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: 811-07243

Morgan Stanley Balanced Income 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: January 31, 2005

Date of reporting period: January 31, 2005


Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Balanced Income 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 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.

	Fund Report
	For the year ended January 31, 2005

Total Return for the 12 Months Ended January 31, 2005

Class A						Class B						Class C						Class D
5.55%						4.83%						4.84%						5.80%

Lehman Brothers U.S. Government/ Credit Index1						Russell 1000 Value Index2						Lipper Income Funds Index3
3.97%							12.45	%					5.54	%

Performance data quoted represent past performance, which is no guarantee of future results. Current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit 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 performance of the Fund's four share classes varies because each has different expenses. The Fund's total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information.

Market Conditions

The equity market generally experienced solid performance for the 12 months ended January 31, 2005, though gains were not consistently strong over the entire period. While the Federal Open Market Committee raised the federal funds target rate numerous times over the 12 months, these rate changes had been largely anticipated by the market, and any serious disruption was avoided. As these rate increases also began when U.S. interests rates were at extremely low levels, a relatively low interest rate environment continued to benefit stocks during the period. Rising oil prices caused apprehension among many investors for much of the period, and uncertainty concerning the outcome of the presidential election also weighed on the market. However, oil prices eventually fell from their high in October, and the conclusion of the presidential election without incident provided further support for an equity rally in November. As this uncertainty dissipated and the economy continued to improve, the market saw strengthening performance late in the period before faltering in the final month.

The fixed income markets were also positive for the period. Over the 12 months, investors' anticipation that interest rates were going to rise generated some apprehension about the bond market. While the Federal Open Market Committee continued to raise the federal funds target rate numerous times during the period, intermediate and longer-term rates remained low, allaying some of the anxiety investors had about the fixed income markets.

Performance Analysis

Morgan Stanley Balanced Income Fund underperformed the Russell 1000 Value Index and outperformed the Lehman Brothers U.S. Government/Credit Index for the 12 months ended January 31, 2005, assuming no deduction of applicable sales charges. The Fund's Class A and D shares — again, assuming no deduction of applicable sales charges — outperformed the Lipper Income Funds Index, while Classes B and C did not.

The Fund's returns were hampered by several strategies in its equity portfolio. An overweighted

2

position in health care securities relative to the Russell 1000 Value Index and stock selection within the sector served as drag on performance. The Fund was hurt particularly by positions in pharmaceutical companies, which suffered over the period in general due to issues related to weak drug pipelines, the possibility of drug reimportation and concerns that generic drug companies would erode market share. Stock selection within the consumer staples sector hurt the Fund's relative performance, largely due to the Fund's holdings in food, beverage and tobacco stocks. The Fund was hurt further by a slightly overweighted position in technology stocks relative to the Russell 1000 Value Index. The sector was the third worst-performing for the period, and the Fund suffered especially from holdings in the semiconductor and software services industries. In addition, the Fund was negatively affected by an underweighted position in utilities stocks relative to the Russell 1000 Index, as many utilities companies continued to perform well in the low interest rate environment. Within its fixed income position, the portfolio strived to maintain a low duration.*

* A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond's duration, the greater the effect of interest-rate movements on its price. Typically, funds with shorter durations perform better in rising-interest-rate environments, while funds with longer durations perform better when rates decline.

There is no guarantee that any sectors mentioned will continue to perform well or be held by the Fund in the future.

Other allocations were more beneficial over the period. The Fund was helped by positions in the telecommunications services, financial services and industrials sectors. Stock selection helped particularly within telecommunications services, as a number of the Fund's holdings benefited from the consolidation agreements and important mergers taking place in the telecommunications sector. The Fund's allocation to financial services also boosted performance. While an underweighted position in the sector relative to the Russell 1000 Index was positive, the Fund's position in diversified financials also helped relative performance because many of these companies benefited from their capital market exposure and interest rate sensitivity during the period. Within the industrials sector, performance was helped by the Fund's holdings in transportation and railroad stocks as improving economic conditions led to increasing demand for the transportation of goods. In addition, a number of energy stocks benefited the Fund due in part to the rising price of oil during the period.

3

TOP 10 HOLDINGS
U.S. Treasury Securities					33.4	%
Federal National Mortgage Assoc.					5.2
Citigroup Inc.					1.4
AOL Time Warner					1.2
Federal Home Loan Mortgage Corp.					1.1
Bristol-Myers Squibb					1.0
J.P. Morgan Chase & Co.					1.0
Bayer AG (ADR) (Germany)					1.0
General Motors Acceptance Corp.					0.9
BP PLC – ADR (United Kingdom)					0.9

PORTFOLIO COMPOSITION**
US Government Agencies & Obligations					36.2	%
Common Stocks					32.9
Corporate Bonds					19.8
Short-Term Investments					6.3
Asset-Backed Securities					2.3
Mortgage-Backed Securities					2.2
Foreign Government Obligations					0.3

** Does not include outstanding short futures contracts with an underlying face amount of $27,333,156 with net unrealized depreciation of $658,315.

Data as of January 31, 2005. Subject to change daily. All percentages for top 10 holdings are as a percentage of net assets and all percentages for portfolio composition are as a percentage of total investments. These data are provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

Investment Strategy

The Fund will normally invest at least 80 percent of its assets in income-producing securities, consisting of (1) fixed-income securities and (2) dividend paying common stocks and securities convertible into common stocks. Within the limitations, the Fund's "Investment Adviser," Morgan Stanley Investment Advisors Inc., may purchase or sell securities in any proportion it believes desirable based on its assessment of business, economic and investment conditions.

For More Information
About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. 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

4

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. You may obtain copies of a fund's fiscal quarter filings by contacting Morgan Stanley Client Relations at (800) 869-NEWS.

Proxy Voting Policies and Procedures

A description of (1) the Fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities and (2) how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2004, is available without charge, upon request, by calling (800) 869-NEWS or 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.

5

	Performance Summary

Performance of a $10,000 Investment — Class C

6

Average Annual Total Returns — Period Ended January 31, 2005

						Class A Shares* (since 07/28/97)						Class B Shares** (since 07/28/97)						Class C Shares† (since 03/28/95)						Class D Shares†† (since 07/28/97)
Symbol						BINAX						BINBX						BINCX						BINDX
1 Year							5.55%	4					4.83%	4					4.84%	4					5.80%	4
							0.01	5					(0.17)	5					3.84	5					—
5 Years							5.95	4					5.14	4					5.15	4					6.18	4
							4.82	5					4.81	5					5.15	5					—
Since Inception							5.76	4					4.95	4					7.25	4					5.99	4
							5.01	5					4.95	5					7.25	5					—

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 the most recent month-end performance figures, please visit 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 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.

* 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.

(1) The Lehman Brothers U.S. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. 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 Russell 1000 Value Index measures the performance of those companies in the Russell 1000 Index with lower price-to-book ratios and lower 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.

(3) The Lipper Income Funds Index is an equally-weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Income 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.

(4) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.

(5) 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.

(6) For the period 3/31/1995–1/31/2005.

‡ Ending value assuming a complete redemption on January 31, 2005.

7

	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 management 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 08/01/04 – 01/31/05.

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*
				08/01/04				01/31/05				08/01/04 – 01/31/05
Class A
Actual (5.81% return)				$	1,000.00			$	1,058.10			$	5.59
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,019.71			$	5.48
Class B
Actual (5.43% return)				$	1,000.00			$	1,054.30			$	9.55
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,015.84			$	9.37
Class C
Actual (5.52% return)				$	1,000.00			$	1,055.20			$	8.83
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,016.54			$	8.67
Class D
Actual (5.96% return)				$	1,000.00			$	1,059.60			$	4.40
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,020.86			$	4.32

* Expenses are equal to the Fund's annualized expense ratio of 1.08%, 1.85%, 1.71% and 0.85% respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

