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: 811-07119
Morgan Stanley Global Utilities Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: February 28, 2005
Date of reporting period: August 31, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Global
Utilities Fund performed during the semiannual period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that market values
of securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
FUND REPORT
For the six-month period ended August 31, 2004
TOTAL RETURN FOR THE 6-MONTH PERIOD ENDED AUGUST 31, 2004
<Table>
<Caption>
MSCI LIPPER
WORLD UTILITY
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
2.85% 2.41% 2.45% 2.94% -2.64% 3.51%
</Table>
The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total return figures assume the reinvestment of
all distributions but do not reflect the deduction of any applicable sales
charges. Such costs would lower performance. Past performance is no guarantee of
future results. See Performance Summary for standardized performance
information.
MARKET CONDITIONS
The global equities markets generally slowed for the six months ended August 31,
2004, with the U.S. equities market experiencing increased volatility after
performing strongly early in the period. Having been helped considerably in the
previous six months by economic indicators that pointed to a strong recovery and
the maintenance of low interest rates by the Federal Reserve Open Market
Committee, the market continued to perform well until April, when a particularly
strong March employment figures report, rising oil prices and other price
pressures led to concerns among investors that the Fed would soon move to raise
interest rates. The federal funds rate was later raised by 25 basis points in
June and again in August. The apprehension over interest rates, as well as
uncertainties related to terrorism, geopolitical conflict and the U.S.
presidential elections, served to weaken the market's performance for the
period. Over the six months under review, the dollar strengthened versus both
the euro and the pound.
Relative to the broad market, utility stocks performed strongly for these six
months. The electric and natural gas industries made especially strong gains for
the period, driven by improving fundamentals and their above-average dividend
yield. By comparison, the telecommunications industry lagged the electric and
natural gas industries as increased pressure from competition plus regulatory
uncertainties weakened investor confidence and hurt stocks. Foreign
telecommunications stocks generally lagged their U.S. peers, as they were
hampered both by weak demand abroad and by the threat of competitive
restructuring.
PERFORMANCE ANALYSIS
Morgan Stanley Global Utilities Fund outperformed the MSCI World Index but
underperformed its peers as measured by the Lipper Utility Funds Index. The
Fund's outperformance was driven largely by strong positions in the electric and
natural gas industries, which more than offset the pressure on the
telecommunications industry, as both industries benefited from sound
fundamentals and above average dividend yields.
The Fund's performance was hindered largely by its overweighted position in the
telecommunications sector, despite the Fund's significant reduction in equity
allocation to telecommunications stocks from 24 to 20 percent over the period.
These stocks were hurt as investors became concerned over new regulatory
pressures and increasing competition. Its holdings in foreign telecommunications
companies penalized the Fund because non-U.S. telecommunications service and
equipment companies underperformed the
2
typical holdings of domestic utility funds. For example, two of the three Bell
operating companies and the primary independent telephone companies performed
positively for the period. In addition, the direction of foreign currencies
negatively affected performance, though the Fund did decrease its international
holdings as a result of this same concern. Specifically, over the period under
review the Fund was hurt when a considerable portion of its non-U.S. positions
remained in European markets whose currencies weakened.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN SECURITIES OF
COMPANIES FROM AROUND THE WORLD THAT ARE PRIMARILY ENGAGED IN THE UTILITIES
INDUSTRY. THESE SECURITIES CAN INCLUDE COMMON STOCK AND OTHER EQUITY SECURITIES
(INCLUDING PREFERRED STOCK, CONVERTIBLE SECURITIES AND DEPOSITARY RECEIPTS) AS
WELL AS INVESTMENT-GRADE FIXED-INCOME SECURITIES (INCLUDING ZERO-COUPON
SECURITIES). A COMPANY WILL BE CONSIDERED TO BE PRIMARILY ENGAGED IN THE
UTILITIES INDUSTRY IF IT DERIVES AT LEAST 50 PERCENT OF ITS REVENUES OR EARNINGS
FROM THE UTILITIES INDUSTRY OR DEVOTES AT LEAST 50 PERCENT OF ITS ASSETS TO
ACTIVITIES IN THE INDUSTRY. THESE MAY INCLUDE COMPANIES INVOLVED IN, AMONG OTHER
AREAS, TELECOMMUNICATIONS, COMPUTERS AND OTHER NEW OR EMERGING TECHNOLOGY
COMPANIES, GAS AND ELECTRIC ENERGY, WATER DISTRIBUTION, THE INTERNET AND
INTERNET-RELATED SERVICES. THE COMPANIES MAY BE TRADITIONALLY REGULATED PUBLIC
UTILITIES AS WELL AS FULLY OR PARTIALLY DEREGULATED AND UNREGULATED UTILITY
COMPANIES. THE FUND'S INVESTMENT MANAGER, MORGAN STANLEY INVESTMENT ADVISORS
INC., WILL SHIFT THE FUND'S ASSETS BETWEEN DIFFERENT TYPES OF UTILITIES, AMONG
COMPANIES OF DIFFERENT COUNTRIES, AND BETWEEN EQUITY AND FIXED-INCOME
SECURITIES, BASED ON PREVAILING MARKET, ECONOMIC AND FINANCIAL CONDITIONS. THE
FUND WILL BE INVESTED IN AT LEAST THREE COUNTRIES, INCLUDING THE UNITED STATES.
