-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PpaRgpuWtHM2Le+kWI6UbsZ6s8UmKs+hxeQxaXbsOez2wGm+QBH7wszF5I/wXUz/ Z6EXRawOfggwwgy8NzpTgg== 0000950136-03-003104.txt : 20031217 0000950136-03-003104.hdr.sgml : 20031217 20031217121652 ACCESSION NUMBER: 0000950136-03-003104 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031217 EFFECTIVENESS DATE: 20031217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY TECHNOLOGY FUND CENTRAL INDEX KEY: 0001116473 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-09983 FILM NUMBER: 031059284 BUSINESS ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 BUSINESS PHONE: (212) 869-6397 MAIL ADDRESS: STREET 1: C/O MORGAN STANLEY TRUST STREET 2: HARBORSIDE FINANCIAL CENTER, PLAZA TWO CITY: JERSEY CITY STATE: NJ ZIP: 07311 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER TECHNOLOGY FUND DATE OF NAME CHANGE: 20000609 N-CSR/A 1 file001.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-09983 Morgan Stanley Technology Fund (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: August 31, 2003 Date of reporting period: August 31, 2003 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Technology Fund performed during the annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund shares may be less than what you paid for them. Accordingly you can lose money investing in this Fund. MORGAN STANLEY TECHNOLOGY FUND FUND REPORT FOR THE YEAR ENDED AUGUST 31, 2003 - -------------------------------------------------------------------------------- TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003 - -------------------------------------------------------------------------------- Class A Class B Class C Class D S&P 500 Index(1) Lipper Science and Technology Funds Index(2) - -------------------------------------------------------------------------------- 28.93% 27.84% 27.98% 28.79% 12.06% 38.26% - -------------------------------------------------------------------------------- The performance of the Fund's four share classes varies because each has different expenses. The Fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information. MARKET CONDITIONS In the early stages of the 12-month period ended August 31, 2003, the long-anticipated economic recovery appeared reluctant to surface. Despite interest rates at historically low levels, corporate earnings failed to rebound as quickly as had been expected. Throughout the fiscal year, economic data transmitted mixed signals regarding the economy's underlying strength. Investor confidence continued to waver during the early part of the period, aggravated by concerns about corporate governance and the perceived lack of balance-sheet integrity. Although the weakness in equities was fairly broad based, technology companies were hit especially hard as corporations trimmed their capital spending on equipment. In addition, downward earnings revisions continued to afflict the telecommunications sector. Investor sentiment was further dampened by geopolitical tensions leading up to the war in Iraq. While these negative forces held investors' attention during most of the first three months of 2003, financial conditions under the surface were improving. Accommodative fiscal and monetary policy signaled to many that the economy might potentially recover in the near future. Recognizing strong values among equities, investors began to return to the market by the end of March. The surprisingly quick resolution to the Iraq conflict triggered a strong market rally that by the end of the period saw the S&P 500 Index appreciate more than 25 percent from its mid-March lows. The defensive sectors and securities that had led during the bear market period fell behind more cyclical sectors as investors' expectations for the economy improved. The best performing groups as the market rallied were technology, financials, consumer cyclicals and basic materials. After a two-and-a-half-year downward spiral, fundamentals in the technology sector bottomed out in the first and second quarter of 2003. From that time through the end of the period, the sector witnessed a gradual recovery in revenues and business fundamentals. This recovery was fueled largely by a resurgence in demand for personal computers (PCs) and handsets. PC sales benefited from an uptick in corporate and consumer upgrades after holding off for the previous few years. PERFORMANCE ANALYSIS The Fund's emphasis on the technology sector, which led the market over the past several months, resulted in considerable outperformance relative to the S&P 500. Positive contributors for the Fund included its investments in the areas of semiconductor capital equipment, semiconductors and contract manufacturers. The upsurge in technology led to a sharp increase in revenues for these companies, as PCs and handsets are responsible for 65 to 70 percent of semiconductor demand. We increased the Fund's allocation to these industries during the period based on our belief that they stand to gain from any uptick in corporate spending on information technology (IT). Computer services benefited from the continuing trend towards outsourcing and accelerated spending by the federal government on IT. By updating its antiquated IT architecture, the federal government is attempting to bring corporate efficiencies and cost savings to the public sector. Outsourcing has become an increasing trend in the corporate world as well, as companies look to control costs by outsourcing non-core functions. While software companies performed strongly, they lagged the broader technology sector in the rally. We have seen signs of an uptick in this industry as corporations have shown a renewed willingness to reinvest in their IT infrastructure. Companies focused on strategic areas such as data security have garnered much of the performance in this sector. Data security is increasingly important as corporations and individual users rely more and more on the Internet and networked environments. On April 24, 2003, the Board of Trustees approved an Agreement and Plan of Reorganization by and between the Fund and Morgan Stanley Information Fund pursuant to which substantially all of the assets of the Fund would be combined with those of Morgan Stanley Information Fund and shareholders of the Fund would become shareholders of Morgan Stanley Information Fund receiving shares of Morgan Stanley Information Fund equal to the value of their holdings in the Fund. Each shareholder of the Fund will receive the Class of shares of Morgan Stanley Information Fund that corresponds to the Class of shares of the Fund currently held by that shareholder. The Reorganization was approved by shareholders of the Fund at a special meeting of shareholders held on September 30, 2003. ANNUAL HOUSEHOLDING