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: 811-15813
Morgan Stanley Market Leader Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: August 31, 2004
Date of reporting period: February 29, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Market Leader Trust performed during the semiannual period. We will
provide an overview of the market conditions, and discuss some of the
factors that affected performance during the reporting period. In
addition, this report includes the Fund's financial statements and a
list of Fund investments.
This material must be preceded or accompanied by a prospectus for the
fund being offered. Market forecasts provided in this report may not
necessarily come to pass. There is no assurance that the Fund will
achieve its investment objective. The Fund is subject to market risk,
which is the possibility that market values of securities owned by the
Fund will decline and, therefore, the value of the Fund's shares may be
less than what you paid for them. Accordingly, you can lose money
investing in this Fund.
FUND REPORT
SIX MONTHS ENDED FEBRUARY 29, 2004
TOTAL RETURN FOR THE 6-MONTH PERIOD ENDED FEBRUARY 29, 2004
- -------------------------------------------------------------------------------------------------
Class A Class B Class C Class D S&P 500 Index(1) Lipper Large-Cap
Core Funds Index(2)
- -------------------------------------------------------------------------------------------------
9.85% 9.43% 9.41% 9.95% 14.59% 12.28%
- -------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results and current performance may
be lower or higher than the figures shown. For more up-to-date information,
including month-end performance figures, please visit morganstanley.com or speak
with your financial Advisor. Investment returns and principal value will
fluctuate and fund shares, when redeemed, may be more or less than their
original cost.
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. See Performance Summary for
standardized performance information.
MARKET CONDITIONS
The six-month period ended February 29, 2004 demonstrated trends that built on
the economic resurgence of early 2003 towards economic growth, solid earnings
reports and positive equity performance. U.S. Gross Domestic Product grew by
more than eight percent in the third quarter of 2003 and four percent in the
fourth, while corporate earnings forecasts grew increasingly positive. Large-cap
companies lagged smaller ones as investors sought cheap companies with
turnaround potential. This preference led to higher-beta, more aggressive stocks
leading the rally. Information technology, energy and small-cap health care
stocks returned the strongest results. Consumer discretionary and utilities
lagged their sector peers due to their more-stable nature, though all returned
positive results. Precious metals stocks strengthened as a hedge against
currency instability as the U.S. dollar weakened.
Investor sentiment changed as 2003 came to a close. Investors reduced risk
exposure on fears of an interest rate hike by the Federal Reserve by shifting
assets to defensive sectors and others that had been lagging. For example,
telecommunications had lagged the 2003 rally but was a sector leader for the
month of January 2004 amid speculation of merger activity. The U.S. dollar also
gained during January. The dollar's appreciation had the effect of reversing
some of the previous year's gains in the precious metals sector.
PERFORMANCE ANALYSIS
Morgan Stanley Market Leader Trust underperformed the S&P 500 Index and
underperformed the Lipper Large-Cap Core Funds Index for the six-month period
ended February 29, 2004. Relative to the S&P 500 Index, the Fund's
underperformance was attributable to both sector allocation and stock selection
decisions. The two greatest detractors were stock selection in consumer
discretionary stocks and an overweighted position in the information technology
sector. The Fund's consumer discretionary holdings were hurt by underperforming
media stocks such as Liberty Media and Viacom, which we continue to believe are
poised for strong performance as the economy and advertising recovers,
particularly since 2004 has both a Presidential election and the Olympics. Our
underweighted position relative to the S&P 500 Index in Altria as well as our
investments in discount retailers Dollar Tree and Kohl's, which suffered from
heavy competition, also hurt performance. After a strong run for most of 2003,
technology stocks have more recently underperformed the overall market. As a
result, the Fund's above-market exposure to information technology stocks was
also a drag on
performance. Another relative detractor was the Fund's utilities underweight.
Utilities rallied in the closing months of the period amid ongoing high energy
prices.
Several of the Fund's positions contributed to relative performance, however.
Health care was our strongest performing sector, led by Pfizer, which gave
strong earnings forecasts. The Fund's stock selection in basic materials also
aided performance, as copper mining company Phelps-Dodge and aluminum mining
company Alcoa rallied on increased manufacturing activity and high demand for
materials from China.
