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: 811-08861
Morgan Stanley 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: September 30, 2004
Date of reporting period: March 31, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley 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 March 31, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED MARCH 31, 2004
<Table>
<Caption>
S&P LIPPER
500/ MULTI-CAP
S&P BARRA VALUE
CLASS CLASS CLASS CLASS 500 VALUE FUNDS
A B C D INDEX(1) INDEX(2) INDEX(3)
17.67% 17.25% 17.36% 17.87% 14.08% 18.33% 16.62%
</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 markets continued to surge during the six-month period ended
March 31, 2004. A market rally began in March 2003 on investor speculation about
a swift conclusion of the Iraq conflict and long-anticipated improving economic
conditions. The early months of the period saw the vindication of that market
rally in the form of a number of positive economic indicators. Improved gross
domestic product, higher manufacturing activity indexes and strong consumer
spending all indicated that the U.S. economy was indeed on an upswing. Adding to
the positive environment, the Federal Reserve kept interest rates at multidecade
lows as job creation lagged expectations and inflation concerns remained
minimal. In early 2004, however, the maturation of the economic cycle led some
investors to take profits from cyclical gains for fear that inflation -- and
soon afterward interest rates -- would be on the rise.
Following historical patterns of periods when economic conditions improved,
cyclical sectors led the rally. Investors increased their exposure to these
sectors early in the period, because they had attractive valuations and provided
the best opportunity to benefit from economic growth. The economically sensitive
basic materials, industrials and information technology sectors led as far as
overall returns, but more-stable sectors gained in the second half of the period
as investors sought defensive issues in anticipation of an interest-rate hike.
PERFORMANCE ANALYSIS
The Fund's performance was largely attributable to strong stock selection during
the period. Some of our strongest stock picks came from oil services industry
names such as Halliburton. Despite the negative media attention Halliburton has
been receiving, it has been a strong turnaround story since earlier problems
involving asbestos liability subsided. Another area of strong performance was
the telecommunications sector. The Fund bought Sprint, Verizon and SBC during a
period when they were all suffering from large amounts of debt, heavy
competition and pricing pressures. The fundamentals of these companies were too
sound for their stock prices to remain at historical lows; in the fourth quarter
of 2003 and first quarter of 2004, they in fact began emerging from that period
of distress.
2
While many of the Fund's holdings performed well during the period, not all
lived up to our expectations. Several consumer staples companies hurt Fund
performance, such as supermarket operator Kroger, which underperformed as
price-cutting activity from heavy competition with Wal-Mart and other discount
retailers hurt its profitability. Several health-care stocks also detracted from
performance, namely the hospital chain Tenet -- which delivered disappointing
news on its restructuring from accounting issues -- and the pharmaceutical
company Wyeth.
<Table>
<Caption>
TOP 10 HOLDINGS
Halliburton Company 4.6%
Sprint Corp. (Fon Group) 4.3
Schlumberger Ltd. 3.8
Freddie Mac 3.5
Verizon Communications 3.5
Bristol Myers Squibb 3.1
SBC Communications Inc. 2.9
Glaxosmithkline PLC-ADR 2.9
Bank America Corp. 2.3
International Paper 2.2
</Table>
<Table>
<Caption>
TOP 5 INDUSTRIES
Major Telecommunications 10.7%
Pharmaceuticals: Major 10.4
Oilfield Services/Equipment 8.4
Electric Utilities 7.3
Major Banks 5.7
</Table>
Data as of March 31, 2004. Subject to change daily. All percentages are a
percentage of net assets. Provided for informational purposes only and should
not be deemed 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.
