UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07575 Morgan Stanley Income Builder 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: September 30, 2004 Date of reporting period: March 31, 2004 Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Income Builder Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments.
![]() | This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. |
![]() |
![]() |
![]() | ![]() |
![]() | ![]() |
![]() | Fund Report |
![]() | For the Six Months Ended March 31, 2004 |
![]() | ![]() |
Total Return for the Six Months Ended March 31, 2004
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
Class A | ![]() | ![]() | ![]() | Class B | ![]() | ![]() | ![]() | Class C | ![]() | ![]() | ![]() | Class D | ||||||||
11.18% | ![]() | ![]() | ![]() | 10.73 | % | ![]() | ![]() | ![]() | 10.65 | % | ![]() | ![]() | ![]() | 11.30 | % | |||||
![]() |
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
Russell 1000 Value Index1 | ![]() | ![]() | ![]() | Lehman Brothers U.S. Government/ Credit Index2 | ![]() | ![]() | ![]() | Lipper Equity Income Funds Index3 | ||||||
17.65% | ![]() | ![]() | ![]() | 3.05 | % | ![]() | ![]() | ![]() | 15.34 | % | ||||
![]() |
The performance of the Fund's four share classes varies because each has different expenses. The Fund's total return figures assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information. |
Market Conditions
The market continued its trend of steadily improving performance for most of the six months ended March 31, 2004. Stocks climbed higher during the period as the economy showed further signs of improvement and investor confidence grew on company reports of improved profitability. Continuing low inflation and the Federal Reserve's maintenance of historically low interest rates provided an environment that also bolstered the rising investor confidence and aided the market in its recovery. In March, however, the possibility of rising rates for both interest and inflation compromised the positive effects of this environment and began to slow market growth.
Performance was particularly strong in the basic materials, consumer discretionary and technology sectors during the six-month period under review. These economically sensitive sectors are the ones that stand to gain the most from periods of economic recovery. The basic materials area saw improvement early in the economic recovery as companies moved to expand production and demand for raw materials grew. Additionally, consumer discretionary issues benefited from the continued strength in consumer spending. The technology sector experienced similar growth as the low interest rate environment encouraged companies to spend on the technology upgrades they had put off earlier.
In contrast, the health care and consumer durables sectors lagged during the period. Pharmaceuticals' stocks were weakened by concerns over patent expirations, issues surrounding drug reimportation and the absence of a pipeline filled with promising new drugs en route to the market. The health-care sector posted positive returns, but fell short of the gains of the more-cyclical sectors. Similarly, auto manufacturers experienced heavy competition, resulting in offers of zero-percent financing and other incentives that led to diminishing profit margins and made industry growth difficult. Mounting concerns over their pension liabilities also hurt several auto companies.
Performance Analysis
Morgan Stanley Income Builder Fund underperformed both the Russell 1000 Value Index and the Lipper Equity Income Funds Index for the six-month period ended March 31, 2004. However, during the same period the Fund strongly outperformed the Lehman Brothers U.S. Government/Credit Index. Over this period its underweighted stance relative to the Russell
2
![]() | ![]() |
![]() | ![]() |
![]() | |
![]() | |
![]() | ![]() |
1000 Value Index in financials and technology and our stock selection within those industries were largely responsible for this underperformance. Our strategy in financial sector stock selection was driven by our belief that interest rates were more likely to rise than fall during the period, given what at the time were multidecade low levels. As a result, we adjusted the Fund's holdings to deemphasize the most heavily interest-rate-sensitive stocks and industries, such as regional banks.
This stance hampered the Fund's returns when interest rates remained lower than anticipated throughout the period. This strategy also limited the Fund's ability to capitalize on the refinancing boom that was triggered by the low rates. We were similarly defensive in the Fund's technology holdings, choosing to emphasize higher-quality companies rather than the lower-quality, more-speculative stocks that ultimately rallied most strongly. We viewed semiconductors and hardware as having been overvalued at the beginning of the period and as a result limited the portfolio's exposure to those industries, but both went on to post strong gains. Microsoft proved the second-worst-performing holding for the Fund, as its legal problems with the European Union during this period weakened confidence in its stock.
A slight overweighting — relative to the Russell benchmark — in basic materials benefited the Fund as a recovering economy boosted demand for raw materials. For instance, the gold- and copper-mining company Phelps-Dodge became the Fund's best-performing security as demand for copper rose significantly, driven especially by China's escalating imports of metals and other commodities. Stock selection in the industrials sector also led to positive performance as the result of a slightly overweighted position relative to the Russell 1000 Value Index in producer durables during a period when building and infrastructure needs rose. An underweighted position relative to the same Russell index in the utilities sector also benefited performance for the Fund, as did stock selection within this sector. The Fund's exposure to Edison International, for instance, proved positive as the company enjoyed a turnaround and gained sharply during the period.
In addition to stocks, the Fund invests a significant percentage of its assets into convertible securities to add income to its equity portfolio. The convertibles portfolio performed well for the period but ultimately lagged the equity rally. The best-performing holdings were the retailer J. C. Penney and the paper company Temple Inland. Penney benefited from strong department store sales and the announcement that it would sell off its pharmacy chain Eckerds. Temple Inland outperformed as paper companies in general rallied because of the improving economic environment. Some of the Fund's convertibles holdings nevertheless did hurt performance, as for example Echostar, which returned flat results.
3
![]() | ![]() |
![]() | ![]() |
![]() | |
![]() | |
![]() | ![]() |
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
PORTFOLIO COMPOSITION | ![]() | |||||
Common Stock | ![]() | 51.0 | % | |||
Corporate Debt — Conv | ![]() | 19.8 | ||||
Corporate Debt — Non-Conv | ![]() | 18.6 | ||||
Preferred Stock — Conv | ![]() | 10.6 | ||||
Short Term | ![]() | 1.0 | ||||
![]() |
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
TOP 10 HOLDINGS | ![]() | |||||
Starwood Hotels & Resorts | ![]() | 3.0 | % | |||
Clear Channel Communications | ![]() | 2.7 | ||||
National Australia Bk Ltd. | ![]() | 2.6 | ||||
Hilton Hotels | ![]() | 2.0 | ||||
Diamond Offshore | ![]() | 2.0 | ||||
RF Micro Devices, Inc | ![]() | 1.9 | ||||
Toll Corp. | ![]() | 1.8 | ||||
Manor Care Inc. | ![]() | 1.7 | ||||
Bristol Myers Squibb | ![]() | 1.6 | ||||
FPL Group Inc. — Conv. Pfd | ![]() | 1.5 | ||||
![]() |
Data as of March 31, 2004. Subject to change daily. Portfolio composition is as a percentage of total investments and top 10 holdings are a percentage of net assets. Provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. |
Investment Strategy
The Fund will normally invest at least 80% of its assets in income-producing equity and fixed-income securities, with normally at least 65% of its assets invested in income-producing equity securities, including common stock, preferred stock, convertible securities and real estate investment trusts (commonly known as "REITs"). The Fund's "Investment Manager," Morgan Stanley Investment Advisors Inc., utilizes a value-oriented style in the selection of securities. Investments are normally made primarily in (i) common stocks (including depositary receipts) of large capitalization companies with a record of paying dividends and which, in the opinion of the Investment Manager, have the potential for maintaining dividends, (ii) preferred stock and (iii) securities convertible into common stocks of small-, mid- and large-cap companies — including "synthetic" and "exchangeable" convertibles. The Fund's investments can also include "Rule 144A" securities, which are subject to resale restrictions, and foreign 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.