- --------------------------------------------------------------
TOP 10 HOLDINGS
- --------------------------------------------------------------
Microsoft Corporation 5.0%
- --------------------------------------------------------------
General Electric Co. 4.5
- --------------------------------------------------------------
Pfizer Inc. 4.2
- --------------------------------------------------------------
Citigroup Inc. 3.5
- --------------------------------------------------------------
Cisco Systems, Inc. 3.3
- --------------------------------------------------------------
Intel Corp. 2.7
- --------------------------------------------------------------
Wal-Mart Stores, Inc. 2.6
- --------------------------------------------------------------
American International Group, Inc. 2.4
- --------------------------------------------------------------
Johnson & Johnson 2.1
- --------------------------------------------------------------
Amgen Inc. 2.1
- --------------------------------------------------------------
- --------------------------------------------------------------
TOP 5 INDUSTRIES
- --------------------------------------------------------------
Packaged Software 8.7%
- --------------------------------------------------------------
Semiconductors 8.3
- --------------------------------------------------------------
Pharmaceuticals: Major 8.0
- --------------------------------------------------------------
Industrial Conglomerates 7.3
- --------------------------------------------------------------
Financial Conglomerates 5.1
- --------------------------------------------------------------
DATA AS OF FEBRUARY 29, 2004. Subject to change daily. All percentages are a
percentage of net assets. Provided for informational purposes only and should
not be deemed a recommendation to buy or sell the securities mentioned. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.
INVESTMENT STRATEGY
The Fund will normally invest at least 65% of its assets in common stocks and
other equity securities of companies that the Fund's "Investment Manager,"
Morgan Stanley Investment Advisors Inc., believes are established market leaders
in growing industries and are positioned to generate strong earnings and free
cash flow growth. The Investment Manager considers companies to be "market
leaders" if they are nationally-known and have established a strong reputation
for quality management, products and services in the United States and/or
globally. These companies generally will have market capitalizations in excess
of $1 billion and will be listed in the United States on a national stock
exchange. The Fund's other equity investments in market leaders may include
preferred stocks, debt or preferred stocks convertible into common stocks and
depositary receipts. Up to 10% of the Fund's net assets may be invested in
foreign securities that are not listed in the United States on a national
securities exchange. In addition, the Fund may invest up to 20% of its net
assets in lower rated convertible securities (commonly known as "junk bonds").
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 Web site at
http://www.sec.gov.
RESULTS OF SPECIAL SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
On February 24, 2004, a special meeting of the Fund's shareholders was held for
the purpose of approving an Agreement and Plan of Reorganization, dated October
23, 2003, between Morgan Stanley Market Leader Trust and Morgan Stanley Growth
Fund. The reorganization--effective March 15--involved the combining of
substantially all of the assets of Morgan Stanley Market Leader Trust with those
of Morgan Stanley Growth Fund, whereas shareholders of Morgan Stanley Market
Leader Trust would become shareholders of Morgan Stanley Growth Fund receiving
shares of Morgan Stanley Growth Fund with a value equal to the value of their
holdings in Morgan Stanley Market Leader Trust: The results were as follows:
- -----------------------------------------------
For 13,261,087.642
- -----------------------------------------------
Against 529,002.100
- -----------------------------------------------
Abstain 1,153,612.735
- -----------------------------------------------
- -----------------------------------------------
MORGAN STANLEY MARKET LEADER TRUST
FUND PERFORMANCE FEBRUARY 29, 2004
AVERAGE ANNUAL TOTAL RETURNS-PERIOD ENDED FEBRUARY 29, 2004
CLASS A SHARES* CLASS B SHARES ** CLASS C SHARES + CLASS D SHARES ++
(since 07/28/97) (since 04/28/97) (since 07/28/97) (since 07/28/97)
Symbol MLDAX MLDBX MLDCX MLDDX
1 Year 28.02%(3) 27.08%(3) 27.13%(3) 28.31%(3)
21.29 (4) 22.08 (4) 26.13 (4) -
5 Year 0.73 (3) (0.05)(3) (0.04)(3) 0.96 (3)
(0.35)(4) (0.43)(4) (0.04)(4) -
Since 4.12 (3) 4.50 (3) 3.37 (3) 4.38 (3)
Inception 3.27 (4) 4.50 (4) 3.37 (4) -
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 table does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Performance for Class A, Class B, Class C, and Class D shares will vary
due to differences in sales charges and expenses.
- --------------------------------------------------------------------------------
Notes on Performance
1.) The Standard & 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.
The Index does not include any expenses, fees or charges. Such costs would
lower performance. It is not possible to invest directly in an index.
2.) The Lipper Large-Cap Core Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Large-Cap Core 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 1.0% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.
