UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-03128
Morgan Stanley Dividend Growth Securities Inc.
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: February 28, 2006
Date of reporting period: August 31, 2005
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Dividend Growth Securities Inc. 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. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
FUND REPORT
For the six-months ended August 31, 2005
TOTAL RETURN FOR THE 6 MONTHS ENDED AUGUST 31, 2005
<Table>
<Caption>
LIPPER
S&P LARGE-CAP
500(R) CORE FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
0.28% 0.29% -0.05% 0.42% 2.32% 2.02%
</Table>
The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total returns assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. See Performance Summary for standardized
performance and benchmark information.
Because Class B shares incurred lower expenses under the 12b-1 Plan than did
Class A shares for the fiscal period ended August 31, 2005, the total operating
expense ratio for Class B shares was lower and, as a result, the performance of
Class B shares was higher than that of the Class A shares. There can be no
assurance that this will continue to occur in the future as the maximum fees
payable by Class B shares under the 12b-1 Plan are higher than those payable by
Class A shares.
MARKET CONDITIONS
Despite a market climate that was often choppy and uncertain, domestic stocks
advanced slightly during the six-month period ended August 31, 2005. Large-
capitalization stocks produced tepid returns overall, while mid- and small-cap
stocks gained more briskly.
In the opening months of the period, investors were troubled by soaring oil
prices, inflation concerns, a potential slowdown in economic growth, and the
future intentions of the Federal Open Market Committee ("the Fed"). The travails
of the auto industry further hampered sentiment. A degree of optimism returned
to the market in mid-spring, however, and continued through July. Relatively
benign inflation data and comments from the Fed allayed inflationary concerns
and encouraged speculation that the end of the rate-tightening cycle was near.
Better economic data, improved consumer confidence, mergers-and-acquisition
activity, and a growing acceptance of high oil prices buoyed stocks. Corporate
earnings, while varying by company and sector, were generally good. Investors
seemed undeterred by geopolitical turmoil such as the terror attacks in London.
In August, though, this optimism abated. The Fed increased the federal funds
target rate once again, and investors realized that an end to the tightening
cycle might not be imminent after all. As the hurricane season unfolded,
concerns mounted about the potential impact to the energy markets, and in turn,
to consumer sentiment and corporate profitability. Uncertainty reached
heightened levels during the final days of the period, as Hurricane Katrina
caused substantial damage to the Gulf Coast region.
Within the S&P 500(R) Index, utilities, energy, and health care were the
top-performing sectors during the six-month period. Utilities and energy
benefited from rising energy prices, while biotech stocks helped propel health
care. The materials, industrials, and consumer discretionary sectors lagged most
significantly.
PERFORMANCE ANALYSIS
Morgan Stanley Dividend Growth Securities Inc. underperformed the S&P 500(R)
Index and the Lipper Large-Cap Core Funds Index for the six months ended August
31, 2005, assuming no deduction of applicable sales charges.
Based on our analysis of longer-term fundamentals and prospects, the Fund
emphasized mega and large capitalization stocks. However, as the market
gravitated away from these largest companies, the
2
Fund's relative performance suffered, with the energy sector providing a good
example of this effect. Within the industrials sector, the Fund was slowed by
its exposure to the industrial conglomerates and commercial services industries,
due to a combination of company-specific and broader influences. Within
technology, company-specific weakness in certain computer and peripheral
holdings hindered performance. Stock selection within the banking industry also
took a toll. Finally, as a result of our valuation discipline, we avoided real
estate investment trusts, many of which appreciated significantly as investors
bid up yield-oriented investments.
In contrast, a diverse group of health care companies enhanced performance.
Selected biotechnology, pharmaceuticals, healthcare providers and services, and
healthcare equipment and supplies stocks all contributed notable gains.
Moreover, our investment discipline led us away from some of the health care
stocks in the S&P 500(R) Index that fared poorly, thereby bolstering relative
performance. Positions in electric utilities also served the Fund well.
Supported by rising energy costs and company fundamentals, positions in electric
utilities were also rewarded. Also on the upside, the Fund's consumer staples
holdings included pockets of strength within food and staples retailing and
household products.
- ----------------------------------------------------
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
<Table>
<Caption>
TOP 10 HOLDINGS
Exxon Mobil Corp 4.1%
United Technologies Corp. 4.0
BP PLC (ADR) (United Kingdom) 3.6
PepsiCo, Inc. 3.5
Target Corp. 3.4
Bank of America Corp. 3.3
General Electric Co. 3.1
Procter & Gamble Co. 3.1
CVS Corp. 2.7
Coca-Cola Co. (The) 2.7
</Table>
<Table>
<Caption>
TOP FIVE INDUSTRIES
Industrial Conglomerates 9.7%
Pharmaceuticals: Major 7.8
Integrated Oil 7.8
Major Banks 4.3
Semiconductors 4.1
</Table>
Data as of August 31, 2005. Subject to change daily. All percentages for top 10
holdings and top five industries are as a percentage of net assets. These data
are 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 WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCKS
OF COMPANIES WITH A RECORD OF PAYING DIVIDENDS AND THE POTENTIAL FOR INCREASING
DIVIDENDS. THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS
INC., INITIALLY EMPLOYS A QUANTITATIVE SCREENING PROCESS IN AN ATTEMPT TO
IDENTIFY A NUMBER OF COMMON STOCKS WHICH ARE REASONABLY VALUED AND WHICH HAVE A
RECORD OF PAYING DIVIDENDS. THE INVESTMENT ADVISER ALSO CONSIDERS OTHER FACTORS,
SUCH AS A COMPANY'S RETURN ON INVESTED CAPITAL AND LEVELS OF FREE CASH FLOW. THE
INVESTMENT ADVISER THEN APPLIES QUALITATIVE ANALYSIS TO DETERMINE WHICH STOCKS
IT BELIEVES HAVE ATTRACTIVE FUTURE GROWTH PROSPECTS AND THE POTENTIAL TO
INCREASE DIVIDENDS AND, FINALLY, TO DETERMINE WHETHER ANY OF THE STOCKS SHOULD
BE ADDED TO OR SOLD FROM THE FUND'S PORTFOLIO.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE 800-869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
HTTP://WWW.SEC.GOV.
YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30 BY
VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. THIS
INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB
SITE AT HTTP://WWW.SEC.GOV.
HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
4
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED AUGUST 31, 2005
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 03/30/81) (since 07/28/97) (since 07/28/97)
SYMBOL DIVAX DIVBX DIVCX DIVDX
1 YEAR 9.44%(3) 9.52%(3) 8.65%(3) 9.70%(3)
3.70(4) 4.76(4) 7.70(4) --
5 YEARS 2.52(3) 2.05(3) 1.77(3) 2.76(3)
1.42(4) 1.80(4) 1.77(4) --
10 YEARS -- 7.61(3) -- --
-- 7.61(4) -- --
SINCE INCEPTION 3.69(3) 11.57(3) 2.93(3) 3.94(3)
3.01(4) 11.57(4) 2.93(4) --
</Table>
Performance data quoted represents past performance, which is no guarantee of
future results and current performance may be lower or higher than the figures
shown. For most recent month-end performance figures, please visit
www.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.
* 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.
(1) The Standard & Poor's 500 Index (S&P 500(R)) 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.
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 Lipper Large-Cap Core Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Large-Cap Core 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.
(3) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(4) 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.
5
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including advisory fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 03/01/05 - 08/31/05.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
03/01/05 -
03/01/05 08/31/05 08/31/05
------------- ------------- ---------------
CLASS A
Actual (0.28% return)....................................... $1,000.00 $1,002.80 $4.24
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,020.97 $4.28
CLASS B
Actual (0.29% return)....................................... $1,000.00 $1,002.90 $3.74
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.48 $3.77
CLASS C
Actual (-0.05% return)...................................... $1,000.00 $ 999.50 $8.01
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,017.19 $8.08
CLASS D
Actual (0.42% return)....................................... $1,000.00 $1,004.20 $2.98
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,022.23 $3.01
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratio of 0.84%, 0.74%,
1.59% and 0.59% for Class A, Class B, Class C and Class D shares,
respectively, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
6
INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and equity and
fixed income securities trading. The Board also reviewed and considered the
nature and extent of the non-advisory, administrative services provided by the
Fund's Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities. (The Investment Adviser and
the Administrator together are referred to as the "Adviser" and the Advisory and
Administration Agreements together are referred to as the "Management
Agreement.") The Board also compared the nature of the services provided by the
Adviser with similar services provided by non-affiliated advisers as reported to
the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and investment advisory services to the Fund. The
Board determined that the Adviser's portfolio managers and key personnel are
well qualified by education and/or training and experience to perform the
services in an efficient and professional manner. The Board concluded that the
nature and extent of the advisory and administrative services provided were
necessary and appropriate for the conduct of the business and investment
activities of the Fund. The Board also concluded that the overall quality of the
advisory and administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2004, as shown in reports provided by Lipper (the
"Lipper Reports"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"), and noted that the Fund's performance was
better than its performance peer group average for all three periods. The Board
concluded that the Fund's performance was satisfactory.
FEES RELATIVE TO OTHER FUNDS MANAGED BY THE ADVISER WITH COMPARABLE INVESTMENT
STRATEGIES
The Board reviewed the advisory and administrative fees (together, the
"management fee") paid by the Fund under the Management Agreement. The Board
noted that the rate was comparable to the management fee rates charged by the
Adviser to any other funds it manages with investment strategies comparable to
those of the Fund.
7
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate and the total expense ratio of the
Fund. The Board noted that: (i) the Fund's management fee rate was lower than
the average management fee rate for funds, selected by Lipper (the "expense peer
group"), managed by other advisers with investment strategies comparable to
those of the Fund, as shown in the Lipper Report for the Fund; and (ii) the
Fund's total expense ratio was also lower than the average total expense ratio
of the funds included in the Fund's expense peer group. The Board concluded that
the Fund's management fee and total expense ratio were competitive with those of
the Fund's expense peer group.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it includes breakpoints. The Board also
reviewed the level of the Fund's management fee and noted that the fee, as a
percentage of the Fund's net assets, would decrease as net assets increase
because the management fee includes breakpoints. The Board concluded that the
Fund's management fee would reflect economies of scale as assets increase.
