UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-07243

Morgan Stanley Balanced Income Fund
(Exact name of registrant as specified in charter)

1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)

Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)

Registrant's telephone number, including area code: 212-762-4000

Date of fiscal year end: January 31, 2004

Date of reporting period: July 31, 2003

Item 1 Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley
Balanced Income Fund performed during the semiannual period. The portfolio
management team will provide an overview of the market climate, and discuss some
of the factors that helped or hindered performance during the reporting period.
In addition, this report includes the Fund's financial statements and a list of
Fund investments, as well as other information.

This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that the market
values of securities owned by the Fund will decline and, therefore, the value of
the Fund shares may be less than what you paid for them. Accordingly, you can
lose money investing in this Fund.

FUND REPORT

For the six-month period ended July 31, 2003

TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED JULY 31, 2003

<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D

5.56% 5.19% 5.18% 5.68%
</Table>

<Table>
<Caption>
LEHMAN
BROTHERS
RUSSELL U.S. LIPPER
1000 VALUE S&P 500 GOVERNMENT/ INCOME
INDEX(1) INDEX(2) CREDIT INDEX(3) FUNDS INDEX(4)

16.04% 16.79% 0.82% 7.90%
</Table>

The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total return figures assume the reinvestment of
all distributions, but do no reflect the deduction of any applicable sales
charges. Such costs would lower performance. Past performance is no guarantee of
future results. See Performance Summary for standardized performance
information.

MARKET CONDITIONS

At the start of the six-month period ended July 31, 2003, the equity markets
were plagued by concerns over the near-term future path of the economy and
uncertainty about the possibility of war in Iraq. Traditionally defensive
sectors outperformed in this environment as investors favored their perceived
safety. From March through July, however, the equity market rallied sharply as
investors began to perceive the beneficial effects of accommodative monetary and
fiscal policy on economic results and corporate earnings. The defensive sectors
and securities that had led the market during the bear market period fell behind
more cyclical sectors as investors' expectations for the economy improved.

Bonds performed strongly through much of the equity rally. In June, however,
signs of economic growth led investors to fear that interest rates were
unsustainably low. Bond prices (which move in opposition to yields) fell sharply
through the end of the period as investors allocated assets out of the debt
markets. These shifts were reflected in the yield on the 10-year Treasury bond.
After declining sharply from May through mid-June, to 3.11 percent, it backed up
to 4.41 percent at the end of July.

PERFORMANCE ANALYSIS

The performance of the Fund's fixed-income portion was mixed. With rates at
historically low levels, our analysis indicated that the Treasury yield curve
appeared to be priced as if the U.S. economy would remain well below full
employment level for five years, and somewhat below full employment for a
decade. We believed this assessment to be unduly pessimistic in light of the
potential for the economy's return to positive growth. Given that such a return
would be likely to result in interest rates rising, we kept the Fund's
interest-rate sensitivity below that of its benchmark, which caused it to lag as
interest rates fell. This position became a net positive, however, when interest
rates soared in the last weeks of the period.

On the equity side, the Fund's overweighting in energy detracted from
performance relative to the Russell 1000 Value Index, because energy did not
participate as fully as other sectors in the rally. We remain confident in the
Fund's overweighted stance, however, because we consider the portfolio's energy
holdings to be favorably valued.

Strong performance in segments of the Fund's equity portfolio contributed
positively to its performance. Stock selection in the consumer discretionary
sector was a case in point. Many of these securities presented compelling values
and appreciated strongly from their relatively low valuations at the beginning
of the period. The Fund's investments in health care, including select
pharmaceutical and health-care services holdings, also contributed positively to
performance.

<Table>
<Caption>
TOP 10 HOLDINGS

U.S. Treasury Securities 20.8%
Fed. Home Ln. Mtge Corp. 9.4%
Fed. Natl. Mtge. Assoc. 9.3%
Bristol Myers Squibb 1.7%
Bank of America Corp. 1.2%
Chubb Corp. 1.0%
Schlumberger LTD. 0.9%
AOL Time Warner 0.9%
BP PLC-ADR 0.9%
J.P. Morgan Chase 0.8%
</Table>

<Table>
<Caption>
TOP FIVE INDUSTRIES

Common Stocks 33.8%
U.S. Government Agencies 20.6%
Mortgage-Backed Securities 18.9%
Corporate Bonds 18.2%
Short Term 16.6%
</Table>

Subject to change daily. All percentages are as a percentage of net assets.
Provided for informational purposes only and should not be deemed as a
recommendation to buy the securities mentioned. Morgan Stanley is a full-service
securities firm engaged in securities trading and brokerage activities,
investment banking, research and analysis, financing and financial advisory
services.

INVESTMENT STRATEGY

- - TYPICALLY, MORGAN STANLEY BALANCED INCOME FUND WILL INVEST AT LEAST 60% OF ITS
ASSETS IN INVESTMENT-GRADE CORPORATE DEBT SECURITIES, BANK OBLIGATIONS,
INVESTMENT-GRADE MORTGAGE-BACKED SECURITIES, INCLUDING COLLATERALIZED MORTGAGE
OBLIGATIONS, INVESTMENT-GRADE ASSET-BACKED SECURITIES, AND U.S. GOVERNMENT
SECURITIES.

- - THE FUND WILL ALSO NORMALLY INVEST AT LEAST 25% OF ITS ASSETS IN THE COMMON
STOCKS OF COMPANIES THAT HAVE A RECORD OF PAYING DIVIDENDS AND, IN THE OPINION
OF THE FUND'S MANAGER, HAVE THE POTENTIAL FOR INCREASING DIVIDENDS AND INVEST
IN SECURITIES CONVERTIBLE INTO STOCK.

PROXY VOTING POLICIES AND PROCEDURES

A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
HTTP://WWW.SEC.GOV.

PERFORMANCE SUMMARY

AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED JULY 31, 2003

<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 07/28/97) (since 03/28/95) (since 07/28/97)
SYMBOL BINAX BINBX BINCX BINDX

1 YEAR 4.17%(5) 3.41%(5) 3.40%(5) 4.42%(5)
(1.30)(6) (1.59)(6) 2.40(6)
5 YEARS 4.29(5) 3.47(5) 3.47(5) 4.49(5)
3.17(6) 3.14(6) 3.47(6)
SINCE INCEPTION 5.00(5) 4.18(5) 7.11(5) 5.22(5)
4.06(6) 4.18(6) 7.11(6)
</Table>

Past performance is not predictive of future returns. Investment return and
principal value will fluctuate. When you sell fund shares, they may be worth
less than their original cost. The table does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Performance for Class A, Class B, Class C, and Class D shares will vary
due to differences in sales charges and expenses.

- --------------------------------------------------------------------------------
Notes on Performance

(1) The Russell 1000 Value Index measures the performance of those companies in
the Russell 1000 Index with lower price-to-book ratios and lower forecasted
growth values. Indexes are unmanaged and their returns do not include any
sales charges or fees. Such costs would lower performance. It is not
possible to invest directly in an index.

(2) The Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.

(3) The Lehman Brothers U.S. Government/Credit Index tracks the performance of
government and corporate obligations, including U.S. government agency and
Treasury securities and corporate and Yankee bonds. Indexes are unmanaged
and their returns do not include any sales charges or fees. Such costs
would lower performance. It is not possible to invest directly in an index.

(4) The Lipper Income Funds Index is an equally weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Income
Funds classification. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.

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

(6) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.

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

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

+ The maximum CDSC for Class C is 1.0% for shares redeemed within one year of
purchase.

++ Class D has no sales charge.

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED)

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------

Common Stocks (33.8%)
Advertising/Marketing Services (0.2%)
36,120 Interpublic Group of Companies, Inc.*....................... $ 498,456
-----------

Aerospace & Defense (0.2%)
16,710 Raytheon Co. ............................................... 512,997
-----------

Auto Parts: O.E.M. (0.5%)
14,690 Magna International Inc. (Class A) (Canada)................. 1,117,615
-----------

Beverages: Non-Alcoholic (0.2%)
10,920 Coca-Cola Co. (The)......................................... 491,072
-----------

Chemicals: Agricultural (0.2%)
16,410 Monsanto Co. ............................................... 377,430
-----------

Chemicals: Major Diversified (0.7%)
22,430 Dow Chemical Co. (The)...................................... 791,779
13,750 Du Pont (E.I.) de Nemours & Co. ............................ 604,175
-----------
1,395,954
-----------
Computer Processing Hardware (0.4%)
40,580 Hewlett-Packard Co. ........................................ 859,079
-----------

Containers/Packaging (0.5%)
22,520 Temple-Inland Inc. ......................................... 1,044,703
-----------

Contract Drilling (0.6%)
26,240 ENSCO International Inc. ................................... 657,837
34,290 Transocean Inc.*............................................ 671,055
-----------
1,328,892
-----------
Data Processing Services (0.6%)
22,760 Automatic Data Processing, Inc. ............................ 843,941
9,030 Computer Sciences Corp.*.................................... 366,347
-----------
1,210,288
-----------
</Table>

See Notes to Financial Statements
5

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------

Discount Stores (0.7%)
12,720 Target Corp. ............................................... $ 487,430
18,060 Wal-Mart Stores, Inc. ...................................... 1,009,735
-----------
1,497,165
-----------
Electric Utilities (1.6%)
11,900 Edison International*....................................... 195,279
26,310 Entergy Corp. .............................................. 1,355,228
13,010 Exelon Corp. ............................................... 747,685
25,680 PPL Corp. .................................................. 1,016,671
-----------
3,314,863
-----------
Financial Conglomerates (2.0%)
35,290 Citigroup Inc. ............................................. 1,580,992
47,080 J.P. Morgan Chase & Co. .................................... 1,650,154
24,590 Prudential Financial, Inc. ................................. 874,912
-----------
4,106,058
-----------
Financial Publishing/Services (0.5%)
50,430 Equifax, Inc. .............................................. 1,174,515
-----------

