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: 811-09983
Morgan Stanley Technology 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: August 31, 2003
Date of reporting period: August 31, 2003
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Technology Fund performed during the annual period. We will provide an overview
of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that market values
of securities owned by the Fund will decline and, therefore, the value of the
Fund shares may be less than what you paid for them. Accordingly you can lose
money investing in this Fund.
MORGAN STANLEY TECHNOLOGY FUND
FUND REPORT
FOR THE YEAR ENDED AUGUST 31, 2003
- --------------------------------------------------------------------------------
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
- --------------------------------------------------------------------------------
Class A Class B Class C Class D S&P 500 Index(1) Lipper Science
and Technology
Funds Index(2)
- --------------------------------------------------------------------------------
28.93% 27.84% 27.98% 28.79% 12.06% 38.26%
- --------------------------------------------------------------------------------
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
In the early stages of the 12-month period ended August 31, 2003, the
long-anticipated economic recovery appeared reluctant to surface. Despite
interest rates at historically low levels, corporate earnings failed to rebound
as quickly as had been expected. Throughout the fiscal year, economic data
transmitted mixed signals regarding the economy's underlying strength. Investor
confidence continued to waver during the early part of the period, aggravated by
concerns about corporate governance and the perceived lack of balance-sheet
integrity. Although the weakness in equities was fairly broad based, technology
companies were hit especially hard as corporations trimmed their capital
spending on equipment. In addition, downward earnings revisions continued to
afflict the telecommunications sector. Investor sentiment was further dampened
by geopolitical tensions leading up to the war in Iraq.
While these negative forces held investors' attention during most of the first
three months of 2003, financial conditions under the surface were improving.
Accommodative fiscal and monetary policy signaled to many that the economy might
potentially recover in the near future. Recognizing strong values among
equities, investors began to return to the market by the end of March. The
surprisingly quick resolution to the Iraq conflict triggered a strong market
rally that by the end of the period saw the S&P 500 Index appreciate more than
25 percent from its mid-March lows. The defensive sectors and securities that
had led during the bear market period fell behind more cyclical sectors as
investors' expectations for the economy improved. The best performing groups as
the market rallied were technology, financials, consumer cyclicals and basic
materials.
After a two-and-a-half-year downward spiral, fundamentals in the technology
sector bottomed out in the first and second quarter of 2003. From that time
through the end of the period, the sector witnessed a gradual recovery in
revenues and business fundamentals. This recovery was fueled largely by a
resurgence in demand for personal computers (PCs) and handsets. PC sales
benefited from an uptick in corporate and consumer upgrades after holding off
for the previous few years.
PERFORMANCE ANALYSIS
The Fund's emphasis on the technology sector, which led the market over the past
several months, resulted in considerable outperformance relative to the S&P 500.
Positive contributors for the Fund included its investments in the areas of
semiconductor capital equipment, semiconductors and contract manufacturers. The
upsurge in technology led to a sharp increase in revenues for these
companies, as PCs and handsets are responsible for 65 to 70 percent of
semiconductor demand. We increased the Fund's allocation to these industries
during the period based on our belief that they stand to gain from any uptick in
corporate spending on information technology (IT).
Computer services benefited from the continuing trend towards outsourcing and
accelerated spending by the federal government on IT. By updating its antiquated
IT architecture, the federal government is attempting to bring corporate
efficiencies and cost savings to the public sector. Outsourcing has become an
increasing trend in the corporate world as well, as companies look to control
costs by outsourcing non-core functions.
While software companies performed strongly, they lagged the broader technology
sector in the rally. We have seen signs of an uptick in this industry as
corporations have shown a renewed willingness to reinvest in their IT
infrastructure. Companies focused on strategic areas such as data security have
garnered much of the performance in this sector. Data security is increasingly
important as corporations and individual users rely more and more on the
Internet and networked environments.
On April 24, 2003, the Board of Trustees approved an Agreement and Plan of
Reorganization by and between the Fund and Morgan Stanley Information Fund
pursuant to which substantially all of the assets of the Fund would be combined
with those of Morgan Stanley Information Fund and shareholders of the Fund would
become shareholders of Morgan Stanley Information Fund receiving shares of
Morgan Stanley Information Fund equal to the value of their holdings in the
Fund. Each shareholder of the Fund will receive the Class of shares of Morgan
Stanley Information Fund that corresponds to the Class of shares of the Fund
currently held by that shareholder. The Reorganization was approved by
shareholders of the Fund at a special meeting of shareholders held on September
30, 2003.
ANNUAL HOUSEHOLDING NOTICE
To reduce printing and mailing costs, the Fund attempts to eliminate duplicate
mailings to the same address. The Fund delivers a single copy of certain
shareholder documents including shareholder reports, prospectuses and proxy
materials to investors with the same last name and who reside at the same
address. Your participation in this program will continue for an unlimited
period of time, unless you instruct us otherwise. You can request multiple
copies of these documents by calling (800) 350-6414, 8:00 am to 8:00 pm, ET.
Once our Customer Service Center has received your instructions, we will begin
sending individual copies for each account within 30 days.
PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund's policies and procedures with respect to the voting
of proxies relating to the Fund's portfolio securities is available without
charge, upon request, by calling (800) 869-NEWS. This information is also
available on the Securities and Exchange Commission's website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
Top 10 Holdings
- --------------------------------------------------------------------------------
INTEL CORP. 4.3%
- --------------------------------------------------------------------------------
MICROSOFT CORP. 3.8
- --------------------------------------------------------------------------------
ORACLE CORP. 3.3
- --------------------------------------------------------------------------------
AMGEN INC. 2.4
- --------------------------------------------------------------------------------
KLA TENCOR CORP. 2.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAXIM INTEGRATED PRODS INC. 2.1
- --------------------------------------------------------------------------------
SYMANTEC CORP. 2.1
- --------------------------------------------------------------------------------
CISCO SYSTEMS INC. 2.1
- --------------------------------------------------------------------------------
ANTEON INTERNATIONAL CORP. 1.9
- --------------------------------------------------------------------------------
LINEAR TECHNOLOGY CORP. 1.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top Five Industries
- --------------------------------------------------------------------------------
SEMICONDUCTORS 23.0%
- --------------------------------------------------------------------------------
PACKAGED SOFTWARE 16.5
- --------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT 7.0
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT 6.7
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES 5.9
- --------------------------------------------------------------------------------
Subject to change daily. All percentages are as a percentage of net assets.
Provided for informational purposes only and should not be deemed as a
recommendation to buy 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.