PROFITABILITY OF ADVISER AND AFFILIATES
The Board considered and reviewed information concerning the costs incurred and
profits realized by the Adviser and its affiliates during the last two years
from their relationship with the Fund and the Morgan Stanley Fund Complex and
reviewed with the Controller of the Adviser the cost allocation methodology used
to determine the Adviser's profitability. Based on their review of the
information they received, the Board concluded that the profits earned by the
Adviser and its affiliates were not excessive in light of the advisory,
administrative and other services provided to the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
its affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as "float" benefits derived from handling of checks for purchases
and redemptions of Fund shares through a broker-dealer affiliate of the Adviser
and "soft dollar" benefits (discussed in the next section). The Board also
considered that a broker-dealer affiliate of the Adviser receives from the Fund
12b-1 fees for distribution and shareholder services. The Board also considered
that an affiliate of the Adviser, through a joint venture, receives revenue in
connection with trading done on behalf of the Fund through an electronic trading
system network ("ECN"). The Board concluded that the float benefits and the
above-referenced ECN-related revenue were relatively small and that the 12b-1
fees were competitive with those of other broker-dealer affiliates of investment
advisers of mutual funds.
8
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits as a result of
brokerage transactions executed through "soft dollar" arrangements. Under such
arrangements, brokerage commissions paid by the Fund and/or other funds managed
by the Adviser would be used to pay for research that a securities broker
obtains from third parties, or to pay for both research and execution services
from securities brokers who effect transactions for the Fund. The Adviser
informed the Board that it does not use Fund commissions to pay for third party
research. It does use commissions to pay for research which is bundled with
execution services. The Board recognized that the receipt of such research from
brokers may reduce the Adviser's costs but concluded that the receipt of such
research strengthens the investment management resources of the Adviser, which
may ultimately benefit the Fund and other funds in the Fund Complex.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded it
would be in the best interest of the Fund and its shareholders to approve
renewal of the Management Agreement for another year.
9
Morgan Stanley Dividend Growth Securities Inc.
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (98.5%)
Aerospace & Defense
(1.0%)
991,200 Northrop Grumman
Corp. ................ $ 55,596,408
--------------
Apparel/Footwear (1.4%)
1,412,200 V.F. Corp. ............ 83,757,582
--------------
Auto Parts: O.E.M.
(1.1%)
1,044,200 Johnson Controls,
Inc. ................. 62,631,116
--------------
Beverages: Non-
Alcoholic (2.7%)
3,518,500 Coca-Cola Co. (The).... 154,814,000
--------------
Biotechnology (0.5%)
311,500 Genentech, Inc.*....... 29,262,310
--------------
Chemicals: Agricultural
(1.3%)
1,184,800 Monsanto Co. .......... 75,637,632
--------------
Chemicals: Major
Diversified (1.5%)
2,072,300 Dow Chemical Co.
(The)................. 89,523,360
--------------
Computer Communications
(1.3%)
3,281,500 Juniper Networks,
Inc.*................. 74,621,310
--------------
Computer Processing
Hardware (3.0%)
1,608,000 Apple Computer,
Inc.*................. 75,463,440
2,779,200 Dell, Inc.*............ 98,939,520
--------------
174,402,960
--------------
Data Processing
Services (0.7%)
1,041,600 First Data Corp. ...... 43,278,480
--------------
Discount Stores (3.4%)
3,716,700 Target Corp. .......... 199,772,625
--------------
Drugstore Chains (2.7%)
5,424,800 CVS Corp. ............. 159,326,376
--------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Electric Utilities
(3.0%)
1,891,600 Exelon Corp. .......... $ 101,938,324
1,629,000 FPL Group, Inc. ....... 70,193,610
--------------
172,131,934
--------------
Financial Conglomerates
(3.9%)
2,647,200 Citigroup, Inc. ....... 115,867,944
1,247,100 JPMorgan Chase &
Co. .................. 42,264,219
847,100 UBS AG (ADR)
(Switzerland)......... 69,546,910
--------------
227,679,073
--------------
Financial Publishing/
Services (0.9%)
1,053,700 McGraw-Hill Companies,
Inc. (The)............ 50,809,414
--------------
Food: Major Diversified
(3.5%)
3,675,200 PepsiCo, Inc. ......... 201,584,720
--------------
Home Improvement Chains
(1.5%)
2,155,200 Home Depot, Inc.
(The)................. 86,897,664
--------------
Hotels/Resorts/
Cruiselines (0.4%)
419,600 Carnival Corp.
(Panama).............. 20,703,064
--------------
Household/Personal Care
(3.1%)
3,234,200 Procter & Gamble Co.
(The)................. 179,433,416
--------------
Industrial
Conglomerates (9.7%)
2,061,200 3M Co. ................ 146,654,380
5,457,300 General Electric
Co. .................. 183,419,853
4,668,600 United Technologies
Corp. ................ 233,430,000
--------------
563,504,233
--------------
</Table>
10
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Information Technology
Services (2.1%)
1,511,300 International Business
Machines Corp. ....... $ 121,841,006
--------------
Integrated Oil (7.8%)
3,103,800 BP PLC (ADR) (United
Kingdom).............. 212,237,844
4,037,900 Exxon Mobil Corp. ..... 241,870,210
--------------
454,108,054
--------------
Internet Software/
Services (1.4%)
93,200 Google, Inc. (Class
A)*................... 26,655,200
1,735,100 Yahoo!, Inc.*.......... 57,848,234
--------------
84,503,434
--------------
Investment Banks/
Brokers (2.8%)
764,900 Goldman Sachs Group
Inc. (The)............ 85,041,582
1,363,200 Merrill Lynch & Co.,
Inc. ................. 77,920,512
--------------
162,962,094
--------------
Investment Managers
(1.2%)
2,203,800 Mellon Financial
Corp. ................ 71,513,310
--------------
Life/Health Insurance
(1.5%)
1,788,600 Lincoln National
Corp. ................ 88,696,674
--------------
Major Banks (4.3%)
4,474,400 Bank of America
Corp. ................ 192,533,432
1,708,300 KeyCorp................ 56,578,896
--------------
249,112,328
--------------
Major
Telecommunications
(1.5%)
2,655,500 Verizon Communications
Inc. ................. 86,861,405
--------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Managed Health Care
(2.8%)
1,431,600 Caremark Rx, Inc.*..... $ 66,898,668
1,903,400 UnitedHealth Group
Inc. ................. 98,025,100
--------------
164,923,768
--------------
Media Conglomerates
(0.7%)
2,523,100 News Corp. (Class B)... 43,119,779
--------------
Medical Specialties
(2.4%)
158,500 Alcon, Inc.
