UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/A
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06711
Morgan Stanley Special 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: February 29, 2004
Date of reporting period: August 31, 2003
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Special
Growth Fund performed during the semiannual period. We will provide an overview
of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that 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 August 31, 2003
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D
38.28% 37.70% 37.79% 38.46%
</Table>
<Table>
<Caption>
S&P LIPPER
RUSSELL 2000 SMALL-CAP 600 SMALL-CAP GROWTH
GROWTH INDEX(1) INDEX(2) FUNDS INDEX(3)
42.83% 33.28% 40.32%
</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 not reflect the deduction of any applicable sales
charges. Such costs would lower performance. Past performance is no guarantee of
future results. See Performance Summary for standardized performance
information.
MARKET CONDITIONS
The six-month period ended August 31, 2003, was one of sharp contrast. As the
period began, crude oil and natural gas prices were surging due to Iraq-
centered geopolitical tensions and unusually cold weather across the United
States. Fears of a double-dip recession persisted, defying evidence of a nascent
recovery in the domestic economy. Responding to these negative developments, the
market declined until mid-March, when it challenged its October 2002 low.
Investor sentiment subsequently improved based on expectations of a swift U.S.
victory in Iraq, encouraging economic data and reports of corporate earnings
that exceeded expectations. These factors triggered a strong market rally that
saw the S&P 500 Index appreciate more than 25 percent from its mid-March lows.
The defensive sectors and securities that had led during the bear market fell
behind more cyclical sectors as investors' expectations for the economy
improved.
The rally in the equity markets continued through the end of the period, with
August boasting the sixth consecutive month of positive returns. Good news
surfaced in manufacturing, where new orders drove production increases to levels
not seen since June 1999. Despite improvements on the economic front, however,
businesses still seemed reluctant to make longer-term commitments such as
building up inventories, hiring new workers or increasing capital expenditures.
PERFORMANCE ANALYSIS
The Fund's underperformance relative to the Russell 2000 Growth Index can be
attributed to stock selection in several areas. In health care, holdings in
pharmaceuticals, medical systems electronics and biotechnology had a negative
effect. Select issues within computer software and services, electronics
manufacturers, production technology equipment and electrical equipment and
components also detracted from the Fund's relative performance.
Stock selection within the consumer discretionary sector contributed positively
to performance during the period, particularly in the areas of retail, casinos
and gambling, consumer electronics, education services and commercial services.
The Fund also benefited from its underweighting in financial services and stock
selection in that sector, especially among financial information services,
multi-line insurance and investment management companies.
2
<Table>
<Caption>
TOP 10 HOLDINGS
Corporate Executive Board Co. 2.5%
Interactive Data Corp. 2.5
GTECH Holdings Corp. 2.4
Dade Behring Hldgs Inc. 2.0
Abitron Inc. 1.9
Stericycle Inc. 1.7
VistaCare Inc. 1.6
Tractor Supply Co. 1.5
Eclipsys Corp. 1.5
Gen-Probe Inc. 1.5
</Table>
<Table>
<Caption>
TOP FIVE INDUSTRIES
Biotechnology 7.0%
Casinos/Gaming 6.5
Health Services 5.7
Semiconductors 5.1
Specialty Stores 5.1
</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
1. THE FUND INVESTS AT LEAST 65 PERCENT OF ITS ASSETS IN COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCK OF SMALL COMPANIES.
2. THE SECURITIES ARE CHOSEN BY PORTFOLIO MANAGERS THROUGH A STRINGENT
QUALITATIVE AND QUANTITATIVE SCREENING PROCESS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
HTTP://WWW.SEC.GOV.
