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

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-07245

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

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

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

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

Date of fiscal year end: January 31, 2004

Date of reporting period: July 31, 2003

Item 1 Report to Shareholders

Welcome, Shareholder:

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

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

FUND REPORT

For the six-month period ended July 31, 2003

TOTAL RETURN FOR THE SIX MONTHS ENDED JULY 31, 2003

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

10.77% 10.35% 10.34% 10.89%
</Table>

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

16.04% 16.79% 0.82% 10.78%
</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

Much of the Fund's underperformance relative to its benchmark, the Russell 1000
Value Index, during the period stemmed from its holdings of fixed-income
securities, which lagged the equity market. On the equity side, the Fund's
overweighting in energy detracted from performance because that sector did not
participate as fully in the rally as others. We remain confident in the Fund's
overweighted stance, however, because we consider our energy holdings to be
favorably valued.

These negatives were partially offset by strong performance in other segments of
the Fund's equity portfolio. Strong stock selection in the consumer
discretionary sector was one such case. Many of these securities presented
compelling values and appreciated strongly from their relatively low valuations
at the beginning of the period. The Fund's investments in health care, including
select pharmaceutical and health care services holdings, also contributed
positively to performance.

The fixed-income portfolio's performance was mixed. With rates at historically
low levels, our analysis indicated that the Treasury yield curve appeared to be
priced as if the U.S. economy would remain well below full employment level for
five years, and somewhat below full employment for a decade. We believed this
assessment to be unduly pessimistic in light of the potential for the economy's
return to

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.

<Table>
<Caption>
TOP 10 HOLDINGS

U.S. Treasury Bonds and Notes 7.3%
Fed. Natl. Mtge. Assoc. 5.3%
Fed. Home Ln. Mtge. Corp. 4.7%
Bristol-Myers Squibb Co. 3.2%
Bank of America Corp. 2.4%
AOL Time Warner Inc. 2.0%
Schlumberger Ltd. 1.9%
Chubb Corp. 1.8%
BP PLC -- ADR 1.7%
Exxon Mobil Corporation 1.5%
</Table>

<Table>
<Caption>
TOP FIVE INDUSTRIES

Common Stocks 65.6%
U.S. Government Agencies & Obligations 17.8%
Short Term 9.8%
Corporate Bonds 9.2%
Asset Backed 1.4%
</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

- - THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK TO PROVIDE CAPITAL GROWTH WITH
REASONABLE CURRENT INCOME.
- - TYPICALLY, THE MANAGER INVESTS AT LEAST 60% OF THE PORTFOLIO IN THE COMMON
STOCKS OF COMPANIES THAT HAVE A RECORD OF PAYING DIVIDENDS AND, IN THE OPINION
OF THE MANAGER, HAVE THE POTENTIAL FOR INCREASING DIVIDENDS AND IN INVESTMENT
GRADE SECURITIES CONVERTIBLE INTO COMMON STOCKS.

- - THE FUND ALSO INVESTS AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME
SECURITIES SUCH AS INVESTMENT-GRADE CORPORATE DEBT SECURITIES, BANK
OBLIGATIONS, INVESTMENT-GRADE MORTGAGE-BACKED SECURITIES, INCLUDING
COLLATERALIZED MORTGAGE OBLIGATIONS, INVESTMENT-GRADE ASSET-BACKED SECURITIES,
AND U.S. GOVERNMENT SECURITIES.

PROXY VOTING POLICIES AND PROCEDURES

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

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(++)
07/28/97 07/28/97 03/28/95 07/28/97
SYMBOL BGRAX BGRBX BGRCX BGRDX

1 YEAR 4.06%(5) 3.35%(5) 3.33%(5) 4.40%(5)
(1.40)(6) (1.65)(6) 2.33(6)
5 YEARS 2.41(5) 1.64(5) 1.64(5) 2.67(5)
1.31(6) 1.35(6) 1.64(6)
SINCE INCEPTION 3.98(5) 3.19(5) 8.15(5) 4.22(5)
3.05(6) 3.19(6) 8.15(6)
</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.
The Index does not include any expenses, fees or charges. Such costs would
lower performance. It is not possible to invest directly in an index.

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

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

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

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

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

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

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

++ Class D has no sales charge.

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

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

Common Stocks (65.6%)
Advertising/Marketing Services (0.5%)
61,300 Interpublic Group of Companies, Inc. (The)*................................. $ 845,940
------------

Aerospace & Defense (0.5%)
26,790 Raytheon Co. ............................................................... 822,453
------------

Auto Parts: O.E.M. (0.9%)
21,150 Magna International Inc. (Class A) (Canada)................................. 1,609,092
------------

Beverages: Non-Alcoholic (0.4%)
17,360 Coca-Cola Co. (The)......................................................... 780,679
------------

Chemicals: Agricultural (0.4%)
28,920 Monsanto Co. ............................................................... 665,160
------------

Chemicals: Major Diversified (1.2%)
36,530 Dow Chemical Co. (The)...................................................... 1,289,509
22,000 Du Pont (E.I.) de Nemours & Co. ............................................ 966,680
------------
2,256,189
------------
Computer Processing Hardware (0.8%)
70,100 Hewlett-Packard Co. ........................................................ 1,484,017
------------

Containers/Packaging (1.0%)
39,740 Temple-Inland, Inc. ........................................................ 1,843,539
------------

Contract Drilling (1.3%)
46,270 ENSCO International Inc. ................................................... 1,159,989
60,380 Transocean Inc.*............................................................ 1,181,637
------------
2,341,626
------------
Data Processing Services (1.1%)
36,300 Automatic Data Processing, Inc. ............................................ 1,346,004
15,160 Computer Sciences Corp.*.................................................... 615,041
------------
1,961,045
------------
</Table>