3
INVESTMENT STRATEGY
THE FUND NORMALLY INVESTS AT LEAST 65% OF ITS ASSETS IN COMMON STOCK THAT THE
FUND'S "INVESTMENT MANAGER," MORGAN STANLEY INVESTMENT ADVISORS INC., BELIEVES
IS UNDERVALUED AND CURRENTLY IS NOT BEING RECOGNIZED WITHIN THE MARKET PLACE. IN
DECIDING WHICH SECURITIES TO BUY, HOLD OR SELL, THE INVESTMENT MANAGER BEGINS
WITH A UNIVERSE OF COMPANIES THAT HAVE ATTRIBUTES THAT MAY QUALIFY THEM AS VALUE
COMPANIES. THE INVESTMENT MANAGER THEN SCREENS THESE COMPANIES FOR LIQUIDITY AND
THEN RELATIVE VALUE USING AN APPROPRIATE VALUATION MEASURE FOR EACH SECTOR OR
INDUSTRY. THE INVESTMENT MANAGER EVALUATES THE COMPANIES RELATIVE TO COMPETITIVE
AND MARKET CONDITIONS WITHIN EACH INDUSTRY. THE INVESTMENT MANAGER THEN CONDUCTS
A FUNDAMENTAL ANALYSIS OF EACH COMPANY TO IDENTIFY THOSE COMPANIES BELIEVED TO
BE ATTRACTIVELY VALUED RELATIVE TO OTHER COMPANIES WITHIN THE INDUSTRY.
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 WEB SITE AT
HTTP://WWW.SEC.GOV.
4
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED MARCH 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 11/25/98) (since 11/25/98) (since 11/25/98) (since 11/25/98)
SYMBOL VLUAX VLUBX VLUCX VLUDX
1 YEAR 46.54%(4) 45.48%(4) 45.58%(4) 46.87%(4)
38.85(5) 40.48(5) 44.58(5) --
5 YEARS 4.36(4) 3.58(4) 3.62(4) 4.67(4)
3.24(5) 3.23(5) 3.62(5) --
SINCE INCEPTION 3.31(4) 2.53(4) 2.56(4) 3.59(4)
2.27(5) 2.36(5) 2.56(5) --
</Table>
Past performance is no guarantee of future results and current performance may
be lower or higher than the figures shown. For more up-to-date information,
including month-end performance figures, please visit morganstanley.com or speak
with your financial advisor. Investment returns and principal value will
fluctuate and fund shares, when redeemed, may be worth more or 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 Standard & Poor's 500 Index (S&P 500 ) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group
representation. The Index does not include any expenses, fees or charges.
Such costs would lower performance. It is not possible to invest directly
in an index.
(2) The S&P 500/ Barra Value Index is a market capitalization-weighted index
of the stocks in the S&P 500 Index having lower price-to-book ratios.
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 Multi-Cap Value Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Multi-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 1.0% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.
5
Morgan Stanley Value Fund
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (94.9%)
Aluminum (0.8%)
104,100 Alcoa, Inc. ............. $ 3,611,229
------------
Apparel/Footwear (0.9%)
107,500 Jones Apparel Group,
Inc. ................... 3,886,125
------------
Auto Parts: O.E.M. (0.3%)
138,300 Delphi Corp. ............ 1,377,468
------------
Broadcasting (1.4%)
139,300 Clear Channel
Communications, Inc. ... 5,899,355
------------
Cable/Satellite TV (1.2%)
473,400 Liberty Media Corp.
