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: 811-08916
Morgan Stanley Information 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: March 31, 2005
Date of reporting period: September 30, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Information 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-months ended September 30, 2004
TOTAL RETURN FOR THE 6-MONTH PERIOD ENDED
SEPTEMBER 30, 2004
<Table>
<Caption>
LIPPER
S&P SCIENCE &
500 TECHNOLOGY
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
-12.82% -13.15% -13.17% -12.69% -0.18% -11.01%
</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
Equities generally weakened in the six months ended September 30, 2004. This
overall performance was hindered by more mixed economic news, rising interest
rates and oil prices, as well as various uncertainties such as the presidential
election. While an extremely low interest rate environment had been supportive
of equities over the previous year, during this review period the Federal Open
Market Committee moved to end this environment by instituting measured hikes in
interest rates. In addition, a steady increase in the price of oil served to
slow market performance considerably, as it weighed more on investors' minds.
These developments hurt corporate capital expenditures and weakened consumer
spending, with consequences for such cyclical industries as technology goods and
advertising media. As cyclical industries and high-beta companies suffered over
the period, less-cyclical industries within the technology sector, such as
telecommunications, technology consulting and computer services, performed
relatively better.
PERFORMANCE ANALYSIS
Morgan Stanley Information Fund underperformed both the S&P 500 Index and the
Lipper Science & Technology Funds Index for the six-month period ended September
30, 2004. This underperformance was driven largely by the slowing equity market
and rising oil prices that occurred over the period, particularly affecting
technology companies. Within the information technology sector, the Fund's
holdings in the software and semiconductor industries were a major detractor
from performance. The semi-
conductor and semiconductor capital equipment industries suffered greatly as
falling demand and rising inventories led to a dramatic decline in pricing power
that greatly impaired the profitability of many of these companies. Stocks that
served as a drag on the Fund's returns included Intel and Texas Instruments. The
Fund's allocation to the software sector also hindered performance; though many
software companies had been in recovery prior to the start of the six-month
period, a number of them like Microsoft were strongly affected by the drop in
demand.
Other positions were more favorable for performance over the period. The Fund's
allocation to the computer services industry was positive, as many of these
companies saw demand for their business increase. Although the demand for
technology products fell over the period, the growth accomplished by many such
companies prior to this reporting period had resulted in a need for technology
consulting services as companies focused again on finding IT plans and sought to
hire consultants. The Fund benefited from its holdings in Indian information
technology
2
companies as well as Anteon and Computer Sciences, because these companies made
gains based on improving demand. Exposure to the telecommunications sector was
beneficial, as Citizens Communications, Nextel International and American Movil
made gains. Although allocations to the software and semiconductor sectors hurt
the Fund over these six months, a number of holdings within these sectors proved
positive individually. Symantec, a leading provider of antivirus software, made
gains within the software sector, while Qualcomm performed well within the
semiconductor sector as a result of growth in the wireless market and became one
of the top five performers for the Fund.
<Table>
<Caption>
TOP 10 HOLDINGS
Microsoft Corp. 4.9%
Anteon International 3.7
Cisco Systems Inc. 3.4
Qualcomm Inc. 3.3
Dell Inc. 3.0
International Business Machines Corp. 2.9
Symantec Corp. 2.8
NII Holdings Inc. 2.5
Intel Corp. 2.4
France Telecom S.A. 2.2
</Table>
<Table>
<Caption>
TOP FIVE INDUSTRIES
Packaged Software 16.7%
Semiconductors 14.9
Information Technology Services 12.6
Telecommunications Equipment 7.9
Computer Communications 6.1
</Table>
Data as of September 30, 2004. Subject to change daily. All percentages for the
top 10 holdings and top five industries 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.
