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