3
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
07/28/97 08/02/93 07/28/97 07/28/97
SYMBOL SMPAX SMPBX SMPCX SMPDX
1 YEAR 19.23%(4) 18.23%(4) 18.27%(4) 19.47%(4)
12.97(5) 13.23(5) 17.27(5)
5 YEARS (1.33)(4) (2.06)(4) (2.08)(4) (1.13)(4)
(2.39)(5) (2.41)(5) (2.08)(5)
10 YEARS 3.51(4)
3.51(5)
SINCE INCEPTION (3.17)(4) 3.56(4) (3.91)(4) (2.97)(4)
(4.02)(5) 3.56(5) (3.91)(5)
</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 2000 Growth Index measures the performance of those companies
in the Russell 2000 Index with higher price-to-book ratios and higher
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 S&P Small-Cap 600 Index consists of 600 domestic stocks chosen for
market size, liquidity (bid-asked spread, ownership, share turnover and
number of no trade days) and industry group representation. It is a
market-value weighted index (stock price times the number of shares
outstanding), with each stock's weight in the Index proportionate to its
market value. Indexes are unmanaged and their returns do not include any
sales charges or fees. Such costs would lower performance. It is not
possible to invest directly in an index.
(3) The Lipper Small-Cap Growth Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Small-Cap Growth Funds classification. The Index, which is adjusted for
capital gains distributions and income dividends, is unmanaged and should
not be considered an investment. There are currently 30 funds represented
in this Index.
(4) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(5) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The
CDSC declines to 0% after six years.
+ The maximum CDSC for Class C is 1% for shares redeemed within one year of
purchase.
++ Class D has no sales charge.
4
Morgan Stanley Special Growth Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (98.5%)
Advertising/Marketing
Services (3.1%)
99,350 Abitron Inc.*............ $ 3,673,963
16,600 R.H. Donnelley Corp.*.... 687,240
184,550 ValueClick, Inc*......... 1,707,087
------------
6,068,290
------------
Aerospace & Defense
(0.6%)
31,600 Moog Inc. (Class A)*..... 1,191,320
------------
Airlines (0.8%)
27,550 JetBlue Airways Corp.*... 1,484,945
------------
Apparel/Footwear (0.2%)
8,200 Oxford Industries,
Inc. ................... 488,720
------------
Apparel/Footwear Retail
(1.7%)
72,100 Casual Male Retail Group,
Inc.*................... 493,885
38,850 Christopher & Banks
Corp.*.................. 1,153,845
48,425 Hot Topic, Inc.*......... 1,726,835
------------
3,374,565
------------
Biotechnology (7.0%)
127,200 BioMarin Pharmaceutical,
Inc.* .................. 1,202,040
28,800 Celgene Corp.*........... 1,108,512
101,100 Dendreon Corp.*.......... 642,996
65,300 Discovery Laboratories,
Inc.*................... 484,526
47,300 Gen-Probe Inc.*.......... 2,991,252
33,900 Ligand Pharmaceuticals
Inc. (Class B)*......... 470,871
29,500 Martek Biosciences
Corp.*.................. 1,521,905
37,300 MGI Pharma, Inc.*........ 1,439,407
58,525 NPS Pharmaceuticals,
Inc.*................... 1,607,096
29,700 Serologicals Corp.*...... 412,830
27,200 Techne Corp.*............ 912,288
52,150 Telik, Inc.*............. 1,000,237
------------
13,793,960
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Broadcasting (1.5%)
44,200 Citadel Broadcasting
Co.*.................... $ 975,936
119,075 Radio One, Inc. (Class
D)*..................... 1,958,784
------------
2,934,720
------------
Casino/Gaming (6.5%)
65,900 Alliance Gaming Corp.*... 1,484,727
110,445 GTECH Holdings Corp. .... 4,680,659
29,700 Kerzner International
Ltd. (Bahamas)*......... 914,760
73,300 Multimedia Games,
Inc.*................... 1,985,697
106,700 Penn National Gaming,
Inc.*................... 2,363,405
47,300 Station Casinos, Inc. ... 1,407,175
------------
12,836,423
------------
Computer Communications
(0.8%)
22,350 Emulex Corp.*............ 541,093
24,900 NETGEAR, Inc.*........... 490,281
22,000 NetScreen Technologies,
Inc.*................... 526,460
------------
1,557,834
------------
Computer Peripherals
(0.5%)
87,600 Maxtor Corp.*............ 1,001,268
