<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07119
Morgan Stanley Global Utilities Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: February 29, 2004
Date of reporting period: February 29, 2004
Item 1 - Report to Shareholders
<Page>
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Global
Utilities 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's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
<Page>
FUND REPORT
For the year ended February 29, 2004
FOR THE 12-MONTH PERIOD ENDED FEBRUARY 29, 2004
<Table>
<Caption>
MORGAN STANLEY
CAPITAL LIPPER
INTERNATIONAL UTILITY
(MSCI) FUNDS
CLASS A CLASS B CLASS C CLASS D WORLD INDEX(1) INDEX(2)
- -----------------------------------------------------------------------
28.57% 27.60% 27.53% 28.87% 44.36% 35.21%
</Table>
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 WORTH 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 equity markets encountered a low point in its business cycle shortly after
the beginning of the 12-month period ended February 29, 2004. Then, from
mid-March 2003 through the end of the period, equities rallied strongly from
their lows. Returns were strong across all sectors of the market, with such
economically sensitive sectors as basic materials, industrials and technology
leading the pack. Their gains were supported by a combination of strong economic
signals and investors' appetite for a means of capitalizing on anticipated
further growth in the economy. Traditionally defensive sectors such as health
care lagged in the rally.
Against this favorable backdrop, performance in the utilities sector was also
solid. While utilities stocks' inherently defensive characteristics prevented
them from keeping pace with the leading sectors, the sector nonetheless produced
solid total returns for the period. As with the broader market, the
strongest-performing utility stocks were those of the more speculative companies
that benefited the most from the rallying market.
PERFORMANCE ANALYSIS
While it produced strongly positive gains in absolute terms, Morgan Stanley
Global Utilities Fund underperformed the broader MSCI World Index, made up of
companies from all sectors of the global equity markets. The Fund's
underperformance relative to that of the Lipper Utility Funds Index was driven
largely by its level of holdings in non-U.S. utilities. While these companies
all benefited from the falling U.S. dollar, their gains were not enough to
outpace those of their domestic U.S. peers, especially the more speculative
companies.
We pursued several key strategies during the period under review. We chose to
broaden the Fund's portfolio to include securities from eight countries, up from
the six with which the Fund entered the period. We introduced these holdings
into the portfolio on an unhedged basis, which allowed them to benefit fully
from the falling value of the U.S. dollar over most of the period. During the
last two months we reduced the Fund's non-U.S. holdings to mitigate the
potential negative effects of a recent rise in the dollar as interest rates
showed signs of future increase.
2
<Page>
TOP 10 HOLDINGS
<Table>
Dominion Resources Inc. VA 4.2%
Entergy Corp 4.2
FPL Group Inc 4.1
Cinergy 3.9
Public SVC Enterprise 3.7
Exelon Corporation 3.6
Ameren Corporation 3.5
Scana Corp 3.3
Constellation Energy Group 3.3
Vodafone Group PLC-SP ADR 3.2
</Table>
TOP FIVE COUNTRIES
<Table>
United States 75.0%
United Kingdom 6.2
Canada 4.3
Germany 4.0
Spain 3.8
</Table>
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 80% OF ITS ASSETS IN SECURITIES OF
COMPANIES FROM AROUND THE WORLD THAT ARE PRIMARILY ENGAGED IN THE UTILITIES
INDUSTRY. THESE SECURITIES CAN INCLUDE COMMON STOCK AND OTHER EQUITY SECURITIES
(INCLUDING PREFERRED STOCK, CONVERTIBLE SECURITIES AND DEPOSITORY RECEIPTS) AS
WELL AS INVESTMENT GRADE FIXED INCOME SECURITIES (INCLUDING ZERO COUPON
SECURITIES). A COMPANY WILL BE CONSIDERED TO BE PRIMARILY ENGAGED IN THE
UTILITIES INDUSTRY IF IT DERIVES AT LEAST 50% OF ITS REVENUES OR EARNINGS FROM
THE UTILITIES INDUSTRY OR DEVOTES AT LEAST 50% OF ITS ASSETS TO ACTIVITIES IN
THE INDUSTRY. THESE MAY INCLUDE COMPANIES INVOLVED IN, AMONG OTHER AREAS:
TELECOMMUNICATIONS, COMPUTERS AND OTHER NEW OR EMERGING TECHNOLOGY COMPANIES,
GAS AND ELECTRIC, ENERGY, WATER DISTRIBUTION, THE INTERNET AND INTERNET RELATED
SERVICES. THE COMPANIES MAY BE TRADITIONALLY REGULATED PUBLIC UTILITIES AS WELL
AS FULLY OR PARTIALLY DEREGULATED AND UNREGULATED UTILITY COMPANIES. THE FUND'S
`'INVESTMENT MANAGER," MORGAN STANLEY INVESTMENT ADVISORS INC., WILL SHIFT THE
FUND'S ASSETS BETWEEN DIFFERENT TYPES OF UTILITIES, AMONG COMPANIES OF DIFFERENT
COUNTRIES, AND BETWEEN EQUITY AND FIXED-INCOME SECURITIES, BASED ON PREVAILING
MARKET, ECONOMIC AND FINANCIAL CONDITIONS. THE FUND WILL BE INVESTED IN AT LEAST
THREE COUNTRIES (INCLUDING THE UNITED STATES). IF THE FUND HOLDS ANY
FIXED-INCOME SECURITIES, THE AVERAGE WEIGHTED MATURITY OF THESE INVESTMENTS IS
NORMALLY EXPECTED TO BE GREATER THAN SEVEN YEARS.
