N-14/A 1 file1.htm Table of Contents

As filed with the U.S. Securities and Exchange Commission on June 6, 2006

Securities Act File No. 333-132342

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-14


		REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


		Pre-Effective Amendment No. 1


		Post-Effective Amendment No.

(Check appropriate box or boxes)

MORGAN STANLEY 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: (Number, Street, City, State, Zip Code))

(800) 869-6397

(Area Code and Telephone Number)

Amy R. Doberman, Esq.
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020

(Name and Address of Agent for Service)

Copy to:


Carl Frischling, Esq. Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036			Stuart M. Strauss, Esq. Clifford Chance US LLP 31 West 52nd Street New York, New York 10019

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.

No filing fee is required because an indefinite number of common shares of beneficial interest of Morgan Stanley Utilities Fund have previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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MORGAN STANLEY GLOBAL UTILITIES FUND

1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 17, 2006

To the Shareholders of Morgan Stanley Global Utilities Fund

Notice is hereby given of a Special Meeting of the Shareholders of Morgan Stanley Global Utilities Fund (‘‘Global Utilities’’) to be held in the Auditorium, 3rd Floor, 1221 Avenue of the Americas, New York, NY 10020, at 2:00 p.m., New York time, on July 17, 2006, and any adjournments thereof (the ‘‘Meeting’’), for the following purposes:

To consider and vote upon an Agreement and Plan of Reorganization, dated February 6, 2006 (the ‘‘Reorganization Agreement’’), between Global Utilities and Morgan Stanley Utilities Fund (‘‘Utilities’’), pursuant to which substantially all of the assets of Global Utilities would be combined with those of Utilities and shareholders of Global Utilities would become shareholders of Utilities receiving shares of Utilities with a value equal to the value of their holdings in Global Utilities (the ‘‘Reorganization’’); and


2.	To act upon such other matters as may properly come before the Meeting.

The Reorganization is more fully described in the accompanying Proxy Statement and Prospectus and a copy of the Reorganization Agreement is attached as Exhibit A thereto. Shareholders of record at the close of business on April 7, 2006 are entitled to notice of, and to vote at, the Meeting. Please read the Proxy Statement and Prospectus carefully before telling us, through your Proxy or in person, how you wish your shares to be voted. Alternatively, if you are eligible to vote telephonically by touchtone telephone or electronically on the Internet (as discussed in the enclosed Proxy Statement), you may do so in lieu of attending the Meeting in person. The Board of Trustees of Global Utilities recommends you vote in favor of the Reorganization. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.

By Order of the Board of Trustees,

MARY E. MULLIN,
Secretary

June 8, 2006

You can help avoid the necessity and expense of sending follow-up letters to ensure a quorum by promptly returning the enclosed Proxy. If you are unable to be present in person, please fill in, sign and return the enclosed Proxy in order that the necessary quorum be represented at the Meeting. The enclosed envelope requires no postage if mailed in the United States. Shareholders will be able to vote telephonically by touchtone telephone or electronically on the Internet by following instructions on their proxy cards or on the enclosed Voting Information Card.

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MORGAN STANLEY UTILITIES FUND

1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS

Acquisition of the Assets of
Morgan Stanley Global Utilities Fund

By and in Exchange for Shares of
Morgan Stanley Utilities Fund

This Proxy Statement and Prospectus is being furnished to shareholders of Morgan Stanley Global Utilities Fund (‘‘Global Utilities’’) in connection with an Agreement and Plan of Reorganization, dated February 6, 2006 (the ‘‘Reorganization Agreement’’), pursuant to which substantially all the assets of Global Utilities will be combined with those of Morgan Stanley Utilities Fund (‘‘Utilities’’) in exchange for shares of Utilities (the ‘‘Reorganization’’). As a result of this transaction, shareholders of Global Utilities will become shareholders of Utilities and will receive shares of Utilities with a value equal to the value of their holdings in Global Utilities. The terms and conditions of this transaction are more fully described in this Proxy Statement and Prospectus and in the Reorganization Agreement between Global Utilities and Utilities, attached hereto as Exhibit A. The address of Global Utilities is that of Utilities set forth above. This Proxy Statement also constitutes a Prospectus of Utilities, which is dated April 28, 2006, filed by Utilities with the Securities and Exchange Commission (the ‘‘Commission’’) as part of its Registration Statement on Form N-14 (the ‘‘Registration Statement’’).

Utilities is an open-end management investment company whose investment objective is to seek to provide both capital appreciation and current income. Utilities will normally invest at least 80% of its assets in common stock and other equity securities (including depositary receipts) and investment grade fixed-income securities (including asset-backed securities and zero-coupon securities) of companies that are engaged in the utilities industry.

This Proxy Statement and Prospectus sets forth concisely information about Utilities that shareholders of Global Utilities should know before voting on the Reorganization Agreement. A copy of the Prospectus for Utilities dated April 28, 2006 is attached as Exhibit B and incorporated herein by reference. Also enclosed and incorporated herein by reference is the Utilities' Annual Report for the fiscal year ended December 31, 2005. A Statement of Additional Information relating to the Reorganization, described in this Proxy Statement and Prospectus, dated June 6, 2006, has been filed with the Commission and is also incorporated herein by reference. Also incorporated herein by reference is the Global Utilities' Prospectus, dated June 30, 2005, as supplemented, and its Annual Report for its fiscal year ended February 28, 2006. Such documents, as well as additional information about Utilities, have been filed with the Commission and are available upon request without charge by calling (800) 869-NEWS (toll-free) or by visiting the Commission's website at www.sec.gov.

Investors are advised to read and retain this Proxy Statement and Prospectus for future reference.

These Securities have not been approved or disapproved by the Securities and Exchange Commission or any State Securities Commission, nor has the Securities and Exchange Commission or any State Securities Commission passed on the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

This Proxy Statement and Prospectus is dated June 6, 2006.

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PROXY STATEMENT AND PROSPECTUS


				Page
INTRODUCTION				1
General				1
Record Date; Share Information				1
Proxies				2
Expenses of Solicitation				3
Vote Required				4
SYNOPSIS				4
The Reorganization				4
Past Performance				6
Fee Table				10
Example				11
Tax Consequences of the Reorganization				13
Comparison of Global Utilities and Utilities				14
PRINCIPAL RISK FACTORS				17
THE REORGANIZATION				19
The Proposal				19
The Board's Considerations				19
The Reorganization Agreement				20
Tax Aspects of the Reorganization				22
Description of Shares				24
Capitalization Table (unaudited)				24
Appraisal Rights				25
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS				25
Investment Objectives and Policies				25
Investment Restrictions				26
ADDITIONAL INFORMATION ABOUT GLOBAL UTILITIES AND UTILITIES				27
General				27
Financial Information				27
Management				27
Description of Securities and Shareholder Inquiries				27
Dividends, Distributions and Taxes				27
Purchases, Repurchases and Redemptions				27
FINANCIAL STATEMENTS AND EXPERTS				28
LEGAL MATTERS				28
AVAILABLE INFORMATION				28
OTHER BUSINESS				28
Exhibit A — Agreement and Plan of Reorganization				A-1
Exhibit B — Prospectus of Utilities dated April 28, 2006				B-1

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MORGAN STANLEY GLOBAL UTILITIES FUND
1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS

PROXY STATEMENT AND PROSPECTUS

Special Meeting of Shareholders
to be Held July 17, 2006

INTRODUCTION

General

This Proxy Statement and Prospectus is being furnished to the shareholders of Morgan Stanley Global Utilities Fund (‘‘Global Utilities’’), an open-end management investment company, in connection with the solicitation by the Board of Trustees of Global Utilities (the ‘‘Board’’) of proxies to be used at the Special Meeting of Shareholders of Global Utilities to be held in the Auditorium, 3rd Floor, 1221 Avenue of the Americas, New York, NY 10020, at 2:00 p.m., New York time, on July 17, 2006, and any adjournments thereof (the ‘‘Meeting’’). It is expected that the first mailing of this Proxy Statement and Prospectus will be made on or about June 9, 2006.

At the Meeting, Global Utilities shareholders (‘‘Shareholders’’) will consider and vote upon an Agreement and Plan of Reorganization, dated February 6, 2006 (the ‘‘Reorganization Agreement’’), between Global Utilities and Morgan Stanley Utilities Fund (‘‘Utilities’’), pursuant to which substantially all of the assets of Global Utilities will be combined with those of Utilities in exchange for shares of Utilities. As a result of this transaction, Shareholders will become shareholders of Utilities and will receive shares of Utilities equal to the value of their holdings in Global Utilities on the date of such transaction (the ‘‘Reorganization’’). Pursuant to the Reorganization, each Shareholder will receive the class of shares of Utilities that corresponds to the class of shares of Global Utilities currently held by that Shareholder. Accordingly, as a result of the Reorganization, each Class A, Class B, Class C and Class D Shareholder of Global Utilities will receive Class A, Class B, Class C and Class D shares of Utilities, respectively. The shares to be issued by Utilities pursuant to the Reorganization (the ‘‘Utilities Shares’’) will be issued at net asset value without an initial sales charge. Further information relating to Utilities is set forth herein and in Utilities' current Prospectus, dated April 28, 2006 (‘‘Utilities' Prospectus’’), attached to this Proxy Statement and Prospectus as Exhibit B and incorporated herein by reference.

The information concerning Global Utilities and Utilities contained herein has been supplied by Global Utilities and Utilities, respectively. Each of Global Utilities and Utilities is referred to herein as a ‘‘Fund.’’

Record Date; Share Information

The Board has fixed the close of business on April 7, 2006 as the record date (the ‘‘Record Date’’) for the determination of the Shareholders entitled to notice of, and to vote at, the Meeting. As of the Record Date, there were 16,058,330 shares of Global Utilities issued and outstanding. Shareholders on the Record Date are entitled to one vote per share and a fractional vote for a fractional share on each matter submitted to a vote at the Meeting. Shareholders of each class will vote together as a single class in connection with the Reorganization Agreement. A majority of the outstanding shares entitled to vote, represented in person or by proxy, will constitute a quorum at the Meeting.

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The following persons were known to own of record or beneficially 5% or more of the outstanding shares of each of the Funds as of the Record Date:

Name and Address of Global Utilities Shareholder

Number of Shares

Percentage of
Outstanding Shares

Class A

None

Class B

None

Class C

None

Class D

HARE & CO.
C/O THE BANK OF NEW YORK
P.O. BOX 11203
NEW YORK, NY 10286-1203

132,983.939

37.75

L JOHNSON & R JOHNSON CO-TRUSTEE
LINDA JOHNSON TRUST
3677 LAKECREST DRIVE
BLOOMFIELD HILLS, MI 48304-3036

132,983.939

13.39

Name and Address of Utilities Shareholder

Number of Shares

Percentage of
Outstanding Shares

Class A

None

Class B

None

Class C

None

Class D

STATE STREET BANK AND TRUST CO.
FBO ADP/MORGAN STANLEY ALLIANCE
105 ROSEMONT AVENUE
WESTWOOD, MA 02090-2318

266,493.012

61.13

As of the Record Date, the trustees and officers of Global Utilities and Utilities, each as a group, owned less than 1% of the outstanding shares of Global Utilities.

Proxies

The enclosed form of Proxy, if properly executed and returned, will be voted in accordance with the choice specified thereon. The Proxy will be voted in favor of the Reorganization Agreement unless a choice is indicated to vote against or to abstain from voting on the Reorganization Agreement. The Board knows of no business, other than that set forth in the Notice of Special Meeting of Shareholders, to be presented for consideration at the Meeting. However, the Proxy confers discretionary authority upon the persons named therein to vote as they determine on other business, not currently contemplated, which may come before the Meeting. Abstentions and, if applicable, broker ‘‘non-votes’’ will not count as votes in favor of the Reorganization Agreement, and broker ‘‘non-votes’’ will not be deemed to be present at

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the Meeting for purposes of determining whether the Reorganization Agreement has been approved. Broker ‘‘non-votes’’ are shares held in street name for which the broker indicates that instructions have not been received from the beneficial owners or other persons entitled to vote and for which the broker does not have discretionary voting authority. If a Shareholder executes and returns a Proxy but fails to indicate how the votes should be cast, the Proxy will be voted in favor of the Reorganization Agreement. The Proxy may be revoked at any time prior to the voting thereof by: (i) delivering written notice of revocation to the Secretary of Global Utilities, 1221 Avenue of the Americas, New York, NY 10020; (ii) attending the Meeting and voting in person; or (iii) completing and returning a new Proxy (whether by mail or, as discussed below, by touchtone telephone or the Internet) (if returned and received in time to be voted). Attendance at the Meeting will not in and of itself revoke a Proxy.

In the event that the necessary quorum to transact business or the vote required to approve or reject the Reorganization Agreement is not obtained at the Meeting, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of Proxies. Any such adjournment will require the affirmative vote of the holders of a majority of shares of Global Utilities present in person or by proxy at the Meeting. The persons named as proxies will vote in favor of such adjournment those proxies which they are entitled to vote in favor of the Reorganization Agreement and will vote against any such adjournment those proxies required to be voted against the Reorganization Agreement. Abstentions and, if applicable, broker ‘‘non-votes’’ will not be counted for purposes of approving an adjournment.

Expenses of Solicitation

All expenses of this solicitation, including the cost of preparing and mailing this Proxy Statement and Prospectus, will be borne by Global Utilities, which expenses are expected to approximate $245,981. Global Utilities and Utilities will bear all of their respective other expenses associated with the Reorganization.

The solicitation of Proxies will be by mail, which may be supplemented by solicitation by mail, telephone or otherwise through officers of Global Utilities or officers and regular employees of Morgan Stanley Investment Advisors Inc. (the ‘‘Investment Adviser’’), Morgan Stanley Trust (the ‘‘Transfer Agent’’), Morgan Stanley Services Company Inc. and/or Morgan Stanley DW Inc. (‘‘Morgan Stanley DW’’), without special compensation therefor. As described below, Global Utilities will employ Computershare Fund Services (‘‘Computershare’’) to make telephone calls to Shareholders to remind them to vote. In addition, Global Utilities may also employ Computershare as proxy solicitor if it appears that the required number of votes to achieve a quorum will not be received. In the event of a solicitation by Computershare, Global Utilities would pay the solicitor a project advisory fee not to exceed $3,000 and the expenses outlined below.

Shareholders will be able to vote their shares by touchtone telephone or by the Internet by following the instructions on the proxy card or on the Voting Information Card accompanying this Proxy Statement. To vote by Internet or by telephone, Shareholders can access the website or call the toll-free number listed on the proxy card or noted in the enclosed voting instructions.

In certain instances the Transfer Agent and Computershare may call Shareholders to ask if they would be willing to have their votes recorded by telephone. The telephone voting procedure is designed to authenticate Shareholders' identities, to allow Shareholders to authorize the voting of their shares in accordance with their instructions and to confirm that their instructions have been recorded properly. No recommendation will be made as to how a Shareholder should vote on any proposal other than to refer to the recommendations of the Board. Global Utilities has been advised by counsel that these procedures

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are consistent with the requirements of applicable law. Shareholders voting by telephone in this manner will be asked for their social security number or other identifying information and will be given an opportunity to authorize proxies to vote their shares in accordance with their instructions. To ensure that the Shareholders' instructions have been recorded correctly, Shareholders will receive a confirmation of their instructions in the mail. A special toll-free number set forth in the confirmation will be available in case the information contained in the confirmation is incorrect. Although a Shareholder's vote may be taken by telephone, each Shareholder will receive a copy of this Proxy Statement and may vote by mail using the enclosed proxy card or by touchtone telephone or the Internet as set forth above. The last proxy vote received in time to be voted, whether by proxy card, touchtone telephone or the Internet, will be the last vote that is counted and will revoke all previous votes by the Shareholder. With respect to recorded telephone calls by Computershare reminding Shareholders to vote, expenses would be approximately $1.00 per outbound telephone contact. With respect to the solicitation of a telephonic vote by Computershare, approximate additional expenses of $3.75 per telephone vote transacted and $2.75 per outbound or inbound telephone contact and costs relating to obtaining Shareholders' telephone numbers and providing additional materials upon Shareholder request, which would be borne by Global Utilities.

Vote Required

Approval of the Reorganization Agreement by the Shareholders requires the affirmative vote of a majority (i.e., more than 50%) of the shares of Global Utilities represented in person or by proxy and entitled to vote at the Meeting, provided a quorum is present at the Meeting. If the Reorganization Agreement is not approved by Shareholders, Global Utilities will continue in existence and the Board will consider alternative actions.

SYNOPSIS

The following is a synopsis of certain information contained in or incorporated by reference in this Proxy Statement and Prospectus. This synopsis is only a summary and is qualified in its entirety by the more detailed information contained or incorporated by reference in this Proxy Statement and Prospectus and the Reorganization Agreement. Shareholders should carefully review this Proxy Statement and Prospectus and the Reorganization Agreement in their entirety and, in particular, Utilities' Prospectus, which is attached to this Proxy Statement as Exhibit B and incorporated herein by reference.

The Reorganization

The Reorganization Agreement provides for the transfer of substantially all the assets of Global Utilities, subject to stated liabilities, to Utilities in exchange for the Utilities Shares. The aggregate net asset value of the Utilities Shares issued in the exchange will equal the aggregate value of the net assets of Global Utilities received by Utilities. On or after the closing date scheduled for the Reorganization (the ‘‘Closing Date’’), Global Utilities will distribute the Utilities Shares received by Global Utilities to Shareholders as of the Valuation Date (as defined below) in complete liquidation of Global Utilities, and Global Utilities will thereafter be dissolved and deregistered under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’). As a result of the Reorganization, each Shareholder will receive that number of full and fractional Utilities Shares equal in value to such Shareholder's pro rata interest in the net assets of Global Utilities transferred to Utilities. Pursuant to the Reorganization, each Shareholder will receive the class of shares of Utilities that corresponds to the class of shares of Global Utilities currently held by that Shareholder. Accordingly, as a result of the Reorganization, each Class A, Class B, Class C and Class D Shareholder of Global Utilities will become a holder of Class A, Class B, Class C and Class D shares of Utilities, respectively. Shareholders holding their shares of Global Utilities in certificate

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form will be asked to surrender their certificates in connection with the Reorganization. Shareholders who do not surrender their certificates prior to the Closing Date will still receive their Utilities Shares; however, such Shareholders will not be able to redeem, transfer or exchange the Utilities shares received until the old certificates have been surrendered. The Board has determined that the interests of Shareholders will not be diluted as a result of the Reorganization. In addition, to ensure that the existing Class B shareholders of Utilities are not adversely affected by an increase in 12b-1 fees, a new Class Q of the Combined Fund will be created and all existing Class B shares of Utilities will be migrated into the new Class Q at the time of the Reorganization. The ‘‘Valuation Date’’ is the third business day following the receipt of the requisite approval by the Shareholders of the Reorganization Agreement or at such other time as Global Utilities and Utilities may agree, on which date the number of Utilities shares to be delivered to Global Utilities will be determined.

At least one but not more than 20 business days prior to the Valuation Date, Global Utilities will declare and pay a dividend or dividends which, together with all previous such dividends, will have the effect of distributing to Shareholders substantially all of Global Utilities' investment company taxable income for all periods since the inception of Global Utilities through and including the Valuation Date (computed without regard to any dividends paid deduction), and substantially all of Global Utilities' net capital gain, if any, realized in such periods (after reduction for any capital loss carryovers).

For the reasons set forth below under ‘‘The Reorganization — The Board's Considerations,’’ the Board, including the trustees who are not ‘‘interested persons’’ of Global Utilities (‘‘Independent Trustees’’), as that term is defined in the 1940 Act, has concluded that the Reorganization is in the best interests of Global Utilities and its Shareholders and recommends approval of the Reorganization Agreement.

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Past Performance

Global Utilities. The bar chart and table below provide some indication of the risks of investing in Global Utilities. Global Utilities' past performance (before and after taxes) does not indicate how Global Utilities will perform in the future. This chart shows how the performance of Global Utilities' Class B shares has varied from year to year over the past 10 calendar years.

Annual Total Returns—Calendar Years

The bar chart reflects the performance of Class B shares; the performance of the other Classes will differ because the Classes have different ongoing fees. The performance information in the bar chart does not reflect the deduction of sales charges; if these amounts were reflected, returns would be less than shown. The year-to-date total return as of March 31, 2006 was 1.34%.

During the periods shown in the bar chart, the highest return for a calendar quarter was 19.69% (quarter ended March 31, 1998) and the lowest return for a calendar quarter was –18.32% (quarter ended September 30, 2002).

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This table compares Global Utilities average annual total returns with those of an index that represents a broad measure of market performance, as well as an index that represents a group of similar mutual funds, over time. Global Utilities' returns include the maximum applicable sales charge for each Class and assume you sold your shares at the end of each period (unless otherwise noted).

Average Annual Total Returns (as of December 31, 2005)



	Past 1 Year			Past 5 Years			Past 10 Years	Life of Fund*
Class A¹—Return Before Taxes		8.72	%		−0.86	%	—	7.71%
MSCI World Index²		9.49	%		2.18	%	—	4.44%⁵
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%
Class B¹—Return Before Taxes		8.96	%		−0.91	%	9.13%	—
Return After Taxes on Distributions⁴		8.84	%		–1.44	%	7.81%	—
Return After Taxes on Distributions and Sale of Fund Shares		5.82	%		–1.05	%	7.50%	—
MSCI World Index²		9.49	%		2.18	%	7.04%	—
Lipper Utility Funds Index³		15.01	%		1.04	%	7.86%	—
Class C¹—Return Before Taxes		12.98	%		–0.49	%	—	7.62%
MSCI World Index²		9.49	%		2.18	%	—	4.44%⁵
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%
Class D¹—Return Before Taxes		15.09	%		0.46	%	—	8.69%
MSCI World Index²		9.49	%		2.18	%	—	4.44%⁵
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%


*	Only shown for share classes with less than a ten-year history.


(1)	Classes A, C and D commenced operations on July 28, 1997. Class B commenced operations on May 31, 1994.

(2)

The Morgan Stanley Capital International (MSCI) World Index measures performance from a diverse range of global stock markets including the U.S., Canada, Europe, Australia, New Zealand and the Far East. 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.


(3)	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.


(4)	These returns do not reflect any tax consequences from a sale of your shares at the end of each period, but they do reflect any applicable sales charges on such a sale.


(5)	For the period July 31, 1997 through December 31, 2005.

Included in the table above are the after-tax returns for Global Utilities' Class B shares. The after-tax returns for Global Utilities' other Classes will vary from the Class B shares' returns. After-tax returns are

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calculated using the historical highest individual federal marginal income tax rates during the period shown and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold Global Utilities' shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns may be higher than before-tax returns due to foreign tax credits and/or an assumed benefit from capital losses that would have been realized had Global Utilities' shares been sold at the end of the relevant periods, as applicable.

Utilities. The bar chart and table below provide some indication of the risks of investing in Utilities. Utilities' past performance (before and after taxes) does not indicate how Utilities' will perform in the future. This chart shows how the performance of Utilities' Class B shares has varied from year to year over the past 10 calendar years.

Annual Total Returns—Calendar Years

During the periods shown in the bar chart, the highest return for a calendar quarter was 14.72% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was –16.56% (quarter ended September 30, 2002).

This table compares Utilities' average annual total returns with those of an index that represents a broad measure of market performance, as well as an index that represents a group of similar mutual funds, over time. Utilities' returns include the maximum applicable sales charge for each Class and assume you sold your shares at the end of each period (unless otherwise noted).

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Average Annual Total Returns (as of December 31, 2005)



	Past 1 Year			Past 5 Years			Past 10 Years	Life of Fund*
Class A¹—Return Before Taxes		9.08	%		−0.69	%	—	6.26%
S&P 500^® Index²		4.91	%		0.55	%	—	5.07%
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%
Class B^1,**—Return Before Taxes		10.22	%		−0.27	%	6.58%	—
Return After Taxes on Distributions⁴		8.57	%		–1.56	%	4.78%	—
Return After Taxes on Distributions and Sale of Fund Shares		7.56	%		–0.79	%	4.87%	—
S&P 500^® Index²		4.91	%		0.55	%	9.07%	—
Lipper Utility Funds Index³		15.01	%		1.04	%	7.86%	—
Class C¹—Return Before Taxes		13.35	%		–0.35	%	—	6.14%
S&P 500^® Index²		4.91	%		0.55	%	—	5.07%
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%
Class D¹—Return Before Taxes		15.34	%		0.62	%	—	7.19%
S&P 500^® Index²		4.91	%		0.55	%	—	5.07%
Lipper Utility Funds Index³		15.01	%		1.04	%	—	7.13%


*	Only shown for share classes with less than a ten-year history.

Because Class B shares incurred lower expenses under the Rule 12b-1 Plan of Distribution than did Class A shares for the fiscal period ended December 31, 2005, the total operating expense ratio for Class B shares was lower and, as a result, the performance of Class B shares was higher than that of the Class A shares. There can be no assurance that this will continue to occur in the future as the maximum fees payable by Class B shares under the Rule 12b-1 Plan of Distribution are higher than those payable by Class A shares.


(1)	Classes A, C and D commenced operations on July 28, 1997. Class B commenced operations on April 29, 1988.

(2)

The Standard and Poor's 500^® Index (S&P 500^® Index) 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.


(3)	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.


(4)	These returns do not reflect any tax consequences from a sale of your shares at the end of each period, but they do reflect any applicable sales charges on such a sale.

Included in the table above are the after-tax returns for Utilities' Class B shares. The after-tax returns for the Utilities' other Classes will vary from the Class B shares' returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates during the period shown and do

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not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Utilities' shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns may be higher than before-tax returns due to foreign tax credits and/or an assumed benefit from capital losses that would have been realized had Utilities' shares been sold at the end of the relevant periods, as applicable.

Fee Table

The following table briefly describes the fees and expenses that a shareholder of Global Utilities and Utilities may pay if they buy and hold shares of each respective Fund. These expenses are deducted from each respective Fund's assets and are based on expenses paid by Global Utilities for its fiscal year ended February 28, 2006, and by Utilities for its fiscal year ended December 31, 2005. Global Utilities and Utilities each pays expenses for management of its assets, distribution of its shares and other services, and those expenses are reflected in the net asset value per share of each Fund. The table also sets forth pro forma fees for the surviving combined fund (Utilities) (the ‘‘Combined Fund’’) reflecting what the fee schedule would have been on December 31, 2005 if the Reorganization had been consummated twelve (12) months prior to that date.


Shareholder Fees (fees paid directly from a shareholder's investment)	Global Utilities	Utilities	Pro Forma Combined Fund
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
Class A	5.25%⁽¹⁾	5.25%⁽¹⁾	5.25%⁽¹⁾
Class B**	none	none	none
Class C	none	none	none
Class D	none	none	none
Class Q**	N/A	N/A	none
Maximum Deferred Sales Charge (Load) (as a percentage based on the lesser of the offering price or net asset value at redemption)
Class A	none⁽²⁾	none⁽²⁾	none⁽²⁾
Class B**	5.00%⁽³⁾	5.00%⁽³⁾	5.00%⁽³⁾
Class C	1.00%⁽⁴⁾	1.00%⁽⁴⁾	1.00%⁽⁴⁾
Class D	none	none	none
Class Q**	N/A	N/A	5.00%
Redemption Fees⁽⁵⁾
Class A	2.00%	2.00%	2.00%
Class B**	2.00%	2.00%	2.00%
Class C	2.00%	2.00%	2.00%
Class D	2.00%	2.00%	2.00%
Class Q**	N/A	N/A	2.00%

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Annual Fund Operating Expenses (expenses that are deducted from fund assets)	Global Utilities			Utilities			Pro Forma Combined Fund
Advisory Fees
Class A		0.57	%		0.53	%		0.51	%
Class B*		0.57	%		0.53	%		0.51	%
Class C		0.57	%		0.53	%		0.51	%
Class D		0.57	%		0.53	%		0.51	%
Class Q*		N/A			N/A			0.51	%
Distribution and Service (12b-1) Fees⁽⁷⁾
Class A		0.25	%		0.25	%		0.25	%
Class B*		1.00	%		0.16	%		1.00	%
Class C		1.00	%		0.93	%		0.95	%⁽⁸⁾
Class D		none			none			none
Class Q*		N/A			N/A			0.16	%**
Other Expenses
Class A		0.36	%		0.25	%		0.26	%
Class B*		0.36	%		0.25	%		0.26	%
Class C		0.36	%		0.25	%		0.26	%
Class D		0.36	%		0.25	%		0.26	%
Class Q*		N/A			N/A			0.26	%
Total Annual Fund Operating Expenses
Class A		1.18	%		1.03	%		1.02	%
Class B*		1.93	%		0.94	%		1.77	%
Class C		1.93	%		1.71	%		1.72	%⁽⁸⁾
Class D		0.93	%		0.78	%		0.77	%
Class Q*		N/A			N/A			0.93	%

Example

To attempt to show the effect of these expenses on an investment over time, the hypotheticals shown below have been created. The example assumes that an investor invests $10,000 in either Global Utilities, Utilities or the Combined Fund, that the investment has a 5% return each year and that the operating expenses for each Fund remain the same (as set forth in the chart above). Although a shareholder's actual costs may be higher or lower, the tables below show a shareholder's costs at the end of each period based on these assumptions depending upon whether or not a shareholder sold his shares at the end of each period.