See Notes to Financial Statements
5

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

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

Discount Stores (1.5%)
22,430 Target Corp. ............................................................... $ 859,518
31,690 Wal-Mart Stores, Inc. ...................................................... 1,771,788
------------
2,631,306
------------
Electric Utilities (3.1%)
18,800 Edison International*....................................................... 308,508
46,370 Entergy Corp. .............................................................. 2,388,519
21,840 Exelon Corp. ............................................................... 1,255,145
40,290 PPL Corp. .................................................................. 1,595,081
------------
5,547,253
------------
Financial Conglomerates (3.5%)
57,300 Citigroup Inc. ............................................................. 2,567,040
67,570 J.P. Morgan Chase & Co. .................................................... 2,368,328
39,380 Prudential Financial, Inc. ................................................. 1,401,140
------------
6,336,508
------------
Financial Publishing/Services (1.2%)
88,830 Equifax, Inc. .............................................................. 2,068,851
------------

Food: Major Diversified (0.7%)
25,440 PepsiCo, Inc. .............................................................. 1,172,021
------------

Hospital/Nursing Management (0.5%)
64,700 Tenet Healthcare Corp.*..................................................... 891,566
------------

Hotels/Resorts/Cruiselines (2.3%)
128,940 Hilton Hotels Corp. ........................................................ 1,882,524
69,600 Starwood Hotels & Resorts Worldwide, Inc. .................................. 2,268,960
------------
4,151,484
------------
Household/Personal Care (1.3%)
42,390 Kimberly-Clark Corp. ....................................................... 2,051,676
3,400 Procter & Gamble Co. (The).................................................. 298,758
------------
2,350,434
------------
Industrial Conglomerates (2.3%)
8,700 3M Co. ..................................................................... 1,219,740
29,240 Ingersoll-Rand Co., Ltd. (Class A) (Bermuda)................................ 1,585,978
29,630 Textron, Inc. .............................................................. 1,286,535
------------
4,092,253
------------
</Table>

See Notes to Financial Statements
6

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

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

Industrial Machinery (0.5%)
20,100 Parker-Hannifin Corp. ...................................................... $ 926,610
------------

Information Technology Services (0.5%)
40,200 Electronic Data Systems Corp. .............................................. 895,254
------------

Integrated Oil (4.0%)
74,360 BP PLC (ADR) (United Kingdom)............................................... 3,089,658
29,040 ConocoPhillips.............................................................. 1,519,954
73,740 Exxon Mobil Corp. .......................................................... 2,623,669
------------
7,233,281
------------
Investment Banks/Brokers (2.1%)
41,400 Edwards (A.G.), Inc. ....................................................... 1,531,386
42,600 Merrill Lynch & Co., Inc. .................................................. 2,316,162
------------
3,847,548
------------
Life/Health Insurance (0.5%)
34,870 MetLife, Inc. .............................................................. 966,596
------------

Major Banks (4.7%)
52,450 Bank of America Corp. ...................................................... 4,330,796
28,670 FleetBoston Financial Corp. ................................................ 891,350
42,560 PNC Financial Services Group................................................ 2,083,312
25,920 Wachovia Corp. ............................................................. 1,132,445
------------
8,437,903
------------
Major Telecommunications (2.7%)
78,850 SBC Communications, Inc. ................................................... 1,841,936
105,760 Sprint Corp. (FON Group).................................................... 1,493,331
41,810 Verizon Communications Inc. ................................................ 1,457,497
------------
4,792,764
------------
Managed Health Care (0.7%)
21,520 Aetna Inc. ................................................................. 1,326,062
------------

Media Conglomerates (3.3%)
222,960 AOL Time Warner Inc.*....................................................... 3,440,273
115,350 Disney (Walt) Co. (The)..................................................... 2,528,472
------------
5,968,745
------------
Medical Specialties (0.8%)
32,470 Bausch & Lomb, Inc. ........................................................ 1,372,507
------------
</Table>

See Notes to Financial Statements
7

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

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

Motor Vehicles (0.6%)
56,100 Honda Motor Co., Ltd. (ADR) (Japan)......................................... $ 1,108,536
------------

Multi-Line Insurance (1.7%)
42,550 Hartford Financial Services Group, Inc. (The)............................... 2,220,684
22,990 Safeco Corp. ............................................................... 855,918
------------
3,076,602
------------
Oil & Gas Production (1.3%)
23,460 Anadarko Petroleum Corp. ................................................... 1,027,548
32,050 EOG Resources, Inc. ........................................................ 1,242,899
------------
2,270,447
------------
Oil Refining/Marketing (0.6%)
27,270 Valero Energy Corp. ........................................................ 992,628
------------

Oilfield Services/Equipment (1.9%)
73,800 Schlumberger Ltd. .......................................................... 3,326,166
------------

Other Metals/Minerals (0.9%)
37,070 Phelps Dodge Corp.*......................................................... 1,563,983
------------

Packaged Software (1.1%)
77,920 Microsoft Corp. ............................................................ 2,057,088
------------

Pharmaceuticals: Major (6.1%)
216,760 Bristol-Myers Squibb Co. ................................................... 5,679,112
11,840 Johnson & Johnson........................................................... 613,194
35,626 Pfizer Inc. ................................................................ 1,188,483
22,000 Roche Holdings Ltd (ADR) (Switzerland)...................................... 1,838,100
97,060 Schering-Plough Corp. ...................................................... 1,648,079
------------
10,966,968
------------
Precious Metals (0.8%)
38,790 Newmont Mining Corp. ....................................................... 1,400,319
------------

Property - Casualty Insurers (2.9%)
48,490 Chubb Corp. (The)........................................................... 3,142,152
126,006 Travelers Property Casualty Corp. (Class A)................................. 2,041,297
------------
5,183,449
------------
</Table>

See Notes to Financial Statements
8

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

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

Railroads (1.8%)
105,370 Norfolk Southern Corp. ..................................................... $ 2,026,265
19,380 Union Pacific Corp. ........................................................ 1,181,017
------------
3,207,282
------------
Restaurants (1.0%)
76,210 McDonald's Corp. ........................................................... 1,753,592
------------

