<Page>
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: 811-03326
Morgan Stanley U.S. Government Money Market Trust
(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: January 31, 2004
Date of reporting period: January 31, 2004
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY U.S.
GOVERNMENT MONEY MARKET TRUST PERFORMED DURING THE ANNUAL 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.
<Page>
Fund Report
For the year ended January 31, 2004
MARKET CONDITIONS
The Federal Open Market Committee (the "Fed") lowered its target rate for
federal funds to 1.00 percent, a 45-year low, on June 25, 2003. It maintained
that rate throughout the second half of 2003 to encourage a faster pace of
economic activity. The combination of this highly accommodative monetary posture
and stimulative fiscal policies in the form of tax cuts appeared to begin to
have an effect. Many companies reported improved earnings in the second half of
the year plus GDP growth of 8.2 percent in the third quarter and 4 percent in
the fourth. The Fed's sustained emphasis on low interest rates had a marked
impact on money market fund yields, which reached record low levels during the
period.
PERFORMANCE ANALYSIS
As of January 31, 2004, Morgan Stanley U.S. Government Money Market Trust had
net assets in excess of $1.26 billion. For the 12-month period ended January 31,
2004, the Trust provided a return of 0.45 percent. For the seven-day period
ended January 31, 2004, the Trust provided an effective annualized yield of 0.42
percent and a current annualized yield of 0.42 percent. Its 30-day moving
average annualized yield for January was 0.43 percent. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
Our strategy in managing the Fund remained consistent with our long-term focus
on maintaining preservation of capital and very high liquidity. As always, we
adhered to a conservative approach that emphasized purchasing high-quality
government obligations and avoided the use of derivatives or structured notes
that might fluctuate excessively with changing interest rates. On January 31,
2004, approximately 53 percent of the Fund was invested in Federal Home Loan
Bank obligations, 29 percent in Federal National Mortgage Association
obligations, 14 percent in Federal Home Loan Mortgage Corporation obligations, 2
percent in repurchase agreements, 1 percent in Federal Farm Credit Bank
obligations and 1 percent in direct Treasuries. As of the end of January, the
Fund's weighted average maturity was 54 days, and 91 percent of its holdings
were due to mature within three months.
2
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PORTFOLIO COMPOSITION
<Table>
U.S. Govt Agency 97.1%
Short Term 1.7
U.S. Treasury Bills 1.2
</Table>
MATURITY SCHEDULE
<Table>
1-30 Days 31.77%
31-60 Days 29.76
61-90 Days 28.92
91-120 Days 2.62
121+ Days 6.93
</Table>
SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A PERCENTAGE OF TOTAL
INVESTMENTS. PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED
AS A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.
STRATEGY
1. THE FUND SEEKS HIGH CURRENT INCOME WHILE STRIVING TO PRESERVE PRINCIPAL AND
LIQUIDITY. THE FUND'S PORTFOLIO DOES NOT CONTAIN ANY DERIVATIVE SECURITIES.
2. THE PORTFOLIO CONSISTS SOLELY OF SHORT-TERM SECURITIES ISSUED OR BACKED BY
THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT OR ITS AGENCIES. AN
INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.*
* AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER
SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THIS FUND.
ANNUAL 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.
3
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MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004
<Table>
<Caption>
ANNUALIZED
PRINCIPAL YIELD
AMOUNT IN ON DATE OF
THOUSANDS DESCRIPTION AND MATURITY DATE PURCHASE VALUE
- ---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (99.1%)
$ 16,705 Federal Farm Credit Banks
10/06/04 1.08% $ 16,581,370
680,613 Federal Home Loan Banks
02/04/04 - 07/09/04 0.98 - 1.07 679,702,226
180,800 Federal Home Loan Mortgage Corp.
03/18/04 - 05/20/04 1.00 - 1.13 180,387,508
366,592 Federal National Mortgage Assoc.
02/04/04 - 06/02/04 1.02 - 1.14 366,085,808
15,000 U.S. Treasury Bills
04/22/04 0.87 14,970,275
-------------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(COST $1,257,727,187) 1,257,727,187
-------------------
REPURCHASE AGREEMENTS (1.7%)
20,500 Goldman, Sachs & Co.
due 02/02/04 (dated 01/30/04;
proceeds $20,501,760) (a) 1.03 20,500,000
1,118 The Bank of New York
due 02/02/04 (dated 01/30/04;
proceeds $1,118,410) (b) 0.875 1,118,328
-------------------
TOTAL REPURCHASE AGREEMENTS
(COST $21,618,328) 21,618,328
-------------------
TOTAL INVESTMENTS
(COST $1,279,345,515) (c) 100.8% 1,279,345,515
LIABILITIES IN EXCESS OF OTHER ASSETS (0.8) (10,061,372)
----- -------------------
NET ASSETS 100.0% $ 1,269,284,143
===== ===================
</Table>
- ----------
(a) COLLATERALIZED BY FEDERAL MORTGAGE ACCEPTANCE CORP. 5.00% - 7.00% DUE
12/01/18 - 12/01/33 VALUED AT $20,910,000.