(Switzerland)......... 18,710,925
751,200 Fisher Scientific
International,
Inc.*................. 48,437,376
1,238,100 Medtronic, Inc. ....... 70,571,700
--------------
137,720,001
--------------
Office Equipment/
Supplies (2.6%)
3,560,100 Pitney Bowes, Inc. .... 153,974,325
--------------
Oil & Gas Production
(1.5%)
2,209,133 XTO Energy Inc. ....... 87,923,493
--------------
Oilfield Services/
Equipment (1.8%)
1,039,500 Halliburton Co. ....... 64,417,815
499,500 Schlumberger Ltd.
(Netherlands
Antilles)............. 43,071,885
--------------
107,489,700
--------------
Other Consumer Services
(0.8%)
1,178,800 eBay, Inc.*............ 47,729,612
--------------
Packaged Software
(2.7%)
4,423,700 Microsoft Corp. ....... 121,209,380
1,732,200 Symantec Corp.*........ 36,341,556
--------------
157,550,936
--------------
</Table>
11
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2005 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Pharmaceuticals: Major
(7.8%)
1,200,400 Abbott Laboratories.... $ 54,174,052
2,960,900 Bristol-Myers Squibb
Co. .................. 72,453,223
1,655,000 Johnson & Johnson...... 104,910,450
3,210,800 Pfizer, Inc. .......... 81,779,076
3,096,700 Wyeth.................. 141,797,893
--------------
455,114,694
--------------
Semiconductors (4.1%)
4,589,000 Intel Corp. ........... 118,029,080
1,217,800 Marvell Technology
Group Ltd.
(Bermuda)*............ 57,467,982
1,973,700 Texas Instruments
Inc. ................. 64,500,516
--------------
239,997,578
--------------
Telecommunication
Equipment (1.1%)
1,604,200 QUALCOMM Inc. ......... 63,702,782
--------------
Tobacco (1.1%)
885,200 Altria Group, Inc. .... 62,583,640
--------------
Total Common Stocks
(Cost
$2,684,482,360)........ 5,746,796,290
--------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------
Short-Term Investment (1.0%)
Repurchase Agreement
$ 58,913 Joint repurchase
agreement account
3.575% due 09/01/05
(dated 08/31/05;
proceeds $58,918,850)
(a)
(Cost $58,913,000)..... $ 58,913,000
--------------
Total Investments
(Cost $2,743,395,360)
(b)....................... 99.5% 5,805,709,290
Other Assets in Excess of
Liabilities............... 0.5 27,640,134
----- --------------
Net Assets................ 100.0% $5,833,349,424
===== ==============
</Table>
- ---------------------------------------------------
<Table>
ADR American Depositary 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
$3,074,459,410 and the aggregate gross unrealized
depreciation is $12,145,480, resulting in net
unrealized appreciation of $3,062,313,930.