MORGAN STANLEY TECHNOLOGY FUND
FUND PERFORMANCE AUGUST 31, 2003
PERFORMANCE OF A $10,000 INVESTMENT
Date Class A Class B Class C Class D S&P 500 Lipper
- -----------------------------------------------------------------------------------------------------------
October 27, 2000 $9,475 $10,000 $10,000 $10,000 $10,000 $10,000
- -----------------------------------------------------------------------------------------------------------
November 30, 2000 $7,021 $7,410 $7,410 $7,410 $9,545 $7,642
- -----------------------------------------------------------------------------------------------------------
February 28, 2001 $5,211 $5,490 $5,490 $5,500 $9,026 $6,159
- -----------------------------------------------------------------------------------------------------------
May 31, 2001 $4,728 $4,970 $4,970 $4,990 $9,173 $5,990
- -----------------------------------------------------------------------------------------------------------
August 31, 2001 $3,544 $3,710 $3,710 $3,740 $8,307 $4,742
- -----------------------------------------------------------------------------------------------------------
November 30, 2001 $3,771 $3,950 $3,950 $3,990 $8,379 $4,913
- -----------------------------------------------------------------------------------------------------------
February 28, 2002 $2,966 $3,100 $3,100 $3,140 $8,169 $4,202
- -----------------------------------------------------------------------------------------------------------
May 31, 2002 $2,596 $2,710 $2,700 $2,750 $7,904 $3,828
- -----------------------------------------------------------------------------------------------------------
August 31, 2002 $1,867 $1,940 $1,930 $1,980 $6,813 $2,899
- -----------------------------------------------------------------------------------------------------------
November 30, 2002 $2,189 $2,270 $2,260 $2,320 $6,996 $3,312
- -----------------------------------------------------------------------------------------------------------
February 28, 2003 $1,848 $1,910 $1,900 $1,960 $6,317 $2,888
- -----------------------------------------------------------------------------------------------------------
May 31, 2003 $2,170 $2,240 $2,230 $2,300 $7,267 $3,520
- -----------------------------------------------------------------------------------------------------------
August 31, 2003 $2,407[+/+] $2,406[+/+] $2,470[+/+] $2,550[+/+] $7,635 $4,008
- -----------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
---- Class A --- Class B --- Class C --- Class D ---- S&P 500 (1) ------- Lipper (2)
- ---------------------------------------------------------------------------------------------------------------------
Past performance is not predictive of future returns. Investment return
and principal value will fluctuate. When you sell fund shares, they may be worth
less than their original cost. The graph and table do 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.
AVERAGE ANNUAL TOTAL RETURNS-PERIOD ENDED AUGUST 31, 2003
---------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES ** CLASS C SHARES + CLASS D SHARES ++
10/27/00 10/27/00 10/27/00 10/27/00
Symbol TEKAX TEKBX TEKCX TEKDX
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1 Year 28.93 % (3) 27.84 % (3) 27.98 % (3) 28.79 % (3)
---------------------------------------------------------------------------
22.16 (4) 22.84 (4) 26.98 (4)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Since Inception (38.26) (3) (38.78) (3) (38.86) (3) (38.17) (3)
---------------------------------------------------------------------------
(39.42) (4) (39.43) (4) (38.86) (4)
---------------------------------------------------------------------------
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.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C is 1% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.
[+/+] Closing value assuming a complete redemption on August 31, 2003.
MORGAN STANLEY TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 2003
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (100.4%)
Advertising/Marketing Services (1.1%)
200,000 Gemstar-TV Guide International, Inc. * $ 964,000
50,000 Getty Images, Inc. * 2,040,000
---------------------
3,004,000
---------------------
Biotechnology (5.1%)
100,000 Amgen Inc. * 6,590,000
100,000 Celgene Corp. * 3,849,000
100,000 MedImmune, Inc. * 3,487,000
---------------------
13,926,000
---------------------
Broadcasting (0.1%)
10,100 Citadel Broadcasting Corp. * 223,008
---------------------
Cable/Satellite TV (1.2%)
750,000 Charter Communications, Inc. (Class A) * 3,375,000
---------------------
Computer Communications (5.3%)
300,000 3Com Corp. * 1,710,000
296,750 Cisco Systems, Inc. * 5,682,762
150,000 Emulex Corp. * 3,631,500
150,000 NetScreen Technologies, Inc. * 3,589,500
---------------------
14,613,762
---------------------
Computer Peripherals (4.7%)
225,000 EMC Corp. * 2,868,750
250,000 Maxtor Corp. * 2,857,500
200,000 Network Appliance, Inc. * 4,482,000
24,300 Seagate Technology (ADR) (Cayman Islands) 559,143
54,000 Storage Technology Corp. * 1,382,940
15,000 Zebra Technologies Corp. (Class A) * 804,300
---------------------
12,954,633
---------------------
Computer Processing Hardware (2.6%)
144,000 Dell Inc. * 4,698,720
120,750 Hewlett-Packard Co. 2,405,340
---------------------
7,104,060
---------------------
Data Processing Services (3.6%)
75,000 Affiliated Computer Services, Inc. (Class A) * 3,720,750
110,000 Computer Sciences Corp. * 4,682,700
50,000 SunGard Data Systems Inc. * 1,410,000
---------------------
9,813,450
---------------------
Electronic Components (4.7%)
26,500 Amphenol Corp. (Class A) * 1,445,045
100,000 Celestica, Inc. * 1,755,000
100,000 Cree, Inc. * 1,582,000
100,000 Flextronics International Ltd. (Singapore) * 1,349,000
90,000 QLogic Corp. * 4,411,800
400,000 Solectron Corp. * 2,372,000
---------------------
12,914,845
---------------------
Electronic Distributors (0.8%)
44,100 CDW Corp. * 2,276,001
---------------------
Electronic Equipment/Instruments (1.3%)
80,000 Coherent, Inc. * 2,096,000
100,000 Symbol Technologies, Inc. 1,354,000
---------------------
3,450,000
---------------------
Electronic Production Equipment (7.0%)
150,000 Amkor Technology, Inc. * 2,637,000
90,000 Applied Materials, Inc. * 1,944,000
20,000 ASML Holding N.V. (Netherlands) * 318,000
50,000 August Technology Corp. * 520,000
110,000 KLA-Tencor Corp. * 6,529,600
110,000 Lam Research Corp. * 2,829,200
115,000 Novellus Systems, Inc. * 4,595,400
---------------------
19,373,200
---------------------
Information Technology Services (5.9%)
160,000 Anteon International Corp. * 5,204,800
200,000 BearingPoint, Inc. * 1,640,000
34,300 Infosys Technologies Ltd. (ADR) (India) 1,943,095
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 2003
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
50,000 International Business Machines Corp. 4,100,500
75,000 PeopleSoft, Inc. * 1,357,500
150,000 Unisys Corp. * 1,947,000
---------------------
16,192,895
---------------------
Internet Retail (1.6%)
120,000 InterActiveCorp. * 4,441,200
---------------------
Internet Software/Services (2.7%)
110,000 BEA Systems, Inc. * 1,490,500
100,000 Siebel Systems, Inc. * 1,008,000
110,000 VeriSign, Inc. * 1,646,700
96,179 Yahoo! Inc. * 3,212,379
---------------------
7,357,579
---------------------
Media Conglomerates (0.7%)
110,000 AOL Time Warner Inc. * 1,799,600
---------------------
Medical Specialties (1.4%)
75,000 Medtronic, Inc. 3,718,500
---------------------
Other Consumer Services (1.4%)
44,000 Apollo Group, Inc. (Class A) * 2,819,080
25,000 Priceline.com Inc. * 987,250
---------------------