3
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCKS
AND OTHER EQUITY SECURITIES OF COMPANIES LOCATED THROUGHOUT THE WORLD THAT ARE
ENGAGED IN THE COMMUNICATIONS AND INFORMATION INDUSTRY. THE FUND NORMALLY HOLDS
COMMON STOCKS AND OTHER EQUITY SECURITIES OF COMPANIES LOCATED IN AT LEAST THREE
COUNTRIES, ONE OF WHICH IS THE UNITED STATES. THE FUND MAY INVEST UP TO 50
PERCENT OF ITS NET ASSETS IN THE SECURITIES (INCLUDING DEPOSITARY RECEIPTS) OF
FOREIGN COMPANIES; HOWEVER, IT WILL NOT INVEST MORE THAN 25 PERCENT OF ITS NET
ASSETS IN ANY ONE FOREIGN COUNTRY. IN ADDITION, THE FUND WILL NOT INVEST MORE
THAN 10 PERCENT OF ITS NET ASSETS IN CONVERTIBLE SECURITIES. IN DECIDING WHICH
SECURITIES TO BUY, HOLD OR SELL, THE FUND'S INVESTMENT MANAGER, MORGAN STANLEY
INVESTMENT ADVISORS INC., CONSIDERS BUSINESS, ECONOMIC AND POLITICAL CONDITIONS.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102. 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 SEPTEMBER 30, 2004, IS AVAILABLE WITHOUT CHARGE, UPON
REQUEST, BY CALLING (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 SEPTEMBER 30, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 11/28/95) (since 07/28/97) (since 07/28/97)
SYMBOL IFOAX IFOBX IFOCX IFODX
1 YEAR (1.78)%(3) (2.58)%(3) (2.69)%(3) (1.53)%(3)
(6.93)(4) (7.45)(4) (3.67)(4) --
5 YEARS (13.45)(3) (14.12)(3) (14.12)(3) (13.28)(3)
(14.38)(4) (14.41)(4) (14.12)(4) --
SINCE INCEPTION 2.62(3) 3.06(3) 1.85(3) 2.85(3)
1.85(4) 3.06(4) 1.85(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 Standard and Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
(2) The Lipper Science & Technology Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Science & Technology Funds classification. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
(3) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(4) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
5
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur 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 04/01/04 - 09/30/04.
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*
------------- ------------- --------------
04/01/04 -
04/01/04 09/30/04 09/30/04
------------- ------------- --------------
CLASS A
Actual (-12.82% return)..................................... $1,000.00 $ 871.80 $ 7.13
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,017.45 $ 7.69
CLASS B
Actual (-13.15% return)..................................... $1,000.00 $ 868.50 $10.63
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,013.69 $11.46
CLASS C
Actual (-13.17% return)..................................... $1,000.00 $ 868.30 $10.63
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,013.69 $11.46
CLASS D
Actual (-12.69% return)..................................... $1,000.00 $ 873.10 $ 5.96
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,018.70 $ 6.43
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.52%, 2.27%,
2.27% and 1.27% respectively, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
6
Morgan Stanley Information Fund
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks and Warrants (99.7%)
Aerospace & Defense
(0.7%)
100,000 United Defense
Industries, Inc.*....... $ 3,999,000
------------
Broadcasting (0.3%)
500,000 Sirius Satellite Radio
Inc.*................... 1,600,000
------------
Cable/Satellite TV (2.2%)
163,000 Cablevision Systems New
York Group (Class A)*... 3,305,640
350,000 Comcast Corp. (Class
A)*..................... 9,884,000
------------
13,189,640
------------
Computer Communications
(6.1%)
400,000 Avaya Inc.*.............. 5,576,000
1,100,000 Cisco Systems, Inc.*..... 19,910,000
400,000 Emulex Corp.*............ 4,608,000
250,000 Juniper Networks,
Inc.*................... 5,900,000
------------
35,994,000
------------
Computer Peripherals
(5.8%)
100,000 Avid Technology, Inc.*... 4,687,000
750,000 EMC Corp.*............... 8,655,000
500,000 Network Appliance,
Inc.*................... 11,500,000
150,000 Zebra Technologies Corp.
(Class A)*.............. 9,151,500
------------
33,993,500
------------
Computer Processing
Hardware (3.4%)
500,000 Dell Inc.*............... 17,800,000
500,000 Sun Microsystems,
Inc.*................... 2,020,000
------------
19,820,000
------------
Data Processing Services
(2.0%)
250,000 Computer Sciences
Corp.*.................. 11,775,000
------------
Electrical Products
(0.2%)
100,000 Ultralife Batteries,
Inc.*................... 1,017,000
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Electronic Components
(1.8%)
150,000 Flextronics International
Ltd. (Singapore)*....... $ 1,987,500
375,000 Jabil Circuit, Inc.*..... 8,625,000
------------
10,612,500
------------
Electronic Distributors
(1.3%)
150,000 Arrow Electronics,
Inc.*................... 3,387,000
75,000 CDW Corp. ............... 4,352,250
------------
7,739,250
------------
Electronic
Equipment/Instruments
(3.1%)
146,100 Cogent, Inc.*............ 2,661,942
300,000 Scientific-Atlanta,
Inc. ................... 7,776,000
600,000 Symbol Technologies,
Inc. ................... 7,584,000
------------
18,021,942
------------
Electronic Production
Equipment (4.3%)
400,000 Applied Materials,
Inc.*................... 6,596,000
300,000 ASML Holding N.V.