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If a Shareholder SOLD His Shares:


	1 year			3 years			5 years			10 years
Global Utilities
Class A		$	639		$	880		$	1,140		$	1,882
Class B		$	696		$	906		$	1,242		$	2,055
Class C		$	296		$	606		$	1,042		$	2,254
Class D		$	95		$	296		$	515		$	1,143
Utilities
Class A		$	625		$	836		$	1,064		$	1,718
Class B		$	596		$	600		$	720		$	1,155
Class C		$	274		$	539		$	928		$	2,019
Class D		$	80		$	249		$	433		$	966
Pro Forma Combined Fund
Class A		$	624		$	833		$	1,059		$	1,707
Class B		$	680		$	857		$	1,159		$	1,844
Class C		$	275		$	542		$	933		$	2,030
Class D		$	79		$	246		$	428		$	954
Class Q*		$	595		$	596		$	715		$	1,143

If a Shareholder HELD His Shares:


	1 year			3 years			5 years			10 years
Global Utilities
Class A		$	639		$	880		$	1,140		$	1,882
Class B		$	196		$	606		$	1,042		$	2,055
Class C		$	196		$	606		$	1,042		$	2,254
Class D		$	95		$	296		$	515		$	1,143
Utilities
Class A		$	625		$	836		$	1,064		$	1,718
Class B		$	96		$	300		$	520		$	1,155
Class C		$	174		$	539		$	928		$	2,019
Class D		$	80		$	249		$	433		$	966
Pro Forma Combined Fund
Class A		$	624		$	833		$	1,059		$	1,707
Class B		$	180		$	557		$	959		$	1,844
Class C		$	175		$	542		$	933		$	2,030
Class D		$	79		$	246		$	428		$	954
Class Q*		$	95		$	296		$	515		$	1,143

While Class B and Class C shares do not have any front-end sales charges, their higher ongoing annual expenses (due to higher 12b-1 fees) mean that over time you could end up paying more for these shares than if you were to pay front-end sales charges for Class A shares.

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To ensure that the existing Class B shareholders of Utilities are not adversely affected by an increase in 12b-1 fees, Class B shareholders of Utilities will be moved into a newly created Class Q Shares of the Combined Fund upon the completion of the Reorganization. Class Q shares will be closed to new investments (excluding dividend reinvestments) and the current Utilities Class B shareholders will not have the option of purchasing additional Class Q shares after the completion of the Reorganization, but instead would be offered Class B Shares of the Combined Fund. In the event that the Reorganization is not approved by shareholders, current Utilities Class B shareholders will retain their interests in Class B shares.


**	The Investment Adviser has agreed to permanently cap the 12b-1 fee for the Class Q shares at 0.20% of its average daily net assets.


(1)	Reduced for purchases of $25,000 and over (see ‘‘Share Class Arrangements — Class A Shares’’ in each Fund's Prospectus).

(2)

Investments that are not subject to any sales charge at the time of purchase are subject to a Contingent Deferred Sales Charge (‘‘CDSC’’) of 1.00% that will be imposed if you sell your shares within one year after purchase, except for certain specific circumstances (see ‘‘Purchases, Exchanges and Redemptions’’ below and ‘‘Share Class Arrangements — Class A Shares’’ in each Fund's Prospectus).


(3)	The CDSC is scaled down to 1.00% during the sixth year, reaching zero thereafter. (See ‘‘Purchases, Exchanges and Redemptions’’ below and ‘‘Share Class Arrangements — Class B Shares’’ in each Fund's Prospectus).


(4)	Only applicable to redemptions made within one year after purchase (see ‘‘Purchases, Exchanges and Redemptions’’ below and ‘‘Share Class Arrangements — Class C Shares’’ in each Fund's Prospectus).


(5)	Payable to the Fund on shares redeemed within 30 days of purchase. The redemption fee is based on the redemption proceeds. See ‘‘Shareholder Information — How to Sell Shares’’ in each Fund's Prospectus for more information on redemption fees.


(6)	Pro forma expenses are calculated based on the assets of Utilities and Global Utilities as of December 31, 2005.


(7)	The Fund has adopted a Rule 12b-1 Distribution Plan pursuant to which it reimburses the distributor for distribution-related expenses (including personal services to shareholders) incurred on behalf of Class A, Class B and Class C shares in an amount each month up to an annual rate of 0.25%, 1.00% and 1.00% of the average daily net assets of Class A, Class B and Class C, respectively.


(8)	The Investment Adviser has agreed to cap the 12b-1 fee for the Class C shares of the Combined Fund at 0.94% for a period of two years following the consummation of the Reorganization. As a result, the net total annual Fund operating expenses following the Reorganization is expected to be reduced from 1.72% to 1.71%.

The purpose of the foregoing fee tables is to assist the shareholder in understanding the various costs and expenses that a shareholder in each Fund will bear directly or indirectly. For a more complete description of these costs and expenses, see ‘‘Comparison of Global Utilities and Utilities — Investment Advisory and Distribution Plan Fees; Other Significant Fees; and Purchases, Exchanges and Redemptions’’ below.

Tax Consequences of the Reorganization

As a condition to the Reorganization, Global Utilities has requested an opinion of Clifford Chance US LLP to the effect that the Reorganization will constitute a tax-free reorganization for federal income

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tax purposes, and that no gain or loss will be recognized by Global Utilities, Utilities or their shareholders for federal income tax purposes as a result of the transactions included in the Reorganization. For further information about the tax consequences of the Reorganization, see ‘‘The Reorganization — Tax Aspects of the Reorganization’’ below.

Comparison of Global Utilities and Utilities

Investment Objectives and Policies. The investment objectives of both Global Utilities and Utilities are to seek both capital appreciation and current income. The principal differences between the Funds' investment policies are more fully described under ‘‘Comparison of Investment Objectives, Policies and Restrictions’’ below. The investment policies of both Global Utilities and Utilities are not fundamental and may be changed by their respective Board of Trustees; however, Utilities has adopted a fundamental policy to concentrate its assets in the utilities industry. A fundamental policy may not be changed without shareholder approval. Global Utilities has not adopted a fundamental policy to concentrate its assets in the utilities industry, but it historically has done so.

Global Utilities seeks to achieve its investment objectives by normally investing at least 80% of its assets in securities of companies from around the world that are primarily engaged in the utilities industry. These securities can include common stock and other equity securities (including preferred stock, convertible securities and depositary receipts), as well as investment grade fixed income securities (including zero coupon securities). Utilities seeks to achieve its investment objective by normally investing at least 80% of its assets in common stock and other equity securities (including depositary receipts) and investment grade fixed-income securities (including asset-backed securities and zero-coupon securities) of companies that are engaged in the utilities industry. Utilities may invest up to 25% of its net assets in foreign securities, including common stock and other equity securities (including depository receipts) and investment grade fixed-income securities. However, this percentage limitation does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange. Utilities may invest up to 10% of its assets in convertible securities, a portion of which may be rated below investment grade. With respect to each of Global Utilities and Utilities, a company will be considered to be in the utilities industry if it derives at least 50% of its revenues or earnings from the utilities industry or devotes at least 50% of its assets to activities in that industry. These may include companies involved in, among other areas: telecommunications, computers, gas and electric energy, water distribution, the Internet and Internet related services, and other new or emerging technologies. The companies may include traditionally regulated public utilities or fully or partially deregulated utility companies, as well as unregulated utility companies.

Investment Advisory and Distribution Plan Fees. Global Utilities and Utilities obtain advisory services from the Investment Adviser. Each class of both Funds' shares is subject to the same advisory fee rates applicable to the respective Fund.

For each Fund's most recent fiscal year end, each Fund paid the Investment Adviser monthly compensation calculated daily by applying the following annual rates to the Fund's average daily net assets:


Global Utilities (for the fiscal year ended February 28, 2005)		For the period from November 1, 2004 to February 28, 2005: 0.57% of the portion of the daily net assets not exceeding $500 million; 0.545% of the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.52% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; and 0.495% of the portion of the daily net assets exceeding $1.5 billion; and

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		For the period from March 1, 2004 to October 31, 2004: 0.65% of the portion of the daily net assets up to $500 million; 0.625% of the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; 0.60% of the portion of the daily net assets exceeding $1 billion but not exceeding $1.5 billion; and 0.575% of the portion of the daily net assets exceeding $1.5 billion


Utilities (for the fiscal year ended December 31, 2005)		0.57% of the portion of daily net assets not exceeding $500 million; 0.47% of the portion of daily net assets exceeding $500 million but not exceeding $1 billion; 0.445% of the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.42% of the portion of daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395% of the portion of daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.37% of the portion of daily net assets exceeding $3.5 billion but not exceeding $5 billion; and 0.345% of the portion of daily net assets exceeding $5 billion

Both Global Utilities and Utilities have adopted a distribution plan (together, the ‘‘Plan’’) pursuant to Rule 12b-1 under the 1940 Act. In the case of Class A and Class C shares, the Plan provides that the Funds will reimburse Morgan Stanley Distributors Inc. (the ‘‘Distributor’’) and others for the expenses of certain activities and services incurred by them in connection with the distribution of the Class A and Class C shares of the Fund. Reimbursement for these expenses is made in monthly payments by each Fund to the Distributor which will in no event exceed amounts equal to payments at the annual rates of 0.25% and 1.00% of the average daily net assets of Class A and Class C shares, respectively. In the case of Class B shares, the Plans for Global Utilities and Utilities provide that the Fund will reimburse the Distributor and others for their actual distribution expenses incurred on behalf of Class B Shares and for unreimbursed distribution expenses a fee, the amount of which each monthly payment may in no event exceed an amount equal to payment at the annual rate of 1.00% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of Global Utilities or Utilities, as applicable (not including reinvestment of dividends or capital gains distributions), less the average daily aggregate net asset value of the Class B shares redeemed since Global Utilities' or Utilities' inception upon which a CDSC has been imposed or upon which such charge has been waived; or (b) the average daily net assets of Class B shares. The 12b-1 fee is paid for the services provided and the expenses borne by the Distributor and others in connection with the distribution of each Fund's Class B shares. There are no 12b-1 fees applicable to each Fund's Class D shares. For further information relating to the 12b-1 fees applicable to each class of Utilities' shares, see the section entitled ‘‘Share Class Arrangements’’ in Utilities' Prospectus attached hereto. The Distributor also receives the proceeds of any CDSC paid by the Funds' shareholders at the time of redemption. The CDSC schedules applicable to each of Global Utilities and Utilities are set forth below under ‘‘Purchases, Exchanges and Redemptions.’’

Currently, Class B shareholders of Utilities are charged a 12b-1 fee of only 0.16% because distribution expenses during the year were low and prior unreimbursed distribution expenses (as of December 31, 2005) were zero, resulting in a low distribution fee to be reimbursed by Utilities under the Plan. In contrast, as a result of Global Utilities' prior unreimbursed expense pool of $6,754,264 (as of February 28, 2006), it is expected that the Combined Fund will charge a 12b-1 fee of 1.00%. To ensure that Class B shareholders of Utilities are not adversely affected by an increase in 12b-1 fees, the Board has

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approved the creation of a new Class Q of the Combined Fund and all existing Class B shares of Utilities will be moved into the new Class Q upon completion of the Reorganization. Class Q will be closed to new investments (excluding dividend reinvestments) and the current CDSC schedule will be maintained. The current Utilities Class B shareholders will not have the option of purchasing additional Class Q shares after the completion of the Reorganization, but instead would be offered Class B shares of the Combined Fund. See ‘‘The Reorganization — The Board's Considerations.’’

Other Significant Fees. Both Global Utilities and Utilities pay additional fees in connection with their operations, including legal, auditing, transfer agent, trustees fees and custodial fees. See ‘‘Synopsis — Fee Table’’ above for the percentage of average net assets represented by such ‘‘Other Expenses.’’

Purchases, Exchanges and Redemptions. Class A shares of each Fund are sold at net asset value plus an initial sales charge of up to 5.25%. The initial sales charge is reduced for certain purchases. Investments of $1 million or more (and investment by certain other limited categories of investors) are not subject to any sales charges at the time of purchase, but are generally subject to a CDSC of 1.00% on redemptions made within 18 months after the last day of the month of purchase (except for certain specific circumstances fully described in each Fund's Prospectus).

Class B shares of each Fund are offered at net asset value with no initial sales charge, but are subject to the same CDSC schedule set forth below:


Year Since Purchase Payment Made			Class B Shares of Global Utilities and Utilities
First			5.0%
Second			4.0%
Third			3.0%
Fourth			2.0%
Fifth			2.0%
Sixth			1.0%
Seventh and thereafter			None

Class C shares of each Fund are sold at net asset value with no initial sales charge, but are subject to a CDSC of 1.00% on redemptions made within one year after the last day of the month of purchase. The CDSC may be waived for certain redemptions (which are fully described under the section ‘‘Share Class Arrangements’’ in each Fund's Prospectus).

Class D shares of each Fund are available only to limited categories of investors and are sold at net asset value with no initial sales charge or CDSC.

The CDSC is paid to the Distributor. Shares of Global Utilities and Utilities are distributed by the Distributor and offered by Morgan Stanley DW and other dealers who have entered into selected dealer agreements with the Distributor. For further information relating to the CDSC schedules applicable to each class of shares of Global Utilities and Utilities, see the section entitled ‘‘Share Class Arrangements’’ in each Fund's Prospectus.

Shares of each class of Global Utilities and Utilities may be exchanged for shares of the same class of any other continuously offered Multi-Class Fund, or for shares of a No-Load Fund, a Money Market Fund or the Limited Duration U.S. Treasury Trust (each, an ‘‘Exchange Fund’’), without the imposition of an exchange fee. An exchange of Fund shares held for less than 30 days from the date of purchase will be subject to the 2% redemption fee. Front-end sales charges are not imposed on exchanges of Class A shares. See the inside back cover of the Utilities Prospectus for each Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. Upon consummation of the Reorganization, the foregoing exchange privileges will still be applicable to shareholders of the Combined Fund.

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Utilities shares distributed to Shareholders as a result of the Reorganization will not be subject to an initial sales charge.

With respect to both funds, no CDSC is imposed at the time of any exchange, although any applicable CDSC will be imposed upon ultimate redemption. For purposes of calculating the holding period in determining any applicable CDSC upon redemption of shares received as a result of the Reorganization, any period during which the Shareholder held shares of a fund that charged a CDSC (e.g., Global Utilities) will be counted. During the period of time a Utilities or Global Utilities shareholder remains in an Exchange Fund, the holding period (for purposes of determining the CDSC rate) is frozen. Both Global Utilities and Utilities provide telephone exchange privileges to their shareholders. For greater details relating to exchange privileges applicable to Utilities, see the section entitled ‘‘How to Exchange Shares’’ in Utilities' Prospectus.

Shares of each Fund redeemed within 30 days of purchase will be subject to a 2% redemption fee, payable to such Fund. The redemption fee is designed to protect each Fund and its remaining shareholders from the effects of short-term trading. The redemption fee is not imposed on redemptions made: (i) through systematic withdrawal/exchange plans, (ii) through pre-approved asset allocation programs, (iii) of shares received by reinvesting income dividends or capital gain distributions, (iv) through certain collective trust funds or other pooled vehicles and (v) on behalf of advisory accounts where client allocations are solely at the discretion of the Morgan Stanley Investment Management investment team. The redemption fee is based on, and deducted from, the redemption proceeds. Each time shares are redeemed or exchanged, the shares held the longest will be redeemed or exchanged first. The redemption fee may not be imposed on transactions that occur through certain omnibus accounts at financial intermediaries.

Shareholders of Global Utilities and Utilities may redeem their shares for cash at any time at the net asset value per share next determined; however, such redemption proceeds may be reduced by the amount of any applicable CDSC. Fund shares redeemed within 30 days of purchase will be subject to a 2% redemption fee, payable to the Fund. Both Global Utilities and Utilities offer a reinstatement privilege whereby a shareholder who has not previously exercised such privilege whose shares have been redeemed or repurchased may, within 35 days after the date of redemption or repurchase, reinstate any portion or all of the proceeds thereof in shares of the same class from which such shares were redeemed or repurchased and receive a pro rata credit for any CDSC paid in connection with such redemption or repurchase. Global Utilities and Utilities may redeem involuntarily, at net asset value, most accounts valued at less than $100.

Dividends. Each Fund declares dividends separately for each of its classes. Global Utilities pays dividends from net investment income semi-annually and Utilities pays such dividends quarterly. Each Fund usually distributes net capital gains, if any, in June and December. Each Fund, however, may determine either to distribute or to retain all or part of any net long-term capital gains in any year for reinvestment. With respect to each Fund, dividends and capital gains distributions are automatically reinvested in additional shares of the same class of shares of the Fund at net asset value unless the shareholder elects to receive cash.

PRINCIPAL RISK FACTORS

The share price and return of Utilities and Global Utilities will fluctuate with changes in the market value of their respective portfolio securities. The market value of the Funds' portfolio securities will increase or decrease due to a variety of economic, market and political factors which cannot be predicted. The principal risks associated with an investment in Utilities and Global Utilities are summarized below.

Common Stocks and Other Equity Securities. Both Funds invest in common stocks and other equity securities of companies primarily engaged in the utilities industry, including debt or preferred stocks

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convertible into common stocks and depositary receipts. In general, stock and other equity security values fluctuate in response to activities specific to the company as well as general market, economic and political conditions. Stock and other equity security prices can fluctuate widely in response to these factors. This can especially be the case for fully or partially deregulated utility companies.

Utilities Industry. Each Fund's investments in the utilities industry are impacted by risks particular to that industry. Changing regulation constitutes one of the key industry-specific risks for the Fund, especially with respect to its investments in traditionally regulated public utilities and partially regulated utility companies. State and other regulators often monitor and control utility revenues and costs, and therefore may limit utility profits and dividends paid to investors. Regulatory authorities also may restrict a company's access to new markets, thereby diminishing the company's long-term prospects. The deregulation of certain utilities companies may eliminate restrictions on profits and dividends, but may also subject these companies to greater risks of loss. Individual sectors of the utility market are subject to additional risks. These risks apply to all utility companies — regulated, fully or partially deregulated, and unregulated. For example, telecommunications companies have been affected by technological developments leading to increased competition, as well as changing regulation of local and long-distance telephone service and other telecommunications businesses. Certain telecommunications companies have not benefited from the new competitive climate.

Certain utilities companies may incur unexpected increases in fuel and other operating costs. They are adversely affected when long-term interest rates rise. Long-term borrowings are used to finance most utility investments, and rising interest rates lead to higher financing costs and reduced earnings. There are also considerable costs associated with environmental compliance, nuclear waste clean-up, and safety regulation. Increasingly, regulators are calling upon electric utilities to bear these added costs, and there is a risk that these costs will not be fully recovered through an increase in revenues.

Among gas companies, there has been a move to diversify into oil and gas exploration and development, making investment returns more sensitive to energy prices. In the case of the water utility sector, the industry is highly fragmented, and most water supply companies find themselves in mature markets, although upgrading of fresh water and waste water systems is an expanding business.

Foreign Securities. Each Fund may invest in foreign securities (including depositary receipts) not traded in the United States on a national securities exchange. Investments in foreign securities involve risks that are in addition to the risks associated with domestic securities. One additional risk is currency risk. While the price of fund shares is quoted in U.S. dollars, the Funds generally convert U.S. dollars to a foreign market's local currency to purchase a security in that market. If the value of that local currency falls relative to the U.S. dollar, the U.S. dollar value of the foreign security will decrease. This is true even if the foreign security's local price remains unchanged. Foreign securities also have risks related to economic and political developments abroad, including expropriations, confiscatory taxation, exchange control regulation, limitations on the use or transfer of Fund assets and any effects of foreign social, economic or political instability. Foreign companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, foreign accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. Finally, in the event of a default of any foreign debt obligations, it may be more difficult for the Funds to obtain or enforce a judgment against the issuers of the securities.

Securities of foreign issuers may be less liquid than comparable securities of U.S. issuers and, as such, their price changes may be more volatile. Furthermore, foreign exchanges and broker-dealers are generally subject to less government and exchange scrutiny and regulation than their U.S. counterparts. In addition, differences in clearance and settlement procedures in foreign markets may occasion delays in settlement of the Funds' trades effected in those markets and could result in losses to a fund due to subsequent declines in the value of the securities subject to the trades.

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Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.

Fixed-Income Securities. Both Funds may invest in fixed-income securities. All fixed-income securities are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. (Zero coupon securities are typically subject to greater price fluctuations than comparable securities that pay interest.) Some of a Fund's investment grade securities may have speculative credit risk characteristics.

Asset-Backed Securities. Utilities may invest in asset-backed securities. Asset-backed securities involve the risk that various federal and state consumer laws and other legal, regulatory and economic factors may result in the collateral backing the securities being insufficient to support payment on the securities. Asset-backed securities also have risk characteristics similar to those of mortgage-backed securities. Like mortgage-backed securities, they generally decrease in value as a result of interest rate increases, but may benefit less than other fixed-income securities from declining interest rates, principally because of prepayments. As in the case of mortgage-backed securities, prepayments may increase during a period of declining interest rates although other factors, such as changes in power usage or alternative power generation, may also influence prepayment rates.

The foregoing discussion is a summary of the principal risk factors. For a more complete discussion of the risks of each Fund, see ‘‘Principal Risks’’ and ‘‘Additional Risk Information’’ in the Prospectus of Global Utilities and in Utilities' Prospectus, both of which are incorporated herein by reference.

THE REORGANIZATION

The Proposal

The Board of Trustees of Global Utilities, including the Independent Trustees, having reviewed the financial position of Global Utilities and the prospects for achieving economies of scale through the Reorganization and having determined that the Reorganization is in the best interests of Global Utilities and its Shareholders and that the interests of Shareholders will not be diluted as a result thereof, recommends approval of the Reorganization by Shareholders of Global Utilities.

The Board's Considerations

At a meeting held on February 6, 2006, the Board, including the Independent Trustees, unanimously approved the Reorganization Agreement and determined to recommend that Shareholders approve the Reorganization Agreement. In reaching this decision, the Board made an extensive inquiry into a number of factors, particularly Global Utilities' inability to gain assets as expected and the comparative expenses currently incurred in the operations of Global Utilities and Utilities. The Board also considered other factors, including, but not limited to: the general compatibility of the investment objectives, policies and restrictions of Global Utilities and Utilities; the terms and conditions of the Reorganization which would affect the price of shares to be issued in the Reorganization; the tax-free nature of the Reorganization; and any direct or indirect costs to be incurred by Global Utilities and Utilities in connection with the Reorganization.

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In recommending the Reorganization to Shareholders, the Board of Global Utilities considered that the Reorganization would have the following benefits to Shareholders:

1. Once the Reorganization is consummated, the expenses which would be borne by shareholders of each class of the Combined Fund will be lower on a percentage basis than the expenses of each corresponding class of Global Utilities. The Board noted that the increase in the Combined Fund's net assets following the Reorganization would result in a lower advisory fee (as a percentage of assets) payable to the Investment Adviser. The Board also noted that Utilities' ‘‘Other Expenses’’ for its last fiscal year (0.25%) were lower than Global Utilities' ‘‘Other Expenses’’ for its last fiscal year (0.35%). The Board also considered that, upon completion of the Reorganization, the Investment Adviser has agreed to cap the 12b-1 fee for the Class C Shares of the Combined Fund at 0.94% for a period of two years following the consummation of the Reorganization in order to protect Class C shareholders of the Combined Fund from an increase in their expense ratio resulting from an increase in the 12b-1 fee. Furthermore, to the extent that the Reorganization would result in Shareholders becoming shareholders of a combined larger fund, further economies of scale could be achieved since various fixed expenses (e.g., auditing and legal) can be spread over a larger number of shares.

2. Shareholders would have continued participation in a fund that invests principally in the utilities industry.

3. The Reorganization has been structured in a manner intended to qualify as a tax-free reorganization for federal income tax purposes, pursuant to which no gain or loss will be recognized by Global Utilities, Utilities or their Shareholders for federal income tax purposes as a result of transactions included in the Reorganization.

In light of the reduction in annual operating expenses and other potential benefits of the Reorganization, as well as the uncertainty regarding the extent to which any lost capital loss carryovers could have been utilized for the benefit of Global Utilities Shareholders (as set forth in greater detail herein under ‘‘The Reorganization — Tax Aspects of the Reorganization’’), the Board concluded that the Reorganization was in the best interests of the Shareholders, notwithstanding the potential loss of capital loss carryovers.

The Board of Trustees of Utilities, including a majority of the Independent Trustees of Utilities, also has determined that the Reorganization is in the best interests of Utilities and its shareholders and that the interests of existing shareholders of Utilities will not be diluted as a result thereof. The transaction will enable Utilities to acquire investment securities, which are consistent with Utilities' investment objective, without the brokerage costs attendant to the purchase of such securities in the market. In addition, the Board considered that to ensure that existing Class B shareholders of Utilities are not adversely affected by an increase in 12b-1 fees, the Investment Adviser will create the new Class Q shares into which all existing Class B shares will migrate upon the completion of the Reorganization. To ensure that the existing Class B shareholders of Utilities are not adversely affected by an increase in 12b-1 fees, Class B shareholders of Utilities will be moved into a newly created Class Q Shares of the Combined Fund upon the completion of the Reorganization. Class Q shares will be closed to new investments (excluding dividend reinvestments) and the current Utilities Class B shareholders will not have the option of purchasing additional Class Q shares after the completion of the Reorganization, but instead would be offered Class B Shares of the Combined Fund. In the event that the Reorganization is not approved by shareholders, current Utilities Class B shareholders will retain their interests in Class B shares.

The Reorganization Agreement

The terms and conditions under which the Reorganization would be consummated, as summarized below, are set forth in the form of Reorganization Agreement. This summary is qualified in its entirety by reference to the Reorganization Agreement, a copy of which is attached as Exhibit A to this Proxy Statement and Prospectus.

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The Reorganization Agreement provides that (i) Global Utilities will transfer all of its assets, including portfolio securities, cash, cash equivalents and receivables to Utilities on the Closing Date in exchange for the assumption by Utilities of stated liabilities of Global Utilities, including all expenses, costs, charges and reserves, as reflected on an unaudited statement of assets and liabilities of Global Utilities prepared by the Treasurer of Global Utilities as of the Valuation Date in accordance with generally accepted accounting principles consistently applied from the prior audited period, and the delivery of the Utilities Shares; (ii) such Utilities Shares would be distributed to Shareholders on the Closing Date or as soon as practicable thereafter; (iii) Global Utilities would be dissolved and de-registered as an investment company under the 1940 Act; and (iv) the outstanding shares of Global Utilities would be canceled.

The number of Utilities Shares to be delivered to Global Utilities will be determined by dividing the aggregate net asset value of each class of shares of Global Utilities acquired by Utilities by the net asset value per share of the corresponding class of shares of Utilities; these values will be calculated as of the close of business of the New York Stock Exchange on the Valuation Date. As an illustration, assume that on the Valuation Date, Class B shares of Global Utilities had an aggregate net asset value of $100,000. If the net asset value per Class B share of Utilities were $10 per share at the close of business on the Valuation Date, the number of Class B shares of Utilities to be issued would be 10,000 ($100,000 ÷ $10). These 10,000 Class B shares of Utilities would be distributed to the former Class B shareholders of Global Utilities. This example is given for illustration purposes only and does not bear any relationship to the dollar amounts or shares expected to be involved in the Reorganization.

On the Closing Date or as soon as practicable thereafter, Global Utilities will distribute pro rata to its Shareholders of record as of the close of business on the Valuation Date the Utilities Shares it receives. Each Shareholder will receive the class of shares of Utilities that corresponds to the class of shares of Global Utilities currently held by that Shareholder. Accordingly, the Utilities Shares will be distributed as follows: each of the Class A, Class B, Class C and Class D shares of Utilities will be distributed to holders of Class A, Class B, Class C and Class D shares of Global Utilities, respectively. Utilities will cause its transfer agent to credit and confirm an appropriate number of Utilities Shares to each Shareholder. Certificates for Utilities Shares will be issued only upon written request of a Shareholder and only for whole shares, with fractional shares credited to the name of the Shareholder on the books of Utilities. Shareholders who wish to receive certificates representing their Utilities Shares must, after receipt of their confirmations, make a written request to Utilities' transfer agent Morgan Stanley Trust, Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311. Shareholders of Global Utilities holding their shares in certificate form will be asked to surrender such certificates in connection with the Reorganization. Shareholders who do not surrender their certificates prior to the Closing Date will still receive their shares of Utilities; however, such Shareholders will not be able to redeem, transfer or exchange the Utilities Shares received until the old certificates have been surrendered.

The Closing Date will be the Valuation Date or the next business day following the Valuation Date. The consummation of the Reorganization is contingent upon the approval of the Reorganization by the Shareholders and the receipt of the other opinions and certificates set forth in Sections 6, 7 and 8 of the Reorganization Agreement and the occurrence of the events described in those Sections, certain of which may be waived by Global Utilities or Utilities. The Reorganization Agreement may be amended in any mutually agreeable manner.