MORGAN STANLEY MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS o FEBRUARY 29, 2004 (UNAUDITED)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (99.6%)
CAPITAL GOODS
Home Improvement Chains (2.5%)
140,200 Home Depot, Inc. (The) $5,090,662
62,500 Lowe's Companies, Inc. 3,500,000
-----------
8,590,662
-----------
Industrial Conglomerates (7.3%)
87,500 3M Co. 6,826,750
477,630 General Electric Co. 15,532,528
30,710 United Technologies Corp. 2,828,698
-----------
25,187,976
-----------
TOTAL CAPITAL GOODS 33,778,638
-----------
CONSUMER NON-DURABLES
Beverages: Alcoholic (0.7%)
45,700 Anheuser-Busch Companies, Inc. 2,432,154
-----------
Beverages: Non-Alcoholic (1.8%)
128,200 Coca-Cola Co. (The) 6,404,872
-----------
Food: Major Diversified (1.1%)
76,270 PepsiCo, Inc. 3,958,413
-----------
Household/Personal Care (2.3%)
41,000 Kimberly-Clark Corp. 2,651,880
52,820 Procter & Gamble Co. (The) 5,414,578
-----------
8,066,458
-----------
Tobacco (0.5%)
32,000 Altria Group, Inc. 1,841,600
-----------
TOTAL CONSUMER NON-DURABLES 22,703,497
-----------
ENTERTAINMENT & LEISURE
Cable/Satellite TV (0.8%)
76,600 EchoStar Communications Corp. (Class A)* 2,766,792
-----------
Casino/Gaming (0.5%)
43,785 Wynn Resorts, Ltd.* 1,591,147
-----------
Hotels/Resorts/Cruiselines (0.7%)
57,300 Carnival Corp. (Panama) 2,542,401
-----------
Media Conglomerates (1.3%)
57,900 News Corporation Ltd. (The) (Pref.) (ADR) (Australia) 1,895,067
66,000 Viacom Inc. (Class B) (Non-Voting) 2,538,360
-----------
4,433,427
-----------
Other Consumer Services (2.6%)
46,100 Apollo Group, Inc. (Class A)* 3,510,515
79,800 eBay Inc.* 5,495,028
-----------
9,005,543
-----------
Recreational Products (0.5%)
37,300 Electronic Arts Inc.* 1,759,068
-----------
Restaurants (1.2%)
77,800 McDonald's Corp. 2,201,740
51,570 Yum! Brands, Inc.* 1,909,637
-----------
4,111,377
-----------
TOTAL ENTERTAINMENT & LEISURE 26,209,755
-----------
MORGAN STANLEY MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS o FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES
Finance/Rental/Leasing (0.6%)
31,300 Capital One Financial Corp. $2,213,536
-----------
Financial Conglomerates (5.1%)
104,550 American Express Co. 5,585,061
241,526 Citigroup Inc. 12,139,097
-----------
17,724,158
-----------
Investment Banks/Brokers (2.9%)
51,400 Ameritrade Holding Corp.* 836,792
60,400 Goldman Sachs Group, Inc. (The) 6,394,548
31,100 Lehman Brothers Holdings Inc. 2,696,681
-----------
9,928,021
-----------
Major Banks (2.6%)
139,040 Bank of New York Co., Inc. (The) 4,588,320
78,500 Wells Fargo & Co. 4,501,975
-----------
9,090,295
-----------
Multi-Line Insurance (2.4%)
110,550 American International Group, Inc. 8,180,700
-----------
TOTAL FINANCIAL SERVICES 47,136,710
-----------
HEALTHCARE
Biotechnology (3.7%)
114,686 Amgen Inc.* 7,286,002
23,700 Chiron Corp.* 1,159,167
24,300 Genentech, Inc.* 2,621,727
16,400 Genzyme Corp.* 832,792
17,300 Gilead Sciences, Inc.* 937,833
-----------
12,837,521
-----------
Managed Health Care (2.8%)
42,837 Anthem, Inc.* 3,681,840
74,180 Caremark Rx, Inc.* 2,393,047
61,510 UnitedHealth Group Inc. 3,813,620
-----------
9,888,507
-----------
Medical Specialties (2.6%)
74,200 Boston Scientific Corp.* 3,031,070
25,800 Guidant Corp. 1,758,012
19,625 INAMED Corp.* 940,037
36,300 Medtronic, Inc. 1,702,470
20,200 St. Jude Medical, Inc.* 1,467,530
-----------
8,899,119
-----------
Pharmaceuticals: Major (8.0%)
85,800 Bristol-Myers Squibb Co. 2,386,956
136,870 Johnson & Johnson 7,378,662
45,000 Lilly (Eli) & Co. 3,327,300
399,120 Pfizer Inc. 14,627,748
-----------
27,720,666
-----------
Pharmaceuticals: Other (1.1%)
15,600 Allergan, Inc. 1,365,624
