-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhZTXKRxbdeb5BmTWACFE64IzCesi8LXiXPov/xgUePTxHdGPExZtt7v1inpN4MJ Y6+mvdMGlGZpuOFtRZF3JA== 0000950123-03-011074.txt : 20031002 0000950123-03-011074.hdr.sgml : 20031002 20031002155851 ACCESSION NUMBER: 0000950123-03-011074 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20031002 EFFECTIVENESS DATE: 20031002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY BALANCED GROWTH FUND CENTRAL INDEX KEY: 0000932843 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07245 FILM NUMBER: 03924389 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER BALANCED GROWTH FUND /NEW/ DATE OF NAME CHANGE: 19980804 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER BALANCED GROWTH FUND DATE OF NAME CHANGE: 19941116 N-CSRS 1 y88926nvcsrs.txt MORGAN STANLEY BALANCED GROWTH FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07245 Morgan Stanley Balanced Growth Fund (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: January 31, 2004 Date of reporting period: July 31, 2003 Item 1 Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Balanced Growth Fund performed during the semiannual period. The portfolio management team will provide an overview of the market climate, and discuss some of the factors that helped or hindered performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments, as well as other information. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and, therefore, the value of the Fund shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. FUND REPORT For the six-month period ended July 31, 2003 TOTAL RETURN FOR THE SIX MONTHS ENDED JULY 31, 2003
CLASS A CLASS B CLASS C CLASS D 10.77% 10.35% 10.34% 10.89%
LEHMAN BROTHERS RUSSELL U.S. LIPPER 1000 VALUE S&P 500 GOVERNMENT/ BALANCED INDEX(1) INDEX(2) CREDIT INDEX(3) FUNDS INDEX(4) 16.04% 16.79% 0.82% 10.78%
The performance of the Fund's four share classes varies because each has different expenses. The Fund's total return figures assume the reinvestment of all distributions, but do no reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information. MARKET CONDITIONS At the start of the six-month period ended July 31, 2003, the equity markets were plagued by concerns over the near-term future path of the economy and uncertainty about the possibility of war in Iraq. Traditionally defensive sectors outperformed in this environment as investors favored their perceived safety. From March through July, however, the equity market rallied sharply as investors began to perceive the beneficial effects of accommodative monetary and fiscal policy on economic results and corporate earnings. The defensive sectors and securities that had led the market during the bear market period fell behind more cyclical sectors as investors' expectations for the economy improved. Bonds performed strongly through much of the equity rally. In June, however, signs of economic growth led investors to fear that interest rates were unsustainably low. Bond prices (which move in opposition to yields) fell sharply through the end of the period as investors allocated assets out of the debt markets. These shifts were reflected in the yield on the 10-year Treasury bond. After declining sharply from May through mid-June, to 3.11 percent, it backed up to 4.41 percent at the end of July. PERFORMANCE ANALYSIS Much of the Fund's underperformance relative to its benchmark, the Russell 1000 Value Index, during the period stemmed from its holdings of fixed-income securities, which lagged the equity market. On the equity side, the Fund's overweighting in energy detracted from performance because that sector did not participate as fully in the rally as others. We remain confident in the Fund's overweighted stance, however, because we consider our energy holdings to be favorably valued. These negatives were partially offset by strong performance in other segments of the Fund's equity portfolio. Strong stock selection in the consumer discretionary sector was one such case. Many of these securities presented compelling values and appreciated strongly from their relatively low valuations at the beginning of the period. The Fund's investments in health care, including select pharmaceutical and health care services holdings, also contributed positively to performance. The fixed-income portfolio's performance was mixed. With rates at historically low levels, our analysis indicated that the Treasury yield curve appeared to be priced as if the U.S. economy would remain well below full employment level for five years, and somewhat below full employment for a decade. We believed this assessment to be unduly pessimistic in light of the potential for the economy's return to 2 positive growth. Given that such a return would be likely to result in interest rates rising, we kept the Fund's interest-rate sensitivity below that of its benchmark, which caused it to lag as interest rates fell. This position became a net positive, however, when interest rates soared in the last weeks of the period.
TOP 10 HOLDINGS U.S. Treasury Bonds and Notes 7.3% Fed. Natl. Mtge. Assoc. 5.3% Fed. Home Ln. Mtge. Corp. 4.7% Bristol-Myers Squibb Co. 3.2% Bank of America Corp. 2.4% AOL Time Warner Inc. 2.0% Schlumberger Ltd. 1.9% Chubb Corp. 1.8% BP PLC -- ADR 1.7% Exxon Mobil Corporation 1.5%
TOP FIVE INDUSTRIES Common Stocks 65.6% U.S. Government Agencies & Obligations 17.8% Short Term 9.8% Corporate Bonds 9.2% Asset Backed 1.4%
Subject to change daily. All percentages are as a percentage of net assets. Provided for informational purposes only and should not be deemed as a recommendation to buy the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. INVESTMENT STRATEGY - - THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO PROVIDE CAPITAL GROWTH WITH REASONABLE CURRENT INCOME. - - TYPICALLY, THE MANAGER INVESTS AT LEAST 60% OF THE PORTFOLIO IN THE COMMON STOCKS OF COMPANIES THAT HAVE A RECORD OF PAYING DIVIDENDS AND, IN THE OPINION OF THE MANAGER, HAVE THE POTENTIAL FOR INCREASING DIVIDENDS AND IN INVESTMENT GRADE SECURITIES CONVERTIBLE INTO COMMON STOCKS. - - THE FUND ALSO INVESTS AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SECURITIES SUCH AS INVESTMENT-GRADE CORPORATE DEBT SECURITIES, BANK OBLIGATIONS, INVESTMENT-GRADE MORTGAGE-BACKED SECURITIES, INCLUDING COLLATERALIZED MORTGAGE OBLIGATIONS, INVESTMENT-GRADE ASSET-BACKED SECURITIES, AND U.S. GOVERNMENT SECURITIES. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV. 3 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED JULY 31, 2003
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++) 07/28/97 07/28/97 03/28/95 07/28/97 SYMBOL BGRAX BGRBX BGRCX BGRDX 1 YEAR 4.06%(5) 3.35%(5) 3.33%(5) 4.40%(5) (1.40)(6) (1.65)(6) 2.33(6) 5 YEARS 2.41(5) 1.64(5) 1.64(5) 2.67(5) 1.31(6) 1.35(6) 1.64(6) SINCE INCEPTION 3.98(5) 3.19(5) 8.15(5) 4.22(5) 3.05(6) 3.19(6) 8.15(6)
Past performance is not predictive of future returns. Investment return and principal value will fluctuate. When you sell fund shares, they may be worth less than their original cost. The table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses. - -------------------------------------------------------------------------------- Notes on Performance (1) 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. (2) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees or charges. Such costs would lower performance. It is not possible to invest directly in an index. (3) 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. The Index does not include any expenses, fees or charges. Such costs would lower performance. It is not possible to invest directly in an index. (4) The Lipper Balanced Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Balanced 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. (5) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. (6) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. * The maximum front-end sales charge for Class A is 5.25%. ** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. + The maximum CDSC for Class C is 1.0% for shares redeemed within one year of purchase. ++ Class D has no sales charge. 4 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED)
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- Common Stocks (65.6%) Advertising/Marketing Services (0.5%) 61,300 Interpublic Group of Companies, Inc. (The)*................................. $ 845,940 ------------ Aerospace & Defense (0.5%) 26,790 Raytheon Co. ............................................................... 822,453 ------------ Auto Parts: O.E.M. (0.9%) 21,150 Magna International Inc. (Class A) (Canada)................................. 1,609,092 ------------ Beverages: Non-Alcoholic (0.4%) 17,360 Coca-Cola Co. (The)......................................................... 780,679 ------------ Chemicals: Agricultural (0.4%) 28,920 Monsanto Co. ............................................................... 665,160 ------------ Chemicals: Major Diversified (1.2%) 36,530 Dow Chemical Co. (The)...................................................... 1,289,509 22,000 Du Pont (E.I.) de Nemours & Co. ............................................ 966,680 ------------ 2,256,189 ------------ Computer Processing Hardware (0.8%) 70,100 Hewlett-Packard Co. ........................................................ 1,484,017 ------------ Containers/Packaging (1.0%) 39,740 Temple-Inland, Inc. ........................................................ 1,843,539 ------------ Contract Drilling (1.3%) 46,270 ENSCO International Inc. ................................................... 1,159,989 60,380 Transocean Inc.*............................................................ 1,181,637 ------------ 2,341,626 ------------ Data Processing Services (1.1%) 36,300 Automatic Data Processing, Inc. ............................................ 1,346,004 15,160 Computer Sciences Corp.*.................................................... 615,041 ------------ 1,961,045 ------------