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
3
<Table>
<Caption>
TOP 10 HOLDINGS
FPL Group 4.4%
Dominion Resources 4.4
Exelon 3.9
Ameren 3.8
Telus Corporation 3.7
Entergy 3.7
Scana 3.6
Keyspan 3.5
Cinergy 3.4
Centrica PLC 3.4
</Table>
<Table>
<Caption>
TOP FIVE COUNTRIES
U.S.A. 82.4%
United Kingdom 6.6
Spain 4.4
Canada 3.7
Sweden 0.3
</Table>
Data as of August 31, 2004. Subject to change daily. All percentages for the top
10 holdings and top five countries are as a percentage of net assets. Provided
for informational purposes only and should not be deemed a recommendation to buy
or sell the securities mentioned. Morgan Stanley is a full-service securities
firm engaged in securities trading and brokerage activities, investment banking,
research and analysis, financing and financial advisory services.
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. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER
FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
12-MONTH PERIOD ENDED AUGUST 31 IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY
CALLING 1-800-869-NEWS OR 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.
4
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED AUGUST 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 05/31/94) (since 07/28/97) (since 07/28/97)
SYMBOL GUTAX GUTBX GUTCX GUTDX
1 YEAR 17.20%(3) 16.27%(3) 16.35%(3) 17.48%(3)
11.04(4) 11.27(4) 15.35(4) --
5 YEARS (0.29)(3) (1.03)(3) (0.99)(3) (0.02)(3)
(1.36)(4) (1.32)(4) (0.99)(4) --
10 YEARS -- 7.43(3) -- --
-- 7.43(4) -- --
SINCE INCEPTION 5.83(3) 7.51(3) 5.07(3) 6.10(3)
5.03(4) 7.51(4) 5.07(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 the most recent month-end performance figures, please visit
morganstanley.com or speak with your financial advisor. Investment returns and
principal value will fluctuate and fund shares, when redeemed, may be worth more
or less than their original cost. The table does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Performance for Class A, Class B, Class C, and Class D shares will
vary due to differences in sales charges and expenses.
* 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 CDSC for Class C is 1% for shares redeemed within one year of
purchase.
++ Class D has no sales charge.
(1) The Morgan Stanley Capital International World Index (MSCI) measures
performance from a diverse range of global stock markets including the
U.S., Canada, New Zealand, and the Far East. The performance of the Index
is listed in U.S. dollars and assumes reinvestment of net dividends. "Net
dividends" reflects a reduction in dividends after taking into account
withholding of taxes by certain foreign countries represented in the Index.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
(2) The Lipper Utility Funds Index is an equally weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Utility
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 10 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 ongoing costs, including management
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 03/01/04 - 08/31/04.
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. 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 that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
03/01/04 -
03/01/04 08/31/04 08/31/04
------------- ------------- ---------------
CLASS A
Actual (2.85% return)....................................... $1,000.00 $1,028.50 $6.08
Hypothetical (5% return before expenses).................... $1,000.00 $1,019.21 $6.06
CLASS B
Actual (2.41% return)....................................... $1,000.00 $1,024.10 $9.90
Hypothetical (5% return before expenses).................... $1,000.00 $1,015.43 $9.86
CLASS C
Actual (2.45% return)....................................... $1,000.00 $1,024.50 $9.90
Hypothetical (5% return before expenses).................... $1,000.00 $1,015.43 $9.86
CLASS D
Actual (2.94% return)....................................... $1,000.00 $1,029.40 $4.81
Hypothetical (5% return before expenses).................... $1,000.00 $1,020.47 $4.79
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.19%, 1.94%,
1.94% and 0.94% respectively, multiplied by the average account value over
the period, multiplied by 184/365 (to reflect the one-half year period).
