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: 811-07683 Morgan Stanley Special Value 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: July 31, 2004 Date of reporting period: January 31, 2004 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Special Value Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. FUND REPORT For the six-month period ended January 31, 2004 TOTAL RETURN FOR THE SIX MONTHS ENDED JANUARY 31, 2004 <Table> <Caption> LIPPER SMALL- RUSSELL CAP 2000 RUSSELL VALUE VALUE 2000 FUNDS CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) INDEX(3) 19.60% 19.14% 19.07% 19.72% 23.53% 22.67% 24.90% </Table> The performance of the Fund's four share classes varies because each has different expenses. The Fund's total return figures assume the reinvestment of all distributions, but do 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 U.S. equity market continued its recovery from the early part of 2003 through the six-month period ended January 31, 2004. The market gained in every month except September as key economic indicators boosted investor confidence. Strong gross domestic product growth data for the U.S. economy in both the third and fourth quarters of 2003, a rebound in corporate earnings and an inflow of assets from pensions and mutual fund investors combined to drive equities higher. While the broad indicators remained positive, the market's rapid rise caused some concern among investors that valuations might have reached overbought levels. These concerns, joined by reemerging fears of terrorism, languid corporate hiring and the potential for an interest-rate increase, caused a slight deceleration in the rally in the latter half of January. From a capitalization perspective, small-, mid- and large-cap companies all posted sharp gains, but smaller-cap companies outpaced their larger counterparts. As investors gained confidence, their appetite for risk increased. This preference resulted in higher-beta, more-aggressive stocks -- namely technology, energy and health care (especially biotechnology) stocks leading the rally. The more-conservative sectors such as consumer discretionary, utilities and financial services stocks lagged, though all sectors enjoyed positive gains. Style performance was mixed for the period, with growth stocks leading for the first three months, only to fall behind value in the second half. PERFORMANCE ANALYSIS Despite a strong absolute return, Morgan Stanley Special Value Fund underperformed the Russell 2000 Value Index and the Russell 2000 Index, as well as the Lipper Small-Cap Value Funds Index. Within the technology and health-care sectors the Fund focused on higher-quality, lower-beta companies with predictable revenue streams. Unfortunately, it was the more speculative companies that posted the strongest gains in these sectors. The Fund was also hurt by its stock selection in the materials and processing sectors. Two chemical companies in the portfolio, Olin and Cytec, suffered as raw materials costs increased and industrial demand growth proved weaker than expected. Additionally, the Fund's position in the information technology consulting company BearingPoint hampered returns after it posted disappointing quarterly reports that caused us to eliminate this position. On a positive note, several of the Fund's allocations performed strongly. In particular, stock selection was favorable within the consumer discretionary and auto and transportation sectors. One of the Fund's top performing holdings was the restaurant chain operator AFC Enterprises, which rose sharply as concerns about prior earnings restatements abated and a new CFO was hired. The Fund's holdings of TBC Corporation, a tire wholesaler that is transitioning to retail sales, also helped performance. Their strategic acquisition of Sears, Roebuck's national tire and battery unit highlighted their ongoing shift to retail in a business model that typically enjoys higher margins and trades at a higher multiple than wholesalers. The Fund's overweighted stance in the energy sector relative to the Russell 2000 Value Index also benefited Fund performance as a result of sustained high-energy prices. 