UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07243
Morgan Stanley Balanced Fund
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York | 10036 | |
(Address of principal executive offices) | (Zip code) |
Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant’s telephone number, including area code: 212-296-6990
Date of fiscal year end: January 31, 2009
Date of reporting period: July 31, 2008
Item 1 — Report to Shareholders
INVESTMENT MANAGEMENT | ![]() |
Welcome, Shareholder:
In this report, you’ll learn about how your investment in Morgan Stanley Balanced Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund’s financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being offered.
Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund’s shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.
Fund Report
For the six months ended July 31, 2008
Total Return for the 6 Months Ended July 31, 2008
Lipper | ||||||||||||||||||
Mixed- | ||||||||||||||||||
Lehman | Asset | |||||||||||||||||
Brothers | Target | |||||||||||||||||
Russell | U.S. | Allocation | ||||||||||||||||
1000® | Government/ | Growth | ||||||||||||||||
Value | Credit | Funds | ||||||||||||||||
Class A | Class B | Class C | Class I+ | Index1 | Index2 | Index3 | ||||||||||||
–7.27% | –7.64% | –7.56% | –7.15% | –10.29% | –0.91% | –4.85% | ||||||||||||
+ | Formerly Class D shares. Renamed Class I shares effective March 31, 2008. |
The performance of the Fund’s four share classes varies because each has different expenses. The Fund’s total returns assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. See Performance Summary for standardized performance and benchmark information.
Market Conditions
The six-month period ended July 31, 2008 was difficult for stock and bond markets. The Federal Reserve (the “Fed”) aggressively sought to stabilize the markets and encourage liquidity through a number of policy measures. In mid-March some investors had hoped the worst of the credit market crisis had passed, leading stocks to rally through mid-May. However, the market gave back those gains in June and July as news from the economic front continued to be dismal. Stagflation (stagnant economic growth combined with rising inflation) became a greater concern as unemployment grew while surging oil prices and a weak dollar put upward pressure on inflation. With the housing market still deteriorating, more mortgage loan defaults and bankruptcies were expected to lead to further writedowns by financial institutions. Lingering questions about the health of the financial sector and a bleak outlook for consumer discretionary stocks drove considerable volatility in those sectors of the market. In contrast, the energy sector and, to a lesser extent, the materials sector still dominated, supported by the strength of their underlying commodity prices.
The fixed income market was tremendously volatile throughout the reporting period. In the first quarter of 2008, concerns about credit and liquidity, the weak housing market and potential for economic recession led investors to shun risky assets in favor of the relatively safe haven of high-quality government securities, boosting the performance of U.S. Treasuries while driving spreads in other sectors considerably wider. Despite a rebound in spread sector performance during the second quarter, the market retreated again in June and July as investors considered new credit concerns in the market.
In the corporate bond market, credit spreads tightened in the second quarter of the year after widening considerably in the first quarter. In fact, the investment grade corporate sector posted its best monthly return on record in April. However, in June and July, investors began demanding additional compensation for owning riskier assets, causing credit spreads to widen again. Within the investment grade sector, industrial and utilities were the top performers while financials continued to lag as many financial institutions recognized significant losses on mortgage-related securities.
Performance Analysis
All share classes of Morgan Stanley Balanced Fund outperformed the Russell 1000® Value Index and underperformed the Lehman Brothers U.S. Government/Credit Index and the Lipper Mixed-Asset
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Target Allocation Growth Funds Index for the six months ended July 31, 2008, assuming no deduction of applicable sales charges.
The financials sector, in which the Fund was well positioned, was a key area of outperformance for the Fund relative to the Russell 1000 Value Index. Although the sector lost value on an absolute basis, holdings in insurance stocks declined less than those in the Russell 1000 Value Index during the period. Further, the Fund had lower exposure to banks and regional banks, which were some of the worst performing segments in the financials sector. The health care sector also contributed positively, with a turnaround in the performance of pharmaceuticals stocks. Similarly, a rebound in a software and services holding made the technology sector particularly beneficial to the Fund’s relative performance. The consumer staples sector also added to relative results, due to stock selection and the resulting overweight allocation in the sector. In particular, a large holding in a food and staples retailer performed well because the retailer effectively positioned itself for an economic downturn and saw an increase in consumer shopping at its stores.
However, the Fund did not fare so well in other areas. An underweight allocation in the energy sector hampered relative performance. As energy continued to be the top performing sector in the Russell 1000 Value Index, the Fund’s minimal exposure produced proportionately less gain than that of the Index. Stock selection in the industrials sector was disadvantageous due to the poor performance of an electrical engineering company that announced a large writedown early in 2008. The consumer discretionary sector was another area of weakness during the period, largely in media stocks which suffered in an environment of increased competition.
In the fixed income portion of the Fund, the primary detractor from performance was an allocation to non-agency mortgage securities, a group of securities not represented in the Lehman Brothers U.S. Government/Credit Index. Within this group of securities, the Fund holds CMOs (collateralized mortgage obligations) backed by pools of option adjustable-rate mortgages (ARMs), also known as MTA (moving treasury average) floaters, made primarily to Alt-A borrowers — those who have relatively strong credit but are not considered “prime” borrowers. Unfortunately, as a result of defaults in the subprime market, spreads on all residential and commercial mortgage-backed products widened during the period, hindering performance.
The Fund’s yield-curve positioning, however, was beneficial to performance. We underweighted longer-dated issues and overweighted intermediate-dated issues through the use of interest rate swaps. This strategy helped enhance returns as the spread between intermediate- and long-dated yields widened in the first quarter of the year. Additionally, an underweight position in investment-grade corporate bonds was beneficial given the corporate sector’s underperformance amid ongoing writedowns by many financial institutions during the period. This corporate bond positioning led to an overweight allocation to Treasury securities, which was also beneficial given the flight to quality that persisted throughout much of the period.
As of the end of the reporting period, the Fund held 66 percent in stocks and 34 percent in bonds.
There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
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TOP 10 HOLDINGS as of 07/31/08 | ||||
Federal National Mortgage Assoc. | 9 | .0% | ||
JPMorgan Chase & Co. | 3 | .1 | ||
Wal-Mart Stores, Inc. | 2 | .7 | ||
U.S. Treasury Securities | 2 | .5 | ||
Bayer AG (ADR) (Germany) | 2 | .3 | ||
Marsh & McLennan Companies, Inc. | 2 | .2 | ||
Time Warner, Inc. | 2 | .0 | ||
Schering-Plough Corp. | 1 | .8 | ||
Verizon Communications, Inc. | 1 | .7 | ||
Citigroup, Inc. | 1 | .7 |
PORTFOLIO COMPOSITION++ as of 07/31/08 | ||||
Common Stocks | 64 | .4% | ||
Corporate Bonds | 13 | .2 | ||
U.S. Government Agencies & Obligation | 10 | .8 | ||
Short-Term Investments | 4 | .5 | ||
Collateralized Mortgage Obligations | 3 | .2 | ||
Asset-Backed Securities | 2 | .4 | ||
Convertible Preferred Stocks | 1 | .2 | ||
Foreign Government Obligation | 0 | .2 | ||
Put Options Purchased | 0 | .1 |
++ | Does not include open long/short futures contracts with an underlying face amount of $49,347,578 with net unrealized appreciation of $49,773. Also does not include open swap contracts with net unrealized appreciation of $1,754,614. |
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Top 10 holdings are as a percentage of net assets and portfolio composition are as a percentage of total investments. 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 60 percent of its assets in common stocks and securities convertible into common stocks and at least 25 percent of its assets in fixed-income securities. Within these limitations, the Fund’s “Investment Adviser,” Morgan Stanley Investment Advisors Inc., may purchase or sell securities in any proportion it believes desirable based on its assessment of business, economic and investment conditions.
For More Information About Portfolio Holdings
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund’s second and fourth fiscal quarters. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund’s first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC’s web site, http://www.sec.gov. You may also review and copy them at the SEC’s public reference room in Washington, DC. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by
4
electronic request at the SEC’s e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.
Proxy Voting Policy and Procedures
and Proxy Voting Record
and Proxy Voting Record
You may obtain a copy of the Fund’s Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
Householding Notice
To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 869-NEWS, 8:00 a.m. to 8:00 p.m., ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.
5
Performance Summary
Average Annual Total Returns — Period Ended July 31, 2008
Class A Shares | * | Class B Shares | ** | Class C Shares | † | Class I Shares | †† | |||||||||||
(since 07/28/97 | ) | (since 07/28/97 | ) | (since 03/28/95 | ) | (since 07/28/97 | ) | |||||||||||
Symbol | BGRAX | BGRBX | BGRCX | BGRDX | ||||||||||||||
1 Year | (9.34 | )%4 | (10.00 | )%4 | (9.98 | )%4 | (9.11 | )%4 | ||||||||||
(14.10 | ) 5 | (14.15 | ) 5 | (10.80 | ) 5 | — | ||||||||||||
5 Years | 6.35 | 4 | 5.53 | 4 | 5.56 | 4 | 6.59 | 4 | ||||||||||
5.21 | 5 | 5.21 | 5 | 5.56 | 5 | — | ||||||||||||
10 Years | 4.36 | 4 | 3.72 | 4 | 3.58 | 4 | 4.61 | 4 | ||||||||||
3.80 | 5 | 3.72 | 5 | 3.58 | 5 | — | ||||||||||||
Since Inception | 5.05 | 4 | 4.46 | 4 | 7.17 | 4 | 5.29 | 4 | ||||||||||
4.53 | 5 | 4.46 | 5 | 7.17 | 5 | — |
Performance data quoted represents past performance, which is no guarantee of future results and current performance may be lower or higher than the figures shown. For most recent month-end performance figures, please visit www.morganstanley.com/msim 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 I shares will vary due to differences in sales charges and expenses.
* | The maximum front-end sales charge for Class A is 5.25%. |
** | The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion. |
† | The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase. |
†† | Class I (formerly Class D) has no sales charge. |
(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. The Index is unmanaged and its 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. The Index is unmanaged and its 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 Mixed-Asset Target Allocation Growth Funds Index is an equally-weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Mixed-Asset Target Allocation Growth Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. The Fund was in the Lipper Mixed-Asset Target Allocation Growth Funds Index as of the date of this report. |
(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. |
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Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees; and (2) ongoing costs, including advisory fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 02/01/08 – 07/31/08.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid | ||||||||||||
Beginning | Ending | During Period@ | ||||||||||
Account Value | Account Value | 02/01/08 – | ||||||||||
02/01/08 | 07/31/08 | 07/31/08 | ||||||||||
Class A | ||||||||||||
Actual (–7.27% return) | $ | 1,000.00 | $ | 927.30 | $ | 4.98 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,019.69 | $ | 5.22 | ||||||
Class B | ||||||||||||
Actual (–7.64% return) | $ | 1,000.00 | $ | 923.60 | $ | 8.56 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,015.96 | $ | 8.97 | ||||||
Class C | ||||||||||||
Actual (–7.56% return) | $ | 1,000.00 | $ | 924.40 | $ | 8.56 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,015.96 | $ | 8.97 | ||||||
Class I@@ | ||||||||||||
Actual (–7.15% return) | $ | 1,000.00 | $ | 928.50 | $ | 3.79 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.93 | $ | 3.97 |
@ | Expenses are equal to the Fund’s annualized expense ratios of 1.04%, 1.79%, 1.79% and 0.79% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
@@ | Formerly Class D shares. Renamed Class I shares effective March 31, 2008. |
7
Investment Advisory Agreement Approval
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser (as defined herein) under the Advisory Agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund’s Administrator (as defined herein) under the Administration Agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser’s expense. (The Investment Adviser and the Administrator together are referred to as the “Adviser” and the Advisory and Administration Agreements together are referred to as the “Management Agreement.”) The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper Inc. (“Lipper”).
The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the advisory and administrative services to the Fund. The Board determined that the Adviser’s portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory.
Performance Relative to Comparable Funds Managed by Other Advisers
On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund’s performance for the one-, three- and five-year periods ended December 31, 2007, as shown in a report provided by Lipper (the “Lipper Report”), compared to the performance of comparable funds selected by Lipper (the “performance peer group”). The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. The Board concluded that the Fund’s performance was competitive with that of its performance peer group.
Fees Relative to Other Proprietary Funds Managed by the Adviser with Comparable Investment Strategies
The Board reviewed the advisory and administrative fee (together, the “management fee”) rate paid by the Fund under the Management Agreement. The Board noted that the management fee rate was comparable to the
8
management fee rates charged by the Adviser to other proprietary funds it manages with investment strategies comparable to those of the Fund.
Fees and Expenses Relative to Comparable Funds Managed by Other Advisers
The Board reviewed the management fee rate and total expense ratio of the Fund as compared to the average management fee rate and average total expense ratio for funds, selected by Lipper (the “expense peer group”), managed by other advisers with investment strategies comparable to those of the Fund, as shown in the Lipper Report. The Board concluded that the Fund’s management fee rate and total expense ratio were competitive with those of its expense peer group.
Breakpoints and Economies of Scale
The Board reviewed the structure of the Fund’s management fee schedule under the Management Agreement and noted that it includes a breakpoint. The Board also reviewed the level of the Fund’s management fee and noted that the fee, as a percentage of the Fund’s net assets, would decrease as net assets increase because the management fee includes a breakpoint. The Board concluded that the Fund’s management fee would reflect economies of scale as assets increase.
Profitability of the Adviser and Affiliates
The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund.
Fall-Out Benefits
The Board considered so-called “fall-out benefits” derived by the Adviser and affiliates from their relationship with the Fund and the Morgan Stanley Fund Complex, such as sales charges on sales of Class A shares and “float” benefits derived from handling of checks for purchases and sales of Fund shares, through a broker-dealer affiliate of the Adviser and “soft dollar” benefits (discussed in the next section). The Board also considered that, from time to time, the Adviser may, directly or indirectly, effect trades on behalf of certain Morgan Stanley Funds through various electronic communications networks or other alternative trading systems in which the Adviser’s affiliates have ownership interests and/or board seats. The Board also considered that a broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for distribution and shareholder
9
services. The Board concluded that the fall-out benefits were relatively small and the sales charges and 12b-1 fees were competitive with those of other broker-dealers.