8

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005

NUMBER OF SHARES								VALUE
				Common Stocks (33.6%)
				Aerospace & Defense (0.6%)
	12,400			Northrop Grumman Corp.				$	643,312
	17,860			Raytheon Co.					667,964
									1,311,276
				Auto Parts: O.E.M. (0.4%)
	9,190			Magna International Inc. (Class A) (Canada)					696,051
				Beverages: Non-Alcoholic (0.5%)
	23,110			Coca-Cola Co. (The)					958,834
				Biotechnology (0.1%)
	7,900			Chiron Corp.*					259,515
				Broadcasting (0.6%)
	35,500			Clear Channel Communications, Inc.					1,151,265
				Chemicals: Major Diversified (1.4%)
	56,800			Bayer AG (ADR) (Germany)					1,920,976
	18,700			Dow Chemical Co. (The)					929,390
									2,850,366
				Containers/Packaging (0.1%)
	4,100			Temple-Inland Inc.					260,760
				Data Processing Services (0.6%)
	14,610			Automatic Data Processing, Inc.					635,243
	18,830			SunGard Data Systems Inc.*					506,339
									1,141,582
				Department Stores (0.4%)
	17,800			Kohl's Corp.*					836,778
				Discount Stores (0.3%)
	10,250			Target Corp.					520,393
				Electric Utilities (1.8%)
	15,000			American Electric Power Co., Inc.					528,750
	11,280			Consolidated Edison, Inc.					494,854
	9,100			Edison International					295,477
	12,600			Entergy Corp.					875,952
	15,820			Exelon Corp.					700,035
	17,800			FirstEnergy Corp.					707,728
									3,602,796

See Notes to Financial Statements

9

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

NUMBER OF SHARES								VALUE
				Electronic Production Equipment (0.2%)
	21,250			Applied Materials, Inc.*				$	337,875
				Finance/Rental/Leasing (0.6%)
	17,600			Freddie Mac					1,149,104
				Financial Conglomerates (2.2%)
	33,690			Citigroup, Inc.					1,652,495
	52,976			JP Morgan Chase & Co.					1,977,594
	12,740			Prudential Financial, Inc.					686,813
									4,316,902
				Financial Publishing/Services (0.3%)
	21,230			Equifax, Inc.					600,809
				Food: Major Diversified (0.7%)
	14,900			Kraft Foods Inc. (Class A)					506,302
	13,000			Unilever N.V. (NY Registered Shares) (Netherlands)					849,030
									1,355,332
				Food: Specialty/Candy (0.4%)
	22,430			Cadbury Schweppes PLC (ADR) (United Kingdom)					814,209
				Hotels/Resorts/Cruiselines (0.7%)
	14,440			Hilton Hotels Corp.					321,290
	10,450			Marriott International, Inc. (Class A)					660,231
	7,200			Starwood Hotels & Resorts Worldwide, Inc.					416,808
									1,398,329
				Household/Personal Care (0.4%)
	12,600			Kimberly-Clark Corp.					825,426
				Industrial Conglomerates (1.0%)
	38,780			General Electric Co.					1,401,121
	7,130			Ingersoll-Rand Co. Ltd. (Class A) (Bermuda)					530,329
									1,931,450
				Industrial Machinery (0.3%)
	9,560			Parker-Hannifin Corp.					622,930
				Information Technology Services (0.6%)
	25,400			Accenture Ltd. (Class A) (Bermuda)*					661,670
	6,000			International Business Machines Corp.					560,520
									1,222,190

See Notes to Financial Statements

10

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

NUMBER OF SHARES								VALUE
				Integrated Oil (2.8%)
	29,090			BP PLC (ADR) (United Kingdom)				$	1,734,346
	11,600			ConocoPhillips					1,076,364
	24,390			Exxon Mobil Corp.					1,258,524
	26,400			Royal Dutch Petroleum Co. (NY Registered Shares) (Netherlands)					1,543,608
									5,612,842
				Investment Banks/Brokers (1.8%)
	2,400			Goldman Sachs Group, Inc. (The)					258,840
	16,870			Lehman Brothers Holdings Inc.					1,538,375
	23,870			Merrill Lynch & Co., Inc.					1,433,871
	36,300			Schwab (Charles) Corp. (The)					408,012
									3,639,098
				Life/Health Insurance (0.1%)
	18,200			Aegon N.V. (NY Registered Shares) (Netherlands)					246,974
				Major Banks (0.8%)
	21,840			Bank of America Corp.					1,012,721
	9,120			PNC Financial Services Group					491,294
									1,504,015
				Major Telecommunications (1.0%)
	18,050			France Telecom S.A. (ADR) (France)					566,048
	14,710			Sprint Corp.					350,539
	30,520			Verizon Communications Inc.					1,086,207
									2,002,794
				Managed Health Care (0.5%)
	11,720			CIGNA Corp.					940,530
				Media Conglomerates (1.6%)
	41,570			Disney (Walt) Co. (The)					1,190,149
	93,040			Time Warner, Inc.*					1,674,720
	9,000			Viacom Inc. (Class B) (Non-Voting)					336,060
									3,200,929
				Medical Specialties (0.5%)
	5,600			Applera Corp. – Applied Biosystems Group					112,280
	12,750			Bausch & Lomb, Inc.					929,348
									1,041,628
				Motor Vehicles (0.7%)
	56,770			Honda Motor Co., Ltd. (ADR) (Japan)					1,490,212

See Notes to Financial Statements

11

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

NUMBER OF SHARES								VALUE
				Multi-Line Insurance (0.7%)
	8,100			American International Group, Inc.				$	536,949
	13,300			Hartford Financial Services Group, Inc. (The)					894,957
									1,431,906
				Oil Refining/Marketing (0.5%)
	17,480			Valero Energy Corp.					909,484
				Oilfield Services/Equipment (0.8%)
	22,500			Schlumberger Ltd. (Netherlands Antilles)					1,530,900
				Packaged Software (0.8%)
	16,530			Computer Associates International, Inc.					449,451
	24,400			Microsoft Corp.					641,232
	24,100			Symantec Corp.*					562,735
									1,653,418
				Pharmaceuticals: Major (3.5%)
	87,120			Bristol-Myers Squibb Co.					2,042,092
	12,000			GlaxoSmithKline PLC (ADR) (United Kingdom)					534,840
	8,700			Lilly (Eli) & Co.					471,888
	24,940			Roche Holdings Ltd. (ADR) (Switzerland)					1,328,055
	16,500			Sanofi-Aventis (ADR) (France)					614,130
	71,540			Schering-Plough Corp.					1,327,782
	18,090			Wyeth					716,907
									7,035,694
				Precious Metals (0.4%)
	20,530			Newmont Mining Corp.					853,843
				Property – Casualty Insurers (1.1%)
	15,770			Chubb Corp. (The)					1,174,550
	25,354			St. Paul Travelers Companies, Inc. (The)					951,789
									2,126,339
				Railroads (0.6%)
	32,120			Norfolk Southern Corp.					1,121,630
				Restaurants (0.2%)
	10,570			McDonald's Corp.					342,362
				Semiconductors (0.2%)
	17,930			Intel Corp.					402,529
				Telecommunication Equipment (0.2%)
	25,790			Motorola, Inc.					405,935

See Notes to Financial Statements

12

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

NUMBER OF SHARES								VALUE
				Tobacco (0.4%)
	11,980			Altria Group, Inc.				$	764,683
				Wireless Telecommunications (0.2%)
	11,600			Nextel Communications, Inc. (Class A)*					332,804
				Total Common Stocks (Cost $52,425,668)					66,754,721

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE
				Corporate Bonds (20.3%) Advertising/Marketing Services (0.2%)
$	350			WPP Finance Corp. – 144A** (United Kingdom)					5.875	%			06/15/14				372,523
				Aerospace & Defense (0.6%)
	235			Northrop Grumman Corp.					4.079				11/16/06				236,570
	235			Raytheon Co.					8.30				03/01/10				277,110
	550			Systems 2001 Asset Trust – 144A** (Cayman Islands)					6.664				09/15/13				607,225
																	1,120,905
				Air Freight/Couriers (0.1%)
	225			Fedex Corp.					2.65				04/01/07				219,759
				Airlines (0.3%)
	347			America West Airlines, Inc. (Series 01-1)					7.10				04/02/21				370,340
	195			Southwest Airlines Co. (Series 01-1)					5.496				11/01/06				200,137
																	570,477
				Beverages: Alcoholic (0.2%)
	320			Miller Brewing Co. – 144A**					4.25				08/15/08				321,964
				Broadcasting (0.1%)
	245			Clear Channel Communications, Inc.					7.65				09/15/10				277,316
				Cable/Satellite TV (0.5%)
	35			Comcast Cable Communications Inc.					6.75				01/30/11				39,214
	410			Comcast Corp.					6.50				01/15/15				458,111
	40			Comcast Corp.					7.625				02/15/08				43,838
	270			Cox Communications, Inc. – 144A**					4.625				01/15/10				269,146
	105			TCI Communications, Inc.					7.875				02/15/26				131,643
																	941,952
				Chemicals: Major Diversified (0.1%)
	170			ICI Wilmington Inc.					4.375				12/01/08				170,964