NOTICE To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents including shareholder reports, prospectuses and proxy materials to investors with the same last name and who reside at the same address. Your participation in this program will continue for an unlimited period of time, unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 350-6414, 8:00 am to 8:00 pm, ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES A description of the Fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities is available without charge, upon request, by calling (800) 869-NEWS. This information is also available on the Securities and Exchange Commission's website at http://www.sec.gov. - -------------------------------------------------------------------------------- Top 10 Holdings - -------------------------------------------------------------------------------- INTEL CORP. 4.3% - -------------------------------------------------------------------------------- MICROSOFT CORP. 3.8 - -------------------------------------------------------------------------------- ORACLE CORP. 3.3 - -------------------------------------------------------------------------------- AMGEN INC. 2.4 - -------------------------------------------------------------------------------- KLA TENCOR CORP. 2.4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MAXIM INTEGRATED PRODS INC. 2.1 - -------------------------------------------------------------------------------- SYMANTEC CORP. 2.1 - -------------------------------------------------------------------------------- CISCO SYSTEMS INC. 2.1 - -------------------------------------------------------------------------------- ANTEON INTERNATIONAL CORP. 1.9 - -------------------------------------------------------------------------------- LINEAR TECHNOLOGY CORP. 1.9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Top Five Industries - -------------------------------------------------------------------------------- SEMICONDUCTORS 23.0% - -------------------------------------------------------------------------------- PACKAGED SOFTWARE 16.5 - -------------------------------------------------------------------------------- ELECTRONIC PRODUCTION EQUIPMENT 7.0 - -------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT 6.7 - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY SERVICES 5.9 - -------------------------------------------------------------------------------- Subject to change daily. All percentages are as a percentage of net assets. Provided for informational purposes only and should not be deemed as a recommendation to buy the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. MORGAN STANLEY TECHNOLOGY FUND FUND PERFORMANCE AUGUST 31, 2003 PERFORMANCE OF A $10,000 INVESTMENT
Date Class A Class B Class C Class D S&P 500 Lipper - ----------------------------------------------------------------------------------------------------------- October 27, 2000 $9,475 $10,000 $10,000 $10,000 $10,000 $10,000 - ----------------------------------------------------------------------------------------------------------- November 30, 2000 $7,021 $7,410 $7,410 $7,410 $9,545 $7,642 - ----------------------------------------------------------------------------------------------------------- February 28, 2001 $5,211 $5,490 $5,490 $5,500 $9,026 $6,159 - ----------------------------------------------------------------------------------------------------------- May 31, 2001 $4,728 $4,970 $4,970 $4,990 $9,173 $5,990 - ----------------------------------------------------------------------------------------------------------- August 31, 2001 $3,544 $3,710 $3,710 $3,740 $8,307 $4,742 - ----------------------------------------------------------------------------------------------------------- November 30, 2001 $3,771 $3,950 $3,950 $3,990 $8,379 $4,913 - ----------------------------------------------------------------------------------------------------------- February 28, 2002 $2,966 $3,100 $3,100 $3,140 $8,169 $4,202 - ----------------------------------------------------------------------------------------------------------- May 31, 2002 $2,596 $2,710 $2,700 $2,750 $7,904 $3,828 - ----------------------------------------------------------------------------------------------------------- August 31, 2002 $1,867 $1,940 $1,930 $1,980 $6,813 $2,899 - ----------------------------------------------------------------------------------------------------------- November 30, 2002 $2,189 $2,270 $2,260 $2,320 $6,996 $3,312 - ----------------------------------------------------------------------------------------------------------- February 28, 2003 $1,848 $1,910 $1,900 $1,960 $6,317 $2,888 - ----------------------------------------------------------------------------------------------------------- May 31, 2003 $2,170 $2,240 $2,230 $2,300 $7,267 $3,520 - ----------------------------------------------------------------------------------------------------------- August 31, 2003 $2,407[+/+] $2,406[+/+] $2,470[+/+] $2,550[+/+] $7,635 $4,008 - ----------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- ---- Class A --- Class B --- Class C --- Class D ---- S&P 500 (1) ------- Lipper (2) - ---------------------------------------------------------------------------------------------------------------------
Past performance is not predictive of future returns. Investment return and principal value will fluctuate. When you sell fund shares, they may be worth less than their original cost. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses. AVERAGE ANNUAL TOTAL RETURNS-PERIOD ENDED AUGUST 31, 2003
--------------------------------------------------------------------------- CLASS A SHARES* CLASS B SHARES ** CLASS C SHARES + CLASS D SHARES ++ 10/27/00 10/27/00 10/27/00 10/27/00 Symbol TEKAX TEKBX TEKCX TEKDX --------------------------------------------------------------------------- --------------------------------------------------------------------------- 1 Year 28.93 % (3) 27.84 % (3) 27.98 % (3) 28.79 % (3) --------------------------------------------------------------------------- 22.16 (4) 22.84 (4) 26.98 (4) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Since Inception (38.26) (3) (38.78) (3) (38.86) (3) (38.17) (3) --------------------------------------------------------------------------- (39.42) (4) (39.43) (4) (38.86) (4) ---------------------------------------------------------------------------