4
![]() | ![]() |
![]() | ![]() |
![]() | Performance Summary |
![]() | |
![]() | ![]() |
Average Annual Total Returns — Period Ended March 31, 2004
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
![]() | ![]() | ![]() | Class A Shares* (since 07/28/97) | ![]() | ![]() | ![]() | Class B Shares** (since 06/26/96) | ![]() | ![]() | ![]() | Class C Shares† (since 07/28/97) | ![]() | ![]() | ![]() | Class D Shares†† (since 07/28/97) | |||||||||||
Symbol | ![]() | ![]() | ![]() | INBAX | ![]() | ![]() | ![]() | INBBX | ![]() | ![]() | ![]() | INBCX | ![]() | ![]() | ![]() | INBDX | ||||||||||
1 Year | ![]() | ![]() | ![]() | 26.93% | 4 | ![]() | ![]() | ![]() | 25.93% | 4 | ![]() | ![]() | ![]() | 25.89% | 4 | ![]() | ![]() | ![]() | 27.22% | 4 | ||||||
![]() | ![]() | ![]() | 20.26 | 5 | ![]() | ![]() | ![]() | 20.93 | 5 | ![]() | ![]() | ![]() | 24.89 | 5 | ![]() | ![]() | ![]() | — | ||||||||
5 Years | ![]() | ![]() | ![]() | 4.32 | 4 | ![]() | ![]() | ![]() | 3.55 | 4 | ![]() | ![]() | ![]() | 3.56 | 4 | ![]() | ![]() | ![]() | 4.60 | 4 | ||||||
![]() | ![]() | ![]() | 3.20 | 5 | ![]() | ![]() | ![]() | 3.21 | 5 | ![]() | ![]() | ![]() | 3.56 | 5 | ![]() | ![]() | ![]() | — | ||||||||
Since Inception | ![]() | ![]() | ![]() | 4.64 | 4 | ![]() | ![]() | ![]() | 6.50 | 4 | ![]() | ![]() | ![]() | 3.86 | 4 | ![]() | ![]() | ![]() | 4.90 | 4 | ||||||
![]() | ![]() | ![]() | 3.79 | 5 | ![]() | ![]() | ![]() | 6.50 | 5 | ![]() | ![]() | ![]() | 3.86 | 5 | ![]() | ![]() | ![]() | — | ||||||||
![]() |
![]() | Past performance is no guarantee of future results and current performance may be lower or higher than the figures shown. For more up-to-date information, including month-end performance figures, please visit morganstanley.com or speak with your financial advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The 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 Lehman Brothers U.S. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. |
![]() | (3) | The Lipper Equity Income Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Equity Income Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. |
![]() | (4) | Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. |
![]() | (5) | Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. |
![]() | * | The maximum front-end sales charge for Class A is 5.25%. |
![]() | ** | The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. |
![]() | † | The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase. |
![]() | †† | Class D has no sales charge. |
5
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited)
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
NUMBER OF SHARES | ![]() | ![]() | VALUE | ||||||||
![]() | Common Stocks (50.2%) | ||||||||||
![]() | Advertising/Marketing Services (0.4%) | ||||||||||
45,100 | ![]() | Interpublic Group of Companies, Inc. (The)* | ![]() | $ | 693,638 | ||||||
![]() | Aerospace & Defense (0.4%) | ||||||||||
7,600 | ![]() | Northrop Grumman Corp. | ![]() | 747,992 | |||||||
![]() | Auto Parts: O.E.M. (0.7%) | ||||||||||
15,590 | ![]() | Magna International Inc. (Class A) (Canada) | ![]() | 1,234,728 | |||||||
![]() | Broadcasting (0.9%) | ||||||||||
36,300 | ![]() | Clear Channel Communications, Inc. | ![]() | 1,537,305 | |||||||
![]() | Casino/Gaming (0.0%) | ||||||||||
4,685 | ![]() | Fitzgerald Gaming Corp.† | ![]() | 0 | |||||||
![]() | Chemicals: Major Diversified (1.5%) | ||||||||||
67,100 | ![]() | Bayer AG (ADR) (Germany) | ![]() | 1,637,240 | |||||||
27,460 | ![]() | Dow Chemical Co. (The) | ![]() | 1,106,089 | |||||||
![]() | ![]() | 2,743,329 | |||||||||
![]() | Computer Processing Hardware (0.5%) | ![]() | ![]() | ||||||||
36,770 | ![]() | Hewlett-Packard Co. | ![]() | 839,827 | |||||||
![]() | Containers/Packaging (0.5%) | ||||||||||
13,580 | ![]() | Temple-Inland, Inc. | ![]() | 860,157 | |||||||
![]() | Data Processing Services (0.9%) | ||||||||||
17,750 | ![]() | Automatic Data Processing, Inc. | ![]() | 745,500 | |||||||
20,700 | ![]() | First Data Corp. | ![]() | 872,712 | |||||||
![]() | ![]() | 1,618,212 | |||||||||
![]() | Department Stores (0.4%) | ||||||||||
14,050 | ![]() | Kohl's Corp.* | ![]() | 679,036 | |||||||
![]() | Discount Stores (0.9%) | ||||||||||
15,100 | ![]() | Target Corp. | ![]() | 680,104 | |||||||
15,650 | ![]() | Wal-Mart Stores, Inc. | ![]() | 934,148 | |||||||
![]() | ![]() | 1,614,252 | |||||||||
![]() | Electric Utilities (2.1%) | ![]() | ![]() | ||||||||
12,100 | ![]() | Consolidated Edison, Inc. | ![]() | 533,610 | |||||||
25,200 | ![]() | Edison International | ![]() | 612,108 | |||||||
14,610 | ![]() | Entergy Corp. | ![]() | 869,295 | |||||||
12,630 | ![]() | Exelon Corp. | ![]() | 869,828 | |||||||
20,100 | ![]() | FirstEnergy Corp. | ![]() | 785,508 | |||||||
![]() | ![]() | 3,670,349 | |||||||||
![]() |
See Notes to Financial Statements
6
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
NUMBER OF SHARES | ![]() | ![]() | VALUE | ||||||||
![]() | Finance/Rental/Leasing (1.6%) | ||||||||||
21,400 | ![]() | Fannie Mae | ![]() | $ | 1,591,090 | ||||||
21,000 | ![]() | Freddie Mac | ![]() | 1,240,260 | |||||||
![]() | ![]() | 2,831,350 | |||||||||
![]() | Financial Conglomerates (3.0%) | ||||||||||
42,293 | ![]() | Citigroup Inc. | ![]() | 2,186,548 | |||||||
44,520 | ![]() | J.P. Morgan Chase & Co. | ![]() | 1,867,614 | |||||||
29,840 | ![]() | Prudential Financial, Inc. | ![]() | 1,336,235 | |||||||
![]() | ![]() | 5,390,397 | |||||||||
![]() | Financial Publishing/Services (0.8%) | ![]() | ![]() | ||||||||
54,730 | ![]() | Equifax, Inc. | ![]() | 1,413,129 | |||||||
![]() | Food: Major Diversified (1.4%) | ||||||||||
21,850 | ![]() | Kraft Foods Inc. (Class A) | ![]() | 699,418 | |||||||
10,850 | ![]() | Nestle SA (ADR) (Registered Shares) (Switzerland) | ![]() | 688,432 | |||||||
19,480 | ![]() | PepsiCo, Inc. | ![]() | 1,048,998 | |||||||
![]() | ![]() | 2,436,848 | |||||||||
![]() | Food: Specialty/Candy (0.5%) | ||||||||||
28,450 | ![]() | Cadbury Scweppes PLC (ADR) (United Kingdom) | ![]() | 914,667 | |||||||
![]() | Hospital/Nursing Management (0.2%) | ||||||||||
34,800 | ![]() | Tenet Healthcare Corp.* | ![]() | 388,368 | |||||||
![]() | Hotels/Resorts/Cruiselines (1.5%) | ||||||||||
89,400 | ![]() | Hilton Hotels Corp. | ![]() | 1,452,750 | |||||||
30,000 | ![]() | Starwood Hotels & Resorts Worldwide, Inc. | ![]() | 1,215,000 | |||||||
![]() | ![]() | 2,667,750 | |||||||||
![]() | Household/Personal Care (0.8%) | ||||||||||
23,350 | ![]() | Kimberly-Clark Corp. | ![]() | 1,473,385 | |||||||
![]() | Industrial Conglomerates (0.6%) | ||||||||||
12,218 | ![]() | Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) | ![]() | 826,548 | |||||||
5,120 | ![]() | Textron, Inc. | ![]() | 272,128 | |||||||
![]() | ![]() | 1,098,676 | |||||||||
![]() | Industrial Machinery (0.6%) | ||||||||||
17,800 | ![]() | Parker-Hannifin Corp. | ![]() | 1,005,700 | |||||||
![]() | Information Technology Services (0.8%) | ||||||||||
20,550 | ![]() | Accenture Ltd. (Class A) (Bermuda)* | ![]() | 509,640 | |||||||
10,850 | ![]() | International Business Machines Corp. | ![]() | 996,464 | |||||||
