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: 811-07117

Morgan Stanley Limited Duration 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: April 30, 2004

Date of reporting period: October 31, 2003

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Limited
Duration Fund performed during the semiannual period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.

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

FUND REPORT

For the six-months ended October 31, 2003

TOTAL RETURN FOR THE SIX-MONTHS ENDED OCTOBER 31, 2003

<Table>
<Caption>
MORGAN STANLEY LEHMAN BROTHERS LIPPER SHORT
LIMITED DURATION 1-5 YEAR U.S. INVESTMENT GRADE
FUND CREDIT INDEX(1) DEBT INDEX(2)

0.30% 1.64% 0.90%
</Table>

The Fund's total return figures assume the reinvestment of all distributions.
There is no sales charge. Past performance is no guarantee of future results.
See Performance Summary for standardized performance information.

MARKET CONDITIONS

The six-month period ended October 31, 2003 witnessed considerable interest-rate
volatility. In May, amid continuing economic uncertainty, the Federal Reserve
Board expressed concerns about the potential for deflation. Rates fell sharply
following this announcement, with the yield on the 5-year Treasury note briefly
dropping below two percent in mid June. Interest rates reversed course again in
the summer as market participants sensed signs of a return to firm economic
growth. Rates remained volatile through the end of the period, dropping sharply
in September and resuming their upward climb in October.

The environment for mortgage-backed securities was mixed. While interest rates
were declining, fear of a sharp rise in prepayments led mortgage spreads to
widen considerably relative to Treasuries, especially for higher-coupon mortgage
securities. As the period came to a close, spreads had narrowed considerably for
lower-coupon mortgage securities but remained wide for higher-coupon mortgages
due to the heightened level of interest-rate volatility.

As the review period began, spreads had already tightened considerably from
previous levels as market participants sensed that the corporate sector was past
the worst of its governance troubles. Investors also indicated increasing
confidence in the financial prospects of the corporate sector, and their buying
activity continued to tighten corporate spreads throughout the period. Positive
economic data toward the end of the period only added to the constructive
environment for corporates.

PERFORMANCE ANALYSIS

The Fund underperformed its benchmark, the Lehman Brothers 1-5 Year Credit
Index, during the period. Its underperformance was largely driven by its
holdings of mortgage-backed securities. Given our expectation that the economy
was poised for recovery, we thought it prudent to shift the Fund's holdings in
the mortgage sector into securities with higher coupons that are priced for
faster prepayment speeds than our models suggest are likely to occur. This
strategy negatively affected the Fund's relative returns during first two months
of the period as market participants' expectations for even faster prepayments
caused the prices of these securities to decline.

On a more positive note, the Fund's performance was helped by a combination of
low interest rate sensitivity, strong performance by its short-dated corporate
and asset-backed securities and a policy of avoiding U.S. government agency
debt. Our interest rate strategy during the period was to maintain a duration
below that of the benchmark out of concern that the next significant move in
interest rates was likely to be upward. This stance benefited the Fund when
interest rates spiked this summer. The Fund's investments in asset-backed
securities provided income and bolstered returns as spreads for those

securities tightened relative to Treasuries. The Fund also benefited from our
decision to limit exposure to U.S. government agency securities. These bonds
lagged Treasuries after revelations of questionable accounting at the Federal
Home Loan Mortgage Corporation raised concerns about the agency's
creditworthiness.

<Table>
<Caption>
PORTFOLIO COMPOSITION

U.S. Government Agencies 33.8%
U.S. Treasuries 26.1
Corp. Debt -- Non-Conv 15.2
Short-Term 13.3
Asset Backed 10.3
Foreign Government Bonds 0.8
CMO's 0.5
</Table>

<Table>
<Caption>
CREDIT ANALYSIS

Aaa/AAA 79.6%
Aa/AA 3.3
A/A 9.3
Baa/BBB 7.7
Ba/BB 0.1
</Table>

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

INVESTMENT STRATEGY

1. THE FUND INVESTS PRIMARILY IN A PORTFOLIO OF CORPORATE, U.S. GOVERNMENT, AND
MORTGAGE-BACKED SECURITIES. THE FUND SEEKS TO MAINTAIN AN OVERALL AVERAGE
DURATION OF THE PORTFOLIO OF THREE YEARS OR LESS.
2. THE MANAGEMENT TEAM EMPHASIZES BROADENING AND DIVERSIFYING RISKS AND
VALUE-DRIVEN INVESTMENT DECISIONS SUPPORTED BY FORWARD-LOOKING CREDIT
ANALYSIS.

3. SHAREHOLDERS MAY BENEFIT FROM THE FUND'S FLEXIBILITY TO SHIFT FROM, SAY,
GOVERNMENTS TO CORPORATE SECURITIES AND MORTGAGE-BACKED SECURITIES, OR TO
ADJUST THE FUND'S DURATION AS THE MANAGEMENT TEAM SEEK OUT THE BEST VALUES IN
THE MARKET, ESPECIALLY IN SHORT-DURATION 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.