1.) The Standard and Poor's 500 Index (S&P 500 (R)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 2.) The Lipper Science & Technology Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Science & Technology Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. 3.) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. 4.) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. * The maximum front-end sales charge for Class A is 5.25%. ** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. + The maximum contingent deferred sales charge for Class C is 1% for shares redeemed within one year of purchase. ++ Class D has no sales charge. [+/+] Closing value assuming a complete redemption on August 31, 2003. MORGAN STANLEY TECHNOLOGY FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2003
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (100.4%) Advertising/Marketing Services (1.1%) 200,000 Gemstar-TV Guide International, Inc. * $ 964,000 50,000 Getty Images, Inc. * 2,040,000 --------------------- 3,004,000 --------------------- Biotechnology (5.1%) 100,000 Amgen Inc. * 6,590,000 100,000 Celgene Corp. * 3,849,000 100,000 MedImmune, Inc. * 3,487,000 --------------------- 13,926,000 --------------------- Broadcasting (0.1%) 10,100 Citadel Broadcasting Corp. * 223,008 --------------------- Cable/Satellite TV (1.2%) 750,000 Charter Communications, Inc. (Class A) * 3,375,000 --------------------- Computer Communications (5.3%) 300,000 3Com Corp. * 1,710,000 296,750 Cisco Systems, Inc. * 5,682,762 150,000 Emulex Corp. * 3,631,500 150,000 NetScreen Technologies, Inc. * 3,589,500 --------------------- 14,613,762 --------------------- Computer Peripherals (4.7%) 225,000 EMC Corp. * 2,868,750 250,000 Maxtor Corp. * 2,857,500 200,000 Network Appliance, Inc. * 4,482,000 24,300 Seagate Technology (ADR) (Cayman Islands) 559,143 54,000 Storage Technology Corp. * 1,382,940 15,000 Zebra Technologies Corp. (Class A) * 804,300 --------------------- 12,954,633 --------------------- Computer Processing Hardware (2.6%) 144,000 Dell Inc. * 4,698,720 120,750 Hewlett-Packard Co. 2,405,340 --------------------- 7,104,060 --------------------- Data Processing Services (3.6%) 75,000 Affiliated Computer Services, Inc. (Class A) * 3,720,750 110,000 Computer Sciences Corp. * 4,682,700 50,000 SunGard Data Systems Inc. * 1,410,000 --------------------- 9,813,450 --------------------- Electronic Components (4.7%) 26,500 Amphenol Corp. (Class A) * 1,445,045 100,000 Celestica, Inc. * 1,755,000 100,000 Cree, Inc. * 1,582,000 100,000 Flextronics International Ltd. (Singapore) * 1,349,000 90,000 QLogic Corp. * 4,411,800 400,000 Solectron Corp. * 2,372,000 --------------------- 12,914,845 --------------------- Electronic Distributors (0.8%) 44,100 CDW Corp. * 2,276,001 --------------------- Electronic Equipment/Instruments (1.3%) 80,000 Coherent, Inc. * 2,096,000 100,000 Symbol Technologies, Inc. 1,354,000 --------------------- 3,450,000 --------------------- Electronic Production Equipment (7.0%) 150,000 Amkor Technology, Inc. * 2,637,000 90,000 Applied Materials, Inc. * 1,944,000 20,000 ASML Holding N.V. (Netherlands) * 318,000 50,000 August Technology Corp. * 520,000 110,000 KLA-Tencor Corp. * 6,529,600 110,000 Lam Research Corp. * 2,829,200 115,000 Novellus Systems, Inc. * 4,595,400 --------------------- 19,373,200 --------------------- Information Technology Services (5.9%) 160,000 Anteon International Corp. * 5,204,800 200,000 BearingPoint, Inc. * 1,640,000 34,300 Infosys Technologies Ltd. (ADR) (India) 1,943,095 SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2003 NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------------- 50,000 International Business Machines Corp. 4,100,500 75,000 PeopleSoft, Inc. * 1,357,500 150,000 Unisys Corp. * 1,947,000 --------------------- 16,192,895 --------------------- Internet Retail (1.6%) 120,000 InterActiveCorp. * 4,441,200 --------------------- Internet Software/Services (2.7%) 110,000 BEA Systems, Inc. * 1,490,500 100,000 Siebel Systems, Inc. * 1,008,000 110,000 VeriSign, Inc. * 1,646,700 96,179 Yahoo! Inc. * 3,212,379 --------------------- 7,357,579 --------------------- Media Conglomerates (0.7%) 110,000 AOL Time Warner Inc. * 1,799,600 --------------------- Medical Specialties (1.4%) 75,000 Medtronic, Inc. 3,718,500 --------------------- Other Consumer Services (1.4%) 44,000 Apollo Group, Inc. (Class A) * 2,819,080 25,000 Priceline.com Inc. * 987,250 --------------------- 3,806,330 --------------------- Packaged Software (16.5%) 100,000 Adobe Systems Inc. 3,883,000 50,000 Mercury Interactive Corp. * 2,194,500 350,000 Micromuse Inc. * 2,863,000 397,000 Microsoft Corp. 10,528,440 700,000 Oracle Corp. * 8,946,000 250,000 Quest Software, Inc. * 2,652,500 200,000 Red Hat, Inc. * 1,456,000 110,000 SAP AG (ADR) (Germany) 3,293,400 100,000 Symantec Corp. * 5,743,000 107,552 VERITAS Software Corp. * 3,708,393 --------------------- 45,268,233 --------------------- Recreational Products (0.8%) 25,000 Electronic Arts Inc. * 2,243,750 --------------------- Semiconductors (23.0%) 150,000 Altera Corp. * 3,366,000 100,000 Analog Devices, Inc. * 4,100,000 200,000 Applied Micro Circuits Corp. * 1,162,000 100,000 Broadcom Corp. (Class A) * 2,748,000 75,000 Cypress Semiconductor Corp. * 1,392,750 100,000 GlobespanVirata, Inc. * 761,000 410,000 Intel Corp. 11,734,200 125,000 Linear Technology Corp. 5,152,500 111,000 Marvell Technology Group Ltd. (Bermuda) * 4,680,870 130,000 Maxim Integrated Products, Inc. 5,838,300 150,000 Micrel, Inc. * 2,040,000 111,000 Microchip Technology Inc. 3,109,110 350,000 Micron Technology, Inc. * 5,026,000 150,000 PMC - Sierra, Inc. * 2,139,000 300,000 RF Micro Devices, Inc. * 2,646,000 520,000 Vitesse Semiconductor Corp. * 3,551,600 120,000 Xilinx, Inc. * 3,700,800 --------------------- 63,148,130 --------------------- Telecommunication Equipment (6.7%) 150,000 Comverse Technology, Inc. * 2,473,500 150,000 Corning Inc. * 1,237,500 50,000 Harris Corp. 1,660,000 500,000 Lucent Technologies Inc. * 955,000 90,000 Nokia Corp. (ADR) (Finland) 1,466,100 700,000 Nortel Networks Corp. (Canada) * 2,275,000 100,000 QUALCOMM Inc. 4,128,000 100,000 UTStarcom, Inc. * 4,296,000 --------------------- 18,491,100 --------------------- SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2003 NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------------- Wireless Telecommunications (2.2%) 350,000 AT&T Wireless Services Inc. * 3,017,000 50,000 NII Holdings, Inc. (Class B) * 3,149,500 --------------------- 6,166,500 --------------------- TOTAL INVESTMENTS (Cost $253,430,836) (a) 100.4% 275,661,776 LIABILITIES IN EXCESS OF OTHER ASSETS (0.4) (1,192,037) --------------- --------------------- NET ASSETS 100.0% $274,469,739 =============== ===================== - ------------- ADR American Depository Receipt. * Non-income producing security. (a) The aggregate cost for federal income tax purposes is $266,684,892. The aggregate gross unrealized appreciation is $28,666,220 and the aggregate gross unrealized depreciation is $19,689,336, resulting in net unrealized appreciation of $8,976,884.
SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES August 31, 2003
ASSETS: Investments in securities, at value (cost $253,430,836) $275,661,776 Receivable for: Investments sold 1,670,801 Shares of beneficial interest sold 67,658 Dividends 39,200 Prepaid expenses and other assets 28,370 ----------------- TOTAL ASSETS 277,467,805 ----------------- LIABILITIES: Payable for: Investment management fee 223,032 Distribution fee 202,863 Shares of beneficial interest redeemed 191,209 Payable to bank 1,936,328 Accrued expenses and other payables 444,634 ----------------- TOTAL LIABILITIES 2,998,066 ----------------- NET ASSETS $274,469,739 ================= COMPOSITION OF NET ASSETS: Paid-in-capital $1,362,650,973 Net unrealized appreciation 22,230,940 Net investment loss (364) Accumulated net realized loss (1,110,411,810) ----------------- NET ASSETS $274,469,739 ================= CLASS A SHARES: Net Assets $19,764,184 Shares Outstanding (unlimited authorized, $.01 par value) 7,795,215 NET ASSET VALUE PER SHARE $2.54 ===== MAXIMUM OFFERING PRICE PER SHARE, (net asset value plus 5.54% of net asset value) $2.68 ===== CLASS B SHARES: Net Assets $212,638,694 Shares Outstanding (unlimited authorized, $.01 par value) 85,714,858 NET ASSET VALUE PER SHARE $2.48 ===== CLASS C SHARES: Net Assets $33,045,609 Shares Outstanding (unlimited authorized, $.01 par value) 13,388,392 NET ASSET VALUE PER SHARE $2.47 ===== CLASS D SHARES: Net Assets $9,021,252 Shares Outstanding (unlimited authorized, $.01 par value) 3,536,714 NET ASSET VALUE PER SHARE $2.55 =====
See Notes to Financial Statements MORGAN STANLEY TECHNOLOGY FUND Financial Statements, continued STATEMENT OF OPERATIONS For the year ended August 31, 2003
NET INVESTMENT LOSS: INCOME Dividends (net of $7,147 foreign withholding tax) $407,607 Interest 45,948 ------------------ TOTAL INCOME 453,555 ------------------ EXPENSES Investment management fee 2,532,608 Distribution fee (Class A shares) 47,123 Distribution fee (Class B shares) 1,950,422 Distribution fee (Class C shares) 300,234 Transfer agent fees and expenses 1,701,576 Shareholder reports and notices 447,646 Professional fees 134,576 Registration fees 75,049 Trustees' fees and expenses 13,359 Other 18,093 ------------------ TOTAL EXPENSES 7,220,686 ------------------ NET INVESTMENT LOSS (6,767,131) ------------------ NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized loss (165,518,706) Net change in unrealized depreciation 234,397,205 ------------------ NET GAIN 68,878,499 ------------------ NET INCREASE $62,111,368 ==================
See Notes to Financial Statements MORGAN STANLEY TECHNOLOGY FUND Financial Statements, continued STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2003 AUGUST 31, 2002 ----------------- ------------------ INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $(6,767,131) $(11,033,092) Net realized loss (165,518,706) (408,037,298) Net change in unrealized depreciation 234,397,205 158,223,428 ----------------- ------------------ NET INCREASE (DECREASE) 62,111,368 (260,846,962) Net decrease from transactions in shares of beneficial interest (54,330,781) (51,706,927) ----------------- ------------------ NET INCREASE (DECREASE) 7,780,587 (312,553,889) NET ASSETS: Beginning of period 266,689,152 579,243,041 ----------------- ------------------ END OF PERIOD (Including a net investment loss of $364 and $0, respectively) $274,469,739 $266,689,152 ================= ==================
See Notes to Financial Statements MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Technology Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end management investment company. The Fund's investment objective is long-term capital appreciation. The Fund seeks to achieve its objective by investing primarily in common stocks of companies of any asset size engaged in technology and technology-related industries. The Fund was organized as a Massachusetts business trust on June 14, 2000 and commenced operations on October 27, 2000. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The following is a summary of significant accounting policies: A. Valuation of Investments - (1) an equity portfolio security listed or traded on the New York or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other equity portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) when market quotations are not readily available or Morgan Stanley Investment Advisors Inc. (the "Investment Manager") and/or Morgan Stanley Investment Management Inc. (the "Sub-Advisor"), an affiliate of the Investment Manager, determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (7) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short- MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. Accounting for Investments - Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Repurchase Agreements - Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Multiple Class Allocations - Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. Foreign Currency Translation and Forward Foreign Currency Contracts - The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. F. Federal Income Tax Policy - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. Dividends and Distributions to Shareholders - Dividends and distributions to shareholders are recorded on the ex-dividend date. H. Use of Estimates - The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the annual rate of 1.0% to the net assets of the Fund determined as of the close of each business day. Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment Manager, the Sub-Advisor provides the Fund with investment advice and portfolio management relating to the Fund's investments in securities, subject to the overall supervision of the Investment Manager. As compensation for its services provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the Sub-Advisor compensation of $1,013,043 for the year ended August 31, 2003. 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager and Sub-Advisor. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the average daily net assets of Class B; and (iii) Class C - up to 1.0% of the average daily net assets of Class C. MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $54,696,250 at August 31, 2003. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the year ended August 31, 2003, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 0.99%, respectively. The Distributor has informed the Fund that for the year ended August 31, 2003, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $937,169 and $5,734, respectively and received $38,150 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended August 31, 2003 aggregated $275,212,670, and $335,015,468, respectively. Included in the aforementioned are sales with other Morgan Stanley funds of $322,700, including a net realized gain of $4,100. For the year ended August 31, 2003, the Fund incurred $71,148 in brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager, Sub-Advisor and Distributor, for portfolio transactions executed on behalf of the Fund. At August 31, 2003, Morgan Stanley Fund of Funds - Domestic Portfolio, an affiliate of the Investment Manager, Sub-Advisor and Distributor, owned 451,741 Class D shares of beneficial interest of the Fund. MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and Distributor, is the Fund's transfer agent. At August 31, 2003, the Fund had transfer agent fees and expenses payable of approximately $13,600. 5. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2003 AUGUST 31, 2002 ------------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- ------------- CLASS A SHARES Sold ................... 2,090,999 $ 4,173,257 3,093,502 $ 9,766,147 Redeemed ............... (4,593,565) (9,363,824) (5,280,732) (17,450,389) ------------- ------------- ------------- ------------- Net decrease - Class A . (2,502,566) (5,190,567) (2,187,230) (7,684,242) ------------- ------------- ------------- ------------- CLASS B SHARES Sold ................... 10,465,482 21,081,182 28,876,946 95,755,441 Redeemed ............... (30,413,898) (61,346,834) (39,915,573) (122,157,534) ------------- ------------- ------------- ------------- Net decrease - Class B . (19,948,416) (40,265,652) (11,038,627) (26,402,093) ------------- ------------- ------------- ------------- CLASS C SHARES Sold ................... 1,684,036 3,449,894 3,635,631 11,409,732 Redeemed ............... (4,827,587) (9,819,809) (6,793,756) (21,736,036) ------------- ------------- ------------- ------------- Net decrease - Class C . (3,143,551) (6,369,915) (3,158,125) (10,326,304) ------------- ------------- ------------- ------------- CLASS D SHARES Sold ................... 2,011,288 4,105,835 1,790,179 5,633,253 Redeemed ............... (3,066,610) (6,610,482) (4,176,572) (12,927,541) ------------- ------------- ------------- ------------- Net decrease - Class D . (1,055,322) (2,504,647) (2,386,393) (7,294,288) ------------- ------------- ------------- ------------- Net decrease in Fund ... (26,649,855) $ (54,330,781) (18,770,375) $ (51,706,927) ============= ============= ============= =============
6. FEDERAL INCOME TAX STATUS The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. As of August 31, 2003, the tax-basis components of accumulated losses were as follows: Net accumulated earnings - Capital loss carryforward* ($955,908,474) Post-October losses (141,249,644) Net unrealized appreciation 8,976,884 --------------- Total accumulated losses ($1,088,181,234) ================ *As of August 31, 2003, the Fund had a net capital loss carryforward of $955,908,474 of which $562,408,797 will expire on August 31, 2010 and $393,499,677 will expire on August 31, 2011 to offset future capital gains to the extent provided by regulations. As of August 31, 2003, the Fund had temporary book/tax differences attributable to post-October losses (capital and foreign currency losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year) and capital loss deferrals on wash sales and permanent book/tax differences primarily attributable to a net operating loss and nondeductible expenses. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged $6,767,131, accumulated net realized loss was credited $364 and net investment loss was credited $6,766,767. 7. LITIGATION Beginning on July 31, 2002, several purported class action complaints were filed against Morgan Stanley, the Fund, the Sub-Advisor and certain subsidiaries of Morgan Stanley, alleging securities fraud violations in connection with the underwriting and management of the Fund. Plaintiffs allege in theses cases that Morgan Stanley analysts issued overly optimistic stock recommendations to obtain investment banking business and that the desire to obtain investment banking business influenced decisions by the Fund's Sub-Advisor. On August 29, 2003, the U.S. District Court for the Southern District of New York entered an Order approving the parties' stipulation to stay the case pending the decision of the U.S. Circuit Court of Appeals for the Second Circuit in an appeal from the dismissal of a similar case brought against another party by the same plaintiffs' law firm. The Fund and Morgan Stanley believe these lawsuits have no merit, and no provision has been made in the Fund's financial statements for the effect, if any, of such matters. MORGAN STANLEY TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS August 31, 2003 continued 8. SUBSEQUENT EVENT - FUND MERGER On October 6, 2003, the Fund was acquired by Morgan Stanley Information Fund ("Information") based on the respective valuations as of the close of business on October 3, 2003 pursuant to a Plan of Reorganization approved by the shareholders of the Fund on September 30, 2003. The acquisition was accomplished by a tax-free exchange of 2,031,354 Class A shares of Information at a net asset value of $9.58 per share for 7,513,659 Class A shares of the Fund; 23,335,652 Class B shares of Information at a net asset value of $9.08 per share for 83,750,085 Class B shares of the Fund; 3,616,872 Class C shares of Information at a net asset value of $9.08 per share for 13,032,221 Class C shares of the Fund; 908,132 Class D shares of Information at a net asset value of $9.73 per share for 3,398,510 Class D shares of the Fund. The net assets of Information and the Fund immediately before the acquisition were $560,412,309 and $272,963,163, respectively, including unrealized appreciation of $26,322,101 for the Fund. Immediately after the acquisition, the combined net assets of Information amounted to $833,375,472. MORGAN STANLEY TECHNOLOGY FUND FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE PERIOD FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000* ENDED ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001 -------------------------- ----------------------- ------------------------- CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period ....... $1.97 $3.74 $10.00 -------------------------- ----------------------- ------------------------- Income (loss) from investment operations: Net investment loss[+/+] ............... (0.04) (0.05) (0.05) Net realized and unrealized gain (loss) 0.61 (1.72) (6.21) -------------------------- ----------------------- ------------------------- Total income (loss) from investment operations ............................. 0.57 (1.77) (6.26) -------------------------- ----------------------- ------------------------- Net asset value, end of period ............. $2.54 $1.97 $3.74 ========================== ======================= ========================= TOTAL RETURN+ .............................. 28.93 % (47.33)% (62.60)%(1) RATIOS TO AVERAGE NET ASSETS (3): Expenses ................................... 2.19 % 1.76 % 1.54 %(2) Net investment loss ........................ (2.01)% (1.65)% (1.11)%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands .... $19,764 $20,302 $46,680 Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------ * Commencement of operations. [+/+] The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000* ENDED ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001 -------------------------- ------------------------ ------------------------ CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period ....... $1.94 $3.71 $10.00 -------------------------- ------------------------ ------------------------ Income (loss) from investment operations: Net investment loss[+/+] ............... (0.06) (0.08) (0.09) Net realized and unrealized gain (loss) 0.60 (1.69) (6.20) -------------------------- ------------------------ ------------------------ Total income (loss) from investment operations ............................. 0.54 (1.77) (6.29) -------------------------- ------------------------ ------------------------ Net asset value, end of period ............. $2.48 $1.94 $3.71 ========================== ======================== ======================== TOTAL RETURN+ .............................. 27.84 % (47.71)% (62.90)%(1) RATIOS TO AVERAGE NET ASSETS (3): Expenses ................................... 2.94 % 2.51 % 2.32 %(2) Net investment loss ........................ (2.76)% (2.40)% (1.89)%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands .... $212,639 $205,338 $433,330 Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------ * Commencement of operations. [+/+] The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000* ENDED ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001 -------------------------- ---------------------- ------------------------- CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period ...... $1.93 $3.71 $10.00 -------------------------- ---------------------- ------------------------- Income (loss) from investment operations: Net investment loss[+/+] .............. (0.06) (0.08) (0.09) Net realized and unrealized gain (loss) 0.60 (1.70) (6.20) -------------------------- ---------------------- ------------------------- Total income (loss) from investment operations ............................ 0.54 (1.78) (6.29) -------------------------- ---------------------- ------------------------- Net asset value, end of period ............ $2.47 $1.93 $3.71 ========================== ====================== ========================= TOTAL RETURN+ ............................. 27.98 % (47.98)% (62.90)%(1) RATIOS TO AVERAGE NET ASSETS (3): Expenses .................................. 2.93 % 2.51 % 2.32 %(2) Net investment loss ....................... (2.75)% (2.40)% (1.89)%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands ... $33,046 $31,960 $73,111 Portfolio turnover rate ................... 110 % 100 % 95 %(1)
- ------------------------ * Commencement of operations. [+/+] The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND FINANCIAL HIGHLIGHTS continued
FOR THE PERIOD FOR THE YEAR FOR THE YEAR OCTOBER 27, 2000* ENDED ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001 --------------------------- --------------------- ------------------------- CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period ....... $1.98 $3.74 $10.00 --------------------------- --------------------- ------------------------- Income (loss) from investment operations: Net investment loss[+/+] ............... (0.04) (0.05) (0.05) Net realized and unrealized gain (loss) 0.61 (1.71) (6.21) --------------------------- --------------------- ------------------------- Total income (loss) from investment operations ............................. 0.57 (1.76) (6.26) --------------------------- --------------------- ------------------------- Net asset value, end of period ............. $2.55 $1.98 $3.74 =========================== ===================== ========================= TOTAL RETURN+ .............................. 28.79 % (47.06)% (62.60)%(1) RATIOS TO AVERAGE NET ASSETS (3): Expenses ................................... 1.94 % 1.51 % 1.32 %(2) Net investment loss ........................ (1.76)% (1.40)% (0.89)%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands .... $9,021 $9,089 $26,122 Portfolio turnover rate .................... 110 % 100 % 95 %(1)
- ------------------------ * Commencement of operations. [+/+] The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. SEE NOTES TO FINANCIAL STATEMENTS MORGAN STANLEY TECHNOLOGY FUND INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Morgan Stanley Technology Fund: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Technology Fund (the "Fund"), including the portfolio of investments, as of August 31, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Technology Fund as of August 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York October 21, 2003 Morgan Stanley Technology Fund Trustee and Officer Information Independent Trustees:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Independent Trustee Registrant Served* - -------------------------------------- ------------- -------------- Michael Bozic (62) Trustee Since c/o Mayer, Brown, Rowe & Maw LLP April 1994 Counsel to the Independent Directors 1675 Broadway New York, NY Edwin J. Garn (70) Trustee Since c/o Summit Ventures LLC January 1993 1 Utah Center 201 S. Main Street Salt Lake City, UT Wayne E. Hedien (69) Trustee Since c/o Mayer, Brown, Rowe & Maw LLP September Counsel to the Independent Directors 1997 1675 Broadway New York, NY Number of Portfolios in Fund Complex Overseen Name, Age and Address of Principal Occupation(s) by Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee - -------------------------------------- ----------------------------------------- ------------ ------------------------------------ Michael Bozic (62) Retired; Director or Trustee of the 216 Director of Weirton Steel c/o Mayer, Brown, Rowe & Maw LLP Retail Funds and TCW/DW Term Trust Corporation. Counsel to the Independent Directors 2003 (since April 1994) and the 1675 Broadway Institutional Funds (since July 2003); New York, NY formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (70) Director or Trustee of the Retail Funds 216 Director of Franklin Covey (time c/o Summit Ventures LLC and TCW/DW Term Trust 2003 (since management systems), BMW Bank 1 Utah Center January 1993) and the Institutional of North America, Inc. (industrial 201 S. Main Street Funds (since July 2003); member of loan corporation), United Space Salt Lake City, UT the Utah Regional Advisory Board of Alliance (joint venture between Pacific Corp.; formerly United States Lockheed Martin and the Boeing Senator (R-Utah) (1974-1992) and Company) and Nuskin Asia Pacific Chairman, Senate Banking Committee (multilevel marketing); member of (1980-1986), Mayor of Salt Lake City, the board of various civic and Utah (1971-1974), Astronaut, Space charitable organizations. Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (69) Retired; Director or Trustee of the 216 Director of The PMI Group Inc. c/o Mayer, Brown, Rowe & Maw LLP Retail Funds and TCW/DW Term Trust (private mortgage insurance); Counsel to the Independent Directors 2003; (Since September 1997) and Trustee and Vice Chairman of The 1675 Broadway the Institutional Funds (since July Field Museum of Natural History; New York, NY 2003); formerly associated with the director of various other business Allstate Companies (1966-1994), and charitable organizations. most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).
