N-CSRS/A 1 y92357nvcsrsza.txt N-CSRS/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/A CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07119 Morgan Stanley Global Utilities Fund (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: February 29, 2004 Date of reporting period: August 31, 2003 Item 1 - Report to Shareholders Welcome, Shareholder: In this report, you'll learn about how your investment in Morgan Stanley Global Utilities Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the 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. FUND REPORT For the six-month period ended August 31, 2003 TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 2003
MSCI WORLD LIPPER UTILITY CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2) 12.83% 12.39% 12.30% 12.92% 21.56% 15.97%
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 The six months ended August 31, 2003, were a very positive period for global equities. The coalition's war with Iraq developed speedily, and there were signs of improving economies, particularly in the United States. Global equity markets rallied sharply from their mid-March lows to end the period with solid gains. The strongest-performing segments of the market in the rally were generally the more-aggressive and lower-quality sectors and securities that had lagged in the bear market. In line with their generally defensive nature, global utilities stocks improved during the six months but lagged the rising broader markets. A particularly positive factor for U.S. dividend-paying utilities and telecommunications stocks was the reduction of the federal income tax rate on dividends. While the U.S. dollar was weak in the early part of this six months, it strengthened against most foreign currencies later as a result of the strengthening U.S. economy. PERFORMANCE ANALYSIS Performance within the utilities sector reflected broader market trends in that lower-quality stocks tended to outperform, in both utilities/ telecommunications and other industries. Its focus on relatively high-quality companies caused the Fund to lag in the rally's more-aggressive environment. During this period we increased the Fund's exposure to more growth-oriented equities, including selected telecommunications and power stocks, in order to participate in the improving performance of these companies. We also trimmed the Fund's foreign holdings, out of concern over the potential impact of the strengthening dollar on non-U.S. stocks. 2
TOP 10 HOLDINGS Cinergy 4.3% Entergy 4.0 FPL Group 4.0 Dominion Resources 4.0 Energy East 3.7 Southern Co. 3.7 BellSouth 3.7 Keyspan 3.6 Ameren 3.5 Exelon 3.5
LARGEST COUNTRIES U.S.A. 75.2% Canada 6.0 United Kingdom 5.5 Germany 4.2 Australia 1.8
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 advisor services. INVESTMENT STRATEGY 1. THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN SECURITIES OF COMPANIES FROM AROUND THE WORLD THAT ARE PRIMARILY ENGAGED IN THE UTILITIES INDUSTRY. 2. A COMPANY WILL BE CONSIDERED PRIMARILY ENGAGED IN THE UTILITIES INDUSTRY IF IT DERIVES AT LEAST 50 PERCENT OF ITS REVENUES OR EARNINGS FROM THE UTILITIES INDUSTRY OR DEVOTES 50 PERCENT OF ITS ASSETS TO ACTIVITIES IN THE INDUSTRY. 3. THESE MAY INCLUDE COMPANIES INVOLVED IN, AMONG OTHER AREAS: TELECOMMUNICATIONS, COMPUTERS AND OTHER NEW OR EMERGING TECHNOLOGY COMPANIES, GAS AND ELECTRIC ENERGY, WATER DISTRIBUTION, THE INTERNET AND INTERNET RELATED SERVICES. THE COMPANIES MAY BE TRADITIONALLY REGULATED PUBLIC UTILITIES AS WELL AS FULLY OR PARTIALLY DEREGULATED AND UNREGULATED UTILITY COMPANIES. 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 (6397). THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV. 3 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED AUGUST 31, 2003
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++) 07/28/97 05/31/94 07/28/97 07/28/97 SYMBOL GUTAX GUTBX GUTCX GUTDX 1 YEAR 3.94%(3) 3.12%(3) 3.17%(3) 4.15%(3) (1.52)(4) (1.88)(4) 2.17(4) 5 YEARS 1.14(3) 0.41(3) 0.42(3) 1.40(3) 0.05(4) 0.15(4) 0.42(4) SINCE INCEPTION 4.07(3) 6.61(3) 3.32(3) 4.35(3) 3.16(4) 6.61(4) 3.32(4)