Food: Major Diversified (0.3%)
14,460 PepsiCo, Inc. .............................................. 666,172
-----------

Hospital/Nursing Management (0.3%)
40,600 Tenet Healthcare Corp.*..................................... 559,468
-----------

Hotels/Resorts/Cruiselines (1.1%)
73,280 Hilton Hotels Corp. ........................................ 1,069,888
39,530 Starwood Hotels & Resorts Worldwide, Inc. .................. 1,288,678
-----------
2,358,566
-----------
Household/Personal Care (0.7%)
24,840 Kimberly-Clark Corp. ....................................... 1,202,256
2,130 Procter & Gamble Co. (The).................................. 187,163
-----------
1,389,419
-----------
Industrial Conglomerates (1.2%)
5,510 3M Co. ..................................................... 772,502
18,270 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda)................. 990,965
16,870 Textron, Inc. .............................................. 732,495
-----------
2,495,962
-----------
</Table>

See Notes to Financial Statements
6

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------

Industrial Machinery (0.3%)
14,100 Parker-Hannifin Corp. ...................................... $ 650,010
-----------

Information Technology Services (0.2%)
22,390 Electronic Data Systems Corp. .............................. 498,625
-----------

Integrated Oil (2.1%)
45,780 BP PLC (ADR) (United Kingdom)............................... 1,902,159
16,510 ConocoPhillips.............................................. 864,133
43,630 Exxon Mobil Corp. .......................................... 1,552,355
-----------
4,318,647
-----------
Investment Banks/Brokers (1.1%)
26,080 Edwards (A.G.), Inc. ....................................... 964,699
24,230 Merrill Lynch & Co., Inc. .................................. 1,317,385
-----------
2,282,084
-----------
Life/Health Insurance (0.3%)
19,780 MetLife, Inc. .............................................. 548,302
-----------

Major Banks (2.4%)
29,750 Bank of America Corp. ...................................... 2,456,457
17,610 FleetBoston Financial Corp. ................................ 547,495
29,620 PNC Financial Services Group, Inc. ......................... 1,449,899
14,750 Wachovia Corp. ............................................. 644,427
-----------
5,098,278
-----------
Major Telecommunications (1.4%)
49,060 SBC Communications Inc. .................................... 1,146,042
65,410 Sprint Corp. (FON Group).................................... 923,589
23,720 Verizon Communications Inc. ................................ 826,879
-----------
2,896,510
-----------
Managed Health Care (0.4%)
13,540 Aetna Inc. ................................................. 834,335
-----------

Media Conglomerates (1.6%)
126,650 AOL Time Warner Inc.*....................................... 1,954,209
65,490 Disney (Walt) Co. (The)..................................... 1,435,541
-----------
3,389,750
-----------
</Table>

See Notes to Financial Statements
7

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------

Medical Specialties (0.4%)
18,440 Bausch & Lomb, Inc. ........................................ $ 779,459
-----------

Motor Vehicles (0.3%)
35,500 Honda Motor Co., Ltd. (ADR) (Japan)......................... 701,480
-----------

Multi-Line Insurance (0.9%)
26,770 Hartford Financial Services Group, Inc. (The)............... 1,397,126
13,700 Safeco Corp. ............................................... 510,051
-----------
1,907,177
-----------
Oil & Gas Production (0.6%)
14,350 Anadarko Petroleum Corp. ................................... 628,530
18,230 EOG Resources, Inc. ........................................ 706,959
-----------
1,335,489
-----------
Oil Refining/Marketing (0.3%)
15,310 Valero Energy Corp. ........................................ 557,284
-----------

Oilfield Services/Equipment (1.0%)
44,970 Schlumberger Ltd. .......................................... 2,026,798
-----------

Other Metals/Minerals (0.5%)
23,010 Phelps Dodge Corp.*......................................... 970,792
-----------

Packaged Software (0.6%)
44,260 Microsoft Corp. ............................................ 1,168,464
-----------

Pharmaceuticals: Major (3.2%)
134,470 Bristol-Myers Squibb Co. ................................... 3,523,114
7,370 Johnson & Johnson........................................... 381,692
21,746 Pfizer Inc. ................................................ 725,447
12,470 Roche Holdings Ltd (ADR) (Switzerland)...................... 1,041,869
60,450 Schering-Plough Corp. ...................................... 1,026,441
-----------
6,698,563
-----------
Precious Metals (0.4%)
24,230 Newmont Mining Corp. ....................................... 874,703
-----------
</Table>

See Notes to Financial Statements
8

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------

Property - Casualty Insurers (1.6%)
33,570 Chubb Corp. (The)........................................... $ 2,175,336
77,144 Travelers Property Casualty Corp. (Class A)................. 1,249,733
-----------
3,425,069
-----------
Railroads (0.9%)
65,320 Norfolk Southern Corp. ..................................... 1,256,104
11,040 Union Pacific Corp. ........................................ 672,778
-----------
1,928,882
-----------
Restaurants (0.5%)
43,270 McDonald's Corp. ........................................... 995,643
-----------

Tobacco (0.3%)
16,680 Altria Group, Inc. ......................................... 667,367
-----------
Total Common Stocks (Cost $60,443,571)...................... 70,952,385
-----------
</Table>

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------

Corporate Bonds (18.2%)
Aerospace & Defense (0.8%)
$ 180 Boeing Co. ............................................... 6.625% 02/15/38 173,282
105 Goodrich Corp. ........................................... 7.625 12/15/12 114,095
240 Lockheed Martin Corp. .................................... 7.75 05/01/26 271,843
235 Lockheed Martin Corp. .................................... 8.50 12/01/29 288,314
235 Raytheon Co. ............................................. 8.30 03/01/10 274,089
439 Systems 2001 Asset Trust - 144A**......................... 6.664 09/15/13 490,646
------------
1,612,269
------------
Airlines (0.4%)
272 American West Airlines.................................... 7.10 04/02/21 278,389
48 Continental Airlines, Inc. ............................... 6.648 03/15/19 44,975
345 Continental Airlines, Inc. ............................... 6.90 07/02/19 325,193
48 Continental Airlines, Inc. ............................... 6.545 08/02/20 45,226
170 Southwest Airlines Co. ................................... 5.496 11/01/06 180,171
------------
873,954
------------
Broadcasting (0.2%)
415 Clear Channel Communications, Inc. ....................... 7.65 09/15/10 474,818
------------
</Table>

See Notes to Financial Statements
9

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Building Products (0.1%)
$ 110 Celulosa Arauco Constitution S.A. - 144A** (Chile)........ 5.125% 07/09/13 $ 103,030
95 Masco Corp. .............................................. 6.50 08/15/32 94,262
------------
197,292
------------
Cable/Satellite TV (0.6%)
500 Comcast Corp. ............................................ 6.50 01/15/15 521,385
290 Cox Communications, Inc. ................................. 7.125 10/01/12 323,957
250 Liberty Media Corp. ...................................... 5.70 05/15/13 232,620
105 TCI Communications, Inc. ................................. 7.875 02/15/26 114,327
------------
1,192,289
------------
Chemicals: Agricultural (0.1%)
155 Monsanto Co. ............................................. 7.375 08/15/12 174,519
------------

Containers/Packaging (0.1%)
205 Sealed Air Corp - 144A**.................................. 5.625 07/15/13 196,034
------------

Department Stores (0.5%)
50 Federated Department Stores, Inc. ........................ 6.625 09/01/08 54,940
110 Federated Department Stores, Inc. ........................ 7.00 02/15/28 113,137
360 Federated Department Stores, Inc. ........................ 6.90 04/01/29 366,057
80 May Department Stores Co., Inc. .......................... 5.95 11/01/08 84,389
335 May Department Stores Co., Inc. .......................... 6.70 09/15/28 325,421
100 May Department Stores Co., Inc. .......................... 7.875 03/01/30 110,407
60 May Department Stores Co., Inc. .......................... 6.90 01/15/32 59,519
------------
1,113,870
------------
Drugstore Chains (0.1%)
290 CVS Corp. ................................................ 5.625 03/15/06 312,251
------------

Electric Utilities (0.9%)
145 Appalachian Power Co. (Series H).......................... 5.95 05/15/33 130,379
145 Cincinnati Gas & Electric Co. ............................ 5.70 09/15/12 150,385
105 Cincinnati Gas & Electric Co. (Series A).................. 5.40 06/15/33 91,602
130 Cincinnati Gas & Electric Co. (Series B).................. 5.375 06/15/33 112,979
95 Columbus Southern Power Co.- 144A**....................... 6.60 03/01/33 95,785
270 Constellation Energy Group, Inc. ......................... 7.60 04/01/32 290,234
65 Detroit Edison Co. ....................................... 6.125 10/01/10 68,987
120 Detroit Edison Co. ....................................... 6.35 10/15/32 119,827
200 Duke Energy Corp. ........................................ 4.50 04/01/10 197,863
150 Exelon Corp. ............................................. 6.75 05/01/11 165,164
</Table>

See Notes to Financial Statements
10

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

$ 70 Florida Power & Light Co. ................................ 4.85 % 02/01/13 $ 69,577
135 Ohio Power Co. - 144A**................................... 6.60 02/15/33 136,129
165 Public Service Electric & Gas Co. ........................ 5.00 01/01/13 162,168
85 South Carolina Electric & Gas Co. ........................ 5.30 05/15/33 75,082
35 Wisconsin Electric Power Co. ............................. 5.625 05/15/33 32,216
65 Wisconsin Energy Corp. ................................... 6.20 04/01/33 62,774
------------
1,961,151
------------
Electrical Products (0.1%)
240 Cooper Industries Inc. ................................... 5.25 07/01/07 252,588
------------