1 Morgan Stanley Technology Fund Trustee and Officer Information continued
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Independent Trustee Registrant Served* - --------------------------------------- ------------- ------------ Dr. Manuel H. Johnson (54) Trustee Since c/o Johnson Smick International, Inc. July 1991 2099 Pennsylvania Avenue, N.W. Suite 950 Washington, D.C. Joseph J. Kearns (61) Trustee Since PMB754 July 2003 23852 Pacific Coast Highway Malibu, CA Michael E. Nugent (67) Trustee Since c/o Triumph Capital, L.P. July 1991 445 Park Avenue New York, NY Fergus Reid (71) Trustee Since 85 Charles Colman Blvd. July 2003 Pawling, NY Number of Portfolios in Fund Complex Overseen Name, Age and Address of Principal Occupation(s) by Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee - --------------------------------------- ---------------------------------------- ------------ ------------------------------------- Dr. Manuel H. Johnson (54) Chairman of the Audit Committee and 216 Director of NVR, Inc. (home c/o Johnson Smick International, Inc. Director or Trustee of the Retail Funds construction); Chairman and Trustee 2099 Pennsylvania and TCW/DW Term Trust 2003 (since of the Financial Accounting Avenue, N.W. July 1991) and the Institutional Funds Foundation (oversight organization Suite 950 (since July 2003); Senior Partner, of the Financial Accounting Washington, D.C. Johnson Smick International, Inc., a Standards Board); Director of RBS consulting firm; Co-Chairman and a Greenwich Capital Holdings (financial founder of the Group of Seven Council holding company). (G7C), an international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (61) Deputy Chairman of the Audit 217 Director of Electro Rent Corporation PMB754 Committee and Director or Trustee of (equipment leasing), The Ford Family 23852 Pacific Coast Highway the Retail Funds and TCW/DW Term Foundation, and the UCLA Malibu, CA Trust 2003 (since July 2003) and the Foundation. Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); President, Kearns & Associates LLC (investment consulting); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (67) Chairman of the Insurance Committee 216 Director of various business c/o Triumph Capital, L.P. and Director or Trustee of the Retail organizations. 445 Park Avenue Funds and TCW/DW Term Trust 2003 New York, NY (since July 1991) and the Institutional Funds (since July 2001); General Partner of Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation ( 1984-1988). Fergus Reid (71) Chairman of the Governance 217 Trustee and Director of certain 85 Charles Colman Blvd. Committee and Director or Trustee of investment companies in the Pawling, NY the Retail Funds and TCW/DW Term JPMorgan Funds complex managed Trust 2003 (since July 2003) and the by JP Morgan Investment Institutional Funds (since June 1992); Management Inc. Chairman of Lumelite Plastics Corporation.
2 Morgan Stanley Technology Fund Trustee and Officer Information continued Interested Trustees:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Independent Trustee Registrant Served* - ------------------------------ ------------- ------------ Charles A. Fiumefreddo (70) Chairman of Since c/o Morgan Stanley Trust the Board July 1991 Harborside Financial Center, and Trustee Plaza Two, Jersey City, NJ James F. Higgins (55) Trustee Since c/o Morgan Stanley Trust June 2000 Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (60) Trustee Since 1585 Broadway April 1994 New York, NY Number of Portfolios in Fund Complex Overseen Name, Age and Address of Principal Occupation(s) by Independent Trustee During Past 5 Years** Trustee*** Other Directorships Held by Trustee - ------------------------------ ----------------------------------------- ------------ ------------------------------------ Charles A. Fiumefreddo (70) Chairman and Director or Trustee of 216 None c/o Morgan Stanley Trust the Retail Funds and TCW/DW Term Harborside Financial Center, Trust 2003 (since July 1991) and the Plaza Two, Institutional Funds (since July 2003); Jersey City, NJ formerly Chief Executive Officer of the Retail Funds and the TCW/DW Term Trust 2003 (until September 2002). James F. Higgins (55) Director or Trustee of the Retail Funds 216 Director of AXA Financial, Inc. and c/o Morgan Stanley Trust and TCW/DW Term Trust 2003 (since The Equitable Life Assurance Harborside Financial Center, June 2000) and the Institutional Funds Society of the United States Plaza Two, (since July 2003); Senior Advisor of (financial services). Jersey City, NJ Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (60) Director or Trustee of the Retail Funds 216 Director of American Airlines, Inc. 1585 Broadway and TCW/DW Term Trust 2003 (since and its parent company, AMR New York, NY April 1994) and the Institutional Funds Corporation. (since July 2003); Chairman of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW Inc.; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries.
- ------------ * This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the "Retail Funds"). ** The dates referenced below indicating commencement of services as Director/Trustee for the Retail Funds and the funds advised by Morgan Stanley Investment Management Inc., Morgan Stanley Investments LP and Morgan Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the Director/Trustee began serving the Retail or Institutional Funds as applicable. *** The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Manager and any funds that have an investment advisor that is an affiliated person of the Investment Manager (including but not limited to Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP). 3 Morgan Stanley Technology Fund Trustee and Officer Information continued Officers:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Executive Officer Registrant Served* - ----------------------------- ------------------- ------------------ Mitchell M. Merin (50) President Since May 1999 1221 Avenue of the Americas New York, NY Ronald E. Robison (64) Executive Vice Since April 2003 1221 Avenue of the Americas President and New York, NY Principal Executive Officer Barry Fink (48) Vice President Since 1221 Avenue of the Americas and General February 1997 New York, NY Counsel Joseph J. McAlinden (60) Vice President Since July 1995 1221 Avenue of the Americas New York, NY Stefanie V. Chang (36) Vice President Since July 2003 1221 Avenue of the Americas New York, NY Name, Age and Address of Executive Officer Principal Occupation(s) During Past 5 Years** - ----------------------------- ----------------------------------------------------------------------------------------- Mitchell M. Merin (50) President and Chief Operating Officer of Morgan Stanley Investment Management 1221 Avenue of the Americas Inc.; President, Director and Chief Executive Officer of the Investment Manager New York, NY and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President Morgan Stanley Investments LP (since February 2003); President of the Institutional Funds (since July 2003) and President of the Retail Funds and TCW/DW Term Trust 2003 (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Ronald E. Robison (64) Chief Global Operations Officer and Managing Director of Morgan Stanley 1221 Avenue of the Americas Investment Management Inc.; Managing Director of Morgan Stanley & Co. New York, NY Incorporated; Managing Director of Morgan Stanley; Managing Director, Chief Administrative Officer and Director of the Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003); and the TCW/DW Term Trust 2003 (since April 2003); previously President of the Institutional Funds (March 2001-July 2003) and Director of the Institutional Funds (March 2001-July 2003). Barry Fink (48) General Counsel (since May 2000) and Managing Director (since December 2000) of 1221 Avenue of the Americas Morgan Stanley Investment Management; Managing Director (since December 2000), New York, NY Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Chief Legal Officer of Morgan Stanley Investments LP (since July 2002); Vice President of the Institutional Funds (since July 2003); Vice President and Secretary of the Distributor; previously Secretary of the Retail Funds (February 1997-July 2003); previously Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Joseph J. McAlinden (60) Managing Director and Chief Investment Officer of the Investment Manager, Morgan 1221 Avenue of the Americas Stanley Investment Management Inc. and Morgan Stanley Investments LP; Director of New York, NY the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (36) Executive Director of Morgan Stanley & Co. and Morgan Stanley Investment 1221 Avenue of the Americas Management Inc. and Vice President of the Institutional Funds (since December 1997) New York, NY and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance LLP).