![]() | ![]() | 1,506,104 | |||||||||
![]() |
See Notes to Financial Statements
7
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
NUMBER OF SHARES | ![]() | ![]() | VALUE | |||||||
![]() | Integrated Oil (3.7%) | |||||||||
46,200 | ![]() | BP PLC (ADR) (United Kingdom) | ![]() | $ | 2,365,440 | |||||
21,133 | ![]() | ConocoPhillips | ![]() | 1,475,295 | ||||||
34,590 | ![]() | Exxon Mobil Corp. | ![]() | 1,438,598 | ||||||
28,600 | ![]() | Royal Dutch Petroleum Co. (NY Registered Shares) | ![]() | 1,360,788 | ||||||
![]() | ![]() | 6,640,121 | ||||||||
![]() | Investment Banks/Brokers (2.0%) | |||||||||
14,920 | ![]() | Edwards (A.G.), Inc. | ![]() | 583,670 | ||||||
16,400 | ![]() | Lehman Brothers Holdings Inc. | ![]() | 1,359,068 | ||||||
28,200 | ![]() | Merrill Lynch & Co., Inc. | ![]() | 1,679,592 | ||||||
![]() | ![]() | 3,622,330 | ||||||||
![]() | Life/Health Insurance (0.4%) | |||||||||
22,310 | ![]() | MetLife, Inc. | ![]() | 796,021 | ||||||
![]() | Major Banks (2.4%) | |||||||||
11,900 | ![]() | Bank of America Corp. | ![]() | 963,662 | ||||||
27,400 | ![]() | Bank One Corp. | ![]() | 1,493,848 | ||||||
19,820 | ![]() | PNC Financial Services Group | ![]() | 1,098,424 | ||||||
14,040 | ![]() | Wachovia Corp. | ![]() | 659,880 | ||||||
![]() | ![]() | 4,215,814 | ||||||||
![]() | Major Telecommunications (1.7%) | |||||||||
18,800 | ![]() | SBC Communications, Inc. | ![]() | 461,352 | ||||||
59,590 | ![]() | Sprint Corp. (FON Group) | ![]() | 1,098,244 | ||||||
38,250 | ![]() | Verizon Communications Inc. | ![]() | 1,397,655 | ||||||
![]() | ![]() | 2,957,251 | ||||||||
![]() | Managed Health Care (0.6%) | |||||||||
16,650 | ![]() | CIGNA Corp. | ![]() | 982,683 | ||||||
![]() | Media Conglomerates (2.3%) | |||||||||
73,110 | ![]() | Disney (Walt) Co. (The) | ![]() | 1,827,019 | ||||||
133,710 | ![]() | Time Warner Inc.* | ![]() | 2,254,351 | ||||||
![]() | ![]() | 4,081,370 | ||||||||
![]() | Medical Specialties (0.8%) | |||||||||
23,690 | ![]() | Bausch & Lomb, Inc. | ![]() | 1,420,689 | ||||||
![]() | Motor Vehicles (0.8%) | |||||||||
64,300 | ![]() | Honda Motor Co., Ltd. (ADR) (Japan) | ![]() | 1,487,902 | ||||||
![]() | Multi-Line Insurance (1.1%) | |||||||||
32,100 | ![]() | Hartford Financial Services Group, Inc. (The) | ![]() | 2,044,770 | ||||||
![]() | Oil & Gas Production (0.2%) | |||||||||
7,190 | ![]() | EOG Resources, Inc. | ![]() | 329,949 | ||||||
![]() |
See Notes to Financial Statements
8
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
NUMBER OF SHARES | ![]() | ![]() | VALUE | |||||||
![]() | Oil Refining/Marketing (0.6%) | |||||||||
18,280 | ![]() | Valero Energy Corp. | ![]() | $ | 1,096,069 | |||||
![]() | Oilfield Services/Equipment (1.3%) | |||||||||
36,610 | ![]() | Schlumberger Ltd. | ![]() | 2,337,548 | ||||||
![]() | Other Metals/Minerals (0.6%) | |||||||||
13,460 | ![]() | Phelps Dodge Corp.* | ![]() | 1,099,144 | ||||||
![]() | Packaged Software (0.8%) | |||||||||
15,250 | ![]() | Computer Associates International, Inc. | ![]() | 409,615 | ||||||
37,170 | ![]() | Microsoft Corp. | ![]() | 928,135 | ||||||
![]() | ![]() | 1,337,750 | ||||||||
![]() | Pharmaceuticals: Major (3.9%) | |||||||||
18,500 | ![]() | AstraZeneca PLC (ADR) (United Kingdom) | ![]() | 864,505 | ||||||
118,890 | ![]() | Bristol-Myers Squibb Co. | ![]() | 2,880,705 | ||||||
15,810 | ![]() | Roche Holdings Ltd. (ADR) (Switzerland) | ![]() | 1,513,807 | ||||||
70,940 | ![]() | Schering-Plough Corp. | ![]() | 1,150,647 | ||||||
14,500 | ![]() | Wyeth | ![]() | 544,475 | ||||||
![]() | ![]() | 6,954,139 | ||||||||
![]() | Precious Metals (0.5%) | |||||||||
17,850 | ![]() | Newmont Mining Corp. | ![]() | 832,346 | ||||||
![]() | Property – Casualty Insurers (2.3%) | |||||||||
36,800 | ![]() | Chubb Corp. (The) | ![]() | 2,559,072 | ||||||
91,994 | ![]() | Travelers Property Casualty Corp. (Class A) | ![]() | 1,577,697 | ||||||
![]() | ![]() | 4,136,769 | ||||||||
![]() | Railroads (1.2%) | |||||||||
60,850 | ![]() | Norfolk Southern Corp. | ![]() | 1,344,177 | ||||||
14,430 | ![]() | Union Pacific Corp. | ![]() | 863,203 | ||||||
![]() | ![]() | 2,207,380 | ||||||||
![]() | Restaurants (0.4%) | |||||||||
23,770 | ![]() | McDonald's Corp. | ![]() | 679,109 | ||||||
![]() | Semiconductors (0.3%) | |||||||||
17,050 | ![]() | Intel Corp. | ![]() | 463,760 | ||||||
![]() | Telecommunication Equipment (0.6%) | |||||||||
53,000 | ![]() | Nokia Corp. (ADR) (Finland) | ![]() | 1,074,840 | ||||||
![]() | Tobacco (0.4%) | |||||||||
11,750 | ![]() | Altria Group, Inc. | ![]() | 639,788 | ||||||
![]() | Wireless Telecommunications (0.3%) | |||||||||
33,300 | ![]() | AT&T Wireless Services Inc.* | ![]() | 453,213 | ||||||
![]() | Total Common Stocks (Cost $76,990,390) | ![]() | 89,255,954 | |||||||
![]() |
See Notes to Financial Statements
9
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
PRINCIPAL AMOUNT IN THOUSANDS | ![]() | ![]() | COUPON RATE | ![]() | MATURITY DATE | ![]() | VALUE | |||||||||||
![]() | Convertible Bonds (19.5%) | |||||||||||||||||
![]() | Airlines (1.3%) | |||||||||||||||||
$ | 2,800 | ![]() | Continental Airlines Inc. | ![]() | 4.50 | % | ![]() | 02/01/07 | ![]() | $ | 2,338,000 | |||||||
![]() | Biotechnology (2.2%) | |||||||||||||||||
1,750 | ![]() | Enzon, Inc. | ![]() | 4.50 | ![]() | 07/01/08 | ![]() | 1,693,125 | ||||||||||
1,800 | ![]() | Invitrogen, Inc. – 144A** | ![]() | 2.00 | ![]() | 08/01/23 | ![]() | 2,313,000 | ||||||||||
![]() | ![]() | ![]() | ![]() | 4,006,125 | ||||||||||||||
![]() | Cable/Satellite TV (1.2%) | |||||||||||||||||
2,000 | ![]() | Echostar Communications Corp. | ![]() | 5.75 | ![]() | 05/15/08 | ![]() | 2,082,500 | ||||||||||
![]() | Contract Drilling (2.0%) | |||||||||||||||||
6,000 | ![]() | Diamond Offshore Drilling, Inc. | ![]() | 0.00 | ![]() | 06/06/20 | ![]() | 3,510,000 | ||||||||||
![]() | Department Stores (1.1%) | |||||||||||||||||
1,500 | ![]() | Penney (J.C.) Co., Inc. | ![]() | 5.00 | ![]() | 10/15/08 | ![]() | 1,908,750 | ||||||||||
![]() | Electronic Components (2.0%) | |||||||||||||||||
2,300 | ![]() | Agilent Technologies, Inc. | ![]() | 3.00†† | ![]() | 12/01/21 | ![]() | 2,610,500 | ||||||||||
1,000 | ![]() | SCI Systems, Inc. | ![]() | 3.00 | ![]() | 03/15/07 | ![]() | 962,500 | ||||||||||
![]() | ![]() | ![]() | ![]() | 3,573,000 | ||||||||||||||
![]() | Hospital/Nursing Management (1.2%) | |||||||||||||||||
2,000 | ![]() | Lifepoint Hospitals Holdings | ![]() | 4.50 | ![]() | 06/01/09 | ![]() | 2,090,000 | ||||||||||
![]() | Hotels/Resorts/Cruiselines (1.2%) | |||||||||||||||||
2,000 | ![]() | Hilton Hotels Corp. – 144A** | ![]() | 3.375 | ![]() | 04/15/23 | ![]() | 2,155,000 | ||||||||||
![]() | Household/Personal Care (1.4%) | |||||||||||||||||
2,000 | ![]() | Church & Dwight Co., Inc. – 144A** | ![]() | 5.25 | ![]() | 08/15/33 | ![]() | 2,455,000 | ||||||||||
![]() | Information Technology Services (1.2%) | |||||||||||||||||
2,250 | ![]() | Aether Systems, Inc. | ![]() | 6.00 | ![]() | 03/22/05 | ![]() | 2,227,500 | ||||||||||
![]() | Internet Retail (0.7%) | |||||||||||||||||
1,214 | ![]() | Amazon.com, Inc. | ![]() | 4.75 | ![]() | 02/01/09 | ![]() | 1,242,832 | ||||||||||