FUND PERFORMANCE

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

1 YEAR 1.64%(1)
5 YEARS 4.71(1)
SINCE INCEPTION
(01/10/94) 5.15(1)
</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.

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

(1) Figure shown assumes reinvestment of all distributions. There is no sales
charge.

(2) The Lehman Brothers U.S Credit Index (1-5 year) includes U.S. corporate and
specified foreign debentures and secured notes with maturities of one to
five years. The Index is unmanaged and should not be considered an
investment.

(3) The Lipper Short Investment Grade Bond Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Short Investment Grade Bond 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.

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED)

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

Corporate Bonds (19.1%)
Aerospace & Defense (0.3%)
$ 435 Lockheed Martin Corp. ................................... 8.20 % 12/01/09 $ 525,524
270 McDonnell Douglas Corp. ................................. 6.875 11/01/06 293,792
180 Raytheon Co. ............................................ 6.75 08/15/07 197,227
165 Raytheon Co. ............................................ 8.20 03/01/06 184,466
385 Raytheon Co. ............................................ 8.30 03/01/10 457,390
-------------
1,658,399
-------------
Airlines (0.1%)
465 Southwest Airlines Co. .................................. 5.496 11/01/06 500,635
-------------

Auto Parts: O.E.M. (0.3%)
640 Delphi Automotive Systems Corp. ......................... 6.125 05/01/04 654,139
745 Johnson Controls, Inc. .................................. 5.00 11/15/06 792,925
-------------
1,447,064
-------------
Beverages: Alcoholic (0.1%)
645 Miller Brewing Co. - 144A*............................... 4.25 08/15/08 651,355
-------------

Broadcasting (0.1%)
475 Clear Channel Communications, Inc. ...................... 7.65 09/15/10 553,243
-------------

Building Products (0.1%)
275 Masco Corp. ............................................. 4.625 08/15/07 285,160
-------------

Cable/Satellite TV (0.3%)
705 Comcast Corp. ........................................... 5.85 01/15/10 748,974
350 Cox Communications Inc. ................................. 7.75 08/15/06 395,128
300 TCI Communications, Inc. ................................ 8.00 08/01/05 327,555
-------------
1,471,657
-------------
Department Stores (0.3%)
160 Federated Department Stores, Inc. ....................... 6.30 04/01/09 175,682
840 Federated Department Stores, Inc. ....................... 6.625 09/01/08 933,830
430 May Department Stores Co. ............................... 6.875 11/01/05 465,298
-------------
1,574,810
-------------
Discount Stores (0.1%)
310 Target Corp. ............................................ 7.50 02/15/05 332,136
-------------
</Table>

5
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Drugstore Chains (0.3%)
$ 135 CVS Corp. ............................................... 3.875% 11/01/07 $ 137,727
1,455 CVS Corp. ............................................... 5.625 03/15/06 1,563,127
-------------
1,700,854
-------------
Electric Utilities (0.3%)
815 Appalachian Power Co. ................................... 3.60 05/15/08 798,332
180 Constellation Energy Group............................... 6.35 04/01/07 196,206
540 Duke Energy Corp. ....................................... 4.50 04/01/10 544,183
240 Wisconsin Electric Power Co. ............................ 4.50 05/15/13 233,017
-------------
1,771,738
-------------
Electrical Products (0.1%)
565 Cooper Industries Inc. .................................. 5.25 07/01/07 601,641
-------------

Energy (0.4%)
1,820 Consolidated Natural Gas Co. ............................ 5.375 11/01/06 1,944,830
-------------

Environmental Services (0.1%)
200 Waste Management, Inc. .................................. 6.875 05/15/09 224,476
510 WMX Technologies Inc. ................................... 7.00 10/15/06 564,879
-------------
789,355
-------------
Finance/Rental/Leasing (2.3%)
825 American General Finance Corp. .......................... 4.625 09/01/10 828,596
740 American General Finance Corp. .......................... 5.875 07/14/06 799,125
905 American Honda Finance Corp. ............................ 3.85 11/06/08 906,145
545 CIT Group Inc. .......................................... 2.875 09/29/06 543,369
1,035 CIT Group Inc. .......................................... 6.50 02/07/06 1,123,622
1,350 Countrywide Home Loans, Inc. ............................ 3.25 05/21/08 1,315,953
1,250 Ford Motor Credit Co. ................................... 6.50 01/25/07 1,289,736
1,845 Ford Motor Credit Co. ................................... 6.875 02/01/06 1,930,964
210 Hertz Corp. ............................................. 7.00 07/01/04 214,130
215 Household Finance Corp. ................................. 6.375 10/15/11 234,967
765 Household Finance Corp. ................................. 6.40 06/17/08 849,051
395 Household Finance Corp. ................................. 6.75 05/15/11 442,039
500 International Lease Finance Corp. ....................... 3.75 08/01/07 506,943
305 MBNA America Bank NA..................................... 7.75 09/15/05 334,571
905 MBNA Corp. .............................................. 6.125 03/01/13 943,059
530 Prime Property Funding II - 144A*........................ 7.00 08/15/04 550,519
-------------
12,812,789
-------------
</Table>