Environmental Services (0.1%)
170 Waste Management, Inc. ................................... 6.875 05/15/09 188,484
------------

Finance/Rental/Leasing (1.1%)
265 American General Finance Corp. ........................... 5.875 07/14/06 287,397
385 Countrywide Home Loans, Inc. ............................. 3.25 05/21/08 372,174
315 Ford Motor Credit Co. .................................... 7.25 10/25/11 311,808
105 Household Finance Corp. .................................. 6.40 06/17/08 115,203
225 Household Finance Corp. .................................. 6.75 05/15/11 246,120
105 Household Finance Corp. .................................. 6.375 10/15/11 112,190
135 International Lease Finance Corp. ........................ 3.75 08/01/07 135,127
435 MBNA Corp. ............................................... 6.125 03/01/13 450,005
235 Prime Property Funding II - 144A**........................ 7.00 08/15/04 246,959
------------
2,276,983
------------
Financial Conglomerates (2.2%)
500 Associates Corp. of North America......................... 6.25 11/01/08 552,551
55 Boeing Capital Corp. ..................................... 5.75 02/15/07 58,679
235 Boeing Capital Corp. ..................................... 6.10 03/01/11 243,758
70 Boeing Capital Corp. ..................................... 6.50 02/15/12 73,599
125 Chase Manhattan Corp. .................................... 6.00 02/15/09 134,626
50 Chase Manhattan Corp. .................................... 7.00 11/15/09 55,556
185 Citigroup Inc. ........................................... 5.625 08/27/12 188,773
670 General Electric Capital Corp. ........................... 6.75 03/15/32 702,352
135 General Motors Acceptance Corp. .......................... 4.50 07/15/06 135,256
570 General Motors Acceptance Corp. .......................... 6.875 09/15/11 556,872
695 General Motors Acceptance Corp. .......................... 8.00 11/01/31 641,263
570 Prudential Holdings, LLC (Series C) - 144A**............. 8.695 12/18/23 664,141
635 Prudential Holdings, LLC (Series B) (FSA) - 144A**........ 7.245 12/18/23 684,524
------------
4,691,950
------------
</Table>

See Notes to Financial Statements
11

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Food Retail (0.5%)
$ 190 Albertson's, Inc. ........................................ 7.45 % 08/01/29 $ 198,299
195 Albertson's, Inc. ........................................ 7.50 02/15/11 218,308
150 Kroger Co. ............................................... 6.80 04/01/11 162,677
345 Kroger Co. ............................................... 7.70 06/01/29 378,454
110 Kroger Co. ............................................... 8.00 09/15/29 124,686
------------
1,082,424
------------
Food: Major Diversified (0.2%)
80 General Mills Inc. ....................................... 3.875 11/30/07 80,902
115 Kraft Foods Inc. ......................................... 5.25 06/01/07 120,487
45 Kraft Foods Inc. ......................................... 5.625 11/01/11 45,453
230 Kraft Foods Inc. ......................................... 6.25 06/01/12 240,763
------------
487,605
------------
Forest Products (0.2%)
110 Weyerhaeuser Co. ......................................... 6.125 03/15/07 118,680
375 Weyerhaeuser Co. ......................................... 6.75 03/15/12 399,471
------------
518,151
------------
Gas Distributors (0.2%)
230 Consolidated Natural Gas Co. ............................. 6.25 11/01/11 247,867
120 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A** (Qatar)... 8.294 03/15/14 135,600
125 Sempra Energy............................................. 6.00 02/01/13 129,292
------------
512,759
------------
Home Building (0.2%)
50 Centex Corp. ............................................. 7.875 02/01/11 57,181
90 Centex Corp. ............................................. 7.50 01/15/12 101,506
210 Pulte Homes, Inc. ........................................ 6.375 05/15/33 189,786
------------
348,473
------------
Home Furnishings (0.1%)
95 Mohawk Industries Inc. ................................... 7.20 04/15/12 104,447
------------

Home Improvement Chains (0.1%)
225 Lowe's Companies, Inc. ................................... 8.25 06/01/10 271,487
------------

Hotels/Resorts/Cruiselines (0.4%)
230 Hyatt Equities LLC - 144A**............................... 6.875 06/15/07 233,356
580 Marriott International, Inc. (Series E)................... 7.00 01/15/08 640,094
------------
873,450
------------
</Table>

See Notes to Financial Statements
12

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Industrial Conglomerates (0.3%)
$ 455 Honeywell International, Inc. ............................ 6.125% 11/01/11 $ 487,592
195 Hutchinson Whampoa International Ltd. - 144A** (Virgin
Islands)................................................ 6.50 02/13/13 194,313
------------
681,905
------------
Information Technology Services (0.1%)
25 Electronic Data Systems Corp. ............................ 7.125 10/15/09 26,375
145 Electronic Data Systems Corp. - 144A**.................... 6.00 08/01/13 135,611
------------
161,986
------------
Integrated Oil (0.5%)
110 Amerada Hess Corp. ....................................... 6.65 08/15/11 118,119
290 Amerada Hess Corp. ....................................... 7.875 10/01/29 314,680
505 Conoco Inc. .............................................. 6.95 04/15/29 545,776
------------
978,575
------------
Investment Banks/Brokers (0.4%)
235 Goldman Sachs Group Inc. ................................. 6.875 01/15/11 261,939
345 Goldman Sachs Group Inc. ................................. 6.60 01/15/12 376,055
225 Goldman Sachs Group Inc. ................................. 6.125 02/15/33 214,388
------------
852,382
------------
Life/Health Insurance (0.4%)
185 American General Corp. ................................... 7.50 07/15/25 208,826
145 Hartford Life, Inc. ...................................... 7.65 06/15/27 161,834
90 Hartford Life, Inc. ...................................... 7.375 03/01/31 97,467
295 John Hancock Financial Services, Inc. .................... 7.375 02/15/24 315,656
------------
783,783
------------
Major Banks (0.5%)
230 Bank One Corp. ........................................... 6.00 02/17/09 248,559
160 Citicorp.................................................. 6.75 08/15/05 174,416
290 FleetBoston Financial Corp. .............................. 7.25 09/15/05 320,423
350 UFJ Finance Aruba AEC (Aruba)............................. 6.75 07/15/13 338,791
------------
1,082,189
------------
Major Telecommunications (0.9%)
240 AT&T Corp. ............................................... 8.50 11/15/31 253,842
130 British Telecom PLC (United Kingdom)...................... 8.875 12/15/30 159,687
330 Deutsche Telekom International Finance Corp.
(Netherlands)........................................... 8.75 06/15/30 386,381
475 GTE Corp. ................................................ 6.94 04/15/28 482,267
270 Verizon Global Funding Corp. ............................. 7.75 12/01/30 301,247
300 Verizon New England Inc. ................................. 6.50 09/15/11 325,977
------------
1,909,401
------------
</Table>

See Notes to Financial Statements
13

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Managed Health Care (0.4%)
$ 505 Aetna, Inc. .............................................. 7.875% 03/01/11 $ 582,820
105 Cigna Corp. .............................................. 6.375 10/15/11 110,159
195 Wellpoint Health Network, Inc. ........................... 6.375 06/15/06 214,639
------------
907,618
------------
Media Conglomerates (0.5%)
175 AOL Time Warner Inc. ..................................... 7.70 05/01/32 183,556
210 News America Holdings, Inc. .............................. 8.875 04/26/23 253,702
90 News America Holdings, Inc. .............................. 7.75 02/01/24 97,475
470 News America Holdings, Inc. .............................. 7.28 06/30/28 485,930
135 Time Warner, Inc. ........................................ 6.625 05/15/29 125,199
------------
1,145,862
------------
Motor Vehicles (0.6%)
140 DaimlerChrysler North American Holdings Co. .............. 7.20 09/01/09 152,464
220 DaimlerChrysler North American Holdings Co. .............. 8.50 01/18/31 240,238
90 Ford Motor Co. ........................................... 6.625 10/01/28 70,890
945 Ford Motor Co. ........................................... 7.45 07/16/31 807,022
------------
1,270,614
------------
Multi-Line Insurance (0.8%)
285 AIG SunAmerica Global Finance VI - 144A**................. 6.30 05/10/11 308,626
670 Farmers Exchange Capital - 144A**......................... 7.05 07/15/28 571,142
120 Hartford Financial Services Group, Inc. .................. 2.375 06/01/06 118,044
265 Hartford Financial Services Group, Inc. .................. 7.90 06/15/10 310,282
300 Nationwide Mutual Insurance Co. .......................... 7.50 02/15/24 296,208
100 Nationwide Mutual Insurance Co. - 144A**.................. 8.25 12/01/31 111,679
------------
1,715,981
------------
Oil & Gas Production (0.9%)
30 Devon Financing Corp. .................................... 6.875 09/30/11 33,096
85 Devon Financing Corp. .................................... 7.875 09/30/31 97,088
55 Kerr-McGee Corp. ......................................... 5.875 09/15/06 58,856
115 Kerr-McGee Corp. ......................................... 6.875 09/15/11 125,148
290 Pemex Project Funding Master Trust........................ 9.125 10/13/10 334,950
390 Pemex Project Funding Master Trust........................ 8.00 11/15/11 423,150
610 Pemex Project Funding Master Trust........................ 8.625 02/01/22 637,450
40 Petro-Canada (Canada)..................................... 4.00 07/15/13 36,083
195 Petro-Canada (Canada)..................................... 5.35 07/15/33 167,620
------------
1,913,441
------------
Oil Refining/Marketing (0.1%)
210 Marathon Oil Corp. ....................................... 6.80 03/15/32 211,835
------------
</Table>