![]() | Investment Banks/Brokers (0.9%) | |||||||||||||||||
1,500 | ![]() | E*Trade Group Inc. | ![]() | 6.00 | ![]() | 02/01/07 | ![]() | 1,543,125 | ||||||||||
![]() | Real Estate Investment Trusts (1.2%) | |||||||||||||||||
2,000 | ![]() | EOP Operating LP | ![]() | 7.25†† | ![]() | 11/15/08 | ![]() | 2,090,000 | ||||||||||
![]() | Semiconductors (1.9%) | |||||||||||||||||
3,400 | ![]() | RF Micro Devices, Inc. | ![]() | 3.75 | ![]() | 08/15/05 | ![]() | 3,412,750 | ||||||||||
![]() | Total Convertible Bonds (Cost $32,506,880) | ![]() | 34,634,582 | |||||||||||||||
![]() |
See Notes to Financial Statements
10
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
PRINCIPAL AMOUNT IN THOUSANDS | ![]() | ![]() | COUPON RATE | ![]() | MATURITY DATE | ![]() | VALUE | |||||||||||
![]() | Corporate Bonds (18.4%) | |||||||||||||||||
![]() | Agricultural Commodities/Milling (1.4%) | |||||||||||||||||
$ | 2,250 | ![]() | Corn Products International Inc. | ![]() | 8.25 | % | ![]() | 07/15/07 | ![]() | $ | 2,531,250 | |||||||
![]() | Alternative Power Generation (0.0%) | |||||||||||||||||
50 | ![]() | CalEnergy Co., Inc. | ![]() | 7.63 | ![]() | 10/15/07 | ![]() | 57,098 | ||||||||||
![]() | Apparel/Footwear (1.3%) | |||||||||||||||||
2,250 | ![]() | Tommy Hilfiger USA Inc. | ![]() | 6.85 | ![]() | 06/01/08 | ![]() | 2,320,312 | ||||||||||
![]() | Broadcasting (1.9%) | |||||||||||||||||
2,800 | ![]() | Clear Channel Communications, Inc. | ![]() | 8.00 | ![]() | 11/01/08 | ![]() | 3,290,000 | ||||||||||
150 | ![]() | Emmis Communications Corp. (Series B) | ![]() | 8.125 | ![]() | 03/15/09 | ![]() | 156,937 | ||||||||||
![]() | ![]() | ![]() | ![]() | 3,446,937 | ||||||||||||||
![]() | Cable/Satellite TV (0.1%) | |||||||||||||||||
125 | ![]() | CSC Holdings, Inc. | ![]() | 7.625 | ![]() | 07/15/18 | ![]() | 132,500 | ||||||||||
![]() | Commercial Printing/Forms (0.2%) | |||||||||||||||||
250 | ![]() | Von Hoffman Press Inc. | ![]() | 10.375 | ![]() | 05/15/07 | ![]() | 251,562 | ||||||||||
![]() | Containers/Packaging (1.3%) | |||||||||||||||||
225 | ![]() | Ball Corp. | ![]() | 7.75 | ![]() | 08/01/06 | ![]() | 245,813 | ||||||||||
2,000 | ![]() | Gaylord Container Corp. (Series B) | ![]() | 9.875 | ![]() | 02/15/08 | ![]() | 2,077,500 | ||||||||||
![]() | ![]() | ![]() | ![]() | 2,323,313 | ||||||||||||||
![]() | Data Processing Services (0.0%) | |||||||||||||||||
46 | ![]() | American Business Information, Inc. | ![]() | 9.50 | ![]() | 06/15/08 | ![]() | 47,668 | ||||||||||
![]() | Electric Utilities (0.3%) | |||||||||||||||||
100 | ![]() | CMS Energy Corp. | ![]() | 7.50 | ![]() | 01/15/09 | ![]() | 103,250 | ||||||||||
113 | ![]() | Niagara Mohawk Power (Series F) | ![]() | 7.625 | ![]() | 10/01/05 | ![]() | 122,204 | ||||||||||
175 | ![]() | Niagara Mohawk Power (Series G) | ![]() | 7.75 | ![]() | 10/01/08 | ![]() | 205,481 | ||||||||||
![]() | ![]() | ![]() | ![]() | 430,935 | ||||||||||||||
![]() | Electronic Production Equipment (1.0%) | |||||||||||||||||
1,600 | ![]() | ChipPac International Co. Ltd. (Virgin Islands) | ![]() | 12.75 | ![]() | 08/01/09 | ![]() | 1,752,000 | ||||||||||
![]() | Engineering & Construction (0.1%) | |||||||||||||||||
225 | ![]() | Mastec Inc. (Series B) | ![]() | 7.75 | ![]() | 02/01/08 | ![]() | 223,875 | ||||||||||
![]() | Finance/Rental/Leasing (0.2%) | |||||||||||||||||
290 | ![]() | Williams Scotsman, Inc. | ![]() | 9.875 | ![]() | 06/01/07 | ![]() | 291,450 | ||||||||||
![]() |
See Notes to Financial Statements
11
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
PRINCIPAL AMOUNT IN THOUSANDS | ![]() | ![]() | COUPON RATE | ![]() | MATURITY DATE | ![]() | VALUE | ||||||||||||
![]() | Home Building (1.8%) | ||||||||||||||||||
$ | 75 | ![]() | D.R. Horton Inc. | ![]() | 8.00 | % | ![]() | 02/01/09 | ![]() | $ | 87,000 | ||||||||
50 | ![]() | Standard Pacific Corp. (Series A) | ![]() | 8.00 | ![]() | 02/15/08 | ![]() | 51,585 | |||||||||||
2,800 | ![]() | Toll Corp. | ![]() | 8.25 | ![]() | 02/01/11 | ![]() | 3,129,000 | |||||||||||
![]() | ![]() | ![]() | ![]() | 3,267,585 | |||||||||||||||
![]() | Hospital/Nursing Management (1.7%) | ||||||||||||||||||
2,800 | ![]() | Manor Care, Inc. | ![]() | 7.50 | ![]() | 06/15/06 | ![]() | 3,080,000 | |||||||||||
![]() | Hotels/Resorts/Cruiselines (2.6%) | ||||||||||||||||||
400 | ![]() | ITT Corp. (New) | ![]() | 7.375 | ![]() | 11/15/15 | ![]() | 434,000 | |||||||||||
3,700 | ![]() | Starwood Hotels & Resorts Worldwide Inc. | ![]() | 7.875 | ![]() | 05/01/12 | ![]() | 4,199,500 | ![]() | ||||||||||
![]() | ![]() | ![]() | ![]() | 4,633,500 | |||||||||||||||
![]() | Managed Health Care (1.2%) | ||||||||||||||||||
2,000 | ![]() | Magellan Health Services, Inc. ( Series A) | ![]() | 9.375 | ![]() | 11/15/08 | ![]() | 2,140,000 | |||||||||||
![]() | Medical/Nursing Services (0.1%) | ||||||||||||||||||
225 | ![]() | Prime Medical Services Inc. | ![]() | 8.75 | ![]() | 04/01/08 | ![]() | 223,875 | |||||||||||
![]() | Miscellaneous Manufacturing (0.1%) | ||||||||||||||||||
200 | ![]() | Ametek Inc. | ![]() | 7.20 | ![]() | 07/15/08 | ![]() | 222,068 | |||||||||||
![]() | Other Consumer Specialties (0.1%) | ||||||||||||||||||
79 | ![]() | Boyds Collection Ltd. | ![]() | 9.00 | ![]() | 05/15/08 | ![]() | 73,865 | |||||||||||
![]() | Publishing: Books/Magazines (0.0%) | ||||||||||||||||||
50 | ![]() | Primedia, Inc. | ![]() | 7.625 | ![]() | 04/01/08 | ![]() | 50,375 | |||||||||||
![]() | Publishing: Newspapers (1.2%) | ||||||||||||||||||
2,000 | ![]() | Media General Inc. | ![]() | 6.95 | ![]() | 09/01/06 | ![]() | 2,185,000 | |||||||||||
![]() | Pulp & Paper (0.1%) | ||||||||||||||||||
125 | ![]() | Specialty Paperboard, Inc. (Series B) | ![]() | 9.375 | ![]() | 10/15/06 | ![]() | 70,313 | |||||||||||
![]() | Trucks/Construction/Farm Machinery (1.5%) | ||||||||||||||||||
2,300 | ![]() | Navistar International (Series B) | ![]() | 9.375 | ![]() | 06/01/06 | ![]() | 2,558,750 | |||||||||||
![]() | Wholesale Distributors (0.2%) | ||||||||||||||||||
300 | ![]() | Home Interiors & Gifts Inc. | ![]() | 10.125 | ![]() | 06/01/08 | ![]() | 305,250 | |||||||||||
![]() | Total Corporate Bonds (Cost $30,967,768) | ![]() | 32,619,481 | ||||||||||||||||
![]() |
See Notes to Financial Statements
12
Morgan Stanley Income Builder Fund
Portfolio of Investments March 31, 2004 (unaudited) continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
NUMBER OF SHARES | ![]() | ![]() | VALUE | |||||||
![]() | Convertible Preferred Stocks (10.4%) | ![]() | ||||||||
![]() | Electric Utilities (1.5%) | ![]() | ||||||||
47,000 | ![]() | FPL Group, Inc. $4.00 | ![]() | $ | 2,725,530 | |||||
![]() | Major Banks (2.6%) | ![]() | ||||||||
116,100 | ![]() | National Australia Bank, Ltd. $1.97 (Australia) (Units)‡ | ![]() | 4,562,730 | ||||||
![]() | Major Telecommunications (0.8%) | ![]() | ||||||||
30,000 | ![]() | ALLTEL Corp. $3.875 (Units)‡ | ![]() | 1,521,600 | ||||||
![]() | Oil & Gas Pipelines (1.0%) | |||||||||
140,000 | ![]() | Williams Companies, Inc. $2.25 | ![]() | 1,783,600 | ||||||
![]() | Property – Casualty Insurers (1.0%) | ![]() | ||||||||