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 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 A.M. TO 8:00 P.M., 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 WEB SITE AT
http://www.sec.gov.
3
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT--CLASS B
($ IN THOUSANDS)
<Table>
<Caption>
CLASS B MSCI WORLD(1) LIPPER(2)
May-1994 $ 10,000 $ 10,000 $ 10,000
Aug-1994 $ 10,260 $ 10,461 $ 10,204
Nov-1994 $ 10,110 $ 10,015 $ 9,849
Feb-1995 $ 9,913 $ 10,098 $ 10,308
May-1995 $ 10,594 $ 11,039 $ 10,944
Aug-1995 $ 11,082 $ 11,323 $ 11,243
Nov-1995 $ 11,276 $ 11,860 $ 12,059
Feb-1996 $ 11,773 $ 12,495 $ 12,546
May-1996 $ 12,148 $ 13,005 $ 12,578
Aug-1996 $ 11,824 $ 12,746 $ 12,526
Nov-1996 $ 12,700 $ 14,077 $ 13,582
Feb-1997 $ 13,293 $ 14,172 $ 13,988
May-1997 $ 13,971 $ 15,222 $ 14,334
Aug-1997 $ 13,897 $ 15,592 $ 14,670
Nov-1997 $ 14,966 $ 15,841 $ 16,383
Feb-1998 $ 16,757 $ 17,588 $ 17,640
May-1998 $ 18,562 $ 18,269 $ 18,280
Aug-1998 $ 17,704 $ 16,175 $ 17,191
Nov-1998 $ 19,781 $ 19,008 $ 19,360
Feb-1999 $ 21,382 $ 19,823 $ 19,654
May-1999 $ 22,468 $ 20,669 $ 21,477
Aug-1999 $ 22,126 $ 21,521 $ 21,078
Nov-1999 $ 24,741 $ 23,042 $ 22,295
Feb-2000 $ 27,756 $ 23,535 $ 23,856
May-2000 $ 27,061 $ 23,480 $ 23,766
Aug-2000 $ 28,150 $ 24,346 $ 25,297
Nov-2000 $ 26,768 $ 21,281 $ 24,095
Feb-2001 $ 26,159 $ 20,173 $ 24,202
May-2001 $ 26,333 $ 19,971 $ 24,448
Aug-2001 $ 22,783 $ 18,165 $ 21,413
Nov-2001 $ 21,056 $ 17,874 $ 19,544
Feb-2002 $ 20,208 $ 17,284 $ 18,356
May-2002 $ 20,306 $ 17,461 $ 18,158
Aug-2002 $ 17,527 $ 15,041 $ 15,505
Nov-2002 $ 16,695 $ 15,144 $ 15,277
Feb-2003 $ 16,080 $ 13,724 $ 14,452
May-2003 $ 18,674 $ 15,739 $ 17,082
Aug-2003 $ 18,073 $ 16,684 $ 16,760
Nov-2003 $ 18,911 $ 18,047 $ 17,688
Feb-2004 $ 20,518^ $ 19,812 $ 19,540
</Table>
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.
4
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 29, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
07/28/97 05/31/94 07/28/97 07/28/97
SYMBOL GUTAX GUTBX GUTCX GUTDX
1 YEAR 28.57%(3) 27.60%(3) 27.53%(3) 28.87%(3)
21.82(4) 22.60(4) 26.53(4) --
5 YEARS (0.09)(3) (0.82)(3) (0.79)(3) 0.18(3)
(1.16)(4) (1.11)(4) (0.79)(4) --
SINCE INCEPTION 5.84(3) 7.65(3) 5.08(3) 6.12(3)
4.97(4) 7.65(4) 5.08(4) --
</Table>
Notes on Performance
(1) THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX MEASURES
PERFORMANCE FROM A DIVERSE RANGE OF GLOBAL STOCK MARKETS INCLUDING
SECURITIES REPRESENTATIVE OF THE MARKET STRUCTURE OF 22 DEVELOPED MARKET
COUNTRIES IN NORTH AMERICA, EUROPE, AND THE ASIA/PACIFIC REGION. THE
PERFORMANCE OF THE INDEX IS LISTED IN U.S. DOLLARS AND ASSUMES REINVESTMENT
OF NET DIVIDENDS. "NET DIVIDENDS" REFLECTS A REDUCTION IN DIVIDENDS AFTER
TAKING INTO ACCOUNT WITHHOLDING OF TAXES BY CERTAIN FOREIGN COUNTRIES
REPRESENTED IN THE INDEX. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT
INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT
IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER UTILITY FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF
THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER UTILITY
FUNDS CLASSIFICATION. THE INDEX, WHICH IS ADJUSTED FOR CAPITAL GAINS
DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED AND SHOULD NOT BE
CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 10 FUNDS REPRESENTED IN THIS
INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* 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 FEBRUARY 29, 2004.