Tobacco (0.6%)
26,290 Altria Group, Inc. ......................................................... 1,051,863
------------
Total Common Stocks (Cost $101,016,271)..................................... 117,577,609
------------
</Table>

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

Corporate Bonds (9.2%)
Aerospace & Defense (0.4%)
$ 90 Boeing Co. ............................................... 6.625% 02/15/38 $ 86,641
45 Goodrich Corp. ........................................... 7.625 12/15/12 48,898
115 Lockheed Martin Corp. .................................... 7.75 05/01/26 130,258
85 Lockheed Martin Corp. .................................... 8.50 12/01/29 104,284
60 Raytheon Co. ............................................. 8.20 03/01/06 68,245
193 Systems 2001 Asset Trust - 144A**......................... 6.664 09/15/13 216,064
------------
654,390
------------
Airlines (0.3%)
127 American West Airlines.................................... 7.10 04/02/21 129,915
274 Continental Airlines, Inc. ............................... 6.90 01/02/18 257,775
75 Southwest Airlines Co. ................................... 5.496 11/01/06 79,487
------------
467,177
------------
Broadcasting (0.1%)
130 Clear Channel Communications, Inc. ....................... 7.65 09/15/10 148,738
------------

Building Products (0.1%)
45 Celulosa Arauco Constitution - 144A**(Chile).............. 5.125 07/09/13 42,148
60 Masco Corp. .............................................. 6.50 08/15/32 59,534
------------
101,682
------------
Cable/Satellite TV (0.2%)
140 Comcast Corp. ............................................ 6.50 01/15/15 145,988
95 Cox Communications, Inc. ................................. 7.125 10/01/12 106,124
</Table>

See Notes to Financial Statements
9

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

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

$ 105 Liberty Media Corp. ...................................... 5.70 % 05/15/13 $ 97,700
80 TCI Communications, Inc. ................................. 7.875 02/15/26 87,106
------------
436,918
------------
Chemicals: Agricultural (0.0%)
65 Monsanto Co. ............................................. 7.375 08/15/12 73,186
------------

Containers/Packaging (0.1%)
85 Sealed Air Corp - 144A**.................................. 5.625 07/15/13 81,282
------------

Department Stores (0.2%)
25 Federated Department Stores, Inc. ........................ 7.00 02/15/28 25,713
200 Federated Department Stores, Inc. ........................ 6.90 04/01/29 203,365
215 May Department Stores Co., Inc. .......................... 6.70 09/15/28 208,852
------------
437,930
------------
Drugstore Chains (0.2%)
275 CVS Corp. ................................................ 5.625 03/15/06 296,100
------------

Electric Utilities (0.4%)
55 Appalachian Power Co. (Series H).......................... 5.95 05/15/33 49,454
60 Cincinnati Gas & Electric Co. ............................ 5.70 09/15/12 62,228
40 Cincinnati Gas & Electric Co. (Series A).................. 5.40 06/15/33 34,896
40 Cincinnati Gas & Electric Co. (Series B).................. 5.375 06/15/33 34,763
40 Columbus Southern Power Co. - 144A**...................... 6.60 03/01/33 40,331
105 Constellation Energy Group, Inc. ......................... 7.60 04/01/32 112,869
50 Detroit Edison Co. ....................................... 6.125 10/01/10 53,067
15 Detroit Edison Co. ....................................... 6.35 10/15/32 14,978
85 Duke Energy Corp. ........................................ 4.50 04/01/10 84,092
60 Exelon Corp. ............................................. 6.75 05/01/11 66,066
35 Florida Power & Light Co. ................................ 4.85 02/01/13 34,789
45 Ohio Power Co. - 144A**................................... 6.60 02/15/33 45,376
75 Public Service Electric & Gas Co. ........................ 5.00 01/01/13 73,713
35 South Carolina Electric & Gas Co. ........................ 5.30 05/15/33 30,916
15 Wisconsin Electric Power Co. ............................. 5.625 05/15/33 13,807
30 Wisconsin Energy Corp. ................................... 6.20 04/01/33 28,973
------------
780,318
------------
Electrical Products (0.1%)
125 Cooper Industries Inc. ................................... 5.25 07/01/07 131,556
------------
</Table>

See Notes to Financial Statements
10

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

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

Environmental Services (0.0%)
$ 70 Waste Management, Inc. ................................... 6.875% 05/15/09 $ 77,611
------------

Finance/Rental/Leasing (0.5%)
165 Countrywide Home Loans, Inc. ............................. 3.25 05/21/08 159,503
75 Ford Motor Credit Co. .................................... 7.25 10/25/11 74,240
45 Household Finance Corp. .................................. 6.40 06/17/08 49,373
65 Household Finance Corp. .................................. 6.75 05/15/11 71,101
45 Household Finance Corp. .................................. 6.375 10/15/11 48,081
55 International Lease Finance Corp. ........................ 3.75 08/01/07 55,052
185 MBNA Corp. ............................................... 6.125 03/01/13 191,382
205 Prime Property Funding II - 144A**........................ 7.00 08/15/04 215,432
------------
864,164
------------
Financial Conglomerates (1.1%)
500 Associates Corp. of North America......................... 6.25 11/01/08 552,551
75 Boeing Capital Corp. ..................................... 6.10 03/01/11 77,795
15 Boeing Capital Corp. ..................................... 6.50 02/15/12 15,771
20 Boeing Capital Corp. ..................................... 5.80 01/15/13 19,923
140 Chase Manhattan Corp. .................................... 6.00 02/15/09 150,781
280 General Electric Capital Corp. ........................... 6.75 03/15/32 293,520
55 General Motors Acceptance Corp. .......................... 4.50 07/15/06 55,104
45 General Motors Acceptance Corp. .......................... 6.875 09/15/11 43,964
185 General Motors Acceptance Corp. .......................... 8.00 11/01/31 170,696
255 Prudential Holdings, LLC (Series C) - 144A**............. 8.695 12/18/23 297,116
325 Prudential Holdings, LLC (Series B) (FSA) - 144A**........ 7.245 12/18/23 350,347
------------
2,027,568
------------
Food Retail (0.2%)
30 Albertson's Inc. ......................................... 7.45 08/01/29 31,310
100 Albertson's, Inc. ........................................ 7.50 02/15/11 111,953
180 Kroger Co. ............................................... 6.80 04/01/11 195,212
30 Kroger Co. ............................................... 7.70 06/01/29 32,909
------------
371,384
------------
Food: Major Diversified (0.1%)
25 Kraft Foods Inc. ......................................... 5.625 11/01/11 25,252
85 Kraft Foods Inc. ......................................... 6.25 06/01/12 88,977
------------
114,229
------------
Forest Products (0.1%)
155 Weyerhaeuser Co. ......................................... 6.75 03/15/12 165,115
------------
</Table>