See Notes to Financial Statements

13

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Containers/Packaging (0.2%)
$	320			Sealed Air Corp. – 144A**					5.625	%			07/15/13			$	332,854
				Department Stores (0.4%)
	50			Federated Department Stores, Inc.					6.625				09/01/08				54,001
	80			May Department Stores Co., Inc.					5.95				11/01/08				84,584
	415			May Department Stores Co., Inc.					6.70				09/15/28				442,595
	60			May Department Stores Co., Inc.					6.90				01/15/32				65,762
	100			May Department Stores Co., Inc.					7.875				03/01/30				121,668
																	768,610
				Drugstore Chains (0.2%)
	290			CVS Corp.					5.625				03/15/06				296,649
	63			CVS Corp. – 144A**					6.204				10/10/25				68,627
																	365,276
				Electric Utilities (2.5%)
	145			Appalachian Power Co. (Series H)					5.95				05/15/33				152,275
	305			Arizona Public Service Co.					5.80				06/30/14				328,121
	325			Carolina Power & Light Co.					5.125				09/15/13				335,398
	145			Cincinnati Gas & Electric Co.					5.70				09/15/12				154,577
	70			Cincinnati Gas & Electric Co. (Series B)					5.375				06/15/33				69,702
	95			Columbus Southern Power Co. (Series D)					6.60				03/01/33				109,944
	155			Consolidated Natural Gas Co.					5.00				12/01/14				156,319
	100			Consolidated Natural Gas Co. (Series A)					5.00				03/01/14				101,021
	230			Consolidated Natural Gas Co. (Series C)					6.25				11/01/11				253,748
	180			Consumers Energy Co.					4.80				02/17/09				183,897
	85			Detroit Edison Co.					6.125				10/01/10				92,666
	160			Duke Energy Corp.					3.75				03/05/08				159,345
	200			Duke Energy Corp.					4.50				04/01/10				202,091
	195			Entergy Gulf States, Inc.					2.80	††			12/01/09				195,046
	130			Entergy Gulf States, Inc.					3.60				06/01/08				127,732
	225			Exelon Corp.					6.75				05/01/11				251,508
	385			FPL Group Capital Inc.					3.25				04/11/06				384,387
	200			Ohio Edison Co.					5.45				05/01/15				204,569
	230			Ohio Power Co. (Series G)					6.60				02/15/33				266,528
	280			Pacific Gas & Electric Co.					6.05				03/01/34				302,033
	70			Panhandle Eastern Pipe Line Co. (Series B)					2.75				03/15/07				68,371
	220			Public Service Electric & Gas Co. (Series MTNB)					5.00				01/01/13				226,080
	115			South Carolina Electric & Gas Co.					5.30				05/15/33				115,934
	50			Southern California Edison Co.					5.00				01/15/14				51,161

See Notes to Financial Statements

14

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
$	155			Texas Eastern Transmission, L.P.					7.00	%			07/15/32			$	184,127
	190			TXU Energy Co.					7.00				03/15/13				214,287
	120			Wisconsin Electric Power Co.					3.50				12/01/07				119,280
	35			Wisconsin Electric Power Co.					5.625				05/15/33				37,005
																	5,047,152
				Electrical Products (0.1%)
	240			Cooper Industries Inc.					5.25				07/01/07				247,567
				Finance/Rental/Leasing (1.4%)
	500			Associates Corp. of North America					6.25				11/01/08				540,614
	240			CIT Group Inc.					2.875				09/29/06				237,093
	105			CIT Group Inc.					7.375				04/02/07				112,814
	460			Countrywide Home Loans, Inc. (Series MTN)					3.25				05/21/08				448,426
	225			Ford Motor Credit Co.					7.375				10/28/09				239,828
	490			MBNA Corp.					6.125				03/01/13				530,132
	225			SLM Corp.					4.00				01/15/10				222,478
	350			SLM Corp. (Series MTNA)					5.00				10/01/13				357,588
																	2,688,973
				Financial Conglomerates (2.2%)
	230			Bank One Corp. (Series MTNA)					6.00				02/17/09				245,297
	370			Chase Manhattan Corp.					6.00				02/15/09				393,640
	80			Chase Manhattan Corp.					7.00				11/15/09				88,965
	160			Citicorp					6.75				08/15/05				163,173
	185			Citigroup Inc.					5.625				08/27/12				197,717
	255			Citigroup Inc.					5.75				05/10/06				262,360
	125			Citigroup Inc.					6.00				02/21/12				136,994
	165			General Electric Capital Corp.					4.25				12/01/10				164,826
	530			General Electric Capital Corp. (Series MTNA)					6.75				03/15/32				637,680
	135			General Motors Acceptance Corp.					4.50				07/15/06				134,503
	1,010			General Motors Acceptance Corp.					6.875				09/15/11				1,015,542
	635			General Motors Acceptance Corp.					8.00				11/01/31				644,392
	290			Prudential Holdings, LLC (Series B) (FSA) – 144A**					7.245				12/18/23				352,985
																	4,438,074
				Food Retail (0.2%)
	145			Albertson's, Inc.					7.50				02/15/11				167,591
	110			Kroger Co.					8.00				09/15/29				140,040
																	307,631

See Notes to Financial Statements

15

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Food: Major Diversified (0.3%)
$	80			General Mills Inc.					3.875	%			11/30/07			$	79,926
	115			Kraft Foods Inc.					5.25				06/01/07				118,654
	130			Kraft Foods Inc.					5.625				11/01/11				138,088
	195			Kraft Foods Inc.					6.25				06/01/12				214,876
																	551,544
				Forest Products (0.1%)
	160			Weyerhaeuser Co.					6.00				08/01/06				165,580
	48			Weyerhaeuser Co.					6.125				03/15/07				50,320
																	215,900
				Gas Distributors (0.3%)
	195			Nisource Finance Corp.				2.915††					11/23/09				195,212
	295			Ras Laffan Liquid Natural Gas Co. Ltd. – 144A** (Qatar)					8.294				03/15/14				351,803
																	547,015
				Home Furnishings (0.1%)
	95			Mohawk Industries, Inc. (Series D)					7.20				04/15/12				108,584
				Home Improvement Chains (0.1%)
	65			Lowe's Companies, Inc.					6.50				03/15/29				76,086
	40			Lowe's Companies, Inc.					6.875				02/15/28				48,528
																	124,614
				Hotels/Resorts/Cruiselines (0.4%)
	305			Hyatt Equities LLC - 144A**					6.875				06/15/07				319,381
	505			Marriott International, Inc. (Series E)					7.00				01/15/08				547,235
																	866,616
				Household/Personal Care (0.1%)
	210			Clorox Co. (The) – 144A**				2.544††					12/14/07				210,093
				Industrial Conglomerates (0.2%)
	155			Hutchison Whampoa International Ltd. – 144A** (Cayman Islands)					5.45				11/24/10				161,269
	230			Hutchison Whampoa International Ltd. – 144A** (Cayman Islands)					6.50				02/13/13				250,454
																	411,723
				Insurance Brokers/Services (0.6%)
	670			Farmers Exchange Capital – 144A**					7.05				07/15/28				711,872
	480			Marsh & McLennan Companies, Inc.					5.375				07/15/14				471,280
																	1,183,152

See Notes to Financial Statements

16

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Integrated Oil (0.3%)
$	110			Amerada Hess Corp.					6.65	%			08/15/11			$	121,200
	145			Amerada Hess Corp.					7.875				10/01/29				178,339
	40			Petro-Canada (Canada)					4.00				07/15/13				37,774
	195			Petro-Canada (Canada)					5.35				07/15/33				189,068
																	526,381
				Investment Banks/Brokers (0.4%)
	195			Goldman Sachs Group Inc. (The)					5.25				10/15/13				201,123
	345			Goldman Sachs Group Inc. (The)					6.60				01/15/12				385,729
	235			Goldman Sachs Group Inc. (The)					6.875				01/15/11				264,929
																	851,781
				Life/Health Insurance (0.1%)
	135			John Hancock Financial Services, Inc.					5.625				12/01/08				142,666
				Major Banks (0.6%)
	250			Bank of New York Co., Inc. (The)					3.80				02/01/08				250,029
	120			Bank of New York Co., Inc. (The)					5.20				07/01/07				124,177
	290			FleetBoston Financial Corp.					7.25				09/15/05				297,367
	225			HSBC Finance Corp.					6.75				05/15/11				252,833
	250			Huntington National Bank					4.375				01/15/10				250,712
																	1,175,118
				Major Telecommunications (1.1%)
	400			Deutsche Telekom International Finance Corp. BV (Netherlands)					8.75				06/15/30				542,753
	170			France Telecom S.A. (France)					9.25				03/01/31				237,051
	255			GTE Corp.					6.94				04/15/28				292,717
	95			Sprint Capital Corp.					8.75				03/15/32				129,060
	225			Telecom Italia Capital SpA – 144A** (Luxembourg)					4.00				01/15/10				219,945
	210			Telecom Italia Capital SpA (Luxembourg)					4.00				11/15/08				208,526
	115			Verizon Global Funding Corp.					7.75				12/01/30				145,845
	300			Verizon New England Inc.					6.50				09/15/11				330,761
																	2,106,658
				Managed Health Care (0.5%)
	560			Aetna, Inc.					7.875				03/01/11				656,526
	30			Anthem, Inc.					6.80				08/01/12				34,113
	345			WellPoint Health Networks Inc.					6.375				06/15/06				358,041
																	1,048,680