6
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Financial Conglomerates (2.5%)
$ 910 Boeing Capital Corp. .................................... 5.75 % 02/15/07 $ 974,999
260 Chase Manhattan Corp. ................................... 6.00 02/15/09 282,806
145 Chase Manhattan Corp. ................................... 7.00 11/15/09 166,098
750 Citicorp................................................. 6.375 11/15/08 827,988
585 Citicorp................................................. 6.75 08/15/05 633,786
835 Citigroup Inc. .......................................... 5.50 08/09/06 898,230
1,205 Citigroup Inc. .......................................... 5.75 05/10/06 1,297,027
2,550 General Electric Capital Corp. .......................... 5.375 03/15/07 2,734,691
2,225 General Motors Acceptance Corp. ......................... 4.50 07/15/06 2,259,178
1,170 General Motors Acceptance Corp. ......................... 6.125 08/28/07 1,232,531
1,400 John Hancock Financial Services, Inc. ................... 5.625 12/01/08 1,509,109
735 JP Morgan Chase & Co. ................................... 5.25 05/30/07 784,916
-------------
13,601,359
-------------
Food Retail (0.4%)
735 Kroger Co. .............................................. 7.375 03/01/05 785,067
550 Kroger Co. .............................................. 7.625 09/15/06 616,727
625 Safeway Inc. ............................................ 6.15 03/01/06 671,831
-------------
2,073,625
-------------
Food: Major Diversified (0.2%)
325 General Mills Inc. ...................................... 3.875 11/30/07 327,490
855 Kraft Foods Inc. ........................................ 5.25 06/01/07 907,297
-------------
1,234,787
-------------
Food: Meat/Fish/Dairy (0.2%)
985 Conagra Foods, Inc. ..................................... 6.00 09/15/06 1,070,625
-------------

Forest Products (0.5%)
460 Weyerhaeuser Co. ........................................ 6.125 03/15/07 497,448
2,035 Weyerhaeuser Co. ........................................ 6.75 03/15/12 2,202,959
-------------
2,700,407
-------------
Gas Distributors (0.1%)
265 Ras Laffan Liquefied Natural Gas Co. Ltd. - 144A*
(Qatar)................................................ 7.628 09/15/06 281,897
-------------

Home Building (0.0%)
240 Centex Corp. ............................................ 9.75 06/15/05 267,981
-------------

Home Furnishings (0.0%)
195 Mohawk Industries, Inc. (Series C)....................... 6.50 04/15/07 214,764
-------------
</Table>

7
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Home Improvement Chains (0.1%)
$ 565 Lowe's Companies Inc. ................................... 7.50 % 12/15/05 $ 626,796
-------------

Hotels/Resorts/Cruiselines (0.3%)
795 Hyatt Equities LLC - 144A*............................... 6.875 06/15/07 844,088
485 Marriott International, Inc. (Series D).................. 8.125 04/01/05 524,080
130 Marriott International, Inc. (Series E).................. 7.00 01/15/08 144,681
295 Starwood Hotels & Resorts Inc. .......................... 7.375 05/01/07 317,863
-------------
1,830,712
-------------
Industrial Conglomerates (0.4%)
1,940 Honeywell International, Inc. ........................... 5.125 11/01/06 2,081,048
-------------

Insurance Brokers/Services (0.3%)
1,475 Marsh & McLennan Companies Inc. ......................... 5.375 03/15/07 1,595,323
-------------

Integrated Oil (0.5%)
1,210 Amerada Hess Corp. ...................................... 6.65 08/15/11 1,285,475
358 Conoco Funding Co. (Canada).............................. 5.45 10/15/06 385,005
585 Conoco Inc. ............................................. 5.90 04/15/04 596,934
360 Phillips Pete............................................ 8.50 05/25/05 395,901
-------------
2,663,315
-------------
Investment Banks/Brokers (0.6%)
1,800 Goldman Sachs Group, Inc. ............................... 4.125 01/15/08 1,837,730
1,110 Lehman Brothers Holdings, Inc. .......................... 8.25 06/15/07 1,294,584
-------------
3,132,314
-------------
Investment Managers (0.2%)
1,045 TIAA Global Markets - 144A*.............................. 5.00 03/01/07 1,124,219
-------------

Life/Health Insurance (0.7%)
250 Equitable Life Assurance - 144A*......................... 6.95 12/01/05 273,029
635 John Hancock Global Funding - 144A*...................... 5.625 06/27/06 681,730
460 John Hancock Global Funding II - 144A*................... 7.90 07/02/10 545,859
625 Metropolitan Life Insurance Co. - 144A*.................. 6.30 11/01/03 625,000
630 Monumental Global Funding II - 144A*..................... 6.05 01/19/06 682,644
170 Prudential Funding LLC (Series MTN) - 144A*.............. 6.60 05/15/08 189,425
860 Prudential Insurance Co. - 144A**........................ 6.375 07/23/06 942,877
-------------
3,940,564
-------------
</Table>