3,806,330
---------------------
Packaged Software (16.5%)
100,000 Adobe Systems Inc. 3,883,000
50,000 Mercury Interactive Corp. * 2,194,500
350,000 Micromuse Inc. * 2,863,000
397,000 Microsoft Corp. 10,528,440
700,000 Oracle Corp. * 8,946,000
250,000 Quest Software, Inc. * 2,652,500
200,000 Red Hat, Inc. * 1,456,000
110,000 SAP AG (ADR) (Germany) 3,293,400
100,000 Symantec Corp. * 5,743,000
107,552 VERITAS Software Corp. * 3,708,393
---------------------
45,268,233
---------------------
Recreational Products (0.8%)
25,000 Electronic Arts Inc. * 2,243,750
---------------------
Semiconductors (23.0%)
150,000 Altera Corp. * 3,366,000
100,000 Analog Devices, Inc. * 4,100,000
200,000 Applied Micro Circuits Corp. * 1,162,000
100,000 Broadcom Corp. (Class A) * 2,748,000
75,000 Cypress Semiconductor Corp. * 1,392,750
100,000 GlobespanVirata, Inc. * 761,000
410,000 Intel Corp. 11,734,200
125,000 Linear Technology Corp. 5,152,500
111,000 Marvell Technology Group Ltd. (Bermuda) * 4,680,870
130,000 Maxim Integrated Products, Inc. 5,838,300
150,000 Micrel, Inc. * 2,040,000
111,000 Microchip Technology Inc. 3,109,110
350,000 Micron Technology, Inc. * 5,026,000
150,000 PMC - Sierra, Inc. * 2,139,000
300,000 RF Micro Devices, Inc. * 2,646,000
520,000 Vitesse Semiconductor Corp. * 3,551,600
120,000 Xilinx, Inc. * 3,700,800
---------------------
63,148,130
---------------------
Telecommunication Equipment (6.7%)
150,000 Comverse Technology, Inc. * 2,473,500
150,000 Corning Inc. * 1,237,500
50,000 Harris Corp. 1,660,000
500,000 Lucent Technologies Inc. * 955,000
90,000 Nokia Corp. (ADR) (Finland) 1,466,100
700,000 Nortel Networks Corp. (Canada) * 2,275,000
100,000 QUALCOMM Inc. 4,128,000
100,000 UTStarcom, Inc. * 4,296,000
---------------------
18,491,100
---------------------
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
PORTFOLIO OF INVESTMENTS AUGUST 31, 2003
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunications (2.2%)
350,000 AT&T Wireless Services Inc. * 3,017,000
50,000 NII Holdings, Inc. (Class B) * 3,149,500
---------------------
6,166,500
---------------------
TOTAL INVESTMENTS
(Cost $253,430,836) (a) 100.4% 275,661,776
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4) (1,192,037)
--------------- ---------------------
NET ASSETS 100.0% $274,469,739
=============== =====================
- -------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax
purposes is $266,684,892. The aggregate gross
unrealized appreciation is $28,666,220 and the
aggregate gross unrealized depreciation is
$19,689,336, resulting in net unrealized
appreciation of $8,976,884.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2003
ASSETS:
Investments in securities, at value
(cost $253,430,836) $275,661,776
Receivable for:
Investments sold 1,670,801
Shares of beneficial interest sold 67,658
Dividends 39,200
Prepaid expenses and other assets 28,370
-----------------
TOTAL ASSETS 277,467,805
-----------------
LIABILITIES:
Payable for:
Investment management fee 223,032
Distribution fee 202,863
Shares of beneficial interest redeemed 191,209
Payable to bank 1,936,328
Accrued expenses and other payables 444,634
-----------------
TOTAL LIABILITIES 2,998,066
-----------------
NET ASSETS $274,469,739
=================
COMPOSITION OF NET ASSETS:
Paid-in-capital $1,362,650,973
Net unrealized appreciation 22,230,940
Net investment loss (364)
Accumulated net realized loss (1,110,411,810)
-----------------
NET ASSETS $274,469,739
=================
CLASS A SHARES:
Net Assets $19,764,184
Shares Outstanding (unlimited authorized,
$.01 par value) 7,795,215
NET ASSET VALUE PER SHARE $2.54
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of
net asset value) $2.68
=====
CLASS B SHARES:
Net Assets $212,638,694
Shares Outstanding (unlimited authorized,
$.01 par value) 85,714,858
NET ASSET VALUE PER SHARE $2.48
=====
CLASS C SHARES:
Net Assets $33,045,609
Shares Outstanding (unlimited authorized,
$.01 par value) 13,388,392
NET ASSET VALUE PER SHARE $2.47
=====
CLASS D SHARES:
Net Assets $9,021,252
Shares Outstanding (unlimited authorized,
$.01 par value) 3,536,714
NET ASSET VALUE PER SHARE $2.55
=====
See Notes to Financial Statements
MORGAN STANLEY TECHNOLOGY FUND
Financial Statements, continued
STATEMENT OF OPERATIONS
For the year ended August 31, 2003
NET INVESTMENT LOSS:
INCOME
Dividends (net of $7,147 foreign
withholding tax) $407,607
Interest 45,948
------------------
TOTAL INCOME 453,555
------------------
EXPENSES
Investment management fee 2,532,608
Distribution fee (Class A shares) 47,123
Distribution fee (Class B shares) 1,950,422
Distribution fee (Class C shares) 300,234
Transfer agent fees and expenses 1,701,576
Shareholder reports and notices 447,646
Professional fees 134,576
Registration fees 75,049
Trustees' fees and expenses 13,359
Other 18,093
------------------
TOTAL EXPENSES 7,220,686
------------------
NET INVESTMENT LOSS (6,767,131)
------------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss (165,518,706)
Net change in unrealized depreciation 234,397,205
------------------
NET GAIN 68,878,499
------------------
NET INCREASE $62,111,368
==================
See Notes to Financial Statements
MORGAN STANLEY TECHNOLOGY FUND
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2003 AUGUST 31, 2002
----------------- ------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $(6,767,131) $(11,033,092)
Net realized loss (165,518,706) (408,037,298)
Net change in unrealized depreciation 234,397,205 158,223,428
----------------- ------------------
NET INCREASE (DECREASE) 62,111,368 (260,846,962)
Net decrease from transactions in shares
of beneficial interest (54,330,781) (51,706,927)
----------------- ------------------
NET INCREASE (DECREASE) 7,780,587 (312,553,889)
NET ASSETS:
Beginning of period 266,689,152 579,243,041
----------------- ------------------
END OF PERIOD
(Including a net investment loss of $364
and $0, respectively) $274,469,739 $266,689,152
================= ==================
See Notes to Financial Statements
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Technology Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in common stocks of companies of any asset size engaged in technology
and technology-related industries. The Fund was organized as a Massachusetts
business trust on June 14, 2000 and commenced operations on October 27, 2000.
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 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 equity 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") and/or Morgan
Stanley Investment Management Inc. (the "Sub-Advisor"), an affiliate of 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; (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-
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued
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 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
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued
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 AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 1.0% to the net assets of the Fund determined as of the close of
each business day.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the
Sub-Advisor compensation of $1,013,043 for the year ended August 31, 2003.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager and Sub-Advisor. 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 - 1.0% of 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.
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 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
$54,696,250 at August 31, 2003.