The Reorganization Agreement may be terminated and the Reorganization abandoned at any time, before or after approval by Shareholders, by mutual consent of Global Utilities and Utilities. In addition, either party may terminate the Reorganization Agreement upon the occurrence of a material breach of the Reorganization Agreement by the other party or if, by January 31, 2007, any condition set forth in the Reorganization Agreement has not been fulfilled or waived by the party entitled to its benefits.

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Under the Reorganization Agreement, within one year after the Closing Date, Global Utilities shall: either pay or make provision for all of its liabilities to former Shareholders of Global Utilities that received Utilities Shares. Global Utilities shall be deregistered as an investment company and dissolved promptly following the distributions of Utilities Shares to Shareholders of record of Global Utilities.

The effect of the Reorganization is that Shareholders who vote their shares in favor of the Reorganization Agreement are electing to sell their shares of Global Utilities (at net asset value on the Valuation Date) and reinvest the proceeds in Utilities Shares at net asset value and without recognition of taxable gain or loss for federal income tax purposes. See ‘‘Tax Aspects of the Reorganization’’ below. If Global Utilities recognizes net gain from the sale of securities prior to the Closing Date, substantially all of such gain, to the extent not offset by capital loss carryforwards, will be distributed to Shareholders on or prior to the Closing Date and will be taxable to Shareholders as capital gain.

Shareholders will continue to be able to redeem their shares of Global Utilities at net asset value next determined after receipt of the redemption request (subject to any applicable CDSC) until the close of business on the business day next preceding the Closing Date. Redemption requests received by Global Utilities thereafter will be treated as requests for redemption of shares of Utilities.

Tax Aspects of the Reorganization

Tax Consequences of the Reorganization to the Shareholders. The Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’).

As a condition to the Reorganization, Global Utilities and Utilities have requested an opinion of Clifford Chance US LLP to the effect that, based on certain assumptions, facts, the terms of the Reorganization Agreement and representations set forth in the Reorganization Agreement or otherwise provided by Global Utilities and Utilities:

1. The transfer of Global Utilities' assets in exchange for the Utilities Shares and the assumption by Utilities of certain stated liabilities of Global Utilities followed by the distribution by Global Utilities of the Utilities Shares to Shareholders in exchange for their Global Utilities shares pursuant to and in accordance with the terms of the Reorganization Agreement will constitute a ‘‘reorganization’’ within the meaning of Section 368(a)(1)(C) of the Code, and Global Utilities and Utilities will each be a ‘‘party to a reorganization’’ within the meaning of Section 368(b) of the Code;

2. No gain or loss will be recognized by Utilities upon the receipt of the assets of Global Utilities solely in exchange for the Utilities Shares and the assumption by Utilities of the stated liabilities of Global Utilities;

3. No gain or loss will be recognized by Global Utilities upon the transfer of the assets of Global Utilities to Utilities in exchange for the Utilities Shares and the assumption by Utilities of the stated liabilities or upon the distribution of Utilities Shares to Shareholders in exchange for their Global Utilities shares;

4. No gain or loss will be recognized by Shareholders upon the exchange of the shares of Global Utilities for the Utilities Shares;

5. The aggregate tax basis for the Utilities Shares received by each of the Shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the shares in Global Utilities held by each such Shareholder immediately prior to the Reorganization;

6. The holding period of the Utilities Shares to be received by each Shareholder will include the period during which the shares in Global Utilities surrendered in exchange therefor were held (provided such shares in Global Utilities were held as capital assets on the date of the Reorganization);

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7. The tax basis of the assets of Global Utilities acquired by Utilities will be the same as the tax basis of such assets of Global Utilities immediately prior to the Reorganization; and

8. The holding period of the assets of Global Utilities in the hands of Utilities will include the period during which those assets were held by Global Utilities.

The advice of counsel is not binding on the Internal Revenue Service (the ‘‘IRS’’) or the courts and neither Global Utilities nor Utilities has sought a ruling with respect to the tax treatment of the Reorganization. The opinion of counsel, if delivered, will be based on the Code, regulations issued by the Treasury Department under the Code, court decisions, and administrative pronouncements issued by the IRS with respect to all of the foregoing, all as in effect on the date of the opinion, and all of which may be repealed, revoked or modified thereafter, possibly on a retroactive basis.

Shareholders should consult their tax advisors regarding the effect, if any, of the proposed Reorganization in light of their individual circumstances. Because the foregoing discussion only relates to the federal income tax consequences of the proposed Reorganization, Shareholders should also consult their tax advisors as to state and local tax consequences, if any, of the proposed Reorganization.

Tax Consequences of the Reorganization to Global Utilities and Utilities. Under the Code, the Reorganization may result in limitations on the utilization of the capital loss carryovers of Global Utilities. The effect of any such limitations will depend on the existence and amount of Global Utilities capital loss carryovers, built-in capital losses and built-in capital gains at the time of the Reorganization. In general, a fund will have built-in capital gains if the fair market value of its assets on the date of the Reorganization exceeds its tax basis in such assets and a fund will have built-in capital losses if its tax basis in its assets exceeds the fair market value of such assets on the date of the Reorganization.

As of its last fiscal year end (February 28, 2005), Global Utilities had approximately $104 million of estimated capital loss carryovers. Additionally, as of February 28, 2005, Global Utilities had approximately $74 million of built-in capital gains.

Under the Code, Global Utilities' capital loss carryovers can be carried forward for eight years from the year in which incurred. The capital loss carryovers generally can be used in each of those eight years to offset any capital gains that are realized by Global Utilities in that year, but only to the extent that such gains exceed the capital losses (if any) that are realized by Global Utilities in that year. In general, following the Reorganization, the Combined Fund's ability to utilize the capital loss carryovers of Global Utilities will be subject to the following limitations:

1. The Combined Fund can utilize the capital loss carryovers of Global Utilities to offset against capital gains from sales of assets owned by Global Utilities immediately before the Reorganization, but only to the extent that (x) such sales occur within a period ending approximately five years after the Reorganization and (y) the capital gains from such sales do not exceed the built-in capital gains of Global Utilities on the date of the Reorganization; and

2. In addition to being able to utilize the capital loss carryovers of Global Utilities as described in paragraph 1, assuming certain continuity of business requirements are satisfied following the Reorganization, the Combined Fund also will be able to utilize a further amount of the capital loss carryovers of Global Utilities to offset against other capital gains each year. This amount is determined based on certain facts as of the date of the Reorganization. If the Reorganization had occurred on February 28, 2005, then the additional amount of Global Utilities' carryovers that could be utilized each year would have been approximately $12 million per year.

It is uncertain how much of Global Utilities' capital loss carryovers Global Utilities would be able to utilize in future years if the Reorganization did not occur. The amount of capital loss carryovers that Global Utilities could utilize in future years if the Reorganization did not occur would depend on, among

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other things: whether Global Utilities participated in some other transaction in the future that resulted in limitations being imposed on Global Utilities' utilization of capital loss carryovers; the amount of capital gains that Global Utilities would be able to realize in future years before its capital loss carryovers expired; and the amount of capital losses that Global Utilities would realize in future years. The Reorganization may result in the Combined Fund being unable to utilize capital loss carryovers that could have been used if the transaction did not occur, but it cannot be determined with certainty to what extent this would be the case.

Description of Shares

Utilities Shares will, when issued, be fully paid and non-assessable by Utilities and transferable without restrictions and will have no preemptive rights. Class B shares of Utilities, like Class B shares of Global Utilities, have a conversion feature pursuant to which approximately eight years after the date of the original purchase of such shares, the shares will convert automatically to Class A shares, based on the relative net asset values of the two classes. For greater details regarding the conversion feature, including the method by which the eight-year period is calculated and the treatment of reinvested dividends, see ‘‘Share Class Arrangements’’ in each Fund's Prospectus.

Capitalization Table (unaudited)

The following table sets forth the capitalization of Utilities and Global Utilities as of December 31, 2005 and on a pro forma combined basis as if the Reorganization had occurred on that date:


	Net Assets*			Shares Outstanding		Net Asset Value Per Share*
Class A
Global Utilities		$	161,943,190		10,503,594		$	15.42
Utilities		$	658,909,163		45,857,756		$	14.37
Combined Fund (pro forma)		$	820,703,046		57,127,289		$	14.37
Class B
Global Utilities		$	98,557,382		6,280,598		$	15.69
Utilities**		$	184,065,422		12,742,301		$	14.45
Combined Fund (pro forma)		$	98,466,515		6,820,580		$	14.44
Class C
Global Utilities		$	4,804,340		314,069		$	15.30
Utilities		$	8,744,665		606,156		$	14.43
Combined Fund (pro forma)		$	13,544,575		939,097		$	14.42
Class D
Global Utilities		$	1,493,926		96,469		$	15.49
Utilities		$	4,059,198		282,997		$	14.34
Combined Fund (pro forma)		$	5,551,747		387,176		$	14.34
Class Q
Global Utilities			N/A		N/A			N/A
Utilities			N/A		N/A			N/A
Combined Fund (pro forma)		$	184,065,422		12,742,301		$	14.45
Total Class A, B, C, D, Q
Global Utilities		$	266,798,838		17,194,730		$	15.52
Utilities		$	855,778,448		59,489,210		$	14.39
Combined Fund (pro forma)		$	1,122,331,305		78,016,443		$	14.39

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*	The pro forma net assets and net asset value per share reflect the payment of reorganization expenses of approximately $149,307, $90,867, $4,430 and $1,377 by Class A shares, Class B shares, Class C shares and Class D shares, respectively, of Global Utilities.

To ensure that the existing Class B shareholders of Utilities are not adversely affected by the increase in 12b-1 fees, Class B shareholders of Utilities will be moved into Class Q shares of the Combined Fund upon completion of the Reorganization. See ‘‘The Reorganization — The Board's Considerations.’’ The creation of Class Q shares will not affect the capitalization of the Combined Fund if the Reorganization takes place.

Appraisal Rights

Shareholders will have no appraisal rights in connection with the Reorganization.

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

Investment Objectives and Policies

The investment objectives of both Global Utilities and Utilities are to seek to provide both capital appreciation and current income.

Global Utilities

Global Utilities will normally invest at least 80% of its assets in securities of companies from around the world that are primarily engaged in the utilities industry. These securities can include common stock and other equity securities (including preferred stock, convertible securities and depositary receipts), as well as investment grade fixed income securities (including zero coupon securities). A company will be considered to be primarily engaged in the utilities industry if it derives at least 50% of its revenues or earnings from the utilities industry or devotes at least 50% of its assets to activities in the industry. Up to 5% of the Global Utilities' net assets may be invested in convertible securities that are below investment grade (commonly known as ‘‘junk bonds’’). The Investment Adviser will shift Global Utilities' assets between different types of utilities, among companies of different countries, and between equity and fixed-income securities, based on prevailing market, economic and financial conditions. Global Utilities will be invested in at least three countries (including the United States). If Global Utilities holds any fixed-income securities, the average weighted maturity of these investments is normally expected to be greater than seven years.

In selecting common stock and other equity securities to buy, hold or sell for Global Utilities, the Investment Adviser considers earnings, cash flow and revenue growth and a variety of valuation measures such as price/earnings, price/cash flow and dividend yield. In addition, the Investment Adviser monitors the quality of management, the prevailing regulatory, political and economic framework and industry trends. For non-U.S. securities, the Investment Adviser considers both country and specific security factors.

Global Utilities may also utilize options, futures and forward foreign currency exchange contracts.

Utilities

Utilities normally invests at least 80% of its assets in common stocks and other equity securities (including depositary receipts) and investment grade fixed-income securities (including asset-backed securities and zero-coupon securities) of companies that are engaged in the utilities industry. A company

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will be considered to be in the utilities industry if it derives at least 50% of its revenues or earnings from the utilities industry or devotes at least 50% of its assets to activities in that industry. Utilities may also invest up to 25% of its net assets in foreign securities, including common stock and other equity securities (including depositary receipts) and investment grade fixed-income securities. However, this percentage limitation does not apply to securities of foreign companies that are listed in the U.S. on a national securities exchange.

The Investment Adviser will shift Utilities' assets between different types of utilities and between equity and fixed-income securities, based on prevailing market, economic and financial conditions. Utilities does not have any set policies to concentrate its assets in any particular segment of the utilities industry or any particular type of security. However, the Fund's policy to concentrate its assets in the utilities industry is fundamental, and may not be changed without shareholder approval. In selecting common stock and other equity securities to buy, hold or sell for Utilities, the Investment Adviser considers earnings and dividend growth, book value, dividend discount and price/earnings relationships. In addition, the Investment Adviser makes continuing assessments of management, the prevailing regulatory framework and industry trends. Computer-based equity selection models also may be used. If the Investment Adviser believes favorable conditions for capital growth of equity securities are not prevalent at a particular time, it may allocate Utilities' assets predominantly or exclusively to debt securities with the aim of obtaining current income and thus contributing to long-term growth of capital.

The remaining 20% of Utilities' assets may be invested in securities of companies not engaged in the utilities industry. Up to 10% of the Fund's net assets may be invested in convertible securities, a portion of which may be rated below investment grade (commonly known as ‘‘junk bonds’’). The Fund may also utilize forward foreign currency exchange contracts.

The investment policies of both Global Utilities and Utilities are not fundamental and may be changed by their respective Boards; however, Utilities has adopted a fundamental policy to concentrate its assets in the utilities industry. A fundamental policy may not be changed without shareholder approval. Global Utilities has not adopted a fundamental policy to concentrate its assets in the utilities industry, but it historically has done so. The foregoing discussion is a summary of the principal differences and similarities between the investment policies of the Funds. For a more complete discussion of each Fund's policies, see ‘‘Principal Investment Strategies’’ and ‘‘Additional Investment Strategy Information’’ in each Fund's Prospectus and ‘‘Description of the Fund and Its Investments and Risks’’ in each Fund's Statement of Additional Information.

Investment Restrictions

The investment restrictions adopted by Global Utilities and Utilities as fundamental policies are substantially similar (except for the differences described below) and are summarized under the caption ‘‘Description of the Fund and Its Investments and Risks — Fund Policies/Investment Restrictions’’ in their respective Statements of Additional Information. A fundamental investment restriction cannot be changed without the vote of the majority of the outstanding voting securities of a fund, as defined in the 1940 Act.

The material differences are as follows: Utilities may not (i) invest in securities of any issuer if, to the knowledge of the Fund, any officer or Trustee of the Fund or of the Investment Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer and such officers and Trustees who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding shares of such issuer, and (ii) invest more than 10% of its total assets in ‘‘illiquid securities’’ (securities for which market quotations are not readily available) and repurchase agreements which have a maturity of longer than seven days (although under the 1940 Act, Global Utilities may not invest more than 15% of its assets in ‘‘illiquid securities.’’) Global Utilities may purchase securities of other investment companies in connection with a merger, consolidation or reorganization of assets and to the extent permitted by the 1940 Act. Under the 1940 Act, the

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Funds' investment in such securities, subject to certain exceptions, currently is limited to (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Fund's total assets with respect to any one investment company and (iii) 10% of the Fund's total assets in the aggregate. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. Utilities may purchase securities of other investment companies only in connection with a merger, consolidation or reorganization of assets. Global Utilities may not purchase or sell commodities or commodities contracts except that it may purchase or sell futures contracts or options thereon; Utilities has no such investment restriction, but does not intend to purchase or sell commodities except that it may purchase or sell futures contracts or options thereon. Utilities may not purchase more than 10% of the voting securities, or more than 10% of any class of securities, of any one issuer. Global Utilities has the same restrictions, but only with respect to 75% of its assets. Utilities may not invest more than 5% of its total assets in the securities of any one issuer (other than obligations issued, or guaranteed by, the U.S. Government, its agencies or instrumentalities). Global Utilities has the same restriction, but only with respect to 75% of its assets.

ADDITIONAL INFORMATION ABOUT GLOBAL UTILITIES AND UTILITIES

General

For a discussion of the organization and operation of Utilities and Global Utilities, see ‘‘Fund Management,’’ ‘‘Investment Objective’’ and ‘‘Principal Investment Strategies’’ in their respective Prospectuses, and ‘‘Fund History’’ in their respective Statements of Additional Information.

Financial Information

For certain financial information about Utilities and Global Utilities, see ‘‘Financial Highlights’’ in their respective Prospectuses.

Management

For information about the Board of Trustees, Investment Adviser and the Distributor of Utilities and Global Utilities, see ‘‘Fund Management’’ in their respective Prospectuses and ‘‘Management of the Fund’’ in their respective Statements of Additional Information.

Description of Securities and Shareholder Inquiries

For a description of the nature and most significant attributes of shares of Global Utilities and Utilities, and information regarding shareholder inquiries, see ‘‘Capital Stock and Other Securities’’ and ‘‘Management of the Fund — Management Information — Shareholder Communications’’ in their respective Statements of Additional Information.

Dividends, Distributions and Taxes

For a discussion of Utilities' and Global Utilities' policies with respect to dividends, distributions and taxes, see ‘‘Distributions’’ and ‘‘Tax Consequences’’ in their respective Prospectuses as well as the discussion herein under ‘‘Synopsis — Tax Consequences of the Reorganization,’’ ‘‘Synopsis — Comparison of each Fund — Dividends’’ and ‘‘The Reorganization — Tax Aspects of the Reorganization.’’

Purchases, Repurchases and Redemptions

For a discussion of how Utilities' and Global Utilities' shares may be purchased, repurchased and redeemed, see ‘‘How to Buy Shares,’’ ‘‘How to Exchange Shares’’ and ‘‘How to Sell Shares’’ in their respective Prospectuses and the discussion herein under ‘‘Synopsis — Comparison of Global Utilities and Utilities — Purchases, Exchanges and Redemptions.’’

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FINANCIAL STATEMENTS AND EXPERTS

The financial statements of Utilities, for the fiscal year ended December 31, 2005, and Global Utilities, for the fiscal year ended February 28, 2006, that are incorporated by reference in the Statement of Additional Information relating to the Registration Statement on Form N-14 of which this Proxy Statement and Prospectus forms a part, have been audited by Deloitte & Touche LLP, independent registered public accounting firm. The financial statements are incorporated by reference in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters concerning the issuance of shares of Utilities will be passed upon by Clifford Chance US LLP, New York, New York. Such firm will rely on Dechert LLP as to matters of Massachusetts law.

AVAILABLE INFORMATION

Additional information about Global Utilities and Utilities is available, as applicable, in the following documents which are incorporated herein by reference: (i) Utilities' Prospectus dated April 28, 2006 attached to this Proxy Statement and Prospectus, which Prospectus forms a part of Post-Effective Amendment No. 22 to Utilities' Registration Statement on Form N-1A (File Nos. 33-18983; 811-5415); (ii) Utilities' Annual Report for its fiscal year ended December 31, 2005, accompanying this Proxy Statement and Prospectus; (iii) Global Utilities' Prospectus dated June 30, 2005, as supplemented, which Prospectus forms a part of Post-Effective Amendment No. 13 to Global Utilities' Registration Statement on Form N-1A (File Nos. 333-50907; 811-7119); and (iv) Global Utilities' Annual Report for its fiscal year ended February 28, 2006. The foregoing documents may be obtained without charge by calling (800) 869-NEWS (toll-free).

Global Utilities and Utilities are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file reports and other information with the Commission. Proxy material, reports and other information about Global Utilities and Utilities which are of public record can be viewed and copied at the Commission's Public Reference Room in Washington, D.C. Information about the Reference Room's operations may be obtained by calling the Commission at (202) 551-8090. Reports and other information about each Fund are available on the EDGAR Database on the Commission's Internet site (www.sec.gov) and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102.

OTHER BUSINESS

Management of Global Utilities knows of no business other than the matters specified above which will be presented at the Meeting. Since matters not known at the time of the solicitation may come before the Meeting, the proxy as solicited confers discretionary authority with respect to such matters as properly come before the Meeting, including any adjournment or adjournments thereof, and it is the intention of the persons named as attorneys-in-fact in the proxy to vote this proxy in accordance with their judgment on such matters.


			By Order of the Board of Trustees
			Mary E. Mullin, Secretary

June 6, 2006

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EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (‘‘Agreement’’) is made as of this 6th day of February, 2006, by and between MORGAN STANLEY UTILITIES FUND, a Massachusetts business trust (‘‘Utilities’’), and MORGAN STANLEY GLOBAL UTILITIES FUND, a Massachusetts business trust (‘‘Global Utilities’’).

This Agreement is intended to be and is adopted as a ‘‘plan of reorganization’’ within the meaning of Treas. Reg. 1.368-2(g), for a reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). The reorganization (‘‘Reorganization’’) will consist of the transfer to Utilities of substantially all of the assets of Global Utilities in exchange for the assumption by Utilities of all stated liabilities of Global Utilities and the issuance by Utilities of shares of beneficial interest, par value $0.01 per share (the ‘‘Utilities Shares’’), to be distributed, after the Closing Date hereinafter referred to, to the shareholders of Global Utilities in liquidation of Global Utilities as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement.

In consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:

1. THE REORGANIZATION AND LIQUIDATION OF GLOBAL UTILITIES

1.1 Subject to the terms and conditions herein set forth and on the basis of the representations and warranties contained herein, Global Utilities agrees to assign, deliver and otherwise transfer the Global Utilities Assets (as defined in paragraph 1.2) to Utilities and Utilities agrees in exchange therefor to assume all of Global Utilities' stated liabilities on the Closing Date as set forth in paragraph 1.3(a) and to deliver to Global Utilities the number of Utilities Shares, including fractional Utilities Shares, determined in the manner set forth in paragraph 2.3. Such transactions shall take place at the closing provided for in paragraph 3.1 (‘‘Closing’’).

1.2 (a) The ‘‘Global Utilities Assets’’ shall consist of all property, including without limitation, all cash, cash equivalents, securities and dividend and interest receivables owned by Global Utilities, and any deferred or prepaid expenses shown as an asset on Global Utilities' books on the Valuation Date.

(b) On or prior to the Valuation Date, Global Utilities will provide Utilities with a list of all of Global Utilities' assets to be assigned, delivered and otherwise transferred to Utilities and a list of the stated liabilities to be assumed by Utilities pursuant to this Agreement. Global Utilities reserves the right to sell any of the securities on such list but will not, without the prior approval of Utilities, acquire any additional securities other than securities of the type in which Utilities is permitted to invest and in amounts agreed to in writing by Utilities. Utilities will, within a reasonable time prior to the Valuation Date, furnish Global Utilities with a statement of Utilities' investment objective, policies and restrictions and a list of the securities, if any, on the list referred to in the first sentence of this paragraph that do not conform to Utilities' investment objective, policies and restrictions. In the event that Global Utilities holds any investments that Utilities is not permitted to hold, Global Utilities will dispose of such securities on or prior to the Valuation Date. In addition, if it is determined that the portfolios of Global Utilities and Utilities, when aggregated, would contain investments exceeding certain percentage limitations imposed upon Utilities with respect to such investments, Global Utilities if requested by Utilities will, on or prior to the Valuation Date, dispose of and/or reinvest a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date (as defined in paragraph 3.1).

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1.3 Global Utilities will endeavor to discharge all of its liabilities and obligations on or prior to the Valuation Date. Utilities will assume all stated liabilities, which includes, without limitation, all expenses, costs, charges and reserves reflected on an unaudited Statement of Assets and Liabilities of Global Utilities prepared by the Treasurer of Global Utilities as of the Valuation Date in accordance with generally accepted accounting principles consistently applied from the prior audited period.

1.4 In order for Global Utilities to comply with Section 852(a)(1) of the Code and to avoid having any investment company taxable income or net capital gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively) in the short taxable year ending with its dissolution, Global Utilities will on or before the Valuation Date (a) declare a dividend in an amount large enough so that it will have declared dividends of substantially all of its investment company taxable income and net capital gain, if any, for such taxable year (determined without regard to any deduction for dividends paid) and (b) distribute such dividend.

1.5 On the Closing Date or as soon as practicable thereafter, Global Utilities will distribute Utilities Shares received by Global Utilities pursuant to paragraph 1.1 pro rata to its shareholders of record determined as of the close of business on the Valuation Date (‘‘Global Utilities Shareholders’’). Each Global Utilities Shareholder will receive the class of shares of Utilities that corresponds to the class of shares of Global Utilities currently held by that Global Utilities Shareholder. Accordingly, the Utilities Shares will be distributed as follows: each of the Class A, Class B, Class C and Class D shares of Utilities will be distributed to holders of Class A, Class B, Class C and Class D shares of Global Utilities, respectively. Such distribution will be accomplished by an instruction, signed by Global Utilities' Secretary, to transfer Utilities Shares then credited to Global Utilities' account on the books of Utilities to open accounts on the books of Utilities in the names of the Global Utilities Shareholders and representing the respective pro rata number of Utilities Shares due such Global Utilities Shareholders. All issued and outstanding shares of Global Utilities simultaneously will be canceled on Global Utilities' books; however, share certificates representing interests in Global Utilities will represent a number of Utilities Shares after the Closing Date as determined in accordance with paragraph 2.3. Utilities will issue certificates representing Utilities Shares in connection with such exchange only upon the written request of a Global Utilities Shareholder.

1.6 Ownership of Utilities Shares will be shown on the books of Utilities' transfer agent. Utilities Shares will be issued in the manner described in Utilities' current Prospectus and Statement of Additional Information.

1.7 Any transfer taxes payable upon issuance of Utilities Shares in a name other than the registered holder of Utilities Shares on Global Utilities' books as of the close of business on the Valuation Date shall, as a condition of such issuance and transfer, be paid by the person to whom Utilities Shares are to be issued and transferred.

1.8 Any reporting responsibility of Global Utilities is and shall remain the responsibility of Global Utilities up to and including the date on which Global Utilities is dissolved and deregistered pursuant to paragraph 1.9.

1.9 Within one year after the Closing Date, Global Utilities shall pay or make provision for the payment of all its liabilities and taxes. If and to the extent that any trust, escrow account, or other similar entity continues after the close of such one-year period in connection either with making provision for payment of liabilities or taxes or with distributions to shareholders of Global Utilities, such entity shall either (i) qualify as a liquidating trust under Section 7701 of the Code (and applicable Treasury Regulations thereunder) or other entity which does not constitute a continuation of Global Utilities for federal income tax purposes, or (ii) be subject to a waiver under Section 368(a)(2)(G)(ii) of the complete

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distribution requirement of Section 368(a)(2)(G)(i) of the Code. Global Utilities shall be dissolved as a Massachusetts business trust and deregistered as an investment company under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’), promptly following the making of all distributions pursuant to paragraph 1.5 (and, in any event, within one year after the Closing Date).

1.10 Copies of all books and records maintained on behalf of Global Utilities in connection with its obligations under the 1940 Act, the Code, state blue sky laws or otherwise in connection with this Agreement will promptly be delivered after the Closing to officers of Utilities or their designee, and Utilities or its designee shall comply with applicable record retention requirements to which Global Utilities is subject under the 1940 Act.

2. VALUATION

2.1 The value of the Global Utilities Assets shall be the value of such assets computed as of 4:00 p.m. on the New York Stock Exchange on the third business day following the receipt of the requisite approval by shareholders of Global Utilities of this Agreement or at such time on such earlier or later date after such approval as may be mutually agreed upon in writing (such time and date being hereinafter called the ‘‘Valuation Date’’), using the valuation procedures set forth in Utilities' then current Prospectus and Statement of Additional Information.

2.2 The net asset value of a Utilities Share shall be the net asset value per share computed on the Valuation Date, using the valuation procedures set forth in Utilities' then current Prospectus and Statement of Additional Information.

2.3 The number of Utilities Shares (including fractional shares, if any) to be issued hereunder shall be determined, with respect to each class, by dividing the aggregate net asset value of each class of Global Utilities shares (determined in accordance with paragraph 2.1) by the net asset value per share of the corresponding class of shares of Utilities (determined in accordance with paragraph 2.2).

2.4 All computations of value shall be made by Morgan Stanley Services Company Inc. (‘‘Morgan Stanley Services’’) in accordance with its regular practice in pricing Utilities. Utilities shall cause Morgan Stanley Services to deliver a copy of its valuation report at the Closing.

3. CLOSING AND CLOSING DATE

3.1 The Closing shall take place on the Valuation Date or on the next business day following the Valuation Date (the ‘‘Closing Date’’). The Closing shall be held as of 9:00 a.m. New York time, or at such other time as the parties may agree. The Closing shall be held in a location mutually agreeable to the parties hereto. All acts taking place at the Closing shall be deemed to take place simultaneously as of 9:00 a.m. New York time on the Closing Date unless otherwise provided.