8
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Major Banks (0.8%)
$ 485 Bank of America Corp. ................................... 3.875% 01/15/08 $ 491,973
765 Bank of America Corp. ................................... 4.75 10/15/06 806,846
355 Bank of New York Co., Inc. .............................. 5.20 07/01/07 379,558
440 Bank One Corp. .......................................... 6.00 02/17/09 480,800
1,050 FleetBoston Financial Corp. ............................. 7.25 09/15/05 1,147,188
255 Huntington National Bank................................. 2.75 10/15/06 253,779
1,025 Wachovia Corp. .......................................... 4.95 11/01/06 1,087,637
-------------
4,647,781
-------------
Major Telecommunications (1.0%)
715 AT&T Corp. .............................................. 7.00 11/15/06 791,798
750 Deutsche Telekom International Finance Corp.
(Netherlands).......................................... 8.50 06/15/10 902,632
535 Telecom Italia Capital - 144A (Italy).................... 4.00 11/15/08 534,343
1,925 Verizon Communications, Inc. ............................ 6.36 04/15/06 2,092,976
1,040 Verizon Global Funding Corp. ............................ 6.125 06/15/07 1,136,719
-------------
5,458,468
-------------
Managed Health Care (0.5%)
575 Aetna, Inc. ............................................. 7.375 03/01/06 635,093
610 Anthem, Inc. ............................................ 4.875 08/01/05 634,502
905 UnitedHealth Group Inc. ................................. 7.50 11/15/05 996,879
625 Wellpoint Health Network, Inc. .......................... 6.375 06/15/06 683,112
-------------
2,949,586
-------------
Media Conglomerates (0.3%)
955 Time Warner Inc. ........................................ 6.125 04/15/06 1,027,202
480 Time Warner Inc. ........................................ 6.15 05/01/07 521,812
-------------
1,549,014
-------------
Motor Vehicles (0.3%)
1,045 DaimlerChrysler North American Holdings Co. ............. 6.40 05/15/06 1,117,096
750 DaimlerChrysler North American Holdings Co. ............. 4.05 06/04/08 724,998
-------------
1,842,094
-------------
Multi-Line Insurance (0.7%)
465 AIG SunAmerica Global Finance - 144A*.................... 5.20 05/10/04 474,348
500 Farmers Insurance Exchange - 144A*....................... 8.50 08/01/04 511,787
455 Hartford Financial Service Group, Inc. (The)............. 2.375 06/01/06 450,096
1,420 Hartford Financial Service Group, Inc. (The)............. 7.75 06/15/05 1,547,427
345 Hartford Financial Service Group, Inc. (The)............. 7.90 06/15/10 406,488
650 Nationwide Mutual Insurance - 144A*...................... 6.50 02/15/04 659,448
-------------
4,049,594
-------------
</Table>

9
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Oil & Gas Production (0.3%)
$ 500 Kerr-McGee Corp. ........................................ 5.875% 09/15/06 $ 536,200
300 Pemex Project Funding Master Trust....................... 7.875 02/01/09 336,000
700 Pemex Project Funding Master Trust....................... 8.00 11/15/11 773,500
-------------
1,645,700
-------------
Oil Refining/Marketing (0.3%)
400 Ashland Inc. ............................................ 7.83 08/15/05 429,364
1,130 Marathon Oil Corp. ...................................... 5.375 06/01/07 1,207,360
-------------
1,636,724
-------------
Other Consumer Services (0.2%)
520 Cendant Corp. ........................................... 6.25 01/15/08 564,376
335 Cendant Corp. ........................................... 6.25 03/15/10 361,295
-------------
925,671
-------------
Other Metals/Minerals (0.2%)
725 Inco Ltd. (Canada)....................................... 7.75 05/15/12 842,886
-------------

Property - Casualty Insurers (0.4%)
1,055 Allstate Finance Global Funding II - 144A*............... 2.625 10/22/06 1,047,730
1,100 Mantis Reef Ltd. - 144A*................................. 4.692 11/14/08 1,097,069
-------------
2,144,799
-------------
Publishing: Newspapers (0.2%)
945 News American Inc. ...................................... 4.75 03/15/10 961,039
125 News American Inc. ...................................... 6.625 01/09/08 138,788
-------------
1,099,827
-------------
Pulp & Paper (0.2%)
1,085 International Paper Co. ................................. 3.80 04/01/08 1,076,715
-------------

Railroads (0.5%)
555 Norfolk Southern Corp. .................................. 7.875 02/15/04 564,890
400 Union Pacific Corp. ..................................... 3.625 06/01/10 378,494
615 Union Pacific Corp. ..................................... 5.84 05/25/04 628,036
200 Union Pacific Corp. ..................................... 6.34 11/25/03 200,494
970 Union Pacific Corp. ..................................... 6.79 11/09/07 1,078,522
-------------
2,850,436
-------------
Real Estate Development (0.2%)
772 World Financial Properties - 144A*....................... 6.91 09/01/13 851,214
-------------
</Table>