5
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS (95.5%)
CANADA (4.3%)
TELECOMMUNICATIONS
171,000 BCE Inc. $ 3,746,701
250,000 Nortel Networks Corp.* 2,001,047
438,200 Telus Corp. (Non-Voting) 7,673,745
--------------
TOTAL CANADA 13,421,493
--------------
FINLAND (0.5%)
TELECOMMUNICATIONS
75,600 Nokia Oyj 1,664,702
--------------
GERMANY (4.0%)
ELECTRIC UTILITIES
100,200 E. ON AG 6,808,149
122,300 RWE AG 5,428,831
--------------
TOTAL GERMANY 12,236,980
--------------
JAPAN (1.0%)
TELECOMMUNICATIONS
1,500 NTT DoCoMo, Inc. 3,118,132
--------------
SPAIN (3.8%)
ELECTRIC UTILITIES
259,600 Iberdrola S.A. 5,382,391
--------------
TELECOMMUNICATIONS
393,400 Telefonica S.A.* 6,422,031
--------------
TOTAL SPAIN 11,804,422
--------------
SWEDEN (0.7%)
TELECOMMUNICATIONS
725,000 Telefonaktiebolaget LM
Ericsson* 2,125,468
--------------
UNITED KINGDOM (6.2%)
ENERGY
2,373,900 Centrica PLC 9,504,247
--------------
TELECOMMUNICATIONS
394,100 Vodafone Group PLC (ADR) $ 9,840,677
--------------
TOTAL UNITED KINGDOM 19,344,924
--------------
UNITED STATES (75.0%)
ELECTRIC UTILITIES
399,900 AES Corp. (The)* 3,623,094
230,300 Ameren Corp. 10,916,220
306,000 Cinergy Corp. 11,992,140
205,500 Consolidated Edison, Inc. 9,076,935
257,400 Constellation Energy
Group, Inc. 10,231,650
205,900 Dominion Resources, Inc. 12,936,697
140,600 DTE Energy Co. 5,688,676
342,400 Energy East Corp. 8,272,384
218,100 Entergy Corp. 12,931,149
164,100 Exelon Corp. 11,017,674
40,000 FirstEnergy Corp. 1,545,200
195,000 FPL Group, Inc. 12,801,750
85,000 PG&E Corp.* 2,394,450
186,500 PPL Corp. 8,677,845
244,600 Public Service Enterprise
Group, Inc. 11,530,444
323,900 Puget Energy, Inc. 7,287,750
293,900 SCANA Corp. 10,283,561
300,900 Southern Co. (The) 9,123,288
56,000 TXU Corp. 1,575,280
151,800 Wisconsin Energy Corp. 4,906,176
--------------
166,812,363
--------------
ENERGY
172,200 AGL Resources, Inc. 4,938,696
35,000 Equitable Resources, Inc. 1,508,150
257,300 KeySpan Corp. 9,777,400
132,000 Kinder Morgan, Inc. 8,145,720
277,800 NiSource, Inc. 6,031,038
43,000 Questar Corp. 1,541,550
--------------
31,942,554
--------------
TELECOMMUNICATIONS
441,400 AT&T Wireless Services Inc.* 5,994,212
192,400 BellSouth Corp. 5,302,544
153,880 Comcast Corp. (Class A)* 4,622,555
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------
147,300 Cox Communications, Inc. (Class A)* $ 4,772,520
390,000 Lucent Technologies Inc.* 1,634,100
100,000 Motorola, Inc. 1,845,000
166,800 SBC Communications, Inc. 4,004,868
152,300 Verizon Communications Inc. 5,837,659
--------------
34,013,458
--------------
TOTAL UNITED STATES 232,768,375
--------------
TOTAL COMMON STOCKS
(COST $261,084,417) 296,484,496
--------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT
$ 12,265 Joint repurchase agreement
account 1.03%
due 03/01/04
(dated 02/27/04; proceeds
$12,266,053) (a)
(COST $12,265,000) 12,265,000
--------------
TOTAL INVESTMENTS
(COST $273,349,417) (b) 99.5% 308,749,496
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.5 1,403,013
------ --------------
NET ASSETS 100.0% $ 310,152,509
====== ==============
</Table>
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $274,586,403. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $46,175,973 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $12,012,880, RESULTING IN NET UNREALIZED
APPRECIATION OF $34,163,093.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEBRUARY 29, 2004:
<Table>
<Caption>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION/
TO DELIVER FOR DATE DEPRECIATION
- -----------------------------------------------------
CAD1,891,845 $ 1,405,531 03/02/04 $ (9,673)
CAD1,999,368 $ 1,498,664 03/03/04 3,027
-------------
Net unrealized depreciation $ (6,646)
=============
</Table>
CURRENCY ABBREVIATION:
CAD Canadian Dollar.