6
Morgan Stanley Global Utilities Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (97.4%)
Canada (3.7%)
Telecommunications
533,600 Telus Corp.
(Non-Voting)............ $ 10,026,346
------------
Spain (4.4%)
Electric Utilities
307,400 Iberdrola S.A. .......... 6,283,817
------------
Telecommunications
393,400 Telefonica S.A. ......... 5,594,305
------------
Total Spain.............. 11,878,122
------------
Sweden (0.3%)
Telecommunications
301,800 Telefonaktiebolaget LM
Ericsson*............... 812,306
------------
United Kingdom (6.6%)
Energy
2,062,500 Centrica PLC............. 9,143,912
------------
Telecommunications
386,100 Vodafone Group PLC
(ADR)................... 8,841,690
------------
Total United Kingdom..... 17,985,602
------------
United States (82.4%)
Electric Utilities
399,900 AES Corp. (The)*......... 4,034,991
220,300 Ameren Corp. ............ 10,307,837
47,000 American Electric Power
Co., Inc. .............. 1,538,310
228,000 Cinergy Corp. ........... 9,229,440
170,700 Consolidated Edison,
Inc. ................... 7,203,540
221,900 Constellation Energy
Group, Inc. ............ 9,120,090
183,700 Dominion Resources,
Inc. ................... 11,920,293
342,400 Energy East Corp. ....... 8,344,288
165,700 Entergy Corp. ........... 9,991,710
284,200 Exelon Corp. ............ 10,472,770
74,600 FirstEnergy Corp. ....... 3,001,904
172,700 FPL Group, Inc. ......... 11,950,840
85,000 PG&E Corp.*.............. 2,481,150
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
186,500 PPL Corp. ............... $ 8,920,295
181,500 Public Service Enterprise
Group, Inc. ............ 7,684,710
323,900 Puget Energy, Inc. ...... 7,420,549
255,300 SCANA Corp. ............. 9,686,082
300,900 Southern Co. (The)....... 9,132,315
158,000 TXU Corp. ............... 6,577,540
151,800 Wisconsin Energy
Corp. .................. 4,971,450
------------
153,990,104
------------
Energy
270,100 AGL Resources, Inc. ..... 8,235,349
70,100 Equitable Resources,
Inc. ................... 3,675,343
252,300 KeySpan Corp. ........... 9,612,630
132,000 Kinder Morgan, Inc. ..... 7,986,000
77,600 NiSource, Inc. .......... 1,614,080
79,100 Questar Corp. ........... 3,217,788
93,000 Sempra Energy............ 3,361,950
110,250 Southern Union Co.*...... 2,060,573
83,400 UGI Corp.*............... 2,848,944
------------
42,612,657
------------
Telecommunications
276,400 AT&T Wireless Services,
Inc.*................... 4,040,968
85,400 BellSouth Corp. ......... 2,285,304
172,100 Nextel Partners, Inc.
(Class A)*.............. 2,481,682
105,900 SBC Communications,
Inc. ................... 2,731,161
106,800 SpectraSite, Inc.*....... 4,799,592
92,000 Sprint Corp. (FON
Group).................. 1,810,560
116,200 Verizon Communications
Inc. ................... 4,560,850
190,300 Western Wireless Corp.
(Class A)*.............. 4,774,627
27,484,744
------------
Total United States...... 224,087,505
------------
Total Common Stocks
(Cost $230,581,061)...... 264,789,881
------------
</Table>
See Notes to Financial Statements
7
Morgan Stanley Global Utilities Fund
PORTFOLIO OF INVESTMENTS - AUGUST 31, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------
Short-Term Investment (2.5%)
Repurchase Agreement
$ 6,800 Joint repurchase
agreement account 1.57%
due 09/01/04 (dated
08/31/04; proceeds
$6,800,297) (a)
(Cost $6,800,000)....... $ 6,800,000
------------
</Table>
<Table>
Total Investments
(Cost $237,381,061) (b)..... 99.9% 271,589,881
Other Assets in Excess of
Liabilities................. 0.1 237,915
----- ------------
Net Assets.................. 100.0% $271,827,796
===== ============
</Table>
- ---------------------------------------------------
<Table>
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by federal agency and U.S. Treasury
obligations.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes.