(b) COLLATERALIZED BY FEDERAL NATIONAL MORTGAGE ASSOC. 4.096% DUE 08/01/33
VALUED AT $1,140,695.
(c) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
4
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MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2004
<Table>
ASSETS:
Investments in securities, at value (cost $1,279,345,515) $ 1,279,345,515
Cash 90,000
Receivable for shares of beneficial interest sold 214,317
Prepaid expenses and other assets 66,003
------------------
TOTAL ASSETS 1,279,715,835
------------------
LIABILITIES:
Payable for:
Shares of beneficial interest redeemed 9,795,829
Investment management fee 451,106
Distribution fee 61,531
Accrued expenses and other payables 123,226
------------------
TOTAL LIABILITIES 10,431,692
------------------
NET ASSETS $ 1,269,284,143
==================
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,269,174,019
Accumulated undistributed net investment income 110,124
------------------
NET ASSETS $ 1,269,284,143
==================
NET ASSET VALUE PER SHARE,
1,269,238,931 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE) $ 1.00
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
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STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 2004
<Table>
NET INVESTMENT INCOME:
INTEREST INCOME $ 14,993,038
------------------
EXPENSES
Investment management fee 5,595,801
Transfer agent fees and expenses 2,104,812
Distribution fee 1,269,996
Shareholder reports and notices 149,055
Custodian fees 76,932
Professional fees 54,912
Registration fees 35,638
Trustees' fees and expenses 19,948
Other 32,690
------------------
TOTAL EXPENSES 9,339,784
Less: amounts waived/reimbursed (1,956)
------------------
NET EXPENSES 9,337,828
------------------
NET INVESTMENT INCOME $ 5,655,210
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 2004 JANUARY 31, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,655,210 $ 13,369,990
Dividends to shareholders from net investment income (5,677,194) (13,304,244)
Net increase (decrease) from transactions in shares of beneficial interest (70,286,719) 83,017,896
------------------ ------------------
NET INCREASE (DECREASE) (70,308,703) 83,083,642
NET ASSETS:
Beginning of period 1,339,592,846 1,256,509,204
------------------ ------------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $110,124
AND $132,108, RESPECTIVELY) $ 1,269,284,143 $ 1,339,592,846
================== ==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley U.S. Government Money Market Trust (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
objectives are security of principal, high current income and liquidity. The
Fund was organized as a Massachusetts business trust on November 18, 1981 and
commenced operations on February 17, 1982.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- The Fund may 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. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to shareholders as of the close of each business day.
F. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Manager"), the Fund pays a management fee,
accrued daily and payable monthly, by applying the following annual rates to the
net assets of the Fund determined as of the close of each business day: 0.50% to
the portion of the daily net assets not exceeding $500 million; 0.425% to the
portion of the daily net assets exceeding $500 million but not exceeding $750
million; 0.375% to the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.35% to the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the
8
<Page>
portion of the daily net assets exceeding $1.5 billion but not exceeding $2
billion; 0.30% to the portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.275% to the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the portion of
the daily net assets exceeding $3 billion.
For the year ended January 31, 2004 and through December 31, 2004, the
Investment Manager agreed to waive its fee and reimburse expenses to the extent
they exceed 0.75% of the daily net assets of the Fund.
3. PLAN OF DISTRIBUTION
Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the
Investment Manager, is the distributor of the Fund's shares and in accordance
with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act,
finances certain expenses in connection with the promotion of sales of Fund
shares.
Reimbursements for these expenses are made in monthly payments by the Fund to
the Distributor, which will in no event exceed an amount equal to a payment at
the annual rate of 0.15% of the Fund's average daily net assets during the
month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal
year will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the year ended January 31, 2004, the distribution
fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities of portfolio securities
for the year ended January 31, 2004 aggregated $43,419,929,240 and
$43,504,653,638, respectively.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees 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.
Aggregate pension costs for the year ended January 31, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $7,223.