(Class A)*.............. 5,183,730
------------
Chemicals: Major
Diversified (3.3%)
209,700 Dow Chemical Co. (The)... 8,446,716
113,800 Du Pont (E.I.) de Nemours
& Co. .................. 4,804,636
29,800 Rohm & Haas Co. ......... 1,187,232
------------
14,438,584
------------
Computer Peripherals
(0.4%)
18,400 Lexmark International,
Inc.*................... 1,692,800
------------
Computer Processing
Hardware (1.7%)
314,300 Hewlett-Packard Co. ..... 7,178,612
------------
Contract Drilling (3.4%)
282,100 GlobalSantaFe Corp. ..... 7,833,917
240,100 Transocean Inc.*......... 6,696,389
------------
14,530,306
------------
Data Processing Services
(0.6%)
23,900 Affiliated Computer
Services, Inc. (Class
A)*..................... 1,240,410
49,700 SunGard Data Systems
Inc.*................... 1,361,780
------------
2,602,190
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Department Stores (1.3%)
63,600 Federated Department
Stores, Inc. ........... $ 3,437,580
57,100 May Department Stores
Co. .................... 1,974,518
------------
5,412,098
------------
Drugstore Chains (0.6%)
67,200 CVS Corp. ............... 2,372,160
------------
Electric Utilities (7.3%)
56,700 American Electric Power
Co., Inc. .............. 1,866,564
107,500 CenterPoint Energy,
Inc. ................... 1,228,725
60,200 Cinergy Corp. ........... 2,461,578
54,600 Constellation Energy
Group, Inc. ............ 2,181,270
61,200 Exelon Corp. ............ 4,214,844
237,600 FirstEnergy Corp. ....... 9,285,408
29,800 Public Service Enterprise
Group, Inc. ............ 1,400,004
16,200 Scottish Power PLC (ADR)
(United Kingdom)........ 459,432
301,200 TXU Corp. ............... 8,632,392
------------
31,730,217
------------
Electronic Components
(0.7%)
122,100 Flextronics International
Ltd. (Singapore)*....... 2,102,562
32,600 Jabil Circuit, Inc.*..... 959,418
------------
3,061,980
------------
Electronic Equipment/
Instruments (0.1%)
67,400 JDS Uniphase Corp.*...... 274,318
------------
Electronic Production
Equipment (0.1%)
14,400 Novellus Systems,
Inc.*................... 457,776
------------
Electronics/ Appliances
(0.5%)
90,000 Eastman Kodak Co. ....... 2,355,300
------------
</Table>
6
See Notes to Financial Statements
Morgan Stanley Value Fund
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Finance/Rental/ Leasing
(4.0%)
29,200 Fannie Mae............... $ 2,171,020
260,300 Freddie Mac.............. 15,373,318
------------
17,544,338
------------
Financial Conglomerates
(2.4%)
164,400 Citigroup Inc. .......... 8,499,480
47,400 J.P. Morgan Chase &
Co. .................... 1,988,430
------------
10,487,910
------------
Food Retail (1.0%)
260,300 Kroger Co.*.............. 4,331,392
------------
Food: Major Diversified
(1.8%)
114,900 Kraft Foods Inc. (Class
A)...................... 3,677,949
58,400 Unilever N.V.
(Netherlands)........... 4,055,296
------------
7,733,245
------------
Gas Distributors (0.4%)
79,200 NiSource, Inc. .......... 1,683,000
------------
Household/Personal Care
(2.2%)
151,600 Kimberly-Clark Corp. .... 9,565,960
------------
Industrial Specialties
(0.4%)
31,900 PPG Industries, Inc. .... 1,859,770
------------
Information Technology
Services (0.6%)
23,900 Amdocs Ltd.*............. 664,181
22,300 International Business
Machines Corp. ......... 2,048,032
------------
2,712,213
------------
Integrated Oil (4.0%)
99,400 BP PLC (ADR) (United
Kingdom)................ 5,089,280
47,800 ConocoPhillips........... 3,336,918
65,400 Petroleo Brasileiro S.A.
(ADR) (Brazil).......... 2,190,900
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
32,100 Royal Dutch Petroleum Co.
(Netherlands)........... $ 1,527,318
58,400 Total SA (ADR)
(France)................ 5,372,800
------------
17,517,216
------------
Internet Software/
Services (0.2%)
37,400 Check Point Software
Technologies Ltd.*...... 851,598
------------
Investment Banks/ Brokers
(0.4%)
3,500 Goldman Sachs Group, Inc.
(The)................... 365,225
24,400 Merrill Lynch & Co.,
Inc. ................... 1,453,264
------------
1,818,489
------------
Life/Health Insurance
(1.4%)
76,900 MetLife, Inc. ........... 2,743,792
64,500 Torchmark Corp. ......... 3,469,455
------------
6,213,247
------------
Major Banks (5.7%)
123,300 Bank of America Corp. ... 9,984,834
97,000 PNC Financial Services
Group................... 5,375,740
14,600 SunTrust Banks, Inc. .... 1,017,766
148,300 Wells Fargo & Co. ....... 8,404,161
------------
24,782,501
------------
Major Telecommunications
(10.7%)
511,900 SBC Communications,
Inc. ................... 12,562,026
1,007,900 Sprint Corp. (FON
Group).................. 18,575,597
415,100 Verizon Communications
Inc. ................... 15,167,754
------------
46,305,377
------------
Managed Health Care
(1.6%)
79,200 Aetna, Inc. ............. 7,105,824
------------
Media Conglomerates
(1.4%)
250,500 Disney (Walt) Co.