3.2 Portfolio securities held by Global Utilities and represented by a certificate or other written instrument shall be presented by it or on its behalf to The Bank of New York (the ‘‘Custodian’’), as custodian for Utilities, for examination no later than five business days preceding the Valuation Date. Such portfolio securities (together with any cash or other assets) shall be delivered by Global Utilities to the Custodian for the account of Utilities on or before the Closing Date in conformity with applicable custody provisions under the 1940 Act and duly endorsed in proper form for transfer in such condition as to constitute good delivery thereof in accordance with the custom of brokers. The portfolio securities shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price of such stamps. Portfolio securities and instruments deposited with a securities depository (as defined in Rule 17f-4 under the 1940 Act) shall be delivered on or before the Closing Date

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by book-entry in accordance with customary practices of such depository and the Custodian. The cash delivered shall be in the form of a Federal Funds wire, payable to the order of ‘‘The Bank of New York, Custodian for Morgan Stanley Utilities Fund.’’

3.3 In the event that on the Valuation Date, (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that, in the judgment of both Utilities and Global Utilities, accurate appraisal of the value of the net assets of Utilities or the Global Utilities Assets is impracticable, the Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed without restriction or disruption and reporting shall have been restored.

3.4 If requested, Global Utilities shall deliver to Utilities or its designee (a) at the Closing, a list, certified by its Secretary, of the names, addresses and taxpayer identification numbers of the Global Utilities Shareholders and the number and percentage ownership of outstanding Global Utilities shares owned by each such Global Utilities Shareholder, all as of the Valuation Date, and (b) as soon as practicable after the Closing, all original documentation (including Internal Revenue Service forms, certificates, certifications and correspondence) relating to the Global Utilities Shareholders' taxpayer identification numbers and their liability for or exemption from back-up withholding. Utilities shall issue and deliver to such Secretary a confirmation evidencing delivery of Utilities Shares to be credited on the Closing Date to Global Utilities or provide evidence satisfactory to Global Utilities that such Utilities Shares have been credited to Global Utilities' account on the books of Utilities. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request.

4. COVENANTS OF UTILITIES AND GLOBAL UTILITIES

4.1 Except as otherwise expressly provided herein with respect to Global Utilities, Utilities and Global Utilities each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and other distributions.

4.2 Utilities will prepare and file with the Securities and Exchange Commission (the ‘‘Commission’’) a registration statement on Form N-14 under the Securities Act of 1933, as amended (the ‘‘1933 Act’’), relating to Utilities Shares (‘‘Registration Statement’’). Global Utilities will provide Utilities with the Proxy Materials as described in paragraph 4.3 below, for inclusion in the Registration Statement. Global Utilities will further provide Utilities with such other information and documents relating to Global Utilities as are reasonably necessary for the preparation of the Registration Statement.

4.3 Global Utilities will call a meeting of its shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. Global Utilities will prepare the notice of meeting, form of proxy and proxy statement (collectively, ‘‘Proxy Materials’’) to be used in connection with such meeting; provided that Utilities will furnish Global Utilities with its currently effective prospectus for inclusion in the Proxy Materials and with such other information relating to Utilities as is reasonably necessary for the preparation of the Proxy Materials.

4.4 Global Utilities will assist Utilities in obtaining such information as Utilities reasonably requests concerning the beneficial ownership of Global Utilities shares.

4.5 Subject to the provisions of this Agreement, Utilities and Global Utilities will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.

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4.6 Global Utilities shall furnish or cause to be furnished to Utilities within 30 days after the Closing Date a statement of Global Utilities' assets and liabilities as of the Closing Date, which statement shall be certified by Global Utilities' Treasurer and shall be in accordance with generally accepted accounting principles consistently applied. As promptly as practicable, but in any case within 60 days after the Closing Date, Global Utilities shall furnish Utilities, in such form as is reasonably satisfactory to Utilities, a statement certified by Global Utilities' Treasurer of Global Utilities' earnings and profits for federal income tax purposes that will be carried over to Utilities pursuant to Section 381 of the Code.

4.7 As soon after the Closing Date as is reasonably practicable, Global Utilities (a) shall prepare and file all federal and other tax returns and reports of Global Utilities required by law to be filed with respect to all periods ending on or before the Closing Date but not theretofore filed and (b) shall pay all federal and other taxes shown as due thereon and/or all federal and other taxes that were unpaid as of the Closing Date, including without limitation, all taxes for which the provision for payment was made as of the Closing Date (as represented in paragraph 5.2(k)).

4.8 Utilities agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act and the 1940 Act and to make such filings required by the state Blue Sky and securities laws as it may deem appropriate in order to continue its operations after the Closing Date.


5.	REPRESENTATIONS AND WARRANTIES

5.1 Utilities represents and warrants to Global Utilities as follows:

(a) Utilities is a validly existing Massachusetts business trust with full power to carry on its business as presently conducted;

(b) Utilities is a duly registered, open-end, management investment company, and its registration with the Commission as an investment company under the 1940 Act and the registration of its shares under the 1933 Act are in full force and effect;

(c) All of the issued and outstanding shares of Utilities have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws. Shares of Utilities are registered in all jurisdictions in which they are required to be registered under state securities laws and other laws, and said registrations, including any periodic reports or supplemental filings, are complete and current, all fees required to be paid have been paid, and Utilities is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares have been registered;

(d) The current Prospectus and Statement of Additional Information of Utilities conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(e) Utilities is not in, and the execution, delivery and performance of this Agreement will not result in a, material violation of any provision of Utilities' Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which Utilities is a party or by which it is bound;

(f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to its knowledge, threatened against Utilities or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial

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condition or the conduct of its business; and Utilities knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions herein contemplated;

(g) The Statement of Assets and Liabilities, Statement of Operations, Statement of Changes in Net Assets and Financial Highlights for the fiscal year ended December 31, 2005, of Utilities audited by Deloitte & Touche LLP, Utilities' independent registered public accounting firm (copies of which will be furnished to Global Utilities), fairly present, in all material respects, Utilities' financial condition as of such date in accordance with generally accepted accounting principles, and its results of such operations, changes in its net assets and financial highlights for such period, and as of such date there will be no known liabilities of Utilities (contingent or otherwise) not disclosed therein that would be required in accordance with generally accepted accounting principles to be disclosed therein;

(h) All issued and outstanding Utilities Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable with no personal liability attaching to the ownership thereof, except as set forth under the caption ‘‘Capital Stock and Other Securities’’ in Utilities' current Statement of Additional Information incorporated by reference in the Statement of Additional Information that forms a part of this Registration Statement. Utilities does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares;

(i) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of Utilities, and this Agreement constitutes a valid and binding obligation of Utilities enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles. No other consents, authorizations or approvals are necessary in connection with Utilities' performance of this Agreement;

(j) Utilities Shares to be issued and delivered to Global Utilities, for the account of the Global Utilities Shareholders, pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Utilities Shares, and will be fully paid and non-assessable with no personal liability attaching to the ownership thereof, except as set forth under the caption ‘‘Capital Stock and Other Securities’’ in Utilities' current Statement of Additional Information incorporated by reference in the Statement of Additional Information to this Registration Statement;

(k) All material federal and other tax returns and reports of Utilities required by law to be filed on or before the Closing Date have been filed and are correct, and all federal and other taxes shown as due or required to be shown as due on said returns and reports have been paid or provision has been made for the payment thereof, and to the best of Utilities' knowledge, no such return is currently under audit and no assessment has been asserted with respect to any such return;

(l) For each taxable year since its inception, Utilities has met the requirements of Subchapter M of the Code for qualification and treatment as a ‘‘regulated investment company’’ and neither the execution or delivery of nor the performance of its obligations under this Agreement will adversely affect, and no other events are reasonably likely to occur which will adversely affect the ability of Utilities to continue to meet the requirements of Subchapter M of the Code;

(m) Since December 31, 2005 there has been no change by Utilities in accounting methods, principles, or practices, including those required by generally accepted accounting principles;

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(n) The information furnished or to be furnished by Utilities for use in registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; and

(o) The Proxy Materials to be included in the Registration Statement (only insofar as they relate to Utilities) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not materially misleading.

5.2 Global Utilities represents and warrants to Utilities as follows:

(a) Global Utilities is a validly existing Massachusetts business trust with full power to carry on its business as presently conducted;

(b) Global Utilities is a duly registered, open-end, management investment company, and its registration with the Commission as an investment company under the 1940 Act and the registration of its shares under the 1933 Act are in full force and effect;

(c) All of the issued and outstanding shares of beneficial interest of Global Utilities have been offered and sold in compliance in all material respects with applicable requirements of the 1933 Act and state securities laws. Shares of Global Utilities are registered in all jurisdictions in which they are required to be registered and said registrations, including any periodic reports or supplemental filings, are complete and current, all fees required to be paid have been paid, and Global Utilities is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares have been registered;

(d) The current Prospectus and Statement of Additional Information of Global Utilities conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(e) Global Utilities is not in, and the execution, delivery and performance of this Agreement will not result in a, material violation of any provision of Global Utilities' Declaration of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which Global Utilities is a party or by which it is bound;

(f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to its knowledge, threatened against Global Utilities or any of its properties or assets which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business; and Global Utilities knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions herein contemplated;

(g) The Statement of Assets and Liabilities, Statement of Operations, Statement of Changes in Net Assets and Financial Highlights of Global Utilities for the fiscal year ended February 28, 2005, audited by Deloitte & Touche LLP, Global Utilities' independent registered public accounting firm (copies of which have been or will be furnished to Utilities) fairly present, in all material respects, Global Utilities' financial condition as of such date, and its results of operations, changes in its net assets and

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financial highlights for such period in accordance with generally accepted accounting principles, and as of such date there were no known liabilities of Global Utilities (contingent or otherwise) not disclosed therein that would be required in accordance with generally accepted accounting principles to be disclosed therein;

(h) Global Utilities has no material contracts or other commitments (other than this Agreement) that will be terminated with liability to it prior to the Closing Date;

(i) All issued and outstanding shares of Global Utilities are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable with no personal liability attaching to the ownership thereof, except as set forth under the caption ‘‘Capital Stock and Other Securities’’ in Global Utilities' current Statement of Additional Information incorporated by reference in the Statement of Additional Information to this Registration Statement. Global Utilities does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares, nor is there outstanding any security convertible to any of its shares. All such shares will, at the time of Closing, be held by the persons and in the amounts set forth in the list of shareholders submitted to Utilities pursuant to paragraph 3.4;

(j) The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action on the part of Global Utilities, and subject to the approval of Global Utilities' shareholders, this Agreement constitutes a valid and binding obligation of Global Utilities, enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles. No other consents, authorizations or approvals are necessary in connection with Global Utilities' performance of this Agreement;

(k) All material federal and other tax returns and reports of Global Utilities required by law to be filed on or before the Closing Date shall have been filed and are correct and all federal and other taxes shown as due or required to be shown as due on said returns and reports have been paid or provision has been made for the payment thereof, and to the best of Global Utilities' knowledge, no such return is currently under audit and no assessment has been asserted with respect to any such return;

(l) For each taxable year since its inception, Global Utilities has met all the requirements of Subchapter M of the Code for qualification and treatment as a ‘‘regulated investment company’’ and neither the execution or delivery of nor the performance of its obligations under this Agreement will adversely affect, and no other events are reasonably likely to occur which will adversely affect the ability of Global Utilities to continue to meet the requirements of Subchapter M of the Code;

(m) At the Closing Date, Global Utilities will have good and valid title to the Global Utilities Assets, subject to no liens (other than the obligation, if any, to pay the purchase price of portfolio securities purchased by Global Utilities which have not settled prior to the Closing Date), security interests or other encumbrances, and full right, power and authority to assign, deliver and otherwise transfer such assets hereunder, and upon delivery and payment for such assets, Utilities will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including any restrictions as might arise under the 1933 Act;

(n) On the effective date of the Registration Statement, at the time of the meeting of Global Utilities' shareholders and on the Closing Date, the Proxy Materials (exclusive of the currently effective Utilities Prospectus contained therein) will (i) comply in all material respects with the provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended (‘‘1934 Act’’), and the 1940 Act and the regulations thereunder and (ii) not contain any untrue statement of a material fact or omit to state a

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material fact required to be stated therein or necessary to make the statements therein not misleading. Any other information furnished by Global Utilities for use in the Registration Statement or in any other manner that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with applicable federal securities and other laws and regulations thereunder;

(o) Global Utilities will, on or prior to the Valuation Date, declare one or more dividends or other distributions to shareholders that, together with all previous dividends and other distributions to shareholders, shall have the effect of distributing to the shareholders substantially all of its investment company taxable income and net capital gain, if any, through the Valuation Date (computed without regard to any deduction for dividends paid);

(p) Global Utilities has maintained or has caused to be maintained on its behalf all books and accounts as required of a registered investment company in compliance with the requirements of Section 31 of the 1940 Act and the rules thereunder; and

(q) Global Utilities is not acquiring Utilities Shares to be issued hereunder for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement.

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBAL UTILITIES

The obligations of Global Utilities to consummate the transactions provided for herein shall be subject, at its election, to the performance by Utilities of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:

6.1 All representations and warranties of Utilities contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date;

6.2 Utilities shall have delivered to Global Utilities a certificate of its President and Treasurer, in a form reasonably satisfactory to Global Utilities and dated as of the Closing Date, to the effect that the representations and warranties of Utilities made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as Global Utilities shall reasonably request;

6.3 Global Utilities shall have received a favorable opinion from Clifford Chance US LLP, counsel to Utilities, dated as of the Closing Date, to the effect that:

(a) Utilities is a validly existing Massachusetts business trust, and has the power to own all of its properties and assets and to carry on its business as presently conducted (Massachusetts counsel may be relied upon in delivering such opinion); (b) Utilities is a duly registered, open-end, management investment company, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (c) this Agreement has been duly authorized, executed and delivered by Utilities and, assuming that the Registration Statement complies with the 1933 Act, the 1934 Act and the 1940 Act and regulations thereunder and assuming due authorization, execution and delivery of this Agreement by Global Utilities, is a valid and binding obligation of Utilities enforceable against Utilities in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (d) Utilities Shares to be issued to Global Utilities Shareholders as provided by this Agreement are duly authorized and upon such delivery will be validly issued, fully paid and non-assessable (except as set forth under the caption ‘‘Capital Stock and Other Securities’’ in Utilities' Statement of Additional Information), and no shareholder of Utilities has any preemptive rights to subscription or purchase in respect

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thereof (Massachusetts counsel may be relied upon in delivering such opinion); (e) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, violate Utilities' Declaration of Trust or By-Laws; and (f) to the knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or any state is required for the consummation by Utilities of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under state securities laws; and

6.4 As of the Closing Date, there shall have been no material change in the investment objective, policies and restrictions nor any increase in the investment advisory fees or annual fees pursuant to Utilities' 12b-1 plan of distribution from those described in Utilities' Prospectus dated April 29, 2005, as supplemented, and Statement of Additional Information dated April 29, 2005, as supplemented.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF UTILITIES

The obligations of Utilities to complete the transactions provided for herein shall be subject, at its election, to the performance by Global Utilities of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions:

7.1 All representations and warranties of Global Utilities contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date;

7.2 Global Utilities shall have delivered to Utilities at the Closing a certificate of its President and its Treasurer, in form and substance satisfactory to Utilities and dated as of the Closing Date, to the effect that the representations and warranties of Global Utilities made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as Utilities shall reasonably request;

7.3 Global Utilities shall have delivered to Utilities a statement of the Global Utilities Assets and its liabilities, together with a list of Global Utilities' portfolio securities and other assets showing the respective adjusted bases and holding periods thereof for income tax purposes, as of the Closing Date, certified by the Treasurer of Global Utilities;

7.4 Utilities shall have received at the Closing a favorable opinion from Clifford Chance US LLP, counsel to Global Utilities, dated as of the Closing Date to the effect that:

(a) Global Utilities is a validly existing Massachusetts business trust and has the power to own all of its properties and assets and to carry on its business as presently conducted (Massachusetts counsel may be relied upon in delivering such opinion); (b) Global Utilities is a duly registered, open-end, management investment company under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (c) this Agreement has been duly authorized, executed and delivered by Global Utilities and, assuming that the Registration Statement complies with the 1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and assuming due authorization, execution and delivery of this Agreement by Utilities, is a valid and binding obligation of Global Utilities enforceable against Global Utilities in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (d) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, violate Global Utilities' Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel, no consent,

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approval, authorization or order of any court or governmental authority of the United States or any state is required for the consummation by Global Utilities of the transactions contemplated herein, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under state securities laws; and

7.5 On the Closing Date, the Global Utilities Assets shall include no assets that Utilities, by reason of limitations of the Fund's Declaration of Trust or otherwise, may not properly acquire.


8.	FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF UTILITIES AND GLOBAL UTILITIES

The obligations of Global Utilities and Utilities hereunder are each subject to the further conditions that on or before the Closing Date:

8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of Global Utilities in accordance with the provisions of Global Utilities' Declaration of Trust, and certified copies of the resolutions evidencing such approval shall have been delivered to Utilities;

8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein;

8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities, including ‘‘no-action’’ positions of and exemptive orders from such federal and state authorities) deemed necessary by Utilities or Global Utilities to permit consummation, in all material respects, of the transactions contemplated herein shall have been obtained, except where failure to obtain any such consent, order or permit would not involve risk of a material adverse effect on the assets or properties of Utilities or Global Utilities;

8.4 The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act;

8.5 Global Utilities shall have declared and paid a dividend or dividends and/or other distribution or distributions that, together with all previous such dividends or distributions, shall have the effect of distributing to the Global Utilities Shareholders substantially all of Global Utilities' investment company taxable income (computed without regard to any deduction for dividends paid) and substantially all of its net capital gain (after reduction for any capital loss carry-forward and computed without regard to any deduction for dividends paid) for all taxable years ending on or before the Closing Date; and

8.6 The parties shall have received the opinion of the law firm of Clifford Chance US LLP (based on such representations as such law firm shall reasonably request), addressed to Utilities and Global Utilities, which opinion may be relied upon by the shareholders of Global Utilities, substantially to the effect that, for federal income tax purposes:

(a) The transfer of Global Utilities' assets in exchange for Utilities Shares and the assumption by Utilities of certain stated liabilities of Global Utilities followed by the distribution by Global Utilities of Utilities Shares to the Global Utilities Shareholders in exchange for their Global Utilities shares pursuant to and in accordance with the terms of the Reorganization Agreement will constitute a

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‘‘reorganization’’ within the meaning of Section 368(a)(1)(C) of the Code, and Global Utilities and Utilities will each be a ‘‘party to a reorganization’’ within the meaning of Section 368(b) of the Code;

(b) No gain or loss will be recognized by Utilities upon the receipt of the assets of Global Utilities solely in exchange for Utilities Shares and the assumption by Utilities of the stated liabilities of Global Utilities;

(c) No gain or loss will be recognized by Global Utilities upon the transfer of the assets of Global Utilities to Utilities in exchange for Utilities Shares and the assumption by Utilities of the stated liabilities or upon the distribution of Utilities Shares to the Global Utilities Shareholders in exchange for their Global Utilities shares;

(d) No gain or loss will be recognized by the Global Utilities Shareholders upon the exchange of the Global Utilities shares for Utilities Shares;

(e) The aggregate tax basis for Utilities Shares received by each Global Utilities Shareholder pursuant to the reorganization will be the same as the aggregate tax basis of the Global Utilities Shares held by each such Global Utilities Shareholder immediately prior to the Reorganization;

(f) The holding period of Utilities Shares to be received by each Global Utilities Shareholder will include the period during which the Global Utilities Shares surrendered in exchange therefor were held (provided such Global Utilities Shares were held as capital assets on the date of the Reorganization);

(g) The tax basis of the assets of Global Utilities acquired by Utilities will be the same as the tax basis of such assets to Global Utilities immediately prior to the Reorganization; and

(h) The holding period of the assets of Global Utilities in the hands of Utilities will include the period during which those assets were held by Global Utilities.

Notwithstanding anything herein to the contrary, neither Utilities nor Global Utilities may waive the conditions set forth in this paragraph 8.6.

9. FEES AND EXPENSES

9.1 (a) Utilities shall bear its expenses incurred in connection with the entering into, and carrying out of, the provisions of this Agreement, including legal, accounting, Commission registration fees and Blue Sky expenses. Global Utilities shall bear its expenses incurred in connection with the entering into and carrying out of the provisions of this Agreement, including legal and accounting fees, printing, filing and proxy solicitation expenses and portfolio transfer taxes (if any) incurred in connection with the consummation of the transactions contemplated herein.

(b) In the event the transactions contemplated herein are not consummated by reason of Global Utilities being either unwilling or unable to go forward (other than by reason of the nonfulfillment or failure of any condition to Global Utilities' obligations specified in this Agreement), Global Utilities' only obligation hereunder shall be to reimburse Utilities for all reasonable out-of-pocket fees and expenses incurred by Utilities in connection with those transactions.

(c) In the event the transactions contemplated herein are not consummated by reason of Utilities being either unwilling or unable to go forward (other than by reason of the nonfulfillment or failure of any condition to Utilities' obligations specified in this Agreement), Utilities' only obligation hereunder shall be to reimburse Global Utilities for all reasonable out-of-pocket fees and expenses incurred by Global Utilities in connection with those transactions.


10.	ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

10.1 This Agreement constitutes the entire agreement between the parties.

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10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated herein, except that the representations, warranties and covenants of Global Utilities hereunder shall not survive the dissolution and complete liquidation of Global Utilities in accordance with Section 1.9.


11.	TERMINATION

11.1 This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:

(a) by the mutual written consent of Global Utilities and Utilities;

(b) by either Utilities or Global Utilities by notice to the other, without liability to the terminating party on account of such termination (providing the terminating party is not otherwise in material default or breach of this Agreement), if the Closing shall not have occurred on or before January 31, 2007; or

(c) by either Utilities or Global Utilities, in writing without liability to the terminating party on account of such termination (provided the terminating party is not otherwise in material default or breach of this Agreement), if (i) the other party shall fail to perform in any material respect its agreements contained herein required to be performed on or prior to the Closing Date, (ii) the other party materially breaches any of its representations, warranties or covenants contained herein, (iii) the Global Utilities shareholders fail to approve this Agreement at any meeting called for such purpose at which a quorum was present or (iv) any other condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met.

11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1(a) or (b) shall terminate all obligations of the parties hereunder and there shall be no liability for damages on the part of Utilities or Global Utilities, or the trustees or officers of Utilities or Global Utilities, to any other party or its trustees or officers.

(b) Termination of this Agreement pursuant to paragraph 11.1(c) shall terminate all obligations of the parties hereunder and there shall be no liability for damages on the part of Utilities or Global Utilities, or the trustees or officers of Utilities or Global Utilities, except that any party in breach of this Agreement shall, upon demand, reimburse the non-breaching party for all reasonable out-of-pocket fees and expenses incurred in connection with the transactions contemplated by this Agreement, including legal, accounting and filing fees.

12. AMENDMENTS

This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the parties.

13. MISCELLANEOUS

13.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

13.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.

13.3 This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.

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13.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.

13.5 The obligations and liabilities of Utilities hereunder are solely those of Utilities. It is expressly agreed that no shareholder, nominee, trustee, officer, agent, or employee of Utilities shall be personally liable hereunder. The execution and delivery of this Agreement have been authorized by the trustees of Utilities and signed by authorized officers of Utilities acting as such, and neither such authorization by such trustees nor such execution and delivery by such officers shall be deemed to have been made by any of them individually or to impose any liability on any of them personally.

13.6 The obligations and liabilities of Global Utilities hereunder are solely those of Global Utilities. It is expressly agreed that no shareholder, nominee, trustee, officer, agent, or employee of Global Utilities shall be personally liable hereunder. The execution and delivery of this Agreement have been authorized by the trustees of Global Utilities and signed by authorized officers of Global Utilities acting as such, and neither such authorization by such trustees nor such execution and delivery by such officers shall be deemed to have been made by any of them individually or to impose any liability on any of them personally.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer.

MORGAN STANLEY GLOBAL UTILITIES FUND

By: /s/ Ronald E. Robison

Name: Ronald E. Robison
Title: President and Principal Executive Officer

MORGAN STANLEY UTILITIES FUND

By: /s/ Amy R. Doberman

Name: Amy R. Doberman
Title: Vice President

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EXHIBIT B

[GRAPHIC]

MORGAN STANLEY FUNDS

MORGAN STANLEY UTILITIES FUND

A MUTUAL FUND THAT SEEKS TO PROVIDE BOTH CAPITAL APPRECIATION AND CURRENT INCOME

[MORGAN STANLEY LOGO]

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

PROSPECTUS

APRIL 28, 2006

CONTENTS

THE FUND

Investment Objective 1

Principal Investment Strategies 1

Principal Risks 2

Past Performance 5

Fees and Expenses 7

Additional Investment Strategy Information 8

Additional Risk Information 9

Portfolio Holdings 9

Fund Management 10

SHAREHOLDER INFORMATION

Pricing Fund Shares 11

How To Buy Shares 12

Limited Portability 13

How To Exchange Shares 14

How To Sell Shares 15

Distributions 18

Frequent Purchases and Redemptions of Fund Shares 18

Tax Consequences 19

Share Class Arrangements 20

Additional Information 28

FINANCIAL HIGHLIGHTS 29

MORGAN STANLEY FUNDS Inside Back Cover

This PROSPECTUS contains important information about the Fund. Please read it
carefully and keep it for future reference.

THE FUND

INVESTMENT OBJECTIVE

[GRAPHIC]

Morgan Stanley Utilities Fund seeks to provide both capital appreciation and
current income.

PRINCIPAL INVESTMENT STRATEGIES

[GRAPHIC]

The Fund will normally invest at least 80% of its assets in common stock and
other equity securities (including depositary receipts) and investment grade
fixed-income securities (including asset-backed securities and zero-coupon
securities) of companies that are engaged in the utilities industry. A company
will be considered to be in the utilities industry if it derives at least 50% of
its revenues or earnings from the utilities industry or devotes at least 50% of
its assets to activities in that industry. These may include companies involved
in, among other areas: gas and electric energy, water distribution,
telecommunications, computers, the Internet and Internet related services, and
other new or emerging technologies. The companies may include traditionally
regulated public utilities or fully or partially deregulated utility companies
as well as unregulated utility companies. The Fund may invest up to 25% of its
net assets in foreign securities, including common stock and other equity
securities (including depositary receipts) and investment grade fixed-income
securities. However, this percentage limitation does not apply to securities of
foreign companies that are listed in the United States on a national securities
exchange.

The Fund's "Investment Adviser," Morgan Stanley Investment Advisors Inc., will
shift the Fund's assets between different types of utilities and between equity
and fixed-income securities, based on prevailing market, economic and financial
conditions. The Fund does not have any set policies to concentrate its assets in
any particular segment of the utilities industry or any particular type of
security. However, the Fund's policy to concentrate its assets in the utilities
industry is fundamental, and may not be changed without shareholder approval. In
selecting common stock and other equity securities to buy, hold or sell for the
Fund, the Investment Adviser considers earnings and dividend growth, book value,
dividend discount and price/earnings relationships. In addition, the Investment
Adviser makes continuing assessments of management, the prevailing regulatory
framework and industry trends. Computer-based equity selection models also may
be used. If the Investment Adviser believes favorable conditions for capital
growth of equity securities are not prevalent at a particular time, it may
allocate the Fund's assets predominantly or exclusively to debt securities with
the aim of obtaining current income and thus contributing to long-term growth of
capital.

[SIDENOTE]

GROWTH AND INCOME

AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES WITH THE
POTENTIAL TO RISE IN PRICE AND PAY OUT INCOME.

Common stock is a share ownership or equity interest in a corporation. It may or
may not pay dividends, as some companies reinvest all of their profits back into
their businesses, while others pay out some of their profits to shareholders as
dividends. A depositary receipt is generally issued by a bank or financial
institution and represents an ownership interest in the common stock or other
equity securities of a foreign company.

Fixed-income securities include debt securities such as bonds, notes and
commercial paper. The issuer of a debt security borrows money from the investor
who buys the security. Most debt securities pay either fixed or adjustable rates
of interest at regular intervals until they mature, at which point investors get
their principal back. The Fund's fixed-income investments may include zero
coupon securities, which are purchased at a discount and generally accrue
interest, but make no payment until maturity. Asset-backed securities represent
an interest in a pool of assets, such as a pool of power generation assets or
other utility assets or utility-related assets, that have been securitized in
pass-through structures similar to mortgage-backed securities. These types of
pass-through securities provide for monthly payments that are a "pass through"
of the monthly interest and principal payments made by the individual borrowers
on the pooled receivables.

The remaining 20% of the Fund's assets may be invested in securities of
companies not engaged in the utilities industry. Up to 10% of the Fund's net
assets may be invested in convertible securities, a portion of which may be
rated below investment grade (commonly known as "junk bonds"). The Fund may also
utilize forward foreign currency exchange contracts.

PRINCIPAL RISKS

[GRAPHIC]

There is no assurance that the Fund will achieve its investment objective. The
Fund's share price and return will fluctuate with changes in the market value of
the Fund's portfolio securities. When you sell Fund shares, they may be worth
less than what you paid for them and, accordingly, you can lose money investing
in this Fund.