</Table>
12
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
SUMMARY OF INVESTMENTS - AUGUST 31, 2005 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------
Industrial Conglomerates...... $ 563,504,233 9.7%
Pharmaceuticals: Major........ 455,114,694 7.8
Integrated Oil................ 454,108,054 7.8
Major Banks................... 249,112,328 4.3
Semiconductors................ 239,997,578 4.1
Financial Conglomerates....... 227,679,073 3.9
Food: Major Diversified....... 201,584,720 3.5
Discount Stores............... 199,772,625 3.4
Household/Personal Care....... 179,433,416 3.1
Computer Processing
Hardware.................... 174,402,960 3.0
Electric Utilities............ 172,131,934 2.9
Managed Health Care........... 164,923,768 2.8
Investment Banks/Brokers...... 162,962,094 2.8
Drugstore Chains.............. 159,326,376 2.7
Packaged Software............. 157,550,936 2.7
Beverages: Non-Alcoholic...... 154,814,000 2.7
Office Equipment/Supplies..... 153,974,325 2.6
Medical Specialties........... 137,720,001 2.4
Information Technology
Services.................... 121,841,006 2.1
Oilfield Services/Equipment... 107,489,700 1.8
Chemicals: Major
Diversified................. 89,523,360 1.5
</Table>
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------
Life/Health Insurance......... $ 88,696,674 1.5%
Oil & Gas Production.......... 87,923,493 1.5
Home Improvement Chains....... 86,897,664 1.5
Major Telecommunications...... 86,861,405 1.5
Internet Software/Services.... 84,503,434 1.4
Apparel/Footwear.............. 83,757,582 1.4
Chemicals: Agricultural....... 75,637,632 1.3
Computer Communications....... 74,621,310 1.3
Investment Managers........... 71,513,310 1.2
Telecommunication Equipment... 63,702,782 1.1
Auto Parts: O.E.M. ........... 62,631,116 1.1
Tobacco....................... 62,583,640 1.1
Repurchase Agreement.......... 58,913,000 1.0
Aerospace & Defense........... 55,596,408 1.0
Financial Publishing/
Services.................... 50,809,414 0.9
Other Consumer Services....... 47,729,612 0.8
Data Processing Services...... 43,278,480 0.7
Media Conglomerates........... 43,119,779 0.7
Biotechnology................. 29,262,310 0.5
Hotels/Resorts/Cruiselines.... 20,703,064 0.4
-------------- ----
$5,805,709,290 99.5%
============== ====
</Table>
13
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2005 (unaudited)
<Table>
Assets:
Investments in securities, at value (cost $2,743,395,360)... $5,805,709,290
Receivable for:
Investments sold........................................ 34,943,238
Dividends............................................... 14,419,216
Capital stock sold...................................... 1,428,431
Foreign withholding taxes reclaimed..................... 264,333
Interest................................................ 5,850
Prepaid expenses and other assets........................... 350,367
Receivable from affiliate................................... 1,601,793
--------------
Total Assets............................................ 5,858,722,518
--------------
Liabilities:
Payable for:
Investments purchased................................... 11,731,914
Capital stock redeemed.................................. 8,576,170
Distribution fee........................................ 2,433,466
Investment advisory fee................................. 1,945,689
Administration fee...................................... 428,075
Accrued expenses and other payables......................... 257,780
--------------
Total Liabilities....................................... 25,373,094
--------------
Net Assets.............................................. $5,833,349,424
==============
Composition of Net Assets:
Paid-in-capital............................................. $2,241,075,092
Net unrealized appreciation................................. 3,062,313,930
Accumulated undistributed net investment income............. 32,224,565
Accumulated undistributed net realized gain................. 497,735,837
--------------
Net Assets.............................................. $5,833,349,424
==============
Class A Shares:
Net Assets.................................................. $3,544,393,765
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 100,387,228
Net Asset Value Per Share............................... $35.31
==============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)......... $37.27
==============
Class B Shares:
Net Assets.................................................. $1,653,466,633
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 46,638,206
Net Asset Value Per Share............................... $35.45
==============
Class C Shares:
Net Assets.................................................. $88,447,025
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 2,512,038
Net Asset Value Per Share............................... $35.21
==============
Class D Shares:
Net Assets.................................................. $547,042,001
Shares Outstanding (500,000,000 authorized, $.01 par
value).................................................... 15,479,039
Net Asset Value Per Share............................... $35.34
==============
</Table>
14
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended August 31, 2005 (unaudited)
<Table>
Net Investment Income:
Income
Dividends (net of $231,614 foreign withholding tax)......... $ 60,547,511
Interest.................................................... 925,844
-------------
Total Income............................................ 61,473,355
-------------
Expenses
Investment advisory fee..................................... 11,208,724
Transfer agent fees and expenses............................ 3,839,878
Distribution fee (Class A shares)........................... 3,264,135
Distribution fee (Class B shares)........................... 2,166,106
Distribution fee (Class C shares)........................... 477,494
Administration fee.......................................... 2,490,880
Shareholder reports and notices............................. 273,159
Custodian fees.............................................. 113,222
Registration fees........................................... 72,771
Directors' fees and expenses................................ 42,446
Professional fees........................................... 30,433
Other....................................................... 153,219
-------------
Total Expenses.......................................... 24,132,467
-------------
Net Investment Income................................... 37,340,888
-------------
Net Realized and Unrealized Gain (Loss):
Net realized gain........................................... 550,675,052
Net change in unrealized appreciation....................... (578,077,282)
-------------
Net Loss................................................ (27,402,230)
-------------
Net Increase................................................ $ 9,938,658
=============
</Table>
15
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2005 FEBRUARY 28, 2005
--------------- -----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 37,340,888 $ 104,562,040
Net realized gain........................................... 550,675,052 801,010,229
Net change in unrealized appreciation....................... (578,077,282) (455,937,739)
-------------- ---------------
Net Increase............................................ 9,938,658 449,634,530
-------------- ---------------
Dividends and Distributions to Shareholders from:
Net investment income
Class A shares.......................................... (13,388,797) (1,456,229)
Class B shares.......................................... (23,525,704) (79,008,021)
Class C shares.......................................... (279,131) (591,426)
Class D shares.......................................... (4,274,950) (8,969,708)
Net realized gain
Class A shares.......................................... (170,433,477) (18,670,786)
Class B shares.......................................... (86,739,147) (1,075,505,396)
Class C shares.......................................... (4,443,847) (18,704,327)
Class D shares.......................................... (26,686,176) (98,856,950)
-------------- ---------------
Total Dividends and Distributions....................... (329,771,229) (1,301,762,843)
-------------- ---------------
Net decrease from capital stock transactions................ (511,629,409) (355,425,242)
-------------- ---------------
Net Decrease............................................ (831,461,980) (1,207,553,555)
Net Assets:
Beginning of period......................................... 6,664,811,404 7,872,364,959
-------------- ---------------
End of Period
(Including accumulated undistributed net investment income
of $32,224,565 and $36,352,259, respectively)............... $5,833,349,424 $ 6,664,811,404
============== ===============
</Table>
16
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Dividend Growth Securities Inc. (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 to
provide reasonable current income and long-term growth of income and capital.