SUMMARY OF INVESTMENTS
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------
Electric Utilities $ 184,431,734 59.4%
Energy 41,446,801 13.3
Repurchase Agreement 12,265,000 4.0
Telecommunications 70,605,961 22.8
------------- -------
$ 308,749,496 99.5%
============= =======
</Table>
<Table>
<Caption>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------------
Common Stocks $ 296,484,496 95.5%
Short-Term Investment 12,265,000 4.0
------------- -------
$ 308,749,496 99.5%
============= =======
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2004
<Table>
ASSETS:
Investments in securities, at value (cost $273,349,417) $ 308,749,496
Cash 13,415
Receivable for:
Investments sold 2,910,841
Dividends 752,994
Shares of beneficial interest sold 118,438
Foreign withholding taxes reclaimed 60,437
Prepaid expenses and other assets 29,814
--------------
TOTAL ASSETS 312,635,435
--------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts 6,646
Payable for:
Investments purchased 1,539,261
Shares of beneficial interest redeemed 437,345
Distribution fee 250,692
Investment management fee 165,783
Accrued expenses and other payables 83,199
--------------
TOTAL LIABILITIES 2,482,926
--------------
NET ASSETS $ 310,152,509
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 384,154,405
Net unrealized appreciation 35,406,860
Accumulated undistributed net investment income 5,879,837
Accumulated net realized loss (115,288,593)
--------------
NET ASSETS $ 310,152,509
==============
CLASS A SHARES:
Net Assets $ 4,867,767
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 405,242
NET ASSET VALUE PER SHARE $ 12.01
==============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 12.68
==============
CLASS B SHARES:
Net Assets $ 298,012,138
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 24,830,047
NET ASSET VALUE PER SHARE $ 12.00
==============
CLASS C SHARES:
Net Assets $ 5,547,868
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 466,618
NET ASSET VALUE PER SHARE $ 11.89
==============
CLASS D SHARES:
Net Assets $ 1,724,736
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 143,273
NET ASSET VALUE PER SHARE $ 12.04
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 2004
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $279,702 foreign withholding tax) $ 11,789,595
Interest 165,242
--------------
TOTAL INCOME 11,954,837
--------------
EXPENSES
Distribution fee (Class A shares) 11,503
Distribution fee (Class B shares) 3,071,020
Distribution fee (Class C shares) 56,559
Investment management fee 2,073,012
Transfer agent fees and expenses 646,762
Shareholder reports and notices 79,669
Professional fees 64,190
Registration fees 48,099
Custodian fees 25,928
Trustees' fees and expenses 7,639
Other 16,696
--------------
TOTAL EXPENSES 6,101,077
--------------
NET INVESTMENT INCOME 5,853,760
Net Realized and Unrealized Gain:
Net Realized Gain on:
Investments 23,976,172
Foreign exchange transactions 25,953
--------------
NET REALIZED GAIN 24,002,125
--------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 47,834,434
Translation of forward foreign currency contracts, other assets
and liabilities denominated in foreign currencies (29,328)
--------------
NET APPRECIATION 47,805,106
--------------
NET GAIN 71,807,231
--------------
NET INCREASE $ 77,660,991
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,853,760 $ 9,507,845
Net realized gain (loss) 24,002,125 (86,890,416)
Net change in unrealized depreciation 47,805,106 (23,704,308)
----------------- -----------------
NET INCREASE (DECREASE) 77,660,991 (101,086,879)
----------------- -----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (182,402) (203,097)
Class B shares (9,102,987) (9,693,522)
Class C shares (175,267) (186,203)
Class D shares (60,665) (70,941)
----------------- -----------------
TOTAL DIVIDENDS (9,521,321) (10,153,763)
----------------- -----------------
Net decrease from transactions in shares of beneficial interest (75,801,985) (152,692,577)
----------------- -----------------
NET DECREASE (7,662,315) (263,933,219)
NET ASSETS:
Beginning of period 317,814,824 581,748,043
----------------- -----------------
END OF PERIOD
(Including accumulated undistributed net investment income of
$5,879,837 and $9,521,310, respectively) $ 310,152,509 $ 317,814,824
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2004
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Global Utilities Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek both capital appreciation and current income. The Fund seeks to achieve its
objective by investing in equity and fixed income securities of issuers
worldwide, which are primarily engaged in the utilities industry. The Fund was
organized as a Massachusetts business trust on October 22, 1993 and commenced
operations on May 31, 1994. On July 28, 1997, the Fund converted to a multiple
class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect the value of
such securities, such valuations may be adjusted to reflect the estimated fair
value of such securities as of the close of the NYSE, as determined in good
faith by
11
<Page>
the Fund's Trustees or by the Investment Manager using a pricing service and/or
procedures approved by the Trustees of the Fund; (6) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; and (7) short-term debt securities having a maturity date of more than
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted and
premiums are amortized over the life of the respective securities. Interest
income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign 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
12
<Page>
gain or loss. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
F. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.65% to the portion of the daily net assets not exceeding
$500 million; 0.625% to the portion of the daily net assets exceeding $500
million but not exceeding $1 billion; 0.60% to the portion of daily net assets
exceeding $1 billion but not exceeding $1.5 billion; and 0.575% to the portion
of daily net assets exceeding $1.5 billion.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay
13
<Page>
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 $10,218,603 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.