70,000 | ![]() | Travelers Property Casualty Corp. $1.125 | ![]() | 1,711,500 | ||||||
![]() | Specialty Stores (0.9%) | ![]() | ||||||||
30,000 | ![]() | Boise Cascade Corp. $3.75 (Units)‡ | ![]() | 1,525,500 | ||||||
![]() | Telecommunication Equipment (2.6%) | ![]() | ||||||||
1,800 | ![]() | Lucent Technologies Capital Trust $77.50 | ![]() | 2,270,160 | ||||||
48,750 | ![]() | Motorola, Inc. $3.50 | ![]() | 2,367,300 | ||||||
![]() | ![]() | 4,637,460 | ||||||||
![]() | Total Convertible Preferred Stocks (Cost $15,794,820) | ![]() | 18,467,920 | |||||||
![]() |
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
PRINCIPAL AMOUNT IN THOUSANDS | ![]() | ![]() | COUPON RATE | ![]() | MATURITY DATE | ![]() | ||||||||||||
![]() | Short-Term Investment (1.0%) | |||||||||||||||||
![]() | Repurchase Agreement | ![]() | ![]() | |||||||||||||||
$ | 1,798 | ![]() | Joint repurchase agreement account (dated 03/31/04; proceeds $1,798,053) (a) (Cost $1,798,000) | ![]() | 1.055 | % | ![]() | 04/01/04 | ![]() | 1,798,000 | ||||||||
![]() | Total Investments (Cost $158,057,858) (b) | ![]() | 99.5 | % | ![]() | 176,775,937 | ||||||||||||
![]() | Other Assets in Excess of Liabilities | ![]() | 0.5 | ![]() | 913,731 | |||||||||||||
![]() | Net Assets | ![]() | 100.0 | % | ![]() | $ | 177,689,668 | |||||||||||
![]() |
![]() |
![]() | ADR | American Depository Receipt. |
![]() | * | Non-income producing security. |
![]() | ** | Resale is restricted to qualified institutional investors. |
![]() | † | Resale is restricted; acquired (12/13/95) at a cost basis of $21,129. |
![]() | ‡ | Consists of one or more classes of securities traded together as a unit; preferred stocks with attached warrants. |
![]() | †† | Variable rate security. Rate shown is the rate in effect at March 31, 2004. |
![]() | (a) | Collateralized by federal agency and U.S. Treasury obligations. |
![]() | (b) | The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $23,573,417 and the aggregate gross unrealized depreciation is $4,855,338, resulting in net unrealized appreciation of $18,718,079. |
See Notes to Financial Statements
13
Morgan Stanley Income Builder Fund
Financial Statements
Statement of Assets and Liabilities
March 31, 2004 (unaudited)
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
Assets: | ![]() | |||||
Investments in securities, at value (cost $158,057,858) | ![]() | $ | 176,775,937 | |||
Receivable for: | ![]() | |||||
Interest | ![]() | 1,019,911 | ||||
Dividends | ![]() | 194,945 | ||||
Shares of beneficial interest sold | ![]() | 164,237 | ||||
Investments sold | ![]() | 89,564 | ||||
Prepaid expenses and other assets | ![]() | 42,926 | ||||
Total Assets | ![]() | 178,287,520 | ||||
Liabilities: | ![]() | |||||
Payable for: | ![]() | |||||
Distribution fee | ![]() | 156,335 | ||||
Investment management fee | ![]() | 121,162 | ||||
Shares of beneficial interest redeemed | ![]() | 109,327 | ||||
Investments purchased | ![]() | 107,654 | ||||
Accrued expenses and other payables | ![]() | 103,374 | ||||
Total Liabilities | ![]() | 597,852 | ||||
Net Assets | ![]() | $ | 177,689,668 | |||
Composition of Net Assets: | ![]() | |||||
Paid-in-capital | ![]() | $ | 202,554,147 | |||
Net unrealized appreciation | ![]() | 18,718,079 | ||||
Accumulated undistributed net investment income | ![]() | 1,453,980 | ||||
Accumulated net realized loss | ![]() | (45,036,538 | ) | |||
Net Assets | ![]() | $ | 177,689,668 | |||
Class A Shares: | ![]() | |||||
Net Assets | ![]() | $ | 3,603,719 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | ![]() | 336,445 | ||||
Net Asset Value Per Share | ![]() | $ | 10.71 | |||
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) | ![]() | $ | 11.30 | |||
Class B Shares: | ![]() | |||||
Net Assets | ![]() | $ | 149,876,347 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | ![]() | 13,980,163 | ||||
Net Asset Value Per Share | ![]() | $ | 10.72 | |||
Class C Shares: | ![]() | |||||
Net Assets | ![]() | $ | 21,204,147 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | ![]() | 1,982,737 | ||||
Net Asset Value Per Share | ![]() | $ | 10.69 | |||
Class D Shares: | ![]() | |||||
Net Assets | ![]() | $ | 3,005,455 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | ![]() | 280,612 | ||||
Net Asset Value Per Share | ![]() | $ | 10.71 | |||
![]() |
See Notes to Financial Statements
14
Morgan Stanley Income Builder Fund
Financial Statements continued
Statement of Operations
For the six months ended March 31, 2004 (unaudited)
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
Net Investment Income: | ![]() | |||||
Income | ![]() | |||||
Interest | ![]() | $ | 2,086,570 | |||
Dividends (net of $9,711 foreign withholding tax) | ![]() | 1,633,649 | ||||
Total Income | ![]() | 3,720,219 | ||||
Expenses | ![]() | |||||
Distribution fee (Class A shares) | ![]() | 3,986 | ||||
Distribution fee (Class B shares) | ![]() | 752,446 | ||||
Distribution fee (Class C shares) | ![]() | 106,246 | ||||
Investment management fee | ![]() | 668,437 | ||||
Transfer agent fees and expenses | ![]() | 162,044 | ||||
Professional fees | ![]() | 33,262 | ||||
Registration fees | ![]() | 32,310 | ||||
Shareholder reports and notices | ![]() | 27,905 | ||||
Custodian fees | ![]() | 12,475 | ||||
Trustees' fees and expenses | ![]() | 3,052 | ||||
Other | ![]() | 6,483 | ||||
Total Expenses | ![]() | 1,808,646 | ||||
Net Investment Income | ![]() | 1,911,573 | ||||
Net Realized and Unrealized Gain: | ![]() | |||||
Net realized gain | ![]() | 5,156,871 | ||||
Net change in unrealized appreciation | ![]() | 10,970,362 | ||||
Net Gain | ![]() | 16,127,233 | ||||
Net Increase | ![]() | $ | 18,038,806 | |||
![]() |
See Notes to Financial Statements
15
Morgan Stanley Income Builder Fund
Financial Statements continued
Statement of Changes in Net Assets
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, 2003 | |||||||
![]() | (unaudited | ) | ![]() | |||||||
Increase (Decrease) in Net Assets: | ![]() | ![]() | ||||||||
Operations: | ![]() | ![]() | ||||||||
Net investment income | ![]() | $ | 1,911,573 | ![]() | $ | 3,927,599 | ||||
Net realized gain (loss) | ![]() | 5,156,871 | ![]() | (2,570,189 | ) | |||||
Net change in unrealized appreciation/depreciation | ![]() | 10,970,362 | ![]() | 24,663,050 | ||||||
Net Increase | ![]() | 18,038,806 | ![]() | 26,020,460 | ||||||
Dividends to Shareholders from Net Investment Income: | ![]() | ![]() | ||||||||
Class A shares | ![]() | (46,497 | ) | ![]() | (69,418 | ) | ||||
Class B shares | ![]() | (1,351,009 | ) | ![]() | (3,262,216 | ) | ||||
Class C shares | ![]() | (191,660 | ) | ![]() | (417,202 | ) | ||||
Class D shares | ![]() | (42,149 | ) | ![]() | (57,775 | ) | ||||
Total Dividends | ![]() | (1,631,315 | ) | ![]() | (3,806,611 | ) | ||||
Net decrease from transactions in shares of beneficial interest | ![]() | (8,662,762 | ) | ![]() | (9,980,779 | ) | ||||
Net Increase | ![]() | 7,744,729 | ![]() | 12,233,070 | ||||||
Net Assets: | ![]() | ![]() | ||||||||
Beginning of period | ![]() | 169,944,939 | ![]() | 157,711,869 | ||||||
End of Period | ![]() | ![]() | ||||||||