See Notes to Financial Statements
14

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Other Consumer Services (0.3%)
$ 250 Cendant Corp. ............................................ 7.375% 01/15/13 $ 277,775
225 Cendant Corp. ............................................ 7.125 03/15/15 243,812
------------
521,587
------------
Other Metals/Minerals (0.3%)
180 BHP Finance USA Ltd. (Australia).......................... 4.80 04/15/13 174,448
105 Inco Ltd. (Canada)........................................ 7.75 05/15/12 116,777
320 Inco Ltd. (Canada)........................................ 7.20 09/15/32 317,652
------------
608,877
------------
Property - Casualty Insurers (0.1%)
135 Florida Windstorm Underwrting Assoc. - 144A**............. 7.125 02/25/19 148,275
------------

Pulp & Paper (0.4%)
200 International Paper Co. .................................. 5.85 10/30/12 204,851
190 International Paper Co. - 144A**.......................... 5.30 04/01/15 180,470
135 MeadWestVaco Corp. ....................................... 6.85 04/01/12 147,243
190 Sappi Papier Holding AG - 144A** (Austria)................ 6.75 06/15/12 201,973
------------
734,537
------------
Railroads (0.1%)
110 Union Pacific Corp. ...................................... 6.79 11/09/07 121,581
105 Union Pacific Corp. ...................................... 3.625 06/01/10 97,228
------------
218,809
------------
Real Estate Development (0.4%)
200 World Financial Properties - 144A**....................... 6.91 09/01/13 219,041
477 World Financial Properties - 144A**....................... 6.95 09/01/13 523,742
------------
742,783
------------
Real Estate Investment Trusts (0.6%)
245 EOP Operating L.P. ....................................... 6.763 06/15/07 269,746
225 EOP Operating L.P. ....................................... 7.25 06/15/28 230,749
50 EOP Operating L.P. ....................................... 7.50 04/19/29 52,769
215 Simon Property Group L.P. ................................ 6.375 11/15/07 233,121
225 Simon Property Group L.P. ................................ 6.35 08/28/12 235,215
170 Vordano Reality Trust..................................... 5.625 06/15/07 176,876
------------
1,198,476
------------
Savings Banks (0.1%)
195 Washington Mutual Bank.................................... 5.50 01/15/13 197,361
70 Washington Mutual Inc. ................................... 8.25 04/01/10 83,962
------------
281,323
------------
</Table>

See Notes to Financial Statements
15

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Services to the Health Industry (0.2%)
$ 90 Anthem Insurance - 144A**................................. 9.125% 04/01/10 $ 108,476
215 Anthem Insurance - 144A**................................. 9.00 04/01/27 262,597
------------
371,073
------------
Tobacco (0.1%)
215 Altria Group, Inc. ....................................... 7.75 01/15/27 207,272
------------
Total Corporate Bonds (Cost $37,772,980)..................................... 38,365,832
------------
Foreign Government Obligation (0.1%)
120 United Mexican States Corp. (Mexico)
(Cost $143,465)......................................... 8.30 08/15/31 125,100
------------
U.S. Government & Agency Obligations (20.6%)
740 Tennessee Valley Authority................................ 0.00 10/15/04 724,173
U.S. Treasury Bonds
4,190 .......................................................... 0.00 08/15/20 1,579,089
2,700 .......................................................... 7.625 02/15/25 3,444,188
1,000 .......................................................... 8.125 08/15/19 1,311,797
1,850 .......................................................... 8.125 08/15/21 2,442,361
1,150 .......................................................... 8.75 08/15/20 1,596,704
U. S. Treasury Notes
12,000 .......................................................... 3.50 11/15/06 12,349,692
6,100 .......................................................... 6.50 02/15/10 7,024,052
6,245 .......................................................... 6.75 05/15/05 6,799,487
4,845 ***....................................................... 7.50 02/15/05 5,280,483
1,000 U.S. Treasury Strip....................................... 0.00 05/15/11 709,235
------------
Total U.S. Government & Agency Obligations (Cost $42,556,994)................ 43,261,261
------------
Mortgage-Backed Securities (18.9%)
Federal Home Loan Mortgage Corp.
17,450 .......................................................... 6.50 + 17,957,097
775 .......................................................... 7.50 + 823,922
949 .......................................................... 7.50 10/01/29 -
08/01/32 1,009,016
</Table>

See Notes to Financial Statements
16

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Federal National Mortgage Assoc.
$ 1,300 .......................................................... 6.50 % + $ 1,337,778
1,600 .......................................................... 7.00 + 1,677,000
9,168 .......................................................... 7.00 07/01/11 -
07/01/32 9,614,635
4,257 .......................................................... 7.50 08/01/23 -
07/01/32 4,512,068
2,141 .......................................................... 8.00 05/01/24 -
08/01/31 2,300,824
Government National Mortgage Assoc.
317 .......................................................... 7.50 08/15/25 -
10/15/26 335,398
130 .......................................................... 8.00 06/15/26 -
07/15/26 139,753
------------
Total Mortgage-Backed Securities (Cost $39,809,086).......................... 39,707,491
------------
Asset-Backed Securities (1.4%)
Finance/Rental/Leasing (1.3%)
54 BMW Vehicle Owner Trust 2002-A............................ 2.83 12/25/04 54,533
145 Capital Auto Receivables Asset Trust 2002-2............... 2.89 04/15/04 144,915
315 Chase Credit Card Master Trust............................ 5.50 11/17/08 338,688
1 Chase Manhattan Auto Owner Trust 2002-A................... 2.63 10/15/04 1,125
263 Chase Manhattan Auto Owner Trust 2002-B................... 2.70 01/18/05 263,411
300 Citibank Credit Issuance Trust............................ 6.90 10/15/07 328,700
142 Daimler Chrysler Auto Trust 2000-E........................ 6.11 11/08/04 142,215
311 Daimler Chrysler Auto Trust 2002-A........................ 2.90 12/06/04 311,769
190 Ford Credit Auto Owner Trust 2001-B....................... 5.12 10/15/04 190,708
83 Ford Credit Auto Owner Trust 2002-B....................... 2.97 06/15/04 82,737
318 Harley-Davidson Motorcycle Trust 2002-1................... 3.02 09/15/06 319,831
215 Honda Auto Receivables Owner Trust 2002-2................. 2.91 09/15/04 214,972
140 MBNA Master Credit Card Trust............................. 5.90 08/15/11 152,145
18 National City Auto Receivables Trust 2002-A............... 3.00 01/15/05 18,453
200 Nissan Auto Receivables Owner Trust....................... 4.80 02/15/07 207,419
130 Nissan Auto Receivables Owner Trust 2002-B................ 3.07 08/16/04 130,437
------------
Total Asset-Backed Securities (Cost $2,843,081)........... 2,902,058
------------
</Table>

See Notes to Financial Statements
17

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------

Short-Term Investments (16.6%)
U.S. Government Obligations (a) (0.1%)
U.S. Treasury Bills
$ 100 ***....................................................... 1.15 % 09/25/03 $ 99,824
100 ***....................................................... 0.934 01/15/04 99,567
------------
Total U.S. Government Obligations (Cost $199,391)............................ 199,391
------------
Repurchase Agreements (16.5%)
34,193 Joint repurchase agreement account (dated 07/31/03;
proceeds $34,194,054) (b) (Cost $34,193,000)............ 1.11 08/01/03 34,193,000
547 The Bank of New York (dated 07/31/03; proceeds $546,877)
(c) (Cost $546,864)..................................... 0.875 08/01/03 546,864
------------
Total Repurchase Agreements (Cost $34,739,864)............................... 34,739,864
------------
Total Short-Term Investments (Cost $34,939,255).............................. 34,939,255
------------
</Table>

<Table>

Total Investments (Cost $218,508,432) (d)(e)....................... 109.6% 230,253,382

Liabilities in Excess of Other Assets.............................. (9.6) (20,213,200)
----- ------------
Net Assets......................................................... 100.0% $210,040,182
===== ============
</Table>

- ---------------------

<Table>

ADR American Depository Receipt.
FSA Financial Security Assurance.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
*** All or a portion of these securities have been physically
segregated in connection with open futures contracts.
+ Securities purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date;
the actual principal amount and maturity date will be
determined upon settlement.
(a) Purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by federal agency and U.S. Treasury
obligations.
(c) Collateralized by U.S. Treasury Note 2.00% due 11/30/04
value at $557,802.
(d) Securities have been designated as collateral in a amount
equal to $36,931,735 in connection with securities purchased
on a forward commitment basis and open futures contracts.
(e) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $13,898,693 and
the aggregate gross unrealized depreciation is $2,153,743,
resulting in net unrealized appreciation of $11,744,950.
</Table>

See Notes to Financial Statements
18

Morgan Stanley Balanced Income Fund
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED) continued

Futures Contracts Open at July 31, 2003:

<Table>
<Caption>
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- --------- ---------- --------------------------- ------------------------ --------------

100 Short U.S Treasury Notes 5 year, $(11,132,813) $ 67,966
September/2003
19 Short U.S Treasury Notes 10 year, (2,101,875) 30,583
September/2003
100 Short U.S Treasury Bonds (1,901,250) 81,145
September/2003
--------
Total Unrealized Appreciation........................ $179,694
========
</Table>

See Notes to Financial Statements
19

Morgan Stanley Balanced Income Fund
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
July 31, 2003 (unaudited)