At January 31, 2004, the Fund had an accrued pension liability of $59,404 which
is included in accrued expenses in the Statement of Assets and Liabilities.
On December 2, 2003, the Trustees voted to close the plan to new participants,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Trustees
throughout the year.
9
<Page>
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 2004 JANUARY 31, 2003
---------------- ----------------
Shares sold 3,002,675,253 3,093,636,400
Shares issued in reinvestment of dividends 5,661,041 13,261,036
---------------- ----------------
3,008,336,294 3,106,897,436
Shares redeemed (3,078,623,013) (3,023,879,540)
---------------- ----------------
Net increase (decrease) (70,286,719) 83,017,896
================ ================
</Table>
6. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege 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 steer investors to the funds
advised by the Investment Manager or its affiliates 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 alleged efforts to steer investors to these funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters 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
these matters.
10
<Page>
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Net investment income from investment
operations 0.004 0.011 0.032 0.056 0.044
Less dividends from net investment income (0.004) (0.011) (0.032) (0.056) (0.044)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN 0.45% 1.06% 3.25% 5.80% 4.48%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.71%(1) 0.74%(1) 0.74%(1) 0.78% 0.84%
Net investment income 0.43%(1) 1.03%(1) 3.14%(1) 5.61% 4.34%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 1,269 $ 1,340 $ 1,257 $ 1,243 $ 1,081
</Table>
- ----------
(1) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
YEAR ENDED RATIO INCOME RATIO
---------------- ------- --------------
JANUARY 31, 2004 0.71% 0.43%
JANUARY 31, 2003 0.76% 1.01%
JANUARY 31, 2002 0.81% 3.07%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley U.S. Government Money Market Trust (the "Fund"), including the portfolio
of investments, as of January 31, 2004, and the related statements of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 2004, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley U.S. Government Money Market Trust as of January 31, 2004, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
MARCH 17, 2004
2004 FEDERAL TAX NOTICE (UNAUDITED)
Of the Fund's ordinary income dividends paid during the fiscal year
ended January 31, 2004, 51.85% was attributable to qualifying Federal
obligations. Please consult your tax advisor to determine if any
portion of the dividends you received is exempt from state income tax.
12
<Page>
MORGAN STANLEY U.S. GOVERNMENT MONEY MARKET TRUST
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE
- -------------------------------- ----------- ------------ ------------------------------- ---------- -------------------------
Michael Bozic (62) Trustee Since Retired; Director or Trustee 208 Director of Weirton Steel
c/o Mayer, Brown, Rowe & Maw LLP April 1994 of the Retail Funds (since Corporation.
Counsel to the Independent April 1994) and the
Directors Institutional Funds (since
1675 Broadway July 2003); formerly Vice
New York, NY Chairman of Kmart Corporation
(December 1998-October 2000),
Chairman and Chief Executive
Officer of Levitz Furniture
Corporation (November 1995-
November 1998) and President
and Chief Executive Officer of
Hills Department Stores (May
1991-July 1995); formerly
variously Chairman, Chief
Executive Officer, President
and Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of Sears,
Roebuck & Co.
Edwin J. Garn (71) Trustee Since Director or Trustee of the 208 Director of Franklin
c/o Summit Ventures LLC January 1993 Retail Funds (since January Covey (time management
1 Utah Center 1993) and the Institutional systems), BMW Bank of
201 S. Main Street Funds (since July 2003); North America, Inc.
Salt Lake City, UT member of the Utah Regional (industrial loan
Advisory Board of Pacific corporation), United
Corp.; formerly United States Space Alliance (joint
Senator (R-Utah) (1974-1992) venture between Lockheed
and Chairman, Senate Banking Martin and the Boeing
Committee (1980-1986), Mayor Company) and Nuskin Asia
of Salt Lake City, Utah Pacific (multilevel
(1971-1974), Astronaut, Space marketing); member of the
Shuttle Discovery (April board of various civic
12-19, 1985), and Vice and charitable
Chairman, Huntsman Corporation organizations.
(chemical company).
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee 208 Director of The PMI Group
c/o Mayer, Brown, Rowe & Maw LLP September of the Retail Funds (since Inc. (private mortgage
Counsel to the Independent 1997 September 1997) and the insurance); Trustee and
Directors Institutional Funds (since Vice Chairman of The
1675 Broadway July 2003); formerly Field Museum of Natural
New York, NY associated with the Allstate History; director of
Companies (1966-1994), most various other business
recently as Chairman of The and charitable
Allstate Corporation (March organizations.