2 <Table> <Caption> TOP 10 HOLDINGS Stone Energy Corp. 3.5% Apria Healthcare Group, Inc. 3.0 AFC Enterprises, Inc. 2.3 DRS Technologies, Inc. 2.2 School Specialty, Inc. 2.1 Reinsurance Group of America, Inc. 2.1 Intrawest Corp. 2.0 Universal Compression Holdings, Inc. 1.9 Terex Corp. 1.9 Sinclair Broadcast Group, Inc. 1.7 </Table> <Table> <Caption> TOP FIVE INDUSTRIES Oil & Gas Production 8.3% Regional Banks 4.6 Wholesale Distributors 4.4 Medical/Nursing Services 4.2 Real Estate Investment Trusts 3.6 </Table> Subject to change daily. All percentages are as a percentage of net assets. Provided for informational purposes only and should not be deemed as a recommendation to buy 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 EMPLOYS A "BOTTOM UP" STOCK SELECTION PROCESS THAT FOCUSES ON THE VALUE OF INDIVIDUAL SECURITIES RATHER THAN ON INDUSTRY GROUPS. STOCK SELECTION IS BASED ON STRICT RESEARCH AND ANALYSIS, TAKING INTO ACCOUNT, AMONG OTHER VARIABLES, LOW STOCK PRICES IN RELATION TO EARNINGS AND CASH FLOW, AND LOW MARKET-TO-BOOK RATIOS AND PRICE-EARNINGS RATIOS. FACTORS SUCH AS THESE HELP THE MANAGER DETERMINE WHETHER A COMPANY'S CURRENT MARKET VALUATION IS MORE OR LESS THAN THE COMPANY'S PERCEIVED INTRINSIC OR UNDERLYING VALUE. 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 JANUARY 31, 2004 <Table> <Caption> CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++) (since 07/28/97) (since 10/29/96) (since 07/28/97) (since 07/28/97) SYMBOL SVFAX SVFBX SVFCX SVFDX 1 YEAR 46.06%(4) 44.92%(4) 44.95%(4) 46.35%(4) 38.39(5) 39.92(5) 43.95(5) -- 5 YEARS 13.53(4) 12.67(4) 12.70(4) 13.78(4) 12.32(5) 12.42(5) 12.70(5) -- SINCE INCEPTION 10.35(4) 11.42(4) 9.53(4) 10.59(4) 9.44(5) 11.42(5) 9.53(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 Value Index measures the performance of those companies in the Russell 2000 Index with lower price-to-book ratios and lower forecasted growth values. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. (2) The Russell 2000 Index is a capitalization-weighted index, which is comprised of 2000 of the smallest stocks included in the Russell 3000 Index. 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 Value Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Small-Cap Value 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 contingent deferred sales charge for Class C is 1% for shares redeemed within one year of purchase. ++ Class D has no sales charge. 4 Morgan Stanley Special Value Fund PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 (UNAUDITED) <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Common Stocks (95.8%) Aerospace & Defense (2.2%) 731,700 DRS Technologies, Inc.*................... $ 21,007,107 ------------ Agricultural Commodities/ Milling (1.8%) 250,900 Corn Products International, Inc. .... 8,824,153 331,000 Delta & Pine Land Co. ... 8,596,070 ------------ 17,420,223 ------------ Apparel/Footwear (2.2%) 394,600 Maxwell Shoe Co., Inc. (Class A)*.............. 6,937,068 804,100 Russell Corp. ........... 14,160,201 ------------ 21,097,269 ------------ Apparel/Footwear Retail (1.2%) 350,300 Stage Stores, Inc.*...... 11,412,774 ------------ Auto Parts: O.E.M. (1.3%) 2,088,800 Tower Automotive, Inc.*................... 12,658,128 ------------ Biotechnology (1.1%) 605,200 Diversa Corp.*........... 6,693,512 261,200 Ligand Pharmaceuticals Inc. (Class B)*......... 3,790,012 ------------ 10,483,524 ------------ Broadcasting (2.6%) 482,400 Saga Communications, Inc. (Class A)*.............. 8,779,680 1,185,200 Sinclair Broadcast Group, Inc. (Class A)*......... 16,213,536 ------------ 24,993,216 ------------ Chemicals: Specialty (2.2%) 311,200 Cytec Industries, Inc.*................... 10,863,992 309,400 OM Group, Inc.*.......... 9,947,210 ------------ 20,811,202 ------------ </Table> <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Commercial Printing/ Forms (2.2%) 181,200 Banta Corp. ............. $ 8,335,200 641,900 Moore Wallace Inc. (Canada)*............... 12,478,536 ------------ 20,813,736 ------------ Computer Peripherals (1.9%) 259,100 Imation Corp. ........... 9,496,015 298,200 Storage Technology Corp.*.................. 8,647,800 ------------ 18,143,815 ------------ Containers/Packaging (0.9%) 553,842 Rock-Tenn Co. (Class A)...................... 8,468,244 ------------ Electric Utilities (1.6%) 511,700 PNM Resources Inc. ...... 