The aggregate gross unrealized appreciation is
$43,315,981 and the aggregate gross unrealized
depreciation is $9,107,161, resulting in net
unrealized appreciation of $34,208,820.
</Table>
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ---------------------------------------------------------
Electric Utilities........... $160,273,921 59.0%
Telecommunications........... 52,759,391 19.4
Energy....................... 51,756,569 19.0
Repurchase Agreement......... 6,800,000 2.5
------------ ----
$271,589,881 99.9%
============ ====
</Table>
<Table>
<Caption>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ---------------------------------------------------------
Common Stocks................ $264,789,881 97.4%
Short-Term Investment........ 6,800,000 2.5
------------ ----
$271,589,881 99.9%
============ ====
</Table>
See Notes to Financial Statements
8
Morgan Stanley Global Utilities Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $237,381,061)....................................... $271,589,881
Receivable for:
Dividends............................................... 825,525
Foreign withholding taxes reclaimed..................... 52,312
Shares of beneficial interest sold...................... 17,792
Prepaid expenses and other assets........................... 28,028
------------
Total Assets............................................ 272,513,538
------------
Liabilities:
Payable for:
Distribution fee........................................ 231,732
Shares of beneficial interest redeemed.................. 227,720
Investment management fee............................... 153,538
Accrued expenses and other payables......................... 72,752
------------
Total Liabilities....................................... 685,742
------------
Net Assets.............................................. $271,827,796
============
Composition of Net Assets:
Paid-in-capital............................................. $346,150,216
Net unrealized appreciation................................. 34,215,051
Accumulated undistributed net investment income............. 2,162,582
Accumulated net realized loss............................... (110,700,053)
------------
Net Assets.............................................. $271,827,796
============
Class A Shares:
Net Assets.................................................. $4,693,442
Shares Outstanding (unlimited authorized, $.01 par value)... 391,802
Net Asset Value Per Share............................... $11.98
============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)......... $12.64
============
Class B Shares:
Net Assets.................................................. $260,831,049
Shares Outstanding (unlimited authorized, $.01 par value)... 21,672,841
Net Asset Value Per Share............................... $12.03
============
Class C Shares:
Net Assets.................................................. $4,865,169
Shares Outstanding (unlimited authorized, $.01 par value)... 408,217
Net Asset Value Per Share............................... $11.92
============
Class D Shares:
Net Assets.................................................. $1,438,136
Shares Outstanding (unlimited authorized, $.01 par value)... 119,941
Net Asset Value Per Share............................... $11.99
============
</Table>
See Notes to Financial Statements
9
Morgan Stanley Global Utilities Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended August 31, 2004 (unaudited)
<Table>
Net Investment Income:
Income
Dividends (net of $72,868 foreign withholding tax).......... $ 4,840,853
Interest.................................................... 50,167
-----------
Total Income............................................ 4,891,020
-----------
Expenses
Distribution fee (Class A shares)........................... 5,853
Distribution fee (Class B shares)........................... 1,364,343
Distribution fee (Class C shares)........................... 25,188
Investment management fee................................... 923,539
Transfer agent fees and expenses............................ 286,959
Professional fees........................................... 40,286
Registration fees........................................... 36,552
Shareholder reports and notices............................. 23,501
Custodian fees.............................................. 16,580
Trustees' fees and expenses................................. 1,389
Other....................................................... 10,876
-----------
Total Expenses.......................................... 2,735,066
-----------
Net Investment Income................................... 2,155,954
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain on:
Investments................................................. 4,565,448
Foreign exchange transactions............................... 23,092
-----------
Net Realized Gain....................................... 4,588,540
-----------
Net Change in Unrealized Appreciation on:
Investments................................................. (1,191,259)
Net translation of other assets and liabilities denominated
in foreign currencies..................................... (550)