Soft Dollar Benefits
The Board considered whether the Adviser realizes any benefits as a result of brokerage transactions executed through “soft dollar” arrangements. Under such arrangements, brokerage commissions paid by the Fund and/or other funds managed by the Adviser would be used to pay for research that a securities broker obtains from third parties, or to pay for both research and execution services from securities brokers who effect transactions for the Fund. The Board recognized that the receipt of such research from brokers may reduce the Adviser’s costs but concluded that the receipt of such research strengthens the investment management resources of the Adviser, which may ultimately benefit the Fund and other funds in the Morgan Stanley Fund Complex.
Adviser Financially Sound and Financially Capable of Meeting the Fund’s Needs
The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement.
Historical Relationship Between the Fund and the Adviser
The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund’s operations and the Board’s confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that it is beneficial for the Fund to continue its relationship with the Adviser.
Other Factors and Current Trends
The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund’s Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund’s business.
General Conclusion
After considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year.
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Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited)
NUMBER OF | ||||||||
SHARES | VALUE | |||||||
Common Stocks (64.4%) | ||||||||
Aerospace & Defense (1.2%) | ||||||||
57,910 | Raytheon Co. | $ | 3,296,816 | |||||
Air Freight/Couriers (0.3%) | ||||||||
11,660 | FedEx Corp. | 919,274 | ||||||
Airlines (0.3%) | ||||||||
40,900 | Continental Airlines, Inc. (Class B) (a) | 561,557 | ||||||
23,300 | UAL Corp. | 193,623 | ||||||
755,180 | ||||||||
Beverages: Non-Alcoholic (0.9%) | ||||||||
36,920 | Coca-Cola Co. (The) | 1,901,380 | ||||||
24,627 | Dr Pepper Snapple Group Inc. | 509,040 | ||||||
2,410,420 | ||||||||
Cable/Satellite TV (1.1%) | ||||||||
141,453 | Comcast Corp. (Class A) | 2,916,761 | ||||||
Casino/Gaming (0.0%) | ||||||||
4,685 | Fitzgeralds Gaming Corp. (g) | 0 | ||||||
Chemicals: Major Diversified (2.7%) | ||||||||
72,050 | Bayer AG (ADR) (Germany) | 6,223,376 | ||||||
24,080 | Du Pont (E.I.) de Nemours & Co. | 1,054,945 | ||||||
7,278,321 | ||||||||
Computer Communications (0.6%) | ||||||||
75,880 | Cisco Systems, Inc. (a) | 1,668,601 | ||||||
Computer Peripherals (0.2%) | ||||||||
28,460 | EMC Corp. (a) | 427,185 | ||||||
Computer Processing Hardware (0.9%) | ||||||||
56,222 | Hewlett-Packard Co. | 2,518,746 | ||||||
Department Stores (0.5%) | ||||||||
66,600 | MACY’S Inc. | 1,252,746 | ||||||
Discount Stores (2.6%) | ||||||||
123,090 | Wal-Mart Stores, Inc. | 7,215,536 | ||||||
Drugstore Chains (0.0%) | ||||||||
88,130 | Rite Aid Corp. (a) | 112,806 | ||||||
See Notes to Financial Statements
11
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NUMBER OF | ||||||||
SHARES | VALUE | |||||||
Electric Utilities (3.7%) | ||||||||
103,580 | American Electric Power Co., Inc. | $ | 4,091,410 | |||||
16,458 | Entergy Corp. | 1,759,689 | ||||||
42,390 | FirstEnergy Corp. | 3,117,785 | ||||||
35,300 | NRG Energy, Inc. (a) | 1,281,037 | ||||||
10,249,921 | ||||||||
Electronics/Appliances (0.5%) | ||||||||
34,780 | Sony Corp. (ADR) (Japan) | 1,310,163 | ||||||
Finance/Rental/Leasing (0.5%) | ||||||||
30,279 | Capital One Financial Corp. | 1,267,479 | ||||||
Financial Conglomerates (4.2%) | ||||||||
140,013 | Citigroup, Inc. | 2,616,843 | ||||||
203,437 | JPMorgan Chase & Co. | 8,265,645 | ||||||
79,025 | Mizuho Financial Group, Inc. (ADR) (Japan) | 751,528 | ||||||
11,634,016 | ||||||||
Food: Major Diversified (2.5%) | ||||||||
16,069 | ConAgra Foods Inc. | 348,376 | ||||||
79,387 | Kraft Foods Inc. (Class A) | 2,526,094 | ||||||
146,410 | Unilever N.V. (NY Registered Shares) (Netherlands) | 4,057,021 | ||||||
6,931,491 | ||||||||
Food: Specialty/Candy (1.1%) | ||||||||
62,969 | Cadbury PLC (ADR) (United Kingdom) | 2,982,842 | ||||||
Home Improvement Chains (0.4%) | ||||||||
46,800 | Home Depot, Inc. (The) | 1,115,244 | ||||||
Household/Personal Care (1.4%) | ||||||||
31,870 | Estee Lauder Companies, Inc. (The) (Class A) | 1,405,467 | ||||||
16,530 | Kimberly-Clark Corp. | 955,930 | ||||||
21,500 | Procter & Gamble Co. (The) | 1,407,820 | ||||||
3,769,217 | ||||||||
Industrial Conglomerates (2.8%) | ||||||||
104,010 | General Electric Co. | 2,942,443 | ||||||
23,150 | Siemens AG (ADR) (Germany) | 2,809,947 | ||||||
40,627 | Tyco International Ltd. (ADR) (Bermuda) | 1,810,339 | ||||||
7,562,729 | ||||||||
Insurance Brokers/Services (2.2%) | ||||||||
209,486 | Marsh & McLennan Companies, Inc. | 5,917,980 | ||||||
See Notes to Financial Statements
12
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NUMBER OF | ||||||||
SHARES | VALUE | |||||||
Integrated Oil (3.3%) | ||||||||
23,300 | BP PLC (ADR) (United Kingdom) | $ | 1,431,552 | |||||
14,466 | ConocoPhillips | 1,180,715 | ||||||
29,640 | Exxon Mobil Corp. | 2,383,945 | ||||||
58,000 | Royal Dutch Shell PLC (ADR) (Class A) (United Kingdom) | 4,105,820 | ||||||
9,102,032 | ||||||||
Investment Banks/Brokers (1.4%) | ||||||||
58,215 | Merrill Lynch & Co., Inc. | 1,551,430 | ||||||
100,960 | Schwab (Charles) Corp. (The) | 2,310,974 | ||||||
3,862,404 | ||||||||
Investment Trusts/Mutual Funds (1.2%) | ||||||||
156,222 | Financial Select Sector SPDR Fund (ETF) | 3,379,082 | ||||||
Life/Health Insurance (0.4%) | ||||||||
93,148 | Aegon N.V. (NY Registered Shares) (Netherlands) | 1,087,969 | ||||||
Major Banks (3.0%) | ||||||||
77,619 | Bank of America Corp. | 2,553,665 | ||||||
42,301 | Mitsubishi UFJ Financial Group, Inc. (ADR) (Japan) | 371,403 | ||||||
46,966 | PNC Financial Services Group | 3,348,206 | ||||||
100 | Sumitomo Mitsui Financial Group, Inc. | 770,450 | ||||||
29,605 | SunTrust Banks, Inc. | 1,215,581 | ||||||
8,259,305 | ||||||||
Major Telecommunications (1.6%) | ||||||||
129,647 | Verizon Communications, Inc. | 4,413,184 | ||||||
Media Conglomerates (3.2%) | ||||||||
349,060 | Time Warner, Inc. | 4,998,539 | ||||||
131,586 | Viacom Inc. (Class B) (a) | 3,675,197 | ||||||
8,673,736 | ||||||||
Medical Distributors (0.3%) | ||||||||
13,000 | Cardinal Health, Inc. | 698,490 | ||||||
Medical Specialties (1.3%) | ||||||||
128,440 | Boston Scientific Corp. (a) | 1,527,152 | ||||||
41,407 | Covidien Ltd. | 2,038,881 | ||||||
3,566,033 | ||||||||
Motor Vehicles (0.3%) | ||||||||
24,963 | Harley-Davidson, Inc. | 944,600 | ||||||
Multi-Line Insurance (0.5%) | ||||||||
21,475 | Hartford Financial Services Group, Inc. (The) | 1,361,300 | ||||||
Oil & Gas Pipelines (0.3%) | ||||||||
25,470 | Williams Companies, Inc. (The) | 816,314 | ||||||
See Notes to Financial Statements
13
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NUMBER OF | ||||||||
SHARES | VALUE | |||||||
Oil & Gas Production (1.7%) | ||||||||
13,370 | Devon Energy Corp. | $ | 1,268,679 | |||||
42,360 | Occidental Petroleum Corp. | 3,339,239 | ||||||
4,607,918 | ||||||||
Oilfield Services/Equipment (0.4%) | ||||||||
11,920 | Schlumberger Ltd. (ADR) (Netherlands Antilles) | 1,211,072 | ||||||
Other Consumer Services (1.0%) | ||||||||
111,140 | eBay Inc. (a) | 2,797,394 | ||||||
Packaged Software (0.6%) | ||||||||
28,830 | Oracle Corp. (a) | 620,710 | ||||||
47,977 | Symantec Corp. (a) | 1,010,875 | ||||||
1,631,585 | ||||||||
Pharmaceuticals: Major (7.3%) | ||||||||
71,240 | Abbott Laboratories | 4,013,662 | ||||||
145,110 | Bristol-Myers Squibb Co. | 3,064,723 | ||||||
51,450 | Novartis AG (ADR) (Switzerland) | 3,053,558 | ||||||
33,720 | Roche Holdings Ltd. (ADR) (Switzerland) | 3,113,199 | ||||||
227,510 | Schering-Plough Corp. | 4,795,911 | ||||||
46,730 | Wyeth | 1,893,500 | ||||||
19,934,553 | ||||||||
Precious Metals (0.6%) | ||||||||
36,790 | Newmont Mining Corp. | 1,764,448 | ||||||
Property – Casualty Insurers (2.1%) | ||||||||
55,601 | Chubb Corp. (The) | 2,671,072 | ||||||
71,253 | St. Paul Travelers Companies, Inc. (The) | 3,143,682 | ||||||
5,814,754 | ||||||||
Restaurants (0.5%) | ||||||||
87,080 | Starbucks Corp. (a) | 1,279,205 | ||||||
Semiconductors (0.7%) | ||||||||
81,226 | Intel Corp. | 1,802,405 | ||||||
Specialty Stores (0.1%) | ||||||||
57,532 | Office Depot, Inc. (a) | 391,218 | ||||||
Telecommunication Equipment (0.8%) | ||||||||
342,120 | Alcatel-Lucent (ADR) (France) | 2,056,141 | ||||||
Tobacco (1.2%) | ||||||||
49,520 | Altria Group, Inc. | 1,007,732 | ||||||
42,720 | Philip Morris International Inc. | 2,206,485 | ||||||
3,214,217 | ||||||||
Total Common Stocks (Cost $184,679,573) | 176,182,833 | |||||||
See Notes to Financial Statements
14
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NUMBER OF | ||||||||
SHARES | VALUE | |||||||
Convertible Preferred Stocks (1.2%) | ||||||||
Financial Conglomerates (0.5%) | ||||||||
30,500 | Citigroup Inc. (Series T) $3.25 | $ | 1,349,320 | |||||
Major Banks (0.7%) | ||||||||
1,500 | Bank of America Corp. (Series L) $72.50 | 1,399,500 | ||||||
715 | Wachovia Corp. Class A (Series L) $75.00 | 633,332 | ||||||
2,032,832 | ||||||||
Total Convertible Perferred Stocks (Cost $3,996,420) | 3,382,152 | |||||||
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | |||||||||||||
Corporate Bonds (13.2%) | |||||||||||||||
Accident & Health Insurance (0.0%) | |||||||||||||||
$ | 115 | Travelers Companies, Inc. (The) | 5 | .80 | % | 05/15/18 | 112,121 | ||||||||
Aerospace & Defense (0.1%) | |||||||||||||||
342 | Systems 2001 Asset Trust – 144A (Cayman Islands) (b) | 6 | .664 | 09/15/13 | 349,194 | ||||||||||
Agricultural Commodities/Milling (0.1%) | |||||||||||||||
160 | Archer-Daniels-Midland Co. | 5 | .45 | 03/15/18 | 154,706 | ||||||||||
Airlines (0.1%) | |||||||||||||||
415 | America West Airlines, Inc. (Series 01-1) | 7 | .10 | 04/02/21 | 366,833 | ||||||||||
Beverages: Alcoholic (0.3%) | |||||||||||||||
250 | FBG Finance Ltd.-144A (Australia) (b) | 5 | .125 | 06/15/15 | 232,423 | ||||||||||
440 | Miller Brewing Co. – 144A (b) | 4 | .25 | 08/15/08 | 440,157 | ||||||||||
672,580 | |||||||||||||||
Biotechnology (0.1%) | |||||||||||||||
205 | Amgen Inc. | 5 | .85 | 06/01/17 | 205,610 | ||||||||||
165 | Biogen Idec Inc. | 6 | .875 | 03/01/18 | 167,529 | ||||||||||
373,139 | |||||||||||||||
Broadcasting (0.1%) | |||||||||||||||
200 | Grupo elevisa S.A. – 144A (Mexico) (b) | 6 | .00 | 05/15/18 | 195,073 | ||||||||||
Cable/Satellite TV (0.2%) | |||||||||||||||
75 | Comcast Cable Communications, Inc. | 6 | .75 | 01/30/11 | 77,628 | ||||||||||
395 | Comcast Corp. | 5 | .70 | 05/15/18 | 375,473 | ||||||||||
453,101 | |||||||||||||||
Chemicals: Agricultural (0.0%) | |||||||||||||||
45 | Monsanto Co. | 5 | .125 | 04/15/18 | 44,055 | ||||||||||
See Notes to Financial Statements
15
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
Chemicals: Major Diversified (0.1%) | |||||||||||||||
$ | 95 | E.I. du Pont de Nemours & Co. | 6 | .00 | % | 07/15/18 | $ | 96,314 | |||||||
240 | ICI Wilmington Inc. | 4 | .375 | 12/01/08 | 240,178 | ||||||||||
336,492 | |||||||||||||||
Computer Processing Hardware (0.1%) | |||||||||||||||
190 | Dell Inc – 144A (b) | 5 | .65 | 04/15/18 | 185,487 | ||||||||||
75 | Hewlett-Packard Co. | 5 | .50 | 03/01/18 | 73,820 | ||||||||||
259,307 | |||||||||||||||
Department Stores (0.2%) | |||||||||||||||
50 | Federated Department Stores, Inc. | 6 | .625 | 09/01/08 | 50,034 | ||||||||||
480 | General Electric Capital Corp. | 5 | .625 | 05/01/18 | 467,671 | ||||||||||