See Notes to Financial Statements 5 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- Discount Stores (1.5%) 22,430 Target Corp. ............................................................... $ 859,518 31,690 Wal-Mart Stores, Inc. ...................................................... 1,771,788 ------------ 2,631,306 ------------ Electric Utilities (3.1%) 18,800 Edison International*....................................................... 308,508 46,370 Entergy Corp. .............................................................. 2,388,519 21,840 Exelon Corp. ............................................................... 1,255,145 40,290 PPL Corp. .................................................................. 1,595,081 ------------ 5,547,253 ------------ Financial Conglomerates (3.5%) 57,300 Citigroup Inc. ............................................................. 2,567,040 67,570 J.P. Morgan Chase & Co. .................................................... 2,368,328 39,380 Prudential Financial, Inc. ................................................. 1,401,140 ------------ 6,336,508 ------------ Financial Publishing/Services (1.2%) 88,830 Equifax, Inc. .............................................................. 2,068,851 ------------ Food: Major Diversified (0.7%) 25,440 PepsiCo, Inc. .............................................................. 1,172,021 ------------ Hospital/Nursing Management (0.5%) 64,700 Tenet Healthcare Corp.*..................................................... 891,566 ------------ Hotels/Resorts/Cruiselines (2.3%) 128,940 Hilton Hotels Corp. ........................................................ 1,882,524 69,600 Starwood Hotels & Resorts Worldwide, Inc. .................................. 2,268,960 ------------ 4,151,484 ------------ Household/Personal Care (1.3%) 42,390 Kimberly-Clark Corp. ....................................................... 2,051,676 3,400 Procter & Gamble Co. (The).................................................. 298,758 ------------ 2,350,434 ------------ Industrial Conglomerates (2.3%) 8,700 3M Co. ..................................................................... 1,219,740 29,240 Ingersoll-Rand Co., Ltd. (Class A) (Bermuda)................................ 1,585,978 29,630 Textron, Inc. .............................................................. 1,286,535 ------------ 4,092,253 ------------
See Notes to Financial Statements 6 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- Industrial Machinery (0.5%) 20,100 Parker-Hannifin Corp. ...................................................... $ 926,610 ------------ Information Technology Services (0.5%) 40,200 Electronic Data Systems Corp. .............................................. 895,254 ------------ Integrated Oil (4.0%) 74,360 BP PLC (ADR) (United Kingdom)............................................... 3,089,658 29,040 ConocoPhillips.............................................................. 1,519,954 73,740 Exxon Mobil Corp. .......................................................... 2,623,669 ------------ 7,233,281 ------------ Investment Banks/Brokers (2.1%) 41,400 Edwards (A.G.), Inc. ....................................................... 1,531,386 42,600 Merrill Lynch & Co., Inc. .................................................. 2,316,162 ------------ 3,847,548 ------------ Life/Health Insurance (0.5%) 34,870 MetLife, Inc. .............................................................. 966,596 ------------ Major Banks (4.7%) 52,450 Bank of America Corp. ...................................................... 4,330,796 28,670 FleetBoston Financial Corp. ................................................ 891,350 42,560 PNC Financial Services Group................................................ 2,083,312 25,920 Wachovia Corp. ............................................................. 1,132,445 ------------ 8,437,903 ------------ Major Telecommunications (2.7%) 78,850 SBC Communications, Inc. ................................................... 1,841,936 105,760 Sprint Corp. (FON Group).................................................... 1,493,331 41,810 Verizon Communications Inc. ................................................ 1,457,497 ------------ 4,792,764 ------------ Managed Health Care (0.7%) 21,520 Aetna Inc. ................................................................. 1,326,062 ------------ Media Conglomerates (3.3%) 222,960 AOL Time Warner Inc.*....................................................... 3,440,273 115,350 Disney (Walt) Co. (The)..................................................... 2,528,472 ------------ 5,968,745 ------------ Medical Specialties (0.8%) 32,470 Bausch & Lomb, Inc. ........................................................ 1,372,507 ------------
See Notes to Financial Statements 7 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- Motor Vehicles (0.6%) 56,100 Honda Motor Co., Ltd. (ADR) (Japan)......................................... $ 1,108,536 ------------ Multi-Line Insurance (1.7%) 42,550 Hartford Financial Services Group, Inc. (The)............................... 2,220,684 22,990 Safeco Corp. ............................................................... 855,918 ------------ 3,076,602 ------------ Oil & Gas Production (1.3%) 23,460 Anadarko Petroleum Corp. ................................................... 1,027,548 32,050 EOG Resources, Inc. ........................................................ 1,242,899 ------------ 2,270,447 ------------ Oil Refining/Marketing (0.6%) 27,270 Valero Energy Corp. ........................................................ 992,628 ------------ Oilfield Services/Equipment (1.9%) 73,800 Schlumberger Ltd. .......................................................... 3,326,166 ------------ Other Metals/Minerals (0.9%) 37,070 Phelps Dodge Corp.*......................................................... 1,563,983 ------------ Packaged Software (1.1%) 77,920 Microsoft Corp. ............................................................ 2,057,088 ------------ Pharmaceuticals: Major (6.1%) 216,760 Bristol-Myers Squibb Co. ................................................... 5,679,112 11,840 Johnson & Johnson........................................................... 613,194 35,626 Pfizer Inc. ................................................................ 1,188,483 22,000 Roche Holdings Ltd (ADR) (Switzerland)...................................... 1,838,100 97,060 Schering-Plough Corp. ...................................................... 1,648,079 ------------ 10,966,968 ------------ Precious Metals (0.8%) 38,790 Newmont Mining Corp. ....................................................... 1,400,319 ------------ Property - Casualty Insurers (2.9%) 48,490 Chubb Corp. (The)........................................................... 3,142,152 126,006 Travelers Property Casualty Corp. (Class A)................................. 2,041,297 ------------ 5,183,449 ------------
See Notes to Financial Statements 8 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------- Railroads (1.8%) 105,370 Norfolk Southern Corp. ..................................................... $ 2,026,265 19,380 Union Pacific Corp. ........................................................ 1,181,017 ------------ 3,207,282 ------------ Restaurants (1.0%) 76,210 McDonald's Corp. ........................................................... 1,753,592 ------------ Tobacco (0.6%) 26,290 Altria Group, Inc. ......................................................... 1,051,863 ------------ Total Common Stocks (Cost $101,016,271)..................................... 117,577,609 ------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - --------- ------ -------- Corporate Bonds (9.2%) Aerospace & Defense (0.4%) $ 90 Boeing Co. ............................................... 6.625% 02/15/38 $ 86,641 45 Goodrich Corp. ........................................... 7.625 12/15/12 48,898 115 Lockheed Martin Corp. .................................... 7.75 05/01/26 130,258 85 Lockheed Martin Corp. .................................... 8.50 12/01/29 104,284 60 Raytheon Co. ............................................. 8.20 03/01/06 68,245 193 Systems 2001 Asset Trust - 144A**......................... 6.664 09/15/13 216,064 ------------ 654,390 ------------ Airlines (0.3%) 127 American West Airlines.................................... 7.10 04/02/21 129,915 274 Continental Airlines, Inc. ............................... 6.90 01/02/18 257,775 75 Southwest Airlines Co. ................................... 5.496 11/01/06 79,487 ------------ 467,177 ------------ Broadcasting (0.1%) 130 Clear Channel Communications, Inc. ....................... 7.65 09/15/10 148,738 ------------ Building Products (0.1%) 45 Celulosa Arauco Constitution - 144A**(Chile).............. 5.125 07/09/13 42,148 60 Masco Corp. .............................................. 6.50 08/15/32 59,534 ------------ 101,682 ------------ Cable/Satellite TV (0.2%) 140 Comcast Corp. ............................................ 6.50 01/15/15 145,988 95 Cox Communications, Inc. ................................. 7.125 10/01/12 106,124