(Netherlands)*.......... 3,861,000
150,000 KLA-Tencor Corp.*........ 6,222,000
200,000 Novellus Systems,
Inc.*................... 5,318,000
100,000 Varian Semiconductor
Equipment Associates,
Inc.*................... 3,090,000
------------
25,087,000
------------
Industrial Conglomerates
(1.0%)
200,000 Tyco International Ltd.
(Bermuda)............... 6,132,000
------------
Industrial Specialties
(0.4%)
50,000 Nitto Denko Corp. ....... 2,302,452
------------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Information Fund
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Information Technology
Services (12.6%)
400,000 Accenture Ltd. (Class A)
(ADR) (Bermuda)*........ $ 10,820,000
250,000 Amdocs Ltd.*............. 5,457,500
600,000 Anteon International
Corp.*.................. 21,990,000
80,000 Infosys Technologies Ltd.
(ADR) (India)........... 4,528,000
200,000 International Business
Machines Corp. ......... 17,148,000
250,000 PeopleSoft, Inc.*........ 4,962,500
250,000 RSA Security, Inc.*...... 4,825,000
200,000 Satyam Computer Services
Ltd. (ADR) (India)...... 4,624,000
------------
74,355,000
------------
Internet Retail (1.7%)
135,000 Amazon.com, Inc.*........ 5,516,100
200,000 IAC/InterActiveCorp.*.... 4,404,000
------------
9,920,100
------------
Internet
Software/Services (3.4%)
15,800 JAMDAT Mobile Inc.*...... 364,506
327 Microstrategy Inc.
(Warrants - expire
06/24/07)*.............. 30
306,500 Siebel Systems, Inc.*.... 2,311,010
350,000 VeriSign, Inc.*.......... 6,958,000
300,000 Yahoo! Inc.*............. 10,173,000
------------
19,806,546
------------
Major Telecommunications
(3.4%)
519,000 France Telecom S.A. (ADR)
(France)................ 12,975,000
350,000 Sprint Corp. (FON
Group).................. 7,045,500
------------
20,020,500
------------
Medical Specialties
(0.6%)
200,000 PerkinElmer, Inc. ....... 3,444,000
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Other Consumer Services
(0.2%)
121,800 Educate, Inc.*........... $ 1,436,022
------------
Packaged Software (16.7%)
200,000 Cognos, Inc. (Canada)*... 7,104,000
250,000 Mercury Interactive
Corp.*.................. 8,720,000
1,050,000 Microsoft Corp. ......... 29,032,500
130,000 NAVTEQ*.................. 4,633,200
450,000 Novell, Inc.*............ 2,839,500
500,000 Oracle Corp.*............ 5,640,000
200,000 Quest Software, Inc.*.... 2,224,000
300,000 Red Hat, Inc.*........... 3,672,000
300,000 SAP AG (ADR) (Germany)... 11,685,000
300,000 Symantec Corp.*.......... 16,464,000
330,000 VERITAS Software
Corp.*.................. 5,874,000
------------
97,888,200
------------
Recreational Products
(1.2%)
500,000 Activision, Inc.*........ 6,935,000
------------
Semiconductors (14.9%)
400,000 Advanced Micro Devices,
Inc.*................... 5,200,000
250,000 Analog Devices, Inc. .... 9,695,000
150,000 Broadcom Corp. (Class
A)*..................... 4,093,500
700,000 Intel Corp. ............. 14,042,000
300,000 Maxim Integrated
Products, Inc. ......... 12,687,000
250,000 Micron Technology,
Inc.*................... 3,007,500
750,000 National Semiconductor
Corp.*.................. 11,617,500
200,000 Silicon Image, Inc.*..... 2,528,000
250,000 Silicon Laboratories
Inc.*................... 8,272,500
400,000 Texas Instruments
Inc. ................... 8,512,000
300,000 Xilinx, Inc. ............ 8,100,000
------------
87,755,000
------------
Specialty
Telecommunications (1.0%)
450,000 Citizens Communications
Co. .................... 6,025,500
------------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Information Fund
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Telecommunication
Equipment (7.9%)
250,000 ADTRAN, Inc. ............ $ 5,670,000
200,000 Comverse Technology,
Inc.*................... 3,766,000
500,000 Corning Inc.*............ 5,540,000
2,173,913 Corvis Corp.*+........... 1,739,130
100,000 Harris Corp. ............ 5,494,000
1,000,000 Lucent Technologies
Inc.*................... 3,170,000
100,000 Nokia Corp. (ADR)
(Finland)............... 1,372,000
500,000 QUALCOMM Inc. ........... 19,520,000
------------
46,271,130
------------
Wireless
Telecommunications (3.5%)
150,000 America Movil S.A. de
C.V. (Series L) (ADR)
(Mexico)................ 5,854,500
358,300 NII Holdings, Inc. (Class
B)*..................... 14,765,543
------------
20,620,043
------------
</Table>
<Table>
Total Investments
(Cost $538,689,510) (a)..... 99.7% 585,760,325
Other Assets in Excess of
Liabilities................. 0.3 1,624,396
----- ------------
Net Assets.................. 100.0% $587,384,721
===== ============
</Table>
- ---------------------
<Table>
ADR American Depository Receipt.
