	$	19.84		$	16.68		$	14.43		$	9.21		$	15.85		$	23.67
Income (loss) from investment operations:
Net investment loss‡		(0.20	)		(0.32	)		(0.32	)		(0.29	)		(0.30	)		(0.41	)
Net realized and unrealized gain (loss)		(1.70	)		3.48			2.57			5.51			(6.34	)		(7.41	)
Total income (loss) from investment operations		(1.90	)		3.16			2.25			5.22			(6.64	)		(7.82	)
Net asset value, end of period	$	17.94		$	19.84		$	16.68		$	14.43		$	9.21		$	15.85
Total Return†		(9.58	)%⁽¹⁾		19.09	%		15.37	%		56.79	%		(41.78	)%		(33.16	)%
Ratios to Average Net Assets⁽³⁾:
Total expenses (before expense offset)		2.53	%⁽²⁾⁽⁴⁾		2.49	%⁽⁴⁾		2.46	%		2.56	%		2.55	%		2.20	%
Net investment loss		(2.05	)%⁽²⁾⁽⁴⁾		(1.81)	% ⁽⁴⁾		(2.14	)%		(2.41	)%		(2.44	)%		(2.01	)%
Supplemental Data:
Net assets, end of period, in thousands		$5,357			$7,540			$7,399			$7,751			$5,398			$11,294
Portfolio turnover rate		32	%⁽¹⁾		80	%		99	%		177	%		119	%		25	%

Year ended February 29.

‡

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 expenses that were waived by the Investment Adviser and Administrator, the annualized expense and net investment loss ratios would have been as follows:


PERIOD ENDED:	EXPENSE RATIO	NET INVESTMENT LOSS RATIO
August 31, 2006	2.57%	(2.09)%
February 28, 2006	2.53	(1.85)

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Financial Highlights continued


	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			FOR THE YEAR ENDED FEBRUARY 28,
	FOR THE SIX MONTHS ENDED AUGUST 31, 2006			2006			2005			2004*			2003			2002
	(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period	$	21.62		$	17.99		$	15.43		$	9.75		$	16.61		$	24.60
Income (loss) from investment operations:
Net investment loss‡		(0.11	)		(0.18	)		(0.20	)		(0.18	)		(0.18	)		(0.25	)
Net realized and unrealized gain (loss)		(1.86	)		3.81			2.76			5.86			(6.68	)		(7.74	)
Total income (loss) from investment operations		(1.97	)		3.63			2.56			5.68			(6.86	)		(7.99	)
Net asset value, end of period	$	19.65		$	21.62		$	17.99		$	15.43		$	9.75		$	16.61
Total Return†		(9.11	)%⁽¹⁾		20.18	%		16.59	%		58.26	%		(41.30	)%		(32.48	)%
Ratios to Average Net Assets⁽³⁾:
Total expenses (before expense offset)		1.53	%⁽²⁾⁽⁴⁾		1.53	%⁽⁴⁾		1.54	%		1.56	%		1.55	%		1.35	%
Net investment loss		(1.05	)%⁽²⁾⁽⁴⁾		(0.85	)%⁽⁴⁾		(1.22	)%		(1.41	)%		(1.44	)%		(1.16	)%
Supplemental Data:
Net assets, end of period, in thousands		$7,381			$11,228			$48,418			$38,907			$29,634			$35,683
Portfolio turnover rate		32	%⁽¹⁾		80	%		99	%		177	%		119	%		25	%

Year ended February 29.