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 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year 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 $247,374, and $327, respectively and
received $31,740 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 February 29, 2004 aggregated
$95,007,335 and $172,370,357, respectively.
For the year ended February 29, 2004, the Fund incurred brokerage commissions of
$65,540 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 $11,000.
14
<Page>
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- --------------
CLASS A SHARES
Sold 96,805 $ 1,063,129 71,591 $ 811,409
Reinvestment of dividends 12,577 138,350 13,962 162,659
Redeemed (156,216) (1,680,197) (252,576) (2,822,338)
------------- ------------- ------------- --------------
Net decrease -- Class A (46,834) (478,718) (167,023) (1,848,270)
------------- ------------- ------------- --------------
CLASS B SHARES
Sold 898,046 9,858,570 1,113,955 12,401,588
Reinvestment of dividends 706,639 7,808,361 719,502 8,396,588
Redeemed (8,462,835) (91,888,153) (15,503,437) (169,176,749)
------------- ------------- ------------- --------------
Net decrease -- Class B (6,858,150) (74,221,222) (13,669,980) (148,378,573)
------------- ------------- ------------- --------------
CLASS C SHARES
Sold 46,214 495,744 63,651 682,797
Reinvestment of dividends 14,518 158,968 14,970 173,348
Redeemed (167,415) (1,799,357) (265,665) (2,857,946)
------------- ------------- ------------- --------------
Net decrease -- Class C (106,683) (1,144,645) (187,044) (2,001,801)
------------- ------------- ------------- --------------
CLASS D SHARES
Sold 54,191 609,021 49,806 557,019
Reinvestment of dividends 4,910 54,061 5,558 64,802
Redeemed (56,772) (620,482) (98,541) (1,085,754)
------------- ------------- ------------- --------------
Net increase (decrease)-- Class D 2,329 42,600 (43,177) (463,933)
------------- ------------- ------------- --------------
Net decrease in Fund (7,009,338) $ (75,801,985) (14,067,224) $ (152,692,577)
============= ============= ============= ==============
</Table>
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.
15
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- -----------------
Ordinary income $ 9,521,321 $ 10,153,763
=========== ============
</Table>
As of February 29, 2004, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 5,873,191
Undistributed long-term gains --
---------------
Net accumulated earnings $ 5,873,191
Capital loss carryforward* (114,051,607)
Net unrealized appreciation 34,176,520
---------------
Total accumulated losses $ (74,001,896)
===============
</Table>
*During the year ended February 29, 2004, the Fund utilized $5,174,050 of its
net capital loss carryforward. As of February 29, 2004, the Fund had a net
capital loss carryforward of $114,051,607 of which $35,822,406 will expire on
February 28, 2010 and $78,229,201 will expire on February 28, 2011 to offset
future capital gains to the extent provided by regulations.
As of February 29, 2004, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to foreign currency gains. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $135, accumulated net realized loss was charged $25,953 and accumulated
undistributed net investment income was credited $26,088.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
16
<Page>
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants 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.