(The)................... 6,259,995
------------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Value Fund
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Medical Distributors
(0.6%)
46,000 AmerisourceBergen
Corp. .................. $ 2,515,280
------------
Motor Vehicles (0.4%)
39,100 General Motors Corp. .... 1,841,610
------------
Oilfield Services/
Equipment (8.4%)
661,000 Halliburton Co. ......... 20,087,790
259,600 Schlumberger Ltd. ....... 16,575,460
------------
36,663,250
------------
Packaged Software (0.5%)
84,100 Microsoft Corp. ......... 2,099,977
------------
Pharmaceuticals: Major
(10.4%)
564,000 Bristol-Myers Squibb
Co. .................... 13,665,720
310,700 GlaxoSmithKline PLC (ADR)
(United Kingdom)........ 12,412,465
32,900 Merck & Co. Inc. ........ 1,453,851
187,900 Pfizer Inc. ............. 6,585,895
49,600 Roche Holdings Ltd. (ADR)
(Switzerland)........... 4,749,200
231,700 Schering-Plough Corp. ... 3,758,174
62,600 Wyeth.................... 2,350,630
------------
44,975,935
------------
Property -- Casualty
Insurers (3.3%)
131,300 Allstate Corp. (The)..... 5,968,898
200 Berkshire Hathaway, Inc.
(Class B)*.............. 622,202
87,400 Chubb Corp. (The)........ 6,077,796
83,600 Travelers Property
Casualty Corp. (Class
A)...................... 1,433,740
7,600 Travelers Property
Casualty Corp. (Class
B)...................... 131,252
------------
14,233,888
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Pulp & Paper (4.1%)
240,900 Georgia-Pacific Corp. ... $ 8,115,921
228,500 International Paper
Co. .................... 9,656,410
------------
17,772,331
------------
Railroads (0.6%)
80,100 Burlington Northern Santa
Fe Corp. ............... 2,523,150
------------
Restaurants (0.5%)
86,500 Darden Restaurants,
Inc. ................... 2,144,335
------------
Semiconductors (0.1%)
12,200 Intel Corp. ............. 331,840
------------
Specialty Insurance
(1.1%)
45,800 Ambac Financial Group,
Inc. ................... 3,379,124
55,400 Assurant, Inc.*.......... 1,393,310
------------
4,772,434
------------
Specialty Stores (0.3%)
42,500 Boise Cascade Corp. ..... 1,472,625
------------
Telecommunication
Equipment (0.6%)
79,200 Nokia Corp. (ADR)
(Finland)............... 1,606,176
41,700 Telefonaktiebolaget LM
Ericsson (ADR)
(Sweden)*............... 1,157,175
------------
2,763,351
------------
Tobacco (1.2%)
94,100 Altria Group, Inc. ...... 5,123,745
------------
Total Common Stocks
(Cost $363,107,259)...... 412,070,074
------------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Value Fund
PORTFOLIO OF INVESTMENTS - MARCH 31, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------
Short-Term Investment (5.6%)
Repurchase Agreement
$ 24,340 Joint repurchase
agreement account 1.055%
due 04/01/04 (dated
03/31/04; proceeds
$24,340,713) (a)
(Cost $24,340,000)...... $ 24,340,000
------------
</Table>
<Table>
Total Investments
(Cost $387,447,259) (b)..... 100.5% 436,410,074
Liabilities in Excess of
Other Assets................ (0.5) (1,980,999)
----- ------------
Net Assets.................. 100.0% $434,429,075
===== ============
</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
$55,192,257 and the aggregate gross unrealized
depreciation is $6,229,442, resulting in net
unrealized appreciation of $48,962,815.