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
</Table>
13
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE
- -------------------------------- ----------- ------------ ------------------------------- ---------- -------------------------
Dr. Manuel H. Johnson (54) Trustee Since Chairman of the Audit 208 Director of NVR, Inc.
c/o Johnson Smick International, July 1991 Committee and Director or (home construction);
Inc. Trustee of the Retail Funds Chairman and Trustee of
2099 Pennsylvania Avenue, N.W. (since July 1991) and the the Financial Accounting
Suite 950 Institutional Funds (since Foundation (oversight
Washington, D.C. July 2003); Senior Partner, organization of the
Johnson Smick International, Financial Accounting
Inc., a consulting firm; Standards Board);
Co-Chairman and a founder of Director of RBS Greenwich
the Group of Seven Council Capital Holdings
(G7C), an international (financial holding
economic commission; formerly company).
Vice Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S. Treasury.
Joseph J. Kearns (61) Trustee Since Deputy Chairman of the Audit 209 Director of Electro Rent
PMB754 July 2003 Committee and Director or Corporation (equipment
23852 Pacific Coast Highway Trustee of the Retail Funds leasing), The Ford Family
Malibu, CA (since July 2003) and the Foundation, and the UCLA
Institutional Funds (since Foundation.
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); President, Kearns &
Associates LLC (investment
consulting); formerly CFO of
the J. Paul Getty Trust.
Michael E. Nugent (67) Trustee Since Chairman of the Insurance 208 Director of various
c/o Triumph Capital, L.P. July 1991 Committee and Director or business organizations.
445 Park Avenue Trustee of the Retail Funds
New York, NY (since July 1991) and the
Institutional Funds (since
July 2001); General Partner of
Triumph Capital, L.P., a
private investment
partnership; formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (71) Trustee Since Chairman of the Governance 209 Trustee and Director of
85 Charles Colman Blvd. July 2003 Committee and Director or certain investment
Pawling, NY Trustee of the Retail Funds companies in the JP
(since July 2003) and the Morgan Funds complex
Institutional Funds (since managed by JP Morgan
June 1992); Chairman of Investment Management
Lumelite Plastics Corporation. Inc.
</Table>
14
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** HELD BY TRUSTEE
- -------------------------------- ----------- ------------ ------------------------------- ---------- -------------------------
Charles A. Fiumefreddo (70) Chairman Since Chairman and Director or 208 None
c/o Morgan Stanley Trust of the July 1991 Trustee of the Retail Funds
Harborside Financial Center, Board and (since July 1991) and the
Plaza Two, Trustee Institutional Funds (since
Jersey City, NJ July 2003); formerly Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (55) Trustee Since Director or Trustee of the 208 Director of AXA
c/o Morgan Stanley Trust June 2000 Retail Funds (since June 2000) Financial, Inc. and The
Harborside Financial Center, and the Institutional Funds Equitable Life Assurance
Plaza Two, (since July 2003); Senior Society of the United
Jersey City, NJ Advisor of Morgan Stanley States (financial
(since August 2000); Director services).
of the Distributor and Dean
Witter Realty Inc.; previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley (May
1999-August 2000), and
President and Chief Operating
Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
Philip J. Purcell (60) Trustee Since Director or Trustee of the 208 Director of American
1585 Broadway April 1994 Retail Funds (since April Airlines, Inc. and its
New York, NY 1994) and the Institutional parent company, AMR
Funds (since July 2003); Corporation.
Chairman of the Board of
Directors and Chief Executive
Officer of Morgan Stanley and
Morgan Stanley DW Inc.;
Director of the Distributor;
Chairman of the Board of
Directors and Chief Executive
Officer of Novus Credit
Services Inc.; Director and/or
officer of various Morgan
Stanley subsidiaries.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE
"RETAIL FUNDS").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND
MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST
DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS
AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
15
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- --------------- --------------- ----------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and Morgan
Stanley Services; Chairman, Chief Executive Officer and
Director of the Distributor; Chairman and Director of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President Morgan Stanley Investments LP
(since February 2003); President of the Institutional
Funds (since July 2003) and President of the Retail Funds
(since May 1999); Trustee (since July 2003) and President
(since December 2002) of the Van Kampen Closed-End
Funds; Trustee (since May 1999) and President (since
October 2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Vice Since Chief Global Operations Officer and Managing Director of
1221 Avenue of the Americas President and April 2003 Morgan Stanley Investment Management Inc.; Managing
New York, NY Principal Director of Morgan Stanley & Co. Incorporated; Managing
Executive Director of Morgan Stanley; Managing Director, Chief
Officer Administrative Officer and Director of the Investment
Manager and Morgan Stanley Services; Chief Executive
Officer and Director of the Transfer Agent; Managing
Director and Director of the Distributor; Executive Vice
President and Principal Executive Officer of the
Institutional Funds (since July 2003); previously
President of the Institutional Funds (March 2001-July
2003) and Director of the Institutional Funds (March
2001-July 2003).