80 | May Department Stores Co. | 5 | .95 | 11/01/08 | 79,981 | ||||||||||
597,686 | |||||||||||||||
Discount Stores (0.1%) | |||||||||||||||
260 | Wal-Mart Stores, Inc. | 4 | .25 | 04/15/13 | 258,884 | ||||||||||
Diversified Manufacturing (0.1%) | |||||||||||||||
380 | Tyco Electronics Group S.A. (Luxembourg) | 5 | .95 | 01/15/14 | 377,237 | ||||||||||
Drugstore Chains (0.2%) | |||||||||||||||
50 | CVS Caremark Corp. | 5 | .75 | 06/01/17 | 48,965 | ||||||||||
110 | CVS Corp. | 5 | .75 | 08/15/11 | 112,885 | ||||||||||
289 | CVS Lease Pass Through – 144A (b) | 6 | .036 | 12/10/28 | 269,254 | ||||||||||
85 | Walgreen Co. | 4 | .875 | 08/01/13 | 84,921 | ||||||||||
516,025 | |||||||||||||||
Electric Utilities (1.2%) | |||||||||||||||
320 | Arizona Public Service Co. | 5 | .80 | 06/30/14 | 305,285 | ||||||||||
360 | Carolina Power & Light Co. | 5 | .125 | 09/15/13 | 364,448 | ||||||||||
95 | CenterPoint Energy Resources, Corp. | 6 | .25 | 02/01/37 | 84,125 | ||||||||||
55 | CenterPoint Energy Resources, Corp. (Series B) | 7 | .875 | 04/01/13 | 58,903 | ||||||||||
125 | Consolidated Natural Gas Co. (Series C) | 6 | .25 | 11/01/11 | 129,426 | ||||||||||
200 | Consumers Energy Co. (Series H) | 4 | .80 | 02/17/09 | 200,555 | ||||||||||
165 | Detroit Edison Co. (The) | 6 | .125 | 10/01/10 | 170,901 | ||||||||||
310 | E.ON International Finance BV – 144A (Netherlands) (b) | 5 | .80 | 04/30/18 | 305,087 | ||||||||||
285 | Entergy Gulf States, Inc. | 3 | .082(e) | 12/01/09 | 282,287 | ||||||||||
210 | Israel Electric Corp. Ltd. – 144A (Israel) (b) | 7 | .25 | 01/15/19 | 208,383 | ||||||||||
120 | Ohio Edison Co. | 6 | .40 | 07/15/16 | 117,760 | ||||||||||
330 | Ohio Power Company (Series K) | 6 | .00 | 06/01/16 | 324,802 | ||||||||||
105 | Peco Energy Co. | 5 | .35 | 03/01/18 | 102,949 | ||||||||||
95 | PPL Energy Supply L.L.C. | 6 | .30 | 07/15/13 | 95,403 | ||||||||||
205 | Public Service Electric & Gas Co. (Series B) | 5 | .00 | 01/01/13 | 206,618 |
See Notes to Financial Statements
16
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
$ | 140 | Texas Eastern Transmission | 7 | .00 | % | 07/15/32 | $ | 134,737 | |||||||
110 | Union Electric Co. | 6 | .70 | 02/01/19 | 111,187 | ||||||||||
3,202,856 | |||||||||||||||
Electrical Products (0.1%) | |||||||||||||||
340 | Cooper Industries, Inc. | 5 | .25 | 11/15/12 | 341,975 | ||||||||||
Electronic Components (0.1%) | |||||||||||||||
245 | Phillps Electronic N.V. (Netherlands) | 5 | .75 | 03/11/18 | 242,390 | ||||||||||
Electronic Equipment/Instruments (0.1%) | |||||||||||||||
135 | Xerox Corp. | 6 | .35 | 05/15/18 | 130,825 | ||||||||||
Electronic Production Equipment (0.1%) | |||||||||||||||
175 | KLA-Tencor Corp. | 6 | .90 | 05/01/18 | 171,284 | ||||||||||
Electronics/Appliances (0.1%) | |||||||||||||||
150 | LG Electronics Inc. – 144A (South Korea) (b) | 5 | .00 | 06/17/10 | 148,324 | ||||||||||
Finance (0.0%) | |||||||||||||||
100 | Pearson Dollar Finance Two PLC – 144A (United Kingdom) (b) | 6 | .25 | 05/06/18 | 97,457 | ||||||||||
Finance/Rental/Leasing (0.2%) | |||||||||||||||
290 | CIT Group Inc. (Series MTN) | 4 | .75 | 08/15/08 | 289,586 | ||||||||||
385 | Nationwide Building Society – 144A (United Kingdom) (b) | 4 | .25 | 02/01/10 | 379,295 | ||||||||||
668,881 | |||||||||||||||
Financial Conglomerates (0.8%) | |||||||||||||||
1,000 | Associates Corp. of North America | 6 | .25 | 11/01/08 | 1,006,136 | ||||||||||
55 | Bank One Corp. (Series A) | 6 | .00 | 02/17/09 | 55,269 | ||||||||||
55 | Brookfield Asset Management Inc. (Canada) | 5 | .80 | 04/25/17 | 49,228 | ||||||||||
215 | Citigroup Inc. | 5 | .875 | 05/29/37 | 178,654 | ||||||||||
285 | Citigroup Inc. | 6 | .125 | 11/21/17 | 273,651 | ||||||||||
140 | Citigroup Inc. | 6 | .125 | 05/15/18 | 134,237 | ||||||||||
265 | JPMorgan Chase & Co. | 4 | .75 | 05/01/13 | 255,794 | ||||||||||
100 | JPMorgan Chase & Co. | 6 | .00 | 01/15/18 | 97,196 | ||||||||||
80 | Prudential Financial, Inc. | 6 | .625 | 12/01/37 | 74,541 | ||||||||||
2,124,706 | |||||||||||||||
Food Retail (0.1%) | |||||||||||||||
45 | Delhaize America, Inc. | 9 | .00 | 04/15/31 | 51,836 | ||||||||||
90 | Kroger Co. (The) | 5 | .00 | 04/15/13 | 88,533 | ||||||||||
20 | Kroger Co. (The) | 6 | .40 | 08/15/17 | 20,474 | ||||||||||
160,843 | |||||||||||||||
Food: Major Diversified (0.2%) | |||||||||||||||
170 | ConAgra Foods, Inc. | 7 | .00 | 10/01/28 | 165,774 |
See Notes to Financial Statements
17
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
$ | 55 | ConAgra Foods, Inc. | 8 | .25 | % | 09/15/30 | $ | 60,976 | |||||||
65 | General Mills, Inc. | 5 | .25 | 08/15/13 | 64,860 | ||||||||||
235 | Draft Foods Inc. | 6 | .125 | 08/23/18 | 229,557 | ||||||||||
521,167 | |||||||||||||||
Foods & Beverages (0.0%) | |||||||||||||||
85 | Dr Pepper Snapple Group, Inc. – 144A (b) | 6 | .82 | 05/01/18 | 85,618 | ||||||||||
Gas Distributors (0.2%) | |||||||||||||||
55 | Equitable Resources, Inc. | 6 | .50 | 04/01/18 | 55,166 | ||||||||||
260 | NiSource Finance Corp. | 3 | .208(e) | 11/23/09 | 252,899 | ||||||||||
120 | NiSource Finance Corp. | 6 | .80 | 01/15/19 | 117,019 | ||||||||||
170 | Questar Market Resources, Inc. | 6 | .80 | 04/01/18 | 169,941 | ||||||||||
595,025 | |||||||||||||||
Home Improvement Chains (0.2%) | |||||||||||||||
460 | Home Depot, Inc. (The) | 2 | .901(e) | 12/16/09 | 450,733 | ||||||||||
155 | Home Depot, Inc. (The) | 5 | .40 | 03/01/16 | 141,874 | ||||||||||
592,607 | |||||||||||||||
Hotels/Resorts/Cruiselines (0.1%) | |||||||||||||||
140 | Starwood Hotels & Resorts Worldwide, Inc. | 6 | .75 | 05/15/18 | 126,887 | ||||||||||
Industrial Conglomerates (0.5%) | |||||||||||||||
975 | General Electric Co. | 5 | .25 | 12/06/17 | 946,308 | ||||||||||
150 | Honeywell International Inc. | 5 | .30 | 03/01/18 | 146,748 | ||||||||||
180 | Textron Financial Corp. (Series MTN) | 5 | .125 | 02/03/11 | 179,861 | ||||||||||
1,272,917 | |||||||||||||||
Industrial Machinery (0.0%) | |||||||||||||||
130 | Parker Hannifin Corp. (Series MTN) | 5 | .50 | 05/15/18 | 130,176 | ||||||||||
Industrial Specialties (0.1%) | |||||||||||||||
140 | Cox Communications, Inc. – 144A (b) | 6 | .25 | 06/01/18 | 138,122 | ||||||||||
Insurance Brokers/Services (0.2%) | |||||||||||||||
700 | Farmers Exchange Capital – 144A (b) | 7 | .05 | 07/15/28 | 576,950 | ||||||||||
Integrated Oil (0.2%) | |||||||||||||||
280 | ConcoPhillips | 5 | .20 | 05/15/18 | 277,121 | ||||||||||
160 | Marathon Oil Corp. | 6 | .00 | 10/01/17 | 158,268 | ||||||||||
135 | Petro-Canada (Canada) | 6 | .05 | 05/15/18 | 132,683 | ||||||||||
568,072 | |||||||||||||||
Investment Banks/Brokers (0.7%) | |||||||||||||||
190 | Bear Stearns Companies, Inc. (The) | 6 | .40 | 10/02/17 | 186,393 | ||||||||||
205 | Bear Stearns Companies, Inc. (The) | 7 | .25 | 02/01/18 | 213,471 | ||||||||||
245 | Goldman Sachs Group, Inc. (The) | 6 | .15 | 04/01/18 | 236,431 | ||||||||||
530 | Goldman Sachs Group, Inc. (The) | 6 | .75 | 10/01/37 | 469,820 |
See Notes to Financial Statements
18
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
$ | 105 | Lehman Brothers Holdings, Inc. | 5 | .75 | % | 01/03/17 | $ | 90,666 | |||||||
210 | Lehman Brothers Holdings, Inc. | 6 | .50 | 07/19/17 | 189,862 | ||||||||||
470 | Lehman Brothers Holdings, Inc. | 6 | .875 | 07/17/37 | 390,579 | ||||||||||
210 | NYSE Euronext | 4 | .80 | 06/28/13 | 207,934 | ||||||||||
1,985,156 | |||||||||||||||
Major Banks (1.3%) | |||||||||||||||
390 | Bank of America Corp. | 5 | .65 | 05/01/18 | 364,711 | ||||||||||
185 | Bank of America Corp. | 5 | .75 | 12/01/17 | 173,891 | ||||||||||
130 | Bank of New York Mellon Corp. (Series MTN) | 4 | .50 | 04/01/13 | 125,222 | ||||||||||
425 | Credit Suisse New York | 6 | .00 | 02/15/18 | 407,654 | ||||||||||
225 | HBOS PLC – 144A (United Kingdom) (b) | 6 | .75 | 05/21/18 | 203,202 | ||||||||||
225 | HSBC Finance Corp. | 6 | .75 | 05/15/11 | 233,742 | ||||||||||
250 | Huntington National Bank (Series T) | 4 | .375 | 01/15/10 | 237,972 | ||||||||||
175 | Popular North America, Inc. (Series F) | 5 | .65 | 04/15/09 | 173,169 | ||||||||||
585 | Unicredit Luxembourg Finance S.A. – 144A (Luxembourg) (b) | 2 | .846 | 10/24/08 | 584,710 | ||||||||||
575 | Wachoiva Corp. (Series MTN) | 5 | .50 | 05/01/13 | 531,433 | ||||||||||
420 | Wells Fargo & Co. | 5 | .625 | 12/11/17 | 401,001 | ||||||||||
3,436,707 | |||||||||||||||
Major Telecommunications (0.9%) | |||||||||||||||
65 | AT&T Corp. | 8 | .00 | 11/15/31 | 74,033 | ||||||||||
385 | AT&T Inc. | 6 | .30 | 01/15/38 | 363,369 | ||||||||||
120 | Deutsche Telekom International Finance Corp. NV (Netherlands) | 8 | .25 | 06/15/30 | 133,878 | ||||||||||
265 | France Telecom S.A. (France) | 8 | .50 | 03/01/31 | 314,473 | ||||||||||
230 | SBC Communications, Inc. | 6 | .15 | 09/15/34 | 213,651 | ||||||||||
200 | Telecom Italia Capital SA (Luxembourg) | 4 | .00 | 01/15/10 | 197,064 | ||||||||||
210 | Telecom Italia Capital SA (Luxembourg) | 4 | .00 | 11/15/08 | 210,000 | ||||||||||
80 | Telecom Italia Capital SA (Luxembourg) | 4 | .95 | 09/30/14 | 73,383 | ||||||||||
85 | Telecom Italia Capital SA (Luxembourg) | 6 | .999 | 06/04/18 | 84,649 | ||||||||||
260 | Telefonica Europe BV (Netherlands) | 8 | .25 | 09/15/30 | 295,264 | ||||||||||
230 | Verzon Communications Inc. | 5 | .50 | 02/15/18 | 220,358 | ||||||||||
400 | Verizon New England Inc. | 6 | .50 | 09/15/11 | 410,714 | ||||||||||
2,590,836 | |||||||||||||||
Managed Health Care (0.0%) | |||||||||||||||
140 | Unitedhealth Group Inc. | 6 | .00 | 02/15/18 | 134,172 | ||||||||||
Media Conglomerates (0.4%) | |||||||||||||||
140 | Time Warner Cable, Inc. | 6 | .75 | 07/01/18 | 141,437 | ||||||||||
355 | Time Warner, Inc. | 2 | .915(e) | 11/13/09 | 347,000 | ||||||||||
95 | Time Warner, Inc. | 5 | .875 | 11/15/16 | 89,175 |
See Notes to Financial Statements
19
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
$ | 245 | Viacom, Inc. | 6 | .875 | % | 04/30/36 | $ | 221,142 | |||||||
240 | Vivendi – 144A (France) (b) | 6 | .625 | 04/04/18 | 234,448 | ||||||||||
1,033,202 | |||||||||||||||
Medical Specialties (0.2%) | |||||||||||||||
110 | Baxter International Inc. | 4 | .625 | 03/15/15 | 105,992 | ||||||||||
135 | Baxter International Inc. | 5 | .375 | 06/01/18 | 132,964 | ||||||||||
180 | Covidien International Finance SA – 144A (Luxembourg) (b) | 6 | .00 | 10/15/17 | 180,410 | ||||||||||
419,366 | |||||||||||||||
Motor Vehicles (0.1%) | |||||||||||||||
175 | DaimlerChryster North American Holdings Co. | 8 | .50 | 01/18/31 | 187,778 | ||||||||||
140 | Harley-Davidson Funding Corp. – 144A (b) | 6 | .80 | 06/15/18 | 135,541 | ||||||||||
323,319 | |||||||||||||||
Multi-Line Insurance (0.3%) | |||||||||||||||
590 | AIG SunAmerica Global Financing VI – 144A (b) | 6 | .30 | 05/10/11 | 588,240 | ||||||||||
20 | American General Finance Corp. (Series I) | 4 | .625 | 05/15/09 | 19,697 | ||||||||||
290 | American General Finance Corp. (Series H) | 4 | .625 | 09/01/10 | 271,281 | ||||||||||
879,218 | |||||||||||||||
Oil & Gas Pipelines (0.2%) | |||||||||||||||
100 | Gaz Capital S.A. – 144A (Luxembourg) (b) | 6 | .51 | 03/07/22 | 88,400 | ||||||||||
115 | Kinder Morgan Energy Partners. L.P. | 5 | .95 | 02/15/18 | 112,106 | ||||||||||
290 | Plains All American Pipeline LP/PAA Finance Corp. | 6 | .70 | 05/15/36 | 270,837 | ||||||||||
471,343 | |||||||||||||||
Oil & Gas Production (0.1%) | |||||||||||||||
220 | XTO Energy, Inc. | 5 | .50 | 06/15/18 | 206,354 | ||||||||||
Oil Refining/Marketing (0.1%) | |||||||||||||||
90 | Marathon Oil Corp. | 5 | .90 | 03/15/18 | 87,711 | ||||||||||
245 | Valero Energy Corp. | 3 | .50 | 04/01/09 | 244,527 | ||||||||||