The Fund was incorporated in Maryland on December 22, 1980 and commenced
operations on March 30, 1981. 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 eighteen
months, 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.
Effective August 29, 2005, the Board of Directors of the Fund approved the
implementation of a 2% redemption fee on Class A shares, Class B shares, Class C
shares, and Class D shares, which is paid directly to the Fund, for shares
redeemed within seven days of purchase. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading.
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
Adviser") 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
17
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
Fund's Directors. 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 of the close of the NYSE, as determined in good
faith by the Fund's Directors or by the Investment Adviser using a pricing
service and/or procedures approved by the Directors of the Fund; (6) certain
portfolio securities may be valued by an outside pricing service approved by the
Fund's Directors; 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 Adviser, 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.
18
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
F. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.545% to the portion of the daily net assets not exceeding
$250 million; 0.42% to the portion of the daily net assets exceeding $250
million but not exceeding $1 billion; 0.395% to the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion; 0.37% to the portion
of the daily net assets exceeding $2 billion but not exceeding $3 billion;
0.345% to the portion of the daily net assets exceeding $3 billion but not
exceeding $4 billion; 0.32% to the portion of the daily net assets exceeding $4
billion but not exceeding $5 billion; 0.295% to the portion of the daily net
assets exceeding $5 billion but not exceeding $6 billion; 0.27% to the portion
of the daily net assets exceeding $6 billion but not exceeding $8 billion;
0.245% to the portion of the daily net assets exceeding $8 billion but not
exceeding $10 billion; 0.22% to the portion of the daily net assets exceeding
$10 billion but not exceeding $15 billion; and 0.195% to the portion of the
daily net assets in excess of $15 billion.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, accrued daily and payable monthly, by applying the
annual rate of 0.08% to the Fund's daily net assets.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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 - up to
1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class
B shares since the inception of the Plan on July 2, 1984 (not including
reinvestment of dividend or capital gain distributions) less the average daily
aggregate net asset value of the Class B shares redeemed since the Plan's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B
19
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
attributable to shares issued, net of related shares redeemed, since the Plan's
inception; 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
Directors will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no such expenses as of
August 31, 2005.
For the six months ended August 31, 2005, the distribution fee was accrued for
Class B shares at the annual rate of 0.15%. At August 31, 2005, included in the
Statement of Assets and Liabilities is a receivable from affiliate of
$1,601,793, which represents payments by the Distributor.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended August 31, 2005, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.0%,
respectively.
The Distributor has informed the Fund that for the six months ended August 31,
2005, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $37, $1,513,956
and $6,805, respectively and received $135,246 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 the proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended August 31, 2005
aggregated $1,148,617,493 and $1,982,532,283, respectively. Included in the
aforementioned transactions are purchases and sales with other Morgan Stanley
funds of $1,933,440 and $7,569,289, respectively, including a net realized gain
of $5,126,890.
20
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
For the six months ended August 31, 2005, the Fund incurred brokerage
commissions of $406,882, with Morgan Stanley & Co., Inc. an affiliate of the
Investment Adviser, Administrator and Distributor, for portfolio transactions
executed on behalf the Fund.
At August 31, 2005, the Fund's receivable for investments sold included
unsettled trades with Morgan Stanley & Co., Inc. of $5,798,796.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Directors voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the six months ended August 31, 2005 included in Directors'
fees and expenses in the Statement of Operations amounted to $3,652. At August
31, 2005, the Fund had an accrued pension liability of $63,401 which is included
in accrued expenses in the Statement of Assets and Liabilities.
The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Director to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Directors. Each eligible
Director generally may elect to have the deferred amounts credited with a return
equal to the total return on one or more of the Morgan Stanley funds that are
offered as investment options under the Compensation Plan.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund.
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.
21
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
As of February 28, 2005, the Fund had a net capital loss carryforward of
$35,530,320 of which $30,714,381 will expire on February 28, 2010, and
$4,815,939 will expire on February 28, 2011 to offset future capital gains to
the extent provided by regulations.
As part of the Fund's acquisition of the assets of Morgan Stanley Equity Fund
("Equity"), the Fund obtained a net capital loss carryforward of $120,845,930
from Equity. Utilization of this carryforward is subject to limitations imposed
by the Internal Revenue Code and Treasury Regulations, reducing the total
carryforward available.
As of February 28, 2005, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
6. Legal Matters
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court Southern District of New York on April 16, 2004, generally alleges that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Adviser and certain affiliates of the Investment Adviser allegedly offered
economic incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser 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,
rescissionary damages, fees and costs. The defendants have moved to dismiss the
action and intend to otherwise vigorously defend it. On March 9, 2005,
Plaintiffs sought leave to supplement their complaint to assert claims on behalf
of other investors. While the Fund and Adviser believe that each 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.
22
Morgan Stanley Dividend Growth Securities Inc.