Past performance is not predictive of future returns. Investment return and principal value will fluctuate. When you sell fund shares, they may be worth less than their original cost. The table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses. -------------------------------------------------------------------------------- Notes on Performance (1) The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including securities representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific region. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. "Net dividends" reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the Index. Indexes are unmanaged and their returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. (2) The Lipper Utility Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Utility Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 10 funds represented in this Index. (3) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. (4) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. * The maximum front-end sales charge for Class A is 5.25%. ** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. + The maximum CDSC for Class C is 1% for shares redeemed within one year of purchase. ++ Class D has no sales charge. 4 Morgan Stanley Global Utilities Fund PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED)
NUMBER OF SHARES VALUE ------------------------------------------------------ Common Stocks (93.8%) Australia (1.8%) Energy 815,300 Australian Gas Light Company Ltd. ........... $ 5,678,522 ------------ Canada (6.0%) Energy 252,000 Enbridge Inc. ........... 9,283,157 ------------ Telecommunications 441,800 BCE Inc. ................ 9,573,715 ------------ Total Canada............. 18,856,872 ------------ Germany (4.2%) Electric Utilities 148,300 E. ON AG................. 7,671,549 206,600 RWE AG................... 5,566,072 ------------ Total Germany............ 13,237,621 ------------ Spain (1.1%) Telecommunications 277,700 Telefonica S.A.*......... 3,269,578 ------------ United Kingdom (5.5%) Energy 2,373,900 Centrica PLC............. 6,647,991 ------------ Telecommunications 580,900 Vodafone Group PLC (ADR)................... 10,630,470 ------------ Total United Kingdom..... 17,278,461 ------------ United States (75.2%) Electric Utilities 261,700 Ameren Corp. ............ 11,122,250 396,900 Cinergy Corp. ........... 13,581,918 275,400 Consolidated Edison, Inc. ................... 10,886,562 300,000 Constellation Energy Group, Inc. ............ 10,917,000 205,900 Dominion Resources, Inc. ................... 12,473,422
NUMBER OF SHARES VALUE ------------------------------------------------------ 140,600 DTE Energy Co. .......... $ 4,908,346 537,500 Energy East Corp. ....... 11,604,625 242,300 Entergy Corp. ........... 12,708,635 188,000 Exelon Corp. ............ 11,073,200 205,000 FPL Group, Inc. ......... 12,681,300 85,000 PG&E Corp.*.............. 1,884,450 186,500 PPL Corp. ............... 7,398,455 244,600 Public Service Enterprise Group, Inc. ............ 10,356,364 323,900 Puget Energy, Inc. ...... 7,061,020 293,900 SCANA Corp. ............. 9,992,600 408,900 Southern Co. (The)....... 11,604,582 ------------ 160,254,729 ------------ Energy 172,200 AGL Resources, Inc. ..... 4,792,326 339,300 KeySpan Corp. ........... 11,451,375 353,600 NiSource Inc. ........... 6,838,624 ------------ 23,082,325 ------------ Telecommunications 115,000 ALLTEL Corp. ............ 5,267,000 852,100 AT&T Wireless Services Inc.*................... 7,345,102 460,000 BellSouth Corp. ......... 11,592,000 115,000 CenturyTel, Inc. ........ 3,997,400 106,680 Comcast Corp. (Class A)*..................... 3,173,730 50,700 Cox Communications, Inc. (Class A)*.............. 1,658,904 430,000 SBC Communications, Inc. ................... 9,670,700 280,100 Verizon Communications Inc. ................... 9,893,132 ------------ 52,597,968 ------------ Total United States...... 235,935,022 ------------ Total Common Stocks (Cost $280,182,705)...... 294,256,076 ------------
See Notes to Financial Statements 5 Morgan Stanley Global Utilities Fund PORTFOLIO OF INVESTMENTS - AUGUST 31, 2003 (UNAUDITED) continued
PRINCIPAL AMOUNT IN THOUSANDS VALUE ------------------------------------------------------ Short-Term Investment (5.8%) Repurchase Agreement $18,124 Joint repurchase agreement account 1.05% due 09/02/03 (dated 08/29/03; proceeds $18,126,114) (a) (Cost $18,124,000)...... $ 18,124,000 ------------
Total Investments (Cost $298,306,705) (b)..... 99.6% 312,380,076 Other Assets in Excess of Liabilities................. 0.4 1,276,998 ----- ------------ Net Assets.................. 100.0% $313,657,074 ===== ============
--------------------------------------------------- ADR American Depository Receipt. * Non-income producing security. (a) Collateralized by federal agency and U.S. Treasury obligations. (b) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $31,621,807 and the aggregate gross unrealized depreciation is $17,548,436, resulting in net unrealized appreciation of $14,073,371.