10
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Real Estate Investment Trusts (0.7%)
$ 1,230 EOP Operating LP......................................... 6.763% 06/15/07 $ 1,359,001
415 EOP Operating LP......................................... 8.375 03/15/06 465,651
1,595 Simon Property Group LP.................................. 6.375 11/15/07 1,747,766
435 Vornado Realty Trust..................................... 5.625 06/15/07 459,452
-------------
4,031,870
-------------
Regional Banks (0.1%)
540 U.S. Bancorp............................................. 5.10 07/15/07 575,584
-------------

Services to the Health Industry (0.1%)
245 Anthem Insurance - 144A*................................. 9.125 04/01/10 305,495
-------------

Tobacco (0.2%)
600 Altria Group Inc. ....................................... 5.625 11/04/08 598,272
450 Philip Morris Companies, Inc. ........................... 7.65 07/01/08 485,463
-------------
1,083,735
-------------
Total Corporate Bonds (Cost $104,327,614)................................... 106,102,595
-------------
U.S. Government & Agencies Obligations (75.0%)
Mortgage Pass-Through Securities (31.8%)
58,850 Federal Home Loan Mortgage Corp. ........................ 6.50 *** 61,204,000
3,265 Federal Home Loan Mortgage Corp. ........................ 7.50 10/01/26 -
08/01/32 3,486,592
2,800 Federal Home Loan Mortgage Corp. ........................ 7.50 *** 2,989,874
6,974 Federal Home Loan Mortgage Corp. PC Gold................. 7.50 02/01/30 -
12/01/32 7,448,107
37,500 Federal National Mortgage Corp. ......................... 6.50 *** 38,953,125
26,975 Federal National Mortgage Corp. ......................... 7.00 *** 28,399,604
1,537 Federal National Mortgage Corp. ......................... 7.00 02/01/30 -
05/01/32 1,618,011
16,550 Federal National Mortgage Corp. ......................... 7.50 *** 17,636,094
5,529 Federal National Mortgage Corp. ......................... 7.50 09/01/29 -
09/01/32 5,892,084
3,147 Government National Mortgage Assoc. ..................... 4.375 06/20/22 -
05/20/23 3,202,328
2,944 Government National Mortgage Assoc. ..................... 4.50 08/20/29 2,976,918
1,257 Government National Mortgage Assoc. ..................... 5.00 09/20/29 1,283,474
787 Government National Mortgage Assoc. ..................... 5.625 10/20/24 -
12/20/24 810,903
-------------
175,901,114
-------------
</Table>

11
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

U.S. Government & Agency Obligations (43.2%)
$ 52,960 Federal Home Loan Mortgage Corp. ........................ 2.75 % 08/15/06 $ 53,231,632
5,000 Federal National Mortgage Corp. ......................... 4.75 11/14/03 5,005,570
176,400 U.S. Treasury Notes...................................... 3.00 - 7.875 12/31/03 -
11/15/04 181,037,539
-------------
239,274,741
-------------
Total U.S. Government & Agencies Obligations (Cost $415,081,319)............ 415,175,855
-------------
Foreign Government Obligations (1.0%)
935 Quebec Province (Canada)................................. 5.50 04/11/06 1,001,307
1,285 Quebec Province (Canada)................................. 6.125 01/22/11 1,426,425
1,835 United Mexican States (Mexico)........................... 8.375 01/14/11 2,153,373
945 United Mexican States (Mexico)........................... 8.625 03/12/08 1,112,265
-------------
Total Foreign Government Obligations (Cost $5,656,734)...................... 5,693,370
-------------
Asset Backed Securities (12.9%)
Finance/Rental/Leasing
2,600 American Express Credit Account.......................... 1.69 01/15/09 2,541,302
2,100 American Express Credit Account.......................... 5.53 10/15/08 2,253,259
2,200 Bank One Issuance Trust 2002-A4.......................... 2.94 06/16/08 2,231,980
1,150 BMW Vehicle Owner Trust 2002-2A4......................... 4.46 05/25/07 1,196,176
1,200 Capital Auto Receivables Asset Trust 2002-2A............. 4.50 10/15/07 1,244,332
1,500 Capital Auto Receivables Asset Trust 2002-3A............. 3.58 10/16/06 1,539,096
1,855 Chase Credit Card Master Trust 2001-4A................... 5.50 11/17/08 1,996,940
1,400 Chase Manhattan Auto Owner Trust 2002-A.................. 4.21 01/15/09 1,451,162
1,100 Chase Manhattan Auto Owner Trust 2002-A.................. 4.24 09/15/08 1,139,822
2,200 Citibank Credit Card Issuance Trust 2000-A1.............. 6.90 10/15/07 2,396,396
2,275 Citibank Credit Card Issuance Trust 2002-A3.............. 4.40 05/15/07 2,362,579
1,700 Citibank Credit Card Issuance Trust 2003-A2.............. 2.70 01/15/08 1,712,688
747 Connecticut RRB Special Purpose Trust CL&P-1 2001-1 A2... 5.36 03/30/07 768,871
1,200 Daimler Chrysler Auto Trust 2002-A A4.................... 4.49 10/06/08 1,245,898
2,650 Daimler Chrysler Auto Trust 2002-C A4.................... 3.09 01/08/08 2,689,333
2,500 Fleet Credit Card Master Trust II 2002-C................. 2.75 04/15/08 2,527,256
880 Ford Credit Auto Owner Trust 2002-B A3A.................. 4.14 12/15/05 892,563
375 Ford Credit Auto Owner Trust 2002-B A4................... 4.75 08/15/06 391,048
2,250 Ford Credit Auto Owner Trust 2002-C A4................... 3.79 09/15/06 2,313,981
2,000 Ford Credit Auto Owner Trust 2002-D A4A.................. 3.13 11/15/06 2,036,836
1,400 Harley-Davidson Motorcycle Trust 2002-1.................. 3.09 06/15/10 1,424,923
1,800 Harley-Davidson Motorcycle Trust 2002-1 A2............... 4.50 01/15/10 1,865,275
3,300 Harley-Davidson Motorcycle Trust 2003.................... 2.76 05/15/11 3,302,965
1,500 Harley-Davidson Motorcycle Trust 2003-1.................. 2.63 11/15/10 1,508,363
730 Honda Auto Receivables Owner Trust 2002-1................ 3.50 10/17/05 736,244
2,150 Honda Auto Receivables Owner Trust 2002-2 A4............. 4.49 09/17/07 2,234,662
</Table>