17
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------
2004* 2003 2002 2001 2000*
----------- ----------- ----------- ----------- -----------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.70 $ 12.47 $ 16.51 $ 20.02 $ 17.16
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.28 0.32 0.31 0.29 0.23
Net realized and unrealized gain (loss) 2.45 (2.73) (3.91) (1.22) 4.78
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 2.73 (2.41) (3.60) (0.93) 5.01
----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.42) (0.36) (0.08) (0.26) (0.20)
Net realized gain - - (0.36) (2.32) (1.95)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.42) (0.36) (0.44) (2.58) (2.15)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 12.01 $ 9.70 $ 12.47 $ 16.51 $ 20.02
=========== =========== =========== =========== ===========
TOTAL RETURN+ 28.57% (19.79)% (22.21)% (5.05)% 30.68%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.18% 1.15% 1.06% 1.00% 1.06%
Net investment income 2.57% 2.91% 2.06% 1.54% 1.25%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 4,868 $ 4,387 $ 7,723 $ 16,970 $ 13,313
Portfolio turnover rate 31% 18% 19% 31% 52%
</Table>
- ----------
* YEAR ENDED FEBRUARY 29.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------
2004* 2003 2002 2001 2000*
----------- ----------- ----------- ----------- -----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.67 $ 12.40 $ 16.50 $ 20.01 $ 17.15
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.20 0.24 0.20 0.15 0.11
Net realized and unrealized gain
(loss) 2.44 (2.73) (3.89) (1.22) 4.78
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 2.64 (2.49) (3.69) (1.07) 4.89
----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.31) (0.24) (0.05) (0.12) (0.08)
Net realized gain - - (0.36) (2.32) (1.95)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.31) (0.24) (0.41) (2.44) (2.03)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 12.00 $ 9.67 $ 12.40 $ 16.50 $ 20.01
=========== =========== =========== =========== ===========
TOTAL RETURN+ 27.60% (20.43)% (22.75)% (5.76)% 29.81%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.93% 1.90% 1.82% 1.74% 1.74%
Net investment income 1.82% 2.16% 1.30% 0.80% 0.57%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 298,012 $ 306,554 $ 562,343 $ 914,995 $ 944,600
Portfolio turnover rate 31% 18% 19% 31% 52%
</Table>
- ----------
* YEAR ENDED FEBRUARY 29.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------
2004* 2003 2002 2001 2000*
----------- ----------- ----------- ----------- -----------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.60 $ 12.33 $ 16.38 $ 19.90 $ 17.08
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.20 0.24 0.22 0.14 0.09
Net realized and unrealized gain
(loss) 2.42 (2.70) (3.85) (1.21) 4.76
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 2.62 (2.46) (3.63) (1.07) 4.85
----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.33) (0.27) (0.06) (0.13) (0.08)
Net realized gain - - (0.36) (2.32) (1.95)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.33) (0.27) (0.42) (2.45) (2.03)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.89 $ 9.60 $ 12.33 $ 16.38 $ 19.90
=========== =========== =========== =========== ===========
TOTAL RETURN+ 27.53% (20.15)% (22.78)% (5.81)% 29.73%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.93% 1.87% 1.67% 1.78% 1.81%
Net investment income 1.82% 2.19% 1.45% 0.76% 0.50%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 5,548 $ 5,502 $ 9,374 $ 15,266 $ 10,156
Portfolio turnover rate 31% 18% 19% 31% 52%
</Table>
- ----------
* YEAR ENDED FEBRUARY 29.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------
2004* 2003 2002 2001 2000*
-----------------------------------------------------------------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.73 $ 12.53 $ 16.54 $ 20.06 $ 17.18
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income++ 0.30 0.35 0.35 0.29 0.32
Net realized and unrealized gain
(loss) 2.47 (2.73) (3.91) (1.18) 4.76
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 2.77 (2.38) (3.56) (0.89) 5.08
----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.46) (0.42) (0.09) (0.31) (0.25)
Net realized gain - - (0.36) (2.32) (1.95)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.46) (0.42) (0.45) (2.63) (2.20)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 12.04 $ 9.73 $ 12.53 $ 16.54 $ 20.06
=========== =========== =========== =========== ===========
TOTAL RETURN+ 28.87% (19.56)% (21.98)% (4.85)% 31.08%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.93% 0.90% 0.82% 0.78% 0.81%
Net investment income 2.82% 3.16% 2.30% 1.76% 1.50%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 1,725 $ 1,371 $ 2,308 $ 2,750 $ 166
Portfolio turnover rate 31% 18% 19% 31% 52%
</Table>
- ----------
* YEAR ENDED FEBRUARY 29.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of
Trustees of Morgan Stanley Global Utilities Fund:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Global Utilities Fund (the "Fund"), including the portfolio of
investments, as of February 29, 2004, 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 five years
in the period then ended. 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 February 29, 2004, by correspondence with the custodian
and broker. 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 Global Utilities Fund as of February 29, 2004, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
APRIL 19, 2004
2004 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended February 29, 2004, 100% of the income
dividends paid by the Fund qualified for the dividends received deduction
available to corporations. Additionally, please note that 22.37% of the
Fund's income dividends paid during the fiscal year ended February 29, 2004
qualified for the lower income tax rate available to individuals under the
Jobs and Growth Tax Relief Reconciliation Act of 2003.
22
<Page>
MORGAN STANLEY GLOBAL UTILITIES FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ----------- ------------ -------------------------------------------- ------------ ----------------------
Michael Bozic (63) Trustee Since Private Investor; Director or Trustee of the 208 Director of Weirton
c/o Kramer Levin Naftalis April 1994 Retail Funds (since April 1994) and the Steel Corporation.