-----------
Net Depreciation........................................ (1,191,809)
-----------
Net Gain................................................ 3,396,731
-----------
Net Increase................................................ $ 5,552,685
===========
</Table>
See Notes to Financial Statements
10
Morgan Stanley Global Utilities Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2004 FEBRUARY 29, 2004
--------------- -----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 2,155,954 $ 5,853,760
Net realized gain........................................... 4,588,540 24,002,125
Net change in unrealized depreciation....................... (1,191,809) 47,805,106
------------ ------------
Net Increase............................................ 5,552,685 77,660,991
------------ ------------
Dividends to Shareholders from Net Investment Income:
Class A shares.............................................. (137,674) (182,402)
Class B shares.............................................. (5,581,802) (9,102,987)
Class C shares.............................................. (104,781) (175,267)
Class D shares.............................................. (48,952) (60,665)
------------ ------------
Total Dividends......................................... (5,873,209) (9,521,321)
------------ ------------
Net decrease from transactions in shares of beneficial
interest.................................................. (38,004,189) (75,801,985)
------------ ------------
Net Decrease............................................ (38,324,713) (7,662,315)
Net Assets:
Beginning of period......................................... 310,152,509 317,814,824
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $2,162,582 and $5,879,837, respectively)................. $271,827,796 $310,152,509
============ ============
</Table>
See Notes to Financial Statements
11
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Global Utilities Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek both capital appreciation and current income. The Fund was organized as a
Massachusetts business trust on October 22, 1993 and commenced operations on May
31, 1994. On July 28, 1997, the Fund converted to a multiple class share
structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect the value of
such securities, such valuations may be adjusted to reflect the estimated fair
value of such securities as of the close of the NYSE, as determined in good
faith by the Fund's Trustees or by the Investment
12
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
Manager using a pricing service and/or procedures approved by the Trustees of
the Fund; (6) certain portfolio securities may be valued by an outside pricing
service approved by the Fund's Trustees; and (7) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued on
a mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted and
premiums are amortized over the life of the respective securities. Interest
income is accrued daily.
C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. Foreign Currency Translation and Forward Foreign Currency Contracts -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign
13
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
exchange rates from the changes in the market prices of the securities. Forward
contracts are valued daily at the appropriate exchange rates. The resultant
unrealized exchange gains and losses are recorded as unrealized foreign currency
gain or loss. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
F. 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.
G. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. 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, the Fund pays the Investment
Manager 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: 0.65% to the portion of the daily net assets not exceeding
$500 million; 0.625% to the portion of the daily net assets exceeding $500
million but not exceeding $1 billion; 0.60% to the portion of daily net assets
exceeding $1 billion but not exceeding $1.5 billion; and 0.575% to the portion
of daily net assets exceeding $1.5 billion.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 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 Fund (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 Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C.
14
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $9,025,191
at August 31, 2004.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended August 31, 2004, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.0%,
respectively.
The Distributor has informed the Fund that for the six months ended August 31,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $103,851 and $20, respectively
and received $6,095 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended August 31, 2004 aggregated
$37,347,603 and $72,426,338, respectively.
For the six months ended August 31, 2004, the Fund incurred brokerage
commissions of $25,741 with Morgan Stanley & Co. Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At August 31, 2004, the Fund had transfer agent fees
and expenses payable of approximately $30,300.