332,238 | |||||||||||||||
Oilfield Services/Equipment (0.0%) | |||||||||||||||
120 | Wealtherford International Ltd. (Bermuda) | 6 | .00 | 03/15/18 | 118,657 | ||||||||||
Other Metals/Minerals (0.2%) | |||||||||||||||
405 | Brascan Corp. (Canada) | 7 | .125 | 06/15/12 | 410,067 | ||||||||||
180 | Rio Tinto Finance Ltd. (Australia) | 6 | .50 | 07/15/18 | 180,827 | ||||||||||
590,894 | |||||||||||||||
Packaged Software (0.1%) | |||||||||||||||
245 | Oracle Corp. | 5 | .75 | 04/15/18 | 244,884 | ||||||||||
See Notes to Financial Statements
20
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
Pharmaceuticals: Major (0.3%) | |||||||||||||||
$ | 165 | AstraSeneca PLC (United Kingdom) | 5 | .90 | % | 09/15/17 | $ | 169,955 | |||||||
275 | Bristol-Myers Squibb Co. | 5 | .45 | 05/01/18 | 271,808 | ||||||||||
255 | GlaxoSmithKline Capital Inc. | 5 | .65 | 05/15/18 | 255,449 | ||||||||||
100 | Wyeth | 5 | .45 | 04/01/17 | 99,890 | ||||||||||
35 | Wyeth | 5 | .50 | 02/15/16 | 35,040 | ||||||||||
832,142 | |||||||||||||||
Property-Casualty Insurers (0.7%) | |||||||||||||||
135 | ACE INA Holdings Inc. | 5 | .60 | 05/15/15 | 131,299 | ||||||||||
370 | Berkshire Hathaway Finance Corp. – 144A (b) | 5 | .40 | 05/15/18 | 364,488 | ||||||||||
35 | Chubb Corp. | 5 | .75 | 05/15/18 | 33,727 | ||||||||||
660 | Mantis Reef Ltd. – 144A (Cayman Islands) (b) | 4 | .692 | 11/14/08 | 658,227 | ||||||||||
135 | Platinum Underwriters Finance Inc. (Series B) | 7 | .50 | 06/01/17 | 127,072 | ||||||||||
630 | Xlliac Global Funding – 144A (b) | 4 | .80 | 08/10/10 | 609,780 | ||||||||||
1,924,593 | |||||||||||||||
Railroads (0.1%) | |||||||||||||||
210 | Burlington Santa Fe Corp. | 6 | .125 | 03/15/09 | 211,720 | ||||||||||
40 | Canadian National Railway Co. (Canada) | 5 | .55 | 05/15/18 | 39,095 | ||||||||||
100 | Korea Railroad Corp. – 144A (Korea) (b) | 5 | .375 | 05/15/13 | 99,067 | ||||||||||
349,882 | |||||||||||||||
Real Estate Development (0.3%) | |||||||||||||||
526 | World Financial Properties – 144A (b) | 6 | .91 | 09/01/13 | 521,475 | ||||||||||
284 | World Financial Properties – 144A (b) | 6 | .95 | 09/01/13 | 280,256 | ||||||||||
801,731 | |||||||||||||||
Real Estate Investment Trusts (0.1%) | |||||||||||||||
180 | iStar Financial Inc. | 3 | .027(e) | 03/09/10 | 141,370 | ||||||||||
55 | Prologis | 6 | .625 | 05/15/18 | 51,178 | ||||||||||
192,548 | |||||||||||||||
Restaurants (0.1%) | |||||||||||||||
255 | Tricon Global Restaurants, Inc. | 8 | .875 | 04/15/11 | 274,616 | ||||||||||
Savings Banks (0.4%) | |||||||||||||||
60 | Household Finance Corp. | 4 | .125 | 12/15/08 | 59,947 | ||||||||||
175 | Household Finance Corp. | 5 | .875 | 02/01/09 | 176,175 | ||||||||||
135 | Household Finance Corp. | 6 | .375 | 10/15/11 | 138,337 | ||||||||||
580 | Sovereign Bancorp, Inc. | 3 | .031(e) | 03/23/10 | 488,916 | ||||||||||
290 | Washington Mutual Bank | 5 | .50 | 01/15/13 | 200,281 | ||||||||||
225 | Washington Mutual Inc. | 8 | .25 | 04/01/10 | 146,298 | ||||||||||
1,209,954 | |||||||||||||||
See Notes to Financial Statements
21
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
Services to the Health Industry (0.1%) | |||||||||||||||
$ | 145 | Medco Health Solutions Inc. | 7 | .125 | % | 03/15/18 | $ | 148,734 | |||||||
Specialty Steels (0.0%) | |||||||||||||||
110 | GTL Trade Finance Inc. – 144A (Virgin Islands) (b) | 7 | .25 | 10/20/17 | 109,720 | ||||||||||
Steel (0.1%) | |||||||||||||||
170 | ArcelorMittal – 144A (Luxembourg) (b) | 6 | .125 | 06/01/18 | 163,547 | ||||||||||
Tobacco (0.1%) | |||||||||||||||
240 | Philip Morris International Inc. | 5 | .65 | 05/16/18 | 232,879 | ||||||||||
Wireless Telecommunications (0.0%) | |||||||||||||||
80 | Vodafone Group PLC | 5 | .625 | 02/27/17 | 76,946 | ||||||||||
Total Corporate Bonds (Cost $37,351,874) | 36,047,153 | ||||||||||||||
U.S. Government Agency & Obligation (2.7%) | |||||||||||||||
550 | Federal Home Loan Mortgage Corp. | 5 | .125 | 11/17/17 | 571,103 | ||||||||||
6,250 | U.S. Treasury Bond | 5 | .375 | 02/15/31 | 6,869,631 | ||||||||||
Total U.S. Government Agency & Obligation (Cost $7,470,317) | 7,440,734 | ||||||||||||||
Foreign Government Obligation (0.3%) | |||||||||||||||
565 | Federation Republic of Brazil (Brazil) (Cost $576,855) | 6 | .00 | 01/17/17 | 578,560 | ||||||||||
Mortgage-Backed Securities (8.1%) | |||||||||||||||
27 | Federal Home Loan Mortgage Corp. | 7 | .50 | 06/01/11-08/01/11 | 28,216 | ||||||||||
Federal Home Loan Mortgage Corp. Gold | |||||||||||||||
115 | 6 | .50 | 01/01/31 | 119,508 | |||||||||||
232 | 7 | .50 | 10/01/29-06/01/32 | 249,492 | |||||||||||
Federal National Mortgage Assoc. | |||||||||||||||
523 | 6 | .50 | 07/01/32-08/01/32 | 540,743 | |||||||||||
1,820 | 7 | .00 | 07/01/18-11/01/34 | 1,921,675 | |||||||||||
450 | 7 | .00 | (c) | 469,037 | |||||||||||
1,403 | 7 | .50 | 08/01/23-09/01/35 | 1,510,501 | |||||||||||
457 | 8 | .00 | 05/01/24-02/01/32 | 494,162 | |||||||||||
9 | .50 | 12/01/20 | 7,181 | ||||||||||||
49 | Federal National Mortgage Assoc. Dwarfs | 7 | .00 | 07/01/11-06/01/12 | 51,928 | ||||||||||
Federal National Mortgage Assoc. (ARM) | |||||||||||||||
2,110 | 5 | .766 | 01/01/36 | 2,162,076 | |||||||||||
2,047 | 5 | .772 | 01/01/36 | 2,097,145 | |||||||||||
945 | 5 | .783 | 03/01/36 | 966,312 | |||||||||||
1,007 | 5 | .819 | 12/01/35 | 1,033,453 | |||||||||||
1,034 | 5 | .832 | 10/01/35 | 1,060,524 | |||||||||||
864 | 5 | .833 | 11/01/35 | 886,910 | |||||||||||
806 | 5 | .872 | 03/01/36 | 824,666 | |||||||||||
957 | 6 | .232 | 05/01/36 | 970,487 | |||||||||||
904 | 6 | .247 | 05/01/36 | 914,974 |
See Notes to Financial Statements
22
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
$ | 2,042 | 6 | .248 | % | 04/01/36 | $ | 2,082,944 | ||||||||
746 | 6 | .257 | 05/01/36 | 761,741 | |||||||||||
956 | 6 | .286 | 07/01/36 | 966,342 | |||||||||||
634 | 6 | .291 | 07/01/36 | 642,178 | |||||||||||
1,236 | 6 | .302 | 04/01/36 | 1,252,746 | |||||||||||
General National Mortgage Assoc. | |||||||||||||||
92 | 7 | .50 | 08/15/23-06/15/27 | 98,482 | |||||||||||
86 | 8 | .00 | 04/15/26-08/15/26 | 93,751 | |||||||||||
Total Mortgage-Backed Securities (Cost $22,258,020) | 22,207,174 | ||||||||||||||
Asset-Backed Securities (2.4%) | |||||||||||||||
Capital Auto Receivables Asset Trust | |||||||||||||||
834 | 2006-2 A3A | 4 | .98 | 05/15/11 | 843,483 | ||||||||||
121 | 2006-SN1A A3-144A (b) | 5 | .31 | 10/20/09 | 120,771 | ||||||||||
875 | 2007-SN1 A3B | 2 | .531 | 07/15/10 | 871,923 | ||||||||||
Caterpillar Financial Asset Trust | |||||||||||||||
142 | 2006-A A3 | 5 | .57 | 05/25/10 | 143,533 | ||||||||||
Citibank Credit Card Issuance Trust | |||||||||||||||
825 | 2007-A1 A1 | 2 | .791 | 03/22/12 | 815,409 | ||||||||||
CNH Equipment Trust | |||||||||||||||
96 | 2005-B A3 | 4 | .27 | 01/15/10 | 96,462 | ||||||||||
Ford Credit Auto Owner Trust | |||||||||||||||
199 | 2006-A A3 | 5 | .05 | 03/15/10 | 200,117 | ||||||||||
GE Equipment Small Ticket LLC | |||||||||||||||
211 | 2005-2A A3-144A (b) | 4 | .88 | 10/22/09 | 211,085 | ||||||||||
GS Auto Loan Trust | |||||||||||||||
164 | 2006-1 A3 | 5 | .37 | 12/15/10 | 165,341 | ||||||||||
Harley-Davidson Motorcycle Trust | |||||||||||||||
788 | 2005-1 A2 | 3 | .76 | 12/17/12 | 790,604 | ||||||||||
542 | 2005-2 A2 | 4 | .07 | 02/15/12 | 545,175 | ||||||||||
119 | 2005-3 A2 | 4 | .41 | 06/15/12 | 120,160 | ||||||||||
Hertz Vehicle Financing LLC | |||||||||||||||
650 | 2005-2A A2-144A (b) | 4 | .93 | 02/25/10 | 648,485 | ||||||||||
Honda Auto Receivables Owner Trust | |||||||||||||||
172 | 2005-6 A3 | 4 | .85 | 10/19/09 | 172,865 | ||||||||||
Hyundai Auto Receivables Trust | |||||||||||||||
54 | 2005-A A3 | 3 | .98 | 11/16/09 | 54,276 | ||||||||||
MBNA Master Credit Card Trust | |||||||||||||||
290 | 1999-B A | 5 | .90 | 08/15/11 | 294,688 | ||||||||||
National City Auto Receivables Trust | |||||||||||||||
167 | 2004-A A4 | 2 | .88 | 05/15/11 | 167,505 | ||||||||||
Nissan Auto Receivables Owner Trust | |||||||||||||||
39 | 2005-B A3 | 3 | .99 | 07/15/09 | 39,262 |
See Notes to Financial Statements
23
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
TXU Electric Delivery Transition Bond Co. LLC | |||||||||||||||
$ | 250 | 2004-1 A2 | 4 | .81 | % | 11/17/14 | $ | 248,825 | |||||||
Volkswagen Auto Loan Enhanced Trust | |||||||||||||||
4 | 2005-1 A3 | 4 | .80 | 07/20/09 | 4,436 | ||||||||||
Wachovia Auto Owner Trust | |||||||||||||||
12 | 2005-B A3 | 4 | .79 | 04/20/10 | 12,253 | ||||||||||
Total Asset-Backed Securities (Cost $6,548,245) | 6,566,658 | ||||||||||||||
Collateralized Mortgage Obligations (3.2%) | |||||||||||||||
U.S. Government Agencies (1.3%) | |||||||||||||||
Federal Home Loan Mortgage Corp. | |||||||||||||||
536 | Whole Loan 2005-S001 2A2 | 2 | .611(e) | 09/25/45 | 527,465 | ||||||||||
Federal National Mortgage Assoc. | |||||||||||||||
2,142 | 2005-68 XI (IO) | 6 | .00 | 08/25/35 | 701,222 | ||||||||||
960 | 2006-118 A2 | 2 | .521(e) | 12/25/36 | 924,055 | ||||||||||
779 | 2006-28 1A1 | 2 | .571(e) | 03/25/36 | 761,294 | ||||||||||
8,465 | 2006-59 IP (IO) | 3 | .469(e) | 07/25/36 | 338,606 | ||||||||||
9,104 | 2006-28 1P (IO) | 4 | .248(e) | 03/25/36 | 221,916 | ||||||||||
3,474,558 | |||||||||||||||
Private Issues (1.9%) | |||||||||||||||
Adjustable Rate Mortgage Trust | |||||||||||||||
502 | 2005- 6A 2A1 | 2 | .771(e) | 11/25/35 | 326,890 | ||||||||||
Alliance Bancorp trust | |||||||||||||||
683 | 2007-OA1 A1 | 2 | .701(e) | 07/25/37 | 450,152 | ||||||||||
American Home Mortgage Investment Trust | |||||||||||||||
811 | 2007-1 GA1C | 2 | .651(e) | 05/25/47 | 504,470 | ||||||||||
American Home Mortgage Assets | |||||||||||||||
542 | 2006-5 A2 | 4 | .261(e) | 11/25/46 | 197,695 | ||||||||||
622 | 2006-2 2A2 | 2 | .691(e) | 09/25/46 | 228,308 | ||||||||||
553 | 2007-5 A2 | 2 | .701(e) | 06/25/47 | 201,386 | ||||||||||
368 | 2007-5 A3 | 2 | .761(e) | 06/25/47 | 83,082 | ||||||||||
Bear Stearns Mortgage Funding Trust | |||||||||||||||
559 | 2006-AR4 A1 | 2 | .671(e) | 12/25/36 | 340,464 | ||||||||||
668 | 2006-AR5 1A2 | 2 | .671(e) | 12/25/36 | 271,318 | ||||||||||
588 | 2007-AR1 1A2 | 2 | .671(e) | 01/25/37 | 227,232 | ||||||||||
Countrywide Alternative Loan Trust | |||||||||||||||
862 | 2007-OA8 2A2 | 2 | .691(e) | 06/25/47 | 316,752 | ||||||||||
352 | 2006-OA17 1A3 | 2 | .758(e) | 12/20/46 | 116,724 | ||||||||||
3,342 | 2006-OA17 1XP (IO) | 3 | .655(e) | 12/20/46 | 137,858 | ||||||||||
4,524 | 2006-OA21 X (IO) | 3 | .706(e) | 03/20/47 | 197,947 | ||||||||||
585 | 2007-OA10 2A1 | 2 | .711(e) | 09/25/47 | 355,279 |
See Notes to Financial Statements
24
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
PRINCIPAL | |||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||
Countrywide Home Loans | |||||||||||||||
$ | 2,268 | 2004-25 2X (IO) | 3 | .045(e) | % | 02/25/35 | $ | 38,330 | |||||||
GS Mortgage Securities Corp. | |||||||||||||||
1,086 | 2006-OA1R A | 3 | .401(e) | 08/25/35 | 16,944 | ||||||||||
Harborview Mortgage Loan Trust | |||||||||||||||
9 | 2006-14 2A1A | 2 | .608(e) | 03/19/38 | 537 | ||||||||||
200 | 2006-SB1 M1 | 2 | .838(e) | 12/19/36 | 18,720 | ||||||||||
Residential Accredit Loans, Inc. | |||||||||||||||
300 | 2007-QO4 A3 | 2 | .761(e) | 05/25/47 | 86,149 | ||||||||||
654 | 2007-QO3 A3 | 2 | .721(e) | 03/25/47 | 163,797 | ||||||||||
Structured Adjustable Rate Mortgage Loan | |||||||||||||||
461 | 2005-16XS A1 | 2 | .801(e) | 08/25/35 | 340,875 | ||||||||||
WAMU Mortgage Pass-Through Certificates | |||||||||||||||
909 | 2007-OA6 CA1B | 2 | .691(e) | 07/25/47 | 277,420 | ||||||||||
396 | 2005-AR13 A1A2 | 4 | .741(e) | 10/25/45 | 268,538 | ||||||||||
150 | 2006-AR5 A1B3 | 2 | .811(e) | 06/25/46 | 27,822 | ||||||||||