</Table>
9
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $387,447,259)....................................... $436,410,074
Receivable for:
Shares of beneficial interest sold...................... 1,053,885
Dividends............................................... 875,267
Foreign withholding taxes reclaimed..................... 10,072
Prepaid expenses and other assets........................... 111,144
------------
Total Assets............................................ 438,460,442
------------
Liabilities:
Payable for:
Investments purchased................................... 2,692,330
Shares of beneficial interest redeemed.................. 570,550
Investment management fee............................... 393,836
Distribution fee........................................ 325,847
Accrued expenses and other payables......................... 48,804
------------
Total Liabilities....................................... 4,031,367
------------
Net Assets.............................................. $434,429,075
============
Composition of Net Assets:
Paid-in-capital............................................. $472,047,004
Net unrealized appreciation................................. 48,962,815
Accumulated undistributed net investment income............. 266,384
Accumulated net realized loss............................... (86,847,128)
------------
Net Assets.............................................. $434,429,075
============
Class A Shares:
Net Assets.................................................. $14,075,869
Shares Outstanding (unlimited authorized, $.01 par value)... 1,193,740
Net Asset Value Per Share............................... $11.79
============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)....... $12.44
============
Class B Shares:
Net Assets.................................................. $338,908,281
Shares Outstanding (unlimited authorized, $.01 par value)... 29,665,185
Net Asset Value Per Share............................... $11.42
============
Class C Shares:
Net Assets.................................................. $25,319,040
Shares Outstanding (unlimited authorized, $.01 par value)... 2,214,158
Net Asset Value Per Share............................... $11.44
============
Class D Shares:
Net Assets.................................................. $56,125,885
Shares Outstanding (unlimited authorized, $.01 par value)... 4,704,345
Net Asset Value Per Share............................... $11.93
============
</Table>
10
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended March 31, 2004 (unaudited)
<Table>
Net Investment Income:
Income
Dividends (net of $14,251 foreign withholding tax).......... $ 4,725,922
Interest.................................................... 95,413
-----------
Total Income............................................ 4,821,335
-----------
Expenses
Investment management fee................................... 2,110,084
Distribution fee (Class A shares)........................... 17,383
Distribution fee (Class B shares)........................... 1,657,725
Distribution fee (Class C shares)........................... 114,024
Transfer agent fees and expenses............................ 357,560
Registration fees........................................... 92,616
Shareholder reports and notices............................. 31,345
Professional fees........................................... 30,381
Custodian fees.............................................. 14,835
Trustees' fees and expenses................................. 276
Other....................................................... 5,709
-----------
Total Expenses.......................................... 4,431,938
-----------
Net Investment Income................................... 389,397
-----------
Net Realized and Unrealized Gain:
Net realized gain........................................... 47,048,767
Net change in unrealized appreciation....................... 18,347,303
-----------
Net Gain................................................ 65,396,070
-----------
Net Increase................................................ $65,785,467
===========
</Table>
11
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2004 SEPTEMBER 30, 2003
-------------- ------------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 389,397 $ 501,994
Net realized gain (loss).................................... 47,048,767 (54,026,956)
Net change in unrealized appreciation....................... 18,347,303 143,646,172
------------ ------------
Net Increase............................................ 65,785,467 90,121,210
------------ ------------
Dividends to Shareholders from Net Investment Income:
Class A shares.............................................. (106,507) --
Class B shares.............................................. -- --
Class C shares.............................................. (5,176) --
Class D shares.............................................. (513,324) --
------------ ------------
Total Dividends......................................... (625,007) --
------------ ------------
Net decrease from transactions in shares of beneficial
interest.................................................. (15,460,266) (85,109,647)
------------ ------------
Net Increase............................................ 49,700,194 5,011,563
Net Assets:
Beginning of period......................................... 384,728,881 379,717,318
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $266,384 and $501,994, respectively)..................... $434,429,075 $384,728,881
============ ============
</Table>
12
See Notes to Financial Statements
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley 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 total return.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 65% of the value of its total assets in common stocks
and other equity securities that are believed to be attractively valued relative
to other companies within the industry. The Fund was organized as a
Massachusetts business trust on June 9, 1998 and commenced operations on
November 25, 1998.