See Notes to Financial Statements
11

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

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

Gas Distributors (0.1%)
$ 110 Consolidated Natural Gas Co. ............................. 6.25 % 11/01/11 $ 118,545
40 Sempra Energy............................................. 6.00 02/01/13 41,373
------------
159,918
------------
Home Building (0.1%)
75 Centex Corp. ............................................. 7.50 01/15/12 84,589
55 Pulte Homes, Inc. ........................................ 6.375 05/15/33 49,706
------------
134,295
------------
Home Furnishings (0.1%)
75 Mohawk Industries Inc. ................................... 7.20 04/15/12 82,458
------------

Home Improvement Chains (0.1%)
175 Lowe's Companies, Inc. ................................... 8.25 06/01/10 211,156
------------

Hotels/Resorts/Cruiselines (0.2%)
105 Hyatt Equities LLC - 144A**............................... 6.875 06/15/07 106,532
245 Marriott International, Inc. (Series E)................... 7.00 01/15/08 270,384
------------
376,916
------------
Industrial Conglomerates (0.2%)
185 Honeywell International, Inc. ............................ 6.125 11/01/11 198,252
85 Hutchinson Whampoa International Ltd. - 144A** (Virgin
Islands)................................................ 6.50 02/13/13 84,700
------------
282,952
------------
Information Technology Services (0.0%)
10 Electronic Data Systems................................... 7.125 10/15/09 10,550
60 Electronic Data Systems Corp. - 144A**.................... 6.00 08/01/13 56,115
------------
66,665
------------
Integrated Oil (0.2%)
170 Amerada Hess Corp. ....................................... 7.875 10/01/29 184,468
215 Conoco Inc. .............................................. 6.95 04/15/29 232,360
------------
416,828
------------
Investment Banks/Brokers (0.2%)
100 Goldman Sachs Group Inc................................... 6.125 02/15/33 95,284
130 Goldman Sachs Group Inc. ................................. 6.875 01/15/11 144,903
115 Goldman Sachs Group Inc. ................................. 6.60 01/15/12 125,352
------------
365,539
------------
</Table>

See Notes to Financial Statements
12

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

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

Life/Health Insurance (0.2%)
$ 140 American General Corp. ................................... 7.50 % 07/15/25 $ 158,031
250 John Hancock.............................................. 7.375 02/15/24 267,505
------------
425,536
------------
Major Banks (0.3%)
180 Bank One Corp. ........................................... 6.00 02/17/09 194,525
70 Citicorp.................................................. 6.75 08/15/05 76,307
120 Fleetboston Financial Corp. .............................. 7.25 09/15/05 132,589
145 UFJ Finance Aruba AEC (Aruba)............................. 6.75 07/15/13 140,356
------------
543,777
------------
Major Telecommunications (0.4%)
100 AT&T Corp. ............................................... 8.50 11/15/31 105,768
55 British Telecom PLC (United Kingdom)...................... 8.875 12/15/30 67,560
135 Deutsche Telekom International Finance Corp.
(Netherlands)........................................... 8.75 06/15/30 158,065
50 GTE Corp. ................................................ 6.94 04/15/28 50,765
120 Verizon Global Funding Corp. ............................. 7.75 12/01/30 133,888
260 Verizon New England Inc. ................................. 6.50 09/15/11 282,513
------------
798,559
------------
Managed Health Care (0.2%)
210 Aetna, Inc. .............................................. 7.875 03/01/11 242,361
40 Cigna Corp. .............................................. 6.375 10/15/11 41,965
100 Wellpoint Health Network, Inc. ........................... 6.375 06/15/06 110,071
------------
394,397
------------
Media Conglomerates (0.3%)
60 AOL Time Warner Inc. ..................................... 7.70 05/01/32 62,933
40 News America Holdings, Inc. .............................. 8.875 04/26/23 48,324
60 News America Holdings, Inc. .............................. 7.75 02/01/24 64,984
225 News America Holdings, Inc. .............................. 7.28 06/30/28 232,626
65 Time Warner, Inc. ........................................ 6.625 05/15/29 60,281
------------
469,148
------------
Motor Vehicles (0.4%)
40 DaimlerChrysler North American Holdings Co. .............. 7.20 09/01/09 43,561
105 DaimlerChrysler North American Holdings Co. .............. 8.50 01/18/31 114,659
35 Ford Motor Co............................................. 6.625 10/01/28 27,568
455 Ford Motor Co. ........................................... 7.45 07/16/31 388,566
200 General Motors Corp. ..................................... 8.10 06/15/24 181,757
------------
756,111
------------
</Table>