15
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "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. Each eligible Trustee 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. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2004 FEBRUARY 29, 2004
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES
Sold.............................................. 39,469 $ 464,413 96,805 $ 1,063,129
Reinvestment of dividends......................... 8,671 99,024 12,577 138,350
Redeemed.......................................... (61,580) (722,028) (156,216) (1,680,197)
---------- ------------ ---------- ------------
Net decrease - Class A............................ (13,440) (158,591) (46,834) (478,718)
---------- ------------ ---------- ------------
CLASS B SHARES
Sold.............................................. 201,258 2,370,141 898,046 9,858,570
Reinvestment of dividends......................... 408,632 4,695,179 706,639 7,808,361
Redeemed.......................................... (3,767,096) (43,958,214) (8,462,835) (91,888,153)
---------- ------------ ---------- ------------
Net decrease - Class B............................ (3,157,206) (36,892,894) (6,858,150) (74,221,222)
---------- ------------ ---------- ------------
CLASS C SHARES
Sold.............................................. 10,348 120,171 46,214 495,744
Reinvestment of dividends......................... 8,332 94,815 14,518 158,968
Redeemed.......................................... (77,081) (891,332) (167,415) (1,799,357)
---------- ------------ ---------- ------------
Net decrease - Class C............................ (58,401) (676,346) (106,683) (1,144,645)
---------- ------------ ---------- ------------
CLASS D SHARES
Sold.............................................. 23,590 275,437 54,191 609,021
Reinvestment of dividends......................... 3,651 41,699 4,910 54,061
Redeemed.......................................... (50,573) (593,494) (56,772) (620,482)
---------- ------------ ---------- ------------
Net increase (decrease) - Class D................. (23,332) (276,358) 2,329 42,600
---------- ------------ ---------- ------------
Net decrease in Fund.............................. (3,252,379) $(38,004,189) (7,009,338) $(75,801,985)
========== ============ ========== ============
</Table>
16
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
6. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of February 29, 2004, the Fund had a net capital loss carryforward of
$114,051,607 of which $35,822,406 will expire on February 28, 2010 and
$78,229,201 will expire on February 28, 2011 to offset future capital gains to
the extent provided by regulations.
As of February 29, 2004, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
7. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
8. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates,
17
Morgan Stanley Global Utilities Fund
NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2004 (UNAUDITED) continued
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. While the Fund believes that it has meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.
18
Morgan Stanley Global Utilities Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ----------------------------------------------------------------------------
AUGUST 31, 2004 2004* 2003 2002 2001 2000*
--------------- -------- -------- -------- -------- --------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning
of period................ $12.01 $ 9.70 $12.47 $16.51 $20.02 $17.16
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
income++.............. 0.13 0.28 0.32 0.31 0.29 0.23
Net realized and
unrealized gain
(loss)................ 0.19 2.45 (2.73) (3.91) (1.22) 4.78
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations.... 0.32 2.73 (2.41) (3.60) (0.93) 5.01
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income................ (0.35) (0.42) (0.36) (0.08) (0.26) (0.20)
Net realized gain..... -- -- -- (0.36) (2.32) (1.95)
------ ------ ------ ------ ------ ------
Total dividends and
distributions............ (0.35) (0.42) (0.36) (0.44) (2.58) (2.15)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................... $11.98 $12.01 $ 9.70 $12.47 $16.51 $20.02
====== ====== ====== ====== ====== ======
Total Return+............. 2.85 %(1) 28.57% (19.79)% (22.21)% (5.05)% 30.68%
Ratios to Average Net
Assets(3):
Expenses.................. 1.19 %(2) 1.18% 1.15% 1.06% 1.00% 1.06%
Net investment income..... 2.25 %(2) 2.57% 2.91% 2.06% 1.54% 1.25%
Supplemental Data:
Net assets, end of period,
in thousands............. $4,693 $4,868 $4,387 $7,723 $16,970 $13,313
Portfolio turnover rate... 14 %(1) 31% 18% 19% 31% 52%
</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>
19
See Notes to Financial Statements
Morgan Stanley Global Utilities Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ---------------------------------------------------------------------
AUGUST 31, 2004 2004* 2003 2002 2001 2000*
--------------- --------- --------- --------- --------- ---------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $12.00 $ 9.67 $12.40 $16.50 $20.01 $17.15
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
income++............ 0.09 0.20 0.24 0.20 0.15 0.11
Net realized and
unrealized gain
(loss).............. 0.19 2.44 (2.73) (3.89) (1.22) 4.78
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations............. 0.28 2.64 (2.49) (3.69) (1.07) 4.89
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income.............. (0.25) (0.31) (0.24) (0.05) (0.12) (0.08)