& Frankel LLP Institutional Funds (since July 2003);
Counsel to the formerly Vice Chairman of Kmart Corporation
Independent Trustees (December 1998- October 2000), Chairman and
919 Third Avenue Chief Executive Officer of Levitz Furniture
New York, NY 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 (71) Trustee Since Director or Trustee of the Retail Funds 208 Director of Franklin
c/o Summit Ventures LLC January 1993 (since January 1993) and the Institutional Covey (time management
1 Utah Center Funds (since July 2003); member of the Utah systems), BMW Bank of
201 S. Main Street Regional Advisory Board of Pacific Corp.; North America, Inc.
Salt Lake City, UT formerly United States Senator (R-Utah) (industrial loan
(1974-1992) and Chairman, Senate Banking corporation), United
Committee (1980-1986), Mayor of Salt Lake Space Alliance (joint
City, Utah (1971-1974), Astronaut, Space venture between
Shuttle Discovery (April 12-19, 1985), and Lockheed Martin and
Vice Chairman, Huntsman Corporation the Boeing Company)
(chemical company). and Nuskin Asia
Pacific (multilevel
marketing); member of
the board of various
civic and charitable
organizations.
Wayne E. Hedien (70) Trustee Since Retired; Director or Trustee of the Retail 208 Director of The PMI
c/o Kramer Levin Naftalis September Funds (since September 1997) and the Group Inc. (private
& Frankel LLP 1997 Institutional Funds (since July 2003); mortgage insurance);
Counsel to the formerly associated with the Allstate Trustee and Vice
Independent Trustees Companies (1966-1994), most recently as Chairman of The Field
919 Third Avenue Chairman of The Allstate Corporation Museum of Natural
New York, NY (March 1993- December 1994) and Chairman and History; director of
Chief Executive Officer of its wholly-owned various other business
subsidiary, Allstate Insurance Company and charitable
(July 1989-December 1994). organizations.
</Table>
23
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ----------- ------------ -------------------------------------------- ------------ ----------------------
Dr.Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson Smick International, 208 Director of NVR, Inc.
c/o Johnson Smick July 1991 Inc., a consulting firm; Chairman of the (home construction);
International, Inc. Audit Committee and Director or Trustee of Chairman and Trustee
2099 Pennsylvania the Retail Funds (since July 1991) and the of the Financial
Avenue, N.W. Institutional Funds (since July 2003); Accounting Foundation
Suite 950 Co-Chairman and a founder of the Group of (oversight
Washington, D.C. Seven Council (G7C), an international organization of the
economic commission; formerly Vice Chairman Financial Accounting
of the Board of Governors of the Federal Standards Board);
Reserve System and Assistant Secretary of Director of RBS
the U.S. Treasury. Greenwich Capital
Holdings (financial
holding company).
Joseph J. Kearns (61) Trustee Since President, Kearns & Associates LLC 209 Director of Electro
PMB754 July 2003 (investment consulting); Deputy Chairman of Rent Corporation
23852 Pacific Coast the Audit Committee and Director or Trustee (equipment leasing),
Highway of the Retail Funds (since July 2003) and The Ford Family
Malibu, CA the Institutional Funds (since August Foundation, and the
1994);previously Chairman of the Audit UCLA Foundation.
Committee of the Institutional Funds
(October 2001- July 2003); formerly CFO of
the J. Paul Getty Trust.
Michael E. Nugent (67) Trustee Since General Partner of Triumph Capital, L.P., a 208 Director of various
c/o Triumph Capital, L.P. July 1991 private investment partnership; Chairman of business
445 Park Avenue the Insurance Committee and Director or organizations.
New York, NY Trustee of the Retail Funds (since July
1991) and the Institutional Funds (since
July 2001); formerly Vice President, Bankers
Trust Company and BT Capital Corporation
(1984-1988).
Fergus Reid (71) Trustee Since Trustee and Chairman of Lumelite Plastics 209 Trustee and Director
c/o Lumelite Plastics July 2003 Corporation; Chairman of the Governance of certain investment
Corporation Committee and Director or Trustee of the companies in the
85 Charles Colman Blvd. Retail Funds (since July 2003) and the JPMorgan Funds complex
Pawling, NY Institutional Funds (since June 1992). managed by J.P. Morgan
Investment Management
Inc.
</Table>
24
<Page>
Interested Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------- ----------- ------------ -------------------------------------------- ------------- ----------------------
Charles A. Chairman of Since Chairman and Director or Trustee of the 208 None
Fiumefreddo (70) the Board July 1991 Retail Funds (since July 1991) and the
c/o Morgan Stanley Trust and Trustee Institutional Funds (since July 2003);
Harborside Financial formerly Chief Executive Officer of the
Center, Retail Funds (until September 2002).
Plaza Two,
Jersey City, NJ
James F. Higgins (56) Trustee Since Director or Trustee of the Retail Funds 208 Financial, Inc. and
c/o Morgan Stanley Trust June 2000 (since June 2000) and the Institutional Funds The Equitable Life
Harborside Financial (since July 2003); Senior Advisor of Morgan Assurance Society of
Center, Stanley (since August 2000); Director of the the United States
Plaza Two, Distributor and Dean Witter Realty Inc.; (financial services).
Jersey City, NJ 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) Trustee Since Chairman of the Board of Directors and Chief 208 Director of American
1585 Broadway April 1994 Executive Officer of Morgan Stanley and Airlines, Inc. and it
New York, NY Morgan Stanley DW Inc.; Director or Trustee parent company, AMR
of the Retail Funds (since April 1994) and Corporation.
the Institutional Funds (since July 2003);
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.
