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. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley 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 3