<Table>

Assets:
Investments in securities, at value
(including repurchase agreements of
$34,739,864)
(cost $218,508,432)....................... $230,253,382
Cash....................................... 325,691
Receivable for:
Investments sold....................... 1,015,943
Interest............................... 1,594,167
Shares of beneficial interest sold..... 688,763
Variation margin....................... 131,749
Dividends.............................. 116,822
Prepaid expenses........................... 55,575
------------
Total Assets........................... 234,182,092
------------
Liabilities:
Payable for:
Investments purchased.................. 23,555,385
Shares of beneficial interest
redeemed.............................. 247,877
Distribution fee....................... 173,419
Investment management fee.............. 107,376
Accrued expenses and other payables........ 57,853
------------
Total Liabilities...................... 24,141,910
------------
Net Assets............................. $210,040,182
============
Composition of Net Assets:
Paid-in-capital............................ $210,971,635
Net unrealized appreciation................ 11,924,644
Dividends in excess of net investment
income.................................... (953,400)
Accumulated net realized loss.............. (11,902,697)
------------
Net Assets............................. $210,040,182
============
Class A Shares:
Net Assets................................. $6,217,220
Shares Outstanding (unlimited authorized,
$.01 par value)........................... 521,642
Net Asset Value Per Share.............. $11.92
============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net
asset value).......................... $12.58
============
Class B Shares:
Net Assets................................. $160,115,258
Shares Outstanding (unlimited authorized,
$.01 par value)........................... 13,488,929
Net Asset Value Per Share.............. $11.87
============
Class C Shares:
Net Assets................................. $41,699,311
Shares Outstanding (unlimited authorized,
$.01 par value)........................... 3,507,848
Net Asset Value Per Share.............. $11.89
============
Class D Shares:
Net Assets................................. $2,008,393
Shares Outstanding (unlimited authorized,
$.01 par value)........................... 168,926
Net Asset Value Per Share.............. $11.89
============
</Table>

Statement of Operations
For the six months ended July 31, 2003 (unaudited)

<Table>

Net Investment Income:
Income
Interest..................................... $2,326,721
Dividends (net of $5,552 foreign withholding
tax)........................................ 754,426
----------
Total Income............................. 3,081,147
----------
Expenses
Distribution fee (Class A shares)............ 5,499
Distribution fee (Class B shares)............ 740,228
Distribution fee (Class C shares)............ 180,487
Investment management fee.................... 570,190
Transfer agent fees and expenses............. 115,826
Registration fees............................ 52,717
Shareholder reports and notices.............. 33,483
Custodian fees............................... 28,077
Professional fees............................ 25,248
Trustees' fees and expenses.................. 6,092
Other........................................ 9,946
----------
Total Expenses........................... 1,767,793
----------
Net Investment Income.................... 1,313,354
----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................. 2,727,786
Futures contracts........................... (474,333)
----------
Net Realized Gain........................ 2,253,453
----------
Net Change in Unrealized
Appreciation/Depreciation on:
Investments................................. 5,394,861
Futures contracts........................... 335,058
----------
Net Appreciation......................... 5,729,919
----------
Net Gain................................. 7,983,372
----------
Net Increase................................. $9,296,726
==========
</Table>

See Notes to Financial Statements
20

Morgan Stanley Balanced Income Fund
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JULY 31, 2003 JANUARY 31, 2003
------------- ----------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 1,313,354 $ 3,190,919
Net realized gain (loss).................................... 2,253,453 (9,867,933)
Net change in unrealized appreciation....................... 5,729,919 (1,351,196)
------------ ------------
Net Increase (Decrease)................................. 9,296,726 (8,028,210)
------------ ------------
Dividends to Shareholders from Net Investment Income:
Class A shares.............................................. (65,379) (105,607)
Class B shares.............................................. (1,523,458) (3,035,062)
Class C shares.............................................. (373,565) (841,038)
Class D shares.............................................. (21,600) (26,804)
------------ ------------
Total Dividends......................................... (1,984,002) (4,008,511)
------------ ------------

Net increase from transactions in shares of beneficial
interest.................................................. 30,541,444 46,232,396
------------ ------------
Net Increase............................................ 37,854,168 34,195,675
Net Assets:
Beginning of period......................................... 172,186,014 137,990,339
------------ ------------
End of Period
(Including dividends in excess of net investment income of
$953,400 and $282,752, respectively)........................ $210,040,182 $172,186,014
============ ============
</Table>

See Notes to Financial Statements
21

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED)

1. Organization and Accounting Policies

Morgan Stanley Balanced Income Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide current income and moderate capital growth. The Fund seeks to achieve
its objective by investing in investment grade fixed income securities and, to a
lesser extent, common stock of companies which have a record of paying dividends
and have the potential for increasing dividends and securities convertible into
common stock. The Fund was organized as a Massachusetts business trust on
November 23, 1994 and commenced operations on March 28, 1995. On July 28, 1997,
the Fund converted to a multiple class share structure.

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

The following is a summary of significant accounting policies:

A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange or other exchange is valued at its
latest sale price prior to the time when assets are valued; if there were no
sales that day, the security is valued at the mean between the last reported bid
and asked price; (2) an equity portfolio security listed or traded on the Nasdaq
is valued at the Nasdaq Official Closing Price; if there were no sales that day,
the security is valued at the mean between the last reported bid and asked
price; (3) all other equity portfolio securities for which over-the-counter
market quotations are readily available are valued at the mean between the last
reported bid and asked price. In cases where a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market; (4) for equity securities traded on foreign exchanges, the last reported
sale price or the latest bid price may be used if there were no sales on a
particular day; (5) futures are valued at the latest price published by the
commodities exchange on which they trade; (6) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees; (7) certain portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees; and (8) short-term debt
securities having a maturity date of more than sixty days at time of

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

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

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.

D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.

F. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

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

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

2. Investment Management Agreement

Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.60% to the portion of daily net assets not exceeding $500
million and 0.575% to the portion of the daily net assets in excess of $500
million.

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the average daily
net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net
assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $8,232,931
at July 31, 2003.

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

six months ended July 31, 2003, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.

The Distributor has informed the Fund that for the six months ended July 31,
2003, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $240,870 and $2,971,
respectively and received $89,657 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.

4. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended July 31,
2003, aggregated $216,276,705 and $195,297,400, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$40,089,102 and $30,054,627, respectively and purchases of $2,389,698 with other
Morgan Stanley Funds.

For the six months ended July 31, 2003, the Fund incurred brokerage commissions
of $2,394 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At July 31, 2003, the Fund's receivable for investments sold included
unsettled trades with Morgan Stanley & Co., Inc. of $114,318.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At July 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $2,500.

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

5. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JULY 31, 2003 JANUARY 31, 2003
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------

CLASS A SHARES
Sold.............................................. 313,796 $ 3,749,712 327,689 $ 3,912,674
Reinvestment of dividends......................... 3,992 47,345 5,573 65,645
Redeemed.......................................... (69,099) (811,924) (239,692) (2,786,959)
---------- ------------ ---------- ------------
Net increase - Class A............................ 248,689 2,985,133 93,570 1,191,360
---------- ------------ ---------- ------------
CLASS B SHARES
Sold.............................................. 3,855,670 45,088,725 8,290,094 97,695,125
Reinvestment of dividends......................... 89,792 1,053,262 179,210 2,103,131
Redeemed.......................................... (2,310,352) (27,014,621) (4,897,510) (57,560,883)
---------- ------------ ---------- ------------
Net increase - Class B............................ 1,635,110 19,127,366 3,571,794 42,237,373
---------- ------------ ---------- ------------
CLASS C SHARES
Sold.............................................. 892,887 10,585,690 904,376 10,678,414
Reinvestment of dividends......................... 24,826 291,705 58,065 684,235
Redeemed.......................................... (250,845) (2,935,149) (824,928) (9,587,655)
---------- ------------ ---------- ------------
Net increase - Class C............................ 666,868 7,942,246 137,513 1,774,994
---------- ------------ ---------- ------------
CLASS D SHARES
Sold.............................................. 115,228 1,364,786 134,333 1,560,341
Reinvestment of dividends......................... 1,292 15,268 1,695 19,695
Redeemed.......................................... (76,888) (893,355) (46,958) (551,367)
---------- ------------ ---------- ------------
Net increase - Class D............................ 39,632 486,699 89,070 1,028,669
---------- ------------ ---------- ------------
Net increase in Fund.............................. 2,590,299 $ 30,541,444 3,891,947 $ 46,232,396
========== ============ ========== ============
</Table>

6. Federal Income Tax Status

The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.

Morgan Stanley Balanced Income Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

As of January 31, 2003, the Fund had a net capital loss carryforward of
$13,332,190 of which $5,240 will expire on January 31, 2009 and $13,326,950 will
expire on January 31, 2011 to offset future capital gains to the extent provided
by regulations.

As of January 31, 2003, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and amortization of
premiums on debt securities.

7. Purposes of and Risks Relating to Certain Financial Instruments

The Fund may invest in interest rate and stock index futures contracts ("futures
contracts").

These future contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities.

At July 31, 2003, the Fund had outstanding futures contracts.