UTILITIES INDUSTRY. The Fund's investments in the utilities industry are
impacted by risks particular to that industry. Changing regulation constitutes
one of the key industry-specific risks for the Fund. State and other regulators
often monitor and control utility revenues and costs, and therefore may limit
utility profits and dividends paid to investors. Regulatory authorities also may
restrict a company's access to new markets, thereby diminishing the company's
long-term prospects. The deregulation of certain utilities companies may
eliminate restrictions on profits and dividends, but may also subject these
companies to greater risks of loss. Individual sectors of the utility market are
subject to additional risks. These risks apply to all utility
companies--regulated, fully or partially deregulated, and unregulated. For
example, telecommunications companies have been affected by technological
developments leading to increased competition, as well as changing regulation of
local and long-distance telephone service and other telecommunications
businesses. Certain telecommunications companies have not benefitted from the
new competitive climate.

Certain utilities companies may incur unexpected increases in fuel and other
operating costs. They are adversely affected when long-term interest rates rise.
Long-term borrowings are used to finance most utility investments, and rising
interest rates lead to higher financing costs and reduced earnings. There are
also considerable costs associated with environmental compliance, nuclear waste
clean-up, and safety regulation. Increasingly, regulators are calling upon

electric utilities to bear these added costs, and there is a risk that these
costs will not be fully recovered through an increase in revenues.

Among gas companies, there has been a move to diversify into oil and gas
exploration and development, making investment returns more sensitive to energy
prices. In the case of the water utility sector, the industry is highly
fragmented, and most water supply companies find themselves in mature markets,
although upgrading of fresh water and waste water systems is an expanding
business.

COMMON STOCKS AND OTHER EQUITY SECURITIES. A principal risk of investing in the
Fund is associated with its common stock investments. In general, stock and
other equity security values fluctuate in response to activities specific to the
company as well as general market, economic and political conditions. Stock
prices can fluctuate widely in response to these factors. This can especially be
the case for fully or partially deregulated and unregulated utility companies.

FIXED-INCOME SECURITIES. All fixed-income securities are subject to two types of
risk: credit risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest payments and/or
repay the principal on its debt. Interest rate risk refers to fluctuations in
the value of a fixed-income security resulting from changes in the general level
of interest rates. When the general level of interest rates goes up, the prices
of most fixed-income securities go down. When the general level of interest
rates goes down, the prices of most fixed-income securities go up. (Zero coupon
securities are typically subject to greater price fluctuations than comparable
securities that pay interest.) Some of the Fund's investment grade securities
may have speculative credit risk characteristics.

ASSET-BACKED SECURITIES. Asset-backed securities involve the risk that various
federal and state consumer laws and other legal, regulatory and economic factors
may result in the collateral backing the securities being insufficient to
support payment on the securities. Asset-backed securities also have risk
characteristics similar to those of mortgage-backed securities. Like
mortgage-backed securities, they generally decrease in value as a result of
interest rate increases, but may benefit less than other fixed-income securities
from declining interest rates, principally because of prepayments. As in the
case of mortgage-backed securities, prepayments may increase during a period of
declining interest rates although other factors, such as changes in power usage
or alternative power generation, may also influence prepayment rates.

FOREIGN SECURITIES. The Fund's investments in foreign securities involve risks
that are in addition to the risks associated with domestic securities. One
additional risk is currency risk. While the price of Fund shares is quoted in
U.S. dollars, the Fund generally converts U.S. dollars to a foreign market's
local currency to purchase a security in that market. If the value of that local
currency falls relative to the U.S. dollar, the U.S. dollar value of the foreign
security will decrease. This is true even if the foreign security's local price
remains unchanged.

Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Fund assets and any
effects of foreign social, economic or political instability. Foreign companies,
in general, are not subject to the regulatory requirements of U.S. companies
and, as such, there may be less publicly available information about these
companies. Moreover, foreign accounting, auditing and financial reporting
standards generally are different from those applicable

to U.S. companies. Finally, in the event of a default of any foreign debt
obligations, it may be more difficult for the Fund to obtain or enforce a
judgment against the issuers of the securities.

Securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. In
addition, differences in clearance and settlement procedures in foreign markets
may occasion delays in settlement of the Fund's trades effected in those markets
and could result in losses to the Fund due to subsequent declines in the value
of the securities subject to the trades.

Depositary receipts involve many of the same risks as those associated with
direct investment in foreign securities. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities.

OTHER RISKS. The performance of the Fund also will depend on whether or not the
Investment Adviser is successful in applying the Fund's investment strategies.
The Fund is also subject to other risks from its permissible investments,
including the risks associated with its investments in convertible securities
and forward foreign currency exchange contracts. For more information about
these risks, see the "Additional Risk Information" section.

Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.

PAST PERFORMANCE

[GRAPHIC]

The bar chart and table below provide some indication of the risks of investing
in the Fund. The Fund's past performance (before and after taxes) does not
indicate how the Fund will perform in the future.

[CHART]

ANNUAL TOTAL RETURNS--CALENDAR YEARS

1996 4.99%
1997 25.79%
1998 21.95%
1999 10.09%
2000 6.47%
2001 -21.82%
2002 -20.30%
2003 15.91%
2004 20.37%
2005 15.22%

The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown. The
year-to-date total return as of March 31, 2006 was 0.82%.

During the periods shown in the bar chart, the highest return for a calendar
quarter was 14.72% (quarter ended June 30, 2003) and the lowest return for a
calendar quarter was -16.56% (quarter ended September 30, 2002).

[SIDE NOTE]

ANNUAL TOTAL RETURNS

THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S CLASS B SHARES HAS VARIED
FROM YEAR TO YEAR OVER THE PAST 10 CALENDAR YEARS.

AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2005)

PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND*

Class A(1)--Return Before Taxes 9.08% -0.69% -- 6.26%
S&P 500(R) Index(2) 4.91% 0.55% -- 5.07%
Lipper Utility Funds Index(3) 15.01% 1.04% -- 7.13%
Class B(1)+--Return Before Taxes 10.22%+ -0.27% 6.58% --
Return After Taxes on Distributions(4) 8.57% -1.56% 4.78% --
Return After Taxes on Distributions
and Sale of Fund Shares 7.56% -0.79% 4.87% --
S&P 500(R) Index(2) 4.91% 0.55% 9.07% --
Lipper Utility Funds Index(3) 15.01% 1.04% 7.86% --
Class C(1)--Return Before Taxes 13.35% -0.35% -- 6.14%
S&P 500(R) Index(2) 4.91% 0.55% -- 5.07%
Lipper Utility Funds Index(3) 15.01% 1.04% -- 7.13%
Class D(1)--Return Before Taxes 15.34% 0.62% -- 7.19%
S&P 500(R) Index(2) 4.91% 0.55% -- 5.07%
Lipper Utility Funds Index(3) 15.01% 1.04% -- 7.13%

* Only shown for share classes with less than a ten year history.

+ Because Class B shares incurred lower expenses under the 12b-1 Plan than
did Class A shares for the fiscal period ended December 31, 2005, the total
operating expense ratio for Class B shares was lower, and, as a result, the
performance of Class B shares was higher than that of the Class A shares.
There can be no assurance that this will continue to occur in the future as
the maximum fees payable by Class B shares under the 12b-1 Plan are higher
than those payable by Class A shares.

(1) Classes A, C and D commenced operations on July 28, 1997. Class B commenced
operations on April 29, 1988.

(2) The Standard & Poor's 500 Index (S&P 500(R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
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.

(3) 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.

(4) These returns do not reflect any tax consequences from a sale of your
shares at the end of each period but they do reflect any applicable sales
charges on such a sale.

Included in the table above are the after-tax returns for the Fund's Class B
shares. The after-tax returns for the Fund's other Classes will vary from the
Class B shares' returns. After-tax returns are calculated using the historical
highest individual federal marginal income tax rates during the period shown and
do not reflect the impact of state and local taxes. Actual after-tax returns
depend on an investor's tax situation and may differ from those shown, and
after-tax returns are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns may be higher than before-tax returns due to

[SIDE NOTE]

AVERAGE ANNUAL TOTAL RETURNS

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS WITH THOSE OF AN
INDEX THAT REPRESENTS A BROAD MEASURE OF MARKET PERFORMANCE, AS WELL AS AN INDEX
THAT REPRESENTS A GROUP OF SIMILAR MUTUAL FUNDS, OVER TIME. THE FUND'S RETURNS
INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE FOR EACH CLASS AND ASSUME YOU SOLD
YOUR SHARES AT THE END OF EACH PERIOD (UNLESS OTHERWISE NOTED).

foreign tax credits and/or an assumed benefit from capital losses that would
have been realized had Fund shares been sold at the end of the relevant periods,
as applicable.

FEES AND EXPENSES

[GRAPHIC]

The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund offers four Classes of shares: Classes
A, B, C and D. Each Class has a different combination of fees, expenses and
other features, which should be considered in selecting a Class of shares. The
Fund does not charge account or exchange fees. However, certain shareholders may
be charged an order processing fee by the broker-dealer through which shares are
purchased, as described below. See the "Share Class Arrangements" section for
further fee and expense information.

SHAREHOLDER FEES

CLASS A CLASS B CLASS C CLASS D

Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.25%(1) None None None
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
Redemption fee(5) 2.00% 2.00% 2.00% 2.00%

ANNUAL FUND OPERATING EXPENSES

CLASS A CLASS B CLASS C CLASS D

Advisory fee 0.53% 0.53% 0.53% 0.53%
Distribution and service (12b-1) fees(6) 0.25% 0.16% 0.93% None
Other expenses 0.25% 0.25% 0.25% 0.25%
Total annual Fund operating expenses 1.03% 0.94% 1.71% 0.78%

(1) Reduced for purchases of $25,000 and over.

(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within 18 months after
purchase, except for certain specific circumstances.

(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.

(4) Only applicable if you sell your shares within one year after purchase.

(5) Payable to the Fund on shares redeemed within 30 days of purchase. The
redemption fees are based on redemption proceeds. See "Shareholder
Information -- How to Sell Shares" for more information on redemption fees.

(6) The Fund has adopted a Rule 12b-1 Distribution Plan pursuant to which it
reimburses the distributor for distribution-related expenses (including
personal services to shareholders) incurred on behalf of Class A, Class B
and Class C shares in an amount each month up to an annual rate of 0.25%,
1.00% and 1.00% of the average daily net assets of Class A, Class B and
Class C shares, respectively.

[SIDE NOTE]

SHAREHOLDER FEES

THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.

ANNUAL FUND OPERATING EXPENSES

THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005.

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same (except
for the ten-year amounts for Class B shares which reflect the conversion of
Class B shares to Class A shares eight years after the end of the calendar month
in which shares were purchased). Although your actual costs may be higher or
lower, the tables below show your costs at the end of each period based on these
assumptions, depending upon whether or not you sell your shares at the end of
each period.

IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
------------------------------------------ ----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS

Class A $ 625 $ 836 $ 1,064 $ 1,718 $ 625 $ 836 $ 1,064 $ 1,718
Class B $ 596 $ 600 $ 720 $ 1,167* $ 96 $ 300 $ 520 $ 1,167*
Class C $ 274 $ 539 $ 928 $ 2,019 $ 174 $ 539 $ 928 $ 2,019
Class D $ 80 $ 249 $ 433 $ 966 $ 80 $ 249 $ 433 $ 966

* BASED ON A CONVERSION TO CLASS A SHARES EIGHT YEARS AFTER THE END OF THE
CALENDAR MONTH IN WHICH THE SHARES WERE PURCHASED.

While Class B and Class C shares do not have any front-end sales charges, their
higher ongoing annual expenses (due to higher 12b-1 fees) mean that over time
you could end up paying more for these shares than if you were to pay front-end
sales charges for Class A shares.

ORDER PROCESSING FEE. Morgan Stanley DW Inc. ("Morgan Stanley DW") charges
clients an order processing fee of $5.25 (except in certain circumstances,
including, but not limited to, activity in fee-based accounts, exchanges,
dividend reinvestments and systematic investment and withdrawal plans) when a
client buys or redeems shares of the Fund. Please consult your Morgan Stanley
Financial Advisor for more information regarding this fee.

ADDITIONAL INVESTMENT STRATEGY INFORMATION

[GRAPHIC]

This section provides additional information relating to the Fund's investment
strategies.

CONVERTIBLE SECURITIES. The Fund may invest up to 10% of its assets in
convertible securities, which are securities that generally pay interest and may
be converted into common stock. These securities may carry risks associated with
both common stock and fixed-income securities.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund's investments also may
include forward foreign currency exchange contracts, which involve the purchase
or sale of a specific amount of foreign currency at the current price with
delivery at a specified future date. The Fund may use these contracts to hedge
against adverse movements in the foreign currencies in which portfolio
securities are denominated. In addition, the Fund may use these instruments to
modify its exposure to various currency markets.

DEFENSIVE INVESTING. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in cash or money market instruments in a defensive posture
that may be inconsistent with the Fund's principal investment strategies when
the Investment Adviser believes it is advisable to do so. Although taking a
defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment objective.

The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment. Subsequent percentage changes
that result from market fluctuations will generally not require the Fund to sell
any portfolio security. However, the Fund may be required to sell its illiquid
securities holdings, or reduce its borrowing, if any, in response to
fluctuations in the value of such holdings. Except for the Fund's policy to
concentrate its assets in the utilities industry, the Fund may change its
principal investment strategies without shareholder approval; however, you would
be notified of any changes.

ADDITIONAL RISK INFORMATION

[GRAPHIC]

This section provides additional information relating to the risks of investing
in the Fund.

CONVERTIBLE SECURITIES. The Fund's investments in convertible securities subject
the Fund to the risks associated with both fixed-income securities and common
stocks. To the extent that a convertible security's investment value is greater
than its conversion value, its price will likely increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security. If
the conversion value exceeds the investment value, the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security.

The Fund may invest up to 5% of its net assets in convertible securities rated
below investment grade. Securities rated below investment grade are commonly
known as "junk bonds" and have speculative credit risk characteristics.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Use of forward foreign currency
exchange contracts involves risks. If the Investment Adviser employs a strategy
that does not correlate well with the Fund's investments or the currencies in
which the investments are denominated or if foreign currency rates change in a
manner different than anticipated by the Investment Adviser, currency contracts
could result in a loss or a smaller gain than if the strategy had not been
employed. The contracts also may increase the Fund's volatility and, thus, could
involve a significant risk.

PORTFOLIO HOLDINGS

[GRAPHIC]

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
STATEMENT OF ADDITIONAL INFORMATION.

FUND MANAGEMENT

[GRAPHIC]

The Fund has retained the Investment Adviser--Morgan Stanley Investment Advisors
Inc.--to provide investment advisory services. The Investment Adviser is a
wholly-owned subsidiary of Morgan Stanley, a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses: securities, asset management and credit services. Morgan
Stanley is a full service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking, research and
analysis, financing and financial advisory services. The Investment Adviser's
address is 1221 Avenue of the Americas, New York, NY 10020.

The Fund is managed within the Sector Funds and Taxable Fixed Income teams. The
teams consist of portfolio managers and analysts.

Current members of the Sector Funds team jointly and primarily responsible for
the day-to-day management of the Fund are Edward F. Gaylor, an Executive
Director of the Investment Adviser, and Mary Jayne Maly, a Managing Director of
the Investment Adviser. Mr. Gaylor has been associated with the Investment
Adviser in an investment management capacity since March 1988 and began managing
the Fund at its inception. Ms. Maly has been associated with the Investment
Adviser in an investment management capacity since November 1992 and began
managing the Fund in January 2006.

David S. Horowitz, a Managing Director of the Investment Adviser, is a current
member of the Taxable Fixed Income team. Mr. Horowitz has been associated with
the Investment Adviser in an investment management capacity since May 1995 and
began managing the Fund in April 2005.

Mr. Gaylor is responsible for the day-to-day management of the equity portion of
the Fund. Mr. Horowitz is responsible for the day-to-day management of the
fixed-income portion of the Fund. Messrs. Gaylor, Horowitz and Ms. Maly share
responsibility for the execution of the overall strategy of the Fund.

The Fund's STATEMENT OF ADDITIONAL INFORMATION provides additional information
about the portfolio managers' compensation structure, other accounts manages by
the portfolio managers and the portfolio managers' ownership of securities in
the Fund.

The composition of the teams may change without notice from time to time.

The Fund pays the Investment Adviser a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Adviser. The fee is based on the Fund's
average daily net assets. For the fiscal year ended December 31, 2005, the Fund
accrued total compensation to the Investment Adviser amounting to 0.53% of the
Fund's average daily net assets.

A discussion regarding the basis for the Board of Trustees' approval of the
investment advisory agreement is available in the Fund's semiannual report for
the period ended June 30, 2005.

[SIDE NOTE]

MORGAN STANLEY INVESTMENT ADVISERS INC.

THE INVESTMENT ADVISER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND HAD APPROXIMATELY $90 BILLION IN ASSETS UNDER MANAGEMENT OR
ADMINISTRATION AS OF MARCH 31, 2006.

SHAREHOLDER INFORMATION

PRICING FUND SHARES

[GRAPHIC]

The price of Fund shares (excluding sales charges), called "net asset value," is
based on the value of the Fund's portfolio securities. While the assets of each
Class are invested in a single portfolio of securities, the net asset value of
each Class will differ because the Classes have different ongoing distribution
fees.

The net asset value per share of the Fund is determined once daily at 4:00 p.m.
Eastern time on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York Stock Exchange is
closed.

The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Adviser determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees.

In these cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. Fair value pricing
involves subjective judgment and it is possible that the fair value determined
for a security is materially different than the value that could be realized
upon the sale of that security. With respect to securities that are primarily
listed on foreign exchanges, the value of the Fund's portfolio securities may
change on days when you will not be able to purchase or sell your shares.

An exception to the Fund's general policy of using market prices concerns its
short-term debt portfolio securities. Debt securities with remaining maturities
of 60 days or less at the time of purchase are valued at amortized cost.
However, if the cost does not reflect the securities' market value, these
securities will be valued at their fair value.

HOW TO BUY SHARES

[GRAPHIC]

You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative. Your Financial Advisor will assist you,
step-by-step, with the procedures to invest in the Fund. The Fund's transfer
agent, Morgan Stanley Trust ("Transfer Agent"), in its sole discretion, may
allow you to purchase shares directly by calling and requesting an application.

To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account. What
this means to you: when you open an account, we will ask your name, address,
date of birth and other information that will allow us to identify you. If we
are unable to verify your identity, we reserve the right to restrict additional
transactions and/or liquidate your account at the next calculated net asset
value after your account is closed (less any applicable sales/account charges
and/or tax penalties) or take any other action required by law.

Because every investor has different immediate financial needs and long-term
investment goals, the Fund offers investors four Classes of shares: Classes A,
B, C and D. Class D shares are only offered to a limited group of investors.
Each Class of shares offers a distinct structure of sales charges, distribution
and service fees, and other features that are designed to address a variety of
needs. Your Morgan Stanley Financial Advisor or other authorized financial
representative can help you decide which Class may be most appropriate for you.
When purchasing Fund shares, you must specify which Class of shares you wish to
purchase.

When you buy Fund shares, the shares are purchased at the next share price
calculated (plus any applicable front-end sales charge for Class A shares) after
we receive your purchase order. Your payment is due on the third business day
after you place your purchase order. The Fund, in its sole discretion, may waive
the minimum initial and additional investment amounts in certain cases. We
reserve the right to reject any order for the purchase of Fund shares for any
reason.

ORDER PROCESSING FEE. Morgan Stanley DW charges clients an order processing fee
of $5.25 (except in certain circumstances, including, but not limited to,
activity in fee-based accounts, exchanges, dividend reinvestments and systematic
investment and withdrawal plans) when a client buys or redeems shares of the
Fund. Please consult your Morgan Stanley Financial Advisor for more information
regarding this fee.

[SIDE NOTE]

CONTACTING A FINANCIAL ADVISOR

IF YOU ARE NEW TO THE MORGAN STANLEY FUNDS AND WOULD LIKE TO CONTACT A MORGAN
STANLEY FINANCIAL ADVISOR, CALL TOLL-FREE 1-866-MORGAN8 FOR THE TELEPHONE NUMBER
OF THE MORGAN STANLEY OFFICE NEAREST YOU. YOU MAY ALSO ACCESS OUR OFFICE LOCATOR
ON OUR INTERNET SITE AT: www.morganstanley.com/funds

MINIMUM INVESTMENT AMOUNTS

MINIMUM INVESTMENT
--------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL

Regular Account $ 1,000 $ 100
Individual Retirement Account $ 1,000 $ 100
Coverdell Education Savings Account $ 500 $ 100
EASYINVEST(R)
(Automatically from your checking or savings account or Money Market Fund) $ 100* $ 100*

* PROVIDED YOUR SCHEDULE OF INVESTMENTS TOTALS $1,000 IN 12 MONTHS.

There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Adviser's mutual fund asset allocation program; (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services; (3) the following programs
approved by the Fund's distributor: (i) qualified state tuition plans described
in Section 529 of the Internal Revenue Code or (ii) certain other investment
programs that do not charge an asset-based fee; (4) employer-sponsored employee
benefit plan accounts; or (5) the reinvestment of dividends in additional fund
shares.

INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER INVESTORS/CLASS D SHARES.
To be eligible to purchase Class D shares, you must qualify under one of the
investor categories specified in the "Share Class Arrangements" section of this
PROSPECTUS.

- Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase and the investment amount
(which would include any applicable front-end sales charge). The letter must
be signed by the account owner(s).

- Make out a check for the total amount payable to: Morgan Stanley Utilities
Fund.

- Mail the letter and check to Morgan Stanley Trust at P.O. Box 1040, Jersey
City, NJ 07303.

LIMITED PORTABILITY

Most Fund shareholders hold their shares with Morgan Stanley DW. Please note
that your ability to transfer your Fund shares to a brokerage account at another
securities dealer may be limited. Fund shares may only be transferred to
accounts held at a limited number of securities dealers or financial
intermediaries that have entered into agreements with the Fund's distributor.
After a transfer, you may purchase additional shares of the Morgan Stanley Funds
you owned before the transfer, as well as shares of any other Morgan Stanley
Fund. If you wish to transfer Fund shares to a securities dealer or other
financial intermediary that has not entered into an agreement with the Fund's
distributor,

[SIDE NOTE]

EASYINVEST(R)

A PURCHASE PLAN THAT ALLOWS YOU TO TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR MORGAN STANLEY FINANCIAL ADVISOR FOR
FURTHER INFORMATION ABOUT THIS SERVICE.

you may request that the securities dealer or financial intermediary maintain
the shares in an account at the Transfer Agent registered in the name of such
securities dealer or financial intermediary for your benefit. You may also hold
your Fund shares in your own name directly with the Transfer Agent. Other
options may also be available; please check with the respective securities
dealer or financial intermediary. If you choose not to hold your shares with the
Transfer Agent, either directly or through a securities dealer or other
financial intermediary, you must redeem your shares and pay any applicable CDSC.

HOW TO EXCHANGE SHARES

[GRAPHIC]

PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund or the Limited Duration U.S. Treasury
Trust, without the imposition of an exchange fee. Front-end sales charges are
not imposed on exchanges of Class A shares. See the inside back cover of this
PROSPECTUS for each Morgan Stanley Fund's designation as a Multi-Class Fund,
No-Load Fund or Money Market Fund. If a Morgan Stanley Fund is not listed,
consult the inside back cover of that fund's current prospectus for its
designation.

The current prospectus for each Morgan Stanley Fund describes its investment
objective(s), policies and investment minimums, and should be read before
investment. Since exchanges are available only into continuously offered Morgan
Stanley Funds, exchanges are not available into any new Morgan Stanley Fund
during its initial offering period, or when shares of a particular Morgan
Stanley Fund are not being offered for purchase. An exchange of Fund shares held
for less than 30 days from the date of purchase will be subject to the 2%
redemption fee described under the section "How to Sell Shares."

EXCHANGE PROCEDURES. You can process an exchange by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative.
Otherwise, you must forward an exchange privilege authorization form to the
Transfer Agent and then write the Transfer Agent or call toll-free (800)
869-NEWS to place an exchange order. You can obtain an exchange privilege
authorization form by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative or by calling toll-free (800) 869-NEWS. If
you hold share certificates, no exchanges may be processed until we have
received all applicable share certificates.

An exchange to any Morgan Stanley Fund (except a Money Market Fund) is made on
the basis of the next calculated net asset values of the funds involved after
the exchange instructions, as described above, are received. When exchanging
into a Money Market Fund, the Fund's shares are sold at their next calculated
net asset value and the Money Market Fund's shares are purchased at their net
asset value on the following business day.

The Fund may terminate or revise the exchange privilege upon required notice or
in certain cases without notice. See "Limitations on Exchange." The check
writing privilege is not available for Money Market Fund shares you acquire in
an exchange.

TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley Trust, we
will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. These procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number. Telephone
instructions also may be recorded.

Telephone instructions will be accepted if received by the Transfer Agent
between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York Stock
Exchange is open for business. During periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the case with the Fund in the past.

MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Financial Advisor or other authorized financial
representative regarding restrictions on the exchange of such shares.

TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of the Fund for shares
of another Morgan Stanley Fund, there are important tax considerations. For tax
purposes, the exchange out of the Fund is considered a sale of Fund shares--and
the exchange into the other fund is considered a purchase. As a result, you may
realize a capital gain or loss.

You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.

CDSC CALCULATIONS ON EXCHANGES. See the "Share Class Arrangements" section of
this PROSPECTUS for a discussion of how applicable contingent deferred sales
charges (CDSCs) are calculated for shares of one Morgan Stanley Fund that are
exchanged for shares of another.

For further information regarding exchange privileges, you should contact your
Morgan Stanley Financial Advisor or call toll-free (800) 869-NEWS.

HOW TO SELL SHARES

[GRAPHIC]

You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next price calculated after
we receive your order to sell as described below.

OPTIONS PROCEDURES
--------------------------------------------------------------------------------

CONTACT YOUR To sell your shares, simply call your Morgan Stanley
FINANCIAL ADVISOR Financial Advisor or other authorized financial
representative. Payment will be sent to the address to which
the account is registered or deposited in your brokerage
account.

OPTIONS PROCEDURES
--------------------------------------------------------------------------------

BY LETTER You can also sell your shares by writing a "letter of
instruction" that includes:

- your account number;
- the name of the Fund;
- the dollar amount or the number of shares you wish to
sell;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the account.

If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Trust. (You
should contact Morgan Stanley Trust toll-free at
(800) 869-NEWS for a determination as to whether a
particular institution is an eligible guarantor.) A notary
public CANNOT provide a signature guarantee. Additional
documentation may be required for shares held by a
corporation, partnership, trustee or executor.

Mail the letter to Morgan Stanley Trust at P.O. Box 983,
Jersey City, NJ 07303. If you hold share certificates, you
must return the certificates, along with the letter and any
required additional documentation.

A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.

SYSTEMATIC If your investment in all of the Morgan Stanley Funds has a
WITHDRAWAL PLAN total market value of at least $10,000, you may elect to
withdraw amounts of $25 or more, or in any whole percentage
of a fund's balance (provided the amount is at least $25),
on a monthly, quarterly, semi-annual or annual basis, from
any fund with a balance of at least $1,000. Each time you
add a fund to the plan, you must meet the plan requirements.

Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this PROSPECTUS.

To sign up for the systematic withdrawal plan, contact your
Morgan Stanley Financial Advisor or call toll-free (800)
869-NEWS. You may terminate or suspend your plan at any
time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.

PAYMENT FOR SOLD SHARES. After we receive your complete instructions to sell as
described above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may also be sent
to your brokerage account.

Payment may be postponed or the right to sell your shares suspended under
unusual circumstances. If you request to sell shares that were recently
purchased by check, your sale will not be effected until it has been verified
that the check has been honored.

TAX CONSIDERATIONS. Normally, your sale of Fund shares is subject to federal and
state income tax. You should review the "Tax Consequences" section of this
PROSPECTUS and consult your own tax professional about the tax consequences of a
sale.

REINSTATEMENT PRIVILEGE. If you sell Fund shares and have not previously
exercised the reinstatement privilege, you may, within 35 days after the date of
sale, invest any portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any CDSC paid in
connection with the sale.

INVOLUNTARY SALES. The Fund reserves the right, on 60 days' notice, to sell the
shares of any shareholder (other than shares held in an individual retirement
account ("IRA") or 403(b) Custodial Account) whose shares, due to sales by the
shareholder, have a value below $100, or in the case of an account opened
through EASYINVEST(R), if after 12 months the shareholder has invested less than
$1,000 in the account.

However, before the Fund sells your shares in this manner, we will notify you
and allow you 60 days to make an additional investment in an amount that will
increase the value of your account to at least the required amount before the
sale is processed. No CDSC will be imposed on any involuntary sale.

REDEMPTION FEE. Fund shares redeemed within 30 days of purchase will be subject
to a 2% redemption fee, payable to the Fund. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading. The redemption fee is not imposed on redemptions made: (i) through
systematic withdrawal/exchange plans, (ii) through pre-approved asset allocation
programs, (iii) of shares received by reinvesting income dividends or capital
gain distributions, (iv) through certain collective trust funds or other pooled
vehicles and (v) on behalf of advisory accounts where client allocations are
solely at the discretion of the Morgan Stanley Investment Management investment
team. The redemption fee is based on, and deducted from, the redemption
proceeds. Each time you redeem or exchange shares, the shares held the longest
will be redeemed or exchanged first.