4 Morgan Stanley Technology Fund Trustee and Officer Information continued
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Executive Officer Registrant Served* - ------------------------------ ----------------- ----------------- Francis Smith (38) Treasurer and Treasurer since c/o Morgan Stanley Trust Chief Financial July 2003 and Harborside Financial Center, Officer Chief Financial Plaza Two, Officer since Jersey City, NJ September 2002 Thomas F. Caloia (57) Vice President Since July 2003 c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Mary E. Mullin (36) Secretary Since July 2003 1221 Avenue of the Americas New York, NY Name, Age and Address of Executive Officer Principal Occupation(s) During Past 5 Years** - ------------------------------ ----------------------------------------------------------------------------------------- Francis Smith (38) Executive Director of the Investment Manager and Morgan Stanley Services (since c/o Morgan Stanley Trust December 2001); previously Vice President of the Retail Funds (September 2002-July Harborside Financial Center, 2003); previously Vice President of the Investment Manager and Morgan Stanley Plaza Two, Services (August 2000-November 2001) and Senior Manager at Jersey City, NJ PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (57) Executive Director (since December 2002) and Assistant Treasurer of the Investment c/o Morgan Stanley Trust Manager, the Distributor and Morgan Stanley Services; previously Treasurer of the Retail Harborside Financial Center, Funds (April 1989-July 2003); formerly First Vice President of the Investment Manager, Plaza Two, the Distributor and Morgan Stanley Services. Jersey City, NJ Mary E. Mullin (36) Vice President of Morgan Stanley & Co. Incorporated and Morgan Stanley Investment 1221 Avenue of the Americas Management Inc.; Secretary of the Institutional Funds (since June 1999) and the Retail New York, NY Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
- ------------ * This is the earliest date the Officer began serving the Retail Funds. Each Officer serves an indefinite term, until his or her successor is elected. ** The dates referenced below indicating commencement of service as an Officer for the Retail and Institutional Funds reflect the earliest date the Officer began serving the Retail or Institutional Funds as applicable. 5 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President and General Counsel Joseph J. McAlinden Vice President Stefanie V. Chang Vice President Francis Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 SUB-ADVISOR Morgan Stanley Investment Management Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless proceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (copyright) 2003 Morgan Stanley [MORGAN STANLEY LOGO OMITTED] [MORGAN STANLEY FUNDS LOGO OMITTED] MORGAN STANLEY TECHNOLOGY FUND Annual Report August 31, 2003 [MORGAN STANLEY LOGO OMITTED] Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) 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. Item 4. Principal Accountant Fees and Services Applicable only for reports covering fiscal years ending on or after December 15, 2003. 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. 2 Item 10 Exhibits (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Technology Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer October 20, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer October 20, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer October 20, 2003 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Technology Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer December 8, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer December 8, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer December 8, 2003 3 EXHIBIT 10 A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS -------------------------------------------------------------------- ADOPTED JULY 31, 2003 --------------------- I. This Code of Ethics (the "Code") for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. o full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable laws and governmental rules and regulations; o prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment 4 Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: o use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; o cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or o use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. 5 Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: o service or significant business relationships as a director on the board of any public or private company; o accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; o each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and 6 o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; o annually thereafter affirm to the Boards that he has complied with the requirements of the Code; o not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(1) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: o the General Counsel will take all appropriate action to investigate any potential violations reported to him; o if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; o any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; o if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable - ---------------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." 7 policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; o the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. 8 VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - ------------------------------ Date: ------------------------ 9 EXHIBIT B --------- INSTITUTIONAL FUNDS COVERED OFFICERS ---------------- Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer James W. Garrett - Chief Financial Officer and Treasurer RETAIL FUNDS COVERED OFFICERS ---------------- Mitchell M. Merin - President Ronald E. Robison - Executive Vice President and Principal Executive Officer Frank Smith - Chief Financial Officer and Treasurer 10 EXHIBIT C --------- GENERAL COUNSEL --------------- Barry Fink 11 EXHIBIT 10 B1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS -------------- I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Technology Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-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): 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 12 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: October 20, 2003 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 13 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 Technology Fund; 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 14 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: October 20, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer 15 EXHIBIT 10 B3 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER CERTIFICATIONS -------------- I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Morgan Stanley Technology Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-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): 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 16 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: December 8, 2003 /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 17 EXHIBIT 10 B4 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER CERTIFICATIONS -------------- I, Francis Smith, certify that: 6. I have reviewed this report on Form N-CSR of Morgan Stanley Technology Fund; 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 18 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: December 8, 2003 /s/ Francis Smith Francis Smith Principal Financial Officer 19 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Technology Fund In connection with the Report on Form N-CSR (the "Report") of the above- named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: October 20, 2003 /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 Technology Fund and will be retained by Morgan Stanley Technology Fund and furnished to the Securities and Exchange Commission or its staff upon request. 20 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Technology Fund In connection with the Report on Form N-CSR (the "Report") of the above- named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: October 20, 2003 /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 Technology Fund and will be retained by Morgan Stanley Technology Fund and furnished to the Securities and Exchange Commission or its staff upon request. 21 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Technology Fund In connection with the Report on Form N-CSR (the "Report") of the above- named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: December 8, 2003 /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 Technology Fund and will be retained by Morgan Stanley Technology Fund and furnished to the Securities and Exchange Commission or its staff upon request. 22 SECTION 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Morgan Stanley Technology Fund In connection with the Report on Form N-CSR (the "Report") of the above- named issuer for the period ended August 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: December 8, 2003 /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 Technology Fund and will be retained by Morgan Stanley Technology Fund and furnished to the Securities and Exchange Commission or its staff upon request. 23 -----END PRIVACY-ENHANCED MESSAGE-----