5,194,689 | |||||||||||||||
Total Collateralized Mortgage Obligations (Cost $13,617,546) | 8,669,247 | ||||||||||||||
NUMBER OF | |||||||||||||||
CONTRACTS | |||||||||||||||
Call Options Purchased (0.0%) | |||||||||||||||
182 | 90 day Euro$ Futures September/2009 @ 96.75 (Cost$157,457) | 176,312 | |||||||||||||
PRINCIPAL | |||||||||||||||
AMOUNT IN | |||||||||||||||
THOUSANDS | |||||||||||||||
Short-Term Investments (4.5%) | |||||||||||||||
U.S. Government Obligation (d) (f) (0.2%) | |||||||||||||||
650 | U.S. Treasury Bill (Cost $648,075) | 1 | .60 | 10/09/08 | 648,007 | ||||||||||
See Notes to Financial Statements
25
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NUMBER OF | |||||||||||||||
SHARES (000) | VALUE | ||||||||||||||
Investment Company (h) (4.3%) | |||||||||||||||
11,734 | Morgan Stanley Institutional Liquidity Money Market Portfolio - Institutional Class (Cost $11,733,774) | $ | 11,733,774 | ||||||||||||
Total Short-Term Investments (Cost $12,381,849) | 12,381,781 | ||||||||||||||
Total Investments (Cost $289,038,156) (i) (j) | 100.0% | 273,632,604 | |||||||||||||
Other Assets in Excess of Liabilities | 0.0 | 185,793 | |||||||||||||
Total Written Options Outstanding (Premium Received $90,518) | 0.0 | (97,825 | ) | ||||||||||||
Net Assets | 100.0% | $ | 273,720,572 | ||||||||||||
ADR | American depositary receipt. | |
ARM | Adjustable rate mortgage. | |
ETF | Exchange-trade fund. | |
IO | Interest only security. | |
(a) | Non-income producing security. | |
(b) | Resale is restricted to qualified institutional investors. | |
(c) | 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. | |
(d) | A portion of this security has been physically segregated in connection with open futures contracts in an amount equal to $154,373. | |
(e) | Floating Rate security, rate shown is the rate in effect at July 31, 2008. | |
(f) | Purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield. | |
(g) | A security with a total market value equal to $0 has been valued at its fair value as determined in good faith under procedures established by and under the general spuervision of the Fund’s Trustees. | |
(h) | See Note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Money Market Portfolio- Institutional Class. | |
(i) | Securities have been designated as collateral in an amount equal to $25,547,025 in connection with securities purchased on a forward commitment basis, open futures and swap contracts. | |
(j) | The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $19,084,612 and the aggregate gross unrealized depreciation is $34,490,164 resulting in net unrealized depreciation of $15,405,552. |
See Notes to Financial Statements
26
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
Futures Contracts Open at July 31, 2008:
DESCRIPTION, | UNREALIZED | |||||||||||||
NUMBER OF | DELIVERY | UNDERLYING FACE | APPRECIATION | |||||||||||
CONTRACTS | LONG/SHORT | MONTH AND YEAR | AMOUNT AT VALUE | (DEPRECIATION) | ||||||||||
35 | Long | U.S. Treasury Note 5 Year, September 2008 | $ | 3,896,758 | $ | 11,160 | ||||||||
18 | Long | U.S. Treasury Note 2 Year, September 2008 | 3,816,000 | 28,102 | ||||||||||
13 | Long | 90 Day Euro$ June 2009 | 3,144,050 | 37,279 | ||||||||||
11 | Long | 90 Day Euro$ March 2009 | 2,665,163 | 49,955 | ||||||||||
22 | Long | U.S. Treasury Bond 20 Year, September 2008 | 2,541,000 | 13,267 | ||||||||||
10 | Long | 90 Day Euro$ September 2008 | 2,429,750 | 50,664 | ||||||||||
10 | Long | 90 Day Euro$ December 2008 | 2,425,125 | 46,539 | ||||||||||
8 | Long | 90 Day Euro$ June 2010 | 1,914,500 | 9,179 | ||||||||||
3 | Short | 90 Day Euro$ March 2010 | (719,400 | ) | (5,033 | ) | ||||||||
6 | Short | 90 Day Euro$ December 2009 | (1,442,400 | ) | (13,489 | ) | ||||||||
7 | Short | 90 Day Euro$ September 2009 | (1,688,400 | ) | (4,081 | ) | ||||||||
90 | Short | U.S. Treasury Note 10 Year, September 2008 | (10,334,532 | ) | (95,939 | ) | ||||||||
112 | Short | Swap Futures 10 Year, September 2008 | (12,330,500 | ) | (77,830 | ) | ||||||||
Net Unrealized Appreciation | $ | 49,773 | ||||||||||||
Options Written at July 31, 2008:
NUMBER OF | STRIKE | EXPIRATION | ||||||||||||||||
CONTRACTS | DESCRIPTION | PRICE | DATE | PREMIUM | VALUE | |||||||||||||
182 | Call options on 90 day Euro$ | Futures | $ | 97.25 | September 2009 | $90,518 | $ | 97,825 | ||||||||||
See Notes to Financial Statements
27
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
Credit Default Swap Contracts Open at July 31, 2008:
NOTIONAL | UNREALIZED | |||||||||||||||||
SWAP COUNTERPARTY & | BUY/SELL | AMOUNT | INTEREST | TERMINATION | APPRECIATION | |||||||||||||
REFERENCE OBLIGATION | PROTECTION | (000’S) | RATE | DATE | (DEPRECIATION) | |||||||||||||
Credit Suisse International Arrow Electronics, Inc. | Buy | $ | 280 | 1.00 | % | March 20, 2015 | $ | (4,678 | ) | |||||||||
Goldman Sachs International Avalonbay Communities Inc. | Buy | 95 | 3.05 | March 20, 2013 | (4,458 | ) | ||||||||||||
Merrill Lynch International Carnival Corp. | Buy | 115 | 1.57 | March 20, 2018 | (1,742 | ) | ||||||||||||
Merrill Lynch International Carnival Corp. | Buy | 100 | 1.60 | March 20, 2018 | (1,535 | ) | ||||||||||||
Goldman Sachs International Coca-Cola Enterprises Inc. | Buy | 390 | 0.588 | March 20, 2013 | (2,673 | ) | ||||||||||||
Goldman Sachs International Chubb Corp. | Buy | 300 | 0.10 | March 20, 2012 | 4,271 | |||||||||||||
Goldman Sachs International Dell Inc. | Buy | 330 | 0.22 | March 20, 2012 | 4,246 | |||||||||||||
Goldman Sachs International Dow Jones Index | Sell | 235 | 0.60 | December 20, 2012 | (313 | ) | ||||||||||||
JPMorgan Chase Bank N.A. New York Dow Jones Index | Sell | 760 | 0.60 | December 20, 2012 | 3,511 | |||||||||||||
Lehman Brothers Special Financing Inc. Dow Jones Index | Sell | 230 | 0.60 | December 20, 2012 | (1,813 | ) | ||||||||||||
Lehman Brothers Special Financing Inc. Dow Jones Index | Sell | 465 | 0.60 | December 20, 2012 | (4,958 | ) | ||||||||||||
Goldman Sachs International Dow Jones Index | Sell | 400 | 0.80 | December 20, 2012 | 1,468 | |||||||||||||
Goldman Sachs International Dow Jones Index | Sell | 505 | 1.55 | June 20, 2013 | 1,979 | |||||||||||||
Citibank, N.A., New York Eaton Corp. | Buy | 110 | 0.82 | March 20, 2018 | 302 | |||||||||||||
Merrill Lynch International Eaton Corp. | Buy | 145 | 0.92 | March 20, 2018 | (696 | ) | ||||||||||||
Goldman Sachs International Eaton Corp. | Buy | 120 | 0.97 | March 20, 2018 | (1,029 | ) | ||||||||||||
UBS AG Eli Lilly & Co. | Buy | 315 | 0.30 | March 20, 2013 | (1,372 | ) | ||||||||||||
Goldman Sachs International Eli Lilly & Co. | Buy | 80 | 0.33 | March 20, 2013 | (451 | ) |
See Notes to Financial Statements
28
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NOTIONAL | UNREALIZED | |||||||||||||||||
SWAP COUNTERPARTY & | BUY/SELL | AMOUNT | INTEREST | TERMINATION | APPRECIATION | |||||||||||||
REFERENCE OBLIGATION | PROTECTION | (000’S) | RATE | DATE | (DEPRECIATION) | |||||||||||||
Lehman Brothers Special Financing Inc. Goodrich Corp. | Buy | $ | 105 | 0.46 | % | March 20, 2018 | $ | 1,665 | ||||||||||
Goldman Sachs International Goodrich Corp. | Buy | 150 | 0.47 | March 20, 2018 | 2,264 | |||||||||||||
Bank of America, N.A. Goodrich Corp. | Buy | 130 | 0.70 | March 20, 2013 | (773 | ) | ||||||||||||
Bank of America, N.A. Goodrich Corp. | Buy | 90 | 0.82 | March 20, 2018 | (1,046 | ) | ||||||||||||
Goldman Sachs International Hartford Financial Services Group, Inc. | Buy | 650 | 0.12 | December 20, 2011 | 16,574 | |||||||||||||
UBS AG Martin Marietta Materials, Inc. | Buy | 90 | 1.73 | March 20, 2018 | 271 | |||||||||||||
UBS AG Martin Marietta Materials, Inc. | Buy | 90 | 1.78 | March 20, 2013 | 1,089 | |||||||||||||
Bank of America, N.A. Nordstrom, Inc. | Buy | 140 | 1.03 | March 20, 2018 | 2,823 | |||||||||||||
JPMorgan Chase Bank N.A. New York Nordstrom, Inc. | Buy | 135 | 1.07 | March 20, 2018 | 2,327 | |||||||||||||
JPMorgan Chase Bank N.A. New York Pepsi Bottling Group, Inc. | Buy | 100 | 0.58 | March 20, 2013 | (320 | ) | ||||||||||||
JPMorgan Chase Bank N.A. New York Pepsi Bottling Group, Inc. | Buy | 140 | 0.63 | March 20, 2013 | (744 | ) | ||||||||||||
Goldman Sachs International Prologis | Buy | 55 | 3.33 | March 20, 2013 | (1,442 | ) | ||||||||||||
Goldman Sachs International Sealed Air Corp. | Buy | 105 | 1.08 | March 20, 2018 | 5,268 | |||||||||||||
Bank of America, N.A. Sealed Air Corp. | Buy | 40 | 1.12 | March 20, 2018 | 1,894 | |||||||||||||
Goldman Sachs International Sealed Air Corp. | Buy | 50 | 1.24 | March 20, 2018 | 1,945 | |||||||||||||
Bank of America, N.A. Textron Financial Corp. | Buy | 125 | 0.80 | March 20, 2018 | 2,840 | |||||||||||||
UBS AG Textron Financial Corp. | Buy | 85 | 1.01 | March 20, 2013 | 525 | |||||||||||||
Goldman Sachs International Textron Financial Corp. | Buy | 200 | 1.05 | March 20, 2013 | 758 | |||||||||||||
UBS AG Textron Financial Corp | Buy | 215 | 1.06 | March 20, 2013 | (2,960 | ) |
See Notes to Financial Statements
29
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NOTIONAL | UNREALIZED | |||||||||||||||||
SWAP COUNTERPARTY & | BUY/SELL | AMOUNT | INTEREST | TERMINATION | APPRECIATION | |||||||||||||
REFERENCE OBLIGATION | PROTECTION | (000’S) | RATE | DATE | (DEPRECIATION) | |||||||||||||
Citibank, N.A., New York Tyco Electronics Ltd. | Buy | $ | 133 | 0.43 | % | March 20, 2012 | $ | 2,323 | ||||||||||
Citibank, N.A., New York Tyco Electronics Ltd. | Buy | 260 | 0.43 | March 20, 2012 | 4,531 | |||||||||||||
Goldman Sachs International Union Pacific Corp. | Buy | 325 | 0.20 | December 20, 2011 | 2,444 | |||||||||||||
Bank of America, N.A. Yum! Brands, Inc. | Buy | 255 | 1.18 | March 20, 2013 | (1,905 | ) | ||||||||||||
Net Unrealized Appreciation | $ | 30,410 | ||||||||||||||||
Interest Rate Swap Contracts Open at July 31, 2008:
NOTIONAL | PAYMENTS | PAYMENTS | UNREALIZED | |||||||||||
AMOUNT | RECEIVED | MADE | TERMINATION | APPRECIATION | ||||||||||
COUNTERPARTY | (000’S) | BY FUND | BY FUND | DATE | (DEPRECIATION) | |||||||||
Bank of America N.A. New York | $ | 6,575 | Fixed Rate 4.148% | Floating Rate 2.677# | June 9, 2013 | $ | (4,734 | ) | ||||||
Bank of America N.A. New York | 1,779 | Fixed Rate 5.37 | Floating Rate 3.08# | February 12, 2018 | 6,653 | |||||||||
Bank of America N.A. New York | 3,260 | Fixed Rate 5.593 | Floating Rate 0.00# | February 19, 2018 | 38,109 | |||||||||
Bank of America N.A. New York | 1,910 | Fixed Rate 5.07 | Floating Rate 0.00# | April 14, 2018 | (14,994 | ) | ||||||||
Bank of America N.A. New York | 1,735 | Fixed Rate 4.983 | Floating Rate 0.00# | April 15, 2018 | (19,050 | ) | ||||||||
Bank of America N.A. New York | 9,278 | Fixed Rate 5.558 | Floating Rate 0.00# | July 24, 2023 | 9,000 | |||||||||
Citibank N.A. New York | 2,900 | Fixed Rate 5.338 | Floating Rate 2.638# | May 24, 2017 | 157,528 | |||||||||
Citibank N.A. New York | 3,500 | Fixed Rate 5.448 | Floating Rate 2.734# | August 9, 2017 | 217,735 | |||||||||
Citibank N.A. New York | 7,000 | Fixed Rate 5.239 | Floating Rate 2.808# | September 27, 2017 | 323,470 | |||||||||
Citibank N.A. New York | 900 | Fixed Rate 4.648 | Floating Rate 2.638# | February 27, 2018 | (513 | ) | ||||||||
Deutsche Bank AG, New York | 3,600 | Fixed Rate 5.389 | Floating Rate 2.638# | May 25, 2017 | 208,980 | |||||||||
Deutsche Bank AG, New York | EUR 4,868 | Fixed Rate 4.957 | Floating Rate 0.00 | July 24, 2018 | 33,942 | |||||||||
Deutsche Bank AG, New York | 6,100 | Fixed Rate 5.268 | Floating Rate 5.13 | July 3, 2023 | 35,111 | |||||||||