The redemption fee may not be imposed on transactions that occur through certain
omnibus accounts at financial intermediaries. Certain financial intermediaries
may apply different methodologies than those described above in assessing
redemption fees, may impose their own redemption fee that may differ from the
Fund's redemption fee or may impose certain trading restrictions to deter market
timing and frequent trading. If you invest in the Fund through a financial
intermediary, please read that firm's materials carefully to learn about any
other restrictions or fees that may apply.

DISTRIBUTIONS

[GRAPHIC]

The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns income from stocks and
interest from fixed-income investments. These amounts are passed along to Fund
shareholders as "income dividend distributions." The Fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. These
amounts may be passed along as "capital gain distributions."

The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares usually will be higher than for Class B and Class
C shares because distribution fees that Class B and Class C shares pay are
usually higher. Normally, income dividends are distributed to shareholders
quarterly. Capital gains, if any, are usually distributed in June and December.
The Fund, however, may retain and reinvest any long-term capital gains. The Fund
may at times make payments from sources other than income or capital gains that
represent a return of a portion of your investment.

Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, the Fund
will mail a check to you no later than seven business days after the
distribution is declared. However, if you purchase Fund shares through a Morgan
Stanley Financial Advisor or other authorized financial representative within
three business days prior to the record date for the distribution, the
distribution will automatically be paid to you in cash, even if you did not
request to receive all distributions in cash. No interest will accrue on
uncashed checks. If you wish to change how your distributions are paid, your
request should be received by the Transfer Agent at least five business days
prior to the record date of the distributions.

FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES

[GRAPHIC]

Frequent purchases and redemptions of Fund shares by Fund shareholders are
referred to as "market-timing" or "short-term trading" and may present risks for
other shareholders of the Fund, which may include, among other things, dilution
in the value of Fund shares held by long-term shareholders, interference with
the efficient management of the Fund's portfolio, increased brokerage and
administrative costs, incurring unwanted taxable gains, and forcing the Fund to
hold excess levels of cash.

In addition, the Fund is subject to the risk that market-timers and/or
short-term traders may take advantage of time zone differences between the
foreign markets on which the Fund's portfolio securities trade and the time as
of which the Fund's net asset value is calculated ("time-zone arbitrage"). For
example, a market-timer may purchase shares of the Fund based on events
occurring after foreign market closing prices are established, but before the
Fund's net asset value calculation, that are likely to result in higher prices
in foreign markets the following day. The market-timer would redeem the Fund's
shares the next day when the Fund's share price would reflect the increased
prices

[SIDENOTE]

TARGETED DIVIDENDS

YOU MAY SELECT TO HAVE YOUR FUND DISTRIBUTIONS AUTOMATICALLY INVESTED IN OTHER
CLASSES OF FUND SHARES OR CLASSES OF ANOTHER MORGAN STANLEY FUND THAT YOU OWN.
CONTACT YOUR MORGAN STANLEY FINANCIAL ADVISOR FOR FURTHER INFORMATION ABOUT THIS
SERVICE.

in foreign markets, for a quick profit at the expense of long-term Fund
shareholders. The Fund's policies with respect to valuing portfolio securities
are described in "Shareholder Information--Pricing Fund Shares."

The Fund discourages and does not accommodate frequent purchases and redemptions
of Fund shares by Fund shareholders and the Fund's Board of Trustees has adopted
policies and procedures with respect to such frequent purchases and redemptions.
The Fund's policies with respect to purchases, redemptions and exchanges of Fund
shares are described in the "How to Buy Shares," "How to Exchange Shares," and
"How to Sell Shares" sections of this Prospectus. Except as described in each of
these sections, and with respect to trades that occur through omnibus accounts,
at intermediaries as described below, the Fund's policies regarding frequent
trading of Fund shares are applied uniformly to all shareholders. With respect
to trades that occur through omnibus accounts at intermediaries, such as
investment managers, broker-dealers, transfer agents and third party
administrators, the Fund (i) has requested assurance that such intermediaries
currently selling Fund shares have in place internal policies and procedures
reasonably designed to address market-timing concerns and has instructed such
intermediaries to notify the Fund immediately if they are unable to comply with
such policies and procedures and (ii) requires all prospective intermediaries to
agree to cooperate in enforcing the Fund's policies with respect to frequent
purchases, redemptions and exchanges of Fund shares.

Omnibus accounts generally do not identify customers' trading activity to the
Fund on an individual basis. Therefore, with respect to trades that occur
through omnibus accounts at intermediaries, the Fund is currently limited in its
ability to monitor trading activity or enforce the redemption fee with respect
to customers of such intermediaries. The ability of the Fund to monitor
exchanges made by the underlying shareholders in omnibus accounts, therefore, is
severely limited. Consequently, the Fund must rely on the financial intermediary
to monitor frequent short-term trading within the Fund by the financial
intermediary's customers. Certain intermediaries may not have the ability to
assess a redemption fee. There can be no assurance that the Fund will be able to
eliminate all market-timing activities.

TAX CONSEQUENCES

[GRAPHIC]

As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this PROSPECTUS is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.

Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:

- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another Morgan Stanley Fund.

TAXES ON DISTRIBUTIONS. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in Fund shares. A distribution also may be subject to local income tax. Any
income dividend distributions and any short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are
taxable as long-term capital gains, no matter how long you have owned shares in
the Fund. Under current law, a portion of the ordinary income dividends you
receive may be taxed at the same rate as long-term capital gains. However, even
if income received in the form of ordinary income dividends is taxed at the same
rates as long-term capital gains, such income will not be considered long-term
capital gains for other federal

income tax purposes. For example, you generally will not be permitted to offset
ordinary income dividends with capital losses. Short-term capital gain
distributions will continue to be taxed at ordinary income rates.

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.

TAXES ON SALES. Your sale of Fund shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. A sale also
may be subject to local income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Fund is treated for tax purposes like a sale of your
original shares and a purchase of your new shares. Thus, the exchange may, like
a sale, result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.

When you open your Fund account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to federal backup withholding tax on
taxable distributions and redemption proceeds (as of the date of this PROSPECTUS
this rate is 28%). Any withheld amount would be sent to the IRS as an advance
payment of your taxes due on your income.

SHARE CLASS ARRANGEMENTS

[GRAPHIC]

The Fund offers several Classes of shares having different distribution
arrangements designed to provide you with different purchase options according
to your investment needs. Your Morgan Stanley Financial Advisor or other
authorized financial representative can help you decide which Class may be
appropriate for you.

The general public is offered three Classes: Class A shares, Class B shares and
Class C shares, which differ principally in terms of sales charges and ongoing
expenses. A fourth Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC--contingent deferred sales
charge.

Sales personnel may receive different compensation for selling each Class of
shares. The sales charges applicable to each Class provide for the distribution
financing of shares of that Class.

The chart below compares the sales charge and annual 12b-1 fee applicable to
each Class:

CLASS SALES CHARGE MAXIMUM ANNUAL 12b-1 FEE

A Maximum 5.25% initial sales charge reduced for purchases of
$25,000 or more; shares purchased without an initial sales
charge are generally subject to a 1.00% CDSC if sold during
the first 18 months 0.25%

B Maximum 5.00% CDSC during the first year decreasing to 0%
after six years 1.00%

C 1.00% CDSC during the first year 1.00%

D None None

Certain shareholders may be eligible for reduced sales charges (i.e., breakpoint
discounts), CDSC waivers and eligibility minimums. Please see the information
for each Class set forth below for specific eligibility requirements. You must
notify your Morgan Stanley Financial Advisor or other authorized financial
representative (or Morgan Stanley Trust if you purchase shares directly through
the Fund) at the time a purchase order (or in the case of Class B or C shares, a
redemption order) is placed, that the purchase (or redemption) qualifies for a
reduced sales charge (i.e., breakpoint discount), CDSC waiver or eligibility
minimum. Similar notification must be made in writing when an order is placed by
mail. The reduced sales charge, CDSC waiver or eligibility minimum will not be
granted if: (i) notification is not furnished at the time of order; or (ii) a
review of the records of Morgan Stanley DW or other authorized dealer of Fund
shares, or the Transfer Agent does not confirm your represented holdings.

In order to obtain a reduced sales charge (i.e., breakpoint discount) or to meet
an eligibility minimum, it may be necessary at the time of purchase for you to
inform your Morgan Stanley Financial Advisor or other authorized financial
representative (or Morgan Stanley Trust if you purchase shares directly through
the Fund) of the existence of other accounts in which there are holdings
eligible to be aggregated to meet the sales load breakpoints or eligibility
minimums. In order to verify your eligibility, you may be required to provide
account statements and/or confirmations regarding shares of the Fund or other
Morgan Stanley funds held in all related accounts described below at Morgan
Stanley or by other authorized dealers, as well as shares held by related
parties, such as members of the same family or household, in order to determine
whether you have met a sales load breakpoint or eligibility minimum. The Fund
makes available, in a clear and prominent format, free of charge, on its web
site, www.morganstanley.com, information regarding applicable sales loads,
reduced sales charges (i.e., breakpoint discounts), sales load waivers and
eligibility minimums. The web site includes hyperlinks that facilitate access to
the information.

CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25% of the public offering price. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule below.
Investments of $1 million or more are not subject to an initial sales charge,
but are generally subject to a CDSC of 1.00% on sales made within 18 months
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution and shareholder services (12b-1) fee
of up to 0.25% of the average daily net assets of the Class. The maximum annual
12b-1 fee payable by Class A shares is lower than the maximum 12b-1 fee payable
by Class B or Class C shares.

The offering price of Class A shares includes a sales charge (expressed as a
percentage of the public offering price) on a single transaction as shown in the
following table:

FRONT-END SALES CHARGE
------------------------------------------------
AMOUNT OF PERCENTAGE OF APPROXIMATE PERCENTAGE
SINGLE TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED

Less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.00% 4.17%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1 million 2.00% 2.04%
$1 million and over 0.00% 0.00%

- A single account (including an individual, trust or fiduciary account).

- A family member account (limited to spouse, and children under the age of
21).

- Pension, profit sharing or other employee benefit plans of companies and
their affiliates.

- Employer sponsored and individual retirement accounts (including IRAs, Keogh,
401(k), 403(b), 408(k) and 457(b) Plans).

- Tax-exempt organizations.
- Groups organized for a purpose other than to buy mutual fund shares.

COMBINED PURCHASE PRIVILEGE. You will have the benefit of reduced sales charges
by combining purchases of Class A shares of the Fund for any related account in
a single transaction with purchases of any class of shares of other Morgan
Stanley Multi-Class Funds for the related account or any other related account.
For the purpose of this combined purchase privilege, a "related account" is:

- A single account (including an individual account, a joint account and a
trust account established solely for the benefit of the individual).
- A family member accounts (limited to spouse and children under 21 but
including trust accounts established solely for the benefit of a spouse or
child under 21).
- IRAs and single participant retirement accounts (such as Keoghs).
- UGMA/UTMA accounts.

RIGHT OF ACCUMULATION. You may benefit from a reduced sales charge if the
cumulative net asset value of Class A Shares of the Fund purchased in a single
transaction, together with the net asset value of all classes of shares of
Morgan Stanley Multi-Class Funds (including shares of Morgan Stanley
Non-Multi-Class Funds which resulted from an exchange from Morgan Stanley Multi
Class Funds)

[SIDENOTE]

FRONT-END SALES CHARGE OR FSC

AN INITIAL SALES CHARGE YOU PAY WHEN PURCHASING CLASS A SHARES THAT IS BASED ON
A PERCENTAGE OF THE OFFERING PRICE. THE PERCENTAGE DECLINES BASED UPON THE
DOLLAR VALUE OF CLASS A SHARES YOU PURCHASE. WE OFFER THREE WAYS TO REDUCE YOUR
CLASS A SALES CHARGES--THE COMBINED PURCHASE PRIVILEGE, RIGHT OF ACCUMULATION
AND LETTER OF INTENT.

held in related accounts amounts to $25,000 or more. For the purposes of the
rights of accumulation privilege, a related account is any one of the accounts
listed under "Combined Purchase Privilege" above.

NOTIFICATION. You must notify your Morgan Stanley Financial Advisor or other
authorized financial representative (or the Transfer Agent if you purchase
shares directly through the Fund) at the time a purchase order is placed that
the purchase qualifies for a reduced sales charge under any of the privileges
discussed above. Similar notification must be made in writing when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Morgan Stanley DW or other authorized dealer of Fund shares or the
Transfer Agent does not confirm your represented holdings.

In order to obtain a reduced sales charge under any of the privileges discussed
above, it may be necessary at the time of purchase for you to inform your Morgan
Stanley Financial Advisor or other authorized financial representative (or the
Transfer Agent if you purchase shares directly through the Fund) of the
existence of other accounts in which there are holdings eligible to be
aggregated to meet the sales load breakpoint and/or right of accumulation
threshold. In order to verify your eligibility, you may be required to provide
account statements and/or confirmations regarding shares of the Fund or other
Morgan Stanley Funds held in all related accounts described above at Morgan
Stanley or by other authorized dealers, as well as shares held by related
parties, such as members of the same family or household, in order to determine
whether you have met the sales load breakpoint and/or right of accumulation
threshold. The Fund makes available, in a clear and prominent format, free of
charge, on its web site, www.morganstanley.com, information regarding applicable
sales loads and reduced sales charges (i.e., breakpoint discounts). The web site
includes hyperlinks that facilitate access to the information.

LETTER OF INTENT. The above schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written "Letter of
Intent." A Letter of Intent provides for the purchase of Class A shares of the
Fund or other Multi-Class Funds within a 13-month period. The initial purchase
under a Letter of Intent must be at least 5% of the stated investment goal. The
Letter of Intent does not preclude the Fund (or any other Multi-Class Fund) from
discontinuing sales of its shares. To determine the applicable sales charge
reduction, you may also include: (1) the cost of shares of other Morgan Stanley
Funds which were previously purchased at a price including a front-end sales
charge during the 90-day period prior to the distributor receiving the Letter of
Intent, and (2) the historical cost of shares of other funds you currently own
acquired in exchange for shares of funds purchased during that period at a price
including a front-end sales charge. You may combine purchases and exchanges by
family members (limited to spouse, and children under the age of 21) during the
periods referenced in (1) and (2) above. You should retain any records necessary
to substantiate historical costs because the Fund, its transfer agent and any
financial intermediaries may not maintain this information. You can obtain a
Letter of Intent by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative, or by calling toll-free (800) 869-NEWS. If
you do not achieve the stated investment goal within the 13-month period, you
are required to pay the difference between the sales charges otherwise
applicable and sales charges actually paid, which may be deducted from your
investment. Shares acquired through reinvestment of distributions are not
aggregated to achieve the stated investment goal.

OTHER SALES CHARGE WAIVERS. In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or
CDSC upon sale) if your account qualifies under one of the following categories:

- A trust for which a banking affiliate of the Investment Adviser provides
discretionary trustee services.

- Qualified state tuition plans described in Section 529 of the Internal
Revenue Code and donor-advised charitable gift funds (subject to all
applicable terms and conditions) and certain other investment programs that
do not charge an asset-based fee and have been approved by the Fund's
distributor.

- Employer-sponsored employee benefit plans, whether or not qualified under the
Internal Revenue Code, for which an entity independent from Morgan Stanley
serves as recordkeeper under an alliance or similar agreement with Morgan
Stanley's Retirement Plan Solutions ("Morgan Stanley Eligible Plans").

- A Morgan Stanley Eligible Plan whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees.

- Insurance Company separate accounts that have been approved by the Fund's
distributor.

- Current or retired Directors or Trustees of the Morgan Stanley Funds, such
persons' spouses, and children under the age of 21, and trust accounts for
which any of such persons is a beneficiary.

- Current or retired directors, officers and employees of Morgan Stanley and
any of its subsidiaries, such persons' spouses, and children under the age of
21, and trust accounts for which any of such persons is a beneficiary.

CLASS B SHARES Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge, or CDSC, as
set forth in the table below. For the purpose of calculating the CDSC, shares
are deemed to have been purchased on the last day of the month during which they
were purchased.

YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A PERCENTAGE OF AMOUNT REDEEMED

First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None

The CDSC is assessed on an amount equal to the lesser of the then market value
of the shares or the historical cost of the shares (which is the amount actually
paid for the shares at the time of original purchase) being redeemed.
Accordingly, no sales charge is imposed on increases in net asset value above
the initial purchase price. In determining whether a CDSC applies to a
redemption, it is

[SIDENOTE]

CONTINGENT DEFERRED SALES CHARGE OR CDSC

A FEE YOU PAY WHEN YOU SELL SHARES OF CERTAIN MORGAN STANLEY FUNDS PURCHASED
WITHOUT AN INITIAL SALES CHARGE. THIS FEE DECLINES THE LONGER YOU HOLD YOUR
SHARES AS SET FORTH IN THE TABLE.

assumed that the shares being redeemed first are any shares in the shareholder's
Fund account that are not subject to a CDSC, followed by shares held the longest
in the shareholder's account.

Broker-dealers or other financial intermediaries may impose a limit on the
dollar value of a Class B share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class B shares that in the aggregate amount to $25,000 or more. You
should discuss with your financial advisor which share class is most appropriate
for you, based on the size of your investment, your expected time horizon for
holding the shares and other factors, bearing in mind the availability of
reduced sales loads on Class A share purchases of $25,000 or more and for
existing shareholders who hold over $25,000 in Morgan Stanley Funds.

CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the case of:

- Sales of shares held at the time you die or become disabled (within the
definition in Section 72(m)(7) of the Internal Revenue Code, which relates to
the ability to engage in gainful employment), if the shares are: (i)
registered either in your individual name or in the names of you and your
spouse as joint tenants with right of survivorship; (ii) registered in the
name of a trust of which (a) you are the settlor and that is revocable by you
(i.e., a "living trust") or (b) you and your spouse are the settlors and that
is revocable by you or your spouse (i.e., a "joint living trust"); or (iii)
held in a qualified corporate or self-employed retirement plan, IRA or 403(b)
Custodial Account; provided, in each case, that the sale is requested within
one year after your death or initial determination of disability.

- Sales in connection with the following retirement plan "distributions": (i)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or, in the case of a "key employee" of
a "top heavy" plan, following attainment of age 59 1/2); (ii) distributions
from an IRA or 403(b) Custodial Account following attainment of age 59 1/2;
or (iii) a tax-free return of an excess IRA contribution (a "distribution"
does not include a direct transfer of IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee).

- Sales of shares in connection with the systematic withdrawal plan of up to
12% annually of the value of each fund from which plan sales are made. The
percentage is determined on the date you establish the systematic withdrawal
plan and based on the next calculated share price. You may have this CDSC
waiver applied in amounts up to 1% per month, 3% per quarter, 6%
semi-annually or 12% annually. Shares with no CDSC will be sold first,
followed by those with the lowest CDSC. As such, the waiver benefit will be
reduced by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan payments
without requiring a new determination of the account value for the 12% CDSC
waiver.

- Sales of shares purchased prior to April 1, 2004 or acquired in exchange for
shares purchased prior to April 1, 2004, if you simultaneously invest the
proceeds from such sale in the Investment Adviser's mutual fund asset
allocation program, pursuant to which investors pay an asset-based fee. Any
shares acquired in connection with the Investment Adviser's mutual fund asset
allocation program are subject to all of the terms and conditions of that
program, including termination fees, and mandatory sale or transfer
restrictions on termination.

All waivers will be granted only following the Fund's distributor receiving
confirmation of your entitlement. If you believe you are eligible for a CDSC
waiver, please contact your Morgan Stanley Financial Advisor or other authorized
financial representative or call toll-free (800) 869-NEWS.

DISTRIBUTION FEE. Class B shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the lesser of: (a) the
average daily aggregate gross purchases by all shareholders of the Fund's Class
B shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares sold by all shareholders since the
Fund's inception upon which a CDSC has been imposed or waived or (b) the average
daily net assets of Class B shares. The maximum annual 12b-1 fee payable by
Class B shares is higher than the maximum annual 12b-1 fee payable by Class A
shares.

CONVERSION FEATURE. After eight years, Class B shares will convert automatically
to Class A shares of the Fund with no initial sales charge. The eight-year
period runs from the last day of the month in which the shares were purchased
or, in the case of Class B shares acquired through an exchange, from the last
day of the month in which the original Class B shares were purchased; the shares
will convert to Class A shares based on their relative net asset values in the
month following the eight-year period. At the same time, an equal proportion of
Class B shares acquired through automatically reinvested distributions will
convert to Class A shares on the same basis.

In the case of Class B shares held in a Morgan Stanley Eligible Plan, the plan
is treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the Class B shares of a Morgan Stanley Fund
purchased by that plan.

If you exchange your Class B shares for shares of a Money Market Fund, a No-Load
Fund or the Limited Duration U.S. Treasury Trust, the holding period for
conversion is frozen as of the last day of the month of the exchange and resumes
on the last day of the month you exchange back into Class B shares.

EXCHANGING SHARES SUBJECT TO A CDSC. There are special considerations when you
exchange fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does NOT
charge a CDSC WILL NOT BE COUNTED. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that does
not charge a CDSC.

For example, if you held Class B shares of the Fund for one year, exchanged to
Class B of another Morgan Stanley Multi-Class Fund for another year, then sold
your shares, a CDSC rate of 4% would be imposed on the shares based on a
two-year holding period--one year for each fund. However, if you had exchanged
the shares of the Fund for a Money Market Fund (which does not charge a CDSC)
instead of the Multi-Class Fund, then sold your shares, a CDSC rate of 5% would
be imposed on the shares based on a one-year holding period. The one year in the
Money Market Fund would not be counted. Nevertheless, if shares subject to a
CDSC are exchanged for a fund that does not charge a CDSC, you will receive a
credit when you sell the shares equal to the 12b-1 fees, if any, you paid on
those shares while in that fund up to the amount of any applicable CDSC.

In addition, shares that are exchanged into or from a Morgan Stanley Fund
subject to a higher CDSC rate will be subject to the higher rate, even if the
shares are re-exchanged into a fund with a lower CDSC rate.

CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge, but are subject to a CDSC of 1.00% on sales made within one year after
the last day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares.

Brokers, dealers or other financial intermediaries may impose a limit on the
dollar value of a Class C share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class C shares that in the aggregate amount to $250,000 or more. You
should discuss with your financial advisor which share class is most appropriate
for you based on the size of your investment, your expected time horizon for
holding the shares and other factors, bearing in mind the availability of
reduced sales loads on Class A share purchases of $25,000 or more and for
existing shareholders who hold over $25,000 in Morgan Stanley Funds.

DISTRIBUTION FEE. Class C shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the average daily net assets
of that Class. The maximum annual 12b-1 fee payable by Class C shares is higher
than the maximum annual 12b-1 fee payable by Class A shares. Unlike Class B
shares, Class C shares have no conversion feature and, accordingly, an investor
that purchases Class C shares may be subject to distribution and shareholder
services (12b-1) fees applicable to Class C shares for as long as the investor
owns such shares.

CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution and shareholder services (12b-1) fee.
Class D shares are offered only to investors meeting an initial investment
minimum of $5 million ($25 million for Morgan Stanley Eligible Plans) and the
following investor categories:

- Investors participating in the Investment Adviser's or an affiliate's mutual
fund asset allocation program (subject to all of its terms and conditions,
including termination fees, and mandatory sale or transfer restrictions on
termination) pursuant to which they pay an asset-based fee.

- Persons participating in a fee-based investment program (subject to all of
its terms and conditions, including termination fees, and mandatory sale or
transfer restrictions on termination) approved by the Fund's distributor
pursuant to which they pay an asset-based fee for investment advisory,
administrative and/or brokerage services. With respect to Class D shares held
through the Morgan Stanley Choice Program, at such time as those Fund shares
are no longer held through the program, the shares will be automatically
converted into Class A shares (which are subject to higher expenses than
Class D shares) based on the then current relative net asset values of the
two Classes.

- Certain investment programs that do not charge an asset-based fee and have
been approved by the Fund's distributor.

- Employee benefit plans maintained by Morgan Stanley or any of its
subsidiaries for the benefit of certain employees of Morgan Stanley and its
subsidiaries.

- Certain unit investment trusts sponsored by Morgan Stanley DW or its
affiliates.

- Certain other open-end investment companies whose shares are distributed by
the Fund's distributor.

- Investors who were shareholders of the Dean Witter Retirement Series on
September 11, 1998 for additional purchases for their former Dean Witter
Retirement Series accounts.

- The Investment Adviser and its affiliates with respect to shares held in
connection with certain deferred compensation programs established for their
employees.

A purchase order that meets the requirements for investment in Class D shares
can be made only in Class D shares.

Class D shares are not offered for investments made through Section 529 plans,
donor-advised charitable gift funds and insurance company separate accounts
(regardless of the size of the investment).

MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million ($25 million for
Morgan Stanley Eligible Plans) initial investment to qualify to purchase Class D
shares you may combine: (1) purchases in a single transaction of Class D shares
of the Fund and other Morgan Stanley Multi-Class Funds; and/or (2) previous
purchases of Class A and Class D shares of Multi-Class Funds you currently own,
along with shares of Morgan Stanley Funds you currently own that you acquired in
exchange for those shares. Shareholders cannot combine purchases made by family
members or a shareholder's other related accounts in a single transaction for
purposes of meeting the $5 million initial investment minimum requirement to
qualify to purchase Class D shares.

NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a cash payment
representing an income dividend or capital gain and you reinvest that amount in
the applicable Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to an initial sales
charge or CDSC.

PLAN OF DISTRIBUTION (RULE 12b-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the Class A, Class B and Class C shares. (Class D shares
are offered without any 12b-1 fee.) The Plan allows the Fund to pay distribution
fees for the sale and distribution of these shares. It also allows the Fund to
pay for services to shareholders of these shares. Because these fees are paid
out of the Fund's assets on an ongoing basis, over time these fees will increase
the cost of your investment and reduce your return in these Classes and may cost
you more than paying other types of sales charges.

ADDITIONAL INFORMATION

[GRAPHIC]

The Investment Adviser and/or distributor may pay compensation (out of their own
funds and not as an expense of the Fund) to certain affiliated or unaffiliated
brokers, dealers or other financial intermediaries or service providers in
connection with the sale or retention of Fund shares and/or shareholder
servicing. Such compensation may be significant in amount and the prospect of
receiving any such additional compensation may provide such affiliated or
unaffiliated entities with an incentive to favor sales of shares of the Fund
over other investment options. Any such payments will not change the net asset
value or the price of the Fund's shares. For more information, please see the
Fund's STATEMENT OF ADDITIONAL INFORMATION.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share throughout each period. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).

This information has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, whose report, along with the Fund's financial
statements, are incorporated by reference in the STATEMENT OF ADDITIONAL
INFORMATION from the Fund's annual report, which is available upon request.