See Notes to Financial Statements

17

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Media Conglomerates (0.6%)
$	405			News America Holdings, Inc.					7.28	%			06/30/28			$	473,641
	90			News America Holdings, Inc.					7.75				02/01/24				109,278
	125			Time Warner, Inc.					6.625				05/15/29				137,913
	295			Time Warner, Inc.					7.625				04/15/31				364,526
	140			Time Warner, Inc.					7.70				05/01/32				174,962
																	1,260,320
				Motor Vehicles (0.4%)
	150			DaimlerChrysler North American Holdings Co.					7.30				01/15/12				170,993
	220			DaimlerChrysler North American Holdings Co.					8.50				01/18/31				282,648
	215			Ford Motor Co.					7.45				07/16/31				215,111
	260			General Motors Corp.					8.375				07/15/33				262,524
																	931,276
				Multi-Line Insurance (0.9%)
	780			AIG Sun America Global Finance VI – 144A**					6.30				05/10/11				851,420
	130			American General Finance Corp. (Series MTNF)					4.625				09/01/10				131,717
	265			American General Finance Corp. (Series MTNF)					5.875				07/14/06				273,645
	85			AXA Financial Inc.					6.50				04/01/08				91,522
	120			Hartford Financial Services Group, Inc.					2.375				06/01/06				117,639
	135			International Lease Finance Corp.					3.75				08/01/07				134,512
	100			Nationwide Mutual Insurance Co. – 144A**					8.25				12/01/31				127,963
																	1,728,418
				Oil & Gas Production (1.0%)
	55			Kerr-McGee Corp.					5.875				09/15/06				56,809
	75			Kerr-McGee Corp.					6.625				10/15/07				79,881
	80			Kerr-McGee Corp.					7.875				09/15/31				101,011
	215			Nexen Inc. (Canada)					5.05				11/20/13				214,697
	125			Pemex Project Funding Master Trust					7.375				12/15/14				140,000
	390			Pemex Project Funding Master Trust					8.00				11/15/11				449,475
	610			Pemex Project Funding Master Trust					8.625				02/01/22				725,900
	290			Pemex Project Funding Master Trust					9.125				10/13/10				346,550
																	2,114,323
				Oil Refining/Marketing (0.1%)
	145			Marathon Oil Corp.					5.375				06/01/07				150,196
				Property – Casualty Insurers (0.2%)
	460			Mantis Reef Ltd. – 144A** (Australia)					4.692				11/14/08				460,300

See Notes to Financial Statements

18

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Pulp & Paper (0.1%)
$	225			Sappi Papier Holding AG – 144A** (Austria)					6.75	%			06/15/12			$	250,330
				Railroads (0.4%)
	185			Burlington North Santa Fe Railway Co.					4.575				01/15/21				185,887
	140			CSX Corp.					2.75				02/15/06				138,626
	85			CSX Corp.					9.00				08/15/06				91,489
	130			Norfolk Southern Corp.					7.35				05/15/07				139,971
	100			Union Pacific Corp – 144A**					5.214				09/30/14				101,578
	105			Union Pacific Corp.					3.625				06/01/10				100,952
	110			Union Pacific Corp. (Series MTNE)					6.79				11/09/07				118,145
																	876,648
				Real Estate Development (0.5%)
	426			World Financial Properties – 144A**					6.95				09/01/13				466,586
	433			World Financial Properties – 144A**					6.91				09/01/13				473,960
																	940,546
				Real Estate Investment Trusts (0.1%)
	30			EOP Operating L.P.					4.75				03/15/14				29,260
	245			EOP Operating LP					6.763				06/15/07				259,598
																	288,858
				Regional Banks (0.2%)
	430			Marshall & Isley Bank.					3.80				02/08/08				429,551
				Savings Banks (0.7%)
	195			Household Finance Corp.					4.125				12/15/08				195,427
	220			Household Finance Corp.					5.875				02/01/09				234,204
	105			Household Finance Corp.					6.375				10/15/11				115,972
	230			Household Finance Corp.					6.40				06/17/08				247,277
	100			Sovereign Bank					4.00				02/01/08				100,067
	195			Washington Mutual Bank					5.50				01/15/13				204,526
	230			Washington Mutual Inc.					8.25				04/01/10				268,142
																	1,365,615
				Tobacco (0.3%)
	265			Altria Group, Inc.					7.00				11/04/13				290,168
	215			Altria Group, Inc.					7.75				01/15/27				248,580
																	538,748

See Notes to Financial Statements

19

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Trucks/Construction/Farm Machinery (0.2%)
$	425			Caterpillar Financial Services Corp. (Series MTNF)				2.409%††					08/20/07			$	425,191
	70			Caterpillar Financial Services Corp. (Series MTNF)					3.625				11/15/07				69,712
																	494,903
				Wireless Communications (0.1%)
	160			AT&T Wireless Services, Inc.					8.75				03/01/31				220,743
				Total Corporate Bonds  (Cost $38,419,491)													40,313,297
				Foreign Government Obligations (0.3%)
	390			United Mexican States (Mexico) (Series MTNF)					8.30				08/15/31				474,240
	95			United Mexican States (Mexico)					8.375				01/14/11				111,863
				Total Foreign Government Obligations (Cost $560,267)													586,103
				U.S. Government Agencies & Obligations (37.1%)
	1,300			Federal Home Loan Mortgage Corp.					5.125				11/07/13				1,309,741
	7,060			Federal National Mortgage Assoc.†					4.25				05/15/09				7,159,404
				U.S. Treasury Bonds
	5,000			.					5.50				08/15/28				5,590,430
	1,010			.					6.125				08/15/29				1,225,177
	7,700			.					7.625				02/15/25				10,685,259
	550			.					8.125				08/15/19				762,674
	6,850			.					8.125				08/15/21				9,665,460
	1,150			.					8.75				08/15/20				1,690,500
				U.S. Treasury Notes
	3,250			.					1.875				01/31/06				3,216,486
	13,500			.					3.50				11/15/06				13,567,514
	9,350			.					3.875				02/15/13				9,256,874
	4,000			.					4.250				08/15/13				4,050,316
				U.S. Treasury Strips
	1,000			.					0.00				05/15/11				782,413
	4,190			.					0.00				08/15/20				2,026,414
	6,855			.					0.00				02/15/25				2,627,457
				Total U.S. Government Agencies & Obligations  (Cost $70,988,433)													73,616,119
				Mortgage-Backed Securities (2.2%)
				Federal Home Loan Mortgage Corp. Gold
	227			.					6.50				01/01/31				237,842
	622			.					7.50				10/01/29-
													08/01/32				668,072