12
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

$ 1,500 Honda Auto Receivables Owner Trust 2002-4................ 2.70 % 03/17/08 $ 1,507,999
2,000 Honda Auto Receivables Owner Trust 2003-1................ 2.48 07/18/08 2,002,452
3,800 Honda Auto Receivables Owner Trust 2003-3 A2............. 2.77 11/21/08 3,800,640
766 Household Automotive Trust 2001-3 A3..................... 3.68 04/17/06 772,651
1,100 Hyundai Auto Receivables Trust 2003-A.................... 2.33 11/15/07 1,089,000
1,450 MBNA Master Credit Card Trust 1997-JA.................... 1.24 02/15/07 1,450,512
1,000 MBNA Credit Card Master Trust 1997-JA.................... 3.90 11/15/07 1,031,340
1,453 National City Auto Trust 2002-A.......................... 4.04 07/15/06 1,471,003
500 Nissan Auto Receivables Owner Trust 2001-C............... 4.80 02/15/07 514,992
716 Nissan Auto Receivables Owner Trust 2002-A A3............ 3.58 09/15/05 721,629
900 Nissan Auto Receivables Owner Trust 2002 B............... 4.60 09/17/07 935,904
650 Nordstrom Private Label Credit Card Master Trust - 144A*
2001-1A A.............................................. 4.82 04/15/10 681,535
2,500 Volkswagen Auto Lease Trust 2002-A....................... 2.36 12/20/05 2,516,890
4,000 Whole Auto Loan Trust 2003-1 A4.......................... 2.58 03/15/10 3,969,032
3,000 William Street Funding Corp. - 144A* 2003-1 A............ 1.461 04/23/06 3,003,981
-------------
Total Asset Backed Securities (Cost $70,870,032)............................ 71,473,510
-------------
Collateralized Mortgage Obligation (0.6%)
U.S. Government Agency
3,200 Federal Home Loan Mortgage Corp. (Cost $3,274,000)....... 6.50 03/15/28 3,226,577
-------------
Short-Term Investments (16.6%)
Commercial Paper (0.4%) (a)
Food: Major Diversified
2,000 Kraft Inc. (Cost $1,998,522)............................. 1.33 11/21/03 1,998,522
-------------
U.S. Government Obligations (a) (0.2%)
1,250 U.S. Treasury Bills** (Cost $1,245,388).................. 0.945 - 1.00 01/15/04 -
03/25/04 1,245,353
-------------
</Table>

13
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

Repurchase Agreement (16.0%)
$ 88,753 Joint repurchase agreement account (dated 10/31/03;
proceeds $88,755,626) (b) (Cost $88,753,000)........... 1.065% 11/03/03 $ 88,753,000
-------------
Total Short-Term Investments (Cost $91,996,910)............................. 91,996,875
-------------

Total Investments (Cost $691,206,609) (c)(d)......................... 125.2% 693,668,782

Liabilities in Excess of Other Assets................................ (25.2) (139,593,430)
----- -------------
Net Assets........................................................... 100.0% $ 554,075,352
===== =============
</Table>

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

<Table>

PC Participation Certificate.
* Resale is restricted to qualified institutional investors.
** A portion of these securities have been physically
segregated in connection with open futures contracts.
*** Security 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 an amount
equal to $273,403,519 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 $4,266,751 and
the aggregate gross unrealized depreciation is $1,804,578,
resulting in net unrealized appreciation of $2,462,173.
</Table>

Futures Contracts Open at October 31, 2003:

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

50 Long U.S. Treasury Notes 2 Year, $ 10,641,672 $ 81,629
December 2003
842 Short U.S. Treasury Notes 5 Year, (93,486,083) (662,358)
December 2003
189 Short U.S. Treasury Notes 10 Year, (20,960,020) (264,610)
December 2003
---------
Net Unrealized Depreciation........................... $(845,339)
=========
</Table>