* Non-income producing security.
+ Resale is restricted to qualified institutional
investors.
(a) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes.
The aggregate gross unrealized appreciation is
$90,066,509 and the aggregate gross unrealized
depreciation is $42,995,694, resulting in net
unrealized appreciation of $47,070,815.
</Table>
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------
Packaged Software..... $ 97,888,200 16.7%
Semiconductors........ 87,755,000 14.9
Information Technology
Services............ 74,355,000 12.6
Telecommunication
Equipment........... 46,271,130 7.9
Computer
Communications...... 35,994,000 6.1
Computer
Peripherals......... 33,993,500 5.8
Electronic Production
Equipment........... 25,087,000 4.3
Wireless
Telecommunications... 20,620,043 3.5
Major
Telecommunications... 20,020,500 3.4
Computer Processing
Hardware............ 19,820,000 3.4
Internet
Software/Services... 19,806,546 3.4
Electronic Equipment/
Instruments......... 18,021,942 3.1
Cable/Satellite TV.... 13,189,640 2.2
Data Processing
Services............ 11,775,000 2.0
Electronic
Components.......... 10,612,500 1.8
Internet Retail....... 9,920,100 1.7
Electronic
Distributors........ 7,739,250 1.3
Recreational
Products............ 6,935,000 1.2
Industrial
Conglomerates....... 6,132,000 1.0
Specialty
Telecommunications... 6,025,500 1.0
Aerospace & Defense... 3,999,000 0.7
Medical Specialties... 3,444,000 0.6
Industrial
Specialties......... 2,302,452 0.4
Broadcasting.......... 1,600,000 0.3
Other Consumer
Services............ 1,436,022 0.2
Electrical Products... 1,017,000 0.2
------------ ----
$585,760,325 99.7%
============ ====
</Table>
9
See Notes to Financial Statements
Morgan Stanley Information Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $538,689,510).............. $585,760,325
Receivable for:
Investments sold............... 9,582,161
Shares of beneficial interest
sold......................... 42,471
Dividends...................... 19,058
Prepaid expenses and other
assets........................... 119,092
---------------
Total Assets................... 595,523,107
---------------
Liabilities:
Payable for:
Investments purchased.......... 3,290,425
Shares of beneficial interest
redeemed..................... 648,033
Distribution fee............... 448,500
Investment management fee...... 359,555
Payable to bank.................... 3,221,091
Accrued expenses and other
payables......................... 170,782
---------------
Total Liabilities.............. 8,138,386
---------------
Net Assets..................... $587,384,721
===============
Composition of Net Assets:
Paid-in-capital.................... $2,826,084,487
Net unrealized appreciation........ 47,070,879
Accumulated net investment loss.... (5,517,276)
Accumulated net realized loss...... (2,280,253,369)
---------------
Net Assets..................... $587,384,721
===============
Class A Shares:
Net Assets......................... $43,500,431
Shares Outstanding (unlimited
authorized, $.01 par value)...... 4,920,770
Net Asset Value Per Share...... $8.84
===============
Maximum Offering Price Per
Share, (net asset value plus
5.54% of net asset value)...... $9.33
===============
Class B Shares:
Net Assets......................... $488,963,656
Shares Outstanding (unlimited
authorized, $.01 par value)...... 58,779,654
Net Asset Value Per Share...... $8.32
===============
Class C Shares:
Net Assets......................... $45,542,218
Shares Outstanding (unlimited
authorized, $.01 par value)...... 5,478,588
Net Asset Value Per Share...... $8.31
===============
Class D Shares:
Net Assets......................... $9,378,416
Shares Outstanding (unlimited
authorized, $.01 par value)...... 1,041,007
Net Asset Value Per Share...... $9.01
===============
</Table>
Statement of Operations
For the six months ended September 30, 2004
(unaudited)
<Table>
Net Investment Loss:
Income
Dividends (net of $32,749 foreign
withholding tax)................... $ 1,950,099
Interest............................. 139,250
-------------
Total Income..................... 2,089,349
-------------
Expenses
Distribution fee (Class A shares).... 58,198
Distribution fee (Class B shares).... 2,809,482
Distribution fee (Class C shares).... 258,921
Investment management fee............ 2,486,888
Transfer agent fees and expenses..... 1,793,860
Shareholder reports and notices...... 80,827
Professional fees.................... 39,523
Registration fees.................... 34,719
Custodian fees....................... 27,387
Trustees' fees and expenses.......... 3,567
Other................................ 13,253
-------------
Total Expenses................... 7,606,625
-------------