15,402,170 ------------ Electronic Components (0.5%) 239,700 EMS Technologies Inc.*... 5,179,917 ------------ Electronic Equipment/ Instruments (0.6%) 150,700 Varian, Inc.*............ 6,028,000 ------------ Electronics/Appliance Stores (1.2%) 567,200 Movie Gallery, Inc. ..... 11,378,032 ------------ Electronics/Appliances (0.6%) 760,100 Lo-Jack Corp.*........... 6,073,199 ------------ Financial Conglomerates (1.1%) 441,100 Conseco Inc.*............ 10,012,970 ------------ Food: Specialty/Candy (1.0%) 200,900 Riviana Foods, Inc. ..... 5,141,031 531,600 Topps Co., Inc. (The).... 4,896,036 ------------ 10,037,067 ------------ </Table> 5 See Notes to Financial Statements Morgan Stanley Special Value Fund PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 (UNAUDITED) continued <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Gas Distributors (2.4%) 477,200 AGL Resources, Inc. ..... $ 14,010,592 268,900 UGI Corp. ............... 8,672,025 ------------ 22,682,617 ------------ Home Furnishings (0.9%) 268,600 Furniture Brands International, Inc. .... 8,224,532 ------------ Hotels/Resorts/ Cruiselines (2.0%) 1,052,600 Intrawest Corp. ......... 18,662,598 ------------ Industrial Machinery (3.1%) 398,800 CIRCOR International, Inc. ................... 9,471,500 381,400 Flowserve Corp.*......... 7,341,950 565,600 Watts Water Technologies, Inc. ................... 12,556,320 ------------ 29,369,770 ------------ Information Technology Services (0.8%) 142,000 Black Box Corp. ......... 7,388,260 ------------ Insurance Brokers/ Services (0.9%) 453,350 CCC Information Services Group, Inc.*............ 8,364,307 ------------ Life/Health Insurance (2.1%) 498,900 Reinsurance Group of America, Inc. .......... 19,761,429 ------------ Medical/Nursing Services (4.2%) 950,100 Apria Healthcare Group, Inc.*................... 28,930,545 618,000 Hanger Orthopedic Group, Inc.*................... 11,587,500 ------------ 40,518,045 ------------ </Table> <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Miscellaneous Commercial Services (2.7%) 408,900 Geo Group Inc. (The)*.... $ 9,318,831 209,800 MAXIMUS, Inc.*........... 8,077,300 496,900 Navigant International, Inc.*................... 8,680,843 ------------ 26,076,974 ------------ Miscellaneous Manufacturing (1.0%) 133,200 Ametek, Inc. ............ 6,859,800 100,400 Smith (A.O.) Corp. ...... 3,133,484 ------------ 9,993,284 ------------ Oil & Gas Production (8.3%) 189,700 Cabot Oil & Gas Corp. ... 5,785,850 1,101,200 Denbury Resources Inc.*................... 15,681,088 313,900 PetroKazakhstan Inc. (Class A) (Canada)*..... 7,081,584 447,900 Remington Oil & Gas Corp.*.................. 8,447,394 286,000 St. Mary Land & Exploration Co. ........ 8,208,200 800,800 Stone Energy Corp.*...... 33,729,696 ------------ 78,933,812 ------------ Oilfield Services/ Equipment (2.8%) 836,000 Superior Energy Services, Inc.*................... 8,067,400 603,200 Universal Compression Holdings, Inc.*......... 18,500,144 ------------ 26,567,544 ------------ Other Consumer Services (0.8%) 348,000 Ambassadors Group, Inc. ................... 7,899,600 ------------ Other Transportation (1.6%) 1,082,400 Laidlaw International Inc.*................... 15,532,440 ------------ Packaged Software (2.2%) 356,450 Hummingbird Ltd. (Canada)*............... 9,859,407 1,104,788 MSC. Software Corp.*..... 11,235,694 ------------ 21,095,101 ------------ </Table> 6 See Notes to Financial Statements Morgan Stanley Special Value Fund PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 (UNAUDITED) continued <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Pharmaceuticals: Other (0.5%) 1,079,500 Savient Pharmaceuticals Inc.*................... $ 5,138,420 ------------ Precious Metals (0.8%) 372,400 Apex Silver Mines Ltd.*................... 7,522,480 ------------ Property -- Casualty Insurers (1.9%) 150,700 Direct General Corp. .... 5,129,828 114,300 IPC Holdings Ltd. ....... 4,710,303 534,900 Penn Amer Group Inc. .... 7,959,312 ------------ 17,799,443 ------------ Publishing: Newspapers (0.5%) 248,200 Journal Communications Inc. (Class A).......... 4,770,404 ------------ Real Estate Development (1.7%) 318,000 LNR Property Corp. ...... 15,865,020 ------------ Real Estate Investment Trusts (3.6%) 275,200 Capital Automotive REIT.................... 9,711,808 236,000 CarrAmerica Realty Corp. .................. 