See Notes to Financial Statements 9 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 105 Liberty Media Corp. ...................................... 5.70 % 05/15/13 $ 97,700 80 TCI Communications, Inc. ................................. 7.875 02/15/26 87,106 ------------ 436,918 ------------ Chemicals: Agricultural (0.0%) 65 Monsanto Co. ............................................. 7.375 08/15/12 73,186 ------------ Containers/Packaging (0.1%) 85 Sealed Air Corp - 144A**.................................. 5.625 07/15/13 81,282 ------------ Department Stores (0.2%) 25 Federated Department Stores, Inc. ........................ 7.00 02/15/28 25,713 200 Federated Department Stores, Inc. ........................ 6.90 04/01/29 203,365 215 May Department Stores Co., Inc. .......................... 6.70 09/15/28 208,852 ------------ 437,930 ------------ Drugstore Chains (0.2%) 275 CVS Corp. ................................................ 5.625 03/15/06 296,100 ------------ Electric Utilities (0.4%) 55 Appalachian Power Co. (Series H).......................... 5.95 05/15/33 49,454 60 Cincinnati Gas & Electric Co. ............................ 5.70 09/15/12 62,228 40 Cincinnati Gas & Electric Co. (Series A).................. 5.40 06/15/33 34,896 40 Cincinnati Gas & Electric Co. (Series B).................. 5.375 06/15/33 34,763 40 Columbus Southern Power Co. - 144A**...................... 6.60 03/01/33 40,331 105 Constellation Energy Group, Inc. ......................... 7.60 04/01/32 112,869 50 Detroit Edison Co. ....................................... 6.125 10/01/10 53,067 15 Detroit Edison Co. ....................................... 6.35 10/15/32 14,978 85 Duke Energy Corp. ........................................ 4.50 04/01/10 84,092 60 Exelon Corp. ............................................. 6.75 05/01/11 66,066 35 Florida Power & Light Co. ................................ 4.85 02/01/13 34,789 45 Ohio Power Co. - 144A**................................... 6.60 02/15/33 45,376 75 Public Service Electric & Gas Co. ........................ 5.00 01/01/13 73,713 35 South Carolina Electric & Gas Co. ........................ 5.30 05/15/33 30,916 15 Wisconsin Electric Power Co. ............................. 5.625 05/15/33 13,807 30 Wisconsin Energy Corp. ................................... 6.20 04/01/33 28,973 ------------ 780,318 ------------ Electrical Products (0.1%) 125 Cooper Industries Inc. ................................... 5.25 07/01/07 131,556 ------------
See Notes to Financial Statements 10 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Environmental Services (0.0%) $ 70 Waste Management, Inc. ................................... 6.875% 05/15/09 $ 77,611 ------------ Finance/Rental/Leasing (0.5%) 165 Countrywide Home Loans, Inc. ............................. 3.25 05/21/08 159,503 75 Ford Motor Credit Co. .................................... 7.25 10/25/11 74,240 45 Household Finance Corp. .................................. 6.40 06/17/08 49,373 65 Household Finance Corp. .................................. 6.75 05/15/11 71,101 45 Household Finance Corp. .................................. 6.375 10/15/11 48,081 55 International Lease Finance Corp. ........................ 3.75 08/01/07 55,052 185 MBNA Corp. ............................................... 6.125 03/01/13 191,382 205 Prime Property Funding II - 144A**........................ 7.00 08/15/04 215,432 ------------ 864,164 ------------ Financial Conglomerates (1.1%) 500 Associates Corp. of North America......................... 6.25 11/01/08 552,551 75 Boeing Capital Corp. ..................................... 6.10 03/01/11 77,795 15 Boeing Capital Corp. ..................................... 6.50 02/15/12 15,771 20 Boeing Capital Corp. ..................................... 5.80 01/15/13 19,923 140 Chase Manhattan Corp. .................................... 6.00 02/15/09 150,781 280 General Electric Capital Corp. ........................... 6.75 03/15/32 293,520 55 General Motors Acceptance Corp. .......................... 4.50 07/15/06 55,104 45 General Motors Acceptance Corp. .......................... 6.875 09/15/11 43,964 185 General Motors Acceptance Corp. .......................... 8.00 11/01/31 170,696 255 Prudential Holdings, LLC (Series C) - 144A**............. 8.695 12/18/23 297,116 325 Prudential Holdings, LLC (Series B) (FSA) - 144A**........ 7.245 12/18/23 350,347 ------------ 2,027,568 ------------ Food Retail (0.2%) 30 Albertson's Inc. ......................................... 7.45 08/01/29 31,310 100 Albertson's, Inc. ........................................ 7.50 02/15/11 111,953 180 Kroger Co. ............................................... 6.80 04/01/11 195,212 30 Kroger Co. ............................................... 7.70 06/01/29 32,909 ------------ 371,384 ------------ Food: Major Diversified (0.1%) 25 Kraft Foods Inc. ......................................... 5.625 11/01/11 25,252 85 Kraft Foods Inc. ......................................... 6.25 06/01/12 88,977 ------------ 114,229 ------------ Forest Products (0.1%) 155 Weyerhaeuser Co. ......................................... 6.75 03/15/12 165,115 ------------
See Notes to Financial Statements 11 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Gas Distributors (0.1%) $ 110 Consolidated Natural Gas Co. ............................. 6.25 % 11/01/11 $ 118,545 40 Sempra Energy............................................. 6.00 02/01/13 41,373 ------------ 159,918 ------------ Home Building (0.1%) 75 Centex Corp. ............................................. 7.50 01/15/12 84,589 55 Pulte Homes, Inc. ........................................ 6.375 05/15/33 49,706 ------------ 134,295 ------------ Home Furnishings (0.1%) 75 Mohawk Industries Inc. ................................... 7.20 04/15/12 82,458 ------------ Home Improvement Chains (0.1%) 175 Lowe's Companies, Inc. ................................... 8.25 06/01/10 211,156 ------------ Hotels/Resorts/Cruiselines (0.2%) 105 Hyatt Equities LLC - 144A**............................... 6.875 06/15/07 106,532 245 Marriott International, Inc. (Series E)................... 7.00 01/15/08 270,384 ------------ 376,916 ------------ Industrial Conglomerates (0.2%) 185 Honeywell International, Inc. ............................ 6.125 11/01/11 198,252 85 Hutchinson Whampoa International Ltd. - 144A** (Virgin Islands)................................................ 6.50 02/13/13 84,700 ------------ 282,952 ------------ Information Technology Services (0.0%) 10 Electronic Data Systems................................... 7.125 10/15/09 10,550 60 Electronic Data Systems Corp. - 144A**.................... 6.00 08/01/13 56,115 ------------ 66,665 ------------ Integrated Oil (0.2%) 170 Amerada Hess Corp. ....................................... 7.875 10/01/29 184,468 215 Conoco Inc. .............................................. 6.95 04/15/29 232,360 ------------ 416,828 ------------ Investment Banks/Brokers (0.2%) 100 Goldman Sachs Group Inc................................... 6.125 02/15/33 95,284 130 Goldman Sachs Group Inc. ................................. 6.875 01/15/11 144,903 115 Goldman Sachs Group Inc. ................................. 6.60 01/15/12 125,352 ------------ 365,539 ------------
See Notes to Financial Statements 12 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Life/Health Insurance (0.2%) $ 140 American General Corp. ................................... 7.50 % 07/15/25 $ 158,031 250 John Hancock.............................................. 7.375 02/15/24 267,505 ------------ 425,536 ------------ Major Banks (0.3%) 180 Bank One Corp. ........................................... 6.00 02/17/09 194,525 70 Citicorp.................................................. 6.75 08/15/05 76,307 120 Fleetboston Financial Corp. .............................. 7.25 09/15/05 132,589 145 UFJ Finance Aruba AEC (Aruba)............................. 6.75 07/15/13 140,356 ------------ 543,777 ------------ Major Telecommunications (0.4%) 100 AT&T Corp. ............................................... 8.50 11/15/31 105,768 55 British Telecom PLC (United Kingdom)...................... 8.875 12/15/30 67,560 135 Deutsche Telekom International Finance Corp. (Netherlands)........................................... 8.75 06/15/30 158,065 50 GTE Corp. ................................................ 6.94 04/15/28 50,765 120 Verizon Global Funding Corp. ............................. 7.75 12/01/30 133,888 260 Verizon New England Inc. ................................. 6.50 09/15/11 282,513 ------------ 798,559 ------------ Managed Health Care (0.2%) 210 Aetna, Inc. .............................................. 7.875 03/01/11 242,361 40 Cigna Corp. .............................................. 6.375 10/15/11 41,965 100 Wellpoint Health Network, Inc. ........................... 6.375 06/15/06 110,071 ------------ 394,397 ------------ Media Conglomerates (0.3%) 60 AOL Time Warner Inc. ..................................... 7.70 05/01/32 62,933 40 News America Holdings, Inc. .............................. 8.875 04/26/23 48,324 60 News America Holdings, Inc. .............................. 7.75 02/01/24 64,984 225 News America Holdings, Inc. .............................. 7.28 06/30/28 232,626 65 Time Warner, Inc. ........................................ 6.625 05/15/29 60,281 ------------ 469,148 ------------ Motor Vehicles (0.4%) 40 DaimlerChrysler North American Holdings Co. .............. 7.20 09/01/09 43,561 105 DaimlerChrysler North American Holdings Co. .............. 8.50 01/18/31 114,659 35 Ford Motor Co............................................. 6.625 10/01/28 27,568 455 Ford Motor Co. ........................................... 7.45 07/16/31 388,566 200 General Motors Corp. ..................................... 8.10 06/15/24 181,757 ------------ 756,111 ------------