See Notes to Financial Statements

20

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Federal National Mortgage Assoc.
$	571			.					6.50	%			03/01/32-
													06/01/33			$	597,640
	917			.					7.00				07/01/11-
													07/01/32				970,680
	783			.					7.50				08/01/23-
													07/01/32				839,404
	780			.					8.00				05/01/24-
													08/01/31				846,551
				Government National Mortgage Assoc.
	161			.					7.50				08/15/25-
													10/15/26				173,728
	72			.					8.00				06/15/26-
													07/15/26				78,746
				Total Mortgage-Backed Securities  (Cost $4,316,640)													4,412,663
				Asset-Backed Securities (2.4%)
				Finance/Rental/Leasing
	700			American Express Credit Account Master Trust 2002-3 A				2.59††					12/15/09				701,977
	374			Asset Backed Funding Certificates 2004-HE1 A1				2.66††					06/25/22				374,188
	425			Capital Auto Receivables Asset Trust 2004-2 A					3.35				02/15/08				423,406
	315			Chase Credit Card Master Trust 2001-4 A					5.50				11/17/08				324,055
	300			Citibank Credit Card Issuance Trust 2000-A1 A1					6.90				10/15/07				307,858
	550			GE Dealer Floorplan Master Note Trust 2004-1 A				2.55††					07/20/08				550,356
	700			Harley-Davison Motorcycle Trust 2005-1 A2 (WI)					3.76				12/15/12				699,897
	140			MBNA Master Credit Card Trust					5.90				08/15/11				150,419
	161			Nissan Auto Receivables Owner Trust 2001-C A4					4.80				02/15/07				161,463
	175			TXU Electric Delivery Trans 2004-1 A2					4.81				11/17/14				179,470
	900			USAA Auto Owner Trust 2004-3 A3					3.16				02/17/09				894,371
				Total Asset-Backed Securities (Cost $4,752,427)													4,767,460
				Short-Term Investments (6.4%)
				U.S. Government Obligations (a) (0.9%)
	400			U.S. Treasury Bills ***					1.895				03/24/05				398,926
	1,300			U.S. Treasury Note					6.75				05/15/05				1,315,540
				Total U.S. Government Obligations (Cost $1,714,962)													1,714,466

See Notes to Financial Statements

21

Morgan Stanley Balanced Income Fund

Portfolio of Investments January 31, 2005 continued

PRINCIPAL AMOUNT IN THOUSANDS								COUPON RATE				MATURITY       DATE				VALUE
				Repurchase Agreement (5.5%)
$	11,039			Joint repurchase agreement account (dated 01/31/05; proceeds $11,039,762 ) (b) (Cost $11,039,000)					2.485	%			02/01/05			$	11,039,000
				Total Short-Term Investments  (Cost $12,753,962)													12,753,466
				Total Investments  (Cost $184,216,888) (c) (d)									102.3	%			203,203,829
				Liabilities in Excess of Other Assets									(2.3	)			(4,494,574	)
				Net Assets									100.0	%		$	198,709,255

ADR American Depository Receipt.

FSA Financial Security Assurance.

WI Security purchased on a when issued basis.

* Non-income producing security.

** Resale is restricted to qualified institutional investors.

*** A portion of this security has been segregated in connection with open futures contracts in an amount equal to $301,150.

† Security purchased on a forward commitment basis.

†† Floating rate security, rate shown is the rate in effect at January 31, 2005.

(a) Purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield.

(b) Collateralized by federal agency and U.S. Treasury obligations.

(c) Securities have been designated as collateral in an amount equal to $33,613,564, in connection with securities purchased on a forward commitment basis and open futures contracts.

(d) The aggregate cost for federal income tax purposes is $187,057,740. The aggregate gross unrealized appreciation is $17,780,985 and the aggregate gross unrealized depreciation is $1,634,896, resulting in net unrealized appreciation of $16,146,089.

Futures Contracts Open at January 31, 2005:

NUMBER OF CONTRACTS				LONG/SHORT				DESCRIPTION/DELIVERY MONTH AND YEAR				UNDERLYING FACE AMOUNT AT VALUE				UNREALIZED APPRECIATION/ (DEPRECIATION)
41					Short			U.S. Treasury Notes				$	(4,479,250	)		$	13,529
								5 Year March 2005
199					Short			U.S. Treasury Bonds					(22,853,906	)			(671,844	)
								20 Year March 2005
Net unrealized depreciation																$	(658,315	)

See Notes to Financial Statements

22

Morgan Stanley Balanced Income Fund

Financial Statements

Statement of Assets and Liabilities

January 31, 2005

Assets:
Investments in securities, at value (cost $184,216,888)				$	203,203,829
Receivable for:
Investments sold					2,713,749
Interest					1,845,640
Shares of beneficial interest sold					84,119
Dividends					38,954
Prepaid expenses and other assets					78,947
Total Assets					207,965,238
Liabilities:
Payable for:
Investments purchased					8,654,641
Shares of beneficial interest redeemed					229,816
Distribution fee					161,942
Investment advisory fee					87,862
Variation margin					34,109
Administration fee					13,517
Accrued expenses and other payables					74,096
Total Liabilities					9,255,983
Net Assets				$	198,709,255
Composition of Net Assets:
Paid-in-capital				$	181,704,426
Net unrealized appreciation					18,328,626
Dividends in excess of net investment income					(265,699	)
Accumulated net realized loss					(1,058,098	)
Net Assets				$	198,709,255
Class A Shares:
Net Assets				$	8,434,364
Shares Outstanding (unlimited authorized, $.01 par value)					649,723
Net Asset Value Per Share				$	12.98
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)				$	13.70
Class B Shares:
Net Assets				$	145,072,208
Shares Outstanding (unlimited authorized, $.01 par value)					11,222,745
Net Asset Value Per Share				$	12.93
Class C Shares:
Net Assets				$	43,307,553
Shares Outstanding (unlimited authorized, $.01 par value)					3,343,157
Net Asset Value Per Share				$	12.95
Class D Shares:
Net Assets				$	1,895,130
Shares Outstanding (unlimited authorized, $.01 par value)					146,374
Net Asset Value Per Share				$	12.95

See Notes to Financial Statements

23

Morgan Stanley Balanced Income Fund

Financial Statements continued

Statement of Operations

For the year ended January 31, 2005

Net Investment Income:
Income
Interest				$	5,943,549
Dividends (net of $24,853 foreign withholding tax)					1,370,931
Total Income					7,314,480
Expenses
Distribution fee (Class A shares)					19,448
Distribution fee (Class B shares)					1,570,442
Distribution fee (Class C shares)					403,428
Investment advisory fee					1,223,499
Transfer agent fees and expenses					247,471
Shareholder reports and notices					71,157
Professional fees					70,098
Registration fees					51,157
Custodian fees					43,090
Administration fee					40,604
Trustees' fees and expenses					2,836
Other					27,894
Total Expenses					3,771,124
Net Investment Income					3,543,356
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments					10,069,387
Futures contracts					(1,686,130	)
Net Realized Gain					8,383,257
Net Change in Unrealized Appreciation/Depreciation on:
Investments					(2,339,452	)
Futures contracts					(143,827	)
Net Depreciation					(2,483,279	)
Net Gain					5,899,978
Net Increase				$	9,443,334

See Notes to Financial Statements

24

Morgan Stanley Balanced Income Fund

Financial Statements continued

Statement of Changes in Net Assets

				FOR THE YEAR ENDED JANUARY 31, 2005				FOR THE YEAR ENDED JANUARY 31, 2004
Increase (Decrease) in Net Assets:
Operations:
Net investment income				$	3,543,356			$	2,886,139
Net realized gain					8,383,257				7,018,523
Net change in unrealized appreciation					(2,483,279	)			14,617,180
Net Increase					9,443,334				24,521,842
Dividends to Shareholders from Net Investment Income:
Class A shares					(238,355	)			(152,122	)
Class B shares					(3,326,493	)			(3,159,058	)
Class C shares					(935,448	)			(780,828	)
Class D shares					(66,324	)			(57,992	)
Total Dividends					(4,566,620	)			(4,150,000	)
Net increase (decrease) from transactions in shares of beneficial interest					(28,746,960	)			30,021,645
Net Increase (Decrease)					(23,870,246	)			50,393,487
Net Assets:
Beginning of period					222,579,501				172,186,014
End of Period
(Including dividends in excess of net investment income of $265,699 and $451,167, respectively)				$	198,709,255			$	222,579,501

See Notes to Financial Statements

25

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005

1.    Organization and Accounting Policies

Morgan Stanley Balanced Income 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 to provide current income and moderate capital growth. The Fund was organized as a Massachusetts business trust on November 23, 1994 and commenced operations on March 28, 1995. 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 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 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) futures are valued at the latest price published by the commodities exchange on which they trade; (6) when market quotations are not readily available or 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 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; (7) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees;

26

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

and (8) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost.

B.   Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. 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.   Futures Contracts — A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

F.   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.

G.   Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.

27

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

H.   Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

2.   Investment Advisory/Administration Agreements

Effective November 1, 2004, 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 as of the close of each business day: 0.52% to the portion of daily net assets not exceeding $500 million and 0.495% to the portion of the daily net assets in excess of $500 million.

Effective November 1, 2004 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.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the fund paid the Investment Adviser a monthly management fee accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund as of the close of each business day: 0.60% to the portion of daily net assets not exceeding $500 million and 0.575% to the portion of the daily net assets in excess of $500 million.