Deutsche Bank AG, New York | 3,200 | Fixed Rate 5.239 | Floating Rate 0.00 | July 9, 2023 | 14,376 | |||||||||
Deutsche Bank AG, New York | 2,910 | Fixed Rate 5.24 | Floating Rate 0.00 | July 10, 2023 | 13,209 | |||||||||
Goldman Sachs Group Inc. | $ | 3,320 | Fixed Rate 5.565 | Floating Rate 0.00# | February 27, 2018 | 35,126 | ||||||||
Goldman Sachs Group Inc. | 6,665 | Fixed Rate 5.63 | Floating Rate 0.00# | February 28, 2018 | 86,112 | |||||||||
JPMorgan Chase Bank N.A. New York | 5,450 | Fixed Rate 4.07 | Floating Rate 2.72# | May 16, 2013 | (19,021 | ) | ||||||||
JPMorgan Chase Bank N.A. New York | 6,850 | Fixed Rate 5.34 | Floating Rate 2.638# | May 24, 2017 | 373,325 | |||||||||
JPMorgan Chase Bank N.A. New York | 4,300 | Fixed Rate 5.448 | Floating Rate 2.644# | May 29, 2017 | 268,019 | |||||||||
JPMorgan Chase Bank N.A. New York | 3,900 | Fixed Rate 5.088 | Floating Rate 2.691# | September 11, 2017 | 136,890 | |||||||||
Merrill Lynch & Co Inc. | 2,315 | Fixed Rate 5.00 | Floating Rate 0.00# | April 15, 2018 | (23,983 | ) | ||||||||
Bank of America N.A. New York | 7,222 | Floating Rate 0.00# | Fixed Rate 5.38 | July 24, 2018 | (14,588 | ) | ||||||||
Bank of America N.A. New York | 3,800 | Floating Rate 2.791# | Fixed Rate 4.67 | August 4, 2018 | — | |||||||||
Bank of America N.A. New York | 2,283 | Floating Rate 3.08# | Fixed Rate 5.815 | February 12, 2023 | (18,059 | ) | ||||||||
Bank of America N.A. New York | 4,210 | Floating Rate 0.00# | Fixed Rate 6.03 | February 19, 2023 | (58,309 | ) | ||||||||
Bank of America N.A. New York | 2,445 | Floating Rate 0.00# | Fixed Rate 5.47 | April 14, 2023 | 3,765 | |||||||||
Bank of America N.A. New York | 2,070 | Floating Rate 0.00# | Fixed Rate 5.38 | April 15, 2023 | 8,280 | |||||||||
Deutsche Bank AG, New York | EUR 4,870 | Floating Rate 5.13 | Fixed Rate 4.934 | July 1, 2018 | (28,942 | ) | ||||||||
Deutsche Bank AG, New York | 2,550 | Floating Rate 0.00 | Fixed Rate 4.861 | July 9, 2018 | (4,932 | ) |
See Notes to Financial Statements
30
Morgan Stanley Balanced Fund
Portfolio of Investments - July 31, 2008 (unaudited) continued
NOTIONAL | PAYMENTS | PAYMENTS | UNREALIZED | |||||||||||
AMOUNT | RECEIVED | MADE | TERMINATION | APPRECIATION | ||||||||||
COUNTERPARTY | (000’S) | BY FUND | BY FUND | DATE | (DEPRECIATION) | |||||||||
Deutsche Bank AG, New York | EUR 2,315 | Floating Rate 0.00% | Fixed Rate 4.86% | July 10, 2018 | $ | (4,333 | ) | |||||||
Deutsche Bank AG, New York | 6,105 | Floating Rate 0.00 | Fixed Rate 5.188 | July 24, 2023 | (13,999 | ) | ||||||||
Goldman Sachs Group Inc. | $ | 4,265 | Floating Rate 0.00# | Fixed Rate 5.96 | February 27, 2023 | (50,838 | ) | |||||||
Goldman Sachs Group Inc. | 8,555 | Floating Rate 0.00# | Fixed Rate 6.035 | February 28, 2023 | (119,599 | ) | ||||||||
JPMorgan Chase Bank N.A. New York | 6,900 | Floating Rate 2.873# | Fixed Rate 4.408 | May 1, 2018 | 140,001 | |||||||||
Merrill Lynch & Co Inc. | 2,915 | Floating Rate 0.00# | Fixed Rate 5.395 | April 15, 2023 | 10,467 | |||||||||
Net Unrealized Appreciation | $ | 1,724,204 | ||||||||||||
EUR | Euro. | |
# | Floating rate represents USD-3 Months LIBOR. | |
Floating rate represents EUR-3 Months EURIBOR. |
See Notes to Financial Statements
31
Morgan Stanley Balanced Fund
Financial Statements
Statement of Assets and Liabilities
July 31, 2008 (unaudited)
Assets: | ||||
Investments in securities, at value (cost $277,304,382) | $261,898,830 | |||
Investment in affiliate, at value (cost $11,733,774) | 11,733,774 | |||
Unrealized appreciation on open swap contracts | 2,185,416 | |||
Receivable for: | ||||
Investments sold | 2,267,456 | |||
Interest | 847,025 | |||
Periodic interest on open swap contracts | 625,969 | |||
Dividends | 275,491 | |||
Shares of beneficial interest sold | 27,619 | |||
Dividends from affiliate | 21,116 | |||
Principal paydowns | 406 | |||
Prepaid expenses and other assets | 37,454 | |||
Total Assets | 279,920,556 | |||
Liabilities: | ||||
Unrealized depreciation on open swap contracts | 430,802 | |||
Written options outstanding, at value (premium received $90,518) | 97,825 | |||
Payable for: | ||||
Investments purchased | 2,109,671 | |||
Swap contracts collateral due to brokers | 1,950,000 | |||
Shares of beneficial interest redeemed | 652,824 | |||
Periodic interest on open swap contracts | 286,900 | |||
Distribution fee | 170,996 | |||
Investment advisory fee | 120,168 | |||
Variation margin | 87,186 | |||
Premium received on open swap contracts | 57,361 | |||
Administration fee | 18,733 | |||
Transfer agent fee | 7,790 | |||
Payable to Bank | 74,729 | |||
Accrued expenses and other payables | 134,999 | |||
Total Liabilities | 6,199,984 | |||
Net Assets | $273,720,572 | |||
Composition of Net Assets: | ||||
Paid-in-capital | $288,003,428 | |||
Net unrealized depreciation | (13,608,321 | ) | ||
Accumulated undistributed net investment income | 594,708 | |||
Distributions in excess of net realized gain | (1,269,243 | ) | ||
Net Assets | $273,720,572 | |||
Class A Shares: | ||||
Net Assets | $98,566,900 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 7,927,982 | |||
Net Asset Value Per Share | $12.43 | |||
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) | $13.12 | |||
Class B Shares: | ||||
Net Assets | $93,679,177 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 7,527,817 | |||
Net Asset Value Per Share | $12.44 | |||
Class C Shares: | ||||
Net Assets | $81,014,154 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 6,509,107 | |||
Net Asset Value Per Share | $12.45 | |||
Class I Shares: @@ | ||||
Net Assets | $460,341 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 37,054 | |||
Net Asset Value Per Share | $12.42 | |||
@@ | Formerly Class D shares. Renamed Class I shares effective March 31, 2008. |
See Notes to Financial Statements
32
Morgan Stanley Balanced Fund
Financial Statements continued
Statement of Operations
For the six months ended July 31, 2008 (unaudited)
Net Investment Income: | ||||
Income | ||||
Interest | $ | 2,704,022 | ||
Dividends (net of $92,037 foreign withholding tax) | 2,377,225 | |||
Dividends from affiliate | 174,086 | |||
Total Income | 5,255,333 | |||
Expenses | ||||
Investment advisory fee | 795,995 | |||
Distribution fee (Class A shares) | 133,572 | |||
Distribution fee (Class B shares) | 543,185 | |||
Distribution fee (Class C shares) | 450,961 | |||
Transfer agent fees and expenses | 127,211 | |||
Administration fee | 122,461 | |||
Shareholder reports and notices | 40,953 | |||
Custodian fees | 38,193 | |||
Professional fees | 32,706 | |||
Registration fees | 32,499 | |||
Trustees’ fees and expenses | 3,142 | |||
Other | 25,000 | |||
Total Expenses | 2,345,878 | |||
Less: expense offset | (892 | ) | ||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 4) | (5,001 | ) | ||
Net Expenses | 2,339,985 | |||
Net Investment Income | 2,915,348 | |||
Realized and Unrealized Gain (Loss): | ||||
Realized Gain (Loss) on: | ||||
Investments | (199,295 | ) | ||
Futures contracts | 166,669 | |||
Option contracts | (9,672 | ) | ||
Swap contracts | 498,752 | |||
Foreign exchange transactions | (3,130 | ) | ||
Net Realized Gain | 453,324 | |||
Change in Unrealized Appreciation/Depreciation on: | ||||
Investments | (25,409,291 | ) | ||
Futures contracts | (420,333 | ) | ||
Swap contracts | (1,211,610 | ) | ||
Option contracts | 21,220 | |||
Translation of other assets and liabilities denominated in foreign currencies | 153 | |||
Net Change in Unrealized Appreciation/Depreciation | (27,019,861 | ) | ||
Net Loss | (26,566,537 | ) | ||
Net Decrease | $ | (23,651,189 | ) | |
See Notes to Financial Statements
33
Morgan Stanley Balanced Fund
Financial Statements continued
Statements of Changes in Net Assets
FOR THE SIX | FOR THE YEAR | |||||||
MONTHS ENDED | ENDED | |||||||
JULY 31, 2008 | JANUARY 31, 2008 | |||||||
(unaudited) | ||||||||
Increase (Decrease) in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income | $ | 2,915,348 | $ | 6,301,967 | ||||
Net realized gain | 453,324 | 35,724,681 | ||||||
Net change in unrealized appreciation/depreciation | (27,019,861 | ) | (42,953,751 | ) | ||||
Net Decrease | (23,651,189 | ) | (927,103 | ) | ||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income | ||||||||
Class A shares | (1,415,728 | ) | (2,865,762 | ) | ||||
Class B shares | (1,014,642 | ) | (2,419,414 | ) | ||||
Class C shares | (847,402 | ) | (1,753,500 | ) | ||||
Class I shares @@ | (6,937 | ) | (39,533 | ) | ||||
Net realized gain | ||||||||
Class A shares | (1,773,804 | ) | (5,466,736 | ) | ||||
Class B shares | (1,764,404 | ) | (6,246,619 | ) | ||||
Class C shares | (1,486,464 | ) | (4,782,146 | ) | ||||
Class I shares @@ | (8,270 | ) | (25,315 | ) | ||||
Total Dividends and Distributions | (8,317,651 | ) | (23,599,025 | ) | ||||
Net decrease from transactions in shares of beneficial interest | (32,793,140 | ) | (73,394,430 | ) | ||||
Net Decrease | (64,761,980 | ) | (97,920,558 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 338,482,552 | 436,403,110 | ||||||
End of Period (Including accumulated undistributed net investment income of $594,708 and $964,069, respectively) | $ | 273,720,572 | $ | 338,482,552 | ||||
@@ | Formerly Class D shares. Renamed Class I shares effective March 31, 2008. |
See Notes to Financial Statements
34
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Balanced 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 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 I shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within eighteen months, six years and one year, respectively. Class I shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. Effective March 31, 2008, Class D shares were renamed Class I shares.
The Fund will assess a 2% redemption fee on Class A shares, Class B shares, Class C shares, and Class I shares, which is paid directly to the Fund, for shares redeemed or exchanged within seven days of purchase, subject to certain exceptions. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading.
The following is a summary of significant accounting policies:
A. Valuation of Investments — (1) an equity portfolio security listed or traded on the New York Stock Exchange (“NYSE”) or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sale on a particular day; (5) listed options are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they are valued at the mean between their latest bid and asked price; (6) futures are valued at the latest price published by the commodities exchange on which they trade; (7) credit default/interest rate swaps are marked-to-market daily based upon quotations from market makers;
35
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
(8) when market quotations are not readily available including circumstances under which Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”) determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund’s Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (9) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees. The prices provided by a pricing service take into account broker dealer market price quotations for trading in similar groups of securities, security quality, maturity, coupon and other security characteristics as well as any developments related to the specific securities; (10) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (11) 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 and are included in interest income. Interest income is accrued daily.
C. 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.
D. 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
36
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