------------
Computer Processing
Hardware (0.3%)
48,700 Cray, Inc.*.............. 617,029
------------
Data Processing Services
(0.5%)
25,125 Global Payments Inc. .... 948,469
------------
Discount Stores (0.8%)
42,225 Fred's, Inc. ............ 1,509,544
------------
Electronic Components
(2.0%)
19,200 Amphenol Corp. (Class
A)*..................... 1,046,976
36,200 Innovex, Inc.*........... 478,564
</Table>
See Notes to Financial Statements
5
Morgan Stanley Special Growth Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
24,300 OmniVision Technologies,
Inc.*................... $ 1,078,677
22,950 SanDisk Corp.*........... 1,387,557
------------
3,991,774
------------
Electronic Distributors
(0.3%)
70,500 Bell Microproducts
Inc.*................... 506,895
------------
Electronic Production
Equipment (3.3%)
52,800 ASM International NV
(Netherlands)*.......... 958,848
48,200 Brooks Automation,
Inc.*................... 1,178,490
26,500 Cymer, Inc.*............. 1,212,905
62,700 Entegris Inc.*........... 922,944
33,200 Mentor Graphics Corp.*... 672,300
16,700 Ultratech, Inc.*......... 489,811
24,300 Varian Semiconductor
Equipment Associates,
Inc.*................... 985,851
------------
6,421,149
------------
Electronics/ Appliances
(1.2%)
22,825 Harman International
Industries, Inc. ....... 2,274,511
------------
Finance/Rental/ Leasing
(0.7%)
31,450 Doral Financial Corp.
(Puerto Rico)........... 1,291,023
------------
Financial Publishing/
Services (2.7%)
20,900 eSPEED, Inc (Class A)*... 476,520
287,500 Interactive Data
Corp.*.................. 4,812,750
------------
5,289,270
------------
Food: Specialty/ Candy
(0.9%)
49,430 J & J Snack Foods
Corp.*.................. 1,735,487
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Home Building (0.8%)
85,400 Brookfield Homes
Corp. .................. $ 1,558,550
------------
Home Furnishings (0.7%)
62,300 Select Comfort Corp.*.... 1,450,967
------------
Industrial Machinery
(0.5%)
25,600 Graco Inc. .............. 1,010,944
------------
Information Technology
Services (0.6%)
22,100 Intergraph Corp.*........ 525,759
29,100 Verint Systems Inc.*..... 658,824
------------
1,184,583
------------
Internet Software/
Services (2.8%)
123,700 CNET Networks, Inc.*..... 1,041,554
18,800 J2 Global Communications,
Inc.*................... 1,179,136
61,800 Secure Computing
Corp.*.................. 673,002
29,500 United Online, Inc.*..... 1,124,245
79,400 WebEx Communications,
Inc.*................... 1,516,540
------------
5,534,477
------------
Investment Managers
(1.2%)
35,800 Affiliated Managers
Group, Inc.*............ 2,427,240
------------
Life/Health Insurance
(0.5%)
24,800 Reinsurance Group of
America, Inc. .......... 937,936
------------
Medical Distributors
(1.1%)
159,555 Neoforma, Inc.*.......... 2,072,779
------------
</Table>
See Notes to Financial Statements
6
Morgan Stanley Special Growth Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Medical Specialties
(4.5%)
142,440 Dade Behring Holdings,
Inc.*................... $ 3,974,076
24,200 Digene Corp.*............ 919,842
17,800 Flamel Technologies (ADR)
(France)*............... 507,033
28,100 INAMED Corp.*............ 2,074,904
14,700 SurModics, Inc.*......... 493,332
41,000 VISX, Inc.*.............. 820,820
------------
8,790,007
------------
Medical/Nursing Services
(1.4%)
57,269 Apria Healthcare Group,
Inc.*................... 1,483,267
59,600 VCA Antech, Inc.*........ 1,373,184
------------
2,856,451
------------
Metal Fabrications (0.5%)
35,500 Chicago Bridge & Iron
Company N.V. (ADR)
(Netherlands)........... 948,560
------------
Miscellaneous Commercial
Services (3.9%)
109,700 Corporate Executive Board
Co. (The)*.............. 4,843,255
229,900 SkillSoft PLC (ADR)
(Ireland)*.............. 1,728,848
42,200 Viad Corp. .............. 1,007,736
------------
7,579,839
------------
Miscellaneous
Manufacturing (0.3%)
16,200 Dionex Corp.*............ 634,716
------------
Oil & Gas Production
(2.8%)
39,700 Evergreen Resources,
Inc.*................... 2,218,039
28,700 PetroKazakhstan Inc.