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
13
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED) continued
securities, such valuations may be adjusted to reflect the estimated fair value
of such securities as 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; (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.
14
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED) continued
2. Investment Management and Sub-Advisory Agreements
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the Fund's net assets determined as of the close of
each business day: 1.00% to the portion of the daily net assets not exceeding $1
billion and 0.90% to the portion of daily net assets exceeding $1 billion.
Effective May 1, 2004, the Investment Management fee was amended as follows:
0.50% to the portion of daily net assets not exceeding $1 billion; 0.45% to the
portion of daily net assets exceeding $1 billion but not exceeding $2 billion;
0.40% to the portion of daily net assets exceeding $2 billion but not exceeding
$3 billion; and 0.35% to the portion of daily net assets exceeding $3 billion.
Prior to November 28, 2003, under a Sub-Advisory Agreement between the Morgan
Stanley Investments LP (the "Sub-Advisor"), an affiliate of the Investment
Manager, and the Investment Manager, the Sub-Advisor provided the Fund with
investment advice and portfolio management relating to the Fund's investments in
securities, subject to the overall supervision of the Investment Manager.
Effective November 28, 2003, the Investment Manager assumed the Sub-Advisor's
responsibility. For the period October 1, 2003 through November 27, 2003, the
Investment Manager paid the Sub-Advisor compensation of $260,019.
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
$10,985,154 at March 31, 2004.
15
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED) continued
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 March 31, 2004, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 0.93%,
respectively.
The Distributor has informed the Fund that for the six months ended March 31,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $342,839 and $926, respectively
and received $30,246 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 2004, aggregated
$272,896,685 and $292,110,782, respectively.
For the six months ended March 31, 2004, the Fund incurred brokerage commissions
of $3,555 with Morgan Stanley & Co., an affiliate of the Investment Manager and
Distributor, for portfolio transactions executed on behalf of the Fund.
At March 31, 2004, Morgan Stanley Fund of Funds -- Domestic Portfolio, an
affiliate of the Investment Manager and Distributor, held 300,590 Class D shares
of beneficial interest of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and
Distributor, is the Fund's transfer agent.
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.
16
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED) continued
As of September 30, 2003, the Fund had a net capital loss carryforward of
$97,181,120 of which $423,788 will expire on September 30, 2008, $1,571,663 will
expire on September 30, 2009, $5,788,690 will expire on September 30, 2010 and
$89,396,979 will expire on September 30, 2011 to offset future capital gains to
the extent provided by regulations.
As of September 30, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year) and capital loss deferrals on wash sales.
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
MARCH 31, 2004 SEPTEMBER 30, 2003
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
CLASS A SHARES
Sold............................................ 154,906 $ 1,790,665 308,540 $ 2,929,165
Reinvestments of dividends...................... 8,236 89,691 -- --
Redeemed........................................ (254,235) (2,887,250) (474,268) (4,254,385)
---------- ------------ ----------- -------------
Net decrease - Class A.......................... (91,093) (1,006,894) (165,728) (1,325,220)
---------- ------------ ----------- -------------
CLASS B SHARES
Sold............................................ 2,825,113 31,067,519 4,118,775 36,654,680
Reinvestments of dividends...................... -- -- -- --
Redeemed........................................ (4,419,743) (48,288,639) (14,922,539) (129,126,549)
---------- ------------ ----------- -------------
Net decrease - Class B.......................... (1,594,630) (17,221,120) (10,803,764) (92,471,869)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold............................................ 235,706 2,604,074 284,382 2,519,286
Reinvestments of dividends...................... 468 4,955 -- --
Redeemed........................................ (285,718) (3,147,584) (860,425) (7,283,192)
---------- ------------ ----------- -------------
Net decrease - Class C.......................... (49,544) (538,555) (576,043) (4,763,906)
---------- ------------ ----------- -------------
CLASS D SHARES
Sold............................................ 1,107,614 12,571,805 2,488,656 24,309,579
Reinvestments of dividends...................... 32,991 363,234 -- --
Redeemed........................................ (855,007) (9,628,736) (1,271,868) (10,858,231)
---------- ------------ ----------- -------------
Net increase - Class D.......................... 285,598 3,306,303 1,216,788 13,451,348
---------- ------------ ----------- -------------
Net decrease in Fund............................ (1,449,669) $(15,460,266) (10,328,747) $ (85,109,647)
========== ============ =========== =============
</Table>
17
Morgan Stanley Value Fund
NOTES TO FINANCIAL STATEMENTS - MARCH 31, 2004 (UNAUDITED) continued
7. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, recessionary damages, fees and costs.