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.
E. Options — When the Fund writes a call or put option, an amount equal to the premium received is included in the Fund’s Statement of Assets and Liabilities as a liability which is subsequently marked-to-market to reflect the current market value of the option written. If a written option either expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying security and the liability related to such option is extinguished. If a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security which the Fund purchases upon exercise of the option. By writing a covered call option, the Fund, in exchange for the premium, forgoes the opportunity for capital appreciation above the exercise price, should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price.
When the Fund purchases a call or put option, the premium paid is recorded as an investment which is subsequently marked-to-market to reflect the current market value. If a purchased option expires, the Fund will realize a loss to the extent of the premium paid. If the Fund enters into a closing sale transaction, a gain or loss is realized for the difference between the proceeds from the sale and the cost of the option. If a put option is exercised, the cost of the security or currency sold upon exercise will be increased by the premium originally paid. If a call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
37
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
Transactions in written options for the six months ended July 31, 2008 were as follows:
NUMBER OF | ||||||||
CONTRACT | PREMIUM | |||||||
Options written, outstanding at beginning of the period | — | — | ||||||
Options written | 182 | $ | 90,518 | |||||
Options closed | — | — | ||||||
Options exercised | — | — | ||||||
Options expired | — | — | ||||||
Options written, outstanding at end of the period | 182 | $ | 90,518 | |||||
F. Credit Default Swaps — A credit default swap is an agreement between two parties to exchange the credit risk of an issuer. The Fund may purchase credit protection on the referenced obligation of the credit default swap (“Buy Contract”), or provide credit protection on the referenced obligation of the credit default swap (“Sale Contract”). A buyer of a credit default swap is said to buy protection by paying periodic fees in return for a contingent payment from the seller if the issuer has a credit event such as bankruptcy or a failure to pay outstanding obligations while the swap is outstanding. A seller of a credit default swap is said to sell protection and thus collects the periodic fees and profits if the credit of the issuer remains stable or improves while the swap is outstanding. If a credit event occurs, the seller pays to the buyer an agreed upon amount, which approximates the notional amount of the swap as disclosed in the table following the Portfolio of Investments. During the term of the swap agreement, the Fund receives or pays periodic fixed payments from or to the respective counterparty calculated at the agreed upon interest rate applied to the notional amount. These periodic payments are accrued daily and recorded as realized gains or losses in the Statement of Operations. In addition, upon termination of the swap contract, gains and losses are also realized. Any upfront payment received or paid by the Fund is recorded as assets/liabilities on the Fund’s books. The Fund may pay or receive cash to collateralize credit default swap contracts. This cash collateral is recorded as assets/liabilities on the Fund’s books. Any cash received may be invested in Morgan Stanley Institutional Liquidity Funds.
G. Interest Rate Swaps — Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional principal amount. Net periodic interest payments to be received or paid are accrued daily and are recorded as realized gains or losses in the Statement of Operations. The Fund may pay or receive cash to collateralize interest rate swap contracts. This cash collateral is recorded as assets/liabilities on the Fund’s books. Any cash received may be invested in Morgan Stanley Institutional Liquidity Funds.
38
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
H. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes on July 30, 2008. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended July 31, 2008, remains subject to examination by taxing authorities.
I. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
J. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.52% to the portion of the daily net assets not exceeding $500 million and 0.495% to the portion of the daily net assets in excess of $500 million.
Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the “Administrator”), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund’s daily net assets.
Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
39
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the “Distributor”), an affiliate of the Investment Adviser and Administrator. The Fund has adopted a Plan of Distribution (the “Plan”) pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A – up to 0.25% of the average daily net assets of Class A shares; (ii) Class B – up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C – up to 1.0% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $21,279,432 at July 31, 2008.
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 and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the six months ended July 31, 2008, 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, 2008, it received contingent deferred sales charges from certain redemptions of the Fund’s Class A shares, Class B shares and Class C shares of $51, $99,761 and $2,343, respectively and received $11.808 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 Fund invests in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class
40
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class. For the six months ended July 31, 2008, advisory fees paid were reduced by $5,001 relating to the Fund’s investment in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as dividends from affiliate in the Statement of Operations and totaled $174,086 for the six months ended July 31, 2008. During the six months ended July 31, 2008, the cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class aggregated $48,298,882 and $53,352,890, respectively.
The cost of purchases and proceeds from sales/prepayments/maturities of portfolio securities, excluding short-term investments, for the six months ended July 31, 2008 aggregated $63,967,112 and $102,997,739, respectively. Included in the aforementioned are purchases and sales/prepayments/maturities of U.S. Government securities in the amount of $12,009,309 and $21,758,628, respectively. The Fund had purchases and a sale of $2,139 and $92,500, respectively, with other Morgan Stanley funds, including a realized gain of $7,515.
For the six months ended July 31, 2008, the Fund incurred brokerage commissions of $1,165 with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund’s transfer agent.
The Fund has an unfunded Deferred Compensation Plan (the “Compensation Plan”) which allows each independent Trustee to defer payment of all, or a portion, of the fees he or she receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.
5. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may purchase and sell interest rate, swap and Eurodollar futures (“futures contracts”) to facilitate trading; increase or decrease Fund’s market exposure, seek higher investment returns, or to protect against a decline in the value of the Fund’s securities or an increase in prices of securities that may be purchased.
41
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
For hedging and investment purposes, the Fund may also engage in transactions in listed and over-the-counter options.
These futures and option contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. Risk also may arise from the potential inability of the counterparties to meet the terms of their contracts.
The Fund may enter into credit default swaps for hedging purposes, to add leverage to its portfolio or to gain exposure to a credit in which the Fund may otherwise invest. Credit default swaps may involve greater risks than if the Fund had invested in the issuer directly. Credit default swaps are subject to general market risk, counterparty risk and credit risk. If the Fund is buyer and no credit event occurs, it will lose its investment. In addition, if the Fund is a seller and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the maximum payout amount it pays to the buyer, resulting in a loss to the Fund.
The Fund may enter into interest rate swaps and may purchase or sell interest rate caps, floors and collars. The Fund expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Fund may also enter into these transactions to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swap transactions are subject to market risk, risk of default by the other party to the transaction, risk of imperfect correlation and manager risk. Such risks may exceed the related amounts shown in the Statement of Assets and Liabilities.
The Fund may invest in mortgage securities. These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage-backed security and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities are not backed by sub-prime borrowers.
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent.
42
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
7. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
FOR THE SIX | FOR THE YEAR | |||||||||||||||
MONTHS ENDED | ENDED | |||||||||||||||
JULY 31, 2008 | JANUARY 31, 2008 | |||||||||||||||
(unaudited) | ||||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Class A Shares | ||||||||||||||||
Sold | 410,059 | $ | 5,379,102 | 403,287 | $ | 6,100,480 | ||||||||||
Conversion from Class B | 157,331 | 2,124,335 | 1,058,842 | 15,913,904 | ||||||||||||
Reinvestment of dividends & distributions | 244,130 | 3,107,066 | 475,537 | 6,895,607 | ||||||||||||
Redeemed | (1,193,946 | ) | (15,771,535 | ) | (2,031,934 | ) | (30,548,427 | ) | ||||||||
Net decrease — Class A | (382,426 | ) | (5,161,032 | ) | (94,268 | ) | (1,638,436 | ) | ||||||||
Class B Shares | ||||||||||||||||
Sold | 199,349 | 2,665,362 | 423,406 | 6,375,359 | ||||||||||||
Conversion to Class A | (157,204 | ) | (2,124,335 | ) | (1,058,215 | ) | (15,913,904 | ) | ||||||||
Reinvestment of dividends | 211,358 | 2,688,017 | 485,643 | 7,033,796 | ||||||||||||
Redeemed | (1,682,758 | ) | (22,207,483 | ) | (3,348,307 | ) | (50,349,624 | ) | ||||||||
Net decrease — Class B | (1,429,255 | ) | (18,978,439 | ) | (3,497,473 | ) | (52,857,373 | ) | ||||||||
Class C Shares | ||||||||||||||||
Sold | 66,299 | 889,248 | 247,524 | 3,751,403 | ||||||||||||
Reinvestment of dividends | 180,715 | 2,297,654 | 394,785 | 5,713,176 | ||||||||||||
Redeemed | (899,257 | ) | (11,871,508 | ) | (1,769,134 | ) | (26,647,806 | ) | ||||||||
Net decrease — Class C | (652,243 | ) | (8,684,606 | ) | (1,126,825 | ) | (17,183,227 | ) | ||||||||
Class I Shares@@ | ||||||||||||||||
Sold | 6,758 | 92,036 | 11,888 | 182,713 | ||||||||||||
Reinvestment of dividends | 1,161 | 14,758 | 2,915 | 43,209 | ||||||||||||
Redeemed | (5,696 | ) | (75,857 | ) | (126,497 | ) | (1,941,316 | ) | ||||||||
Net increase (decrease) — Class I | 2,223 | 30,937 | (111,694 | ) | (1,715,394 | ) | ||||||||||
Net decrease in Fund | (2,461,701 | ) | $ | (32,793,140 | ) | (4,830,260 | ) | $ | (73,394,430 | ) | ||||||
@@ Formerly Class D shares. Renamed Class I shares effective March 31, 2008.