3.   Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Adviser. 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 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 $7,124,910 at January 31, 2005.

28

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

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 January 31, 2005, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24% and 0.93%, respectively.

The Distributor has informed the Fund that for the year ended January 31, 2005, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $424,725 and $9,362, respectively and received $36,856 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/prepayments of portfolio securities, excluding short-term investments, for the year ended January 31, 2005, aggregated $181,426,105 and $214,556,895, respectively. Included in the aforementioned are purchases and sales/prepayments of U.S. Government securities of $140,196,196 and $160,336,843, respectively and purchases of $6,718 with another Morgan Stanley fund.

For the year ended January 31, 2005, the Fund incurred brokerage commissions of $1,335 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. At January 31, 2005, the Fund had transfer agent fees and expenses payable of approximately $2,700.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

29

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

5.   Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

				FOR THE YEAR ENDED JANUARY 31, 2005								FOR THE YEAR ENDED JANUARY 31, 2004
				SHARES				AMOUNT				SHARES				AMOUNT
CLASS A SHARES
Sold					317,691			$	3,989,301				458,941			$	5,545,611
Reinvestment of dividends					13,948				177,229				8,979				108,282
Redeemed					(259,961	)			(3,278,960	)			(162,828	)			(1,962,686	)
Net increase – Class A					71,678				887,570				305,092				3,691,207
CLASS B SHARES
Sold					2,120,892				26,772,710				6,190,170				73,503,551
Reinvestment of dividends					185,091				2,343,526				183,758				2,197,677
Redeemed					(4,500,852	)			(56,690,252	)			(4,810,133	)			(57,539,950	)
Net increase (decrease) – Class B					(2,194,869	)			(27,574,016	)			1,563,795				18,161,278
CLASS C SHARES
Sold					491,664				6,201,714				1,380,443				16,559,967
Reinvestment of dividends					55,409				702,690				50,778				608,265
Redeemed					(617,049	)			(7,782,752	)			(859,068	)			(10,354,912	)
Net increase (decrease) – Class C					(69,976	)			(878,348	)			572,153				6,813,320
CLASS D SHARES
Sold					24,387				310,527				239,592				2,881,351
Reinvestment of dividends					3,852				48,712				3,633				43,824
Redeemed					(122,109	)			(1,541,405	)			(132,275	)			(1,569,335	)
Net increase (decrease) – Class D					(93,870	)			(1,182,166	)			110,950				1,355,840
Net increase (decrease) in Fund					(2,287,037	)		$	(28,746,960	)			2,551,990			$	30,021,645

6.   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.

30

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

The tax character of distributions paid was as follows:

				FOR THE YEAR ENDED JANUARY 31, 2005				FOR THE YEAR ENDED JANUARY 31, 2004
Ordinary income				$	4,566,620			$	4,150,000

As of January 31, 2005, the tax-basis components of accumulated earnings were as follows:

Undistributed ordinary income				$	537,346
Undistributed long-term gains					321,525
Net accumulated earnings					858,871
Temporary differences					(131	)
Net unrealized appreciation					16,146,089
Total accumulated earnings				$	17,004,829

During the year ended January 31, 2005, the Fund utilized its net capital loss carryforward of $6,698,518.

As of January 31, 2005, the Fund had temporary book/tax differences primarily attributable to capital loss deferrals on wash sales, mark-to-market of open futures contracts, capital loss deferrals on straddles and book amortization of premiums on debt securities and permanent book/tax differences attributable to losses on paydowns and tax adjustments on debt securities sold by the Fund. To reflect reclassifications arising from the permanent differences, accumulated net realized loss was charged and dividends in excess of net investment income was credited $1,208,732.

7.   Purposes of and Risks Relating to Certain Financial Instruments

The Fund may invest in futures with respect to financial instruments and interest rate indexes ("futures contracts").

These future contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. Risk may also rise from the potential inability of counterparties to meet the terms of their contracts.

31

Morgan Stanley Balanced Income Fund

Notes to Financial Statements January 31, 2005 continued

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, are named as defendants in a consolidated class action. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges 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 efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. On March 10, 2005, Plaintiffs sought leave to supplement their complaint to assert claims on behalf of other investors. While the Fund and Adviser believe that each has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter.

32

Morgan Stanley Balanced Income Fund

Financial Highlights

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

				FOR THE YEAR ENDED JANUARY 31,
				2005				2004				2003				2002				2001
Class A Shares:
Selected Per Share Data:
Net asset value, beginning of period				$	12.66			$	11.45			$	12.35			$	12.42			$	11.80
Income (loss) from investment operations:
Net investment income‡					0.30				0.26				0.33				0.43				0.47
Net realized and unrealized gain (loss)					0.39				1.28				(0.84	)			(0.06	)			0.94
Total income (loss) from investment operations					0.69				1.54				(0.51	)			0.37				1.41
Less dividends and distributions from:
Net investment income					(0.37	)			(0.33	)			(0.39	)			(0.44	)			(0.47	)
Net realized gain					—				—				—				—				(0.32	)
Total dividends and distributions					(0.37	)			(0.33	)			(0.39	)			(0.44	)			(0.79	)
Net asset value, end of period				$	12.98			$	12.66			$	11.45			$	12.35			$	12.42
Total Return†					5.55	%			13.65	%			(4.19	)%			3.13	%			12.66	%
Ratios to Average Net Assets(1):
Expenses					1.08	%			1.09	%			1.08	%			1.16	%			1.20	%
Net investment income					2.39	%			2.15	%			2.79	%			3.44	%			3.97	%
Supplemental Data:
Net assets, end of period, in thousands					$8,434				$7,318				$3,125				$2,216				$2,043
Portfolio turnover rate					89	%			174	%			173	%			99	%			21	%

‡ 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) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

33

Morgan Stanley Balanced Income Fund

Financial Highlights continued

				FOR THE YEAR ENDED JANUARY 31,
				2005				2004				2003				2002				2001
Class B Shares:
Selected Per Share Data:
Net asset value, beginning of period				$	12.61			$	11.40			$	12.31			$	12.39			$	11.77
Income (loss) from investment operations:
Net investment income‡					0.20				0.17				0.24				0.34				0.37
Net realized and unrealized gain (loss)					0.39				1.28				(0.85	)			(0.07	)			0.95
Total income (loss) from investment operations					0.59				1.45				(0.61	)			0.27				1.32
Less dividends and distributions from:
Net investment income					(0.27	)			(0.24	)			(0.30	)			(0.35	)			(0.38	)
Net realized gain					—				—				—				—				(0.32	)
Total dividends and distributions					(0.27	)			(0.24	)			(0.30	)			(0.35	)			(0.70	)
Net asset value, end of period				$	12.93			$	12.61			$	11.40			$	12.31			$	12.39
Total Return†					4.83	%			12.77	%			(4.98	)%			2.32	%			11.82	%
Ratios to Average Net Assets(1):
Expenses					1.84	%			1.86	%			1.84	%			1.91	%			2.00	%
Net investment income					1.63	%			1.38	%			2.03	%			2.68	%			3.17	%
Supplemental Data:
Net assets, end of period, in thousands					$145,072				$169,135				$135,146				$101,957				$45,803
Portfolio turnover rate					89	%			174	%			173	%			99	%			21	%

‡ 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) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

34

Morgan Stanley Balanced Income Fund

Financial Highlights continued

				FOR THE YEAR ENDED JANUARY 31,
				2005				2004				2003				2002				2001
Class C Shares:
Selected Per Share Data:
Net asset value, beginning of period				$	12.63			$	11.42			$	12.33			$	12.41			$	11.78
Income (loss) from investment operations:
Net investment income‡					0.21				0.17				0.24				0.33				0.38
Net realized and unrealized gain (loss)					0.38				1.28				(0.85	)			(0.05	)			0.95
Total income (loss) from investment operations					0.59				1.45				(0.61	)			0.28				1.33
Less dividends and distributions from:
Net investment income					(0.27	)			(0.24	)			(0.30	)			(0.36	)			(0.38	)
Net realized gain					—				—				—				—				(0.32	)
Total dividends and distributions					(0.27	)			(0.24	)			(0.30	)			(0.36	)			(0.70	)
Net asset value, end of period				$	12.95			$	12.63			$	11.42			$	12.33			$	12.41
Total Return†					4.84	%			12.74	%			(5.00	)%			2.32	%			11.89	%
Ratios to Average Net Assets(1):
Expenses					1.77	%			1.85	%			1.84	%			1.91	%			1.94	%
Net investment income					1.70	%			1.39	%			2.03	%			2.68	%			3.23	%
Supplemental Data:
Net assets, end of period, in thousands					$43,308				$43,092				$32,439				$33,321				$24,205
Portfolio turnover rate					89	%			174	%			173	%			99	%			21	%