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 year ended August 31, 2003, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.25% and 0.99%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $937,169 and $5,734, respectively
and received $38,150 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 year ended August 31, 2003 aggregated
$275,212,670, and $335,015,468, respectively. Included in the aforementioned are
sales with other Morgan Stanley funds of $322,700, including a net realized gain
of $4,100.
For the year ended August 31, 2003, the Fund incurred $71,148 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, Sub-Advisor and Distributor, for portfolio transactions executed on
behalf of the Fund.
At August 31, 2003, Morgan Stanley Fund of Funds - Domestic Portfolio, an
affiliate of the Investment Manager, Sub-Advisor and Distributor, owned 451,741
Class D shares of beneficial interest of the Fund.
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued
Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and
Distributor, is the Fund's transfer agent. At August 31, 2003, the Fund had
transfer agent fees and expenses payable of approximately $13,600.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 2003 AUGUST 31, 2002
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- -------------
CLASS A SHARES
Sold ................... 2,090,999 $ 4,173,257 3,093,502 $ 9,766,147
Redeemed ............... (4,593,565) (9,363,824) (5,280,732) (17,450,389)
------------- ------------- ------------- -------------
Net decrease - Class A . (2,502,566) (5,190,567) (2,187,230) (7,684,242)
------------- ------------- ------------- -------------
CLASS B SHARES
Sold ................... 10,465,482 21,081,182 28,876,946 95,755,441
Redeemed ............... (30,413,898) (61,346,834) (39,915,573) (122,157,534)
------------- ------------- ------------- -------------
Net decrease - Class B . (19,948,416) (40,265,652) (11,038,627) (26,402,093)
------------- ------------- ------------- -------------
CLASS C SHARES
Sold ................... 1,684,036 3,449,894 3,635,631 11,409,732
Redeemed ............... (4,827,587) (9,819,809) (6,793,756) (21,736,036)
------------- ------------- ------------- -------------
Net decrease - Class C . (3,143,551) (6,369,915) (3,158,125) (10,326,304)
------------- ------------- ------------- -------------
CLASS D SHARES
Sold ................... 2,011,288 4,105,835 1,790,179 5,633,253
Redeemed ............... (3,066,610) (6,610,482) (4,176,572) (12,927,541)
------------- ------------- ------------- -------------
Net decrease - Class D . (1,055,322) (2,504,647) (2,386,393) (7,294,288)
------------- ------------- ------------- -------------
Net decrease in Fund ... (26,649,855) $ (54,330,781) (18,770,375) $ (51,706,927)
============= ============= ============= =============
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.
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued
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 August 31, 2003, the tax-basis components of accumulated losses were as
follows:
Net accumulated earnings -
Capital loss carryforward* ($955,908,474)
Post-October losses (141,249,644)
Net unrealized appreciation 8,976,884
---------------
Total accumulated losses ($1,088,181,234)
================
*As of August 31, 2003, the Fund had a net capital loss carryforward of
$955,908,474 of which $562,408,797 will expire on August 31, 2010 and
$393,499,677 will expire on August 31, 2011 to offset future capital gains to
the extent provided by regulations.
As of August 31, 2003, the Fund had temporary book/tax differences attributable
to post-October losses (capital and foreign currency losses incurred after
October 31 within the taxable year which are deemed to arise on the first
business day of the Fund's next taxable year) and capital loss deferrals on wash
sales and permanent book/tax differences primarily attributable to a net
operating loss and nondeductible expenses. To reflect reclassifications arising
from the permanent differences, paid-in-capital was charged $6,767,131,
accumulated net realized loss was credited $364 and net investment loss was
credited $6,766,767.
7. LITIGATION
Beginning on July 31, 2002, several purported class action complaints were filed
against Morgan Stanley, the Fund, the Sub-Advisor and certain subsidiaries of
Morgan Stanley, alleging securities fraud violations in connection with the
underwriting and management of the Fund. Plaintiffs allege in theses cases that
Morgan Stanley analysts issued overly optimistic stock recommendations to obtain
investment banking business and that the desire to obtain investment banking
business influenced decisions by the Fund's Sub-Advisor. On August 29, 2003, the
U.S. District Court for the Southern District of New York entered an Order
approving the parties' stipulation to stay the case pending the decision of the
U.S. Circuit Court of Appeals for the Second Circuit in an appeal from the
dismissal of a similar case brought against another party by the same
plaintiffs' law firm.
The Fund and Morgan Stanley believe these lawsuits have no merit, and no
provision has been made in the Fund's financial statements for the effect, if
any, of such matters.
MORGAN STANLEY TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued
8. SUBSEQUENT EVENT - FUND MERGER
On October 6, 2003, the Fund was acquired by Morgan Stanley Information Fund
("Information") 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 the Fund on September 30, 2003. The acquisition was accomplished
by a tax-free exchange of 2,031,354 Class A shares of Information at a net asset
value of $9.58 per share for 7,513,659 Class A shares of the Fund; 23,335,652
Class B shares of Information at a net asset value of $9.08 per share for
83,750,085 Class B shares of the Fund; 3,616,872 Class C shares of Information
at a net asset value of $9.08 per share for 13,032,221 Class C shares of the
Fund; 908,132 Class D shares of Information at a net asset value of $9.73 per
share for 3,398,510 Class D shares of the Fund. The net assets of Information
and the Fund immediately before the acquisition were $560,412,309 and
$272,963,163, respectively, including unrealized appreciation of $26,322,101 for
the Fund. Immediately after the acquisition, the combined net assets of
Information amounted to $833,375,472.
MORGAN STANLEY TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000*
ENDED ENDED THROUGH
AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001
-------------------------- ----------------------- -------------------------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....... $1.97 $3.74 $10.00
-------------------------- ----------------------- -------------------------
Income (loss) from investment operations:
Net investment loss[+/+] ............... (0.04) (0.05) (0.05)
Net realized and unrealized gain (loss) 0.61 (1.72) (6.21)
-------------------------- ----------------------- -------------------------
Total income (loss) from investment
operations ............................. 0.57 (1.77) (6.26)
-------------------------- ----------------------- -------------------------
Net asset value, end of period ............. $2.54 $1.97 $3.74
========================== ======================= =========================
TOTAL RETURN+ .............................. 28.93 % (47.33)% (62.60)%(1)
RATIOS TO AVERAGE NET ASSETS (3):
Expenses ................................... 2.19 % 1.76 % 1.54 %(2)
Net investment loss ........................ (2.01)% (1.65)% (1.11)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .... $19,764 $20,302 $46,680
Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------
* Commencement of operations.
[+/+] 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.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000*
ENDED ENDED THROUGH
AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001
-------------------------- ------------------------ ------------------------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....... $1.94 $3.71 $10.00
-------------------------- ------------------------ ------------------------
Income (loss) from investment operations:
Net investment loss[+/+] ............... (0.06) (0.08) (0.09)
Net realized and unrealized gain (loss) 0.60 (1.69) (6.20)
-------------------------- ------------------------ ------------------------
Total income (loss) from investment
operations ............................. 0.54 (1.77) (6.29)
-------------------------- ------------------------ ------------------------
Net asset value, end of period ............. $2.48 $1.94 $3.71
========================== ======================== ========================
TOTAL RETURN+ .............................. 27.84 % (47.71)% (62.90)%(1)
RATIOS TO AVERAGE NET ASSETS (3):
Expenses ................................... 2.94 % 2.51 % 2.32 %(2)
Net investment loss ........................ (2.76)% (2.40)% (1.89)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .... $212,639 $205,338 $433,330
Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------
* Commencement of operations.