Net Investment Loss.............. (5,517,276)
-------------
Net Realized and Unrealized Gain
(Loss):
Net Realized Gain/Loss on:
Investments.......................... 10,374,725
Futures contracts.................... (1,745,060)
-------------
Net Realized Gain................ 8,629,665
Net change in unrealized
appreciation/depreciation.......... (100,819,893)
-------------
Net Loss......................... (92,190,228)
-------------
Net Decrease......................... $ (97,707,504)
=============
</Table>
10
See Notes to Financial Statements
Morgan Stanley Information Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 2004 MARCH 31, 2004
------------------ --------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment loss......................................... $ (5,517,276) $(13,068,371)
Net realized gain........................................... 8,629,665 75,202,330
Net change in unrealized appreciation....................... (100,819,893) 158,070,442
------------ ------------
Net Increase (Decrease)................................. (97,707,504) 220,204,401
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (98,411,203) 140,907,641
------------ ------------
Net Increase (Decrease)................................. (196,118,707) 361,112,042
Net Assets:
Beginning of period......................................... 783,503,428 422,391,386
------------ ------------
End of Period
(Including a net investment loss of $5,517,276 and $0,
respectively)............................................... $587,384,721 $783,503,428
============ ============
</Table>
11
See Notes to Financial Statements
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Information 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 long-term
capital appreciation. The Fund was organized as a Massachusetts business trust
on December 8, 1994 and commenced operations on November 28, 1995. 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 Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 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.
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 exchange rates from the changes in
the market prices of the securities. Forward contracts are
13
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
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. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
G. 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.
H. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
I. 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: 0.75% to the portion of daily net assets not exceeding
$500 million; 0.725% to the portion of daily net assets exceeding $500 million
but not exceeding $3 billion; and 0.70% to the portion of daily net assets in
excess of $3 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
14
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
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.
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
$98,462,313 at September 30, 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 September 30, 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 September
30, 2004, it received contingent deferred sales charges from certain redemptions
of the Fund's Class A shares, Class B shares and Class C shares of $5, $770,985
and $3,098, respectively and received $8,097 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 September 30, 2004 aggregated
$276,828,959 and $375,878,728, respectively. Included in the aforementioned
transactions are purchases of $1,839,000 with other Morgan Stanley funds.
15
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
For the six months ended September 30, 2004, the Fund incurred brokerage
commissions of $163,884 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund. At September 30, 2004, the Fund's receivable for investments
sold included unsettled trades with Morgan Stanley & Co., Inc. of $2,754,400.
At September 30, 2004, Morgan Stanley Fund of Funds - Domestic Portfolio, an
affiliate of the Investment Manager and Distributor, held 367,472 Class D shares
of beneficial interest of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At September 30, 2004, the Fund had transfer agent
fees and expenses payable of approximately $85,000.
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. 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 March 31, 2004, the Fund had a net capital loss carryforward of
$2,254,211,482 of which $253,526,632 will expire on March 31,2009,
$1,275,591,838 will expire on March 31, 2010, $703,325,894 will expire on March
31, 2011 and $21,767,118 will expire on March 31, 2012 to offset future capital
gains to the extent provided by regulations.