(Class A) (Canada)*..... 472,115
197,800 Ultra Petroleum Corp.
(Canada)*............... 2,870,078
------------
5,560,232
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Oilfield Services/
Equipment (0.7%)
84,800 Maverick Tube Corp.*..... $ 1,440,752
------------
Other Consumer Services
(3.3%)
72,400 Autobytel Inc.*.......... 616,124
71,300 DeVry, Inc.*............. 1,850,235
94,700 iDine Rewards Network
Inc.*................... 1,642,098
28,200 ITT Educational Services,
Inc.*................... 1,222,470
11,050 Strayer Education,
Inc. ................... 1,055,275
------------
6,386,202
------------
Packaged Software (4.9%)
51,800 Hyperion Solutions
Corp.*.................. 1,708,364
102,350 Informatica Corp.*....... 909,892
74,900 Legato Systems, Inc.*.... 847,868
150,400 Micromuse Inc.*.......... 1,230,272
155,100 NetIQ Corp.*............. 2,087,646
80,400 Network Associates,
Inc.*................... 1,119,168
107,100 Quest Software, Inc.*.... 1,136,331
34,100 Serena Software, Inc.*... 661,540
------------
9,701,081
------------
Personnel Services (0.5%)
33,100 Monster Worldwide
Inc.*................... 904,292
------------
Pharmaceuticals: Generic
Drugs (0.9%)
31,200 Taro Pharmaceuticals
Industries Ltd.
(Israel)*............... 1,684,488
------------
Publishing: Newspapers
(2.2%)
36,200 Media General, Inc.
(Class A)............... 2,194,082
41,060 Pulitzer Inc. ........... 2,108,431
------------
4,302,513
------------
Recreational Products
(0.5%)
40,400 WMS Industries, Inc.*.... 967,580
------------
Regional Banks (0.5%)
28,000 UCBH Holdings, Inc. ..... 895,720
------------
</Table>
See Notes to Financial Statements
7
Morgan Stanley Special Growth Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Restaurants (2.3%)
52,500 Chicago Pizza & Browery,
Inc.*................... $ 630,000
26,825 P.F. Chang's China
Bistro, Inc.*........... 1,247,363
113,650 Sonic Corp.*............. 2,666,229
------------
4,543,592
------------
Savings Banks (1.7%)
82,700 Provident Financial
Services, Inc. ......... 1,673,021
71,700 TierOne Corp.*........... 1,595,325
------------
3,268,346
------------
Semiconductors (5.1%)
37,700 Actel Corp.*............. 1,104,233
304,500 Conexant Systems,
Inc.*................... 1,668,660
48,150 Integrated Circuit
Systems, Inc.*.......... 1,662,138
71,096 Intersil Corp. (Class
A)*..................... 2,071,026
40,750 Micrel, Inc.*............ 554,200
85,600 PMC -- Sierra, Inc.*..... 1,220,656
21,800 Power Integrations,
Inc.*................... 701,524
56,900 QuickLogic
Corporation*............ 512,100
84,500 Vitesse Semiconductor
Corp.*.................. 577,135
------------
10,071,672
------------
Services to the Health
Industry (5.7%)
199,400 Eclipsys Corp.*.......... 3,000,970
42,600 Merge Technologies
Inc.*................... 702,474
88,700 Specialty Laboratories,
Inc.*................... 935,785
71,100 Stericycle, Inc.*........ 3,412,089
99,550 VistaCare, Inc. (Class
A)...................... 3,136,124
------------
11,187,442
------------
Specialty Insurance
(2.1%)
8,400 Markel Corp.*............ 2,257,500
55,300 PMI Group, Inc. (The).... 1,956,514
------------
4,214,014
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Specialty Stores (5.1%)
28,300 Brookstone, Inc.*........ $ 799,475
33,875 Cost Plus, Inc.*......... 1,363,130
40,475 Dick's Sporting Goods,
Inc.*................... 1,530,765
28,200 Guitar Center, Inc.*..... 945,828
34,100 PETCO Animal Supplies,
Inc.*................... 1,094,610
87,500 Tractor Supply Company... 3,018,750
35,900 Tuesday Morning Corp.*... 1,242,858
------------
9,995,416
------------
Specialty
Telecommunications (3.5%)
148,100 American Tower Corp.