Morgan Stanley Balanced Income Fund
FINANCIAL HIGHLIGHTS

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

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JANUARY 31,
MONTHS ENDED --------------------------------------------------------------------------
JULY 31, 2003 2003 2002 2001 2000 1999
------------- -------- -------- -------- -------- --------
(unaudited)

Class A Shares:
Selected Per Share Data:

Net asset value, beginning of
period....................... $11.45 $12.35 $12.42 $11.80 $12.75 $12.41
------ ------ ------ ------ ------ ------

Income (loss) from investment
operations:
Net investment income++... 0.12 0.33 0.43 0.47 0.47 0.46
Net realized and
unrealized gain (loss).... 0.51 (0.84) (0.06) 0.94 (0.69) 0.87
------ ------ ------ ------ ------ ------

Total income (loss) from
investment operations........ 0.63 (0.51) 0.37 1.41 (0.22) 1.33
------ ------ ------ ------ ------ ------

Less dividends and
distributions from:
Net investment income..... (0.16) (0.39) (0.44) (0.47) (0.47) (0.47)
Net realized gain......... -- -- -- (0.32) (0.26) (0.52)
------ ------ ------ ------ ------ ------

Total dividends and
distributions................ (0.16) (0.39) (0.44) (0.79) (0.73) (0.99)
------ ------ ------ ------ ------ ------

Net asset value, end of
period....................... $11.92 $11.45 $12.35 $12.42 $11.80 $12.75
====== ====== ====== ====== ====== ======

Total Return+................. 5.56%(1) (4.19)% 3.13% 12.66% (1.84)% 11.11%

Ratios to Average Net
Assets(3):

Expenses...................... 1.14%(2) 1.08% 1.16% 1.20% 1.20% 1.23%

Net investment income......... 2.10%(2) 2.79% 3.44% 3.97% 3.82% 3.73%

Supplemental Data:

Net assets, end of period, in
thousands.................... $6,217 $3,125 $2,216 $2,043 $2,187 $5,448

Portfolio turnover rate....... 105%(1) 173% 99% 21% 35% 32%
</Table>

- ---------------------------------------------------

<Table>

++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Annualized.
(2) Not annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>

See Notes to Financial Statements
28

Morgan Stanley Balanced Income Fund
FINANCIAL HIGHLIGHTS continued

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JANUARY 31,
MONTHS ENDED ------------------------------------------------------------------
JULY 31, 2003 2003 2002 2001 2000 1999
------------- --------- --------- -------- -------- --------
(unaudited)

Class B Shares:
Selected Per Share Data:

Net asset value,
beginning of period.... $11.40 $12.31 $12.39 $11.77 $12.74 $12.41
------ ------ ------ ------ ------ ------

Income (loss) from
investment operations:
Net investment
income++............ 0.08 0.24 0.34 0.37 0.38 0.38
Net realized and
unrealized gain
(loss).............. 0.51 (0.85) (0.07) 0.95 (0.71) 0.85
------ ------ ------ ------ ------ ------

Total income (loss) from
investment operations.. 0.59 (0.61) 0.27 1.32 (0.33) 1.23
------ ------ ------ ------ ------ ------

Less dividends and
distributions from:
Net investment
income.............. (0.12) (0.30) (0.35) (0.38) (0.38) (0.38)
Net realized gain... -- -- -- (0.32) (0.26) (0.52)
------ ------ ------ ------ ------ ------

Total dividends and
distributions.......... (0.12) (0.30) (0.35) (0.70) (0.64) (0.90)
------ ------ ------ ------ ------ ------

Net asset value, end of
period................. $11.87 $11.40 $12.31 $12.39 $11.77 $12.74
====== ====== ====== ====== ====== ======

Total Return+........... 5.19%(1) (4.98)% 2.32% 11.82% (2.69)% 10.32%

Ratios to Average Net
Assets(3):

Expenses................ 1.89%(2) 1.84% 1.91% 2.00% 1.95% 1.99%

Net investment income... 1.35%(2) 2.03% 2.68% 3.17% 3.07% 2.97%

Supplemental Data:

Net assets, end of
period, in thousands... $160,115 $135,146 $101,957 $45,803 $56,827 $56,919

Portfolio turnover
rate................... 105%(1) 173% 99% 21% 35% 32%
</Table>

- ---------------------------------------------------

<Table>

See Notes to Financial Statements
29

Morgan Stanley Balanced Income Fund
FINANCIAL HIGHLIGHTS continued

<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JANUARY 31,
MONTHS ENDED ----------------------------------------------------------------
JULY 31, 2003 2003 2002 2001 2000 1999
------------- -------- -------- -------- -------- --------
(unaudited)

Class C Shares:
Selected Per Share Data:

Net asset value,
beginning of period.... $11.42 $12.33 $12.41 $11.78 $12.74 $12.41
------ ------ ------ ------ ------ ------

Income (loss) from
investment operations:
Net investment
income++............ 0.08 0.24 0.33 0.38 0.38 0.38
Net realized and
unrealized gain
(loss).............. 0.51 (0.85) (0.05) 0.95 (0.70) 0.85
------ ------ ------ ------ ------ ------

Total income (loss) from
investment
operations............. 0.59 (0.61) 0.28 1.33 (0.32) 1.23
------ ------ ------ ------ ------ ------

Less dividends and
distributions from:
Net investment
income.............. (0.12) (0.30) (0.36) (0.38) (0.38) (0.38)
Net realized gain... -- -- -- (0.32) (0.26) (0.52)
------ ------ ------ ------ ------ ------

Total dividends and
distributions.......... (0.12) (0.30) (0.36) (0.70) (0.64) (0.90)
------ ------ ------ ------ ------ ------

Net asset value, end of
period................. $11.89 $11.42 $12.33 $12.41 $11.78 $12.74
====== ====== ====== ====== ====== ======

Total Return+........... 5.18%(1) (5.00)% 2.32% 11.89% (2.62)% 10.32%

Ratios to Average Net
Assets(3):

Expenses................ 1.89%(2) 1.84% 1.91% 1.94% 1.95% 1.94%

Net investment income... 1.35%(2) 2.03% 2.68% 3.23% 3.07% 3.02%

Supplemental Data:

Net assets, end of
period, in thousands... $41,699 $32,439 $33,321 $24,205 $29,535 $35,291

Portfolio turnover
rate................... 105%(1) 173% 99% 21% 35% 32%
</Table>

- ---------------------------------------------------

<Table>

See Notes to Financial Statements
30

Morgan Stanley Balanced Income Fund
FINANCIAL HIGHLIGHTS continued

Class D Shares:
Selected Per Share Data:

Net asset value,
beginning of period.... $11.42 $12.33 $12.40 $ 11.79 $12.75 $12.42
------ ------ ------ ------- ------ ------

Income (loss) from
investment operations:
Net investment
income++............ 0.14 0.34 0.45 0.50 0.50 0.48
Net realized and
unrealized gain
(loss).............. 0.51 (0.83) (0.05) 0.93 (0.70) 0.87
------ ------ ------ ------- ------ ------

Total income (loss) from
investment
operations............. 0.65 (0.49) 0.40 1.43 (0.20) 1.35
------ ------ ------ ------- ------ ------

Less dividends and
distributions from:
Net investment
income.............. (0.18) (0.42) (0.47) (0.50) (0.50) (0.50)
Net realized gain... -- -- -- (0.32) (0.26) (0.52)
------ ------ ------ ------- ------ ------

Total dividends and
distributions.......... (0.18) (0.42) (0.47) (0.82) (0.76) (1.02)
------ ------ ------ ------- ------ ------

Net asset value, end of
period................. $11.89 $11.42 $12.33 $ 12.40 $11.79 $12.75
====== ====== ====== ======= ====== ======

Total Return+........... 5.68%(1) (4.04)% 3.37% 12.88% (1.63)% 11.27%

Ratios to Average Net
Assets(3):

Expenses................ 0.89%(2) 0.84% 0.91% 1.00% 0.95% 0.99%

Net investment income... 2.35%(2) 3.03% 3.68% 4.17% 4.07% 3.97%

Supplemental Data:

Net assets, end of
period, in thousands... $2,008 $1,476 $496 $107 $1,546 $1,679

Portfolio turnover
rate................... 105%(1) 173% 99% 21% 35% 32%
</Table>

- ---------------------------------------------------

<Table>

++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Annualized.
(2) Not annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>

See Notes to Financial Statements
31

TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid

OFFICERS

Charles A. Fiumefreddo
Chairman of the Board

Mitchell M. Merin
President

Ronald E. Robison
Executive Vice President and Principal Executive Officer

Barry Fink
Vice President and General Counsel

Joseph J. McAlinden
Vice President

Stefanie V. Chang
Vice President

Francis Smith
Treasurer and Chief Financial Officer

Thomas F. Caloia
Vice President

Mary E. Mullin
Secretary

TRANSFER AGENT

Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT MANAGER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.

This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

Morgan Stanley
Balanced Income Fund

Semiannual Report
July 31, 2003

[MORGAN STANLEY LOGO]

38400RPT-12078AP-H03-8/03

Item 2. Code of Ethics.

(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.

(b) No information need be disclosed pursuant to this paragraph.

(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto

(d) The Fund has granted a waiver or an implicit waiver from a provision of
its Code of Ethics.

(e) Not applicable.

(f)

(1) The Fund's Code of Ethics is attached hereto as Exhibit A.

(2) Not applicable.

(3) Not applicable.

Item 3. Audit Committee Financial Expert.

The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.

Item 9 - Controls and Procedures

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

There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.

(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

Item 10 Exhibits

(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.

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

Items 4 - 8 are not applicable

SIGNATURES

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

Morgan Stanley Balanced Income Fund

Ronald E. Robison
Principal Executive Officer
September 22, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

Ronald E. Robison
Principal Executive Officer
September 22, 2003

Francis Smith
Principal Financial Officer
September 22, 2003

EXHIBIT 10 A

CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
ADOPTED JULY 31, 2003

I. This Code of Ethics (the "Code") for the investment companies within the
Morgan Stanley complex identified in Exhibit A (collectively, "Funds"
and each, a "Fund") applies to each Fund's Principal Executive Officer,
President, Principal Financial Officer and Treasurer (or persons
performing similar functions) ("Covered Officers" each of whom are set
forth in Exhibit B) for the purpose of promoting:

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

- full, fair, accurate, timely and understandable disclosure in
reports and documents that a company files with, or submits to,
the Securities and Exchange Commission ("SEC") and in other
public communications made by the Fund;

- compliance with applicable laws and governmental rules and
regulations;

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

- accountability for adherence to the Code.

Each Covered Officer should adhere to a high standard of
business ethics and should be sensitive to situations that may give rise to
actual as well as apparent conflicts of interest. Any question about the
application of the Code should be referred to the General Counsel or his/her
designee (who is set forth in Exhibit C).

II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS
OF INTEREST

OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes, or appears to interfere, with the interests of, or
his service to, the Fund. For example, a conflict of interest would arise if a
Covered Officer, or a member of his family, receives improper personal benefits
as a result of his position with the Fund.

Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940 ("Investment Company Act") and
the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example,
Covered Officers may not individually engage in certain transactions (such as
the purchase or sale of securities or other property) with the Fund because of
their status as "affiliated persons" (as defined in the Investment Company Act)
of the Fund. The Fund's and its investment adviser's compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside the parameters of this
Code, unless or until the General Counsel determines that any violation of such
programs and procedures is also a violation of this Code.

Although typically not presenting an opportunity for improper personal
benefit, conflicts may arise from, or as a result of, the contractual
relationship between the Fund and its investment adviser of which the Covered
Officers are also officers or employees. As a result, this Code recognizes that
the Covered Officers will, in the normal course of their duties (whether
formally for the Fund or for the investment adviser, or for both), be involved
in establishing policies and implementing decisions that will have different
effects on the Fund and its investment adviser. The participation of the Covered
Officers in such activities is inherent in the contractual relationship between
the Fund and the investment adviser and is consistent with the performance by
the Covered Officers of their duties as officers of the Fund. Thus, if performed
in conformity with the provisions of the Investment Company Act and the
Investment Advisers Act, such activities will be deemed to have been handled
ethically. In addition, it is recognized by the Funds' Boards of
Directors/Trustees ("Boards") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by this or other
codes.

Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The following list provides examples of
conflicts of interest under the Code, but Covered Officers should keep in mind
that these examples are not exhaustive. The overarching principle is that the
personal interest of a Covered Officer should not be placed improperly before
the interest of the Fund.

Each Covered Officer must not:

- use his personal influence or personal relationships improperly
to influence investment decisions or financial reporting by the
Fund whereby the Covered Officer would benefit personally
(directly or indirectly) to the detriment of the Fund;

- cause the Fund to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than
the benefit of the Fund; or

- use material non-public knowledge of portfolio transactions made
or contemplated for, or actions proposed to be taken by, the
Fund to trade personally or cause others to trade personally in
contemplation of the market effect of such transactions.

Each Covered Officer must, at the time of signing this Code, report to
the General Counsel all affiliations or significant business relationships
outside the Morgan Stanley complex and must update the report annually.

Conflict of interest situations should always be approved by the General
Counsel and communicated to the relevant Fund or Fund's Board. Any activity or
relationship that would present such a conflict for a Covered Officer would
likely also present a conflict for the Covered Officer if an immediate member of
the Covered Officer's family living in the same household engages in such an
activity or has such a relationship. Examples of these include:

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

- accepting directly or indirectly, anything of value, including
gifts and gratuities in excess of $100 per year from any person
or entity with which the Fund has current or prospective
business dealings, not including occasional meals or tickets for
theatre or sporting events or other similar entertainment;
provided it is business-related, reasonable in cost, appropriate
as to time and place, and not so frequent as to raise any
question of impropriety;

- any ownership interest in, or any consulting or employment
relationship with, any of the Fund's service providers, other
than its investment adviser, principal underwriter, or any
affiliated person thereof; and

- a direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Fund for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership.

III. DISCLOSURE AND COMPLIANCE

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

- each Covered Officer must not knowingly misrepresent, or cause
others to misrepresent, facts about the Fund to others, whether
within or outside the

Fund, including to the Fund's Directors/Trustees and auditors,
or to governmental regulators and self-regulatory organizations;

- each Covered Officer should, to the extent appropriate within
his area of responsibility, consult with other officers and
employees of the Funds and their investment advisers with the
goal of promoting full, fair, accurate, timely and
understandable disclosure in the reports and documents the Funds
file with, or submit to, the SEC and in other public
communications made by the Funds; and

- it is the responsibility of each Covered Officer to promote
compliance with the standards and restrictions imposed by
applicable laws, rules and regulations.

IV. REPORTING AND ACCOUNTABILITY

Each Covered Officer must:

- upon adoption of the Code (thereafter as applicable, upon
becoming a Covered Officer), affirm in writing to the Boards
that he has received, read and understands the Code;

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

- not retaliate against any other Covered Officer, other officer
or any employee of the Funds or their affiliated persons for
reports of potential violations that are made in good faith; and

- notify the General Counsel promptly if he/she knows or suspects
of any violation of this Code. Failure to do so is itself a
violation of this Code.

The General Counsel is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. However, any waivers(1) sought
by a Covered Officer must be considered by the Board of the relevant Fund or
Funds.

The Funds will follow these procedures in investigating and enforcing
this Code:

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

- --------------------------
(1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of
a material departure from a provision of the code of ethics."

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

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

- if the directors/trustees/managing general partners who are not
"interested persons" as defined by the Investment Company Act
(the "Independent Directors/Trustees/Managing General Partners")
of the relevant Fund concur that a violation has occurred, they
will consider appropriate action, which may include review of,
and appropriate modifications to, applicable policies and
procedures; notification to appropriate personnel of the
investment adviser or its board; or a recommendation to dismiss
the Covered Officer or other appropriate disciplinary actions;

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

- any changes to or waivers of this Code will, to the extent
required, be disclosed as provided by SEC rules.

V. OTHER POLICIES AND PROCEDURES

This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Funds, the Funds' investment advisers, principal
underwriters, or other service providers govern or purport to govern the
behavior or activities of the Covered Officers who are subject to this Code,
they are superseded by this Code to the extent that they overlap or conflict
with the provisions of this Code unless any provision of this Code conflicts
with any applicable federal or state law, in which case the requirements of such
law will govern. The Funds' and their investment advisers' and principal
underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act
and Morgan Stanley's Code of Ethics are separate requirements applying to the
Covered Officers and others, and are not part of this Code.

VI. AMENDMENTS

Any amendments to this Code, other than amendments to Exhibits A, B
or C, must be approved or ratified by a majority vote of the Board of each
Fund, including a majority of Independent Directors/Trustees/Managing General
Partners.

VII. CONFIDENTIALITY

All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the Independent
Directors/Trustees/Managing General Partners of the relevant Fund or Funds and
their counsel, the relevant Fund or Funds and their counsel and the relevant
investment adviser and its counsel.

VIII. INTERNAL USE

The Code is intended solely for the internal use by the Funds and does
not constitute an admission, by or on behalf of any Fund, as to any fact,
circumstance, or legal conclusion

I have read and understand the terms of the above Code. I recognize the
responsibilities and obligations incurred by me as a result of my being subject
to the Code. I hereby agree to abide by the above Code.

- ---------------------------

Date:
----------------------

EXHIBIT A
FUND LIST

MORGAN STANLEY
RETAIL AND INSTITUTIONAL FUNDS
AT
JULY 31, 2003

RETAIL FUNDS

OPEN-END RETAIL FUNDS

TAXABLE MONEY MARKET FUNDS

1. Active Assets Government Securities Trust ("AA Government")
2. Active Assets Institutional Government Securities Trust ("AA Institutional
Government")
3. Active Assets Institutional Money Trust ("AA Institutional Money")
4. Active Assets Money Trust ("AA Money")
5. Morgan Stanley Liquid Asset Fund Inc. ("Liquid Asset")
6. Morgan Stanley U.S. Government Money Market Trust ("Government Money")

Tax-Exempt Money Market Funds

7. Active Assets California Tax-Free Trust ("AA California")
8. Active Assets Tax-Free Trust ("AA Tax-Free")
9. Morgan Stanley California Tax-Free Daily Income Trust ("California Tax-Free
Daily")
10. Morgan Stanley New York Municipal Money Market Trust ("New York Money")
11. Morgan Stanley Tax-Free Daily Income Trust ("Tax-Free Daily")

EQUITY FUNDS

12. Morgan Stanley 21st Century Trend Fund ("21st Century Trend")*
13. Morgan Stanley Aggressive Equity Fund ("Aggressive Equity")*
14. Morgan Stanley Allocator Fund ("Allocator Fund")*
15. Morgan Stanley All Star Growth Fund ("All Star Growth")*
16. Morgan Stanley American Opportunities Fund ("American Opportunities")*
17. Morgan Stanley Biotechnology Fund ("Biotechnology Fund")*
18. Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")*
19. Morgan Stanley Developing Growth Securities Trust ("Developing Growth")*
20. Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")*
21. Morgan Stanley Equity Fund ("Equity Fund")*
22. Morgan Stanley European Growth Fund Inc. ("European Growth")*
23. Morgan Stanley Financial Services Trust ("Financial Services")*

24. Morgan Stanley Fund of Funds ("Fund of Funds")*
- Domestic Portfolio
- International Portfolio
25. Morgan Stanley Fundamental Value Fund ("Fundamental Value")*
26. Morgan Stanley Global Advantage Fund ("Global Advantage")*
27. Morgan Stanley Global Dividend Growth Securities ("Global Dividend Growth")*
28. Morgan Stanley Global Utilities Fund ("Global Utilities")*
29. Morgan Stanley Growth Fund ("Growth Fund")*
30. Morgan Stanley Health Sciences Trust ("Health Sciences")*
31. Morgan Stanley Income Builder Fund ("Income Builder")*
32. Morgan Stanley Information Fund ("Information Fund")*
33. Morgan Stanley International Fund ("International Fund")*
34. Morgan Stanley International SmallCap Fund ("International SmallCap")*
35. Morgan Stanley International Value Equity Fund ("International Value")*
36. Morgan Stanley Japan Fund ("Japan Fund")*
37. Morgan Stanley KLD Social Index Fund ("KLD Social Index")*
38. Morgan Stanley Latin American Growth Fund ("Latin American")*
39. Morgan Stanley Market Leader Trust ("Market Leader")*
40. Morgan Stanley Mid-Cap Value Fund (Mid-Cap Value")*
41. Morgan Stanley Nasdaq-100 Index Fund ("Nasdaq-100")*
42. Morgan Stanley Natural Resource Development Securities Inc. ("Natural
Resource")*
43. Morgan Stanley New Discoveries Fund ("New Discoveries")*
44. Morgan Stanley Next Generation Trust ("Next Generation")*
45. Morgan Stanley Pacific Growth Fund Inc. ("Pacific Growth")*
46. Morgan Stanley Real Estate Fund ("Real Estate")*
47. Morgan Stanley Small-Mid Special Value Fund (Small-Mid Special Value")*
48. Morgan Stanley S&P 500 Index Fund ("S&P500 Index")*
49. Morgan Stanley Special Growth Fund ("Small Cap Growth")*
50. Morgan Stanley Special Value Fund ("Special Value")*
51. Morgan Stanley Tax-Managed Growth Fund ("Tax-Managed Growth")*
52. Morgan Stanley Technology Fund ("Technology Fund")*
53. Morgan Stanley Total Market Index Fund ("Total Market Index")*
54. Morgan Stanley Total Return Trust ("Total Return")*
55. Morgan Stanley Utilities Fund ("Utilities Fund")*
56. Morgan Stanley Value-Added Market Series ("Value-Added")*
57. Morgan Stanley Value Fund ("Value Fund")*