‡ 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) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

35

Morgan Stanley Balanced Income Fund

Financial Highlights continued

				FOR THE YEAR ENDED JANUARY 31,
				2005				2004				2003				2002				2001
Class D Shares:
Selected Per Share Data:
Net asset value, beginning of period				$	12.63			$	11.42			$	12.33			$	12.40			$	11.79
Income (loss) from investment operations:
Net investment income‡					0.33				0.29				0.34				0.45				0.50
Net realized and unrealized gain (loss)					0.39				1.28				(0.83	)			(0.05	)			0.93
Total income (loss) from investment operations					0.72				1.57				(0.49	)			0.40				1.43
Less dividends and distributions from:
Net investment income					(0.40	)			(0.36	)			(0.42	)			(0.47	)			(0.50	)
Net realized gain					—				—				—				—				(0.32	)
Total dividends and distributions					(0.40	)			(0.36	)			(0.42	)			(0.47	)			(0.82	)
Net asset value, end of period				$	12.95			$	12.63			$	11.42			$	12.33			$	12.40
Total Return†					5.80	%			13.94	%			(4.04	)%			3.37	%			12.88	%
Ratios to Average Net Assets(1):
Expenses					0.84	%			0.86	%			0.84	%			0.91	%			1.00	%
Net investment income					2.63	%			2.38	%			3.03	%			3.68	%			4.17	%
Supplemental Data:
Net assets, end of period, in thousands					$1,895				$3,034				$1,476				$496				$107
Portfolio turnover rate					89	%			174	%			173	%			99	%			21	%

‡ 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) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

36

Morgan Stanley Balanced Income Fund

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley Balanced Income Fund:

We have audited the accompanying statement of assets and liabilities of Morgan Stanley Balanced Income Fund (the "Fund"), including the portfolio of investments, as of January 31, 2005, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The fund is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of January 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 Balanced Income Fund as of January 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
March 17, 2005

37

Morgan Stanley Balanced Income Fund

Trustee and Officer Information

Independent Trustees:

Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Term of Office and Length of Time Served*

Principal Occupation(s) During Past 5 Years**

Number of Portfolios in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Michael Bozic (64) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 919 Third Avenue New York, NY 10022-3902

Trustee

Since April 1994

Private Investor; Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive 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.

208

None

Edwin J. Garn (72) 1031 N. Chartwell Court Salt Lake City, UT 84103

Trustee

Since January 1993

Consultant; Managing Director of Summit Ventures LLC; Director or Trustee of the Retail Funds (since January 1993) and the Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp.; formerly Managing Director of Summit Ventures LLC (2000-2004); United States Senator (R-Utah) (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).

208

Director of Franklin Covey (time management systems), BMW Bank of North America, Inc. (industrial loan corporation), United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations.

Wayne E. Hedien (70) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 919 Third Avenue New York, NY 10022-3902

Trustee

Since September 1997

Retired; Director or Trustee of the Retail Funds; (Since September 1997) and the Institutional Funds (since July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).

208

Director of The PMI Group Inc. (private mortgage insurance); Trustee and Vice Chairman of The Field Museum of Natural History; director of various other business and charitable organizations.

38

Morgan Stanley Balanced Income Fund

Trustee and Officer Information continued

Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Term of Office and Length of Time Served*

Principal Occupation(s) During Past 5 Years**

Number of Portfolios in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Dr. Manuel H. Johnson (55) c/o Johnson Smick International, Inc. 2099 Pennsylvania Avenue, N.W. Suite 950 Washington, D.C. 20006

Trustee

Since July 1991

Senior Partner, Johnson Smick International, Inc., a consulting firm; Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); 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.

208

Director of NVR, Inc. (home construction); Director of KFX Energy; Director of RBS Greenwich Capital Holdings (financial holding company.

Joseph J. Kearns (62) c/o Kearns & Associates LLC PMB754 23852 Pacific Coast Highway Malibu, CA 90265

Trustee

Since July 2003

President, Kearns & Associates LLC (investment consulting); Deputy Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust.

209

Director of Electro Rent Corporation (equipment leasing), The Ford Family Foundation, and the UCLA Foundation.

Michael E. Nugent (68) c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022

Trustee

Since July 1991

General Partner of Triumph Capital, L.P., a private investment partnership; Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988).

208

Director of various business organizations.

Fergus Reid (72) c/o Lumelite Plastics Corporation 85 Charles Colman Blvd. Pawling, NY 12564

Trustee

Since July 2003

Chairman of Lumelite Plastics Corporation; Chairman of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992).

209

Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc.

39

Morgan Stanley Balanced Income Fund

Trustee and Officer Information continued

Interested Trustees:

Name, Age and Address of Interested Trustee

Position(s) Held with Registrant

Term of Office and Length of Time Served*

Principal Occupation(s) During Past 5 Years**

Number of Portfolios in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Charles A. Fiumefreddo (71) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ 07311

Chairman of the Board and Trustee

Since July 1991

Chairman and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002).

208

None.

James F. Higgins (56) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ 07311

Trustee

Since June 2000

Director or Trustee of the Retail Funds (since June 2000) and the Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter 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).

208

Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).

    * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (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. 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 Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).

40

Morgan Stanley Balanced Income Fund

Trustee and Officer Information continued

Officers:

Name, Age and Address of Executive Officer

Position(s) Held with Registrant

Term of Office and Length of Time Served*

Principal Occupation(s) During Past 5 Years**

Mitchell M. Merin (51) 1221 Avenue of the Americas New York, NY 10020

President

Since May 1999

President and Chief Operating Officer of Morgan Stanley Investment Management Inc.; President, Director and Chief Executive Officer of the Investment Adviser and the Administrator; Chairman and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds; Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee and President (since October 2002) of the Van Kampen Open-End Funds.

Ronald E. Robison (66) 1221 Avenue of the Americas New York, NY 10020

Executive Vice President and Principal Executive Officer

Since April 2003

Principal Executive Officer of Funds in the Fund Complex (since May 2003); Managing Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and Morgan Stanley; Managing Director, Chief Administrative Officer and Director of the Investment Adviser and the Administrator; Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Retail Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc.

Joseph J. McAlinden (62) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since July 1995

Managing Director and Chief Investment Officer of the Investment Adviser and Morgan Stanley Investment Management Inc.; 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).

Barry Fink (50) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since February 1997

General Counsel (since May 2000) and Managing Director (since December 2000) of Morgan Stanley Investment Management; Managing Director (since December 2000), Secretary (since February 1997) and Director of the Investment Adviser and the Administrator; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Adviser and the Administrator (February 1997-December 2001).

Amy R. Doberman (42) 1221 Avenue of Americas New York, NY 10020

Vice President

Since July 2004

Managing Director and General Counsel, U.S. Investment Management; Managing Director of Morgan Stanley Investment Management Inc. and the Investment Adviser, Vice President of the Institutional and Retail Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); previously, Managing Director and General Counsel — Americas, UBS Global Asset Management (July 2000 – July 2004) and General Counsel, Aeltus Investment Management Inc. (January 1997 – July 2000).

41

Morgan Stanley Balanced Income Fund

Trustee and Officer Information continued

Name, Age and Address of Executive Officer

Position(s) Held with Registrant

Term of Office and Length of Time Served*

Principal Occupation(s) During Past 5 Years**

Carsten Otto (41) 1221 Avenue of the Americas New York, NY 10020

Chief Compliance Officer

Since October 2004

Executive Director and U.S. Director of Compliance for Morgan Stanley Investment Management (since October 2004); Executive Director of the Investment Adviser and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds.

Stefanie V. Chang (38) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Adviser; Vice President of the Institutional Funds and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance US LLP).

Francis J. Smith (39) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ 07311

Treasurer and Chief Financial Officer

Treasurer since July 2003 and Chief Financial Officer since September 2002

Executive Director of the Investment Adviser and Morgan Stanley Services (since December 2001); previously, Vice President of the Retail Funds (September 2002-July 2003), Vice President of the Investment Adviser and the Administrator (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000).

Thomas F. Caloia (58) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ 07311

Vice President

Since July 2003

Executive Director (since December 2002) and Assistant Treasurer of the Investment Adviser, the Distributor and the Administrator; previously Treasurer of the Retail Funds (April 1989-July 2003); formerly First Vice President of the Investment Adviser, the Distributor and the Administrator.