[+/+] 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.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000*
ENDED ENDED THROUGH
AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001
-------------------------- ---------------------- -------------------------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ...... $1.93 $3.71 $10.00
-------------------------- ---------------------- -------------------------
Income (loss) from investment operations:
Net investment loss[+/+] .............. (0.06) (0.08) (0.09)
Net realized and unrealized gain (loss) 0.60 (1.70) (6.20)
-------------------------- ---------------------- -------------------------
Total income (loss) from investment
operations ............................ 0.54 (1.78) (6.29)
-------------------------- ---------------------- -------------------------
Net asset value, end of period ............ $2.47 $1.93 $3.71
========================== ====================== =========================
TOTAL RETURN+ ............................. 27.98 % (47.98)% (62.90)%(1)
RATIOS TO AVERAGE NET ASSETS (3):
Expenses .................................. 2.93 % 2.51 % 2.32 %(2)
Net investment loss ....................... (2.75)% (2.40)% (1.89)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $33,046 $31,960 $73,111
Portfolio turnover rate ................... 110 % 100 % 95 %(1)
- ------------------------
* Commencement of operations.
[+/+] 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.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000*
ENDED ENDED THROUGH
AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001
--------------------------- --------------------- -------------------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ....... $1.98 $3.74 $10.00
--------------------------- --------------------- -------------------------
Income (loss) from investment operations:
Net investment loss[+/+] ............... (0.04) (0.05) (0.05)
Net realized and unrealized gain (loss) 0.61 (1.71) (6.21)
--------------------------- --------------------- -------------------------
Total income (loss) from investment
operations ............................. 0.57 (1.76) (6.26)
--------------------------- --------------------- -------------------------
Net asset value, end of period ............. $2.55 $1.98 $3.74
=========================== ===================== =========================
TOTAL RETURN+ .............................. 28.79 % (47.06)% (62.60)%(1)
RATIOS TO AVERAGE NET ASSETS (3):
Expenses ................................... 1.94 % 1.51 % 1.32 %(2)
Net investment loss ........................ (1.76)% (1.40)% (0.89)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .... $9,021 $9,089 $26,122
Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------
* Commencement of operations.
[+/+] 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.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY TECHNOLOGY FUND
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Morgan Stanley Technology Fund:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Technology Fund (the "Fund"), including the portfolio of investments, as
of August 31, 2003, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2003, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Technology Fund as of August 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
New York, New York
October 21, 2003
Morgan Stanley Technology Fund
Trustee and Officer Information
Independent Trustees:
Term of
Office and
Position(s) Length of
Name, Age and Address of Held with Time
Independent Trustee Registrant Served*
- -------------------------------------- ------------- --------------
Michael Bozic (62) Trustee Since
c/o Mayer, Brown, Rowe & Maw LLP April 1994
Counsel to the Independent Directors
1675 Broadway
New York, NY
Edwin J. Garn (70) Trustee Since
c/o Summit Ventures LLC January 1993
1 Utah Center
201 S. Main Street
Salt Lake City, UT
Wayne E. Hedien (69) Trustee Since
c/o Mayer, Brown, Rowe & Maw LLP September
Counsel to the Independent Directors 1997
1675 Broadway
New York, NY
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Address of Principal Occupation(s) by
Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee
- -------------------------------------- ----------------------------------------- ------------ ------------------------------------
Michael Bozic (62) Retired; Director or Trustee of the 216 Director of Weirton Steel
c/o Mayer, Brown, Rowe & Maw LLP Retail Funds and TCW/DW Term Trust Corporation.
Counsel to the Independent Directors 2003 (since April 1994) and the
1675 Broadway Institutional Funds (since July 2003);
New York, NY formerly Vice Chairman of Kmart
Corporation (December 1998-October 2000),
Chairman and Chief Executive Officer of
Levitz Furniture Corporation (November
1995-November 1998) and President and
Chief Executive Officer of Hills
Department Stores (May 1991-July 1995);
formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the
Sears Merchandise Group of Sears, Roebuck
& Co.
Edwin J. Garn (70) Director or Trustee of the Retail Funds 216 Director of Franklin Covey (time
c/o Summit Ventures LLC and TCW/DW Term Trust 2003 (since management systems), BMW Bank
1 Utah Center January 1993) and the Institutional of North America, Inc. (industrial
201 S. Main Street Funds (since July 2003); member of loan corporation), United Space
Salt Lake City, UT the Utah Regional Advisory Board of Alliance (joint venture between
Pacific Corp.; formerly United States Lockheed Martin and the Boeing
Senator (R-Utah) (1974-1992) and Company) and Nuskin Asia Pacific
Chairman, Senate Banking Committee (multilevel marketing); member of
(1980-1986), Mayor of Salt Lake City, the board of various civic and
Utah (1971-1974), Astronaut, Space charitable organizations.
Shuttle Discovery (April 12-19, 1985),
and Vice Chairman, Huntsman
Corporation (chemical company).
Wayne E. Hedien (69) Retired; Director or Trustee of the 216 Director of The PMI Group Inc.
c/o Mayer, Brown, Rowe & Maw LLP Retail Funds and TCW/DW Term Trust (private mortgage insurance);
Counsel to the Independent Directors 2003; (Since September 1997) and Trustee and Vice Chairman of The
1675 Broadway the Institutional Funds (since July Field Museum of Natural History;
New York, NY 2003); formerly associated with the director of various other business
Allstate Companies (1966-1994), and charitable organizations.
most recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and Chairman
and Chief Executive Officer of its
wholly-owned subsidiary, Allstate
Insurance Company (July
1989-December 1994).
1
Morgan Stanley Technology Fund
Trustee and Officer Information continued
Term of
Office and
Position(s) Length of
Name, Age and Address of Held with Time
Independent Trustee Registrant Served*
- --------------------------------------- ------------- ------------
Dr. Manuel H. Johnson (54) Trustee Since
c/o Johnson Smick International, Inc. July 1991
2099 Pennsylvania
Avenue, N.W.
Suite 950 Washington, D.C.
Joseph J. Kearns (61) Trustee Since
PMB754 July 2003
23852 Pacific Coast Highway
Malibu, CA
Michael E. Nugent (67) Trustee Since
c/o Triumph Capital, L.P. July 1991
445 Park Avenue
New York, NY
Fergus Reid (71) Trustee Since
85 Charles Colman Blvd. July 2003
Pawling, NY
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Address of Principal Occupation(s) by
Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee
- --------------------------------------- ---------------------------------------- ------------ -------------------------------------
Dr. Manuel H. Johnson (54) Chairman of the Audit Committee and 216 Director of NVR, Inc. (home
c/o Johnson Smick International, Inc. Director or Trustee of the Retail Funds construction); Chairman and Trustee
2099 Pennsylvania and TCW/DW Term Trust 2003 (since of the Financial Accounting
Avenue, N.W. July 1991) and the Institutional Funds Foundation (oversight organization
Suite 950 (since July 2003); Senior Partner, of the Financial Accounting
Washington, D.C. Johnson Smick International, Inc., a Standards Board); Director of RBS
consulting firm; Co-Chairman and a Greenwich Capital Holdings (financial
founder of the Group of Seven Council holding company).