SUMMARY OF INVESTMENTS
PERCENT OF INDUSTRY VALUE NET ASSETS --------------------------------------------------------- Electric Utilities........... $173,492,350 55.3% Energy....................... 44,691,995 14.2 Repurchase Agreement......... 18,124,000 5.8 Telecommunications........... 76,071,731 24.3 ------------ ---- $312,380,076 99.6% ============ ====
See Notes to Financial Statements 6 Morgan Stanley Global Utilities Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities August 31, 2003 (unaudited) Assets: Investments in securities, at value (cost $298,306,705)....................................... $312,380,076 Receivable for: Investments sold........................................ 1,434,968 Dividends............................................... 913,136 Foreign withholding taxes reclaimed..................... 203,823 Shares of beneficial interest sold...................... 81,683 Prepaid expenses and other assets........................... 34,769 ------------- Total Assets............................................ 315,048,455 ------------- Liabilities: Payable for: Shares of beneficial interest redeemed.................. 453,049 Investments purchased................................... 391,913 Distribution fee........................................ 263,164 Investment management fee............................... 173,853 Accrued expenses and other payables......................... 109,402 ------------- Total Liabilities....................................... 1,391,381 ------------- Net Assets.............................................. $313,657,074 ============= Composition of Net Assets: Paid-in-capital............................................. $427,349,722 Net unrealized appreciation................................. 14,087,699 Accumulated undistributed net investment income............. 3,626,511 Accumulated net realized loss............................... (131,406,858) ------------- Net Assets.............................................. $313,657,074 ============= Class A Shares: Net Assets.................................................. $4,755,367 Shares Outstanding (unlimited authorized, $.01 par value)... 451,294 Net Asset Value Per Share............................... $10.54 ============= Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)....... $11.12 ============= Class B Shares: Net Assets.................................................. $301,765,098 Shares Outstanding (unlimited authorized, $.01 par value)... 28,554,218 Net Asset Value Per Share............................... $10.57 ============= Class C Shares: Net Assets.................................................. $5,579,662 Shares Outstanding (unlimited authorized, $.01 par value)... 532,965 Net Asset Value Per Share............................... $10.47 ============= Class D Shares: Net Assets.................................................. $1,556,947 Shares Outstanding (unlimited authorized, $.01 par value)... 147,622 Net Asset Value Per Share............................... $10.55 =============
See Notes to Financial Statements 7 Morgan Stanley Global Utilities Fund FINANCIAL STATEMENTS continued Statement of Operations For the six months ended August 31, 2003 (unaudited) Net Investment Income: Income Dividends (net of $208,131 foreign withholding tax)......... $ 6,689,682 Interest.................................................... 97,141 ----------- Total Income............................................ 6,786,823 ----------- Expenses Distribution fee (Class A shares)........................... 5,802 Distribution fee (Class B shares)........................... 1,579,873 Distribution fee (Class C shares)........................... 28,827 Investment management fee................................... 1,065,495 Transfer agent fees and expenses............................ 350,186 Shareholder reports and notices............................. 42,598 Professional fees........................................... 32,503 Registration fees........................................... 23,268 Custodian fees.............................................. 15,773 Trustees' fees and expenses................................. 6,807 Other....................................................... 9,169 ----------- Total Expenses.......................................... 3,160,301 ----------- Net Investment Income................................... 3,626,522 ----------- Net Realized and Unrealized Gain (Loss): Net Realized Gain/Loss on: Investments............................................... 7,858,395 Foreign exchange transactions............................. (488) ----------- Net Realized Gain....................................... 7,857,907 ----------- Net Change in Unrealized Appreciation/Depreciation on: Investments............................................... 26,507,726 Translation of other assets and liabilities denominated in foreign currencies...................................... (21,781) ----------- Net Appreciation........................................ 26,485,945 ----------- Net Gain................................................ 34,343,852 ----------- Net Increase................................................ $37,970,374 ===========