Barry Fink (48) Vice President Since General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas and General February 1997 (since December 2000) of Morgan Stanley Investment
New York, NY Counsel Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley
Services; Assistant Secretary of Morgan Stanley DW; Chief
Legal Officer of Morgan Stanley Investments LP (since
July 2002); Vice President of the Institutional Funds
(since July 2003); Vice President and Secretary of the
Distributor; previously Secretary of the Retail Funds
(February 1997-July 2003); previously Vice President and
Assistant General Counsel of the Investment Manager and
Morgan Stanley Services (February 1997- December 2001).
Joseph J. McAlinden (60) Vice President Since July 1995 Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of the Van
Kampen Funds; Vice President of the Institutional Funds
(since July 2003) and the Retail Funds (since July 1995).
Stefanie V. Chang (37) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. and Morgan
1221 Avenue of the Americas Stanley Investment Management Inc. and Vice President of
New York, NY the Institutional Funds (since December 1997) and the
Retail Funds (since July 2003); formerly practiced law
with the New York law firm of Rogers & Wells (now Clifford
Chance LLP).
</Table>
16
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- --------------- --------------- ----------------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer since Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial July 2003 and Stanley Services (since December 2001); previously Vice
Harborside Financial Officer Chief Financial President of the Retail Funds (September 2002-July
Center, Officer since 2003); previously Vice President of the Investment
Plaza Two, September 2002 Manager and Morgan Stanley Services (August 2000-November
Jersey City, NJ 2001) and Senior Manager at PricewaterhouseCoopers LLP
(January 1998-August 2000).
Thomas F. Caloia (57) Vice President Since July 2003 Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust Treasurer of the Investment Manager, the Distributor and
Harborside Financial Morgan Stanley Services; previously Treasurer of the
Center, Retail Funds (April 1989-July 2003); formerly First Vice
Plaza Two, President of the Investment Manager, the Distributor and
Jersey City, NJ Morgan Stanley Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas Morgan Stanley Investment Management Inc.; Secretary of
New York, NY the Institutional Funds (since June 1999) and the Retail
Funds (since July 2003); formerly practiced law with the
New York law firms of McDermott, Will & Emery and Skadden,
Arps, Slate, Meagher & Flom LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE
OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
17
<Page>
TRUSTEES [GRAPHIC]
Michael Bozic
Charles A. Fiumefreddo MORGAN STANLEY FUNDS
Edwin J. Garn
Wayne E. Hedien MORGAN STANLEY
James F. Higgins U.S. GOVERNMENT
Dr. Manuel H. Johnson MONEY MARKET TRUST
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell ANNUAL REPORT
Fergus Reid JANUARY 31, 2004
OFFICERS [MORGAN STANLEY LOGO]
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
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 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]
37960RPT-00-13919 C04-AP-3/04
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 23,689 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 684(2) $ 2,847,161(2)
TAX FEES $ 4,757(3) $ 736,810(4)
ALL OTHER FEES $ 0 $ 0
TOTAL NON-AUDIT FEES $ 5,441 $ 3,583,971
TOTAL $ 29,130 $ 3,583,971
</Table>
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 22,860 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 656(2) $ 2,818,115(2)
TAX FEES $ 4,100(3) $ 365,427(4)
ALL OTHER FEES $ 0 $ 501,166(5)
TOTAL NON-AUDIT FEES $ 4,756 $ 3,684,708
TOTAL $ 27,616 $ 3,684,708
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control with
the Adviser that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided
that are reasonably related to the performance of the audit of the
financial statements of the Covered Entities' and funds advised by
the Adviser or its affiliates, specifically data verification and
agreed-upon procedures related to asset securitizations and
agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review of
the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered Entities'
tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supercedes and
replaces all prior versions that may have been adopted from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
<Page>
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
<Page>
The Audit Committee has pre-approved the All Other services in
Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.
<Page>
1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and
<Page>
Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
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.
<Page>
Item 10 Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley U.S. Government Money Market Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 19, 2004