38,700 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 2,515,500
-----------
3,881,124
-----------
TOTAL HEALTHCARE 63,226,937
-----------
RETAIL
Apparel/Footwear Retail (1.0%)
47,109 Chico's FAS, Inc.* 2,013,910
54,800 TJX Companies, Inc. (The) 1,290,540
-----------
3,304,450
-----------
MORGAN STANLEY MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS o FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
Department Stores (0.5%)
36,900 Kohl's Corp.* $1,900,350
-----------
Discount Stores (4.8%)
93,010 Dollar Tree Stores, Inc.* 2,874,009
108,031 Target Corp. 4,749,043
153,910 Wal-Mart Stores, Inc. 9,166,879
-----------
16,789,931
-----------
Internet Retail (2.1%)
38,800 Amazon.com, Inc.* 1,674,220
167,780 IAC/InterActiveCorp.* 5,464,595
-----------
7,138,815
-----------
Specialty Stores (1.5%)
43,200 Bed Bath & Beyond Inc.* 1,766,016
29,790 PETsMART, Inc. 808,501
61,041 Tiffany & Co. 2,566,774
-----------
5,141,291
-----------
TOTAL RETAIL 34,274,837
-----------
TECHNOLOGY
Computer Communications (3.8%)
494,960 Cisco Systems, Inc.* 11,433,576
69,000 Juniper Networks, Inc.* 1,785,030
-----------
13,218,606
-----------
Computer Peripherals (1.5%)
182,100 EMC Corp.* 2,607,672
119,800 Network Appliance, Inc.* 2,594,868
-----------
5,202,540
-----------
Computer Processing Hardware (1.4%)
148,580 Dell Inc.* 4,851,137
-----------
Electronic Components (0.7%)
39,500 Amphenol Corp. (Class A)* 2,443,075
-----------
Electronic Equipment/Instruments (0.4%)
40,635 Rockwell Automation, Inc. 1,237,742
-----------
Electronic Production Equipment (1.0%)
168,500 Applied Materials, Inc.* 3,578,940
-----------
Information Technology Services (2.3%)
195,300 Accenture Ltd. (Class A) (Bermuda)* 4,511,430
34,900 International Business Machines Corp. 3,367,850
-----------
7,879,280
-----------
Internet Software/Services (1.2%)
91,600 Yahoo! Inc.* 4,067,040
-----------
Packaged Software (8.7%)
36,100 Adobe Systems, Inc. 1,344,364
63,700 Mercury Interactive Corp.* 3,091,998
650,120 Microsoft Corp. 17,228,180
169,770 Novell, Inc.* 1,728,259
223,830 Oracle Corp.* 2,882,930
84,900 Red Hat, Inc.* 1,534,992
72,580 VERITAS Software Corp.* 2,207,884
-----------
30,018,607
-----------
Semiconductors (8.3%)
102,200 Altera Corp.* 2,256,576
118,200 Analog Devices, Inc. 5,898,180
MORGAN STANLEY MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS o FEBRUARY 29, 2004 (UNAUDITED) (CONTINUED)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
33,300 Broadcom Corp. (Class A)* $1,351,314
322,140 Intel Corp. 9,416,152
69,500 Linear Technology Corp. 2,779,305
41,400 Marvell Technology Group Ltd. (Bermuda)* 1,884,942
168,800 Texas Instruments Inc. 5,173,720
------------
28,760,189
------------
TOTAL TECHNOLOGY 101,257,156
------------
TELECOMMUNICATIONS
Broadcasting (2.2%)
100,930 Clear Channel Communications, Inc. 4,344,027
95,500 Univision Communications Inc. (Class A)* 3,402,665
------------
7,746,692
------------
Telecommunication Equipment (1.2%)
174,200 Nortel Networks Corp. (Canada)* 1,390,116
45,790 QUALCOMM Inc. 2,905,375
------------
4,295,491
------------
TOTAL TELECOMMUNICATIONS 12,042,183
------------
TRANSPORTATION
Air Freight/Couriers (1.4%)
50,810 C.H. Robinson Worldwide, Inc. 2,012,584
38,900 United Parcel Service, Inc. (Class B) 2,747,507
------------
TOTAL TRANSPORTATION 4,760,091
------------
TOTAL INVESTMENTS
(Cost $352,692,071) (a) 99.6% 345,389,804
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4 1,368,774
----- ------------
NET ASSETS 100.0% $346,758,578
===== ============
- -----------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $18,212,498 and the aggregate gross unrealized
depreciation is $25,514,765, resulting in net unrealized depreciation
of $7,302,267.