See Notes to Financial Statements 13 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Multi-Line Insurance (0.7%) $ 290 AIG SunAmerica Global Finance VI - 144A**................. 6.30 % 05/10/11 $ 314,040 455 Farmers Exchange Capital - 144A**......................... 7.05 07/15/28 387,865 50 Hartford Financial Services Group, Inc. .................. 2.375 06/01/06 49,185 180 Hartford Financial Services Group, Inc. .................. 7.90 06/15/10 210,758 205 Nationwide Mutual Insurance Co. - 144A**.................. 7.50 02/15/24 202,409 100 Nationwide Mutual Insurance Co. - 144A**.................. 8.25 12/01/31 111,679 ------------ 1,275,936 ------------ Oil & Gas Production (0.4%) 15 Devon Financing Corp. .................................... 6.875 09/30/11 16,548 40 Devon Financing Corp. .................................... 7.875 09/30/31 45,688 55 Kerr-McGee Corp. ......................................... 6.875 09/15/11 59,853 160 Pemex Project Funding Master Trust........................ 8.00 11/15/11 173,600 395 Pemex Project Funding Master Trust........................ 8.625 02/01/22 412,775 80 Petro-Canada.............................................. 5.35 07/15/33 68,767 ------------ 777,231 ------------ Oil Refining/Marketing (0.0%) 65 Marathon Oil Corp. ....................................... 6.80 03/15/32 65,568 ------------ Other Consumer Services (0.1%) 95 Cendant Corp. ............................................ 7.375 01/15/13 105,554 90 Cendant Corp. ............................................ 7.125 03/15/15 97,525 ------------ 203,079 ------------ Other Metals/Minerals (0.1%) 75 BHP Finance USA Ltd. (Australia).......................... 4.80 04/15/13 72,687 35 Inco Ltd. (Canada)........................................ 7.75 05/15/12 38,926 140 Inco Ltd. (Canada)........................................ 7.20 09/15/32 138,973 ------------ 250,586 ------------ Pulp & Paper (0.2%) 95 International Paper Co. .................................. 5.85 10/30/12 97,304 65 International Paper Co. - 144A**.......................... 5.30 04/01/15 61,740 60 MeadWestVaco Corp. ....................................... 6.85 04/01/12 65,441 70 Sappi Papier Holding AG - 144A** (Austria)................ 6.75 06/15/12 74,411 ------------ 298,896 ------------ Real Estate Development (0.1%) 200 World Financial Properties - 144A**....................... 6.91 09/01/13 219,041 ------------
See Notes to Financial Statements 14 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Real Estate Investment Trusts (0.3%) $ 205 EOP Operating L.P. ....................................... 7.25 % 06/15/28 $ 210,238 120 Simon Property Group L.P. ................................ 6.375 11/15/07 130,114 65 Simon Property Group L.P. ................................ 6.35 08/28/12 67,951 75 Vordano Reality Trust..................................... 5.625 06/15/07 78,033 ------------ 486,336 ------------ Savings Banks (0.1%) 95 Washington Mutual Bank.................................... 5.50 01/15/13 96,150 ------------ Services to the Health Industry (0.1%) 55 Anthem Insurance - 144A**................................. 9.125 04/01/10 66,291 110 Anthem Insurance - 144A**................................. 9.00 04/01/27 134,352 ------------ 200,643 ------------ Tobacco (0.0%) 90 Altria Group, Inc. ....................................... 7.75 01/15/27 86,765 ------------ Total Corporate Bonds (Cost $16,123,803)..................................... 16,673,834 ------------ Foreign Government Obligations (0.0%) 35 United Mexican States Corp. (Mexico) (Cost $41,843)....... 8.30 08/15/31 36,488 ------------ U.S. Government Obligations (7.3%) U.S. Treasury Bonds 1850 .......................................................... 7.625 02/15/25 2,359,906 1,000 .......................................................... 8.125 08/15/19 - 08/15/21 1,314,316 U.S. Treasury Notes 5,200 .......................................................... 3.50 11/15/06 5,351,533 800 .......................................................... 3.875 02/15/13 762,687 2,900 .......................................................... 6.50 02/15/10 3,339,304 ------------ Total U.S. Government Obligations (Cost $13,089,345)......................... 13,127,746 ------------
See Notes to Financial Statements 15 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- Mortgage Backed Securities (10.5%) Federal Home Loan Mortgage Corp. $ 7,750 .......................................................... 6.50 % + $ 7,975,215 350 .......................................................... 7.50 06/01/11 - 01/01/30 372,432 Federal National Mortgage Assoc. 1,100 .......................................................... 7.00 + 1,152,937 3,428 .......................................................... 7.00 04/01/12 - 07/01/32 3,599,820 3,278 .......................................................... 7.50 08/01/25 - 06/01/32 3,474,690 1,253 .......................................................... 8.00 05/01/24 - 02/01/32 1,346,431 59 .......................................................... 9.50 12/01/20 65,275 Government National Mortgage Assoc. I 348 .......................................................... 7.50 09/15/25 - 04/15/27 369,068 384 .......................................................... 8.00 04/15/26 - 08/15/26 413,298 ------------ Total Mortgage Backed Securities (Cost $18,692,696).......................... 18,769,166 ------------ Asset-Backed Securities (1.4%) Finance/Rental/Leasing (1.4%) 44 BMW Vehicle Owner Trust 2002-A............................ 2.83 12/25/04 43,626 124 Capital Auto Receivables Asset Trust 2002-2............... 2.89 04/15/04 124,213 335 Chase Credit Card Master Trust............................ 5.50 11/17/08 360,193 1 Chase Manhattan Auto Owner Trust 2002-A................... 2.63 10/15/04 875 197 Chase Manhattan Auto Owner Trust 2002-B................... 2.70 01/18/05 197,558 350 Citibank Credit Issuance Trust............................ 6.90 10/15/07 383,484 113 Daimler Chrysler Auto Trust 2000-E........................ 6.11 11/08/04 113,772 233 Daimler Chrysler Auto Trust 2002-A........................ 2.90 12/06/04 233,826 135 Ford Credit Auto Owner Trust 2001-B....................... 5.12 10/15/04 136,220 71 Ford Credit Auto Owner Trust 2002-B....................... 2.97 06/15/04 70,917 238 Harley-Davidson Motorcycle Trust 2002-1................... 3.02 09/15/06 239,873 153 Honda Auto Receivables Owner Trust 2002-2................. 2.91 09/15/04 153,551 150 MBNA Master Credit Card Trust............................. 5.90 08/15/11 163,013 15 National City Auto Receivables Trust 2002-A............... 3.00 01/15/05 14,762
See Notes to Financial Statements 16 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - --------------------------------------------------------------------------------------------------------- $ 200 Nissan Auto Receivables Owner Trust....................... 4.80 % 02/15/07 $ 207,419 104 Nissan Auto Receivables Owner Trust 2002-B................ 3.07 08/16/04 104,350 ------------ Total Asset-Backed Securities (Cost $2,483,174).............................. 2,547,652 ------------ Short-Term Investments (9.8%) U.S. Government Obligations (a) (0.2%) U.S. Treasury Bills 250 ***....................................................... 1.15 09/25/03 249,560 45 ***....................................................... 0.94 01/15/04 44,805 ------------ Total U.S. Government Obligations (Cost $294,365)............................ 294,365 ------------ Repurchase Agreement (9.6%) 17,204 Joint repurchase agreement account (dated 07/31/03; proceeds $17,204,530) (b) (Cost $17,204,000)............ 1.11 08/01/03 17,204,000 ------------ Total Short-Term Investments (Cost $17,498,365).............................. 17,498,365 ------------
Total Investments (Cost $168,945,497) (c)(d)......................... 103.8% 186,230,860 Liabilities in Excess of Other Assets................................ (3.8) (6,868,000) ----- ------------ Net Assets........................................................... 100.0% $179,362,860 ===== ============
- --------------------------------------------------- ADR American Depository Receipt. FSA Financial Security Assurance. * Non-income producing security. ** Resale is restricted to qualified institutional investors. *** All or a portion of these securities have been segregated in connection with open futures contracts. + Securities purchased on a forward commitment basis with an approximate principal amount and no definite maturity date; the actual principal amount and maturity date will be determined upon settlement. (a) Purchased on a discount basis. The interest rate shown has 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 a amount equal to $14,341,590 in connection with securities purchased on a forward commitment basis and open futures contracts. (d) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $20,682,320 and the aggregate gross unrealized depreciation is $3,396,957, resulting in net unrealized appreciation of $17,285,363.