See Notes to Financial Statements
13

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

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

Multi-Line Insurance (0.7%)
$ 290 AIG SunAmerica Global Finance VI - 144A**................. 6.30 % 05/10/11 $ 314,040
455 Farmers Exchange Capital - 144A**......................... 7.05 07/15/28 387,865
50 Hartford Financial Services Group, Inc. .................. 2.375 06/01/06 49,185
180 Hartford Financial Services Group, Inc. .................. 7.90 06/15/10 210,758
205 Nationwide Mutual Insurance Co. - 144A**.................. 7.50 02/15/24 202,409
100 Nationwide Mutual Insurance Co. - 144A**.................. 8.25 12/01/31 111,679
------------
1,275,936
------------
Oil & Gas Production (0.4%)
15 Devon Financing Corp. .................................... 6.875 09/30/11 16,548
40 Devon Financing Corp. .................................... 7.875 09/30/31 45,688
55 Kerr-McGee Corp. ......................................... 6.875 09/15/11 59,853
160 Pemex Project Funding Master Trust........................ 8.00 11/15/11 173,600
395 Pemex Project Funding Master Trust........................ 8.625 02/01/22 412,775
80 Petro-Canada.............................................. 5.35 07/15/33 68,767
------------
777,231
------------
Oil Refining/Marketing (0.0%)
65 Marathon Oil Corp. ....................................... 6.80 03/15/32 65,568
------------

Other Consumer Services (0.1%)
95 Cendant Corp. ............................................ 7.375 01/15/13 105,554
90 Cendant Corp. ............................................ 7.125 03/15/15 97,525
------------
203,079
------------
Other Metals/Minerals (0.1%)
75 BHP Finance USA Ltd. (Australia).......................... 4.80 04/15/13 72,687
35 Inco Ltd. (Canada)........................................ 7.75 05/15/12 38,926
140 Inco Ltd. (Canada)........................................ 7.20 09/15/32 138,973
------------
250,586
------------
Pulp & Paper (0.2%)
95 International Paper Co. .................................. 5.85 10/30/12 97,304
65 International Paper Co. - 144A**.......................... 5.30 04/01/15 61,740
60 MeadWestVaco Corp. ....................................... 6.85 04/01/12 65,441
70 Sappi Papier Holding AG - 144A** (Austria)................ 6.75 06/15/12 74,411
------------
298,896
------------
Real Estate Development (0.1%)
200 World Financial Properties - 144A**....................... 6.91 09/01/13 219,041
------------
</Table>

See Notes to Financial Statements
14

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

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

Real Estate Investment Trusts (0.3%)
$ 205 EOP Operating L.P. ....................................... 7.25 % 06/15/28 $ 210,238
120 Simon Property Group L.P. ................................ 6.375 11/15/07 130,114
65 Simon Property Group L.P. ................................ 6.35 08/28/12 67,951
75 Vordano Reality Trust..................................... 5.625 06/15/07 78,033
------------
486,336
------------
Savings Banks (0.1%)
95 Washington Mutual Bank.................................... 5.50 01/15/13 96,150
------------

Services to the Health Industry (0.1%)
55 Anthem Insurance - 144A**................................. 9.125 04/01/10 66,291
110 Anthem Insurance - 144A**................................. 9.00 04/01/27 134,352
------------
200,643
------------
Tobacco (0.0%)
90 Altria Group, Inc. ....................................... 7.75 01/15/27 86,765
------------
Total Corporate Bonds (Cost $16,123,803)..................................... 16,673,834
------------
Foreign Government Obligations (0.0%)
35 United Mexican States Corp. (Mexico) (Cost $41,843)....... 8.30 08/15/31 36,488
------------
U.S. Government Obligations (7.3%)
U.S. Treasury Bonds
1850 .......................................................... 7.625 02/15/25 2,359,906
1,000 .......................................................... 8.125 08/15/19 -
08/15/21 1,314,316
U.S. Treasury Notes
5,200 .......................................................... 3.50 11/15/06 5,351,533
800 .......................................................... 3.875 02/15/13 762,687
2,900 .......................................................... 6.50 02/15/10 3,339,304
------------
Total U.S. Government Obligations (Cost $13,089,345)......................... 13,127,746
------------
</Table>

See Notes to Financial Statements
15

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

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

Mortgage Backed Securities (10.5%)
Federal Home Loan Mortgage Corp.
$ 7,750 .......................................................... 6.50 % + $ 7,975,215
350 .......................................................... 7.50 06/01/11 -
01/01/30 372,432
Federal National Mortgage Assoc.
1,100 .......................................................... 7.00 + 1,152,937
3,428 .......................................................... 7.00 04/01/12 -
07/01/32 3,599,820
3,278 .......................................................... 7.50 08/01/25 -
06/01/32 3,474,690
1,253 .......................................................... 8.00 05/01/24 -
02/01/32 1,346,431
59 .......................................................... 9.50 12/01/20 65,275
Government National Mortgage Assoc. I
348 .......................................................... 7.50 09/15/25 -
04/15/27 369,068
384 .......................................................... 8.00 04/15/26 -
08/15/26 413,298
------------
Total Mortgage Backed Securities (Cost $18,692,696).......................... 18,769,166
------------
Asset-Backed Securities (1.4%)
Finance/Rental/Leasing (1.4%)
44 BMW Vehicle Owner Trust 2002-A............................ 2.83 12/25/04 43,626
124 Capital Auto Receivables Asset Trust 2002-2............... 2.89 04/15/04 124,213
335 Chase Credit Card Master Trust............................ 5.50 11/17/08 360,193
1 Chase Manhattan Auto Owner Trust 2002-A................... 2.63 10/15/04 875
197 Chase Manhattan Auto Owner Trust 2002-B................... 2.70 01/18/05 197,558
350 Citibank Credit Issuance Trust............................ 6.90 10/15/07 383,484
113 Daimler Chrysler Auto Trust 2000-E........................ 6.11 11/08/04 113,772
233 Daimler Chrysler Auto Trust 2002-A........................ 2.90 12/06/04 233,826
135 Ford Credit Auto Owner Trust 2001-B....................... 5.12 10/15/04 136,220
71 Ford Credit Auto Owner Trust 2002-B....................... 2.97 06/15/04 70,917
238 Harley-Davidson Motorcycle Trust 2002-1................... 3.02 09/15/06 239,873
153 Honda Auto Receivables Owner Trust 2002-2................. 2.91 09/15/04 153,551
150 MBNA Master Credit Card Trust............................. 5.90 08/15/11 163,013
15 National City Auto Receivables Trust 2002-A............... 3.00 01/15/05 14,762
</Table>