14
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
FINANCIAL STATEMENTS

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

<Table>

Assets:
Investments in securities, at value
(cost $691,206,609) (including a repurchase agreement of
$88,753,000).............................................. $693,668,782
Receivable for:
Shares of beneficial interest sold...................... 10,584,448
Interest................................................ 4,982,237
Prepaid expenses and other assets........................... 66,553
------------
Total Assets............................................ 709,302,020
------------
Liabilities:
Payable for:
Investments purchased................................... 153,438,453
Shares of beneficial interest redeemed.................. 1,088,780
Investment management fee............................... 319,132
Variation margin........................................ 204,995
Dividends to shareholders............................... 97,064
Accrued expenses and other payables......................... 78,244
------------
Total Liabilities....................................... 155,226,668
------------
Net Assets.............................................. $554,075,352
============
Composition of Net Assets:
Paid-in-capital............................................. $566,016,553
Net unrealized appreciation................................. 1,616,834
Dividends in excess of net investment income................ (5,770,163)
Accumulated net realized loss............................... (7,787,872)
------------
Net Assets.............................................. $554,075,352
============
Net Asset Value Per Share,
58,158,431 shares outstanding (unlimited shares authorized
of $.01 par value).......................................... $9.53
============
</Table>

15
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
FINANCIAL STATEMENTS continued

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

<Table>

Net Investment Income:
Interest Income............................................. $ 6,989,952
-----------
Expenses
Investment management fee................................... 1,802,173
Transfer agent fees and expenses............................ 212,608
Registration fees........................................... 62,185
Custodian fees.............................................. 35,171
Professional fees........................................... 32,606
Shareholder reports and notices............................. 29,322
Trustees' fees and expenses................................. 3,652
Other....................................................... 8,956
-----------
Total Expenses.......................................... 2,186,673

Less: expense offset........................................ (35,171)
-----------
Net Expenses............................................ 2,151,502
-----------
Net Investment Income................................... 4,838,450
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain/Loss on:
Investments............................................... (997,489)
Future contracts.......................................... 1,163,718
-----------
Net Realized Gain....................................... 166,229
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments............................................... (2,764,450)
Futures contracts......................................... (747,893)
-----------
Net Depreciation........................................ (3,512,343)
-----------
Net Loss................................................ (3,346,114)
-----------
Net Increase................................................ $ 1,492,336
===========
</Table>

16
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 2003 APRIL 30, 2003
---------------- --------------
(unaudited)

Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 4,838,450 $ 5,564,650
Net realized gain........................................... 166,229 268,000
Net change in unrealized appreciation....................... (3,512,343) 4,152,716
------------ ------------
Net Increase............................................ 1,492,336 9,985,366

Dividends to shareholders from net investment income........ (9,413,890) (8,187,421)

Net increase from transactions in shares of beneficial
interest.................................................. 132,587,726 260,980,399
------------ ------------
Net Increase............................................ 124,666,172 262,778,344
Net Assets:
Beginning of period......................................... 429,409,180 166,630,836
------------ ------------
End of Period
(Including dividends in excess of net investment income of
$5,770,163 and $1,194,723, respectively).................... $554,075,352 $429,409,180
============ ============
</Table>

17
See Notes to Financial Statements

Morgan Stanley Limited Duration Fund
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 (UNAUDITED)

1. Organization and Accounting Policies

Morgan Stanley Limited Duration Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income consistent with the preservation of capital. The
Fund seeks to achieve its objective by investing in a diversified portfolio of
short-term fixed income securities. The Fund was organized as a Massachusetts
business trust on October 22, 1993 and commenced operations on January 10, 1994.

The following is a summary of significant accounting policies:

A. Valuation of Investments -- (1) portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price prior to the time of valuation; (2) futures are valued at the
latest price published by the commodities exchange on which they trade; (3) when
market quotations are not readily available or Morgan Stanley Investment
Advisors Inc. (the "Investment Manager") determines that the market quotations
are not reflective of 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; (4) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; and (5) short-term debt securities having a maturity date of more than
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
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.

Morgan Stanley Limited Duration Fund
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

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

E. 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
annual rate of 0.70% to the net assets of the Fund determined as of the close of
each business day.

3. 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 October
31, 2003 were $903,532,984 and $641,484,751, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $819,925,787 and $631,291,410, respectively.

Morgan Stanley Trust, an affiliate of the Investment Manager, is the Fund's
transfer agent. At October 31, 2003, the Fund had transfer agent fees and
expenses payable of approximately $17,600.