Mary E. Mullin (37) 1221 Avenue of the Americas New York, NY 10020

Secretary

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Adviser; Secretary of the Institutional Funds 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.

2005 Federal Tax Notice (unaudited)

During the fiscal year ended January 31, 2005, 25.13% of the income dividends paid by the Fund qualified for the dividends received deduction available to corporations. Additionally, please note that 26.64% of the Fund's income dividends paid during the fiscal year ended January 31, 2005 qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Of the Fund's ordinary income dividends paid during the fiscal year, 40.45% was attributable to qualifying Federal obligations. Please consult your tax advisor to determine if any portion of the dividends you received is exempt from state income tax.

42

(This page has been left blank intentionally.)

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 Fergus Reid Officers Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Joseph J. McAlinden Vice President Barry Fink Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Vice President Francis J. 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 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 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. © 2005 Morgan Stanley 38400RPT-RA05-00186P-Y01/05		MORGAN STANLEY FUNDS
		Morgan Stanley Balanced Income Fund Annual Report January 31, 2005

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) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":

"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."

(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.

(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:



           2005
                                                            REGISTRANT            COVERED ENTITIES(1)

              AUDIT FEES..........................          $33,458               N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES.........         $   452 (2)           $3,746,495 (2)
                        TAX FEES...................         $ 5,394 (3)           $   79,800 (4)
                        ALL OTHER FEES.............         $ -                   $ -
              TOTAL NON-AUDIT FEES.................         $ 5,846               $3,826,295

              TOTAL................................         $39,304               $3,826,295


           2004
                                                            REGISTRANT            COVERED ENTITIES(1)

              AUDIT FEES..........................          $32,170                N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES........          $   684 (2)          $2,847,161 (2)
                        TAX FEES..................          $ 5,893 (3)          $  736,810 (4)
                        ALL OTHER FEES............          $ -                  $ - (5)
              TOTAL NON-AUDIT FEES................          $ 6,577              $3,583,971

              TOTAL...............................          $38,747              $3,583,971


              N/A- Not applicable, as not required by Item 4.

              (1)   Covered Entities include the Adviser (excluding
                    sub-advisors) and any entity controlling, controlled by or
                    under common control with the Adviser that provides ongoing
                    services to the Registrant.
              (2)   Audit-Related Fees represent assurance and related services
                    provided that are reasonably related to the performance of
                    the audit of the financial statements of the Covered
                    Entities' and funds advised by the Adviser or its
                    affiliates, specifically data verification and agreed-upon
                    procedures related to asset securitizations and agreed-upon
                    procedures engagements.
              (3)   Tax Fees represent tax compliance, tax planning and tax
                    advice services provided in connection with the preparation
                    and review of the Registrant's tax returns.
              (4)   Tax Fees represent tax compliance, tax planning and tax
                    advice services provided in connection with the review of
                    Covered Entities' tax returns.
              (5)   All other fees represent project management for future
                    business applications and improving business and operational
                    processes.


                                       2



(e)(1) The audit committee's pre-approval policies and procedures are as
follows:

                                                                      APPENDIX A

                                 AUDIT COMMITTEE
                          AUDIT AND NON-AUDIT SERVICES
                       PRE-APPROVAL POLICY AND PROCEDURES
                                     OF THE
                  MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

AS ADOPTED AND AMENDED JULY 23, 2004,     (1)


     1. STATEMENT OF PRINCIPLES

The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.

The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("general pre-approval"); or require the specific pre-approval of the Audit
Committee or its delegate ("specific pre-approval"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.

The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.

--------------------------
1    This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
     Procedures (the "Policy"), adopted as of the date above, supersedes and
     replaces all prior versions that may have been adopted from time to time.


                                       3


The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.

The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.

     2. DELEGATION

As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.

     3. AUDIT SERVICES

The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.

In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.

The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

     4. AUDIT-RELATED SERVICES

Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters



                                       4


not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.

The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

     5. TAX SERVICES

The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).

     6. ALL OTHER SERVICES

The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.

The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

     7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS

Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.

     8. PROCEDURES

All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be


                                       5


rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.

The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.

     9. ADDITIONAL REQUIREMENTS

The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.

10.      COVERED ENTITIES

Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:

         Morgan Stanley Retail Funds
         ---------------------------

         Morgan Stanley Investment Advisors Inc.
         Morgan Stanley & Co. Incorporated
         Morgan Stanley DW Inc.
         Morgan Stanley Investment Management Inc.
         Morgan Stanley Investment Management Limited
         Morgan Stanley Investment Management Private Limited
         Morgan Stanley Asset & Investment Trust Management Co., Limited
         Morgan Stanley Investment Management Company
         Van Kampen Asset Management
         Morgan Stanley Services Company, Inc.
         Morgan Stanley Distributors Inc.
         Morgan Stanley Trust FSB


                                       6


         Morgan Stanley Institutional Funds
         ----------------------------------

         Morgan Stanley Investment Management Inc.
         Morgan Stanley Investment Advisors Inc.
         Morgan Stanley Investment Management Limited
         Morgan Stanley Investment Management Private Limited
         Morgan Stanley Asset & Investment Trust Management Co., Limited
         Morgan Stanley Investment Management Company
         Morgan Stanley & Co. Incorporated
         Morgan Stanley Distribution, Inc.
         Morgan Stanley AIP GP LP
         Morgan Stanley Alternative Investment Partners LP


(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.


Item 5. Audit Committee of Listed Registrants.

(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.

(b) Not applicable.


Item 6. Schedule of Investments

Refer to Item 1.


                                       7



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

Applicable only to reports filed by closed-end funds.


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 only 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 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 12. 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.



                                       8



                                   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 Balanced Income Fund

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 22, 2005

         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
March 22, 2005

/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 22, 2005


                                       9



                                                                    EXHIBIT 12 A


      CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
      --------------------------------------------------------------------

                           ADOPTED SEPTEMBER 28, 2004
                           --------------------------


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:

         o    honest and ethical conduct, including the ethical handling of
              actual or apparent conflicts of interest between personal and
              professional relationships.

         o    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;

         o    compliance with applicable laws and governmental rules and
              regulations;

         o    prompt internal reporting of violations of the Code to an
              appropriate person or persons identified in the Code; and

         o    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


                                       10


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:

         o    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);

         o    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

         o    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.



                                       11


         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:

         o    service or significant business relationships as a director on the
              board of any public or private company;

         o    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;

         o    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

         o    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

         o    Each Covered Officer should familiarize himself/herself with the
              disclosure and compliance requirements generally applicable to the
              Funds;

         o    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;

         o    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



                                       12


         o    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:

         o    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;

         o    annually thereafter affirm to the Boards that he has complied with
              the requirements of the Code;

         o    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

         o    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(2) 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:

         o    the General Counsel will take all appropriate action to
              investigate any potential violations reported to him;

         o    if, after such investigation, the General Counsel believes that no
              violation has occurred, the General Counsel is not required to
              take any further action;

         o    any matter that the General Counsel believes is a violation will
              be reported to the relevant Fund's Audit Committee;

         o    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


--------------------------
2    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."



                                       13


              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;

         o    the Independent Directors/Trustees/Managing General Partners of
              the relevant Fund will be responsible for granting waivers of this
              Code, as appropriate; and

         o    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.



                                       14


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:
     ---------------------



                                       15





                                    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



                                       16





                                    EXHIBIT C
                                    ---------

                                 GENERAL COUNSEL
                                 ---------------

                                   Barry Fink





                                       17




                                                                   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 Balanced Income
     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 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):



                                       18


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: March 22, 2005
                                                     /s/ Ronald E. Robison
                                                     Ronald E. Robison
                                                     Principal Executive Officer



                                       19



                                                                   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 Balanced Income
     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 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):



                                       20


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: March 22, 2005
                                                    /s/ Francis Smith
                                                    Francis Smith
                                                    Principal Financial Officer



                                       21




                            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 Balanced Income Fund

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended January 31, 2005 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: March 22, 2005                                /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 Balanced Income Fund and will be retained by Morgan
Stanley Balanced Income Fund and furnished to the Securities and Exchange
Commission or its staff upon request.



                                       22



                            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 Balanced Income Fund

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended January 31, 2005 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: March 22, 2005                                /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 Balanced Income Fund and will be retained by Morgan
Stanley Balanced Income Fund and furnished to the Securities and Exchange
Commission or its staff upon request.



                                       23