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2005 (UNAUDITED) continued
7. Capital Stock
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2005 FEBRUARY 28, 2005
------------------------------ -----------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- ---------------
CLASS A SHARES
Sold..................................... 274,752 $ 9,879,224 393,999 $ 15,246,462
Conversion from Class B.................. 102,389,959 3,633,418,735 -- --
Reinvestment of dividends and
distributions.......................... 4,787,601 166,808,030 490,173 18,438,792
Redeemed................................. (9,656,650) (345,796,378) (1,302,870) (50,180,727)
------------ --------------- ----------- ---------------
Net increase (decrease) - Class A........ 97,795,662 3,464,309,611 (418,698) (16,495,473)
------------ --------------- ----------- ---------------
CLASS B SHARES
Sold..................................... 972,527 35,346,369 4,081,060 159,735,292
Conversion to Class A.................... (102,043,627) (3,633,418,735) -- --
Reinvestment of dividends and
distributions.......................... 2,849,557 100,260,951 27,755,680 1,046,078,181
Redeemed................................. (12,546,615) (456,094,360) (41,707,726) (1,610,348,671)
------------ --------------- ----------- ---------------
Net decrease - Class B................... (110,768,158) (3,953,905,775) (9,870,986) (404,535,198)
------------ --------------- ----------- ---------------
CLASS C SHARES
Sold..................................... 80,133 2,898,397 320,615 12,475,483
Reinvestment of dividends and
distributions.......................... 128,446 4,473,324 487,652 18,295,763
Redeemed................................. (466,406) (16,773,437) (857,612) (32,777,319)
------------ --------------- ----------- ---------------
Net decrease - Class C................... (257,827) (9,401,716) (49,345) (2,006,073)
------------ --------------- ----------- ---------------
CLASS D SHARES
Sold..................................... 1,137,942 41,094,071 3,407,318 131,861,626
Reinvestment of dividends and
distributions.......................... 813,009 28,410,394 2,628,224 98,762,191
Redeemed................................. (2,282,516) (82,135,994) (4,216,904) (163,012,315)
------------ --------------- ----------- ---------------
Net increase (decrease) - Class D........ (331,565) (12,631,529) 1,818,638 67,611,502
------------ --------------- ----------- ---------------
Net decrease in Fund..................... (13,561,888) $ (511,629,409) (8,520,391) $ (355,425,242)
============ =============== =========== ===============
</Table>
23
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ---------------------------------------------------------------
AUGUST 31, 2005 2005 2004* 2003 2002 2001
--------------- -------- -------- --------- -------- --------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period..... $37.21 $42.01 $34.01 $ 46.44 $52.54 $50.11
------ ------ ------ ------- ------ ------
Income (loss) from investment operations:
Net investment income++.............. 0.23 0.54 0.61 0.68 0.71 0.84
Net realized and unrealized gain
(loss)............................... (0.15) 2.08 11.62 (11.41) (3.51) 8.35
------ ------ ------ ------- ------ ------
Total income (loss) from investment
operations.............................. 0.08 2.62 12.23 (10.73) (2.80) 9.19
------ ------ ------ ------- ------ ------
Less dividends and distributions from:
Net investment income................ (0.24) (0.52) (0.65) (0.72) (0.70) (0.92)
Net realized gain.................... (1.74) (6.90) (3.58) (0.98) (2.60) (5.84)
------ ------ ------ ------- ------ ------
Total dividends and distributions........ (1.98) (7.42) (4.23) (1.70) (3.30) (6.76)
------ ------ ------ ------- ------ ------
Net asset value, end of period........... $35.31 $37.21 $42.01 $ 34.01 $46.44 $52.54
====== ====== ====== ======= ====== ======
Total Return+............................ 0.28%(1) 6.98% 37.26% (23.66)% (5.35)% 19.31%
Ratios to Average Net Assets(3):
Expenses................................. 0.84%(2) 0.81% 0.80% 0.77% 0.73% 0.73%
Net investment income.................... 1.13%(2) 1.41% 1.56% 1.69% 1.46% 1.57%
Supplemental Data:
Net assets, end of period, in millions... $3,544 $96 $126 $104 $145 $223
Portfolio turnover rate.................. 19%(1) 38% 34% 7% 0% 1%
</Table>
- ---------------------
<Table>
* Year ended February 29.
++ 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>
24
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED -------------------------------------------------------------
AUGUST 31, 2005 2005 2004* 2003 2002 2001
--------------- -------- -------- --------- -------- --------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period..... $37.34 $42.08 $34.04 $ 46.46 $52.54 $50.10
------ ------ ------ ------- ------ ------
Income (loss) from investment operations:
Net investment income++.............. 0.21 0.57 0.43 0.37 0.34 0.47
Net realized and unrealized gain
(loss)............................... (0.13) 2.09 11.64 (11.41) (3.50) 8.35
------ ------ ------ ------- ------ ------
Total income (loss) from investment
operations.............................. 0.08 2.66 12.07 (11.04) (3.16) 8.82
------ ------ ------ ------- ------ ------
Less dividends and distributions from:
Net investment income................ (0.23) (0.50) (0.45) (0.40) (0.32) (0.54)
Net realized gain.................... (1.74) (6.90) (3.58) (0.98) (2.60) (5.84)
------ ------ ------ ------- ------ ------
Total dividends and distributions........ (1.97) (7.40) (4.03) (1.38) (2.92) (6.38)
------ ------ ------ ------- ------ ------
Net asset value, end of period........... $35.45 $37.34 $42.08 $ 34.04 $46.46 $52.54
====== ====== ====== ======= ====== ======
Total Return+............................ 0.29%(1) 7.03% 36.62% (24.27)% (6.06)% 18.48%
Ratios to Average Net Assets(3):
Expenses................................. 0.74%(2) 0.75%(4) 1.28%(4) 1.54% 1.49% 1.42%
Net investment income.................... 1.23%(2) 1.47%(4) 1.08%(4) 0.92% 0.70% 0.88%
Supplemental Data:
Net assets, end of period, in millions... $1,653 $5,877 $7,040 $6,020 $9,865 $11,819
Portfolio turnover rate.................. 19%(1) 38% 34% 7% 0% 1%
</Table>
- ---------------------
<Table>
* Year ended February 29.