(Class A)*.............. 1,685,378
179,200 Crown Castle
International Corp.*.... 1,926,400
134,500 IDT Corp. (Class B)...... 2,392,755
21,700 NTL Inc.*................ 873,208
------------
6,877,741
------------
Telecommunication
Equipment (1.2%)
18,600 Inter-Tel, Inc. ......... 468,720
210,000 Sonus Networks, Inc.*.... 1,491,000
11,200 UTStarcom, Inc.*......... 481,152
------------
2,440,872
------------
Wholesale Distributors
(1.3%)
91,805 Imagistics International
Inc.*................... 2,625,623
------------
Total Common Stocks
(Cost $158,110,888)...... 193,371,823
------------
</Table>
See Notes to Financial Statements
8
Morgan Stanley Special Growth Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------
Short-Term Investment (0.5%)
Repurchase Agreement
$ 1,073 Joint repurchase
agreement account 1.05%
due 09/02/03 (dated
08/29/03; proceeds
$1,073,125) (a)
(Cost $1,073,000)....... $ 1,073,000
------------
</Table>
<Table>
Total Investments
(Cost $159,183,888) (b)..... 99.0% 194,444,823
Other Assets in Excess of
Liabilities................. 1.0 1,883,022
----- ------------
Net Assets.................. 100.0% $196,327,845
===== ============
</Table>
- ---------------------
<Table>
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by federal agency and U.S. Treasury
obligations.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes.
The aggregate gross unrealized appreciation is
$38,184,931 and the aggregate gross unrealized
depreciation is $2,923,996, resulting in net
unrealized appreciation of $35,260,935.
</Table>
See Notes to Financial Statements
9
Morgan Stanley Special Growth Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2003 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $159,183,888)....................................... $194,444,823
Receivable for:
Investments sold........................................ 3,344,545
Shares of beneficial interest sold...................... 1,208,515
Dividends............................................... 18,571
Prepaid expenses and other assets........................... 120,601
------------
Total Assets............................................ 199,137,055
------------
Liabilities:
Payable for:
Investments purchased................................... 2,252,053
Shares of beneficial interest redeemed.................. 175,003
Investment management fee............................... 157,313
Distribution fee........................................ 118,914
Accrued expenses and other payables......................... 105,927
------------
Total Liabilities....................................... 2,809,210
------------
Net Assets.............................................. $196,327,845
============
Composition of Net Assets:
Paid-in-capital............................................. $474,642,618
Net unrealized appreciation................................. 35,260,935
Net investment loss......................................... (1,926,737)
Accumulated net realized loss............................... (311,648,971)
------------
Net Assets.............................................. $196,327,845
============
Class A Shares:
Net Assets.................................................. $10,596,604
Shares Outstanding (unlimited authorized, $.01 par value)... 795,248
Net Asset Value Per Share............................... $13.32
======
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)....... $14.06
======
Class B Shares:
Net Assets.................................................. $138,354,312
Shares Outstanding (unlimited authorized, $.01 par value)... 10,883,560
Net Asset Value Per Share............................... $12.71
======
Class C Shares:
Net Assets.................................................. $6,849,352
Shares Outstanding (unlimited authorized, $.01 par value)... 539,755
Net Asset Value Per Share............................... $12.69
======
Class D Shares:
Net Assets.................................................. $40,527,577
Shares Outstanding (unlimited authorized, $.01 par value)... 3,002,000
Net Asset Value Per Share............................... $13.50
======
</Table>
See Notes to Financial Statements
10
Morgan Stanley Special Growth Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended August 31, 2003 (unaudited)
<Table>
Net Investment Loss:
Income
Dividends (net of $2,240 foreign withholding tax)........... $ 139,859
Interest.................................................... 12,624
-----------
Total Income............................................ 152,483
-----------
Expenses
Investment management fee................................... 871,500
Distribution fee (Class A shares)........................... 14,238
Distribution fee (Class B shares)........................... 611,570
Distribution fee (Class C shares)........................... 30,248
Transfer agent fees and expenses............................ 441,257
Shareholder reports and notices............................. 52,091
Professional fees........................................... 26,076
Custodian fees.............................................. 16,324
Trustees' fees and expenses................................. 6,148
Registration fees........................................... 6,030
Other....................................................... 3,738
-----------
Total Expenses.......................................... 2,079,220
-----------
Net Investment Loss..................................... (1,926,737)
-----------
Net Realized and Unrealized Gain:
Net realized gain........................................... 16,069,720