CLASS A SHARES

FOR THE YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.32 $ 11.34 $ 10.03 $ 13.07 $ 19.16
----------- ----------- ----------- ------------- -------------
Income (loss) from investment operations:
Net investment income++ 0.31 0.29 0.31 0.33 0.38
Net realized and unrealized gain (loss) 1.71 1.98 1.30 (2.88) (4.44)
----------- ----------- ----------- ------------- -------------
Total income (loss) from investment operations 2.02 2.27 1.61 (2.55) (4.06)
----------- ----------- ----------- ------------- -------------
Less dividends and distributions from:
Net investment income (0.36) (0.29) (0.30) (0.35) (0.38)
Net realized gain (0.61) -- -- (0.14) (1.65)
----------- ----------- ----------- ------------- -------------
Total dividends and distributions (0.97) (0.29) (0.30) (0.49) (2.03)
----------- ----------- ----------- ------------- -------------
Net asset value, end of period $ 14.37 $ 13.32 $ 11.34 $ 10.03 $ 13.07
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 15.12% 20.36% 16.37% (19.74)% (21.23)%
---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.03% 1.02% 1.02% 0.98% 0.90%
Net investment income 2.14% 2.44% 2.99% 2.98% 2.32%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 658,909 $ 12,228 $ 14,403 $ 14,463 $ 19,314
Portfolio turnover rate 20% 20% 43% 51% 49%

CLASS B SHARES

FOR THE YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.38 $ 11.40 $ 10.08 $ 13.12 $ 19.21
----------- ----------- ----------- ------------- -------------
Income (loss) from investment operations:
Net investment income++ 0.32 0.30 0.27 0.25 0.26
Net realized and unrealized gain (loss) 1.72 1.99 1.31 (2.89) (4.45)
----------- ----------- ----------- ------------- -------------
Total income (loss) from investment operations 2.04 2.29 1.58 (2.64) (4.19)
----------- ----------- ----------- ------------- -------------
Less dividends and distributions from:
Net investment income (0.36) (0.31) (0.26) (0.26) (0.25)
Net realized gain (0.61) -- -- (0.14) (1.65)
----------- ----------- ----------- ------------- -------------
Total dividends and distributions (0.97) (0.31) (0.26) (0.40) (1.90)
----------- ----------- ----------- ------------- -------------
Net asset value, end of period $ 14.45 $ 13.38 $ 11.40 $ 10.08 $ 13.12
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 15.22% 20.37% 15.91% (20.30)% (21.82)%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.94% 0.94%(2) 1.43%(2) 1.73% 1.66%
Net investment income 2.23% 2.52%(2) 2.58%(2) 2.23% 1.56%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 184,065 $ 890,696 $ 929,785 $ 1,011,218 $ 1,719,481
Portfolio turnover rate 20% 20% 43% 51% 49%

++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(2) If the Distributor had not rebated a portion of its fee to the Fund, the
expense and net investment income ratios would have been as follows:

EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
-------------------------------------------------- ------- --------------

December 31, 2004 1.24% 2.22%
December 31, 2003 1.78% 2.23%

CLASS C SHARES

FOR THE YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.37 $ 11.38 $ 10.07 $ 13.11 $ 19.19
----------- ----------- ----------- ------------- -------------
Income (loss) from investment operations:
Net investment income++ 0.21 0.20 0.23 0.26 0.26
Net realized and unrealized gain (loss) 1.72 1.99 1.30 (2.90) (4.44)
----------- ----------- ----------- ------------- -------------
Total income (loss) from investment operations 1.93 2.19 1.53 (2.64) (4.18)
----------- ----------- ----------- ------------- -------------
Less dividends and distributions from:
Net investment income (0.26) (0.20) (0.22) (0.26) (0.25)
Net realized gain (0.61) -- -- (0.14) (1.65)
----------- ----------- ----------- ------------- -------------
Total dividends and distributions (0.87) (0.20) (0.22) (0.40) (1.90)
----------- ----------- ----------- ------------- -------------
Net asset value, end of period $ 14.43 $ 13.37 $ 11.38 $ 10.07 $ 13.11
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 14.35% 19.47% 15.44% (20.32)% (21.80)%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.71% 1.77% 1.78% 1.69% 1.66%
Net investment income 1.46% 1.69% 2.23% 2.27% 1.56%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 8,745 $ 8,851 $ 8,899 $ 7,900 $ 11,904
Portfolio turnover rate 20% 20% 43% 51% 49%

CLASS D SHARES

FOR THE YEAR ENDED DECEMBER 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.30 $ 11.32 $ 10.02 $ 13.05 $ 19.14
----------- ----------- ----------- ------------- -------------
Income (loss) from investment operations:
Net investment income++ 0.34 0.32 0.34 0.36 0.45
Net realized and unrealized gain (loss) 1.70 1.98 1.29 (2.88) (4.47)
----------- ----------- ----------- ------------- -------------
Total income (loss) from investment operations 2.04 2.30 1.63 (2.52) (4.02)
----------- ----------- ----------- ------------- -------------
Less dividends and distributions from:
Net investment income (0.39) (0.32) (0.33) (0.37) (0.42)
Net realized gain (0.61) -- -- (0.14) (1.65)
----------- ----------- ----------- ------------- -------------
Total dividends and distributions (1.00) (0.32) (0.33) (0.51) (2.07)
----------- ----------- ----------- ------------- -------------
Net asset value, end of period $ 14.34 $ 13.30 $ 11.32 $ 10.02 $ 13.05
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 15.34% 20.69% 16.57% (19.49)% (21.04)%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.78% 0.77% 0.78% 0.73% 0.66%
Net investment income 2.39% 2.69% 3.23% 3.23% 2.56%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 4,059 $ 3,750 $ 3,123 $ 3,380 $ 3,783
Portfolio turnover rate 20% 20% 43% 51% 49%

++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Reflects overall Fund ratios for investment income and non-class specific
expenses.

MORGAN STANLEY FUNDS

EQUITY

BLEND/CORE

Dividend Growth Securities
Multi-Asset Class Fund
Total Return Trust

DOMESTIC HYBRID

Allocator Fund
Balanced Growth Fund
Balanced Income Fund
Income Builder Fund
Strategist Fund

GLOBAL/INTERNATIONAL

European Equity Fund
Global Advantage Fund
Global Dividend Growth Securities
International Fund
International SmallCap Fund
International Value Equity Fund
Japan Fund
Pacific Growth Fund

GROWTH

Aggressive Equity Fund
American Opportunities Fund
Capital Opportunities Trust
Developing Growth Securities Trust
Growth Fund
Special Growth Fund

INDEX

Equally-Weighted S&P 500 Fund

Nasdaq-100 Index Fund

S&P 500 Index Fund
Total Market Index Fund

SPECIALTY

Convertible Securities Trust

Financial Services Trust
Global Utilities Fund
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Real Estate Fund
Utilities Fund

VALUE

Fundamental Value Fund

Mid-Cap Value Fund
Small-Mid Special Value Fund
Special Value Fund
Value Fund

FIXED INCOME

TAXABLE SHORT TERM

Limited Duration Fund*+
Limited Duration U.S. Treasury Trust*

TAXABLE INTERMEDIATE TERM

Flexible Income Trust

High Yield Securities Income Trust

Mortgage Securities Trust

U.S. Government Securities Trust

TAX-FREE

California Tax-Free Income Fund
Limited Term Municipal Trust*+
New York Tax-Free Income Fund
Tax-Exempt Securities Trust

MONEY MARKET*

TAXABLE

Liquid Asset Fund
U.S. Government Money Market

TAX-FREE

California Tax-Free Daily Income Trust
New York Municipal Money Market Trust
Tax-Free Daily Income Trust

There may be funds created or terminated after this PROSPECTUS was published.
Please consult the inside back cover of a new fund's prospectus for its
designations, e.g. Multi-Class Fund or Money Market Fund.

Unless otherwise noted, each listed Morgan Stanley Fund is a Multi-Class Fund. A
Multi-Class Fund is a mutual fund offering multiple classes of shares.

* Single-Class Fund(s)
+ No-Load (Mutual) Fund

Additional information about the Fund's investments is available in the Fund's
ANNUAL and SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

The Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional
information about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is
incorporated herein by reference (legally is part of this PROSPECTUS). For a
free copy of any of these documents, to request other information about the Fund
or to make shareholder inquiries, please call toll-free (800) 869-NEWS. Free
copies of these documents are also available from our Internet site at:
www.morganstanley.com/funds

You also may obtain information about the Fund by calling your Morgan Stanley
Financial Advisor or by visiting our Internet site.

Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's ("SEC")
Public Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 551-8090. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov) and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: publicinfo@sec.gov, or by writing the Public Reference Section
of the SEC, Washington, DC 20549-0102.

TICKER SYMBOLS:

CLASS A: UTLAX
CLASS B: UTLBX
CLASS C: UTLCX
CLASS D: UTLDX

(The Fund's Investment Company Act File No. is 811-5415)

Investments and services offered through Morgan Stanley DW Inc., member SIPC,
and Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

CLF #38545PRO-00

[GRAPHIC]

MORGAN STANLEY FUNDS

MORGAN STANLEY
UTILITIES FUND

38545 04/06

[MORGAN STANLEY LOGO]

PROSPECTUS

APRIL 28, 2006



WELCOME, SHAREHOLDER:

IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
UTILITIES FUND PERFORMED DURING THE ANNUAL PERIOD. WE WILL PROVIDE AN OVERVIEW
OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.

THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.

MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.



FUND REPORT
FOR THE YEAR ENDED DECEMBER 31, 2005

TOTAL RETURN FOR THE 12 MONTHS ENDED DECEMBER 31, 2005



                                                     S&P          LIPPER
                                                  500(R)   UTILITY FUNDS
CLASS A     CLASS B     CLASS C     CLASS D     INDEX(1)         INDEX(2)
------------------------------------------------------------------------

 15.12%      15.22%      14.35%      15.34%         4.91%          15.00%


THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED
PERFORMANCE AND BENCHMARK INFORMATION.

BECAUSE CLASS B SHARES INCURRED LOWER EXPENSES UNDER THE 12b-1 PLAN THAN DID
CLASS A SHARES FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2005, THE TOTAL
OPERATING EXPENSE RATIO FOR CLASS B SHARES WAS LOWER AND, AS A RESULT, THE
PERFORMANCE OF CLASS B SHARES WAS HIGHER THAN THAT OF THE CLASS A SHARES. THERE
CAN BE NO ASSURANCE THAT THIS WILL CONTINUE TO OCCUR IN THE FUTURE AS THE
MAXIMUM FEES PAYABLE BY CLASS B SHARES UNDER THE 12b-1 PLAN ARE HIGHER THAN
THOSE PAYABLE BY CLASS A SHARES.

MARKET CONDITIONS

Despite the Federal Open Market Committee's steady monetary tightening policy,
interest rates remained low by historical standards. In this environment,
utility stocks were rewarded by investors for their yield and dividend growth
potential. The market's comfort with utilities was further bolstered by the
sector's increased emphasis on basic utility service models. Such models
entailed less high risk diversification efforts, and in turn, cleaner balance
sheets and enhanced earnings predictability. Merger-and-acquisition activity
furthered the overall appeal of the utilities sector.

Although electric and natural gas stocks showed general weakness in the fourth
quarter of 2005, these sectors were the dominant performers for the year.
Exceptionally strong oil and natural gas prices were key factors underlying the
significant upside of natural gas companies having exploration and production
(E&P) affiliations. Similarly, selective electric utilities were beneficiaries
of higher commodity prices, particularly those having relatively low cost coal
and nuclear generation. During the period, telecommunications stocks across the
market generated mixed performance. A number of companies were hindered by the
threat of competition, a significant build-up of capital expenditures and
regulatory uncertainties. While telecommunication operating companies (Regional
Bells) were stagnant, stocks within the wireless area of the telecommunications
industry provided stronger gains. Unlike the wireline operators where growth is
slow at best, the wireless area offered more attractive organic growth prospects
as well as the benefit of synergies from current and future consolidation.

PERFORMANCE ANALYSIS

Morgan Stanley Utilities Fund Class A, B and D shares outperformed the S&P
500(R) Index and the Lipper Utility Funds Index for the 12 months ended December
31, 2005, assuming no deduction of applicable sales charges. Class C shares
outperformed the S&P 500(R) Index and underperformed the Lipper Utility Funds
Index for the same period, assuming no deduction of sales charges.

                                        2


A variety of factors drove the Fund's strong absolute returns and wide
outperformance of the S&P 500(R) Index. In addition to benefiting from the
favorable trends which supported the sector, the Fund was especially well served
by its focus on electric companies, many which excelled as commodity prices
soared. Additionally, selected electric positions were further rewarded for
restructuring activity or turnarounds. The Fund's natural gas allocation
contributed solid gains, as well. Stocks of companies with E&P operations were
among those that performed most strongly. Within its telecommunications
position, the performance of the Fund reflected the mixed trends seen in the
broader market. Exposure to wireless-related holdings offset much of the
lackluster performance from wireline operators, such as the Regional Bells and
independent carriers.

Throughout the period, the Fund was well diversified across the utilities
sector. As of December 31, 2005, electric utilities stocks represented 61
percent of equity investments, natural gas and energy stocks represented 23
percent, and telecommunications represented 16 percent. We note that the Fund's
holdings and allocation may be modified at any time, in response to our analysis
of broader trends or company specific fundamentals.

THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN THE FUTURE.

                                        3


TOP 10 HOLDINGS


Edison International                      3.5%
Dominion Resources, Inc.                  3.3
FPL Group, Inc.                           3.3
Exelon Corp.                              3.3
TXU Corp.                                 3.2
PPL Corp.                                 3.2
Sprint Nextel Corp.                       3.1
Constellation Energy Group, Inc.          3.1
Entergy Corp.                             2.9
Sempra Energy                             2.9


TOP FOUR INDUSTRIES



Electric Utilities                       60.6%
Energy                                   22.7
Telecommunications                       16.1
Short-Term Investment                     0.3


DATA AS OF DECEMBER 31, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
10 HOLDINGS AND TOP FOUR INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS. THESE
DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A
RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.

INVESTMENT STRATEGY

THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCK
AND OTHER EQUITY SECURITIES (INCLUDING DEPOSITARY RECEIPTS) AND INVESTMENT GRADE
FIXED-INCOME SECURITIES (INCLUDING ASSET-BACKED SECURITIES AND ZERO-COUPON
SECURITIES) OF COMPANIES THAT ARE ENGAGED IN THE UTILITIES INDUSTRY. A COMPANY
WILL BE CONSIDERED TO BE IN THE UTILITIES INDUSTRY IF IT DERIVES AT LEAST 50
PERCENT OF ITS REVENUES OR EARNINGS FROM THE UTILITIES INDUSTRY OR DEVOTES AT
LEAST 50 PERCENT OF ITS ASSETS TO ACTIVITIES IN THAT INDUSTRY. THESE MAY INCLUDE
COMPANIES INVOLVED IN, AMONG OTHER AREAS: GAS AND ELECTRIC ENERGY, WATER
DISTRIBUTION, TELECOMMUNICATIONS, COMPUTERS, THE INTERNET AND INTERNET RELATED
SERVICES, AND OTHER NEW OR EMERGING TECHNOLOGIES. THE COMPANIES MAY INCLUDE
TRADITIONALLY REGULATED PUBLIC UTILITIES OR FULLY OR PARTIALLY DEREGULATED
UTILITY COMPANIES AS WELL AS UNREGULATED UTILITY COMPANIES. THE FUND MAY INVEST
UP TO 25 PERCENT OF ITS NET ASSETS IN FOREIGN SECURITIES, INCLUDING COMMON STOCK
AND OTHER EQUITY SECURITIES (INCLUDING DEPOSITARY RECEIPTS) AND INVESTMENT GRADE
FIXED-INCOME SECURITIES. HOWEVER, THIS PERCENTAGE LIMITATION DOES NOT APPLY TO
SECURITIES OF FOREIGN COMPANIES THAT ARE LISTED IN THE UNITED STATES ON A
NATIONAL SECURITIES EXCHANGE.

FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS

EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL

                                        4


AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS
PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN STANLEY FUND ALSO FILES A
COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND
THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS
FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS
POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM
N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE
SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO REVIEW AND COPY THEM AT THE
SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF
THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800)
SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A
DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102.

PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD

YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.

YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30
WITHOUT CHARGE BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT
www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND
EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

                                        5


PERFORMANCE SUMMARY

[CHART]

PERFORMANCE OF $10,000 INVESTMENT -- CLASS B



($ IN THOUSANDS)      FUND^^     S&P 500(R) INDEX(1)   LIPPER UTILITY FUNDS INDEX(2)

December 31, 1995   $   10,000        $   10,000                 $   10,000
December 31, 1996   $   10,499        $   12,295                 $   10,933
December 31, 1997   $   13,208        $   16,397                 $   13,744
December 31, 1998   $   16,107        $   21,082                 $   16,273
December 31, 1999   $   17,732        $   25,518                 $   18,638
December 31, 2000   $   18,879        $   23,192                 $   20,236
December 31, 2001   $   14,759        $   20,438                 $   15,916
December 31, 2002   $   11,763        $   15,923                 $   12,303
December 31, 2003   $   13,634        $   20,491                 $   14,957
December 31, 2004   $   16,410        $   22,721                 $   18,531
December 31, 2005   $   18,907        $   23,836                 $   21,311


ENDING VALUE

                                        6


AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED DECEMBER 31, 2005



                  CLASS A SHARES*       CLASS B SHARES**      CLASS C SHARES+       CLASS D SHARES++
                  (SINCE 07/28/97)      (SINCE 04/29/88)      (SINCE 07/28/97)      (SINCE 07/28/97)

SYMBOL                       UTLAX                 UTLBX                 UTLCX                 UTLDX

1 YEAR                       15.12%(3)             15.22%(3)             14.35%(3)             15.34%(3)
                              9.08(4)              10.22(4)              13.35(4)                 --

5 YEARS                       0.38(3)               0.03(3)              (0.35)(3)              0.62(3)
                             (0.69)(4)             (0.27)(4)             (0.35)(4)                --

10 YEARS                        --                  6.58(3)                 --                    --
                                --                  6.58(4)                 --                    --

SINCE INCEPTION               6.94(3)               8.57(3)               6.14(3)               7.19(3)
                              6.26(4)               8.57(4)               6.14(4)                 --


PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
www.morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS
AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. THE 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.

*   THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.

**  THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE
    CDSC DECLINES TO 0% AFTER SIX YEARS.

+   THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1.0% FOR SHARES
    REDEEMED WITHIN ONE YEAR OF PURCHASE.

++  CLASS D HAS NO SALES CHARGE.

(1) THE STANDARD & POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
    PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
    STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
    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.

^^  ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON DECEMBER 31, 2005.

                                        7


EXPENSE EXAMPLE

As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including advisory fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 07/01/05 - 12/31/05.

ACTUAL EXPENSES

The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.



                                                       BEGINNING         ENDING       EXPENSES PAID
                                                     ACCOUNT  VALUE   ACCOUNT VALUE   DURING PERIOD *
                                                     --------------   -------------   ---------------
                                                                                        07/01/05 -
                                                       07/01/05         12/31/05        12/31/05
                                                     --------------   -------------   ---------------

CLASS A
Actual (2.44% return)                                $     1,000.00   $    1,024.40   $          5.20
Hypothetical (5% annual return before expenses)      $     1,000.00   $    1,020.06   $          5.19

CLASS B
Actual (2.57% return)                                $     1,000.00   $    1,025.70   $          4.44
Hypothetical (5% annual return before expenses)      $     1,000.00   $    1,020.82   $          4.43

CLASS C
Actual (2.11% return)                                $     1,000.00   $    1,021.10   $          9.02
Hypothetical (5% annual return before expenses)      $     1,000.00   $    1,016.28   $          9.00

CLASS D
Actual (2.57% return)                                $     1,000.00   $    1,025.70   $          3.93
Hypothetical (5% annual return before expenses)      $     1,000.00   $    1,021.32   $          3.92


----------
  *  EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.02%, 0.87%,
     1.77% AND 0.77% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
     RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
     MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).

                                        8


MORGAN STANLEY UTILITIES FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2005



NUMBER OF
 SHARES                                                                                  VALUE
--------------------------------------------------------------------------------------------------

            COMMON STOCKS (98.0%)
            ELECTRIC UTILITIES (59.8%)
1,070,000   AES Corp. (The)*                                                         $  16,938,100
  360,000   Allegheny Energy, Inc.*                                                     11,394,000
  360,000   Ameren Corp.                                                                18,446,400
  530,000   American Electric Power Co., Inc.                                           19,657,700
  475,000   CMS Energy Corp.*                                                            6,892,250
  295,000   Consolidated Edison, Inc.                                                   13,667,350
  455,000   Constellation Energy Group, Inc.                                            26,208,000
  370,000   Dominion Resources, Inc.                                                    28,564,000
  359,000   DPL, Inc.                                                                    9,337,590
  620,724   Duke Energy Corp.                                                           17,038,874
  685,000   Edison International                                                        29,872,850
  365,000   Entergy Corp.                                                               25,057,250
  525,000   Exelon Corp.                                                                27,898,500
  410,000   FirstEnergy Corp.                                                           20,085,900
  685,000   FPL Group, Inc.                                                             28,468,600
  470,000   NRG Energy, Inc.*                                                           22,146,400
  645,000   NSTAR                                                                       18,511,500
  585,000   PG&E Corp.                                                                  21,715,200
  300,000   Pinnacle West Capital Corp.                                                 12,405,000
  463,000   PNM Resources Inc.                                                          11,338,870
  925,000   PPL Corp.                                                                   27,195,000
  435,000   Reliant Energy, Inc.*                                                        4,489,200
  600,000   SCANA Corp.                                                                 23,628,000
  535,000   Southern Co. (The)                                                          18,473,550
  355,000   TECO Energy, Inc.                                                            6,098,900
  540,000   TXU Corp.                                                                   27,102,600
  490,000   Wisconsin Energy Corp.                                                      19,139,400
                                                                                     -------------
                                                                                       511,770,984
                                                                                     -------------
            ENERGY (22.6%)
  590,000   AGL Resources, Inc.                                                         20,537,900
  135,000   Burlington Resources, Inc.                                                  11,637,000
  530,000   Equitable Resources, Inc.                                                   19,445,700
  245,200   KeySpan Corp.                                                                8,751,188
  195,000   Kinder Morgan, Inc.                                                         17,930,250
  595,000   MDU Resources Group, Inc.                                                   19,480,300
  375,700   New Jersey Resources Corp.                                                  15,738,073
  180,000   Peabody Energy Corp.                                                        14,835,600


                        SEE NOTES TO FINANCIAL STATEMENTS

                                        9




NUMBER OF
 SHARES                                                                                  VALUE
--------------------------------------------------------------------------------------------------

  300,000   Questar Corp.                                                            $  22,710,000
  556,511   Sempra Energy                                                               24,953,953
  765,000   Williams Companies, Inc. (The)                                              17,725,050
                                                                                     -------------
                                                                                       193,745,014
                                                                                     -------------
            TELECOMMUNICATIONS (15.6%)
  290,900   ALLTEL Corp.                                                                18,355,790
  579,972   AT&T Inc.                                                                   14,203,514
  525,000   BellSouth Corp.                                                             14,227,500
  215,250   CenturyTel, Inc.                                                             7,137,690
  620,000   Crown Castle International Corp.*                                           16,684,200
1,115,070   Sprint Nextel Corp.                                                         26,048,035
  221,586   Telefonica de Espana S.A. (ADR) (Spain)                                      9,975,802
  545,000   Telefonos de Mexico S.A. (Series L) (ADR) (Mexico)                          13,450,600
  300,160   Verizon Communications Inc.                                                  9,040,819
  225,000   Vodafone Group PLC (ADR) (United Kingdom)                                    4,830,750
                                                                                     -------------
                                                                                       133,954,700
                                                                                     -------------
            TOTAL COMMON STOCKS
             (COST $445,468,080)                                                       839,470,698
                                                                                     -------------


PRINCIPAL
AMOUNT IN                                                     COUPON      MATURITY
THOUSANDS                                                      RATE        DATE
---------                                                    --------    ----------

            CORPORATE BONDS (1.3%)
            ELECTRIC UTILITIES (0.8%)
$     185   Appalachian Power Co. (Series G)                   3.60%      05/15/08         179,323
      285   Carolina Power & Light Co.                        5.125       09/15/13         284,691
      585   Cleco Power LLC                                   5.375       05/01/13         581,460
      655   Commonwealth Edison Co. (Series 98)                6.15       03/15/12         683,274
      425   Duquesne Light Co. (Series O)                      6.70       04/15/12         461,785
      115   Entergy Gulf States, Inc.                          3.60       06/01/08         110,649
      145   Entergy Gulf States, Inc.                          4.81+      12/01/09         141,603
      465   Exelon Corp.                                       6.75       05/01/11         495,602
      300   FirstEnergy Corp. (Series B)                       6.45       11/15/11         318,387
      200   Indianapolis Power & Light Co. - 144A**            6.30       07/01/13         210,702
      785   Jersey Central Power & Light Co. (Series MTN)      6.45       05/15/06         789,803
      245   Pacific Gas & Electric Co.                         6.05       03/01/34         254,435
      595   Pinnacle West Capital Corp.                        6.40       04/01/06         597,639
      650   Public Service Co. of New Mexico (Series B)        7.50       08/01/18         742,927
      460   Public Service Electric & Gas Co. (Series MTNB)    5.00       01/01/13         455,432


                        SEE NOTES TO FINANCIAL STATEMENTS

                                       10




PRINCIPAL
AMOUNT IN                                                     COUPON      MATURITY
THOUSANDS                                                      RATE         DATE         VALUE
--------------------------------------------------------------------------------------------------

$     355   Texas-New Mexico Power Co.                         6.25%      01/15/09   $     364,600
      200   TXU Energy Co.                                     7.00       03/15/13         213,435
                                                                                     -------------
                                                                                         6,885,747
                                                                                     -------------
            ENERGY (0.0%)
      150   Panhandle Eastern Pipe Line Co.                    4.80       08/15/08         148,394
      110   Panhandle Eastern Pipe Line Co. (Series B)         2.75       03/15/07         106,993
       85   Sempra Energy                                      4.62       05/17/07          84,425
                                                                                     -------------
                                                                                           339,812
                                                                                     -------------
            TELECOMMUNICATIONS (0.5%)
      124   AT&T Corp.                                         9.05       11/15/11         137,408
      735   France Telecom S.A. (France)                       8.75       03/01/31         983,664
      605   GTE Corp.                                          6.94       04/15/28         649,356
      690   SBC Communications, Inc.                           6.15       09/15/34         695,413
      140   SBC Communications, Inc.                           6.45       06/15/34         146,164
      420   Sprint Capital Corp.                              8.375       03/15/12         487,365
      300   Sprint Capital Corp.                               8.75       03/15/32         399,330
      390   Vodafone Airtouch PLC (United Kingdom)             7.75       02/15/10         427,532
                                                                                     -------------
                                                                                         3,926,232
                                                                                     -------------
            TOTAL CORPORATE BONDS
            (COST $10,741,371)                                                          11,151,791
                                                                                     -------------
            SHORT-TERM INVESTMENT (0.3%)
            REPURCHASE AGREEMENT
    2,159   Joint repurchase agreement account
             (dated 12/30/05; proceeds $2,160,020) (a)
             (COST $2,159,000)                                 4.25       01/03/06       2,159,000
                                                                                     -------------
            TOTAL INVESTMENTS
             (COST $458,368,451) (b)                                       99.6%       852,781,489
            OTHER ASSETS IN EXCESS OF LIABILITIES                           0.4          2,996,959
                                                                         ------      -------------
            NET ASSETS                                                    100.0%     $ 855,778,448
                                                                         ======      =============


----------
   ADR  AMERICAN DEPOSITARY RECEIPT.
    *   NON-INCOME PRODUCING SECURITY.
   **   RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
    +   FLOATING RATE SECURITY; RATE SHOWN IS THE RATE IN EFFECT AT DECEMBER 31,
        2005.
   (a)  COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
   (b)  THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $461,466,992.
        THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $392,764,406 AND THE
        AGGREGATE GROSS UNREALIZED DEPRECIATION IS $1,449,909, RESULTING IN
        NET UNREALIZED APPRECIATION OF $391,314,497.