</Table>
- ----------
* 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. 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.).
25
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- ----------- -------------- --------------------------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley Investment
1221 Avenue of the Americas Management Inc.; President, Director and Chief Executive Officer of the
New York, NY Investment Manager and Morgan Stanley Services; Chairman and Director of
the Distributor; Chairman and Director of the Transfer Agent; Director of
various Morgan Stanley subsidiaries; President of the Institutional Funds
(since July 2003) and President of the Retail Funds (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 (65) Executive Since Chief Global Operations Officer and Managing Director of Morgan Stanley
1221 Avenue of the Americas Vice April 2003 Investment Management Inc.; Managing Director of Morgan Stanley & Co.
New York, NY President Incorporated; Managing Director of Morgan Stanley; Managing Director,
and Chief Administrative Officer and Director of the Investment Manager and
Principal Morgan Stanley Services; Chief Executive Officer and Director of the
Executive Transfer Agent; Managing Director and Director of the Distributor;
Officer Executive Vice President and Principal Executive Officer of the
Institutional Funds (since July 2003); previously President and Director
of the Institutional Funds (March 2001-July 2003).
Barry Fink (49) Vice Since General Counsel (since May 2000) and Managing Director (since December
1221 Avenue of the Americas President February 1997 2000) of Morgan Stanley Investment Management; Managing Director (since
New York, NY and General December 2000), Secretary (since February 1997) and Director (since July
Counsel 1998) of the Investment Manager and Morgan Stanley Services; Assistant
Secretary of Morgan Stanley DW; Vice President of the Institutional Funds
(since July 2003); Managing Director, Secretary and Director 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 (61) Vice Since July Managing Director and Chief Investment Officer of the Investment Manager
1221 Avenue of the Americas President 1995 and Morgan Stanley Investment Management Inc., Director of the Transfer
New York, NY 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 (37) Vice Since July Executive Director of Morgan Stanley & Co. Incorporated and Morgan Stanley
1221 Avenue of the Americas President 2003 Investment Management Inc. and Vice President of the Institutional Funds
New York, NY (since December 1997) and the Retail Funds (since July 2003); formerly
practiced law with the New York law firm of Rogers & Wells (now Clifford
Chance US LLP).
</Table>
26
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- ----------- -------------- --------------------------------------------------------------------------
Francis J. Smith (38) Treasurer Treasurer Executive Director of the Investment Manager and Morgan Stanley Services
c/o Morgan Stanley Trust and Chief since July (since December 2001); previously Vice President of the Retail Funds
Harborside Financial Center, Financial 2003 and Chief (September 2002- July 2003); previously Vice President of the Investment
Plaza Two, Officer Financial Manager and Morgan Stanley Services (August 2000-November 2001) and Senior
Jersey City, NJ Officer since Manager at PricewaterhouseCoopers LLP (January 1998-August 2000).
September 2002
Thomas F. Caloia (57) Vice Since July Executive Director (since December 2002) and Assistant Treasurer of the
c/o Morgan Stanley Trust President 2003 Investment Manager, the Distributor and Morgan Stanley Services;
Harborside Financial Center, previously Treasurer of the Retail Funds (April 1989-July 2003); formerly
Plaza Two, First Vice President of the Investment Manager, the Distributor and Morgan
Jersey City, NJ Stanley Services.
Mary E. Mullin (36) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated and Morgan Stanley
1221 Avenue of the Americas 2003 Investment Management Inc.; Secretary of the Institutional Funds (since
New York, NY June 1999) and the Retail Funds (since July 2003); formerly practiced law
with the New York law firms of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ----------------
* 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.
27
<Page>
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
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.
[MORGAN STANLEY LOGO]
(C) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
37873RPT-RA04-00024P-A02/04
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
GLOBAL UTILITIES FUND
ANNUAL REPORT
FEBRUARY 29, 2004
[MORGAN STANLEY LOGO]
<Page>
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) Not applicable.
(d) Not applicable.
(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.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 38,530 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 684(2) $ 3,364,576(2)
TAX FEES $ 5,667(3) $ 652,431(4)
ALL OTHER FEES $ 0 $ 0
TOTAL NON-AUDIT FEES $ 6,351 $ 4,017,007
TOTAL $ 44,881 $ 4,017,007
</Table>
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 39,213 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 657(2) $ 2,620,902(2)
TAX FEES $ 5,050(3) $ 302,377(4)
ALL OTHER FEES $ 0 $ 423,095(5)
TOTAL NON-AUDIT FEES $ 5,707 $ 3,346,374
TOTAL $ 44,920 $ 3,346,374
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control
with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically data
verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review
of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supercedes and
replaces all prior versions that may have been adopted from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
<Page>
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
<Page>
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.
<Page>
1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and
<Page>
Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
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.
<Page>
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Global Utilities Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
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