(G7C), an international economic
commission; formerly Vice Chairman
of the Board of Governors of the
Federal Reserve System and Assistant
Secretary of the U.S. Treasury.
Joseph J. Kearns (61) Deputy Chairman of the Audit 217 Director of Electro Rent Corporation
PMB754 Committee and Director or Trustee of (equipment leasing), The Ford Family
23852 Pacific Coast Highway the Retail Funds and TCW/DW Term Foundation, and the UCLA
Malibu, CA Trust 2003 (since July 2003) and the Foundation.
Institutional Funds (since August 1994);
previously Chairman of the Audit
Committee of the Institutional Funds
(October 2001-July 2003); President,
Kearns & Associates LLC (investment
consulting); formerly CFO of the J. Paul
Getty Trust.
Michael E. Nugent (67) Chairman of the Insurance Committee 216 Director of various business
c/o Triumph Capital, L.P. and Director or Trustee of the Retail organizations.
445 Park Avenue Funds and TCW/DW Term Trust 2003
New York, NY (since July 1991) and the Institutional
Funds (since July 2001); General Partner
of Triumph Capital, L.P., a private
investment partnership; formerly Vice
President, Bankers Trust Company and BT
Capital Corporation ( 1984-1988).
Fergus Reid (71) Chairman of the Governance 217 Trustee and Director of certain
85 Charles Colman Blvd. Committee and Director or Trustee of investment companies in the
Pawling, NY the Retail Funds and TCW/DW Term JPMorgan Funds complex managed
Trust 2003 (since July 2003) and the by JP Morgan Investment
Institutional Funds (since June 1992); Management Inc.
Chairman of Lumelite Plastics
Corporation.
2
Morgan Stanley Technology Fund
Trustee and Officer Information continued
Interested Trustees:
Term of
Office and
Position(s) Length of
Name, Age and Address of Held with Time
Independent Trustee Registrant Served*
- ------------------------------ ------------- ------------
Charles A. Fiumefreddo (70) Chairman of Since
c/o Morgan Stanley Trust the Board July 1991
Harborside Financial Center, and Trustee
Plaza Two,
Jersey City, NJ
James F. Higgins (55) Trustee Since
c/o Morgan Stanley Trust June 2000
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
Philip J. Purcell (60) Trustee Since
1585 Broadway April 1994
New York, NY
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Address of Principal Occupation(s) by
Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee
- ------------------------------ ----------------------------------------- ------------ ------------------------------------
Charles A. Fiumefreddo (70) Chairman and Director or Trustee of 216 None
c/o Morgan Stanley Trust the Retail Funds and TCW/DW Term
Harborside Financial Center, Trust 2003 (since July 1991) and the
Plaza Two, Institutional Funds (since July 2003);
Jersey City, NJ formerly Chief Executive Officer of the
Retail Funds and the TCW/DW Term Trust 2003
(until September 2002).
James F. Higgins (55) Director or Trustee of the Retail Funds 216 Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust and TCW/DW Term Trust 2003 (since The Equitable Life Assurance
Harborside Financial Center, June 2000) and the Institutional Funds Society of the United States
Plaza Two, (since July 2003); Senior Advisor of (financial services).
Jersey City, NJ Morgan Stanley (since August 2000);
Director of the Distributor and Dean
Witter Realty Inc.; previously President
and Chief Operating Officer of the
Private Client Group of Morgan Stanley
(May 1999-August 2000), and
President and Chief Operating Officer
of Individual Securities of Morgan
Stanley (February 1997-May 1999).
Philip J. Purcell (60) Director or Trustee of the Retail Funds 216 Director of American Airlines, Inc.
1585 Broadway and TCW/DW Term Trust 2003 (since and its parent company, AMR
New York, NY April 1994) and the Institutional Funds Corporation.
(since July 2003); Chairman of the Board of
Directors and Chief Executive Officer of Morgan
Stanley and Morgan Stanley DW Inc.; Director of
the Distributor; Chairman of the Board of
Directors and Chief Executive Officer of Novus
Credit Services Inc.; Director and/or officer of
various Morgan Stanley subsidiaries.
- ------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the
"Retail Funds").
** The dates referenced below indicating commencement of services as
Director/Trustee for the Retail Funds and the funds advised by Morgan
Stanley Investment Management Inc., Morgan Stanley Investments LP and
Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest
date the Director/Trustee began serving the Retail or Institutional Funds
as applicable.
*** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Manager and any funds that
have an investment advisor that is an affiliated person of the Investment
Manager (including but not limited to Morgan Stanley Investment Management
Inc. and Morgan Stanley Investments LP).
3
Morgan Stanley Technology Fund
Trustee and Officer Information continued
Officers:
Term of
Office and
Position(s) Length of
Name, Age and Address of Held with Time
Executive Officer Registrant Served*
- ----------------------------- ------------------- ------------------
Mitchell M. Merin (50) President Since May 1999
1221 Avenue of the Americas
New York, NY
Ronald E. Robison (64) Executive Vice Since April 2003
1221 Avenue of the Americas President and
New York, NY Principal
Executive Officer
Barry Fink (48) Vice President Since
1221 Avenue of the Americas and General February 1997
New York, NY Counsel
Joseph J. McAlinden (60) Vice President Since July 1995
1221 Avenue of the Americas
New York, NY
Stefanie V. Chang (36) Vice President Since July 2003
1221 Avenue of the Americas
New York, NY
Name, Age and Address of
Executive Officer Principal Occupation(s) During Past 5 Years**
- ----------------------------- -----------------------------------------------------------------------------------------
Mitchell M. Merin (50) President and Chief Operating Officer of Morgan Stanley Investment Management
1221 Avenue of the Americas Inc.; President, Director and Chief Executive Officer of the Investment Manager
New York, NY and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of
the Distributor; Chairman and Director of the Transfer Agent; Director of
various Morgan Stanley subsidiaries; President Morgan Stanley Investments LP
(since February 2003); President of the Institutional Funds (since July 2003)
and President of the Retail Funds and TCW/DW Term Trust 2003 (since May 1999);
Trustee (since July 2003) and President (since December 2002) of the Van Kampen
Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of
the Van Kampen Open-End Funds.
Ronald E. Robison (64) Chief Global Operations Officer and Managing Director of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; Managing Director of Morgan Stanley & Co.
New York, NY Incorporated; Managing Director of Morgan Stanley; Managing Director, Chief
Administrative Officer and Director of the Investment Manager and Morgan Stanley
Services; Chief Executive Officer and Director of the Transfer Agent; Executive
Vice President and Principal Executive Officer of the Institutional Funds (since
July 2003); and the TCW/DW Term Trust 2003 (since April 2003); previously
President of the Institutional Funds (March 2001-July 2003) and Director of the
Institutional Funds (March 2001-July 2003).