The defendants intend to move to dismiss the action and otherwise vigorously to
defend it. While the Fund believes that it has meritorious defenses, the
ultimate outcome of this matter is not presently determinable at this early
stage of the litigation, and no provision has been made in the Fund's financial
statements for the effect, if any, of this matter.
18
Morgan Stanley Value Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30, NOVEMBER 25, 1998*
MONTHS ENDED -------------------------------------------------- THROUGH
MARCH 31, 2004 2003 2002 2001 2000 SEPTEMBER 30, 1999
-------------- -------- -------- -------- -------- ------------------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of
period............................. $10.10 $ 7.86 $10.74 $10.33 $ 9.30 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income++......... 0.04 0.07 0.04 0.06 0.05 0.05
Net realized and unrealized gain
(loss).......................... 1.74 2.17 (2.92) 0.35 0.98 (0.74)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations......................... 1.78 2.24 (2.88) 0.41 1.03 (0.69)
------ ------ ------ ------ ------ ------
Less dividends in excess of net
investment income.................. (0.09) -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period...... $11.79 $10.10 $ 7.86 $10.74 $10.33 $ 9.30
====== ====== ====== ====== ====== ======
Total Return+....................... 17.67%(1) 28.50% (26.82)% 3.97% 11.08% (6.88)%(1)
Ratios to Average Net Assets(3):
Expenses............................ 1.50%(2) 1.53% 1.42% 1.45% 1.58% 1.59 %(2)
Net investment income............... 0.78%(2) 0.78% 0.36% 0.50% 0.51% 0.54 %(2)
Supplemental Data:
Net assets, end of period, in
thousands.......................... $14,076 $12,972 $11,396 $26,350 $7,335 $5,779
Portfolio turnover rate............. 68%(1) 61% 56% 45% 158% 52 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ 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>
19
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30, NOVEMBER 25, 1998*
MONTHS ENDED ------------------------------------------------- THROUGH
MARCH 31, 2004 2003 2002 2001 2000 SEPTEMBER 30, 1999
-------------- --------- --------- --------- --------- ------------------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of
period......................... $ 9.74 $7.64 $10.52 $10.20 $ 9.25 $10.00
------ ----- ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income
(loss)++.................... 0.00 0.00 (0.04) (0.03) (0.02) (0.02)
Net realized and unrealized
gain (loss)................. 1.68 2.10 (2.84) 0.35 0.97 (0.72)
------ ----- ------ ------ ------ ------
Total income (loss) from
investment operations.......... 1.68 2.10 (2.88) 0.32 0.95 (0.74)
------ ----- ------ ------ ------ ------
Less dividends in excess of net
investment income.............. -- -- -- -- -- (0.01)
------ ----- ------ ------ ------ ------
Net asset value, end of
period......................... $11.42 $9.74 $ 7.64 $10.52 $10.20 $ 9.25
====== ===== ====== ====== ====== ======
Total Return+................... 17.25%(1) 27.49% (27.38)% 3.14% 10.27% (7.45)%(1)
Ratios to Average Net Assets(3):
Expenses........................ 2.25%(2) 2.28% 2.18% 2.21% 2.34% 2.34 %(2)
Net investment income (loss).... 0.03%(2) 0.03% (0.40)% (0.26)% (0.25)% (0.21)%(2)
Supplemental Data:
Net assets, end of period, in
thousands...................... $338,908 $304,486 $321,210 $470,659 $115,873 $122,040
Portfolio turnover rate......... 68%(1) 61% 56% 45% 158% 52 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ 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>
20
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30, NOVEMBER 25, 1998*
MONTHS ENDED -------------------------------------------------- THROUGH