See Notes to Financial Statements
16

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

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

$ 200 Nissan Auto Receivables Owner Trust....................... 4.80 % 02/15/07 $ 207,419
104 Nissan Auto Receivables Owner Trust 2002-B................ 3.07 08/16/04 104,350
------------
Total Asset-Backed Securities (Cost $2,483,174).............................. 2,547,652
------------
Short-Term Investments (9.8%)
U.S. Government Obligations (a) (0.2%)
U.S. Treasury Bills
250 ***....................................................... 1.15 09/25/03 249,560
45 ***....................................................... 0.94 01/15/04 44,805
------------
Total U.S. Government Obligations (Cost $294,365)............................ 294,365
------------
Repurchase Agreement (9.6%)
17,204 Joint repurchase agreement account (dated 07/31/03;
proceeds $17,204,530) (b) (Cost $17,204,000)............ 1.11 08/01/03 17,204,000
------------
Total Short-Term Investments (Cost $17,498,365).............................. 17,498,365
------------
</Table>

<Table>

Total Investments (Cost $168,945,497) (c)(d)......................... 103.8% 186,230,860

Liabilities in Excess of Other Assets................................ (3.8) (6,868,000)
----- ------------
Net Assets........................................................... 100.0% $179,362,860
===== ============
</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 segregated in
connection with open futures contracts.
+ Securities purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date;
the actual principal amount and maturity date will be
determined upon settlement.
(a) Purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by federal agency and U.S. Treasury
obligations.
(c) Securities have been designated as collateral in a amount
equal to $14,341,590 in connection with securities purchased
on a forward commitment basis and open futures contracts.
(d) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $20,682,320 and
the aggregate gross unrealized depreciation is $3,396,957,
resulting in net unrealized appreciation of $17,285,363.
</Table>

See Notes to Financial Statements
17

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

Futures Contracts Open at July 31, 2003:

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

20 Short U.S. Treasury Note 5 year, $(2,226,563) $13,070
September/2003
27 Short U.S. Treasury Notes 10 year, (2,986,875) 47,165
September/2003
-------
Total Unrealized Appreciation.......................... $60,235
=======
</Table>

See Notes to Financial Statements
18

Morgan Stanley Balanced Growth Fund
FINANCIAL STATEMENTS

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

<Table>

Assets:
Investments in securities, at value
(cost $168,945,497)....................................... $186,230,860
Receivable for:
Investments sold........................................ 1,832,159
Shares of beneficial interest sold...................... 807,377
Interest................................................ 611,450
Dividends............................................... 181,188
Variation margin........................................ 48,250
Prepaid expenses and other assets........................... 78,009
------------
Total Assets............................................ 189,789,293
------------
Liabilities:
Payable for:
Investments purchased................................... 9,969,536
Shares of beneficial interest redeemed.................. 173,418
Distribution fee........................................ 146,570
Investment management fee............................... 90,555
Accrued expenses and other payables......................... 46,354
------------
Total Liabilities....................................... 10,426,433
------------
Net Assets.............................................. $179,362,860
============
Composition of Net Assets:
Paid-in-capital............................................. $190,546,037
Net unrealized appreciation................................. 17,345,598
Dividends in excess of net investment income................ (219,640)
Accumulated net realized loss............................... (28,309,135)
------------
Net Assets.............................................. $179,362,860
============
Class A Shares:
Net Assets.................................................. $6,212,505
Shares Outstanding (unlimited authorized, $.01 par value)... 528,141
Net Asset Value Per Share............................... $11.76
============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)....... $12.41
============
Class B Shares:
Net Assets.................................................. $94,119,188
Shares Outstanding (unlimited authorized, $.01 par value)... 8,004,897
Net Asset Value Per Share............................... $11.76
============
Class C Shares:
Net Assets.................................................. $78,367,938
Shares Outstanding (unlimited authorized, $.01 par value)... 6,662,907
Net Asset Value Per Share............................... $11.76
============
Class D Shares:
Net Assets.................................................. $663,229
Shares Outstanding (unlimited authorized, $.01 par value)... 56,407
Net Asset Value Per Share............................... $11.76
============
</Table>

See Notes to Financial Statements
19

Morgan Stanley Balanced Growth Fund
FINANCIAL STATEMENTS continued

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

<Table>

Net Investment Income:
Income
Dividends (net of $5,913 foreign withholding tax)........... $ 1,257,640
Interest.................................................... 1,039,808
-----------
Total Income............................................ 2,297,448
-----------
Expenses
Investment management fee................................... 495,085
Distribution fee (Class A shares)........................... 7,321
Distribution fee (Class B shares)........................... 419,491
Distribution fee (Class C shares)........................... 373,193
Transfer agent fees and expenses............................ 128,142
Shareholder reports and notices............................. 28,230
Professional fees........................................... 25,755
Registration fees........................................... 23,949
Custodian fees.............................................. 14,844
Trustees' fees and expenses................................. 6,415
Other....................................................... 7,286
-----------
Total Expenses.......................................... 1,529,711
-----------
Net Investment Income................................... 767,737
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain/Loss on:
Investments............................................. 4,349,613
Futures contracts....................................... (35,498)
-----------
Net Realized Gain....................................... 4,314,115
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments............................................. 11,135,862
Futures contracts....................................... 100,601
-----------
Net Appreciation........................................ 11,236,463
-----------
Net Gain................................................ 15,550,578
-----------
Net Increase................................................ $16,318,315
===========
</Table>