++ 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.
(4) If the Distributor had not rebated a portion of its fee to the Fund, the expense and net investment income ratios
would have been:
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- ---- ----
February 28, 2005 0.85% 1.37%
February 29, 2004 1.56 0.80
</Table>
25
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED -------------------------------------------------------------
AUGUST 31, 2005 2005 2004* 2003 2002 2001
--------------- -------- -------- --------- -------- --------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period..... $37.11 $41.89 $33.92 $ 46.32 $52.44 $49.96
------ ------ ------ ------- ------ ------
Income (loss) from investment operations:
Net investment income++.............. 0.07 0.27 0.31 0.37 0.35 0.50
Net realized and unrealized gain
(loss)............................... (0.12) 2.07 11.60 (11.38) (3.49) 8.32
------ ------ ------ ------- ------ ------
Total income (loss) from investment
operations.............................. (0.05) 2.34 11.91 (11.01) (3.14) 8.82
------ ------ ------ ------- ------ ------
Less dividends and distributions from:
Net investment income................ (0.11) (0.22) (0.36) (0.41) (0.38) (0.50)
Net realized gain.................... (1.74) (6.90) (3.58) (0.98) (2.60) (5.84)
------ ------ ------ ------- ------ ------
Total dividends and distributions........ (1.85) (7.12) (3.94) (1.39) (2.98) (6.34)
------ ------ ------ ------- ------ ------
Net asset value, end of period........... $35.21 $37.11 $41.89 $ 33.92 $46.32 $52.44
====== ====== ====== ======= ====== ======
Total Return+............................ (0.05)%(1) 6.15% 36.25% (24.26)% (6.05)% 18.54%
Ratios to Average Net Assets(3):
Expenses................................. 1.59 %(2) 1.52% 1.56% 1.54% 1.48% 1.37%
Net investment income.................... 0.38 %(2) 0.70% 0.80% 0.92% 0.71% 0.93%
Supplemental Data:
Net assets, end of period, in millions... $88 $103 $118 $83 $125 $139
Portfolio turnover rate.................. 19 %(1) 38% 34% 7% 0% 1%
</Table>
- ---------------------
<Table>
* Year ended February 29.
++ 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>
26
See Notes to Financial Statements
Morgan Stanley Dividend Growth Securities Inc.
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED -------------------------------------------------------------
AUGUST 31, 2005 2005 2004* 2003 2002 2001
--------------- -------- -------- --------- -------- --------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period..... $37.23 $42.04 $34.03 $ 46.47 $52.59 $50.16
------ ------ ------ ------- ------ ------
Income (loss) from investment operations:
Net investment income++.............. 0.25 0.65 0.70 0.77 0.83 0.97
Net realized and unrealized gain
(loss)............................... (0.12) 2.06 11.63 (11.41) (3.53) 8.35
------ ------ ------ ------- ------ ------
Total income (loss) from investment
operations.............................. 0.13 2.71 12.33 (10.64) (2.70) 9.32
------ ------ ------ ------- ------ ------
Less dividends and distributions from:
Net investment income................ (0.28) (0.62) (0.74) (0.82) (0.82) (1.05)
Net realized gain.................... (1.74) (6.90) (3.58) (0.98) (2.60) (5.84)
------ ------ ------ ------- ------ ------
Total dividends and distributions........ (2.02) (7.52) (4.32) (1.80) (3.42) (6.89)
------ ------ ------ ------- ------ ------
Net asset value, end of period........... $35.34 $37.23 $42.04 $ 34.03 $46.47 $52.59
====== ====== ====== ======= ====== ======
Total Return+............................ 0.42%(1) 7.22% 37.58% (23.50)% (5.10)% 19.60%
Ratios to Average Net Assets(3):
Expenses................................. 0.59%(2) 0.56% 0.56% 0.54% 0.49% 0.48%
Net investment income.................... 1.38%(2) 1.66% 1.80% 1.92% 1.70% 1.82%
Supplemental Data:
Net assets, end of period, in millions... $547 $589 $588 $376 $480 $424
Portfolio turnover rate.................. 19%(1) 38% 34% 7% 0% 1%
</Table>
- ---------------------
<Table>
* Year ended February 29.
++ 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>
27
See Notes to Financial Statements
DIRECTORS
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
Ronald E. Robison
President and Principal Executive Officer
Joseph J. McAlinden
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
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 REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
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 the 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 directors. 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) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Dividend Growth
Securities
Semiannual Report
August 31, 2005
[MORGAN STANLEY LOGO]
37910RPT-RA05-00837P-Y08/05
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.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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.
(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 12. 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 Dividend Growth Securities Inc.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 20, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 20, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
October 20, 2005
3