MARCH 31, 2004 2003 2002 2001 2000 SEPTEMBER 30, 1999
-------------- -------- -------- -------- -------- ------------------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning
of period.................. $ 9.75 $7.64 $10.52 $10.20 $ 9.26 $10.00
------ ----- ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)++................ 0.01 0.01 (0.04) (0.03) (0.02) (0.01)
Net realized and
unrealized gain
(loss).................. 1.68 2.10 (2.84) 0.35 0.96 (0.72)
------ ----- ------ ------ ------ ------
Total income (loss) from
investment operations...... 1.69 2.11 (2.88) 0.32 0.94 (0.73)
------ ----- ------ ------ ------ ------
Less dividends in excess of
net investment income...... 0.00** -- -- -- -- (0.01)
------ ----- ------ ------ ------ ------
Net asset value, end of
period..................... $11.44 $9.75 $ 7.64 $10.52 $10.20 $ 9.26
====== ===== ====== ====== ====== ======
Total Return+............... 17.36%(1) 27.62% (27.38)% 3.14% 10.15% (7.35)%(1)
Ratios to Average Net
Assets(3):
Expenses.................... 2.18%(2) 2.21% 2.18% 2.21% 2.34% 2.21 %(2)
Net investment income
(loss)..................... 0.10%(2) 0.10% (0.40)% (0.26)% (0.25)% (0.08)%(2)
Supplemental Data:
Net assets, end of period,
in thousands............... $25,319 $22,068 $21,688 $28,097 $6,349 $6,263
Portfolio turnover rate..... 68%(1) 61% 56% 45% 158% 52 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
** Less than $.005 per share.
++ 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>
21
See Notes to Financial Statements
Morgan Stanley Value Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30, NOVEMBER 25, 1998*
MONTHS ENDED -------------------------------------------------- THROUGH
MARCH 31, 2004 2003 2002 2001 2000 SEPTEMBER 30, 1999
-------------- -------- -------- -------- -------- ------------------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning
of period.................. $10.23 $ 7.94 $10.83 $10.39 $ 9.32 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
income++................ 0.06 0.09 0.06 0.09 0.07 0.06
Net realized and
unrealized gain
(loss).................. 1.76 2.20 (2.95) 0.35 1.00 (0.72)
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations...... 1.82 2.29 (2.89) 0.44 1.07 (0.66)
------ ------ ------ ------ ------ ------
Less dividends in excess of
net investment income...... (0.12) -- -- -- -- (0.02)
------ ------ ------ ------ ------ ------
Net asset value, end of
period..................... $11.93 $10.23 $ 7.94 $10.83 $10.39 $ 9.32
====== ====== ====== ====== ====== ======
Total Return+............... 17.87%(1) 28.84% (26.69)% 4.23% 11.48% (6.65)%(1)
Ratios to Average Net
Assets(3):
Expenses.................... 1.25%(2) 1.28% 1.18% 1.21% 1.34% 1.34 %(2)
Net investment income....... 1.03%(2) 1.03% 0.60% 0.74% 0.75% 0.79 %(2)
Supplemental Data:
Net assets, end of period,
in thousands............... $56,126 $45,204 $25,424 $13,944 $4,156 $66
Portfolio turnover rate..... 68%(1) 61% 56% 45% 158% 52 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ 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>
22
See Notes to Financial Statements
(This Page Intentionally Left Blank)
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President and General Counsel
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis 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
Value Fund
Semiannual Report
March 31, 2004
[MORGAN STANLEY LOGO]
36045RPT-RA04-00146P-Y03/04
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 Value Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
May 18, 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
May 18, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
May 18, 2004
3