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY MARKET LEADER TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2004 (unaudited)
ASSETS:
Investments in securities, at value
(cost $352,692,071) $345,389,804
Receivable for:
Investments sold 12,555,324
Dividends 400,286
Shares of beneficial interest sold 274,314
Prepaid expenses and other assets 13,553
------------
TOTAL ASSETS 358,633,281
------------
LIABILITIES:
Payable for:
Investments purchased 10,384,849
Shares of beneficial interest redeemed 562,305
Investment management fee 217,419
Distribution fee 211,215
Accrued expenses and other payables 498,915
------------
TOTAL LIABILITIES 11,874,703
------------
Net Assets $346,758,578
============
COMPOSITION OF NET ASSETS:
Paid-in-capital $507,317,830
Net unrealized depreciation (7,302,267)
Accumulated net investment loss (1,495,938)
Accumulated net realized loss (151,761,047)
------------
NET ASSETS $346,758,578
============
CLASS A SHARES:
Net Assets $14,540,433
Shares Outstanding (unlimited authorized, $.01 par value) 1,104,887
NET ASSET VALUE PER SHARE $13.16
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) $13.89
======
CLASS B SHARES:
Net Assets $234,966,655
Shares Outstanding (unlimited authorized, $.01 par value) 18,751,472
NET ASSET VALUE PER SHARE $12.53
======
Class C Shares:
Net Assets $13,944,956
Shares Outstanding (unlimited authorized, $.01 par value) 1,109,902
NET ASSET VALUE PER SHARE $12.56
======
Class D Shares:
Net Assets $83,306,534
Shares Outstanding (unlimited authorized, $.01 par value) 6,229,104
NET ASSET VALUE PER SHARE $13.37
======
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY MARKET LEADER TRUST
FINANCIAL STATEMENTS continued
STATEMENT OF OPERATIONS
For the six months ended February 29, 2004 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $1,601 foreign withholding tax) $2,017,850
Interest 19,355
-----------
TOTAL INCOME 2,037,205
-----------
EXPENSES
Investment management fee 1,331,869
Distribution fee (Class A shares) 15,414
Distribution fee (Class B shares) 1,218,746
Distribution fee (Class C shares) 64,927
Transfer agent fees and expenses 602,697
Shareholder reports and notices 123,252
Professional fees 53,461
Registration fees 50,522
Custodian fees 20,264
Trustees' fees and expenses 1,632
Other 6,759
-----------
TOTAL EXPENSES 3,489,543
-----------
NET INVESTMENT LOSS (1,452,338)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain 38,107,350
Net change in unrealized depreciation (3,874,804)
-----------
NET GAIN 34,232,546
-----------
NET INCREASE $32,780,208
===========
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY MARKET LEADER TRUST
FINANCIAL STATEMENTS continued
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
----------------- ---------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $(1,452,338) $(1,580,076)
Net realized gain (loss) 38,107,350 (40,607,791)
Net change in unrealized depreciation (3,874,804) 63,563,016
------------ ------------
NET INCREASE 32,780,208 21,375,149
Net decrease from transactions in shares of beneficial interest (42,950,145) (88,880,624)
------------ ------------
NET DECREASE (10,169,937) (67,505,475)
NET ASSETS:
Beginning of period 356,928,515 424,433,990
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of $1,495,938 and $43,600, respectively) $346,758,578 $356,928,515
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29, 2004 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Market Leader Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund seeks to achieve its investment objective
by investing at least 65% of its assets in equity securities issued by companies
that are established leaders in their respective fields in growing industries in
domestic and foreign markets. The Fund was organized as a Massachusetts business
trust on November 4, 1996 and commenced operations on April 28, 1997. On July
28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. Valuation of Investments - (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) futures are valued at the latest
price published by the commodities exchange on which they trade; (6) when market
quotations are not readily available or Morgan Stanley Investment Advisors Inc.
(the "Investment Manager") determines that the latest sale price, the bid price
or the mean between the last reported bid and asked price do not reflect a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Fund's Trustees . Occasionally, developments affecting the
closing prices of securities and other assets may occur between the times at
which valuations of such securities are determined (that is, close of the
foreign market on which the securities trade) and the close of business on the
NYSE. If developments occur during such periods that are expected to materially
affect the value of such securities, such valuations may be adjusted to reflect
the estimated fair value of such securities as of the close of the NYSE, as
determined in good faith by the Fund's Trustees or by the Investment Manager
using a pricing service and/or procedures approved by the Trustees of the Fund;
(7) certain portfolio securities may be valued by an outside pricing service
approved by the Fund's Trustees; and (8) 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
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29, 2004 (unaudited) continued
value on the 61st day. Short-term debt securities having a maturity date of
sixty days or less at the time of purchase are valued at amortized cost.