7,497,720 279,000 Cousins Properties, Inc. ................... 8,565,300 184,000 Parkway Properties, Inc. ................... 8,648,000 ------------ 34,422,828 ------------ Regional Banks (4.6%) 355,900 Community First Bankshares, Inc. ....... 9,879,784 210,377 Independent Bank Corp.- Michigan................ 5,812,717 319,672 Integra Bank Corp. ...... 7,528,276 520,600 Provident Bancorp Inc. ................... 5,820,308 201,100 Provident Bankshares Corp. .................. 6,181,814 300,000 R&G Financial Corp. (Class B) (Puerto Rico)................... 8,790,000 ------------ 44,012,899 ------------ </Table> <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Restaurants (2.3%) 940,800 AFC Enterprises, Inc.*... $ 22,296,960 ------------ Savings Banks (3.4%) 173,500 BankAtlantic Bancorp, Inc. (Class A).......... 2,862,750 534,346 First Niagara Financial Group, Inc. ............ 7,870,917 192,300 MAF Bancorp, Inc. ....... 8,278,515 203,604 MB Financial, Inc. ...... 7,557,780 144,880 PFF Bancorp, Inc. ....... 5,498,196 ------------ 32,068,158 ------------ Services to the Health Industry (1.2%) 305,000 Icon PLC (Sponsored ADR)*................... 11,166,050 ------------ Specialty Insurance (3.0%) 203,200 NYMAGIC, Inc. ........... 5,437,632 324,000 Proassurance Corp.*...... 10,546,200 246,800 Triad Guaranty, Inc.*.... 12,808,920 ------------ 28,792,752 ------------ Specialty Stores (1.1%) 313,300 Central Garden & Pet Co.*.................... 10,611,471 ------------ Steel (1.1%) 356,400 Reliance Steel & Aluminum Co. .................... 10,335,600 ------------ Textiles (0.9%) 278,200 Albany International Corp. (Class A)......... 8,971,950 ------------ Trucking (0.9%) 392,000 Overnite Corp.*.......... 8,784,720 ------------ Trucks/Construction/Farm Machinery (1.9%) 621,600 Terex Corp.*............. 18,349,632 ------------ </Table> 7 See Notes to Financial Statements Morgan Stanley Special Value Fund PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 (UNAUDITED) continued <Table> <Caption> NUMBER OF SHARES VALUE - ------------------------------------------------------ Wholesale Distributors (4.4%) 146,800 Imagistics International Inc.*................... $ 5,860,256 558,700 School Specialty, Inc.*................... 20,504,290 574,700 TBC Corp.*............... 15,516,900 ------------ 41,881,446 ------------ Total Common Stocks (Cost $690,575,316)...... 915,281,139 ------------ <Caption> PRINCIPAL AMOUNT IN THOUSANDS - ----------- Short-Term Investment (4.6%) Repurchase Agreement $ 44,372 Joint repurchase agreement account 1.02% due 02/02/04 (dated 01/30/04; proceeds $44,375,772) (a) (Cost $44,372,000)...... $ 44,372,000 ------------ </Table> <Table> Total Investments (Cost $734,947,316) (b)..... 100.4% 959,653,139 Liabilities in Excess of Other Assets................ (0.4) (3,662,987) ----- ------------ Net Assets.................. 100.0% $955,990,152 ===== ============ </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 $225,762,643 and the aggregate gross unrealized depreciation is $1,056,820, resulting in net unrealized appreciation of $224,705,823. </Table> 8 See Notes to Financial Statements Morgan Stanley Special Value Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities January 31, 2004 (unaudited) <Table> Assets: Investments in securities, at value (cost $734,947,316)................ $959,653,139 Receivable for: Shares of beneficial interest sold........................... 2,831,037 Investments sold................. 1,391,065 Dividends........................ 283,455 Prepaid expenses and other assets.... 70,259 ------------ Total Assets..................... 964,228,955 ------------ Liabilities: Payable for: Investments purchased............ 5,817,072 Shares of beneficial interest redeemed....................... 1,190,770 Investment management fee........ 594,244 Distribution fee................. 566,636 Accrued expenses and other payables........................... 70,081 ------------ Total Liabilities................ 8,238,803 ------------ Net Assets....................... $955,990,152 ============ Composition of Net Assets: Paid-in-capital...................... $759,445,500 Net unrealized appreciation.......... 224,705,823 Accumulated net investment loss...... (2,596,212) Accumulated net realized loss........ (25,564,959) ------------ Net Assets....................... $955,990,152 ============ Class A Shares: Net Assets........................... $104,461,132 Shares Outstanding (unlimited authorized, $.01 par value)........ 5,630,932 Net Asset Value Per Share........ $18.55 ============ Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)............... $19.58 ============ Class B Shares: Net Assets........................... $595,529,375 Shares Outstanding (unlimited authorized, $.01 par value)........ 33,684,273 Net Asset Value Per Share........ $17.68 ============ Class C Shares: Net Assets........................... $47,024,317 Shares Outstanding (unlimited authorized, $.01 par value)........ 2,660,726 Net Asset Value Per Share........ $17.67 ============ Class D Shares: Net Assets........................... $208,975,328 Shares Outstanding (unlimited authorized, $.01 par value)........ 11,102,348 Net Asset Value Per Share........ $18.82 ============ </Table> Statement of Operations For the six months ended January 31, 2004 (unaudited) <Table> Net Investment Loss: Income Dividends (net of $14,433 foreign withholding tax)................... $ 4,102,224 Interest............................. 200,481 ------------ Total Income..................... 4,302,705 ------------ Expenses Investment management fee............ 3,118,316 Distribution fee (Class A shares).... 107,520 Distribution fee (Class B shares).... 2,735,332 Distribution fee (Class C shares).... 211,203 Transfer agent fees and expenses..... 855,409 Registration fees.................... 55,108 Shareholder reports and notices...... 52,239 Professional fees.................... 34,224 Custodian fees....................... 23,054 Trustees' fees and expenses.......... 5,519 Other................................ 8,907 ------------ Total Expenses................... 7,206,831 ------------ Net Investment Loss.............. (2,904,126) ------------ Net Realized and Unrealized Gain: Net realized gain.................... 26,242,179 Net change in unrealized appreciation....................... 126,595,497 ------------ Net Gain......................... 152,837,676 ------------ Net Increase......................... $149,933,550 ============ </Table> 9 See Notes to Financial Statements Morgan Stanley Special Value Fund FINANCIAL STATEMENTS continued Statement of Changes in Net Assets <Table> <Caption> FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED JANUARY 31, 2004 JULY 31, 2003 ---------------- ------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment loss......................................... $ (2,904,126) $ (4,686,998) Net realized gain (loss).................................... 26,242,179 (39,293,715) Net change in unrealized appreciation....................... 126,595,497 122,663,575 ------------ ------------ Net Increase............................................ 149,933,550 78,682,862 Net increase (decrease) from transactions in shares of beneficial interest....................................... 66,696,196 (127,334,627) ------------ ------------ Net Increase (Decrease)................................. 216,629,746 (48,651,765) Net Assets: Beginning of period......................................... 739,360,406 788,012,171 ------------ ------------ End of Period (Including an accumulated net investment loss of $2,596,212 and accumulated undistributed net investment income of $307,914, respectively)..................................... $955,990,152 $739,360,406 ============ ============ </Table> 10 See Notes to Financial Statements Morgan Stanley Special Value Fund NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Special Value Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in domestic equity securities of small capitalization companies. The Fund was organized as a Massachusetts business trust on June 21, 1996 and commenced operations on October 29, 1996. 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 Stock Exchange ("NYSE") or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no 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. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as 11 Morgan Stanley Special Value Fund NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Manager using a pricing service and/or procedures approved by the Trustees of the Fund; (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 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. 