See Notes to Financial Statements
20

Morgan Stanley Balanced Growth 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....................................... $ 767,737 $ 2,629,456
Net realized gain (loss).................................... 4,314,115 (15,837,149)
Net change in unrealized appreciation....................... 11,236,463 (17,593,434)
------------ ------------
Net Increase (Decrease)................................. 16,318,315 (30,801,127)
------------ ------------
Dividends to Shareholders from Net Investment Income:
Class A shares.............................................. (62,661) (150,076)
Class B shares.............................................. (576,718) (1,417,896)
Class C shares.............................................. (502,169) (1,464,942)
Class D shares.............................................. (6,048) (35,835)
------------ ------------
Total Dividends......................................... (1,147,596) (3,068,749)
------------ ------------

Net increase (decrease) from transactions in shares of
beneficial interest....................................... 2,043,175 (9,494,759)
------------ ------------
Net Increase (Decrease)................................. 17,213,894 (43,364,635)
Net Assets:
Beginning of period......................................... 162,148,966 205,513,601
------------ ------------
End of Period
(Including dividends in excess of net investment income of
$219,640 and accumulated undistributed net investment income
of $160,219, respectively).................................. $179,362,860 $162,148,966
============ ============
</Table>

See Notes to Financial Statements
21

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

1. Organization and Accounting Policies

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

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

The following is a summary of significant accounting policies:

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

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

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

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

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

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

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

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

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

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

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

2. Investment Management Agreement

Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.60% to the portion of daily net assets not exceeding
$500 million and 0.575% to the portion of daily net assets in excess of $500
million.

3. Plan of Distribution

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

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $3,646,544
at July 31, 2003.

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

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

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

The Distributor has informed the Fund that for the six months ended July 31,
2003, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $109, $118,487
and $1,835, respectively and received $27,428 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.

4. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended July 31,
2003 aggregated $106,095,193 and $110,372,352, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities in the
amount of $16,146,369 and $11,067,430, respectively, and purchases with other
Morgan Stanley Funds of $597,913.

For the six months ended July 31, 2003, the Fund incurred brokerage commissions
of $4,037 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At July 31, 2003, the Fund's receivable for investments sold included
unsettled trades with Morgan Stanley & Co., Inc. of $455,754.

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

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

5. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

<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.............................................. 91,322 $ 1,034,090 232,913 $ 2,811,714
Reinvestment of dividends......................... 4,692 52,204 10,917 127,005
Redeemed.......................................... (112,809) (1,272,195) (187,248) (2,160,038)
---------- ------------ ---------- ------------
Net increase (decrease) - Class A................. (16,795) (185,901) 56,582 778,681
---------- ------------ ---------- ------------
CLASS B SHARES
Sold.............................................. 1,774,618 19,976,254 3,621,512 42,937,984
Reinvestment of dividends......................... 41,966 469,127 98,082 1,143,993
Redeemed.......................................... (1,235,868) (13,673,853) (3,477,963) (40,483,040)
---------- ------------ ---------- ------------
Net increase - Class B............................ 580,716 6,771,528 241,631 3,598,937
---------- ------------ ---------- ------------
CLASS C SHARES
Sold.............................................. 319,243 3,643,776 448,808 5,346,292
Reinvestment of dividends......................... 39,873 445,136 111,038 1,296,529
Redeemed.......................................... (717,205) (7,909,845) (1,813,488) (20,867,708)
---------- ------------ ---------- ------------
Net decrease - Class C............................ (358,089) (3,820,933) (1,253,642) (14,224,887)
---------- ------------ ---------- ------------
CLASS D SHARES
Sold.............................................. 19,079 218,913 65,956 779,348
Reinvestment of dividends......................... 522 5,830 2,998 34,787
Redeemed.......................................... (88,829) (946,262) (40,381) (461,625)
---------- ------------ ---------- ------------
Net increase (decrease) - Class D................. (69,228) (721,519) 28,573 352,510
---------- ------------ ---------- ------------
Net increase (decrease) in Fund................... 136,604 $ 2,043,175 (926,856) $ (9,494.759)
========== ============ ========== ============
</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 Growth Fund
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED) continued

As of January 31, 2003, the Fund had a net capital loss carryforward of
$29,817,209 of which $3,271,494 will expire on January 31, 2009, $87,164 will
expire on January 31, 2010 and $26,458,551 will expire on January 31, 2011 to
offset future capital gains to the extent provided by regulations.

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

7. Purposes of and Risks Relating to Certain Financial Instruments

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

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

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

Morgan Stanley Balanced Growth 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............................... $10.73 $12.82 $13.29 $13.11 $15.01 $14.68
------ ------ ------ ------ ------ ------

Income (loss) from investment
operations:
Net investment income++........... 0.09 0.25 0.33 0.37 0.41 0.36
Net realized and unrealized gain
(loss)............................ 1.06 (2.06) (0.42) 0.87 (0.59) 2.01
------ ------ ------ ------ ------ ------

Total income (loss) from investment
operations........................... 1.15 (1.81) (0.09) 1.24 (0.18) 2.37
------ ------ ------ ------ ------ ------

Less dividends and distributions from:
Net investment income............. (0.12) (0.28) (0.38) (0.38) (0.40) (0.39)
Net realized gain................. -- -- -- (0.68) (1.32) (1.65)
------ ------ ------ ------ ------ ------

Total dividends and distributions..... (0.12) (0.28) (0.38) (1.06) (1.72) (2.04)
------ ------ ------ ------ ------ ------

Net asset value, end of period........ $11.76 $10.73 $12.82 $13.29 $13.11 $15.01
====== ====== ====== ====== ====== ======

Total Return+......................... 10.77%(1) (14.27)% (0.53)% 10.65% (1.35)% 17.02%

Ratios to Average Net Assets(3):
Expenses.............................. 1.13%(2) 1.10% 1.07% 1.03% 1.04% 1.06%

Net investment income................. 1.65%(2) 2.14% 2.56% 2.95% 2.81% 2.62%

Supplemental Data:
Net assets, end of period, in
thousands............................ $6,213 $5,848 $6,259 $7,440 $6,308 $3,670