See Notes to Financial Statements 17 Morgan Stanley Balanced Growth Fund PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued Futures Contracts Open at July 31, 2003:
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION - ----------------------------------------------------------------------------------------------- 20 Short U.S. Treasury Note 5 year, $(2,226,563) $13,070 September/2003 27 Short U.S. Treasury Notes 10 year, (2,986,875) 47,165 September/2003 ------- Total Unrealized Appreciation.......................... $60,235 =======
See Notes to Financial Statements 18 Morgan Stanley Balanced Growth Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities July 31, 2003 (unaudited) Assets: Investments in securities, at value (cost $168,945,497)....................................... $186,230,860 Receivable for: Investments sold........................................ 1,832,159 Shares of beneficial interest sold...................... 807,377 Interest................................................ 611,450 Dividends............................................... 181,188 Variation margin........................................ 48,250 Prepaid expenses and other assets........................... 78,009 ------------ Total Assets............................................ 189,789,293 ------------ Liabilities: Payable for: Investments purchased................................... 9,969,536 Shares of beneficial interest redeemed.................. 173,418 Distribution fee........................................ 146,570 Investment management fee............................... 90,555 Accrued expenses and other payables......................... 46,354 ------------ Total Liabilities....................................... 10,426,433 ------------ Net Assets.............................................. $179,362,860 ============ Composition of Net Assets: Paid-in-capital............................................. $190,546,037 Net unrealized appreciation................................. 17,345,598 Dividends in excess of net investment income................ (219,640) Accumulated net realized loss............................... (28,309,135) ------------ Net Assets.............................................. $179,362,860 ============ Class A Shares: Net Assets.................................................. $6,212,505 Shares Outstanding (unlimited authorized, $.01 par value)... 528,141 Net Asset Value Per Share............................... $11.76 ============ Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)....... $12.41 ============ Class B Shares: Net Assets.................................................. $94,119,188 Shares Outstanding (unlimited authorized, $.01 par value)... 8,004,897 Net Asset Value Per Share............................... $11.76 ============ Class C Shares: Net Assets.................................................. $78,367,938 Shares Outstanding (unlimited authorized, $.01 par value)... 6,662,907 Net Asset Value Per Share............................... $11.76 ============ Class D Shares: Net Assets.................................................. $663,229 Shares Outstanding (unlimited authorized, $.01 par value)... 56,407 Net Asset Value Per Share............................... $11.76 ============
See Notes to Financial Statements 19 Morgan Stanley Balanced Growth Fund FINANCIAL STATEMENTS continued Statement of Operations For the six months ended July 31, 2003 (unaudited) Net Investment Income: Income Dividends (net of $5,913 foreign withholding tax)........... $ 1,257,640 Interest.................................................... 1,039,808 ----------- Total Income............................................ 2,297,448 ----------- Expenses Investment management fee................................... 495,085 Distribution fee (Class A shares)........................... 7,321 Distribution fee (Class B shares)........................... 419,491 Distribution fee (Class C shares)........................... 373,193 Transfer agent fees and expenses............................ 128,142 Shareholder reports and notices............................. 28,230 Professional fees........................................... 25,755 Registration fees........................................... 23,949 Custodian fees.............................................. 14,844 Trustees' fees and expenses................................. 6,415 Other....................................................... 7,286 ----------- Total Expenses.......................................... 1,529,711 ----------- Net Investment Income................................... 767,737 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain/Loss on: Investments............................................. 4,349,613 Futures contracts....................................... (35,498) ----------- Net Realized Gain....................................... 4,314,115 ----------- Net Change in Unrealized Appreciation/Depreciation on: Investments............................................. 11,135,862 Futures contracts....................................... 100,601 ----------- Net Appreciation........................................ 11,236,463 ----------- Net Gain................................................ 15,550,578 ----------- Net Increase................................................ $16,318,315 ===========
See Notes to Financial Statements 20 Morgan Stanley Balanced Growth Fund FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED JULY 31, 2003 JANUARY 31, 2003 ------------- ---------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 767,737 $ 2,629,456 Net realized gain (loss).................................... 4,314,115 (15,837,149) Net change in unrealized appreciation....................... 11,236,463 (17,593,434) ------------ ------------ Net Increase (Decrease)................................. 16,318,315 (30,801,127) ------------ ------------ Dividends to Shareholders from Net Investment Income: Class A shares.............................................. (62,661) (150,076) Class B shares.............................................. (576,718) (1,417,896) Class C shares.............................................. (502,169) (1,464,942) Class D shares.............................................. (6,048) (35,835) ------------ ------------ Total Dividends......................................... (1,147,596) (3,068,749) ------------ ------------ Net increase (decrease) from transactions in shares of beneficial interest....................................... 2,043,175 (9,494,759) ------------ ------------ Net Increase (Decrease)................................. 17,213,894 (43,364,635) Net Assets: Beginning of period......................................... 162,148,966 205,513,601 ------------ ------------ End of Period (Including dividends in excess of net investment income of $219,640 and accumulated undistributed net investment income of $160,219, respectively).................................. $179,362,860 $162,148,966 ============ ============
See Notes to Financial Statements 21 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Balanced Growth Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is capital growth with reasonable current income. The Fund seeks to achieve its objective by investing in common stock of companies which have a record of paying dividends and have the potential for increasing dividends, securities convertible into common stock and in investment grade fixed income securities. 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 or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other equity portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) 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 Manager") determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees; (7) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (8) short-term debt securities having a maturity date of more than sixty days at time of 22 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued 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 Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Multiple Class Allocations -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. 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. 23 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued G. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. 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 Management Agreement Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined 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 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 Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $3,646,544 at July 31, 2003. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the 24 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued six months ended July 31, 2003, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively. The Distributor has informed the Fund that for the six months ended July 31, 2003, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $109, $118,487 and $1,835, respectively and received $27,428 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 six months ended July 31, 2003 aggregated $106,095,193 and $110,372,352, respectively. Included in the aforementioned are purchases and sales of U.S. Government securities in the amount of $16,146,369 and $11,067,430, respectively, and purchases with other Morgan Stanley Funds of $597,913. For the six months ended July 31, 2003, the Fund incurred brokerage commissions of $4,037 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. At July 31, 2003, the Fund's receivable for investments sold included unsettled trades with Morgan Stanley & Co., Inc. of $455,754. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At July 31, 2003, the Fund had transfer agent fees and expenses payable of approximately $500. 25 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued 5. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED JULY 31, 2003 JANUARY 31, 2003 ------------------------- ------------------------- (unaudited) SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ CLASS A SHARES Sold.............................................. 91,322 $ 1,034,090 232,913 $ 2,811,714 Reinvestment of dividends......................... 4,692 52,204 10,917 127,005 Redeemed.......................................... (112,809) (1,272,195) (187,248) (2,160,038) ---------- ------------ ---------- ------------ Net increase (decrease) - Class A................. (16,795) (185,901) 56,582 778,681 ---------- ------------ ---------- ------------ CLASS B SHARES Sold.............................................. 1,774,618 19,976,254 3,621,512 42,937,984 Reinvestment of dividends......................... 41,966 469,127 98,082 1,143,993 Redeemed.......................................... (1,235,868) (13,673,853) (3,477,963) (40,483,040) ---------- ------------ ---------- ------------ Net increase - Class B............................ 580,716 6,771,528 241,631 3,598,937 ---------- ------------ ---------- ------------ CLASS C SHARES Sold.............................................. 319,243 3,643,776 448,808 5,346,292 Reinvestment of dividends......................... 39,873 445,136 111,038 1,296,529 Redeemed.......................................... (717,205) (7,909,845) (1,813,488) (20,867,708) ---------- ------------ ---------- ------------ Net decrease - Class C............................ (358,089) (3,820,933) (1,253,642) (14,224,887) ---------- ------------ ---------- ------------ CLASS D SHARES Sold.............................................. 19,079 218,913 65,956 779,348 Reinvestment of dividends......................... 522 5,830 2,998 34,787 Redeemed.......................................... (88,829) (946,262) (40,381) (461,625) ---------- ------------ ---------- ------------ Net increase (decrease) - Class D................. (69,228) (721,519) 28,573 352,510 ---------- ------------ ---------- ------------ Net increase (decrease) in Fund................... 136,604 $ 2,043,175 (926,856) $ (9,494.759) ========== ============ ========== ============
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. 26 Morgan Stanley Balanced Growth Fund NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued As of January 31, 2003, the Fund had a net capital loss carryforward of $29,817,209 of which $3,271,494 will expire on January 31, 2009, $87,164 will expire on January 31, 2010 and $26,458,551 will expire on January 31, 2011 to offset future capital gains to the extent provided by regulations. As of January 31, 2003, the Fund had temporary book/tax differences primarily attributable to capital loss deferrals on wash sales and book amortization of premiums on debt securities. 7. Purposes of and Risks Relating to Certain Financial Instruments The Fund may invest in interest rate and stock index futures contracts ("futures contracts"). These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. At July 31, 2003, the Fund had outstanding futures contracts. 27 Morgan Stanley Balanced Growth Fund FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED JANUARY 31 MONTHS ENDED ------------------------------------------------------------------ JULY 31, 2003 2003 2002 2001 2000 1999 ------------- ------ ------ ------ ------ ------ (unaudited) Class A Shares Selected Per Share Data: Net asset value, beginning of period............................... $10.73 $12.82 $13.29 $13.11 $15.01 $14.68 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++........... 0.09 0.25 0.33 0.37 0.41 0.36 Net realized and unrealized gain (loss)............................ 1.06 (2.06) (0.42) 0.87 (0.59) 2.01 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations........................... 1.15 (1.81) (0.09) 1.24 (0.18) 2.37 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income............. (0.12) (0.28) (0.38) (0.38) (0.40) (0.39) Net realized gain................. -- -- -- (0.68) (1.32) (1.65) ------ ------ ------ ------ ------ ------ Total dividends and distributions..... (0.12) (0.28) (0.38) (1.06) (1.72) (2.04) ------ ------ ------ ------ ------ ------ Net asset value, end of period........ $11.76 $10.73 $12.82 $13.29 $13.11 $15.01 ====== ====== ====== ====== ====== ====== Total Return+......................... 10.77%(1) (14.27)% (0.53)% 10.65% (1.35)% 17.02% Ratios to Average Net Assets(3): Expenses.............................. 1.13%(2) 1.10% 1.07% 1.03% 1.04% 1.06% Net investment income................. 1.65%(2) 2.14% 2.56% 2.95% 2.81% 2.62% Supplemental Data: Net assets, end of period, in thousands............................ $6,213 $5,848 $6,259 $7,440 $6,308 $3,670 Portfolio turnover rate............... 56%(1) 145% 67% 33% 48% 49%
- --------------------- ++ 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) Annualized (2) Not annualized (3) Reflects overall Fund ratios for investment income and non-class specific expenses
See Notes to Financial Statements 28 Morgan Stanley Balanced Growth Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED JANUARY 31 MONTHS ENDED ---------------------------------------------------------------- JULY 31, 2003 2003 2002 2001 2000 1999 ------------- -------- -------- -------- -------- -------- (unaudited) Class B Shares Selected Per Share Data: Net asset value, beginning of period.... $10.73 $12.81 $13.28 $13.09 $14.99 $14.67 ------ ----- ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++............. 0.05 0.16 0.23 0.27 0.30 0.21 Net realized and unrealized gain (loss).............................. 1.06 (2.05) (0.42) 0.88 (0.60) 2.03 ------ ----- ------ ------ ------ ------ Total income (loss) from investment operations............................. 1.11 (1.89) (0.19) 1.15 (0.30) 2.24 ------ ----- ------ ------ ------ ------ Less dividends and distributions from: Net investment income............... (0.08) (0.19) (0.28) (0.28) (0.28) (0.27) Net realized gain................... -- -- -- (0.68) (1.32) (1.65) ------ ----- ------ ------ ------ ------ Total dividends and distributions....... (0.08) (0.19) (0.28) (0.96) (1.60) (1.92) ------ ----- ------ ------ ------ ------ Net asset value, end of period.......... $11.76 $10.73 $12.81 $13.28 $13.09 $14.99 ====== ===== ====== ====== ====== ====== Total Return+........................... 10.35%(1) (14.86)% (1.32)% 9.83% (2.15)% 16.09% Ratios to Average Net Assets(3): Expenses................................ 1.88%(2) 1.87% 1.83% 1.83% 1.80% 1.81% Net investment income................... 0.90%(2) 1.37% 1.80% 2.15% 2.05% 1.87% Supplemental Data: Net assets, end of period, in thousands.............................. $94,119 $79,631 $92,009 $57,490 $87,554 $99,666 Portfolio turnover rate................. 56%(1) 145% 67% 33% 48% 49%