B. Accounting for Investments - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Repurchase Agreements - Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Multiple Class Allocations - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. Futures Contracts - A futures contract is an agreement between two parties to
buy and sell financial instruments or contracts based on financial indices at a
set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. 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
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29, 2004 (unaudited) continued
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
G. Federal Income Tax Policy - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
H. Dividends and Distributions to Shareholders - Dividends and distributions to
shareholders are recorded on the ex-dividend date.
I. Use of Estimates - The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rates to the net assets of the Fund determined as of the close of each
business day: 0.75% to the portion of daily net assets not exceeding $1 billion
and 0.725% to the portion of daily net assets in excess of $1 billion.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A - up to 0.25% of the
average daily net assets of Class A; (ii) Class B - 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.
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
$10,064,390 at February 29, 2004.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29, 2004 (unaudited) continued
For the year ended February 29, 2004, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.23% and 0.90%, respectively.
The Distributor has informed the Fund that for the six months ended February 29,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $253,443 and $1,172,
respectively and received $10,872 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 29, 2004 aggregated
$394,651,978 and $433,925,731, respectively. Included in the aforementioned
transactions are purchases and sales of $13,513,434 and $2,228,636,
respectively, for portfolio transactions with other Morgan Stanley funds,
including a realized gain of $502,099.
For the six months ended February 29, 2004, the Fund incurred brokerage
commissions of $15,371 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At February 29, 2004, the Fund had transfer agent
fees and expenses payable of approximately $224,300.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
-------------------------------- ------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ --------------
CLASS A SHARES
Sold 251,188 $3,185,289 389,334 $4,240,059
Redeemed (166,844) (2,117,668) (447,235) (4,878,798)
------------- -------------- ------------ --------------
Net increase (decrease) - Class A 84,344 1,067,621 (57,901) (638,739)
------------- -------------- ------------ --------------
CLASS B SHARES
Sold 522,239 6,266,230 2,265,328 23,975,185
Redeemed (3,553,228) (42,901,974) (9,927,972) (104,230,825)
------------- -------------- ------------ --------------
Net decrease - Class B (3,030,989) (36,635,744) (7,662,644) (80,255,640)
------------- -------------- ------------ --------------
CLASS C SHARES
Sold 48,196 578,095 259,844 2,753,892
Redeemed (216,705) (2,629,014) (533,831) (5,630,244)
------------- -------------- ------------ --------------
Net decrease - Class C (168,509) (2,050,919) (273,987) (2,876,352)
------------- -------------- ------------ --------------
CLASS D SHARES
Sold 533,034 6,818,628 1,774,719 19,766,086
Redeemed (933,339) (12,149,731) (2,256,467) (24,875,979)
------------- -------------- ------------ --------------
Net decrease - Class D (400,305) (5,331,103) (481,748) (5,109,893)
------------- -------------- ------------ --------------
Net decrease in Fund (3,515,459) $(42,950,145) (8,476,280) $(88,880,624)
============= ============== ============ ==============
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29,2004 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of August 31, 2003, the Fund had a net capital loss carryover of $167,503,738
of which $1,989,440 will expire on August 31, 2009, $50,201,996 will expire on
August 31, 2010 and $115,312,302 will expire on August 31, 2011 to offset future
capital gains to the extent provided by regulations.
At August 31, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the of the Fund's next taxable) and capital loss deferrals on wash sales.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures ("futures
contracts").
Forward contracts and futures contracts involve elements of market risk in
excess of the amounts reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives
MORGAN STANLEY MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS | February 29,2004 (unaudited) continued
to brokers and others to recommend the funds advised by the Investment Manager
or its affiliates to investors rather than funds managed by other companies, and
(ii) that the funds advised by the Investment Manager or its affiliates,
including the Fund, allegedly paid excessive commissions to brokers in return
for their efforts to recommend these funds to investors. The complaint seeks,
among other things, unspecified compensatory damages, recessionary damages, fees
and costs. The defendants intend to move to dismiss the action and otherwise
vigorously to defend it. While the Fund believes that it has meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.