(Including accumulated undistributed net investment income of $1,453,980 and $1,173,722, respectively) | ![]() | $ | 177,689,668 | ![]() | $ | 169,944,939 | ||||
![]() |
See Notes to Financial Statements
16
Morgan Stanley Income Builder Fund
Notes to Financial Statements March 31, 2004 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Income Builder 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 primary investment objective is to seek reasonable income and, as a secondary objective, growth of capital. The Fund seeks to achieve its objective by investing primarily in income-producing equity securities, including common and preferred stocks as well as convertible securities. The Fund was organized as a Massachusetts business trust on March 21, 1996 and commenced operations on June 26, 1996. On July 28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses.
The following is a summary of significant accounting policies:
A. Valuation of Investments — (1) an equity portfolio security listed or traded on the New York Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) 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. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Manager using a pricing service and/or procedures approved by the Trustees
17
Morgan Stanley Income Builder Fund
Notes to Financial Statements March 31, 2004 (unaudited) continued
of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; (7) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost.
B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily.
C. Repurchase Agreements — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest.
D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.
E. Federal Income Tax Policy — It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required.
F. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
G. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
2. Investment Management Agreement
Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined at the close of each business day: 0.75% to the portion of daily net assets not exceeding $500 million and 0.725% to the portion of daily net assets in excess of $500 million.
18
Morgan Stanley Income Builder Fund
Notes to Financial Statements March 31, 2004 (unaudited) continued
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 lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C – up to 1.0% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $15,640,596 at March 31, 2004.
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 six months ended March 31, 2004, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.22% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended March 31, 2004, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $88,067 and $1,481, respectively and received $32,739 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended March 31, 2004 aggregated $38,010,771 and $44,011,838, respectively.
For the six months ended March 31, 2004, the Fund incurred $960 in brokerage commissions with Morgan Stanley & Co., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund.
19
Morgan Stanley Income Builder Fund
Notes to Financial Statements March 31, 2004 (unaudited) continued
At March 31, 2004, Morgan Stanley Fund of Funds — Domestic Portfolio, an affiliate of the Investment Manager and Distributor, held 121,111 Class D shares of beneficial interest of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At March 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $57,800.
5. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, 2003 | ![]() | |||||||||||||||
![]() | (unaudited) | ![]() | ![]() | ||||||||||||||||
![]() | SHARES | ![]() | AMOUNT | ![]() | SHARES | ![]() | AMOUNT | ||||||||||||
CLASS A SHARES | ![]() | ![]() | ![]() | ![]() | |||||||||||||||
Sold | ![]() | 82,822 | ![]() | $ | 853,477 | ![]() | 141,419 | ![]() | $ | 1,319,134 | |||||||||
Reinvestment of dividends | ![]() | 3,119 | ![]() | 32,403 | ![]() | 4,989 | ![]() | 46,359 | |||||||||||
Redeemed | ![]() | (53,618 | ) | ![]() | (569,979 | ) | ![]() | (60,925 | ) | ![]() | (550,157 | ) | |||||||
Net increase – Class A | ![]() | 32,323 | ![]() | 315,901 | ![]() | 85,483 | ![]() | 815,336 | |||||||||||
CLASS B SHARES | ![]() | ![]() | ![]() | ![]() | |||||||||||||||
Sold | ![]() | 1,125,868 | ![]() | 11,739,362 | ![]() | 2,864,657 | ![]() | 26,536,990 | |||||||||||
Reinvestment of dividends | ![]() | 92,770 | ![]() | 964,668 | ![]() | 252,271 | ![]() | 2,322,396 | |||||||||||
Redeemed | ![]() | (2,023,576 | ) | ![]() | (21,172,170 | ) | ![]() | (4,572,264 | ) | ![]() | (41,820,638 | ) | |||||||
Net decrease – Class B | ![]() | (804,938 | ) | ![]() | (8,468,140 | ) | ![]() | (1,455,336 | ) | ![]() | (12,961,252 | ) | |||||||
CLASS C SHARES | ![]() | ![]() | ![]() | ![]() | |||||||||||||||
Sold | ![]() | 120,498 | ![]() | 1,246,077 | ![]() | 385,493 | ![]() | 3,601,991 | |||||||||||
Reinvestment of dividends | ![]() | 14,516 | ![]() | 150,590 | ![]() | 35,255 | ![]() | 324,961 | |||||||||||
Redeemed | ![]() | (206,912 | ) | ![]() | (2,169,175 | ) | ![]() | (298,448 | ) | ![]() | (2,705,343 | ) | |||||||
Net increase (decrease) – Class C | ![]() | (71,898 | ) | ![]() | (772,508 | ) | ![]() | 122,300 | ![]() | 1,221,609 | |||||||||
CLASS D SHARES | ![]() | ![]() | ![]() | ![]() | |||||||||||||||
Sold | ![]() | 54,410 | ![]() | 559,957 | ![]() | 129,863 | ![]() | 1,232,247 | |||||||||||
Reinvestment of dividends | ![]() | 1,965 | ![]() | 20,413 | ![]() | 1,482 | ![]() | 14,238 | |||||||||||
Redeemed | ![]() | (29,832 | ) | ![]() | (318,385 | ) | ![]() | (33,352 | ) | ![]() | (302,957 | ) | |||||||
Net increase – Class D | ![]() | 26,543 | ![]() | 261,985 | ![]() | 97,993 | ![]() | 943,528 | |||||||||||
Net decrease in Fund | ![]() | (817,970 | ) | ![]() | $ | (8,662,762 | ) | ![]() | (1,149,560 | ) | ![]() | $ | (9,980,779 | ) | |||||
![]() |
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.
20
Morgan Stanley Income Builder Fund
Notes to Financial Statements March 31, 2004 (unaudited) continued
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.
As of September 30, 2003, the Fund had a net capital loss carryforward of $48,824,751 of which $4,464,115 will expire on September 30, 2008, $11,096,903 will expire on September 30, 2009, $11,752,540 will expire on September 30, 2010 and $21,511,193 will expire on September 30, 2011 to offset future capital gains to the extent provided by regulations.
As of September 30, 2003, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year) and capital loss deferrals on wash sales and book amortization of discounts on debt securities.
7. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager, certain officers of such affiliates and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Manager and certain affiliates of the Investment Manager allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Manager or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Manager or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants intend to move to dismiss the action and otherwise vigorously to defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter.