Barry Fink (48) General Counsel (since May 2000) and Managing Director (since December 2000) of
1221 Avenue of the Americas Morgan Stanley Investment Management; Managing Director (since December 2000),
New York, NY Secretary (since February 1997) and Director (since July 1998) of the Investment
Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW;
Chief Legal Officer of Morgan Stanley Investments LP (since July 2002); Vice
President of the Institutional Funds (since July 2003); Vice President and
Secretary of the Distributor; previously Secretary of the Retail Funds (February
1997-July 2003); previously Vice President and Assistant General Counsel of the
Investment Manager and Morgan Stanley Services (February 1997-December 2001).
Joseph J. McAlinden (60) Managing Director and Chief Investment Officer of the Investment Manager, Morgan
1221 Avenue of the Americas Stanley Investment Management Inc. and Morgan Stanley Investments LP; Director of
New York, NY the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President
of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995).
Stefanie V. Chang (36) Executive Director of Morgan Stanley & Co. and Morgan Stanley Investment
1221 Avenue of the Americas Management Inc. and Vice President of the Institutional Funds (since December 1997)
New York, NY and the Retail Funds (since July 2003); formerly practiced law with the New York law
firm of Rogers & Wells (now Clifford Chance LLP).
4
Morgan Stanley Technology Fund
Trustee and Officer Information continued
Term of
Office and
Position(s) Length of
Name, Age and Address of Held with Time
Executive Officer Registrant Served*
- ------------------------------ ----------------- -----------------
Francis Smith (38) Treasurer and Treasurer since
c/o Morgan Stanley Trust Chief Financial July 2003 and
Harborside Financial Center, Officer Chief Financial
Plaza Two, Officer since
Jersey City, NJ September
2002
Thomas F. Caloia (57) Vice President Since July 2003
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
Mary E. Mullin (36) Secretary Since July 2003
1221 Avenue of the Americas
New York, NY
Name, Age and Address of
Executive Officer Principal Occupation(s) During Past 5 Years**
- ------------------------------ -----------------------------------------------------------------------------------------
Francis Smith (38) Executive Director of the Investment Manager and Morgan Stanley Services (since
c/o Morgan Stanley Trust December 2001); previously Vice President of the Retail Funds (September 2002-July
Harborside Financial Center, 2003); previously Vice President of the Investment Manager and Morgan Stanley
Plaza Two, Services (August 2000-November 2001) and Senior Manager at
Jersey City, NJ PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (57) Executive Director (since December 2002) and Assistant Treasurer of the Investment
c/o Morgan Stanley Trust Manager, the Distributor and Morgan Stanley Services; previously Treasurer of the Retail
Harborside Financial Center, Funds (April 1989-July 2003); formerly First Vice President of the Investment Manager,
Plaza Two, the Distributor and Morgan Stanley Services.
Jersey City, NJ
Mary E. Mullin (36) Vice President of Morgan Stanley & Co. Incorporated and Morgan Stanley Investment
1221 Avenue of the Americas Management Inc.; Secretary of the Institutional Funds (since June 1999) and the Retail
New York, NY Funds (since July 2003); formerly practiced law with the New York law firms of
McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
- ------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an
Officer for the Retail and Institutional Funds reflect the earliest date
the Officer began serving the Retail or Institutional Funds as applicable.
5
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
Philip J. Purcell
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 and General Counsel
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
SUB-ADVISOR
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of the shareholders
of the Fund. For more detailed information about the Fund, its fees and
expenses and other pertinent information, please read its Prospectus.
The Fund's Statement of Additional Information contains additional
information about the Fund, including its trustees. It is available, without
charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in
the Fund unless proceded 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.
(copyright) 2003 Morgan Stanley
[MORGAN STANLEY LOGO OMITTED]
[MORGAN STANLEY FUNDS LOGO OMITTED]
MORGAN STANLEY
TECHNOLOGY
FUND
Annual Report
August 31, 2003
[MORGAN STANLEY LOGO OMITTED]
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto
(d) The Fund has granted a waiver or an implicit waiver from a provision of its
Code of Ethics.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
2
Item 10 Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
Items 4 - 8 are not applicable
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 Technology Fund
Ronald E. Robison
Principal Executive Officer
October 20, 2003
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.
Ronald E. Robison
Principal Executive Officer
October 20, 2003
Francis Smith
Principal Financial Officer
October 20, 2003
3
EXHIBIT 10 A
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
ADOPTED JULY 31, 2003
I. This Code of Ethics (the "Code") for the investment companies within
the Morgan Stanley complex identified in Exhibit A (collectively,
"Funds" and each, a "Fund") applies to each Fund's Principal Executive
Officer, President, Principal Financial Officer and Treasurer (or
persons performing similar functions) ("Covered Officers" each of whom
are set forth in Exhibit B) for the purpose of promoting:
o honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships.
o full, fair, accurate, timely and understandable disclosure in
reports and documents that a company files with, or submits to,
the Securities and Exchange Commission ("SEC") and in other
public communications made by the Fund;
o compliance with applicable laws and governmental rules and
regulations;
o prompt internal reporting of violations of the Code to an
appropriate person or persons identified in the Code; and
o accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to situations that may give rise to actual as
well as apparent conflicts of interest. Any question about the application of
the Code should be referred to the General Counsel or his/her designee (who is
set forth in Exhibit C).
II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS
OF INTEREST
4
OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes, or appears to interfere, with the interests of, or
his service to, the Fund. For example, a conflict of interest would arise if a
Covered Officer, or a member of his family, receives improper personal benefits
as a result of his position with the Fund.
Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940 ("Investment Company Act") and
the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example,
Covered Officers may not individually engage in certain transactions (such as
the purchase or sale of securities or other property) with the Fund because of
their status as "affiliated persons" (as defined in the Investment Company Act)
of the Fund. The Fund's and its investment adviser's compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside the parameters of this
Code, unless or until the General Counsel determines that any violation of such
programs and procedures is also a violation of this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts may arise from, or as a result of, the contractual
relationship between the Fund and its investment adviser of which the Covered
Officers are also officers or employees. As a result, this Code recognizes that
the Covered Officers will, in the normal course of their duties (whether
formally for the Fund or for the investment adviser, or for both), be involved
in establishing policies and implementing decisions that will have different
effects on the Fund and its investment adviser. The participation of the Covered
Officers in such activities is inherent in the contractual relationship between
the Fund and the investment adviser and is consistent with the performance by
the Covered Officers of their duties as officers of the Fund. Thus, if performed
in conformity with the provisions of the Investment Company Act and the
Investment Advisers Act, such activities will be deemed to have been handled
ethically. In addition, it is recognized by the Funds' Boards of
Directors/Trustees ("Boards") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by this or other
codes.
Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The following list provides examples of
conflicts of interest under the Code, but Covered Officers should keep in mind
that these examples are not exhaustive. The overarching principle is that the
personal interest of a Covered Officer should not be placed improperly before
the interest of the Fund.