See Notes to Financial Statements 8 Morgan Stanley Global Utilities Fund FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED AUGUST 31, 2003 FEBRUARY 28, 2003 --------------- ----------------- (unaudited) Increase (Decrease) in Net Assets: Operations: Net investment income....................................... $ 3,626,522 $ 9,507,845 Net realized gain (loss).................................... 7,857,907 (86,890,416) Net change in unrealized appreciation/depreciation.......... 26,485,945 (23,704,308) ------------ ------------- Net Increase (Decrease)................................. 37,970,374 (101,086,879) ------------ ------------- Dividends to Shareholders from Net Investment Income: Class A shares.............................................. (182,402) (203,097) Class B shares.............................................. (9,102,987) (9,693,522) Class C shares.............................................. (175,267) (186,203) Class D shares.............................................. (60,665) (70,941) ------------ ------------- Total Dividends......................................... (9,521,321) (10,153,763) ------------ ------------- Net decrease from transactions in shares of beneficial interest.................................................. (32,606,803) (152,692,577) ------------ ------------- Net Decrease............................................ (4,157,750) (263,933,219) Net Assets: Beginning of period......................................... 317,814,824 581,748,043 ------------ ------------- End of Period (Including accumulated undistributed net investment income of $3,626,511 and $9,521,310, respectively)................. $313,657,074 $ 317,814,824 ============ =============
See Notes to Financial Statements 9 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) 1. Organization and Accounting Policies Morgan Stanley Global Utilities Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to seek both capital appreciation and current income. The Fund seeks to achieve its objective by investing in equity and fixed income securities of issuers worldwide, which are primarily engaged in the utilities industry. The Fund was organized as a Massachusetts business trust on October 22, 1993 and commenced operations on May 31, 1994. On July 28, 1997, the Fund converted to a multiple class share structure. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The following is a summary of significant accounting policies: A. Valuation of Investments -- (1) an equity portfolio security listed or traded on the New York 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") 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 10 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Multiple Class Allocations -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. Foreign Currency Translation and Forward Foreign Currency Contracts -- The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses 11 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. F. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. Dividends and Distributions to Shareholders -- Dividends and distributions to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. H. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Management Agreement Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.65% to the portion of the daily net assets not exceeding $500 million; 0.625% to the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.60% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; and 0.575% to the portion of daily net assets exceeding $1.5 billion. 3. Plan of Distribution Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is 12 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued accrued daily and paid monthly at the following annual rates: (i) Class A - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C - up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $11,417,983 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 six months 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 1.0%, respectively. The Distributor has informed the Fund that for the six months 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 $132,140 and $167, respectively and received $21,285 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended August 31, 2003 aggregated $29,245,225 and $71,441,181, respectively. 13 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued For the six months ended August 31, 2003, the Fund incurred brokerage commissions of $22,714 with Morgan Stanley & Co. Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At August 31, 2003, the Fund had transfer agent fees and expenses payable of approximately $27,000. 5. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED AUGUST 31, 2003 FEBRUARY 28, 2003 ------------------------- --------------------------- (unaudited) SHARES AMOUNT SHARES AMOUNT ---------- ------------ ----------- ------------- CLASS A SHARES Sold............................................... 60,441 $ 652,672 71,591 $ 811,409 Reinvestment of dividends.......................... 12,577 138,350 13,962 162,659 Redeemed........................................... (73,800) (764,474) (252,576) (2,822,338) ---------- ------------ ----------- ------------- Net increase (decrease) - Class A.................. (782) 26,548 (167,023) (1,848,270) ---------- ------------ ----------- ------------- CLASS B SHARES Sold............................................... 441,455 4,665,519 1,113,955 12,401,588 Reinvestment of dividends.......................... 