Net change in unrealized depreciation....................... 41,819,867
-----------
Net Gain................................................ 57,889,587
-----------
Net Increase................................................ $55,962,850
===========
</Table>
See Notes to Financial Statements
11
Morgan Stanley Special Growth Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2003 FEBRUARY 28, 2003
--------------- -----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment loss......................................... $ (1,926,737) $ (5,185,607)
Net realized gain (loss).................................... 16,069,720 (136,471,712)
Net change in unrealized depreciation....................... 41,819,867 13,316,273
------------ -------------
Net Increase (Decrease)................................. 55,962,850 (128,341,046)
Net decrease from transactions in shares of beneficial
interest.................................................. (15,721,189) (37,117,689)
------------ -------------
Net Increase (Decrease)................................. 40,241,661 (165,458,735)
Net Assets:
Beginning of period......................................... 156,086,184 321,544,919
------------ -------------
End of Period
(Including a net investment loss of $1,926,737 and $0,
respectively)............................................... $196,327,845 $ 156,086,184
============ =============
</Table>
See Notes to Financial Statements
12
Morgan Stanley Special Growth Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Special Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in common stocks and other securities convertible into common stocks
of small companies with market capitalizations, at the time of purchase, within
the capitalization range of securities comprising the Standard & Poor's
Small-Cap 600 Index. The Fund was organized as a Massachusetts business trust on
March 11, 1992 and commenced operations on August 2, 1993. 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) 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; (6)
certain portfolio securities may be valued by an outside pricing service
approved by the Fund's Trustees; and (7) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
13
Morgan Stanley Special Growth Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
F. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Management Agreement
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 1.0% to the portion of daily
14
Morgan Stanley Special Growth Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued
net assets not exceeding $1.5 billion; and 0.95% to the portion of daily net
assets in excess of $1.5 billion.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$24,315,774 at August 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 six months ended August 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 August 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 $5, $113,520 and
$2,204, respectively and received $7,659 in front-
15
Morgan Stanley Special Growth Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued
end sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended August 31, 2003 aggregated
$170,620,382 and $190,967,809, respectively. Included in the aforementioned are
purchases and sales of $243,292 and $6,524,649, respectively with other Morgan
Stanley Funds including a net realized gain of $1,366,083.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At August 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $32,200.
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
AUGUST 31, 2003 FEBRUARY 28, 2003
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES
Sold.............................................. 468,300 $ 5,201,483 987,720 $ 12,701,010
Redeemed.......................................... (842,327) (9,627,505) (673,508) (8,843,650)
---------- ------------ ---------- ------------
Net increase (decrease) - Class A................. (374,027) (4,426,022) 314,212 3,857,360
---------- ------------ ---------- ------------
CLASS B SHARES
Sold.............................................. 638,130 7,149,330 1,309,652 17,497,072
Redeemed.......................................... (1,649,705) (17,666,249) (5,820,808) (71,451,575)
---------- ------------ ---------- ------------
Net decrease - Class B............................ (1,011,575) (10,516,919) (4,511,156) (53,954,503)
---------- ------------ ---------- ------------
CLASS C SHARES
Sold.............................................. 95,507 1,088,921 166,535 2,179,439
Redeemed.......................................... (141,688) (1,556,327) (293,001) (3,519,887)
---------- ------------ ---------- ------------
Net decrease - Class C............................ (46,181) (467,406) (126,466) (1,340,448)
---------- ------------ ---------- ------------
CLASS D SHARES
Sold.............................................. 504,725 5,685,551 2,091,888 29,118,203
Redeemed.......................................... (541,326) (5,996,393) (1,201,463) (14,798,301)
---------- ------------ ---------- ------------
Net increase (decrease) - Class D................. (36,601) (310,842) 890,425 14,319,902
---------- ------------ ---------- ------------
Net decrease in Fund.............................. (1,468,384) $(15,721,189) (3,432,985) $(37,117,689)
========== ============ ========== ============
</Table>
16
Morgan Stanley Special Growth Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued
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.