As part of the Fund's acquisition of the assets of Morgan Stanley Technology
Fund ("Technology"), the Fund obtained a net capital loss carryforward of
$1,095,119,505 from Technology. Utilization of
16
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
this carryforward is subject to limitations imposed by the Internal Revenue Code
and Treasury Regulations, reducing the total carryforward available.
As of March 31, 2004, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and book amortization of discounts on
debt securities.
6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 2004 MARCH 31, 2004
-------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
CLASS A SHARES
Sold.......................................... 986,079 $ 8,896,558 2,071,874 $ 19,424,774
Acquisition of Morgan Stanley Technology
Fund........................................ -- -- 2,031,354 19,439,365
Redeemed...................................... (1,344,899) (12,526,163) (1,884,019) (17,733,275)
----------- ------------ ----------- -------------
Net increase (decrease) - Class A............. (358,820) (3,629,605) 2,219,209 21,130,864
----------- ------------ ----------- -------------
CLASS B SHARES
Sold.......................................... 652,985 5,786,787 3,687,631 32,553,778
Acquisition of Morgan Stanley Technology
Fund........................................ -- -- 23,335,652 211,873,383
Redeemed...................................... (10,569,410) (92,235,617) (17,075,182) (152,136,032)
----------- ------------ ----------- -------------
Net increase (decrease) - Class B............. (9,916,425) (86,448,830) 9,948,101 92,291,129
----------- ------------ ----------- -------------
CLASS C SHARES
Sold.......................................... 106,756 951,125 549,959 4,798,140
Acquisition of Morgan Stanley Technology
Fund........................................ -- -- 3,616,872 32,802,962
Redeemed...................................... (955,079) (8,381,252) (1,482,387) (13,501,963)
----------- ------------ ----------- -------------
Net increase (decrease) - Class C............. (848,323) (7,430,127) 2,684,444 24,099,139
----------- ------------ ----------- -------------
CLASS D SHARES
Sold.......................................... 401,375 3,677,137 378,958 3,619,599
Acquisition of Morgan Stanley Technology
Fund........................................ -- -- 908,132 8,847,453
Redeemed...................................... (471,810) (4,579,778) (963,178) (9,080,543)
----------- ------------ ----------- -------------
Net increase (decrease) - Class D............. (70,435) (902,641) 323,912 3,386,509
----------- ------------ ----------- -------------
Net increase (decrease) in Fund............... (11,194,003) $(98,411,203) 15,175,666 $ 140,907,641
=========== ============ =========== =============
</Table>
7. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
17
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
To hedge against adverse interest rate and market risks, the Fund may enter into
interest rate futures contracts ("futures contracts").
Forward contracts and futures 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 or in the value of the underlying securities.
Risks may also arise upon entering into these contracts from the potential
inability of the counterparties to meet the terms of their contracts.
8. Acquisition of Morgan Stanley Technology Fund
On October 6, 2003, the Fund acquired all the net assets of Morgan Stanley
Technology Fund ("Technology Fund") based on the respective valuations as of the
close of business on October 3, 2003 pursuant to a Plan of Reorganization
approved by the shareholders of Technology Fund on September 30, 2003. The
acquisition was accomplished by a tax-free exchange of 2,031,354 Class A shares
of the Fund at a net asset value of $9.58 per share for 7,513,659 Class A shares
of Technology Fund; 23,335,652 Class B shares of the Fund at a net asset value
of $9.08 per share for 83,750,085 Class B shares of Technology Fund; 3,616,872
Class C shares of the Fund at a net asset value of $9.08 per share for
13,032,221 Class C shares of Technology Fund; and 908,132 Class D shares of the
Fund at a net asset value of $9.73 per share for 3,398,510 Class D shares of
Technology Fund. The net assets of the Fund and Technology Fund immediately
before the acquisition were $560,412,309 and $272,963,163, respectively,
including unrealized appreciation of $26,322,101 for Technology Fund.
Immediately after the acquisition, the combined net assets of the Fund amounted
to $833,375,472.
9. Legal Matters
(1) Beginning October 25, 2002, purported class action complaints were filed in
the United States District Court for the Southern District of New York against
Morgan Stanley, the Fund, Morgan Stanley Investment Advisors Inc., and certain
subsidiaries of Morgan Stanley alleging violations of federal securities laws in
connection with the underwriting and management of the Fund. These actions have
been consolidated into one action in which plaintiffs allege that Morgan Stanley
analysts issued overly optimistic stock recommendations to obtain investment
banking business, and that the desire to obtain investment banking business
influenced decision made by the Fund Manager. A similar consolidated complaint
has been filed with respect to the Technology Fund. Both consolidated complaints
have been stayed on consent pending a decision by the United States Court of
Appeals for the Second Circuit on the appeal by plaintiffs from a decision
dismissing a very similar complaint filed against another mutual funds complex.