706,639 7,808,361 719,502 8,396,588 Redeemed........................................... (4,282,073) (44,782,195) (15,503,437) (169,176,749) ---------- ------------ ----------- ------------- Net decrease - Class B............................. (3,133,979) (32,308,315) (13,669,980) (148,378,573) ---------- ------------ ----------- ------------- CLASS C SHARES Sold............................................... 23,786 249,589 63,651 682,797 Reinvestment of dividends.......................... 14,518 158,968 14,970 173,348 Redeemed........................................... (78,640) (814,001) (265,665) (2,857,946) ---------- ------------ ----------- ------------- Net decrease - Class C............................. (40,336) (405,444) (187,044) (2,001,801) ---------- ------------ ----------- ------------- CLASS D SHARES Sold............................................... 25,830 275,550 49,806 557,019 Reinvestment of dividends.......................... 4,910 54,061 5,558 64,802 Redeemed........................................... (24,062) (249,203) (98,541) (1,085,754) ---------- ------------ ----------- ------------- Net increase (decrease) - Class D.................. 6,678 80,408 (43,177) (463,933) ---------- ------------ ----------- ------------- Net decrease in Fund............................... (3,168,419) $(32,606,803) (14,067,224) $(152,692,577) ========== ============ =========== =============
14 Morgan Stanley Global Utilities Fund NOTES TO FINANCIAL STATEMENTS - AUGUST 31, 2003 (UNAUDITED) continued 6. Federal Income Tax Status The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. As of February 28, 2003, the Fund had a net capital loss carryforward of $118,833,345 of which $40,996,456 will expire on February 28, 2010 and $77,836,889 will expire on February 28, 2011 to offset future capital gains to the extent provided by regulations. As of February 28, 2003, the Fund had temporary book/tax differences attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year) and capital loss deferrals on wash sales. 7. Purposes Of And Risks Relating To Certain Financial Instruments The Fund may enter into forward foreign currency contracts ("forward contracts") to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. At August 31, 2003, there were no outstanding forward contracts. 15 Morgan Stanley Global Utilities Fund FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28, MONTHS ENDED --------------------------------------------------------- AUGUST 31, 2003 2003 2002 2001 2000* 1999 --------------- ------- ------ ------- ------- ------ (unaudited) Class A Shares Selected Per Share Data: Net asset value, beginning of period......... $ 9.70 $12.47 $16.51 $20.02 $17.16 $15.10 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++.................. 0.15 0.32 0.31 0.29 0.23 0.21 Net realized and unrealized gain (loss)................................... 1.11 (2.73) (3.91) (1.22) 4.78 4.02 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.................................. 1.26 (2.41) (3.60) (0.93) 5.01 4.23 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.................... (0.42) (0.36) (0.08) (0.26) (0.20) (0.21) Net realized gain........................ -- -- (0.36) (2.32) (1.95) (1.96) ------ ------ ------ ------ ------ ------ Total dividends and distributions............ (0.42) (0.36) (0.44) (2.58) (2.15) (2.17) ------ ------ ------ ------ ------ ------ Net asset value, end of period............... $10.54 $ 9.70 $12.47 $16.51 $20.02 $17.16 ====== ====== ====== ====== ====== ====== Total Return+................................ 12.83%(1) (19.79)% (22.21)% (5.05)% 30.68% 28.37% Ratios to Average Net Assets(3): Expenses..................................... 1.19%(2) 1.15% 1.06% 1.00% 1.06% 1.10% Net investment income........................ 2.94%(2) 2.91% 2.06% 1.54% 1.25% 1.30% Supplemental Data: Net assets, end of period, in thousands...... $4,755 $4,387 $7,723 $16,970 $13,313 $4,892 Portfolio turnover rate...................... 10%(1) 18% 19% 31% 52% 40%
--------------------- * Year ended February 29. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 16 Morgan Stanley Global Utilities Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28, MONTHS ENDED ---------------------------------------------------------------- AUGUST 31, 2003 2003 2002 2001 2000* 1999 --------------- -------- -------- -------- -------- -------- (unaudited) Class B Shares Selected Per Share Data: Net asset value, beginning of period............................. $ 9.67 $12.40 $16.50 $20.01 $17.15 $15.09 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++......... 0.12 0.24 0.20 0.15 0.11 0.12 Net realized and unrealized gain (loss).......................... 1.09 (2.73) (3.89) (1.22) 4.78 4.01 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations......................... 1.21 (2.49) (3.69) (1.07) 4.89 4.13 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income........... (0.31) (0.24) (0.05) (0.12) (0.08) (0.11) Net realized gain............... -- -- (0.36) (2.32) (1.95) (1.96) ------ ------ ------ ------ ------ ------ Total dividends and distributions... (0.31) (0.24) (0.41) (2.44) (2.03) (2.07) ------ ------ ------ ------ ------ ------ Net asset value, end of period...... $10.57 $ 9.67 $12.40 $16.50 $20.01 $17.15 ====== ====== ====== ====== ====== ====== Total Return+....................... 12.39%(1) (20.43)% (22.75)% (5.76)% 29.81% 27.60% Ratios to Average Net Assets(3): Expenses............................ 1.94%(2) 1.90% 1.82% 1.74% 1.74% 1.71% Net investment income............... 2.19%(2) 2.16% 1.30% 0.80% 0.57% 0.69% Supplemental Data: Net assets, end of period, in thousands.......................... $301,765 $306,554 $562,343 $914,995 $944,600 $540,820 Portfolio turnover rate............. 10%(1) 18% 19% 31% 52% 40%