9. SUBSEQUENT EVENT - FUND MERGER
On March 15, 2004, the Fund was acquired by Morgan Stanley Growth Fund
("Growth") based on the respective valuations as of the close of business on
March 12, 2004 pursuant to a Plan of Reorganization approved by the shareholders
of the Fund on February 24, 2004. The acquisition was accomplished by a tax-free
exchange of 1,220,228 Class A shares of Growth at a net asset value of $11.86
per share for 1,127,974 Class A shares of the Fund; 19,856,778 Class B shares of
Growth at a net asset value of $11.35 per share for 18,443,079 Class B shares of
the Fund; 1,189,314 Class C shares of Growth at a net asset value of $11.20 per
share for 1,087,372 Class C shares of the Fund; and 6,649,275 Class D shares of
Growth at a net asset value of $12.07 per share for 6,154,659 Class D shares of
the Fund. The net assets of Growth and the Fund immediately before the
acquisition were $744,057,936 and $333,401,482, respectively, including
unrealized depreciation of $18,280,086 for the Fund. Immediately after the
acquisition, the combined net assets of Growth amounted to $1,077,459,418.
MORGAN STANLEY MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED --------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ------ ------ -------- -------- --------
(unaudited)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period................. $11.98 $11.13 $14.54 $21.53 $15.29 $9.73
--------- -------- -------- -------- -------- -------
Income (loss) from investment operations:
Net investment income (loss) [+/+] ............... (0.02) 0.02 0.01 0.03 0.02 (0.05)
Net realized and unrealized gain (loss)........... 1.20 0.83 (3.42) (6.67) 7.05 5.61
--------- -------- -------- -------- -------- -------
Total income (loss) from investment operations...... 1.18 0.85 (3.41) (6.64) 7.07 5.56
--------- -------- -------- -------- -------- -------
Less distributions from net realized gain ........... - - - (0.35) (0.83) -
--------- -------- -------- -------- -------- -------
Net asset value, end of period....................... $13.16 $11.98 $11.13 $14.54 $21.53 $15.29
========= ======== ======== ======== ======== =======
TOTAL RETURN+ ....................................... 9.85 %(1) 7.64 % (23.45)% (31.16)% 47.49 % 57.14 %
RATIOS TO AVERAGE NET ASSETS(3):
Expenses............................................. 1.46 %(2) 1.24 % 1.20 % 1.13 % 1.18 % 1.23 %
Net investment income (loss)......................... (0.31)%(2) 0.14 % 0.09 % 0.17 % 0.08 % (0.14)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.............. $14,540 $12,226 $11,999 $10,498 $12,677 $971
Portfolio turnover rate.............................. 112 %(1) 48 % 75 % 60 % 86 % 83 %
- --------------
[+/+] 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 MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ------ ------ -------- -------- --------
CLASS B SHARES (unaudited)
SELECTED PER SHARE DATA:
Net asset value, beginning of period............ $11.45 $10.72 $14.12 $21.07 $15.09 $9.68
-------- ------- ------- ------- ------ ------
Income (loss) from investment operations:
Net investment loss [+/+] ................... (0.06) (0.07) (0.09) (0.10) (0.13) (0.12)
Net realized and unrealized gain (loss)...... 1.14 0.80 (3.31) (6.50) 6.94 5.53
-------- ------- ------- ------- ------ ------
Total income (loss) from investment operations.. 1.08 0.73 (3.40) (6.60) 6.81 5.41
-------- ------- ------- ------- ------ ------
Less distributions from net realized gain ...... - - - (0.35) (0.83) -
-------- ------- ------- ------- ------ ------
Net asset value, end of period.................. $12.53 $11.45 $10.72 $14.12 $21.07 $15.09
======== ======= ======= ======= ====== ======
TOTAL RETURN+ .................................. 9.43 %(1) 6.81 % (24.08)% (31.65)% 46.35 % 55.89 %
RATIOS TO AVERAGE NET ASSETS(3):
Expenses........................................ 2.23 %(2) 2.03 % 1.96 % 1.92 % 1.93 % 1.99 %
Net investment loss............................. (1.08)%(2) (0.65)% (0.67)% (0.62)% (0.67)% (0.90)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......... $234,967 $249,418 $315,623 $470,236 $571,733 $189,534
Portfolio turnover rate......................... 112 %(1) 48 % 75 % 60 % 86 % 83 %
- --------------
[+/+] 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 MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED --------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ------ ------ -------- -------- --------
CLASS C SHARES (unaudited)
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $11.47 $10.74 $14.15 $21.11 $15.12 $9.67
-------- ------- ------- ------- ------ ------
Income (loss) from investment operations:
Net investment loss [+/+] .................... (0.06) (0.06) (0.09) (0.10) (0.12) (0.09)
Net realized and unrealized gain (loss) ...... 1.15 0.79 (3.32) (6.51) 6.94 5.54
-------- ------- ------- ------- ------ ------
Total income (loss) from investment operations... 1.09 0.73 (3.41) (6.61) 6.82 5.45
-------- ------- ------- ------- ------ ------
Less distributions from net realized gain ....... - - - (0.35) (0.83) -
-------- ------- ------- ------- ------ ------
Net asset value, end of period .................. $12.56 $11.47 $10.74 $14.15 $21.11 $15.12
======== ======= ======= ======= ====== ======
TOTAL RETURN + .................................. 9.41 %(1) 6.89 % (24.10)% (31.64)% 46.33 % 56.36 %
RATIOS TO AVERAGE NET ASSETS(3):