21
Morgan Stanley Income Builder Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, | ![]() | |||||||||||||||||||||||
![]() | 2003 | ![]() | 2002 | ![]() | 2001 | ![]() | 2000 | ![]() | 1999 | ||||||||||||||||||
![]() | (unaudited) | ||||||||||||||||||||||||||
Class A Shares | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Selected Per Share Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net asset value, beginning of period | ![]() | $ | 9.76 | ![]() | $ | 8.50 | ![]() | $ | 9.74 | ![]() | $ | 10.36 | ![]() | $ | 10.98 | ![]() | $ | 11.18 | |||||||||
Income (loss) from investment operations: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net investment income‡ | ![]() | 0.15 | ![]() | 0.29 | ![]() | 0.37 | ![]() | 0.49 | ![]() | 0.53 | ![]() | 0.58 | |||||||||||||||
Net realized and unrealized gain (loss) | ![]() | 0.94 | ![]() | 1.26 | ![]() | (1.21 | ) | ![]() | (0.59 | ) | ![]() | (0.26 | ) | ![]() | 0.54 | ||||||||||||
Total income (loss) from investment operations | ![]() | 1.09 | ![]() | 1.55 | ![]() | (0.84 | ) | ![]() | (0.10 | ) | ![]() | 0.27 | ![]() | 1.12 | |||||||||||||
Less dividends and distributions from: | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Net investment income | ![]() | (0.14 | ) | ![]() | (0.29 | ) | ![]() | (0.40 | ) | ![]() | (0.52 | ) | ![]() | (0.51 | ) | ![]() | (0.62 | ) | |||||||||
Net realized gain | ![]() | — | ![]() | — | ![]() | — | ![]() | — | ![]() | (0.38 | ) | ![]() | (0.70 | ) | |||||||||||||
Total dividends and distributions | ![]() | (0.14 | ) | ![]() | (0.29 | ) | ![]() | (0.40 | ) | ![]() | (0.52 | ) | ![]() | (0.89 | ) | ![]() | (1.32 | ) | |||||||||
Net asset value, end of period | ![]() | $ | 10.71 | ![]() | $ | 9.76 | ![]() | $ | 8.50 | ![]() | $ | 9.74 | ![]() | $ | 10.36 | ![]() | $ | 10.98 | |||||||||
Total Return† | ![]() | 11.18 | % (1) | ![]() | 18.42 | % | ![]() | (9.09 | )% | ![]() | (1.06 | )% | ![]() | 2.71 | % | ![]() | 10.15 | % | |||||||||
Ratios to Average Net Assets(3): | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Expenses | ![]() | 1.28 | % (2) | ![]() | 1.29 | % | ![]() | 1.23 | % | ![]() | 1.17 | % | ![]() | 1.21 | % | ![]() | 1.17 | % | |||||||||
Net investment income | ![]() | 2.89 | % (2) | ![]() | 3.15 | % | ![]() | 3.67 | % | ![]() | 4.61 | % | ![]() | 4.92 | % | ![]() | 5.02 | % | |||||||||
Supplemental Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net assets, end of period, in thousands | ![]() | $3,604 | ![]() | $2,969 | ![]() | $1,858 | ![]() | $1,791 | ![]() | $2,872 | ![]() | $12,541 | |||||||||||||||
Portfolio turnover rate | ![]() | 22 | % (1) | ![]() | 59 | % | ![]() | 67 | % | ![]() | 29 | % | ![]() | 38 | % | ![]() | 36 | % | |||||||||
![]() |
![]() |
![]() | ‡ | The per share amounts were computed using an average number of shares outstanding during the period. |
![]() | † | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. |
![]() | (1) | Not annualized. |
![]() | (2) | Annualized. |
![]() | (3) | Reflects overall Fund ratios for investment income and non-class specific expenses. |
See Notes to Financial Statements
22
Morgan Stanley Income Builder Fund
Financial Highlights continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, | ![]() | |||||||||||||||||||||||
![]() | 2003 | ![]() | 2002 | ![]() | 2001 | ![]() | 2000 | ![]() | 1999 | ||||||||||||||||||
![]() | (unaudited) | ||||||||||||||||||||||||||
Class B Shares | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Selected Per Share Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Net asset value, beginning of period | ![]() | $ | 9.77 | ![]() | $ | 8.51 | ![]() | $ | 9.74 | ![]() | $ | 10.37 | ![]() | $ | 10.98 | ![]() | $ | 11.18 | |||||||||
Income (loss) from investment operations: | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Net investment income‡ | ![]() | 0.11 | ![]() | 0.22 | ![]() | 0.29 | ![]() | 0.41 | ![]() | 0.44 | ![]() | 0.50 | |||||||||||||||
Net realized and unrealized gain (loss) | ![]() | 0.94 | ![]() | 1.26 | ![]() | (1.20 | ) | ![]() | (0.60 | ) | ![]() | (0.23 | ) | ![]() | 0.53 | ||||||||||||
Total income (loss) from investment operations | ![]() | 1.05 | ![]() | 1.48 | ![]() | (0.91 | ) | ![]() | (0.19 | ) | ![]() | 0.21 | ![]() | 1.03 | |||||||||||||
Less dividends and distributions from: | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Net investment income | ![]() | (0.10 | ) | ![]() | (0.22 | ) | ![]() | (0.32 | ) | ![]() | (0.44 | ) | ![]() | (0.44 | ) | ![]() | (0.53 | ) | |||||||||
Net realized gain | ![]() | — | ![]() | — | ![]() | — | ![]() | — | ![]() | (0.38 | ) | ![]() | (0.70 | ) | |||||||||||||
Total dividends and distributions | ![]() | (0.10 | ) | ![]() | (0.22 | ) | ![]() | (0.32 | ) | ![]() | (0.44 | ) | ![]() | (0.82 | ) | ![]() | (1.23 | ) | |||||||||
Net asset value, end of period | ![]() | $ | 10.72 | ![]() | $ | 9.77 | ![]() | $ | 8.51 | ![]() | $ | 9.74 | ![]() | $ | 10.37 | ![]() | $ | 10.98 | |||||||||
Total Return† | ![]() | 10.73 | % (1) | ![]() | 17.65 | % | ![]() | (9.81 | )% | ![]() | (1.83 | )% | ![]() | 2.00 | % | ![]() | 9.31 | % | |||||||||
Ratios to Average Net Assets(3): | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Expenses | ![]() | 2.06 | % (2) | ![]() | 2.04 | % | ![]() | 1.98 | % | ![]() | 1.95 | % | ![]() | 1.97 | % | ![]() | 1.90 | % | |||||||||
Net investment income | ![]() | 2.11 | % (2) | ![]() | 2.40 | % | ![]() | 2.92 | % | ![]() | 3.83 | % | ![]() | 4.16 | % | ![]() | 4.29 | % | |||||||||
Supplemental Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
Net assets, end of period, in thousands | ![]() | $149,876 | ![]() | $144,468 | ![]() | $138,129 | ![]() | $186,994 | ![]() | $223,413 | ![]() | $348,070 | |||||||||||||||
Portfolio turnover rate | ![]() | 22 | % (1) | ![]() | 59 | % | ![]() | 67 | % | ![]() | 29 | % | ![]() | 38 | % | ![]() | 36 | % | |||||||||
![]() |
![]() |
![]() | ‡ | The per share amounts were computed using an average number of shares outstanding during the period. |
![]() | † | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. |
![]() | (1) | Not annualized. |
![]() | (2) | Annualized. |
![]() | (3) | Reflects overall Fund ratios for investment income and non-class specific expenses. |
See Notes to Financial Statements
23
Morgan Stanley Income Builder Fund
Financial Highlights continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, | ![]() | |||||||||||||||||||||||
![]() | 2003 | ![]() | 2002 | ![]() | 2001 | ![]() | 2000 | ![]() | 1999 | ||||||||||||||||||
![]() | (unaudited) | ||||||||||||||||||||||||||
Class C Shares | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Selected Per Share Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net asset value, beginning of period | ![]() | $ | 9.75 | ![]() | $ | 8.49 | ![]() | $ | 9.72 | ![]() | $ | 10.34 | ![]() | $ | 10.96 | ![]() | $ | 11.16 | |||||||||
Income (loss) from investment operations: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net investment income‡ | ![]() | 0.11 | ![]() | 0.22 | ![]() | 0.29 | ![]() | 0.41 | ![]() | 0.44 | ![]() | 0.48 | |||||||||||||||
Net realized and unrealized gain (loss) | ![]() | 0.93 | ![]() | 1.26 | ![]() | (1.20 | ) | ![]() | (0.59 | ) | ![]() | (0.24 | ) | ![]() | 0.55 | ||||||||||||
Total income (loss) from investment operations | ![]() | 1.04 | ![]() | 1.48 | ![]() | (0.91 | ) | ![]() | (0.18 | ) | ![]() | 0.20 | ![]() | 1.03 | |||||||||||||
Less dividends and distributions from: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net investment income | ![]() | (0.10 | ) | ![]() | (0.22 | ) | ![]() | (0.32 | ) | ![]() | (0.44 | ) | ![]() | (0.44 | ) | ![]() | (0.53 | ) | |||||||||
Net realized gain | ![]() | — | ![]() | — | ![]() | — | ![]() | — | ![]() | (0.38 | ) | ![]() | (0.70 | ) | |||||||||||||