The Fund and Morgan Stanley believe these lawsuits
18
Morgan Stanley Information Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2004 (UNAUDITED) continued
have no merit. The ultimate outcome of these matters is not presently
determinable and no provision has been made in the Fund's financial statements
for the effect, if any, of such matters. The Investment Manager has agreed to
indemnify the Fund against any losses and claims associated with the Technology
Fund complaint.
(2) The Investment Manager, certain affiliates of the Investment Manager,
certain officers of such affiliates and certain investment companies advised by
the Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, 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.
19
Morgan Stanley Information 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 MARCH 31,
MONTHS ENDED ------------------------------------------------------------------
SEPTEMBER 30, 2004 2004 2003 2002 2001 2000
------------------ -------- -------- -------- -------- ---------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of
period.................. $10.14 $ 6.68 $11.29 $14.69 $41.20 $19.23
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment loss++........ (0.04) (0.11) (0.05) 0.00 (0.08) (0.27)
Net realized and unrealized
gain (loss).................. (1.26) 3.57 (4.56) (3.40) (21.28) 26.41
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations........... (1.30) 3.46 (4.61) (3.40) (21.36) 26.14
------ ------ ------ ------ ------ ------
Less distributions from:
Net realized gain............ -- -- -- -- (5.14) (4.17)
Paid-in-capital.............. -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions.............. -- -- -- -- (5.15) (4.17)
------ ------ ------ ------ ------ ------
Net asset value, end of period... $ 8.84 $10.14 $ 6.68 $11.29 $14.69 $41.20
====== ====== ====== ====== ====== ======
Total Return+.................... (12.82)%(1) 51.80% (40.83)% (23.15)% (58.71)% 155.88%
Ratios to Average Net Assets(3):
Expenses......................... 1.59 %(2) 1.46% 1.55% 1.32% 1.07% 1.13%
Net investment loss.............. (0.97)%(2) (1.19)% (0.60)% 0.00% (0.26)% (0.82)%
Supplemental Data:
Net assets, end of period, in
thousands............... $43,500 $53,534 $20,434 $36,129 $48,873 $128,325
Portfolio turnover rate.......... 42 %(1) 108% 92% 144% 213% 282%
</Table>
- ---------------------
<Table>
++ 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 Information Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED -------------------------------------------------------------------------
SEPTEMBER 30, 2004 2004 2003 2002 2001 2000
------------------ --------- --------- --------- ----------- -----------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning
of period................ $9.58 $ 6.36 $ 10.84 $ 14.22 $ 40.37 $ 18.99
--- -------- -------- -------- ---------- ----------
Income (loss) from
investment operations:
Net investment
loss++................ (0.08) (0.18) (0.11) (0.10) (0.29) (0.37)
Net realized and
unrealized gain
(loss)................ (1.18) 3.40 (4.37) (3.28) (20.71) 25.92
--- -------- -------- -------- ---------- ----------
Total income (loss) from
investment operations.... (1.26) 3.22 (4.48) (3.38) (21.00) 25.55
--- -------- -------- -------- ---------- ----------
Less distributions from:
Net realized gain..... -- -- -- -- (5.14) (4.17)
Paid-in-capital....... -- -- -- -- (0.01) --
--- -------- -------- -------- ---------- ----------
Total distributions....... -- -- -- -- (5.15) (4.17)
--- -------- -------- -------- ---------- ----------
Net asset value, end of
period................... $8.32 $ 9.58 $ 6.36 $ 10.84 $ 14.22 $ 40.37
=== ======== ======== ======== ========== ==========
Total Return+............. (13.15)%(1) 50.63% (41.38)% (23.70)% (59.07)% 154.62%
Ratios to Average Net
Assets(3):
Expenses.................. 2.34 %(2) 2.30% 2.40% 2.10% 1.84% 1.58%
Net investment loss....... (1.72)%(2) (2.03)% (1.45)% (0.78)% (1.02)% (1.27)%
Supplemental Data:
Net assets, end of period,
in thousands............. $488,964 $657,944 $373,470 $911,276 $1,540,834 $3,799,844
Portfolio turnover rate... 42 %(1) 108% 92% 144% 213% 282%
</Table>
- ---------------------
<Table>
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
21
See Notes to Financial Statements