12 Morgan Stanley Special Value Fund NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued 2. Investment Management Agreement Pursuant to an Investment Management Agreement, the Fund pays a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.75% to the portion of daily net assets not exceeding $500 million; 0.725% to the portion of daily net assets exceeding $500 million but not exceeding $1 billion; and 0.70% to the portion of daily net assets exceeding $1 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 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 $15,981,704 at January 31, 2004. 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 January 31, 2004, 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 January 31, 2004, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $79 , $476,138 and $2,175, respectively and received $121,317 in 13 Morgan Stanley Special Value Fund NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended January 31, 2004 aggregated $257,072,111 and $192,972,031, respectively. Included in the aforementioned are purchases and sales of $3,366,874 and $26,226,533, respectively, with other Morgan Stanley funds, including a net realized gain of $5,392,120. For the six months ended January 31, 2004, the Fund incurred brokerage commissions of $42,770 with Morgan Stanley, & Co., Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At January 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $5,300. An affiliate company is a company in which the Fund has ownership of at least 5% of the voting securities. Transactions with such companies during the six months ended January 31, 2004 were as follows: <Table> <Caption> ISSUER PURCHASES SALES INCOME VALUE - --------------------- --------- ---------- ------ ---------- Lo-Jack Corp. -- $3,325,343 -- $6,073,199 </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 July 31, 2003, the Fund had a net capital loss carryforward of $16,203,741 of which $49,581 will expire on July 31, 2010 and $16,154,160 will expire on July 31, 2011 to offset future capital gains to the extent provided by regulations. 14 Morgan Stanley Special Value Fund NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued As of July 31, 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 to arise on the first business day of the Fund's next taxable year), capital loss deferrals on wash sales and tax adjustments on real estate investment trusts held by the Fund. 6. Shares of Beneficial Interest(+) Transactions in shares of beneficial interest were as follows: <Table> <Caption> FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED JANUARY 31, 2004 JULY 31, 2003 ------------------------ --------------------------- (unaudited) SHARES AMOUNT SHARES AMOUNT ---------- ----------- ----------- ------------- CLASS A SHARES Sold............................................ 1,526,880 $26,025,146 2,187,892 $ 29,311,549 Redeemed........................................ (478,067) (8,195,093) (1,738,951) (22,904,270) ---------- ----------- ----------- ------------- Net increase - Class A.......................... 1,048,813 17,830,053 448,941 6,407,279 ---------- ----------- ----------- ------------- CLASS B SHARES Sold............................................ 3,900,237 62,296,226 3,850,594 50,738,185 Redeemed........................................ (3,914,867) (63,076,612) (15,047,200) (188,356,421) ---------- ----------- ----------- ------------- Net decrease - Class B.......................... (14,630) (780,386) (11,196,606) (137,618,236) ---------- ----------- ----------- ------------- CLASS C SHARES Sold............................................ 457,816 7,331,221 403,998 5,264,614 Redeemed........................................ (321,709) (5,196,920) (1,026,280) (13,024,634) ---------- ----------- ----------- ------------- Net increase (decrease) - Class C............... 136,107 2,134,301 (622,282) (7,760,020) ---------- ----------- ----------- ------------- CLASS D SHARES Sold............................................ 3,723,298 63,748,059 3,204,674 44,039,985 Redeemed........................................ (934,090) (16,235,831) (2,440,866) (32,403,635) ---------- ----------- ----------- ------------- Net increase - Class D.......................... 2,789,208 47,512,228 763,808 11,636,350 ---------- ----------- ----------- ------------- Net increase (decrease) in Fund................. 3,959,498 $66,696,196 (10,606,139) $(127,334,627) ========== =========== =========== ============= </Table> - --------------------- + On April 5, 2002, upon the attainment of $1 billion in net assets, the Fund suspended the offering of its shares to new investors. On November 4, 2002, the Fund recommenced offering its shares to new investors. On March 12, 2004, the Fund will again suspend the offering of its shares to new investors. The Fund may recommence offering its shares to new investors at such time as the Investment Manager determines that it would be consistent with prudent portfolio management to do so. 15 Morgan Stanley Special Value 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 JULY 31 MONTHS ENDED ----------------------------------------------------------- JANUARY 31, 2004 2003 2002 2001 2000 1999 ---------------- ------- ------- ------- ------- ------- (unaudited) Class A Shares Selected Per Share Data: Net asset value, beginning of period..... $15.51 $13.56 $15.67 $11.79 $10.89 $11.68 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++....... (0.02) (0.02) 0.01 0.13 0.08 0.06 Net realized and unrealized gain (loss)............................... 3.06 1.97 (1.76) 3.75 0.83 0.38 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.............................. 3.04 1.95 (1.75) 3.88 0.91 0.44 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income................ -- -- (0.06) -- -- -- Net realized gain.................... -- -- (0.30) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Total dividends and distributions........ -- -- (0.36) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Net asset value, end of period........... $18.55 $15.51 $13.56 $15.67 $11.79 $10.89 ====== ====== ====== ====== ====== ====== Total Return+............................ 19.60 %(1) 14.38% (11.43)% 32.91% 8.32% 4.94% Ratios to Average Net Assets(3): Expenses................................. 1.24 %(2) 1.25% 1.19% 1.18% 1.23% 1.22% Net investment income (loss)............. (0.22)%(2) (0.11)% 0.12% 0.87% 0.75% 0.59% Supplemental Data: Net assets, end of period, in thousands............................... $104,461 $71,088 $56,064 $23,532 $7,105 $6,689 Portfolio turnover rate.................. 24 %(1) 47% 72% 85% 69% 74% </Table> - --------------------- <Table> ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. </Table> 16 See Notes to Financial Statements Morgan Stanley Special Value Fund FINANCIAL HIGHLIGHTS continued <Table> <Caption> FOR THE SIX FOR THE YEAR ENDED JULY 31 MONTHS ENDED --------------------------------------------------------------------- JANUARY 31, 2004 2003 2002 2001 2000 1999 ---------------- --------- --------- --------- --------- --------- (unaudited) Class B Shares Selected Per Share Data: Net asset value, beginning of period......................... $14.84 $13.08 $15.18 $11.51 $10.71 $11.59 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++................... (0.08) (0.11) (0.09) 0.01 -- (0.02) Net realized and unrealized gain (loss)................ 2.92 1.87 (1.71) 3.66 0.81 0.37 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.......... 2.84 1.76 (1.80) 3.67 0.81 0.35 ------ ------ ------ ------ ------ ------ Less distributions from net realized gain.................. -- -- (0.30) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Net asset value, end of period......................... $17.68 $14.84 $13.08 $15.18 $11.51 $10.71 ====== ====== ====== ====== ====== ====== Total Return+................... 19.14 %(1) 13.46% (12.08)% 31.89% 7.53% 4.14% Ratios to Average Net Assets(3): Expenses........................ 