As of February 28, 2003, the Fund had a net capital loss carryforward of
$325,714,632 of which $10,229,259 will expire on February 28, 2009, $156,662,968
will expire on February 28, 2010 and $158,822,405 will expire on February 28,
2011 to offset future capital gains to the extent provided by regulations.
As of February 28, 2003, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales.
17
Morgan Stanley Special 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 FEBRUARY 28,
MONTHS ENDED ----------------------------------------------------------------
AUGUST 31, 2003 2003 2002 2001 2000* 1999
--------------- -------- -------- -------- -------- --------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period...... $ 9.64 $16.45 $24.42 $62.72 $23.13 $21.18
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss++................. (0.10) (0.20) (0.30) (0.40) (0.41) (0.29)
Net realized and unrealized gain
(loss)................................ 3.78 (6.61) (7.67) (36.19) 42.93 2.24
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations............................... 3.68 (6.81) (7.97) (36.59) 42.52 1.95
------ ------ ------ ------ ------ ------
Less distributions from net realized
gain..................................... -- -- -- (1.71) (2.93) --
------ ------ ------ ------ ------ ------
Net asset value, end of period............ $13.32 $ 9.64 $16.45 $24.42 $62.72 $23.13
====== ====== ====== ====== ====== ======
Total Return+............................. 38.28 %(1) (41.40)% (32.64)% (59.57)% 191.77% 9.21%
Ratios to Average Net Assets(3):
Expenses.................................. 1.88 %(2) 1.76% 1.59% 1.33% 1.40% 1.50%
Net investment loss....................... (1.71)%(2) (1.65)% (1.40)% (0.95)% (1.13)% (1.40)%
Supplemental Data:
Net assets, end of period, in thousands... $10,597 $11,270 $14,064 $21,357 $36,835 $2,450
Portfolio turnover rate................... 99 %(1) 119% 25% 37% 59% 51%
</Table>
- ---------------------
<Table>
* Year ended February 29, 2000.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
See Notes to Financial Statements
18
Morgan Stanley Special Growth Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED -----------------------------------------------------------------------
AUGUST 31, 2003 2003 2002 2001 2000* 1999
--------------- --------- --------- --------- ----------- ---------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of
period........................... $ 9.23 $15.88 $23.76 $ 61.57 $22.84 $21.08
------ ------ ------ ------- ------ ------
Income (loss) from investment
operations:
Net investment loss++......... (0.13) (0.30) (0.45) (0.69) (0.55) (0.43)
Net realized and unrealized
gain (loss)................... 3.61 (6.35) (7.43) (35.41) 42.21 2.19
------ ------ ------ ------- ------ ------
Total income (loss) from
investment operations............ 3.48 (6.65) (7.88) (36.10) 41.66 1.76
------ ------ ------ ------- ------ ------
Less distributions from net
realized gain.................... -- -- -- (1.71) (2.93) --
------ ------ ------ ------- ------ ------
Net asset value, end of period.... $12.71 $ 9.23 $15.88 $ 23.76 $61.57 $22.84
====== ====== ====== ======= ====== ======
Total Return+..................... 37.70 %(1) (41.88)% (33.16)% (59.89)% 190.41% 8.35%
Ratios To Average Net Assets(3):
Expenses.......................... 2.63 %(2) 2.55% 2.35% 2.03% 1.85% 2.18%
Net investment loss............... (2.46)%(2) (2.44)% (2.16)% (1.65)% (1.58)% (2.08)%
Supplemental Data:
Net assets, end of period, in
thousands........................ $138,354 $109,784 $260,504 $459,380 $1,069,967 $322,489
Portfolio turnover rate........... 99 %(1) 119% 25% 37% 59% 51%
</Table>
- ---------------------
<Table>
* Year ended February 29, 2000.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
See Notes to Financial Statements
19
Morgan Stanley Special Growth Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ----------------------------------------------------------------
AUGUST 31, 2003 2003 2002 2001 2000* 1999
--------------- -------- -------- -------- -------- --------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period...... $ 9.21 $15.85 $23.67 $61.40 $22.85 $21.08