Portfolio turnover rate............... 56%(1) 145% 67% 33% 48% 49%
</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 Growth 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.... $10.73 $12.81 $13.28 $13.09 $14.99 $14.67
------ ----- ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income++............. 0.05 0.16 0.23 0.27 0.30 0.21
Net realized and unrealized gain
(loss).............................. 1.06 (2.05) (0.42) 0.88 (0.60) 2.03
------ ----- ------ ------ ------ ------
Total income (loss) from investment
operations............................. 1.11 (1.89) (0.19) 1.15 (0.30) 2.24
------ ----- ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............... (0.08) (0.19) (0.28) (0.28) (0.28) (0.27)
Net realized gain................... -- -- -- (0.68) (1.32) (1.65)
------ ----- ------ ------ ------ ------
Total dividends and distributions....... (0.08) (0.19) (0.28) (0.96) (1.60) (1.92)
------ ----- ------ ------ ------ ------
Net asset value, end of period.......... $11.76 $10.73 $12.81 $13.28 $13.09 $14.99
====== ===== ====== ====== ====== ======
Total Return+........................... 10.35%(1) (14.86)% (1.32)% 9.83% (2.15)% 16.09%
Ratios to Average Net Assets(3):
Expenses................................ 1.88%(2) 1.87% 1.83% 1.83% 1.80% 1.81%
Net investment income................... 0.90%(2) 1.37% 1.80% 2.15% 2.05% 1.87%
Supplemental Data:
Net assets, end of period, in
thousands.............................. $94,119 $79,631 $92,009 $57,490 $87,554 $99,666
Portfolio turnover rate................. 56%(1) 145% 67% 33% 48% 49%
</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
29

Morgan Stanley Balanced Growth 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..... $10.73 $12.81 $13.28 $13.09 $14.99 $14.66
------ ------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment income++.............. 0.05 0.16 0.23 0.27 0.30 0.22
Net realized and unrealized gain
(loss)............................... 1.06 (2.05) (0.42) 0.88 (0.60) 2.04
------ ------ ------ ------ ------ ------

Total income (loss) from investment
operations.............................. 1.11 (1.89) (0.19) 1.15 (0.30) 2.26
------ ------ ------ ------ ------ ------

Less dividends and distributions from:
Net investment income................ (0.08) (0.19) (0.28) (0.28) (0.28) (0.28)
Net realized gain.................... -- -- -- (0.68) (1.32) (1.65)
------ ------ ------ ------ ------ ------

Total dividends and distributions........ (0.08) (0.19) (0.28) (0.96) (1.60) (1.93)
------ ------ ------ ------ ------ ------

Net asset value, end of period........... $11.76 $10.73 $12.81 $13.28 $13.09 $14.99
====== ====== ====== ====== ====== ======

Total Return+............................ 10.34%(1) (14.88)% (1.34)% 9.86% (2.14)% 16.23%

Ratios to Average Net Assets(3):
Expenses................................. 1.88%(2) 1.87% 1.83% 1.80% 1.79% 1.80%

Net investment income.................... 0.90%(2) 1.37% 1.80% 2.18% 2.06% 1.88%

Supplemental Data:
Net assets, end of period, in
thousands............................... $78,368 $75,323 $106,002 $117,927 $163,953 $203,132

Portfolio turnover rate.................. 56%(1) 145% 67% 33% 48% 49%
</Table>

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

<Table>

See Notes to Financial Statements
30

Morgan Stanley Balanced Growth 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 D Shares
Selected Per Share Data:

Net asset value, beginning of period......... $10.73 $12.81 $13.28 $13.10 $15.01 $14.68
------ ------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment income++.................. 0.11 0.27 0.37 0.39 0.44 0.37
Net realized and unrealized gain
(loss)................................... 1.05 (2.04) (0.43) 0.88 (0.60) 2.03
------ ------ ------ ------ ------ ------

Total income (loss) from investment
operations.................................. 1.16 (1.77) (0.06) 1.27 (0.16) 2.40
------ ------ ------ ------ ------ ------

Less dividends and distributions from:
Net investment income.................... (0.13) (0.31) (0.41) (0.41) (0.43) (0.42)
Net realized gain........................ -- -- -- (0.68) (1.32) (1.65)
------ ------ ------ ------ ------ ------

Total dividends and distributions............ (0.13) (0.31) (0.41) (1.09) (1.75) (2.07)
------ ------ ------ ------ ------ ------

Net asset value, end of period............... $11.76 $10.73 $12.81 $13.28 $13.10 $15.01
====== ====== ====== ====== ====== ======

Total Return+................................ 10.89%(1) (13.99)% (0.32)% 10.93% (1.20)% 17.28%

Ratios to Average Net Assets(3):
Expenses..................................... 0.88%(2) 0.87% 0.83% 0.83% 0.80% 0.81%

Net investment income........................ 1.90%(2) 2.37% 2.80% 3.15% 3.05% 2.87%

Supplemental Data:
Net assets, end of period, in thousands...... $663 $1,347 $1,244 $2,702 $3,188 $1,853

Portfolio turnover rate...................... 56%(1) 145% 67% 33% 48% 49%
</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 Growth Fund

Semiannual Report
July 31, 2003

[MORGAN STANLEY LOGO]

37896RPT-12077H03-AP-8/03

Item 2. Code of Ethics.

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

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

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

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

(e) Not applicable.

(f)

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

(2) Not applicable.

(3) Not applicable.

Item 3. Audit Committee Financial Expert.

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

Item 9 - Controls and Procedures

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

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

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

Item 10 Exhibits

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

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

Items 4 - 8 are not applicable

SIGNATURES

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

Morgan Stanley Balanced Growth Fund

Ronald E. Robison
Principal Executive Officer
September 22, 2003

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

Ronald E. Robison
Principal Executive Officer
September 22, 2003

Francis Smith
Principal Financial Officer
September 22, 2003

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