- --------------------- ++ 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) Annualized. (2) Not annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 29 Morgan Stanley Balanced Growth Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED JANUARY 31 MONTHS ENDED --------------------------------------------------------------- JULY 31, 2003 2003 2002 2001 2000 1999 ------------- ------- -------- -------- -------- -------- (unaudited) Class C Shares Selected Per Share Data: Net asset value, beginning of period..... $10.73 $12.81 $13.28 $13.09 $14.99 $14.66 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++.............. 0.05 0.16 0.23 0.27 0.30 0.22 Net realized and unrealized gain (loss)............................... 1.06 (2.05) (0.42) 0.88 (0.60) 2.04 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.............................. 1.11 (1.89) (0.19) 1.15 (0.30) 2.26 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income................ (0.08) (0.19) (0.28) (0.28) (0.28) (0.28) Net realized gain.................... -- -- -- (0.68) (1.32) (1.65) ------ ------ ------ ------ ------ ------ Total dividends and distributions........ (0.08) (0.19) (0.28) (0.96) (1.60) (1.93) ------ ------ ------ ------ ------ ------ Net asset value, end of period........... $11.76 $10.73 $12.81 $13.28 $13.09 $14.99 ====== ====== ====== ====== ====== ====== Total Return+............................ 10.34%(1) (14.88)% (1.34)% 9.86% (2.14)% 16.23% Ratios to Average Net Assets(3): Expenses................................. 1.88%(2) 1.87% 1.83% 1.80% 1.79% 1.80% Net investment income.................... 0.90%(2) 1.37% 1.80% 2.18% 2.06% 1.88% Supplemental Data: Net assets, end of period, in thousands............................... $78,368 $75,323 $106,002 $117,927 $163,953 $203,132 Portfolio turnover rate.................. 56%(1) 145% 67% 33% 48% 49%
- --------------------- ++ 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) Annualized. (2) Not annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 30 Morgan Stanley Balanced Growth Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED JANUARY 31 MONTHS ENDED ---------------------------------------------------------- JULY 31, 2003 2003 2002 2001 2000 1999 ------------- ------ ------ ------ ------ ------ (unaudited) Class D Shares Selected Per Share Data: Net asset value, beginning of period......... $10.73 $12.81 $13.28 $13.10 $15.01 $14.68 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++.................. 0.11 0.27 0.37 0.39 0.44 0.37 Net realized and unrealized gain (loss)................................... 1.05 (2.04) (0.43) 0.88 (0.60) 2.03 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.................................. 1.16 (1.77) (0.06) 1.27 (0.16) 2.40 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.................... (0.13) (0.31) (0.41) (0.41) (0.43) (0.42) Net realized gain........................ -- -- -- (0.68) (1.32) (1.65) ------ ------ ------ ------ ------ ------ Total dividends and distributions............ (0.13) (0.31) (0.41) (1.09) (1.75) (2.07) ------ ------ ------ ------ ------ ------ Net asset value, end of period............... $11.76 $10.73 $12.81 $13.28 $13.10 $15.01 ====== ====== ====== ====== ====== ====== Total Return+................................ 10.89%(1) (13.99)% (0.32)% 10.93% (1.20)% 17.28% Ratios to Average Net Assets(3): Expenses..................................... 0.88%(2) 0.87% 0.83% 0.83% 0.80% 0.81% Net investment income........................ 1.90%(2) 2.37% 2.80% 3.15% 3.05% 2.87% Supplemental Data: Net assets, end of period, in thousands...... $663 $1,347 $1,244 $2,702 $3,188 $1,853 Portfolio turnover rate...................... 56%(1) 145% 67% 33% 48% 49%
- --------------------- ++ 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) Annualized. (2) Not annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 31 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President and General Counsel Joseph J. McAlinden Vice President Stefanie V. Chang Vice President Francis Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (c) 2003 Morgan Stanley [MORGAN STANLEY LOGO] Morgan Stanley Balanced Growth Fund Semiannual Report July 31, 2003 [MORGAN STANLEY LOGO] 37896RPT-12077H03-AP-8/03 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 (d) The Fund has granted a waiver or an implicit waiver from a provision of its Code of Ethics. (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 9 - Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10 Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. Items 4 - 8 are not applicable 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 Growth Fund Ronald E. Robison Principal Executive Officer September 22, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Ronald E. Robison Principal Executive Officer September 22, 2003 Francis Smith Principal Financial Officer September 22, 2003 2 EXHIBIT 10 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 31, 2003 I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST 4 OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; 5 - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the 6 Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(1) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - -------------------------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." 7 - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY 8 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. 9 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: ---------------------- 10 EXHIBIT A FUND LIST MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AT JULY 31, 2003 RETAIL FUNDS OPEN-END RETAIL FUNDS TAXABLE MONEY MARKET FUNDS 1. Active Assets Government Securities Trust ("AA Government") 2. Active Assets Institutional Government Securities Trust ("AA Institutional Government") 3. Active Assets Institutional Money Trust ("AA Institutional Money") 4. Active Assets Money Trust ("AA Money") 5. Morgan Stanley Liquid Asset Fund Inc. ("Liquid Asset") 6. Morgan Stanley U.S. Government Money Market Trust ("Government Money") Tax-Exempt Money Market Funds 7. Active Assets California Tax-Free Trust ("AA California") 8. Active Assets Tax-Free Trust ("AA Tax-Free") 9. Morgan Stanley California Tax-Free Daily Income Trust ("California Tax-Free Daily") 10. Morgan Stanley New York Municipal Money Market Trust ("New York Money") 11. Morgan Stanley Tax-Free Daily Income Trust ("Tax-Free Daily") EQUITY FUNDS 12. Morgan Stanley 21st Century Trend Fund ("21st Century Trend")* 13. Morgan Stanley Aggressive Equity Fund ("Aggressive Equity")* 14. Morgan Stanley Allocator Fund ("Allocator Fund")* 15. Morgan Stanley All Star Growth Fund ("All Star Growth")* 16. Morgan Stanley American Opportunities Fund ("American Opportunities")* 17. Morgan Stanley Biotechnology Fund ("Biotechnology Fund")* 18. Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")* 19. Morgan Stanley Developing Growth Securities Trust ("Developing Growth")* 20. Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")* 21. Morgan Stanley Equity Fund ("Equity Fund")* 22. Morgan Stanley European Growth Fund Inc. ("European Growth")* 23. Morgan Stanley Financial Services Trust ("Financial Services")* 11 24. Morgan Stanley Fund of Funds ("Fund of Funds")* - Domestic Portfolio - International Portfolio 25. Morgan Stanley Fundamental Value Fund ("Fundamental Value")* 26. Morgan Stanley Global Advantage Fund ("Global Advantage")* 27. Morgan Stanley Global Dividend Growth Securities ("Global Dividend Growth")* 28. Morgan Stanley Global Utilities Fund ("Global Utilities")* 29. Morgan Stanley Growth Fund ("Growth Fund")* 30. Morgan Stanley Health Sciences Trust ("Health Sciences")* 31. Morgan Stanley Income Builder Fund ("Income Builder")* 32. Morgan Stanley Information Fund ("Information Fund")* 33. Morgan Stanley International Fund ("International Fund")* 34. Morgan Stanley International SmallCap Fund ("International SmallCap")* 35. Morgan Stanley International Value Equity Fund ("International Value")* 36. Morgan Stanley Japan Fund ("Japan Fund")* 37. Morgan Stanley KLD Social Index Fund ("KLD Social Index")* 38. Morgan Stanley Latin American Growth Fund ("Latin American")* 39. Morgan Stanley Market Leader Trust ("Market Leader")* 40. Morgan Stanley Mid-Cap Value Fund (Mid-Cap Value")* 41. Morgan Stanley Nasdaq-100 Index Fund ("Nasdaq-100")* 42. Morgan Stanley Natural Resource Development Securities Inc. ("Natural Resource")* 43. Morgan Stanley New Discoveries Fund ("New Discoveries")* 44. Morgan Stanley Next Generation Trust ("Next Generation")* 45. Morgan Stanley Pacific Growth Fund Inc. ("Pacific Growth")* 46. Morgan Stanley Real Estate Fund ("Real Estate")* 47. Morgan Stanley Small-Mid Special Value Fund (Small-Mid Special Value")* 48. Morgan Stanley S&P 500 Index Fund ("S&P500 Index")* 49. Morgan Stanley Special Growth Fund ("Small Cap Growth")* 50. Morgan Stanley Special Value Fund ("Special Value")* 51. Morgan Stanley Tax-Managed Growth Fund ("Tax-Managed Growth")* 52. Morgan Stanley Technology Fund ("Technology Fund")* 53. Morgan Stanley Total Market Index Fund ("Total Market Index")* 54. Morgan Stanley Total Return Trust ("Total Return")* 55. Morgan Stanley Utilities Fund ("Utilities Fund")* 56. Morgan Stanley Value-Added Market Series ("Value-Added")* 57. Morgan Stanley Value Fund ("Value Fund")* BALANCED FUNDS 58. Morgan Stanley Balanced Growth Fund ("Balanced Growth")* 59. Morgan Stanley Balanced Income Fund ("Balanced Income")* ASSET ALLOCATION FUND 60. Morgan Stanley Strategist Fund ("Strategist Fund")* 12 TAXABLE FIXED-INCOME FUNDS 61. Morgan Stanley Convertible Securities Trust ("Convertible Securities")* 62. Morgan Stanley Diversified Income Trust ("Diversified Income")* 63. Morgan Stanley Federal Securities Trust ("Federal Securities")* 64. Morgan Stanley High Yield Securities Inc ("High Yield Securities")* 65. Morgan Stanley Intermediate Income Securities ("Intermediate Income")* 66. Morgan Stanley Limited Duration Fund ("Limited Duration Fund") 67. Morgan Stanley Limited Duration U.S. Treasury Trust ("Limited Duration Treasury") 68. Morgan Stanley Total Return Income Securities Fund ("Total Return Income")* 69. Morgan Stanley U.S. Government Securities Trust ("Government Securities")* TAX-EXEMPT FIXED-INCOME FUNDS 70. Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")* 71. Morgan Stanley Hawaii Municipal Trust ("Hawaii Municipal") 72. Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal") 73. Morgan Stanley Multi-State Municipal Series Trust ("Multi-State Series") - Arizona Series - Florida Series - New Jersey Series - Pennsylvania Series 74. Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")* 75. Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")* SPECIAL PURPOSE FUNDS 76. Morgan Stanley Select Dimensions Investment Series ("Select Dimensions") - American Opportunities Portfolio - Balanced Growth Portfolio - Capital Opportunities Portfolio - Developing Growth Portfolio - Dividend Growth Portfolio - Flexible Income Portfolio - Global Equity Portfolio - Growth Portfolio - Money Market Portfolio - Utilities Portfolio - Value-Added Portfolio 77. Morgan Stanley Variable Investment Series ("Variable Investment") - Aggressive Equity Portfolio - Dividend Growth Portfolio 13 - Equity Portfolio - European Growth Portfolio - Global Advantage Portfolio - Global Dividend Growth Portfolio - High Yield Portfolio - Income Builder Portfolio - Information Portfolio - Limited Duration Portfolio - Money Market Portfolio - Pacific Growth Protfolio - Quality Income Plus Portfolio - S&P 500 Index Portfolio - Strategist Portfolio - Utilities Portfolio CLOSED-END RETAIL FUNDS TAXABLE FIXED-INCOME CLOSED-END FUNDS 78. Morgan Stanley Government Income Trust ("Government Income") 79. Morgan Stanley Income Securities Inc. ("Income Securities") 80. Morgan Stanley Prime Income Trust ("Prime Income") TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS 81. Morgan Stanley California Insured Municipal Income Trust ("California Insured Municipal") 82. Morgan Stanley California Quality Municipal Securities ("California Quality Municipal") 83. Morgan Stanley Insured California Municipal Securities ("Insured California Securities") 84. Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond") 85. Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income") 86. Morgan Stanley Insured Municipal Securities ("Insured Municipal Securities") 87. Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust") 88. Morgan Stanley Municipal Income Opportunities Trust ("Municipal Opportunities") 89. Morgan Stanley Municipal Income Opportunities Trust II ("Municipal Opportunities II") 90. Morgan Stanley Municipal Income Opportunities Trust III ("Municipal Opportunities III") 91. Morgan Stanley Municipal Premium Income Trust ("Municipal Premium") 92. Morgan Stanley New York Quality Municipal Securities ("New York Quality Municipal") 93. Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income") 94. Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal Investment") 14 95. Morgan Stanley Quality Municipal Securities ("Quality Municipal Securities") *- Denotes Retail Multi-Class Fund TERM TRUST 1. TCW/DW Term Trust 2003 ("Term Trust 2003") 15 INSTITUTIONAL FUNDS OPEN-END INSTITUTIONAL FUNDS 1. Morgan Stanley Institutional Fund, Inc. ("Institutional Fund Inc.") Active Portfolios: - Active International Allocation Portfolio - Asian Equity Portfolio - Asian Real Estate Portfolio - Emerging Markets Portfolio - Emerging Markets Debt Portfolio - Equity Growth Portfolio - European Value Equity Portfolio - European Real Estate Portfolio - Focus Equity Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - International Equity Portfolio - International Magnum Portfolio - International Small Cap Portfolio - Japanese Value Equity Portfolio - Latin American Portfolio - Money Market Portfolio - Municipal Money Market Portfolio - Small Company Growth Portfolio - Technology Portfolio - U.S. Real Estate Portfolio - Value Equity Portfolio Inactive Portfolios: - China Growth Portfolio - Gold Portfolio - Micro-Cap Portfolio - Mortgage Backed Securities Portfolio - U.S. Equity Portfolio - Municipal Bond Portfolio 2. Morgan Stanley Institutional Fund Trust ("Institutional Fund Trust") Active Portfolios: - Advisory Foreign Fixed Income Portfolio 16 - Advisory Foreign Fixed Income II Portfolio - Advisory Mortgage Portfolio - Balanced Portfolio - Cash Reserves Portfolio - U.S. Core Fixed Income Portfolio - Equity Portfolio - Core Plus Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - High Yield Portfolio - Intermediate Duration Portfolio - International Fixed income Portfolio - Limited Duration Portfolio - Mid-Cap Growth Portfolio - Multi-Asset Class Portfolio - Municipal Portfolio - Small-Cap Growth Portfolio - Strategic Small Value Portfolio - U.S. Small-Cap Growth Portfolio - U.S. Mid-Cap Core Portfolio - Value Portfolio Inactive Portfolios: - Balanced Plus Portfolio - Growth Portfolio - New York Municipal Portfolio - Targeted Duration Portfolio - Value II Portfolio 3. The Universal Institutional Funds, Inc. ("Universal Funds") Active Portfolios: - Active International Allocation Portfolio - Core Plus Fixed Income Portfolio - Emerging Markets Debt Portfolio - Emerging Markets Equity Portfolio - Equity and Income Portfolio - Equity Growth Portfolio - Global Franchise Portfolio - Global Value Equity Portfolio - High Yield Portfolio - International Magnum Portfolio - Mid-Cap Growth Portfolio - Money Market Portfolio - Small Company Growth Portfolio 17 - Technology Portfolio - U.S. Mid-Cap Core Portfolio - U.S. Real Estate Portfolio - Value Portfolio Inactive Portfolios: - Asian Equity Portfolio - Balanced Portfolio - Capital Preservation Portfolio - Core Equity Portfolio - International Fixed Income Portfolio - Investment Grade Fixed Income Portfolio - Latin American Portfolio - Multi-Asset Class Portfolio - Targeted Duration Portfolio 4. Morgan Stanley Institutional Liquidity Funds ("Liquidity Funds") CLOSED-END INSTITUTIONAL FUNDS 5. Morgan Stanley Asia-Pacific Fund, Inc. ("Asia-Pacific Fund") 6. Morgan Stanley Eastern Europe Fund, Inc. ("Eastern Europe") 7. Morgan Stanley Emerging Markets Debt Fund, Inc. ("Emerging Markets Debt") 8. Morgan Stanley Emerging Markets Fund, Inc. ("Emerging Markets Fund") 9. Morgan Stanley Global Opportunity Bond Fund, Inc. ("Global Opportunity") 10. Morgan Stanley High Yield Fund, Inc. ("High Yield Fund") 11. The Latin American Discovery Fund, Inc. ("Latin American Discovery") 12 The Malaysia Fund, Inc. ("Malaysia Fund") 13. The Thai Fund, Inc. ("Thai Fund") 14. The Turkish Investment Fund, Inc. ("Turkish Investment") CLOSED-END HEDGE FUND 15. Morgan Stanley Institutional Fund of Hedge Funds ("Fund of Hedge Funds") 18 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 19 EXHIBIT C GENERAL COUNSEL Barry Fink 20 EX-99.CERT 3 y88926exv99wcert.txt SECTION 302 CERTIFICATION EXHIBIT 10 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Balanced Growth Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and 3 c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 22, 2003 Ronald E. Robison Principal Executive Officer 4 EXHIBIT 10 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 Growth Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: (i) designed such disclosure controls and procedures 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; (ii) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and (iii) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 5 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 22, 2003 Francis Smith Principal Financial Officer 6 EX-99.906CERT 4 y88926exv99w906cert.txt SECTION 906 CERTIFICATION 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 Growth Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended July 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: September 22, 2003 Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Balanced Growth Fund and will be retained by Morgan Stanley Balanced Growth Fund and furnished to the Securities and Exchange Commission or its staff upon request. 7 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Balanced Growth Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended July 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: September 22, 2003 Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Balanced Growth Fund and will be retained by Morgan Stanley Balanced Growth Fund and furnished to the Securities and Exchange Commission or its staff upon request. 8 -----END PRIVACY-ENHANCED MESSAGE-----