Total dividends and distributions | ![]() | (0.10 | ) | ![]() | (0.22 | ) | ![]() | (0.32 | ) | ![]() | (0.44 | ) | ![]() | (0.82 | ) | ![]() | (1.23 | ) | |||||||||
Net asset value, end of period | ![]() | $ | 10.69 | ![]() | $ | 9.75 | ![]() | $ | 8.49 | ![]() | $ | 9.72 | ![]() | $ | 10.34 | ![]() | $ | 10.96 | |||||||||
Total Return† | ![]() | 10.65 | % (1) | ![]() | 17.57 | % | ![]() | (9.73 | )% | ![]() | (1.84 | )% | ![]() | 2.01 | % | ![]() | 9.38 | % | |||||||||
Ratios to Average Net Assets(3): | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Expenses | ![]() | 2.06 | % (2) | ![]() | 2.04 | % | ![]() | 1.98 | % | ![]() | 1.93 | % | ![]() | 1.96 | % | ![]() | 1.90 | % | |||||||||
Net investment income | ![]() | 2.11 | % (2) | ![]() | 2.40 | % | ![]() | 2.92 | % | ![]() | 3.85 | % | ![]() | 4.17 | % | ![]() | 4.29 | % | |||||||||
Supplemental Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net assets, end of period, in thousands | ![]() | $21,204 | ![]() | $20,028 | ![]() | $16,399 | ![]() | $20,505 | ![]() | $25,594 | ![]() | $40,859 | |||||||||||||||
Portfolio turnover rate | ![]() | 22 | % (1) | ![]() | 59 | % | ![]() | 67 | % | ![]() | 29 | % | ![]() | 38 | % | ![]() | 36 | % | |||||||||
![]() |
![]() |
![]() | ‡ | The per share amounts were computed using an average number of shares outstanding during the period. |
![]() | † | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. |
![]() | (1) | Not annualized. |
![]() | (2) | Annualized. |
![]() | (3) | Reflects overall Fund ratios for investment income and non-class specific expenses. |
See Notes to Financial Statements
24
Morgan Stanley Income Builder Fund
Financial Highlights continued
![](https://capedge.com/proxy/N-CSR/0000950136-04-001778/spacer.gif)
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |
![]() | FOR THE SIX MONTHS ENDED MARCH 31, 2004 | ![]() | FOR THE YEAR ENDED SEPTEMBER 30, | ![]() | |||||||||||||||||||||||
![]() | 2003 | ![]() | 2002 | ![]() | 2001 | ![]() | 2000 | ![]() | 1999 | ||||||||||||||||||
![]() | (unaudited) | ||||||||||||||||||||||||||
Class D Shares | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Selected Per Share Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net asset value, beginning of period | ![]() | $ | 9.76 | ![]() | $ | 8.50 | ![]() | $ | 9.74 | ![]() | $ | 10.36 | ![]() | $ | 10.99 | ![]() | $ | 11.18 | |||||||||
Income (loss) from investment operations: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net investment income‡ | ![]() | 0.16 | ![]() | 0.32 | ![]() | 0.40 | ![]() | 0.50 | ![]() | 0.54 | ![]() | 0.60 | |||||||||||||||
Net realized and unrealized gain (loss) | ![]() | 0.94 | ![]() | 1.25 | ![]() | (1.22 | ) | ![]() | (0.57 | ) | ![]() | (0.24 | ) | ![]() | 0.55 | ||||||||||||
Total income (loss) from investment operations | ![]() | 1.10 | ![]() | 1.57 | ![]() | (0.82 | ) | ![]() | (0.07 | ) | ![]() | 0.30 | ![]() | 1.15 | |||||||||||||
Less dividends and distributions from: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net investment income | ![]() | (0.15 | ) | ![]() | (0.31 | ) | ![]() | (0.42 | ) | ![]() | (0.55 | ) | ![]() | (0.55 | ) | ![]() | (0.64 | ) | |||||||||
Net realized gain | ![]() | — | ![]() | — | ![]() | — | ![]() | — | ![]() | (0.38 | ) | ![]() | (0.70 | ) | |||||||||||||
Total dividends and distributions | ![]() | (0.15 | ) | ![]() | (0.31 | ) | ![]() | (0.42 | ) | ![]() | (0.55 | ) | ![]() | (0.93 | ) | ![]() | (1.34 | ) | |||||||||
Net asset value, end of period | ![]() | $ | 10.71 | ![]() | $ | 9.76 | ![]() | $ | 8.50 | ![]() | $ | 9.74 | ![]() | $ | 10.36 | ![]() | $ | 10.99 | |||||||||
Total Return† | ![]() | 11.30 | % (1) | ![]() | 18.70 | % | ![]() | (8.87 | )% | ![]() | (0.80 | )% | ![]() | 2.98 | % | ![]() | 10.51 | % | |||||||||
Ratios to Average Net Assets(3): | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Expenses | ![]() | 1.06 | % (2) | ![]() | 1.04 | % | ![]() | 0.98 | % | ![]() | 0.95 | % | ![]() | 0.97 | % | ![]() | 0.93 | % | |||||||||
Net investment income | ![]() | 3.11 | % (2) | ![]() | 3.40 | % | ![]() | 3.92 | % | ![]() | 4.83 | % | ![]() | 5.16 | % | ![]() | 5.26 | % | |||||||||
Supplemental Data: | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||
Net assets, end of period, in thousands | ![]() | $3,005 | ![]() | $2,480 | ![]() | $1,326 | ![]() | $136 | ![]() | $712 | ![]() | $740 | |||||||||||||||
Portfolio turnover rate | ![]() | 22 | % (1) | ![]() | 59 | % | ![]() | 67 | % | ![]() | 29 | % | ![]() | 38 | % | ![]() | 36 | % | |||||||||
![]() |
![]() |
![]() | ‡ | The per share amounts were computed using an average number of shares outstanding during the period. |
![]() | † | Calculated based on the net asset value as of the last business day of the period. |
![]() | (1) | Not annualized. |
![]() | (2) | Annualized. |
![]() | (3) | Reflects overall Fund ratios for investment income and non-class specific expenses. |
See Notes to Financial Statements
25
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
![]() | ![]() | ![]() |
Trustees Michael Bozic Officers Charles A. Fiumefreddo Mitchell M. Merin Ronald E. Robison Barry Fink Joseph J. McAlinden Stefanie V. Chang Francis J. Smith Thomas F. Caloia Mary E. Mullin Transfer Agent Morgan Stanley Trust Independent Auditors Deloitte & Touche LLP Investment Manager Morgan Stanley Investment Advisors Inc. The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. © 2004 Morgan Stanley ![]() 38421RPT-RA04-00151P-Y03/04 | ![]() | MORGAN STANLEY FUNDS |
Morgan Stanley Income Builder Fund Semiannual Report March 31, 2004 | ||
![]() |
Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. [Reserved.] Item 9 - Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10 Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Income Builder Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer May 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer May 18, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer May 18, 2004 3 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 Income Builder Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 4 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 18, 2004 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 5 EXHIBIT 10 B2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS I, Francis Smith, certify that: 6. I have reviewed this report on Form N-CSR of Morgan Stanley Income Builder Fund; 7. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 8. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 9. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: b) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] e) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 10. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): c) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and 6 d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 18, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer 7 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Income Builder Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended March 31, 2004 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: May 18, 2004 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Income Builder Fund and will be retained by Morgan Stanley Income Builder Fund and furnished to the Securities and Exchange Commission or its staff upon request. 8 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Income Builder Fund In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended March 31, 2004 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: May 18, 2004 /s/ Francis Smith ---------------------- Francis Smith Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Morgan Stanley Income Builder Fund and will be retained by Morgan Stanley Income Builder Fund and furnished to the Securities and Exchange Commission or its staff upon request. 9