Net realized gain... -- -- -- (0.36) (2.32) (1.95)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... (0.25) (0.31) (0.24) (0.41) (2.44) (2.03)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $12.03 $12.00 $ 9.67 $12.40 $16.50 $20.01
====== ====== ====== ====== ====== ======
Total Return+........... 2.41 %(1) 27.60% (20.43)% (22.75)% (5.76)% 29.81%
Ratios to Average Net
Assets(3):
Expenses................ 1.94 %(2) 1.93% 1.90% 1.82% 1.74% 1.74%
Net investment income... 1.50 %(2) 1.82% 2.16% 1.30% 0.80% 0.57%
Supplemental Data:
Net assets, end of
period, in thousands... $260,831 $298,012 $306,554 $562,343 $914,995 $944,600
Portfolio turnover
rate................... 14 %(1) 31% 18% 19% 31% 52%
</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>
20
See Notes to Financial Statements
Morgan Stanley Global Utilities Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED --------------------------------------------------------------------
AUGUST 31, 2004 2004* 2003 2002 2001 2000*
--------------- -------- -------- -------- -------- --------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of
period........................... $11.89 $ 9.60 $12.33 $16.38 $19.90 $17.08
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income++....... 0.09 0.20 0.24 0.22 0.14 0.09
Net realized and unrealized
gain
(loss)........................ 0.19 2.42 (2.70) (3.85) (1.21) 4.76
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations............ 0.28 2.62 (2.46) (3.63) (1.07) 4.85
------ ------ ------ ------ ------ ------
Less dividends and distributions
from:
Net investment income......... (0.25) (0.33) (0.27) (0.06) (0.13) (0.08)
Net realized gain............. -- -- -- (0.36) (2.32) (1.95)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.................... (0.25) (0.33) (0.27) (0.42) (2.45) (2.03)
------ ------ ------ ------ ------ ------
Net asset value, end of period.... $11.92 $11.89 $ 9.60 $12.33 $16.38 $19.90
====== ====== ====== ====== ====== ======
Total Return+..................... 2.45 %(1) 27.53% (20.15)% (22.78)% (5.81)% 29.73%
Ratios to Average Net Assets(3):
Expenses.......................... 1.94 %(2) 1.93% 1.87% 1.67% 1.78% 1.81%
Net investment income............. 1.50 %(2) 1.82% 2.19% 1.45% 0.76% 0.50%
Supplemental Data:
Net assets, end of period, in
thousands........................ $4,865 $5,548 $5,502 $9,374 $15,266 $10,156
Portfolio turnover rate........... 14 %(1) 31% 18% 19% 31% 52%
</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>
See Notes to Financial Statements
21
Morgan Stanley Global Utilities Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED --------------------------------------------------------------------
AUGUST 31, 2004 2004* 2003 2002 2001 2000*
--------------- -------- -------- -------- -------- --------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of
period........................... $12.04 $ 9.73 $12.53 $16.54 $20.06 $17.18
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income++....... 0.15 0.30 0.35 0.35 0.29 0.32
Net realized and unrealized
gain (loss)................... 0.18 2.47 (2.73) (3.91) (1.18) 4.76
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations....................... 0.33 2.77 (2.38) (3.56) (0.89) 5.08
------ ------ ------ ------ ------ ------
Less dividends and distributions
from:
Net investment income......... (0.38) (0.46) (0.42) (0.09) (0.31) (0.25)
Net realized gain............. -- -- -- (0.36) (2.32) (1.95)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.................... (0.38) (0.46) (0.42) (0.45) (2.63) (2.20)
------ ------ ------ ------ ------ ------
Net asset value, end of period.... $11.99 $12.04 $ 9.73 $12.53 $16.54 $20.06
====== ====== ====== ====== ====== ======
Total Return+..................... 2.94%(1) 28.87% (19.56)% (21.98)% (4.85)% 31.08%
Ratios to Average Net Assets(3):
Expenses.......................... 0.94 %(2) 0.93% 0.90% 0.82% 0.78% 0.81%
Net investment income............. 2.50 %(2) 2.82% 3.16% 2.30% 1.76% 1.50%
Supplemental Data:
Net assets, end of period, in
thousands........................ $1,438 $1,725 $1,371 $2,308 $2,750 $166
Portfolio turnover rate........... 14 %(1) 31% 18% 19% 31% 52%
</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>
See Notes to Financial Statements
22
(This Page Intentionally Left Blank)
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President
Joseph J. McAlinden
Vice President
Amy R. Doberman
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 REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of 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]
MORGAN STANLEY FUNDS
Morgan Stanley
Global Utilities Fund
Semiannual Report
August 31, 2004
[MORGAN STANLEY LOGO]
37873RPT-RA04-00654P-Y08/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
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. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, based upon such officers'
evaluation of these controls and procedures as of a date within 90 days of the
filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 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.
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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 Global Utilities Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
October 20, 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
October 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
October 20, 2004
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