1.99 %(2) 2.04% 1.95% 1.94% 2.00% 1.99% Net investment income (loss).... (0.97)%(2) (0.90)% (0.64)% 0.11% (0.02)% (0.18)% Supplemental Data: Net assets, end of period, in thousands...................... $595,529 $500,124 $587,241 $474,538 $202,446 $269,916 Portfolio turnover rate......... 24 %(1) 47% 72% 85% 69% 74% </Table> - --------------------- <Table> ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. </Table> 17 See Notes to Financial Statements Morgan Stanley Special Value Fund FINANCIAL HIGHLIGHTS continued <Table> <Caption> FOR THE SIX FOR THE YEAR ENDED JULY 31 MONTHS ENDED --------------------------------------------------------- JANUARY 31, 2004 2003 2002 2001 2000 1999 ---------------- ------- ------- ------- ------ ------ (unaudited) Class C Shares Selected Per Share Data: Net asset value, beginning of period....... $14.84 $13.08 $15.20 $11.52 $10.72 $11.59 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss)++......... (0.08) (0.12) (0.10) 0.03 -- (0.01) Net realized and unrealized gain (loss)................................ 2.91 1.88 (1.69) 3.65 0.81 0.37 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations................................ 2.83 1.76 (1.79) 3.68 0.81 0.36 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.................. -- -- (0.03) -- -- -- Net realized gain...................... -- -- (0.30) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Total dividends and distributions.......... -- -- (0.33) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Net asset value, end of period............. $17.67 $14.84 $13.08 $15.20 $11.52 $10.72 ====== ====== ====== ====== ====== ====== Total Return+.............................. 19.07 %(1) 13.46% (12.03)% 31.94% 7.52% 4.24% Ratios to Average Net Assets(3): Expenses................................... 1.99 %(2) 2.04% 1.95% 1.92% 1.98% 1.88% Net investment income (loss)............... (0.97)%(2) (0.90)% (0.64)% 0.13% 0.00% (0.07)% Supplemental Data: Net assets, end of period, in thousands.... $47,024 $37,454 $41,147 $21,280 $4,905 $4,962 Portfolio turnover rate.................... 24 %(1) 47% 72% 85% 69% 74% </Table> - --------------------- <Table> ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. </Table> 18 See Notes to Financial Statements Morgan Stanley Special Value Fund FINANCIAL HIGHLIGHTS continued <Table> <Caption> FOR THE SIX FOR THE YEAR ENDED JULY 31 MONTHS ENDED ------------------------------------------------------------- JANUARY 31, 2004 2003 2002 2001 2000 1999 ---------------- -------- -------- ------- ------- ------- (unaudited) Class D Shares Selected Per Share Data: Net asset value, beginning of period... $15.72 $13.72 $15.81 $11.87 $10.94 $11.71 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++............ 0.00 0.01 0.05 0.23 0.09 0.09 Net realized and unrealized gain (loss)............................ 3.10 1.99 (1.77) 3.71 0.85 0.37 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations............................ 3.10 2.00 (1.72) 3.94 0.94 0.46 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.............. -- -- (0.07) -- -- -- Net realized gain.................. -- -- (0.30) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Total dividends and distributions...... -- -- (0.37) -- (0.01) (1.23) ------ ------ ------ ------ ------ ------ Net asset value, end of period......... $18.82 $15.72 $13.72 $15.81 $11.87 $10.94 ====== ====== ====== ====== ====== ====== Total Return+.......................... 19.72%(1) 14.58% (11.20)% 33.28% 8.56% 5.11% Ratios to Average Net Assets(3): Expenses............................... 0.99%(2) 1.04% 0.95% 0.94% 1.00% 0.99% Net investment income.................. 0.03%(2) 0.10% 0.36% 1.11% 0.98% 0.82% Supplemental Data: Net assets, end of period, in thousands............................. $208,975 $130,693 $103,561 $26,629 $1,875 $1,268 Portfolio turnover rate................ 24%(1) 47% 72% 85% 69% 74% </Table> - --------------------- <Table> ++ The per share amounts were computed using an average number of shares outstanding during the period. + Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. </Table> 19 See Notes to Financial Statements 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. (c) 2004 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Special Value Fund Semiannual Report January 31, 2004 [MORGAN STANLEY LOGO] 38424RPT-00-13916C04-AP-3/04 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. 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 Value Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer March 19, 2004 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 March 19, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer March 19, 2004 3