Expenses ........................................ 2.13 %(2) 1.99 % 1.96 % 1.92 % 1.93 % 1.75 %
Net investment loss ............................. (0.98)%(2) (0.61)% (0.67)% (0.62)% (0.67)% (0.66)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $13,945 $14,669 $16,668 $22,299 $22,736 $2,723
Portfolio turnover rate ......................... 112 %(1) 48 % 75 % 60 % 86 % 83 %
- -------------
[+/+] 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 MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED --------------------------------------------------------
FEBRUARY 29, 2004 2003 2002 2001 2000 1999
----------------- ------ ------ -------- -------- --------
CLASS D SHARES (unaudited)
SELECTED PER SHARE DATA:
Net asset value, beginning of period............. $12.16 $11.27 $14.70 $21.70 $15.37 $9.74
-------- ------- ------- ------- ------ ------
Income (loss) from investment operations:
Net investment income (loss) [+/+] ........... (0.01) 0.04 0.04 0.07 0.08 -
Net realized and unrealized gain (loss)....... 1.22 0.85 (3.47) (6.72) 7.08 5.63
-------- ------- ------- ------- ------ ------
Total income (loss) from investment operations... 1.21 0.89 (3.43) (6.65) 7.16 5.63
-------- ------- ------- ------- ------ ------
Less distributions from net realized gain ....... - - - (0.35) (0.83) -
-------- ------- ------- ------- ------ ------
Net asset value, end of period................... $13.37 $12.16 $11.27 $14.70 $21.70 $15.37
-------- ------- ------- ------- ------ ------
TOTAL RETURN + .................................. 9.95 %(1) 7.90 % (23.33)% (30.96)% 47.84 % 57.80 %
RATIOS TO AVERAGE NET ASSETS(3):
Expenses......................................... 1.23 %(2) 1.03 % 0.96 % 0.92 % 0.93 % 0.99 %
Net investment income (loss)..................... (0.08)%(2) 0.35 % 0.33 % 0.38 % 0.33 % 0.10 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $83,307 $80,616 $80,145 $63,888 $47,819 $554
Portfolio turnover rate.......................... 112 %(1) 48 % 75 % 60 % 86 % 83 %
- ------------------
[+/+] The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
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 J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus.
The Fund's Statement of Additional Information contains additional information
about the Fund, including its trustees. It is available, without charge, by
calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing. Investments and services offered through
Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member
NASD. (C) 2004 Morgan Stanley
36004RPT-RA04-00025P-T02/04
Morgan Stanley
Market Leader Trust
Semiannual Report
February 29, 2004
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Market Leader Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 20, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 20, 2004
3
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 Market Leader
Trust;
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-3(c) under the Investment Company Act of 1940) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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) Omitted.]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
d) disclosed in this report any change 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; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
4
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; 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
over financial reporting.
Date: April 20, 2004
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
5
EXHIBIT 10 B2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS
I, Francis Smith, certify that:
6. I have reviewed this report on Form N-CSR of Morgan Stanley Market Leader
Trust;
7. 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;
8. 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;
9. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) for the
registrant and have:
b) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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) Omitted.]
e) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
f) disclosed in this report any change 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; and
10. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
c) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize, and report financial information; and
6
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: April 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
7
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 Market Leader Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended February 29, 2004 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: April 20, 2004 /s/ Ronald E. Robison
---------------------------
Ronald E. Robison
Principal Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Market Leader Trust and will be retained by Morgan
Stanley Market Leader Trust and furnished to the Securities and Exchange
Commission or its staff upon request.
8
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 Market Leader Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended February 29, 2004 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: April 20, 2004 /s/ Francis Smith
----------------------
Francis Smith
Principal Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Market Leader Trust and will be retained by Morgan
Stanley Market Leader Trust and furnished to the Securities and Exchange
Commission or its staff upon request.
9