BALANCED FUNDS

58. Morgan Stanley Balanced Growth Fund ("Balanced Growth")*
59. Morgan Stanley Balanced Income Fund ("Balanced Income")*

ASSET ALLOCATION FUND

60. Morgan Stanley Strategist Fund ("Strategist Fund")*

TAXABLE FIXED-INCOME FUNDS

61. Morgan Stanley Convertible Securities Trust ("Convertible Securities")*
62. Morgan Stanley Diversified Income Trust ("Diversified Income")*
63. Morgan Stanley Federal Securities Trust ("Federal Securities")*
64. Morgan Stanley High Yield Securities Inc ("High Yield Securities")*
65. Morgan Stanley Intermediate Income Securities ("Intermediate Income")*
66. Morgan Stanley Limited Duration Fund ("Limited Duration Fund")
67. Morgan Stanley Limited Duration U.S. Treasury Trust ("Limited Duration
Treasury")
68. Morgan Stanley Total Return Income Securities Fund ("Total Return Income")*
69. Morgan Stanley U.S. Government Securities Trust ("Government Securities")*

TAX-EXEMPT FIXED-INCOME FUNDS

70. Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")*
71. Morgan Stanley Hawaii Municipal Trust ("Hawaii Municipal")
72. Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal")
73. Morgan Stanley Multi-State Municipal Series Trust ("Multi-State Series")
- Arizona Series
- Florida Series
- New Jersey Series
- Pennsylvania Series
74. Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")*
75. Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")*

SPECIAL PURPOSE FUNDS

76. Morgan Stanley Select Dimensions Investment Series ("Select Dimensions")

- American Opportunities Portfolio
- Balanced Growth Portfolio
- Capital Opportunities Portfolio
- Developing Growth Portfolio
- Dividend Growth Portfolio
- Flexible Income Portfolio
- Global Equity Portfolio
- Growth Portfolio
- Money Market Portfolio
- Utilities Portfolio
- Value-Added Portfolio

77. Morgan Stanley Variable Investment Series ("Variable Investment")
- Aggressive Equity Portfolio
- Dividend Growth Portfolio

- Equity Portfolio
- European Growth Portfolio
- Global Advantage Portfolio
- Global Dividend Growth Portfolio
- High Yield Portfolio
- Income Builder Portfolio
- Information Portfolio
- Limited Duration Portfolio
- Money Market Portfolio
- Pacific Growth Protfolio
- Quality Income Plus Portfolio
- S&P 500 Index Portfolio
- Strategist Portfolio
- Utilities Portfolio

CLOSED-END RETAIL FUNDS

TAXABLE FIXED-INCOME CLOSED-END FUNDS

78. Morgan Stanley Government Income Trust ("Government Income")
79. Morgan Stanley Income Securities Inc. ("Income Securities")
80. Morgan Stanley Prime Income Trust ("Prime Income")

TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS

81. Morgan Stanley California Insured Municipal Income Trust ("California
Insured Municipal")
82. Morgan Stanley California Quality Municipal Securities ("California Quality
Municipal")
83. Morgan Stanley Insured California Municipal Securities ("Insured California
Securities")
84. Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond")
85. Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income")
86. Morgan Stanley Insured Municipal Securities ("Insured Municipal Securities")
87. Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust")
88. Morgan Stanley Municipal Income Opportunities Trust ("Municipal
Opportunities")
89. Morgan Stanley Municipal Income Opportunities Trust II ("Municipal
Opportunities II")
90. Morgan Stanley Municipal Income Opportunities Trust III ("Municipal
Opportunities III")
91. Morgan Stanley Municipal Premium Income Trust ("Municipal Premium")
92. Morgan Stanley New York Quality Municipal Securities ("New York Quality
Municipal")
93. Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income")
94. Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal
Investment")

95. Morgan Stanley Quality Municipal Securities ("Quality Municipal Securities")

*- Denotes Retail Multi-Class Fund

TERM TRUST

1. TCW/DW Term Trust 2003 ("Term Trust 2003")

INSTITUTIONAL FUNDS

OPEN-END INSTITUTIONAL FUNDS

1. Morgan Stanley Institutional Fund, Inc. ("Institutional Fund Inc.")

Active Portfolios:

- Active International Allocation Portfolio
- Asian Equity Portfolio
- Asian Real Estate Portfolio
- Emerging Markets Portfolio
- Emerging Markets Debt Portfolio
- Equity Growth Portfolio
- European Value Equity Portfolio
- European Real Estate Portfolio
- Focus Equity Portfolio
- Global Franchise Portfolio
- Global Value Equity Portfolio
- International Equity Portfolio
- International Magnum Portfolio
- International Small Cap Portfolio
- Japanese Value Equity Portfolio
- Latin American Portfolio
- Money Market Portfolio
- Municipal Money Market Portfolio
- Small Company Growth Portfolio
- Technology Portfolio
- U.S. Real Estate Portfolio
- Value Equity Portfolio

Inactive Portfolios:

- China Growth Portfolio
- Gold Portfolio
- Micro-Cap Portfolio
- Mortgage Backed Securities Portfolio
- U.S. Equity Portfolio
- Municipal Bond Portfolio

2. Morgan Stanley Institutional Fund Trust ("Institutional Fund Trust")

Active Portfolios:

- Advisory Foreign Fixed Income Portfolio

- Advisory Foreign Fixed Income II Portfolio
- Advisory Mortgage Portfolio
- Balanced Portfolio
- Cash Reserves Portfolio
- U.S. Core Fixed Income Portfolio
- Equity Portfolio
- Core Plus Fixed Income Portfolio
- Investment Grade Fixed Income Portfolio
- High Yield Portfolio
- Intermediate Duration Portfolio
- International Fixed income Portfolio
- Limited Duration Portfolio
- Mid-Cap Growth Portfolio
- Multi-Asset Class Portfolio
- Municipal Portfolio
- Small-Cap Growth Portfolio
- Strategic Small Value Portfolio
- U.S. Small-Cap Growth Portfolio
- U.S. Mid-Cap Core Portfolio
- Value Portfolio

Inactive Portfolios:
- Balanced Plus Portfolio
- Growth Portfolio
- New York Municipal Portfolio
- Targeted Duration Portfolio
- Value II Portfolio

3. The Universal Institutional Funds, Inc. ("Universal Funds")

Active Portfolios:
- Active International Allocation Portfolio
- Core Plus Fixed Income Portfolio
- Emerging Markets Debt Portfolio
- Emerging Markets Equity Portfolio
- Equity and Income Portfolio
- Equity Growth Portfolio
- Global Franchise Portfolio
- Global Value Equity Portfolio
- High Yield Portfolio
- International Magnum Portfolio
- Mid-Cap Growth Portfolio
- Money Market Portfolio
- Small Company Growth Portfolio

- Technology Portfolio
- U.S. Mid-Cap Core Portfolio
- U.S. Real Estate Portfolio
- Value Portfolio

Inactive Portfolios:

- Asian Equity Portfolio
- Balanced Portfolio
- Capital Preservation Portfolio
- Core Equity Portfolio
- International Fixed Income Portfolio
- Investment Grade Fixed Income Portfolio
- Latin American Portfolio
- Multi-Asset Class Portfolio
- Targeted Duration Portfolio

4. Morgan Stanley Institutional Liquidity Funds ("Liquidity Funds")

CLOSED-END INSTITUTIONAL FUNDS

5. Morgan Stanley Asia-Pacific Fund, Inc. ("Asia-Pacific Fund")
6. Morgan Stanley Eastern Europe Fund, Inc. ("Eastern Europe")
7. Morgan Stanley Emerging Markets Debt Fund, Inc. ("Emerging Markets
Debt")
8. Morgan Stanley Emerging Markets Fund, Inc. ("Emerging Markets Fund")
9. Morgan Stanley Global Opportunity Bond Fund, Inc. ("Global Opportunity")
10. Morgan Stanley High Yield Fund, Inc. ("High Yield Fund")
11. The Latin American Discovery Fund, Inc. ("Latin American Discovery")
12 The Malaysia Fund, Inc. ("Malaysia Fund")
13. The Thai Fund, Inc. ("Thai Fund")
14. The Turkish Investment Fund, Inc. ("Turkish Investment")

CLOSED-END HEDGE FUND

15. Morgan Stanley Institutional Fund of Hedge Funds ("Fund of Hedge Funds")

EXHIBIT B

INSTITUTIONAL FUNDS
COVERED OFFICERS

Mitchell M. Merin - President
Ronald E. Robison - Executive Vice President and Principal Executive Officer
James W. Garrett - Chief Financial Officer and Treasurer

RETAIL FUNDS
COVERED OFFICERS

Mitchell M. Merin - President
Ronald E. Robison - Executive Vice President and Principal Executive Officer
Frank Smith - Chief Financial Officer and Treasurer

EXHIBIT C

GENERAL COUNSEL

Barry Fink