Each Covered Officer must not:
o use his personal influence or personal relationships improperly
to influence investment decisions or financial reporting by the
Fund whereby the Covered Officer would benefit personally
(directly or indirectly) to the detriment of the Fund;
5
o cause the Fund to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than
the benefit of the Fund; or
o use material non-public knowledge of portfolio transactions made
or contemplated for, or actions proposed to be taken by, the Fund
to trade personally or cause others to trade personally in
contemplation of the market effect of such transactions.
Each Covered Officer must, at the time of signing this Code, report to
the General Counsel all affiliations or significant business relationships
outside the Morgan Stanley complex and must update the report annually.
Conflict of interest situations should always be approved by the
General Counsel and communicated to the relevant Fund or Fund's Board. Any
activity or relationship that would present such a conflict for a Covered
Officer would likely also present a conflict for the Covered Officer if an
immediate member of the Covered Officer's family living in the same household
engages in such an activity or has such a relationship. Examples of these
include:
o service or significant business relationships as a director on
the board of any public or private company;
o accepting directly or indirectly, anything of value, including
gifts and gratuities in excess of $100 per year from any person
or entity with which the Fund has current or prospective business
dealings, not including occasional meals or tickets for theatre
or sporting events or other similar entertainment; provided it is
business-related, reasonable in cost, appropriate as to time and
place, and not so frequent as to raise any question of
impropriety;
o any ownership interest in, or any consulting or employment
relationship with, any of the Fund's service providers, other
than its investment adviser, principal underwriter, or any
affiliated person thereof; and
o a direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Fund for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership.
III. DISCLOSURE AND COMPLIANCE
o Each Covered Officer should familiarize himself/herself with the
disclosure and compliance requirements generally applicable to
the Funds;
o each Covered Officer must not knowingly misrepresent, or cause
others to misrepresent, facts about the Fund to others, whether
within or outside the
6
Fund, including to the Fund's Directors/ Trustees and auditors,
or to governmental regulators and self-regulatory organizations;
o each Covered Officer should, to the extent appropriate within his
area of responsibility, consult with other officers and employees
of the Funds and their investment advisers with the goal of
promoting full, fair, accurate, timely and understandable
disclosure in the reports and documents the Funds file with, or
submit to, the SEC and in other public communications made by the
Funds; and
o it is the responsibility of each Covered Officer to promote
compliance with the standards and restrictions imposed by
applicable laws, rules and regulations.
IV. REPORTING AND ACCOUNTABILITY
Each Covered Officer must:
o upon adoption of the Code (thereafter as applicable, upon
becoming a Covered Officer), affirm in writing to the Boards that
he has received, read and understands the Code;
o annually thereafter affirm to the Boards that he has complied
with the requirements of the Code;
o not retaliate against any other Covered Officer, other officer or
any employee of the Funds or their affiliated persons for reports
of potential violations that are made in good faith; and
o notify the General Counsel promptly if he/she knows or suspects
of any violation of this Code. Failure to do so is itself a
violation of this Code.
The General Counsel is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. However, any waivers1 sought by
a Covered Officer must be considered by the Board of the relevant Fund or Funds.
The Funds will follow these procedures in investigating and enforcing
this Code:
o the General Counsel will take all appropriate action to
investigate any potential violations reported to him;
- ----------------
1 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of
a material departure from a provision of the code of ethics."
7
o if, after such investigation, the General Counsel believes that
no violation has occurred, the General Counsel is not required to
take any further action;
o any matter that the General Counsel believes is a violation will
be reported to the relevant Fund's Audit Committee;
o if the directors/trustees/managing general partners who are not
"interested persons" as defined by the Investment Company Act
(the "Independent Directors/Trustees/Managing General Partners")
of the relevant Fund concur that a violation has occurred, they
will consider appropriate action, which may include review of,
and appropriate modifications to, applicable policies and
procedures; notification to appropriate personnel of the
investment adviser or its board; or a recommendation to dismiss
the Covered Officer or other appropriate disciplinary actions;
o the Independent Directors/Trustees/Managing General Partners of
the relevant Fund will be responsible for granting waivers of
this Code, as appropriate; and
o any changes to or waivers of this Code will, to the extent
required, be disclosed as provided by SEC rules.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Funds, the Funds' investment advisers, principal
underwriters, or other service providers govern or purport to govern the
behavior or activities of the Covered Officers who are subject to this Code,
they are superseded by this Code to the extent that they overlap or conflict
with the provisions of this Code unless any provision of this Code conflicts
with any applicable federal or state law, in which case the requirements of such
law will govern. The Funds' and their investment advisers' and principal
underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act
and Morgan Stanley's Code of Ethics are separate requirements applying to the
Covered Officers and others, and are not part of this Code.
VI. AMENDMENTS
Any amendments to this Code, other than amendments to Exhibits A, B
or C, must be approved or ratified by a majority vote of the Board of each
Fund, including a majority of Independent Directors/Trustees/Managing General
Partners.
VII. CONFIDENTIALITY
8
All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the Independent
Directors/Trustees/Managing General Partners of the relevant Fund or Funds and
their counsel, the relevant Fund or Funds and their counsel and the relevant
investment adviser and its counsel.
9
VIII. INTERNAL USE
The Code is intended solely for the internal use by the Funds and does
not constitute an admission, by or on behalf of any Fund, as to any fact,
circumstance, or legal conclusion
I have read and understand the terms of the above Code. I recognize the
responsibilities and obligations incurred by me as a result of my being subject
to the Code. I hereby agree to abide by the above Code.
- -------------------------
Date:
--------------------
10
EXHIBIT B
INSTITUTIONAL FUNDS
COVERED OFFICERS
Mitchell M. Merin - President
Ronald E. Robison - Executive Vice President and Principal Executive Officer
James W. Garrett - Chief Financial Officer and Treasurer
RETAIL FUNDS
COVERED OFFICERS
Mitchell M. Merin - President
Ronald E. Robison - Executive Vice President and Principal Executive Officer
Frank Smith - Chief Financial Officer and Treasurer
11
EXHIBIT C
GENERAL COUNSEL
Barry Fink
12
EXHIBIT 10 B1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATIONS
I, Ronald E. Robison, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley
Technology Fund;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations, changes in net assets, and cash
flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Rule 30a-2(c) under
the Investment Company Act of 1940) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this report (the "Evaluation Date");
and
c) presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
13
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize, and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this report whether or not there were
significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 20, 2003
Ronald E. Robison
Principal Executive Officer
14
EXHIBIT 10 B2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS
I, Francis Smith, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley
Technology Fund;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations, changes in net assets, and cash
flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Rule 30a-2(c) under
the Investment Company Act of 1940) for the registrant and
have:
(i) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this report (the "Evaluation Date");
and
(iii) presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
15
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize, and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this report whether or not there were
significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 20, 2003
Francis Smith
Principal Financial Officer
16
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Technology Fund
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended August 31, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: October 20, 2003 Ronald E. Robison
Principal Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Technology Fund and will be retained by Morgan
Stanley Technology Fund and furnished to the Securities and Exchange Commission
or its staff upon request.
17
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Technology Fund
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended August 31, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: October 20, 2003 Francis Smith
Principal Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Technology Fund and will be retained by Morgan
Stanley Technology Fund and furnished to the Securities and Exchange Commission
or its staff upon request.
18