‡

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 expenses that were waived by the Investment Adviser and Administrator, the annualized expense and net investment loss ratios would have been as follows:


PERIOD ENDED:	EXPENSE RATIO	NET INVESTMENT LOSS RATIO
August 31, 2006	1.57%	(1.09)%
February 28, 2006	1.57	(0.89)

See Notes to Financial Statements

Morgan Stanley Special Growth Fund

Results of Special Shareholder Meeting

On August 1, 2006, a Special Meeting of Shareholders of the Fund was scheduled in order to vote on the following proposals: (i) to elect Trustees; (ii) to eliminate certain fundamental investment restrictions; (iii) to modify certain fundamental investment restrictions; and (iv) to reclassify certain fundamental policies as non-fundamental policies. The proposals failed to obtain the quorum necessary in order to hold the meeting and, therefore, the meeting was adjourned until August 23, 2006, further adjourned to September 27, 2006, and later adjourned to October 30, 2006 to permit further solicitation of proxies.

(This page has been left blank intentionally.)


Trustees Michael Bozic Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid Officers Michael E. Nugent Chairman of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer Mary E. Mullin Secretary Transfer Agent Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 Independent Registered Public Accounting Firm Deloitte & Touche LLP Two World Financial Center New York, New York 10281 Investment Adviser Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its 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. © 2006 Morgan Stanley SMPSAR-37892RPT-RA06-00921P-Y08/06		MORGAN STANLEY FUNDS
		Morgan Stanley Special Growth Fund Semiannual Report August 31, 2006






Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable for semiannual reports.

Item 6.

Refer to Item 1.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.

Not applicable for semiannual reports.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable to reports filed by closed-end funds.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.







Item 11. Controls and Procedures

(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.

(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.

Item 12. Exhibits

(a) Code of Ethics - Not applicable for semiannual reports.

(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
















                                       2




                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

Morgan Stanley Special Growth Fund

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 19, 2006

         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 19, 2006

/s/ Francis Smith
Francis Smith
Principal Financial Officer
October 19, 2006

















                                       3




                                                                   EXHIBIT 12 B1

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

                                 CERTIFICATIONS
                                 --------------

I, Ronald E. Robison, certify that:

1.   I have reviewed this report on Form N-CSR of Morgan Stanley Special Growth
     Fund;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations, changes in net
     assets, and cash flows (if the financial statements are required to include
     a statement of cash flows) of the registrant as of, and for, the periods
     presented in this report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
     control over financial reporting (as defined in Rule 30a-3(d) under the
     Investment Company Act of 1940) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

b)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

d)   disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the second fiscal quarter of
     the period covered by this report that has materially affected, or is
     reasonably likely to materially affect, the registrant's internal control
     over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):



                                       4




a)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; and

b)   any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal controls
     over financial reporting.

Date: October 19, 2006
                                               /s/ Ronald E. Robison
                                               Ronald E. Robison
                                               Principal Executive Officer

















                                       5




                                                                   EXHIBIT 12 B2

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

                                 CERTIFICATIONS
                                 --------------

I, Francis Smith, certify that:

1.   I have reviewed this report on Form N-CSR of Morgan Stanley Special Growth
     Fund;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations, changes in net
     assets, and cash flows (if the financial statements are required to include
     a statement of cash flows) of the registrant as of, and for, the periods
     presented in this report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
     control over financial reporting (as defined in Rule 30a-3(d) under the
     Investment Company Act of 1940) for the registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

b)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

c)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

d)   disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the second fiscal quarter of
     the period covered by this report that has materially affected, or is
     reasonably likely to materially affect, the registrant's internal control
     over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):





                                       6




a)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; and

b)   any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal controls
     over financial reporting.

Date: October 19, 2006
                                           /s/ Francis Smith
                                           Francis Smith
                                           Principal Financial  Officer




















                                       7




                            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 Special Growth Fund

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended August 31, 2006 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 19, 2006                      /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 Special Growth Fund and will be retained by Morgan
Stanley Special Growth Fund and furnished to the Securities and Exchange
Commission or its staff upon request.












                                       8




                            SECTION 906 CERTIFICATION

                Certification Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

Morgan Stanley Special Growth Fund

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended August 31, 2006 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 19, 2006                         /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 Special Growth Fund and will be retained by Morgan
Stanley Special Growth Fund and furnished to the Securities and Exchange
Commission or its staff upon request.



















                                       9