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss++................. (0.13) (0.30) (0.41) (0.73) (0.70) (0.45)
Net realized and unrealized gain
(loss)................................ 3.61 (6.34) (7.41) (35.29) 42.18 2.22
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations............................... 3.48 (6.64) (7.82) (36.02) 41.48 1.77
------ ------ ------ ------ ------ ------
Less distributions from net realized
gain..................................... -- -- -- (1.71) (2.93) --
------ ------ ------ ------ ------ ------
Net asset value, end of period............ $12.69 $ 9.21 $15.85 $23.67 $61.40 $22.85
====== ====== ====== ====== ====== ======
Total Return+............................. 37.79 %(1) (41.78)% (33.16)% (59.93)% 189.51% 8.35%
Ratios to Average Net Assets(3):
Expenses.................................. 2.63 %(2) 2.55% 2.20% 2.16% 2.18% 2.26%
Net investment loss....................... (2.46)%(2) (2.44)% (2.01)% (1.78)% (1.91)% (2.16)%
Supplemental Data:
Net assets, end of period, in thousands... $6,849 $5,398 $11,294 $19,639 $28,675 $2,662
Portfolio turnover rate................... 99 %(1) 119% 25% 37% 59% 51%
</Table>
- ---------------------
<Table>
* Year ended February 29, 2000.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
See Notes to Financial Statements
20
Morgan Stanley Special Growth Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ----------------------------------------------------------------
AUGUST 31, 2003 2003 2002 2001 2000* 1999
--------------- -------- -------- -------- -------- --------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period...... $ 9.75 $16.61 $24.60 $ 63.11 $23.20 $21.21
------ ------ ------ ------- ------ ------
Income (loss) from investment operations:
Net investment loss++................. (0.08) (0.18) (0.25) (0.32) (0.35) (0.24)
Net realized and unrealized gain
(loss)................................ 3.83 (6.68) (7.74) (36.48) 43.19 2.23
------ ------ ------ ------- ------ ------
Total income (loss) from investment
operations............................... 3.75 (6.86) (7.99) (36.80) 42.84 1.99
------ ------ ------ ------- ------ ------
Less distributions from net realized
gain..................................... -- -- -- (1.71) (2.93) --
------ ------ ------ ------- ------ ------
Net asset value, end of period............ $13.50 $ 9.75 $16.61 $ 24.60 $63.11 $23.20
====== ====== ====== ======= ====== ======
Total Return+............................. 38.46 %(1) (41.30)% (32.48)% (59.53)% 192.59% 9.38%
Ratios to Average Net Assets(3):
Expenses.................................. 1.63 %(2) 1.55% 1.35% 1.16% 1.18% 1.26%
Net investment loss....................... (1.46)%(2) (1.44)% (1.16)% (0.78)% (0.91)% (1.16)%
Supplemental Data:
Net assets, end of period, in thousands... $40,528 $29,634 $35,683 $41,207 $21,570 $13
Portfolio turnover rate................... 99 %(1) 119% 25% 37% 59% 51%
</Table>
- ---------------------
<Table>
* Year ended February 29, 2000.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
See Notes to Financial Statements
21
(This Page Intentionally Left Blank)
(This Page Intentionally Left Blank)
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President and General Counsel
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(c) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Special Growth Fund
Semiannual Report
August 31, 2003
[MORGAN STANLEY LOGO]
37892RPT-12328I03-AP-9/03
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
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 Special Growth Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 20, 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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 20, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
October 20, 2003
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Special Growth Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 8, 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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 8, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 8, 2003
3