Morgan Stanley Information Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED -----------------------------------------------------------------
SEPTEMBER 30, 2004 2004 2003 2002 2001 2000
------------------ -------- -------- -------- -------- ---------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of
period........................... $ 9.57 $ 6.36 $ 10.84 $ 14.17 $ 40.26 $ 18.98
------ ------ ------- ------- ------- --------
Income (loss) from investment
operations:
Net investment loss++......... (0.08) (0.18) (0.11) (0.07) (0.30) (0.49)
Net realized and unrealized
gain (loss)................... (1.18) 3.39 (4.37) (3.26) (20.64) 25.94
------ ------ ------- ------- ------- --------
Total income (loss) from
investment operations............ (1.26) 3.21 (4.48) (3.33) (20.94) 25.45
------ ------ ------- ------- ------- --------
Less distributions from:
Net realized gain............. -- -- -- -- (5.14) (4.17)
Paid-in-capital............... -- -- -- -- (0.01) --
------ ------ ------- ------- ------- --------
Total distributions............... -- -- -- -- (5.15) (4.17)
------ ------ ------- ------- ------- --------
Net asset value, end of period.... $ 8.31 $ 9.57 $ 6.36 $ 10.84 $ 14.17 $ 40.26
====== ====== ======= ======= ======= ========
Total Return+..................... (13.17)%(1) 50.47% (41.33)% (23.50)% (59.08)% 154.10%
Ratios to Average Net Assets(3):
Expenses.......................... 2.34 %(2) 2.29% 2.40% 1.88% 1.89% 1.89%
Net investment loss............... (1.72)%(2) (2.02)% (1.45)% (0.56)% (1.07)% (1.58)%
Supplemental Data:
Net assets, end of period, in
thousands........................ $45,542 $60,555 $23,150 $52,145 $87,942 $205,073
Portfolio turnover rate........... 42 %(1) 108% 92% 144% 213% 282%
</Table>
- ---------------------
<Table>
++ 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>
22
See Notes to Financial Statements
Morgan Stanley Information Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED ----------------------------------------------------------------
SEPTEMBER 30, 2004 2004 2003 2002 2001 2000
------------------ -------- -------- -------- -------- --------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of
period............................ $10.32 $ 6.78 $ 11.45 $ 14.86 $ 41.57 $ 19.33
------ ------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income
(loss)++....................... (0.04) (0.09) (0.04) 0.02 (0.01) (0.18)
Net realized and unrealized
gain (loss).................... (1.27) 3.63 (4.63) (3.43) (21.55) 26.59
------ ------- ------- ------- ------- -------
Total income (loss) from investment
operations........................ (1.31) 3.54 (4.67) (3.41) (21.56) 26.41
------ ------- ------- ------- ------- -------
Less distributions from:
Net realized gain.............. -- -- -- -- (5.14) (4.17)
Paid-in-capital................ -- -- -- -- (0.01) --
------ ------- ------- ------- ------- -------
Total distributions................ -- -- -- -- (5.15) (4.17)
------ ------- ------- ------- ------- -------
Net asset value, end of period..... $ 9.01 $ 10.32 $ 6.78 $ 11.45 $ 14.86 $ 41.57
====== ======= ======= ======= ======= =======
Total Return+...................... (12.69)%(1) 52.21% (40.79)% (22.95)% (58.66)% 156.56%
Ratios to Average Net Assets(3):
Expenses........................... 1.34 %(2) 1.30% 1.40% 1.10% 0.89% 0.89%
Net investment income (loss)....... (0.72)%(2) (1.03)% (0.45)% 0.22% (0.07)% (0.58)%
Supplemental Data:
Net assets, end of period, in
thousands......................... $9,378 $11,470 $5,337 $27,603 $21,638 $17,994
Portfolio turnover rate............ 42 %(1) 108% 92% 144% 213% 282%
</Table>
- ---------------------
<Table>
++ 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>
23
See Notes to Financial Statements
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
Joseph J. McAlinden
Vice President
Barry Fink
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
Information Fund
Semiannual Report
September 30, 2004
[MORGAN STANLEY LOGO]
37929RPT-RA04-00758P-Y09/04
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 Information Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
November 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
November 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
November 19, 2004
3