--------------------- * Year ended February 29. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 17 Morgan Stanley Global Utilities Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28, MONTHS ENDED --------------------------------------------------------- AUGUST 31, 2003 2003 2002 2001 2000* 1999 --------------- ------- ------ ------- ------- ------ (unaudited) Class C Shares Selected Per Share Data: Net asset value, beginning of period......... $ 9.60 $12.33 $16.38 $19.90 $17.08 $15.07 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++.................. 0.11 0.24 0.22 0.14 0.09 0.07 Net realized and unrealized gain (loss)................................... 1.09 (2.70) (3.85) (1.21) 4.76 4.02 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations.................................. 1.20 (2.46) (3.63) (1.07) 4.85 4.09 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income.................... (0.33) (0.27) (0.06) (0.13) (0.08) (0.12) Net realized gain........................ -- -- (0.36) (2.32) (1.95) (1.96) ------ ------ ------ ------ ------ ------ Total dividends and distributions............ (0.33) (0.27) (0.42) (2.45) (2.03) (2.08) ------ ------ ------ ------ ------ ------ Net asset value, end of period............... $10.47 $ 9.60 $12.33 $16.38 $19.90 $17.08 ====== ====== ====== ====== ====== ====== Total Return+................................ 12.30%(1) (20.15)% (22.78)% (5.81)% 29.73% 27.36% Ratios to Average Net Assets(3): Expenses..................................... 1.94%(2) 1.87% 1.67% 1.78% 1.81% 1.85% Net investment income........................ 2.19%(2) 2.19% 1.45% 0.76% 0.50% 0.55% Supplemental Data: Net assets, end of period, in thousands...... $5,580 $5,502 $9,374 $15,266 $10,156 $3,386 Portfolio turnover rate...................... 10%(1) 18% 19% 31% 52% 40%
--------------------- * Year ended February 29. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 18 Morgan Stanley Global Utilities Fund FINANCIAL HIGHLIGHTS continued
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28, MONTHS ENDED -------------------------------------------------------- AUGUST 31, 2003 2003 2002 2001 2000* 1999 --------------- ------- ------- ------ ------ ------ (unaudited) Class D Shares Selected Per Share Data: Net asset value, beginning of period.......... $ 9.73 $12.53 $16.54 $20.06 $17.18 $15.11 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income++................... 0.17 0.35 0.35 0.29 0.32 0.25 Net realized and unrealized gain (loss)... 1.11 (2.73) (3.91) (1.18) 4.76 4.03 ------ ------ ------ ------ ------ ------ Total income (loss) from investment operations................................... 1.28 (2.38) (3.56) (0.89) 5.08 4.28 ------ ------ ------ ------ ------ ------ Less dividends and distributions from: Net investment income..................... (0.46) (0.42) (0.09) (0.31) (0.25) (0.25) Net realized gain......................... -- -- (0.36) (2.32) (1.95) (1.96) ------ ------ ------ ------ ------ ------ Total dividends and distributions............. (0.46) (0.42) (0.45) (2.63) (2.20) (2.21) ------ ------ ------ ------ ------ ------ Net asset value, end of period................ 10.55 9.73 12.53 16.54 20.06 17.18 ====== ====== ====== ====== ====== ====== Total Return+................................. 12.92%(1) (19.56)% (21.98)% (4.85)% 31.08% 28.70% Ratios to Average Net Assets(3): Expenses...................................... 0.94%(2) 0.90% 0.82% 0.78% 0.81% 0.85% Net investment income......................... 3.19%(2) 3.16% 2.30% 1.76% 1.50% 1.55% Supplemental Data: Net assets, end of period, in thousands....... $1,557 $1,371 $2,308 $2,750 $166 $117 Portfolio turnover rate....................... 10%(1) 18% 19% 31% 52% 40%
--------------------- * Year ended February 29. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
See Notes to Financial Statements 19 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 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (c) 2003 Morgan Stanley [MORGAN STANLEY LOGO] MORGAN STANLEY FUNDS Morgan Stanley Global Utilities Fund Semiannual Report August 31, 2003 [MORGAN STANLEY LOGO] 37873RPT-12361J03-OP-10/03 Item 2. Code of Ethics. Not applicable for semiannual reports. Item 3. Audit Committee Financial Expert. Not applicable for semiannual reports. Item 4. Principal Accountant Fees and Services Not applicable for semiannual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semiannual reports. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. [Reserved.] Item 9 - Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10 Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Global Utilities Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer 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 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley Global Utilities 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