Morgan Stanley Limited Duration Fund
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

4. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 2003 APRIL 30, 2003
--------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------

Sold......................................... 35,491,643 $ 340,974,656 42,201,034 $ 407,738,435
Shares issued in connection with the
acquisition of Morgan Stanley North
American Government Income Trust........... -- -- 7,879,235 76,281,762
Reinvestment of dividends.................... 737,145 7,066,044 631,058 6,098,602
----------- ------------- ----------- -------------
36,228,788 348,040,700 50,711,327 490,118,799
Redeemed..................................... (22,452,464) (215,452,974) (23,709,068) (229,138,400)
----------- ------------- ----------- -------------
Net increase................................. 13,776,324 $ 132,587,726 27,002,259 $ 260,980,399
=========== ============= =========== =============
</Table>

5. 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 April 30, 2003, the Fund had a net capital loss carryforward of $7,537,611
of which $2,013,271 will expire on April 30, 2004, $151,743 will expire on April
30, 2005, $1,656,930 will expire on April 30, 2006, $20,504 will expire on April
30, 2007, $51,242 will expire on April 30, 2008, $2,043,383 will expire on April
30, 2009 and $1,600,538 will expire on April 30, 2011 to offset future capital
gains to the extent provided by regulations.

As part of the Fund's acquisition of the assets of Morgan Stanley North American
Government Income Trust ("North American"), the Fund obtained a net capital loss
carryforward of approximately $18,769,000 from North American. Utilization of
this carryforward is subject to limitations imposed by the Internal Revenue Code
and Treasury Regulations, reducing the total carryforward available.

As of April 30, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed

Morgan Stanley Limited Duration Fund
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 (UNAUDITED) continued

to arise on the first business day of the Fund's next taxable year), and book
amortization of premiums on debt securities.

6. Purposes of and Risks Relating to Certain Financial Instruments

To hedge against adverse interest rate and market risks on portfolio positions
or anticipated positions in U.S. Government securities, the Fund may enter into
interest rate futures contracts ("futures contracts").

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

At October 31, 2003, the Fund had outstanding interest rate future contracts.

7. Expense Offset

The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.

8. Acquisition of Morgan Stanley North American Government Income Trust

On November 4, 2002, the Fund acquired all the net assets of Morgan Stanley
North American Government Income Trust ("North American") based on the
respective valuations as of the close of business on November 1, 2002, pursuant
to a plan of reorganization approved by the shareholders of North American on
October 23, 2002. The acquisition was accomplished by a tax-free exchange of
7,879,235 shares of the Fund at a net asset value of $9.68 per share for
8,837,891 shares of North American. The net assets of the Fund and North
American immediately before the acquisition were $273,925,042 and $76,281,762,
respectively, including unrealized appreciation of $982,393 for North American.
Immediately after the acquisition, the combined net assets of the Fund amounted
to $350,206,804.

Morgan Stanley Limited Duration 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 APRIL 30,
MONTHS ENDED ----------------------------------------------------------------
OCTOBER 31, 2003 2003 2002 2001 2000 1999
---------------- -------- -------- -------- -------- --------
(unaudited)

Selected Per Share Data:

Net asset value, beginning of period... $9.68 $9.59 $9.44 $9.20 $9.49 $9.49
--- --- --- --- --- ---

Income (loss) from investment
operations:
Net investment income.............. 0.11 0.24 0.41 0.55 0.51 0.56
Net realized and unrealized gain
(loss)............................. (0.08) 0.13 0.19 0.24 (0.29) --
--- --- --- --- --- ---

Total income from investment
operations............................ 0.03 0.37 0.60 0.79 0.22 0.56
--- --- --- --- --- ---

Less dividends from net investment
income................................ (0.18) (0.28) (0.45) (0.55) (0.51) (0.56)
--- --- --- --- --- ---

Net asset value, end of period......... $9.53 $9.68 $9.59 $9.44 $9.20 $9.49
=== === === === === ===

Total Return+.......................... 0.30%(1) 3.93% 6.50% 8.82% 2.36% 6.00%

Ratios to Average Net Assets:
Expenses............................... 0.85%(2)(4) 0.84%(3) 0.80%(3) 0.80%(3) 0.80%(3) 0.31%(3)

Net investment income.................. 1.88%(2) 1.90%(3) 3.94%(3) 5.87%(3) 5.43%(3) 5.68%(3)

Supplemental Data:
Net assets, end of period, in
thousands............................. $554,075 $429,409 $166,631 $109,917 $118,694 $186,442

Portfolio turnover rate................ 122%(1) 217% 327% 133% 71% 58%
</Table>

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

<Table>

+ Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the Investment Manager, the annualized expense and
net investment income ratios would have been as follows:

EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- ---- ----
April 30, 2003 0.87% 1.86%
April 30, 2002 0.92% 3.82%
April 30, 2001 0.92% 5.75%
April 30, 2000 0.90% 5.33%
April 30, 1999 0.88% 5.11%
(4) Does not include the effect of expense offset of 0.01%.
</Table>

22
See Notes to Financial Statements

(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 McAlinden
Vice President

Stefanie V. Chang
Vice President

Francis J. 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 FUNDS

Morgan Stanley
Limited Duration Fund

Semiannual Report
October 31, 2003

[MORGAN STANLEY LOGO]

37880RPT-00-13062L03-AP-12/03

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 Limited Duration Fund

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 18, 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 18, 2003

/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 18, 2003