8. 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
43
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
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.
As of January 31, 2008, the Fund had temporary book/tax differences primarily attributable to mark-to-market of open futures and options contracts, capital loss deferrals on straddles and wash sales and book amortization of premiums on debt securities.
9. Fair Valuation Measurements
The Fund Adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), effective December 1, 2007. In accordance with FAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. FAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
• | Level 1 — quoted prices in active markets for identical investments | |
• | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
44
Morgan Stanley Balanced Fund
Notes to Financial Statements - July 31, 2008 (unaudited) continued
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used as of July 31, 2008 in valuing the Fund’s investments carried at value:
FAIR VALUE MEASUREMENTS AT JULY 31, 2008 USING | ||||||||||||||||
QUOTED PRICE IN | SIGNIFICANT | SIGNIFICANT | ||||||||||||||
ACTIVE MARKET FOR | OTHER OBSERVABLE | UNOBSERVABLE | ||||||||||||||
IDENTICAL ASSETS | INPUTS | INPUTS | ||||||||||||||
TOTAL | (LEVEL 1) | (LEVEL 2) | (LEVEL 3) | |||||||||||||
Investment in securities | $ | 273,456,292 | $ | 181,391,819 | $ | 92,064,473 | — | |||||||||
Other Financial Instruments* | 1,882,874 | 128,260 | 1,754,614 | — | ||||||||||||
Total | $ | 275,339,166 | $ | 181,520,079 | $ | 93,819,087 | — | |||||||||
* Other financial instruments include futures, forwards, options and swap contracts.
10. Accounting Pronouncement
On March 19, 2008, FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement No. 133 (“SFAS 161”). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The application of SFAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS 161 and its impact on the financial statements has not yet been determined.
45
Morgan Stanley Balanced Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE SIX | ||||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | |||||||||||||||||||||||||||||
JULY 31, 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Class A Shares | ||||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.83 | $14.89 | $14.57 | $13.76 | $12.98 | $10.73 | ||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||
Net investment income(1) | 0.18 | 0.32 | 0.30 | 0.24 | 0.21 | 0.18 | ||||||||||||||||||||||||
Net realized and unrealized gain (loss) | (1.17 | ) | (0.35 | ) | 1.20 | 1.21 | 0.79 | 2.30 | ||||||||||||||||||||||
Total income (loss) from investment operations | (0.99 | ) | (0.03 | ) | 1.50 | 1.45 | 1.00 | 2.48 | ||||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | (0.18 | ) | (0.35 | ) | (0.29 | ) | (0.27 | ) | (0.22 | ) | (0.23 | ) | ||||||||||||||||||
Net realized gain . | (0.23 | ) | (0.68 | ) | (0.89 | ) | (0.37 | ) | — | — | ||||||||||||||||||||
Total dividends and distributions | (0.41 | ) | (1.03 | ) | (1.18 | ) | (0.64 | ) | (0.22 | ) | (0.23 | ) | ||||||||||||||||||
Net asset value, end of period | $12.43 | $13.83 | $14.89 | $14.57 | $13.76 | $12.98 | ||||||||||||||||||||||||
Total Return(2) | (7.27 | ) | %(5) | (0.42 | ) | % | 10.54 | % | 10.99 | % | 7.80 | % | 23.37 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||||
Total expenses (before expense offset) | 1.04%(4 | )(6) | 1.04%(4 | ) | 1.14 | % | 1.13 | % | 1.13 | % | 1.12 | % | ||||||||||||||||||
Net investment income | 2.39%(4 | )(6) | 2.10%(4 | ) | 2.06 | % | 1.70 | % | 1.61 | % | 1.58 | % | ||||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $98,567 | $114,929 | $125,180 | $33,217 | $7,017 | $6,663 | ||||||||||||||||||||||||
Portfolio turnover rate | 22%(5 | ) | 64 | % | 56 | % | 52 | % | 64 | % | 117 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio–Institutional Class during the period. The rebate had an effect of less than 0.005%. | |
(5) | Not annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
46
Morgan Stanley Balanced Fund
Financial Highlights continued
FOR THE SIX | ||||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | |||||||||||||||||||||||||||||
JULY 31, 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Class B Shares | ||||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.84 | $14.90 | $14.56 | $13.75 | $12.97 | $10.73 | ||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||
Net investment income(1) | 0.11 | 0.20 | 0.19 | 0.14 | 0.11 | 0.10 | ||||||||||||||||||||||||
Net realized and unrealized gain (loss). | (1.16 | ) | (0.35 | ) | 1.22 | 1.20 | 0.79 | 2.28 | ||||||||||||||||||||||
Total income (loss) from investment operations | (1.05 | ) | (0.15 | ) | 1.41 | 1.34 | 0.90 | 2.38 | ||||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | (0.12 | ) | (0.23 | ) | (0.18 | ) | (0.16 | ) | (0.12 | ) | (0.14 | ) | ||||||||||||||||||
Net realized gain . | (0.23 | ) | (0.68 | ) | (0.89 | ) | (0.37 | ) | — | — | ||||||||||||||||||||
Total dividends and distributions | (0.35 | ) | (0.91 | ) | (1.07 | ) | (0.53 | ) | (0.12 | ) | (0.14 | ) | ||||||||||||||||||
Net asset value, end of period | $12.44 | $13.84 | $14.90 | $14.56 | $13.75 | $12.97 | ||||||||||||||||||||||||
Total Return(2) | (7.64 | ) | %(5) | (1.20 | ) | % | 9.80 | % | 10.12 | % | 6.99 | % | 22.37 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||||
Total expenses (before expense offset) | 1.79%(4 | )(6) | 1.79%(4 | ) | 1.89 | % | 1.89 | % | 1.89 | % | 1.88 | % | ||||||||||||||||||
Net investment income | 1.64%(4 | )(6) | 1.35%(4 | ) | 1.31 | % | 0.94 | % | 0.85 | % | 0.82 | % | ||||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $93,679 | $123,951 | $185,534 | $84,568 | $110,875 | $114,960 | ||||||||||||||||||||||||
Portfolio turnover rate | 22%(5 | ) | 64 | % | 56 | % | 52 | % | 64 | % | 117 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio–Institutional Class during the period. The rebate had an effect of less than 0.005%. | |
(5) | Not annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
47
Morgan Stanley Balanced Fund
Financial Highlights continued
FOR THE SIX | ||||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | |||||||||||||||||||||||||||||
JULY 31, 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Class C Shares | ||||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.84 | $14.90 | $14.57 | $13.76 | $12.98 | $10.73 | ||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||
Net investment income(1) | 0.11 | 0.20 | 0.19 | 0.14 | 0.11 | 0.10 | ||||||||||||||||||||||||
Net realized and unrealized gain (loss). | (1.14 | ) | (0.34 | ) | 1.21 | 1.20 | 0.79 | 2.29 | ||||||||||||||||||||||
Total income (loss) from investment operations | (1.03 | ) | (0.14 | ) | 1.40 | 1.34 | 0.90 | 2.39 | ||||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | (0.13 | ) | (0.24 | ) | (0.18 | ) | (0.16 | ) | (0.12 | ) | (0.14 | ) | ||||||||||||||||||
Net realized gain. . | (0.23 | ) | (0.68 | ) | (0.89 | ) | (0.37 | ) | — | — | ||||||||||||||||||||
Total dividends and distributions | (0.36 | ) | (0.92 | ) | (1.07 | ) | (0.53 | ) | (0.12 | ) | (0.14 | ) | ||||||||||||||||||
Net asset value, end of period | $12.45 | $13.84 | $14.90 | $14.57 | $13.76 | $12.98 | ||||||||||||||||||||||||
Total Return(2) | (7.56 | ) | %(5) | (1.19 | ) | % | 9.75 | % | 10.15 | % | 6.98 | % | 22.43 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||||
Total expenses (before expense offset) | 1.79%(4 | )(6) | 1.79%(4 | ) | 1.89 | % | 1.89 | % | 1.87 | % | 1.88 | % | ||||||||||||||||||
Net investment income | 1.64%(4 | )(6) | 1.35%(4 | ) | 1.31 | % | 0.94 | % | 0.87 | % | 0.82 | % | ||||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $81,014 | $99,121 | $123,508 | $81,339 | $81,606 | $84,840 | ||||||||||||||||||||||||
Portfolio turnover rate | 22%(5 | ) | 64 | % | 56 | % | 52 | % | 64 | % | 117 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio–Institutional Class during the period. The rebate had an effect of less than 0.005%. | |
(5) | Not annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
48
Morgan Stanley Balanced Fund
Financial Highlights continued
FOR THE SIX | FOR THE YEAR | |||||||||||||||||||||||||||||
MONTHS ENDED | ENDED JANUARY 31, | |||||||||||||||||||||||||||||
JULY 31, 2008 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||
Class I Shares@@ | ||||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.82 | $14.89 | $14.56 | $13.76 | $12.97 | $10.73 | ||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||
Net investment income(1) | 0.17 | 0.36 | 0.34 | 0.28 | 0.24 | 0.22 | ||||||||||||||||||||||||
Net realized and unrealized gain (loss). | (1.15 | ) | (0.36 | ) | 1.21 | 1.19 | 0.80 | 2.28 | ||||||||||||||||||||||
Total income (loss) from investment operations | (0.98 | ) | 0.00 | 1.55 | 1.47 | 1.04 | 2.50 | |||||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||||
Net investment income | (0.19 | ) | (0.39 | ) | (0.33 | ) | (0.30 | ) | (0.25 | ) | (0.26 | ) | ||||||||||||||||||
Net realized gain . | (0.23 | ) | (0.68 | ) | (0.89 | ) | (0.37 | ) | — | — | ||||||||||||||||||||
Total dividends and distributions | (0.42 | ) | (1.07 | ) | (1.22 | ) | (0.67 | ) | (0.25 | ) | (0.26 | ) | ||||||||||||||||||
Net asset value, end of period | $12.42 | $13.82 | $14.89 | $14.56 | $13.76 | $12.97 | ||||||||||||||||||||||||
Total Return(2) | (7.15 | ) | %(5) | (0.23 | ) | % | 10.89 | % | 11.17 | % | 8.14 | % | 23.56 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||||
Total expenses (before expense offset) | 0.79%(4 | )(6) | 0.79%(4 | ) | 0.89 | % | 0.89 | % | 0.89 | % | 0.88 | % | ||||||||||||||||||
Net investment income | 2.64%(4 | )(6) | 2.35%(4 | ) | 2.31 | % | 1.94 | % | 1.85 | % | 1.82 | % | ||||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||||
Net assets, end of period, in thousands. | $460 | $481 | $2,181 | $909 | $1,083 | $1,151 | ||||||||||||||||||||||||
Portfolio turnover rate | 22%(5 | ) | 64 | % | 56 | % | 52 | % | 64 | % | 117 | % |
@@ | Formerly Class D shares. Renamed Class I shares effective March 31, 2008. | |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio–Institutional Class during the period. The rebate had an effect of less than 0.005%. | |
(5) | Not annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
49
Morgan Stanley Balanced Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited)
We are required by federal law to provide you with a copy of our Privacy Policy annually.
The following Policy applies to current and former individual investors in Morgan Stanley Advisor funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.
We Respect Your Privacy
We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as “personal information.”
1. | What Personal Information Do We Collect About You? |
To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources.
For example:
• | We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. |
• | We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. |
• | We may obtain information about your creditworthiness and credit history from consumer reporting agencies. |
• | We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. |
• | If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer’s operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of “cookies.” “Cookies” recognize your computer each time your return to one of |
50
Morgan Stanley Balanced Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued
our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. |
2. | When Do We Disclose Personal Information We Collect About You? |
To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law.
A. Information We Disclose to Our Affiliated Companies. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law.
B. Information We Disclose to Third Parties. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose.
3. | How Do We Protect the Security and Confidentiality of Personal Information We Collect About You? |
We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information.
51
Trustees Michael Bozic Kathleen A. Dennis James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael F. Klein Michael E. Nugent W. Allen Reed Fergus Reid Officers Chairperson of the Board Randy Takian President and Principal Executive Officer Kevin Klingert Vice President Dennis F. Shea Vice President Amy R. Doberman Vice President Carsten Otto Chief Compliance Officer Stefanie V. Chang Yu Vice President Francis J. Smith Treasurer and Chief Financial Officer Mary E. Mullin Secretary Transfer Agent Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 Independent Registered Public Accounting Firm Two World Financial Center New York, New York 10281 Legal Counsel 31 West 52nd Street New York, New York 10019 Counsel to the Independent Trustees 1177 Avenue of the Americas New York, New York 10036 Investment Adviser 522 Fifth Avenue New York, New York 10036 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. Morgan Stanley Distributors Inc., member FINRA. ![]() | ![]() |
INVESTMENT MANAGEMENT
Morgan Stanley
Balanced Fund
![(Morgan Stanley Graphic)](https://capedge.com/proxy/N-CSRS/0000950123-08-012447/y65476newcvr.gif)
BGRSAN
IU08-04809P-Y07/08
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.
(a) Refer to Item 1.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the registrant’s internal control over financial reporting that
occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics – Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of
EX-99.CERT.
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 Balanced Fund
/s/ Randy Takian
Randy Takian
Principal Executive Officer
September 18, 2008
Randy Takian
Principal Executive Officer
September 18, 2008
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/ Randy Takian
Randy Takian
Principal Executive Officer
September 18, 2008
Randy Takian
Principal Executive Officer
September 18, 2008
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 18, 2008
Francis Smith
Principal Financial Officer
September 18, 2008
3