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       11


MORGAN STANLEY UTILITIES FUND
SUMMARY OF INVESTMENTS - DECEMBER 31, 2005


                                                                   PERCENT OF
INDUSTRY                                               VALUE       NET ASSETS
-----------------------------------------------------------------------------

Electric Utilities                                $  518,656,731      60.6%
Energy                                               194,084,826      22.6
Telecommunications                                   137,880,932      16.1
Repurchase Agreement                                   2,159,000       0.3
                                                  --------------   -------
                                                  $  852,781,489      99.6%
                                                  ==============   =======


                        SEE NOTES TO FINANCIAL STATEMENTS

                                       12


MORGAN STANLEY UTILITIES FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005


ASSETS:
Investments in securities, at value
  (cost $458,368,451)                                             $    852,781,489
Receivable for:
  Investments sold                                                       3,044,077
  Shares of beneficial interest sold                                     2,156,082
  Dividends                                                              1,881,289
  Interest                                                                 190,712
  Foreign withholding taxes reclaimed                                       46,768
Receivable from affiliate                                                  132,543
Prepaid expenses and other assets                                           59,170
                                                                  ----------------
    TOTAL ASSETS                                                       860,292,130
                                                                  ----------------
LIABILITIES:
Payable for:
  Shares of beneficial interest redeemed                                 2,746,341
  Investments purchased                                                    835,271
  Investment advisory fee                                                  391,103
  Distribution fee                                                         310,970
  Administration fee                                                        59,343
  Transfer agent fee                                                        20,682
Accrued expenses and other payables                                        149,972
                                                                  ----------------
    TOTAL LIABILITIES                                                    4,513,682
                                                                  ----------------
    NET ASSETS                                                    $    855,778,448
                                                                  ================
COMPOSITION OF NET ASSETS:
Paid-in-capital                                                   $    439,575,302
Net unrealized appreciation                                            394,413,038
Accumulated undistributed net investment income                          2,709,652
Accumulated undistributed net realized gain                             19,080,456
                                                                  ----------------
    NET ASSETS                                                    $    855,778,448
                                                                  ================
CLASS A SHARES:
Net Assets                                                        $    658,909,163
Shares Outstanding
  (UNLIMITED AUTHORIZED, $.01 PAR VALUE)                                45,857,756
    NET ASSET VALUE PER SHARE                                     $          14.37
                                                                  ================
    MAXIMUM OFFERING PRICE PER SHARE,
      (NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)             $          15.17
                                                                  ================
CLASS B SHARES:
Net Assets                                                        $    184,065,422
Shares Outstanding
  (UNLIMITED AUTHORIZED, $.01 PAR VALUE)                                12,742,301
    NET ASSET VALUE PER SHARE                                     $          14.45
                                                                  ================
CLASS C SHARES:
Net Assets                                                        $      8,744,665
Shares Outstanding
  (UNLIMITED AUTHORIZED, $.01 PAR VALUE)                                   606,156
    NET ASSET VALUE PER SHARE                                     $          14.43
                                                                  ================
CLASS D SHARES:
Net Assets                                                        $      4,059,198
Shares Outstanding
  (UNLIMITED AUTHORIZED, $.01 PAR VALUE)                                   282,997
    NET ASSET VALUE PER SHARE                                     $          14.34
                                                                  ================


STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005



NET INVESTMENT INCOME:
INCOME
Dividends (net of $21,899 foreign withholding tax)                $     27,422,688
Interest                                                                 1,287,689
                                                                  ----------------
    TOTAL INCOME                                                        28,710,377
                                                                  ----------------
EXPENSES
Investment advisory fee                                                  4,759,242
Distribution fee (Class A shares)                                        1,206,749
Distribution fee (Class B shares)                                          664,628
Distribution fee (Class C shares)                                           85,316
Transfer agent fees and expenses                                         1,156,131
Administration fee                                                         724,978
Shareholder reports and notices                                            128,015
Professional fees                                                           81,479
Registration fees                                                           58,549
Custodian fees                                                              47,874
Trustees' fees and expenses                                                 18,582
Other                                                                       51,131
                                                                  ----------------
    TOTAL EXPENSES                                                       8,982,674
                                                                  ----------------
    NET INVESTMENT INCOME                                               19,727,703
                                                                  ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain                                                      126,964,193
Net change in unrealized appreciation                                  (17,792,412)
                                                                  ----------------
    NET GAIN                                                           109,171,781
                                                                  ----------------
NET INCREASE                                                      $    128,899,484
                                                                  ================


                        SEE NOTES TO FINANCIAL STATEMENTS

                                       13


STATEMENT OF CHANGES IN NET ASSETS



                                                              FOR THE YEAR       FOR THE YEAR
                                                                 ENDED               ENDED
                                                           DECEMBER 31, 2005   DECEMBER 31, 2004
                                                           -----------------   -----------------

INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income                                      $      19,727,703   $      22,774,344
Net realized gain                                                126,964,193          52,817,740
Net change in unrealized appreciation                            (17,792,412)         90,487,889
                                                           -----------------   -----------------
    NET INCREASE                                                 128,899,484         166,079,973
                                                           -----------------   -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
    Class A shares                                               (13,127,270)           (322,389)
    Class B shares                                                (8,807,025)        (21,927,360)
    Class C shares                                                  (157,312)           (140,572)
    Class D shares                                                  (115,952)           (102,943)

Net realized gain
    Class A shares                                               (27,152,428)                 --
    Class B shares                                                (7,631,877)                 --
    Class C shares                                                  (351,337)                 --
    Class D shares                                                  (166,395)                 --
                                                           -----------------   -----------------

    TOTAL DIVIDENDS AND DISTRIBUTIONS                            (57,509,596)        (22,493,264)
                                                           -----------------   -----------------
Net decrease from transactions in shares
  of beneficial interest                                        (131,135,934)       (184,271,171)
                                                           -----------------   -----------------

    NET DECREASE                                                 (59,746,046)        (40,684,462)

NET ASSETS:
Beginning of period                                              915,524,494         956,208,956
                                                           -----------------   -----------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT
  INCOME OF $2,709,652 AND $5,105,860, RESPECTIVELY)       $     855,778,448   $     915,524,494
                                                           =================   =================


                        SEE NOTES TO FINANCIAL STATEMENTS

                                       14


MORGAN STANLEY UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2005

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley 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 both capital
appreciation and current income. The Fund was organized as a Massachusetts
business trust on December 8, 1987 and commenced operations on April 29, 1988.
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 eighteen
months, 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.

Effective August 29, 2005, the Board of Trustees of the Fund approved the
implementation of a 2% redemption fee on Class A shares, Class B shares, Class C
shares, and Class D shares, which is paid directly to the Fund, for shares
redeemed within thirty days of purchase. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Adviser"), determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are

                                       15


expected to materially affect the value of such securities, such valuations may
be adjusted to reflect the estimated fair value of such securities as of the
close of the NYSE, as determined in good faith by the Fund's Trustees or by the
Investment Adviser using a pricing service and/or procedures approved by the
Trustees of the Fund; (6) certain portfolio securities may be valued by an
outside pricing service approved by the Fund's Trustees; and (7) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.

B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
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 Adviser, 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. 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.

F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.

G. 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.

                                       16


2. INVESTMENT ADVISORY/ ADMINISTRATION AGREEMENTS

Pursuant to an Investment Advisory Agreement; the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
following annual rates to the Fund's net assets determined at the close of each
business day: 0.57% to the portion of daily net assets not exceeding $500
million; 0.47% to the portion of the daily net assets exceeding $500 million but
not exceeding $1 billion; 0.445% to the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.42% to the portion of the
daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.395%
to the portion of the daily net assets exceeding $2.5 billion but not exceeding
$3.5 billion; 0.37% to the portion of the daily net assets exceeding $3.5
billion but not exceeding $5 billion; and 0.345% to the portion of the daily net
assets in excess of $5 billion.

Pursuant to an Investment Administration Agreement with Morgan Stanley Services
Company Inc. (the "Administrator"), an affiliate of the Investment Adviser, the
Fund pays an administration fee, accrued daily and payable monthly, by applying
the annual rate of 0.08% to the Fund's daily net assets.

3. PLAN OF DISTRIBUTION

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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 -- up
to 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 there were no excess expenses as of
December 31, 2005.

For the year ended December 31, 2005, the distribution fee was accrued for Class
B shares at the annual rate of 0.16%. At December 31, 2005, included in the
Statement of Assets and Liabilities is a receivable from affiliate, which
represents payments due from the Distributor to the Fund.

                                       17


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 December 31, 2005, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.25% and 0.93%, respectively.

The Distributor has informed the Fund that for the year ended December 31, 2005,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $318,120 and $451, respectively and
received $76,677 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 December 31, 2005 aggregated
$178,498,534 and $334,249,131, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $489,313 and $472,028,
respectively. Also, included are purchases with other Morgan Stanley funds of
$255,312.

For the year ended December 31, 2005, the Fund incurred brokerage commissions of
$161,373, with Morgan Stanley & Co., Inc., an affiliate of the Investment
Adviser, Administrator and Distributor, for portfolio transactions executed on
behalf of the Fund. At December 31, 2005, the Fund's payable for investments
purchased and receivable for investments sold included unsettled trades with
Morgan Stanley & Co., Inc. of $608,033 and $2,053,673, respectively.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.

The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Trustees voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the year ended December 31, 2005 included in Trustees' fees
and expenses in the Statement of Operations amounted to $7,227. At December 31,
2005, the Fund had an accrued pension liability of $64,220 which is included in
accrued expenses in the Statement of Assets and Liabilities.

                                       18


The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Trustees. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan Stanley funds that are offered as
investment options under the Compensation Plan. Appreciation/depreciation and
distributions received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Fund.

5. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:



                                                                FOR THE YEAR                          FOR THE YEAR
                                                                   ENDED                                 ENDED
                                                              DECEMBER 31, 2005                     DECEMBER 31, 2004
                                                     ----------------------------------    ----------------------------------
                                                          SHARES             AMOUNT             SHARES             AMOUNT
                                                     ---------------    ---------------    ---------------    ---------------

CLASS A SHARES
Sold                                                         562,597    $     8,327,385            219,528    $     2,654,225
Conversion from Class B                                   49,017,944        678,135,614                 --                 --
Reinvestment of dividends and distributions                2,222,133         32,902,579             13,917            167,288
Redeemed                                                  (6,863,067)      (101,337,495)          (585,430)        (7,018,263)
                                                     ---------------    ---------------    ---------------    ---------------
Net increase (decrease)--Class A                          44,939,607        618,028,083           (351,985)        (4,196,750)
                                                     ---------------    ---------------    ---------------    ---------------
CLASS B SHARES
Sold                                                       1,261,449         18,119,745          1,542,793         18,495,050
Conversion to Class A                                    (48,770,712)      (678,135,614)                --                 --
Reinvestment of dividends and distributions                  873,065         12,588,339          1,419,290         17,062,789
Redeemed                                                  (7,176,934)      (100,931,289)       (17,997,887)      (214,298,116)
                                                     ---------------    ---------------    ---------------    ---------------
Net decrease--Class B                                    (53,813,132)      (748,358,819)       (15,035,804)      (178,740,277)
                                                     ---------------    ---------------    ---------------    ---------------
CLASS C SHARES
Sold                                                         119,732          1,746,444             75,811            907,444
Reinvestment of dividends and distributions                   29,896            440,873              9,782            117,561
Redeemed                                                    (205,499)        (3,000,900)          (205,327)        (2,431,030)
                                                     ---------------    ---------------    ---------------    ---------------
Net decrease--Class C                                        (55,871)          (813,583)          (119,734)         1,406,025
                                                     ---------------    ---------------    ---------------    ---------------
CLASS D SHARES
Sold                                                         116,708          1,676,238            264,615          3,194,723
Reinvestment of dividends and distributions                   17,358            254,329              6,702             80,297
Redeemed                                                    (133,072)        (1,922,182)          (265,178)        (3,203,139)
                                                     ---------------    ---------------    ---------------    ---------------
Net increase--Class D                                            994              8,385              6,139             71,881
                                                     ---------------    ---------------    ---------------    ---------------
Net decrease in Fund                                      (8,928,402)   $  (131,135,934)       (15,501,384)   $  (184,271,171)
                                                     ===============    ===============    ===============    ===============


                                       19


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.

The tax character of distributions paid was as follows:



                                                           FOR THE YEAR         FOR THE YEAR
                                                              ENDED                ENDED
                                                         DECEMBER 31, 2005    DECEMBER 31, 2004
                                                         -----------------    -----------------

Ordinary income                                          $      22,207,559    $      22,493,264
Long-term capital gains                                         35,302,037                   --
                                                         -----------------    -----------------
Total distributions                                      $      57,509,596    $      22,493,264
                                                         =================    =================


As of December 31, 2005, the tax-basis components of accumulated earnings were
as follows:



Undistributed ordinary income                            $       3,171,338
Undistributed long-term gains                                   21,782,780
                                                         -----------------
Net accumulated earnings                                        24,954,118
Temporary differences                                              (65,469)
Net unrealized appreciation                                    391,314,497
                                                         -----------------
Total accumulated earnings                               $     416,203,146
                                                         =================


*During the year ended December 31, 2005, the Fund utilized its net capital loss
carryforward of $66,961,243.

As of December 31, 2005, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and book amortization of
premiums on debt securities and permanent book/tax differences attributable to
tax adjustments on debt securities sold by the Fund. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and accumulated undistributed net
investment income was credited $83,648.

7. LEGAL MATTERS

The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as

                                       20


defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court Southern District of New York on April 16, 2004, generally alleges that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Adviser and certain affiliates of the Investment Adviser allegedly offered
economic incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their efforts to recommend these funds to investors. The
complaint seeks, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants have moved to dismiss the
action and intend to otherwise vigorously defend it. On March 9, 2005,
Plaintiffs sought leave to supplement their complaint to assert claims on behalf
of other investors. While the Fund and Adviser believe that each has meritorious
defenses, the ultimate outcome of this matter is not presently determinable at
this stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.

                                       21


MORGAN STANLEY UTILITIES FUND
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:



                                                                         FOR THE YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------------------------
                                                        2005           2004           2003           2002           2001
                                                     ----------     ----------     ----------     ----------     ----------

CLASS A SHARES

SELECTED PER SHARE DATA:
Net asset value, beginning of period                 $    13.32     $    11.34     $    10.03     $    13.07     $    19.16
                                                     ----------     ----------     ----------     ----------     ----------
Income (loss) from investment operations:
  Net investment income++                                  0.31           0.29           0.31           0.33           0.38
  Net realized and unrealized gain (loss)                  1.71           1.98           1.30          (2.88)         (4.44)
                                                     ----------     ----------     ----------     ----------     ----------
Total income (loss) from investment operations             2.02           2.27           1.61          (2.55)         (4.06)
                                                     ----------     ----------     ----------     ----------     ----------
Less dividends and distributions from:
  Net investment income                                   (0.36)         (0.29)         (0.30)         (0.35)         (0.38)
  Net realized gain                                       (0.61)             -              -          (0.14)         (1.65)
                                                     ----------     ----------     ----------     ----------     ----------
Total dividends and distributions                         (0.97)         (0.29)         (0.30)         (0.49)         (2.03)
                                                     ----------     ----------     ----------     ----------     ----------
Net asset value, end of period                       $    14.37     $    13.32     $    11.34     $    10.03     $    13.07
                                                     ==========     ==========     ==========     ==========     ==========
TOTAL RETURN+                                             15.12%         20.36%         16.37%        (19.74)%       (21.23)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                                   1.03%          1.02%          1.02%          0.98%          0.90%
Net investment income                                      2.14%          2.44%          2.99%          2.98%          2.32%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands              $  658,909     $   12,228     $   14,403     $   14,463     $   19,314
Portfolio turnover rate                                      20%            20%            43%            51%            49%


----------
++   THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
     OUTSTANDING DURING THE PERIOD.
+    DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
     ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1)  REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
     EXPENSES.

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       22




                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                    ------------------------------------------------------------------------
                                                       2005          2004             2003             2002          2001
                                                    ----------    ----------       ----------       ----------    ----------

CLASS B SHARES

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $    13.38    $    11.40       $    10.08       $    13.12    $    19.21
                                                    ----------    ----------       ----------       ----------    ----------
Income (loss) from investment operations:
  Net investment income++                                 0.32          0.30             0.27             0.25          0.26
  Net realized and unrealized gain (loss)                 1.72          1.99             1.31            (2.89)        (4.45)
                                                    ----------    ----------       ----------       ----------    ----------
Total income (loss) from investment operations            2.04          2.29             1.58            (2.64)        (4.19)
                                                    ----------    ----------       ----------       ----------    ----------
Less dividends and distributions from:

  Net investment income                                  (0.36)        (0.31)           (0.26)           (0.26)        (0.25)
  Net realized gain                                      (0.61)            -                -            (0.14)        (1.65)
                                                    ----------    ----------       ----------       ----------    ----------
Total dividends and distributions                        (0.97)        (0.31)           (0.26)           (0.40)        (1.90)
                                                    ----------    ----------       ----------       ----------    ----------
Net asset value, end of period                      $    14.45    $    13.38       $    11.40       $    10.08    $    13.12
                                                    ==========    ==========       ==========       ==========    ==========
TOTAL RETURN+                                            15.22%        20.37%           15.91%          (20.30)%      (21.82)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                                  0.94%         0.94%(2)         1.43%(2)         1.73%         1.66%
Net investment income                                     2.23%         2.52%(2)         2.58%(2)         2.23%         1.56%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands             $  184,065    $  890,696       $  929,785       $1,011,218    $1,719,481
Portfolio turnover rate                                     20%           20%              43%              51%           49%


----------
++   THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
     OUTSTANDING DURING THE PERIOD.
+    DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
     ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1)  REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
     EXPENSES.
(2)  IF THE DISTRIBUTOR HAD NOT REBATED A PORTION OF ITS FEE TO THE FUND, THE
     EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN AS FOLLOWS:



                                                                    EXPENSE     NET INVESTMENT
                PERIOD ENDED                                         RATIO       INCOME RATIO
              -----------------                                   ----------    --------------

              DECEMBER 31, 2004                                      1.24%         2.22%
              DECEMBER 31, 2003                                      1.78          2.23


                        SEE NOTES TO FINANCIAL STATEMENTS

                                       23




                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                    ------------------------------------------------------------------
                                                       2005          2004          2003          2002          2001
                                                    ----------    ----------    ----------    ----------    ----------

CLASS C SHARES

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $    13.37    $    11.38    $    10.07    $    13.11    $    19.19
                                                    ----------    ----------    ----------    ----------    ----------
Income (loss) from investment operations:
  Net investment income++                                 0.21          0.20          0.23          0.26          0.26
  Net realized and unrealized gain (loss)                 1.72          1.99          1.30         (2.90)        (4.44)
                                                    ----------    ----------    ----------    ----------    ----------
Total income (loss) from investment operations            1.93          2.19          1.53         (2.64)        (4.18)
                                                    ----------    ----------    ----------    ----------    ----------
Less dividends and distributions from:
  Net investment income                                  (0.26)        (0.20)        (0.22)        (0.26)        (0.25)
  Net realized gain                                      (0.61)            -             -         (0.14)        (1.65)
                                                    ----------    ----------    ----------    ----------    ----------
Total dividends and distributions                        (0.87)        (0.20)        (0.22)        (0.40)        (1.90)
                                                    ----------    ----------    ----------    ----------    ----------
Net asset value, end of period                      $    14.43    $    13.37    $    11.38    $    10.07    $    13.11
                                                    ==========    ==========    ==========    ==========    ==========
TOTAL RETURN+                                            14.35%        19.47%        15.44%       (20.32)%      (21.80)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                                  1.71%         1.77%         1.78%         1.69%         1.66%
Net investment income                                     1.46%         1.69%         2.23%         2.27%         1.56%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands             $    8,745    $    8,851    $    8,899    $    7,900    $   11,904
Portfolio turnover rate                                     20%           20%           43%           51%           49%


----------
++   THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
     OUTSTANDING DURING THE PERIOD.
+    DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
     ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1)  REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
     EXPENSES.

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       24




                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                    ------------------------------------------------------------------
                                                       2005          2004          2003          2002          2001
                                                    ----------    ----------    ----------    ----------    ----------

CLASS D SHARES

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $    13.30    $    11.32    $    10.02    $    13.05    $    19.14
                                                    ----------    ----------    ----------    ----------    ----------
Income (loss) from investment operations:
  Net investment income++                                 0.34          0.32          0.34          0.36          0.45
  Net realized and unrealized gain (loss)                 1.70          1.98          1.29         (2.88)        (4.47)
                                                    ----------    ----------    ----------    ----------    ----------
Total income (loss) from investment operations            2.04          2.30          1.63         (2.52)        (4.02)
                                                    ----------    ----------    ----------    ----------    ----------
Less dividends and distributions from:
  Net investment income                                  (0.39)        (0.32)        (0.33)        (0.37)        (0.42)
  Net realized gain                                      (0.61)            -             -         (0.14)        (1.65)
                                                    ----------    ----------    ----------    ----------    ----------
Total dividends and distributions                        (1.00)        (0.32)        (0.33)        (0.51)        (2.07)
                                                    ----------    ----------    ----------    ----------    ----------
Net asset value, end of period                      $    14.34    $    13.30    $    11.32    $    10.02    $    13.05
                                                    ==========    ==========    ==========    ==========    ==========
TOTAL RETURN+                                            15.34%        20.69%        16.57%       (19.49)%      (21.04)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                                  0.78%         0.77%         0.78%         0.73%         0.66%
Net investment income                                     2.39%         2.69%         3.23%         3.23%         2.56%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands             $    4,059    $    3,750    $    3,123    $    3,380    $    3,783
Portfolio turnover rate                                     20%           20%           43%           51%           49%


----------
++   THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
     OUTSTANDING DURING THE PERIOD.
+    CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
     PERIOD.
(1)  REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
     EXPENSES.

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       25


MORGAN STANLEY UTILITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY UTILITIES FUND:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Utilities Fund (the "Fund"), including the portfolio of investments, as
of December 31, 2005, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2005, by correspondence with the
custodian and brokers. 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 Utilities Fund as of December 31, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.


Deloitte & Touche LLP
NEW YORK, NEW YORK
FEBRUARY 17, 2006

                                       26


MORGAN STANLEY UTILITIES FUND
TRUSTEE AND OFFICER INFORMATION

INDEPENDENT TRUSTEES:



                                                                                            NUMBER OF
                                                                                            PORTFOLIOS
                                               TERM OF                                       IN FUND
                                POSITION(S)   OFFICE AND                                     COMPLEX
   NAME, AGE AND ADDRESS OF      HELD WITH    LENGTH OF        PRINCIPAL OCCUPATION(S)       OVERSEEN       OTHER  DIRECTORSHIPS
      INDEPENDENT TRUSTEE       REGISTRANT   TIME SERVED*       DURING PAST 5 YEARS**      BY TRUSTEE***       HELD BY TRUSTEE
------------------------------  -----------  ------------  ------------------------------  -------------  ------------------------

Michael Bozic (64)              Trustee      Since         Private Investor; Director or   197            Director of various
c/o Kramer Levin Naftalis &                  April 1994    Trustee of the Retail Funds                    business organizations.
Frankel LLP                                                (since April 1994) and the
Counsel to the Independent                                 Institutional Funds (since
Trustees                                                   July 2003); formerly Vice
1177 Avenue of the Americas                                Chairman of Kmart Corporation
New York, NY 10036                                         (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 (73)              Trustee      Since         Consultant; Director or         197            Director of Franklin
1031 N. Chartwell Court                      January 1993  Trustee of the Retail Funds                    Covey (time management
Salt Lake City, UT 84103                                   (since January 1993) and the                   systems), BMW Bank of
                                                           Institutional Funds (since                     North America, Inc.
                                                           July 2003); member of the Utah                 (industrial loan
                                                           Regional Advisory Board of                     corporation), Escrow
                                                           Pacific Corp. (utility                         Bank USA (industrial
                                                           company); formerly Managing                    loan corporation),
                                                           Director of Summit Ventures                    United Space Alliance
                                                           LLC (2000-2004) (lobbying and                  (joint venture between
                                                           consulting firm); United                       Lockheed Martin and the
                                                           States Senator (R-Utah)                        Boeing Company) and
                                                           (1974-1992) and Chairman,                      Nuskin Asia Pacific
                                                           Senate Banking Committee                       (multilevel marketing);
                                                           (1980-1986), Mayor of Salt                     member of the board of
                                                           Lake City, Utah (1971-1974),                   various civic and
                                                           Astronaut, Space Shuttle                       charitable
                                                           Discovery (April 12-19, 1985),                 organizations.
                                                           and Vice Chairman, Huntsman
                                                           Corporation (chemical
                                                           company).

Wayne E. Hedien (71)            Trustee      Since         Retired; Director or Trustee    197            Director of The PMI
c/o Kramer Levin Naftalis &                  September     of the Retail Funds (since                     Group Inc. (private
Frankel LLP                                  1997          September 1997) and the                        mortgage insurance);
Counsel to the Independent                                 Institutional Funds (since                     Trustee and Vice
Trustees                                                   July 2003); formerly                           Chairman of The Field
1177 Avenue of the Americas                                associated with the Allstate                   Museum of Natural
New York, NY 10036                                         Companies (1966-1994), most                    History; director of
                                                           recently as Chairman of The                    various other business
                                                           Allstate Corporation (March                    and charitable
                                                           1993- December 1994) and                       organizations.
                                                           Chairman and Chief Executive
                                                           Officer of its wholly-owned
                                                           subsidiary, Allstate Insurance
                                                           Company (July 1989-December
                                                           1994).


                                       27




                                                                                             NUMBER OF
                                                                                             PORTFOLIOS
                                               TERM OF                                        IN FUND
                                POSITION(S)   OFFICE AND                                      COMPLEX
   NAME, AGE AND ADDRESS OF      HELD WITH    LENGTH OF        PRINCIPAL OCCUPATION(S)        OVERSEEN      OTHER  DIRECTORSHIPS
      INDEPENDENT TRUSTEE       REGISTRANT   TIME SERVED*       DURING PAST 5 YEARS**      BY TRUSTEE***       HELD BY TRUSTEE
------------------------------  -----------  ------------  ------------------------------  -------------  ------------------------

Dr. Manuel H. Johnson (56)      Trustee      Since         Senior Partner, Johnson Smick   197            Director of NVR, Inc.
c/o Johnson Smick Group, Inc.                July 1991     International, Inc., a                         (home construction);
888 16th Street, NW                                        consulting firm; Chairman of                   Director of KFX Energy;
Suite 740                                                  the Audit Committee and                        Director of RBS
Washington, D.C. 20006                                     Director or Trustee of the                     Greenwich Capital
                                                           Retail Funds (since July 1991)                 Holdings (financial
                                                           and the Institutional Funds                    holding company).
                                                           (since July 2003); Co-Chairman
                                                           and a founder of the Group of
                                                           Seven Council (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 (63)           Trustee      Since         President, Kearns & Associates  198            Director of Electro Rent
c/o Kearns & Associates LLC                  July 2003     LLC (investment consulting);                   Corporation (equipment
PMB754                                                     Deputy Chairman of the Audit                   leasing), The Ford
23852 Pacific Coast Highway                                Committee and Director or                      Family Foundation, and
Malibu, CA 90265                                           Trustee of the Retail Funds                    the UCLA Foundation.
                                                           (since July 2003) and the
                                                           Institutional Funds (since
                                                           August 1994); previously
                                                           Chairman of the Audit
                                                           Committee of the Institutional
                                                           Funds (October 2001- July
                                                           2003); formerly CFO of the
                                                           J. Paul Getty Trust.

Michael E. Nugent (69)          Trustee      Since         General Partner of Triumph      197            None.
c/o Triumph Capital, L.P.                    July 1991     Capital, L.P., a private
445 Park Avenue                                            investment partnership;
New York, NY 10022                                         Chairman of the Insurance
                                                           Committee and Director or
                                                           Trustee of the Retail Funds
                                                           (since July 1991) and the
                                                           Institutional Funds (since
                                                           July 2001); formerly Vice
                                                           President, Bankers Trust
                                                           Company and BT Capital
                                                           Corporation (1984-1988).

Fergus Reid (73)                Trustee      Since         Chairman of Lumelite Plastics   198            Trustee and Director of
c/o Lumelite Plastics                        July 2003     Corporation; Chairman of the                   certain investment
Corporation                                                Governance Committee and                       companies in the
85 Charles Colman Blvd.                                    Director or Trustee of the                     JPMorgan Funds complex
Pawling, NY 12564                                          Retail Funds (since July 2003)                 managed by J.P. Morgan
                                                           and the Institutional Funds                    Investment Management
                                                           (since June 1992).                             Inc.


                                       28


INTERESTED TRUSTEES:



                                                                                             NUMBER OF
                                                                                             PORTFOLIOS
                                               TERM OF                                        IN FUND
                                POSITION(S)   OFFICE AND                                      COMPLEX
   NAME, AGE AND ADDRESS OF      HELD WITH    LENGTH OF        PRINCIPAL OCCUPATION(S)        OVERSEEN      OTHER  DIRECTORSHIPS
      INDEPENDENT TRUSTEE       REGISTRANT   TIME SERVED*       DURING PAST 5 YEARS**      BY TRUSTEE***       HELD BY TRUSTEE
------------------------------  -----------  ------------  ------------------------------  -------------  ------------------------

Charles A. Fiumefreddo (72)     Chairman of  Since         Chairman and Director or        197            None.
c/o Morgan Stanley Trust        the Board    July 1991     Trustee of the Retail Funds
Harborside Financial Center,    and Trustee                (since July 1991) and the
Plaza Two,                                                 Institutional Funds (since
Jersey City, NJ 07311                                      July 2003); formerly Chief
                                                           Executive Officer of the
                                                           Retail Funds (until September
                                                           2002).

James F. Higgins (57)           Trustee      Since         Director or Trustee of the      197            Director of AXA
c/o Morgan Stanley Trust                     June 2000     Retail Funds (since June 2000)                 Financial, Inc. and The
Harborside Financial Center,                               and the Institutional Funds                    Equitable Life Assurance
Plaza Two,                                                 (since July 2003); Senior                      Society of the United
Jersey City, NJ 07311                                      Advisor of Morgan Stanley                      States (financial
                                                           (since August 2000); Director                  services).
                                                           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).


----------
  *  THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
     MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT ADVISER ") (THE
     "RETAIL FUNDS ").
 **  THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
     DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
     STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE
     "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN
     SERVING THE RETAIL OR INSTITUTIONAL FUNDS, AS APPLICABLE.
***  THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
     OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT ADVISER AND ANY FUNDS THAT
     HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
     ADVISER (INCLUDING, BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT
     MANAGEMENT INC.).

                                       29


OFFICERS:



                                                    TERM OF
                                  POSITION(S)      OFFICE AND
   NAME, AGE AND ADDRESS OF        HELD WITH       LENGTH OF
      EXECUTIVE OFFICER           REGISTRANT      TIME SERVED*             PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
-----------------------------   --------------  ---------------  -----------------------------------------------------------------

Ronald E. Robison (66)          President and   Since May 2003   President (since September 2005) and Principal Executive Officer
1221 Avenue of the Americas     Principal                        of funds in the Fund Complex (since May 2003); Managing Director
New York, NY 10020              Executive                        of Morgan Stanley & Co. Incorporated and Morgan Stanley; Managing
                                Officer                          Director and Director of Morgan Stanley Investment Management
                                                                 Inc., Morgan Stanley Distribution Inc. and Morgan Stanley
                                                                 Distributors Inc.; Managing Director, Chief Administrative
                                                                 Officer and Director of Morgan Stanley Investment Advisors Inc.
                                                                 and Morgan Stanley Services Company Inc.; Chief Executive Officer
                                                                 and Director of Morgan Stanley Trust; Director of Morgan Stanley
                                                                 SICAV (since May 2004); President (since September 2005) and
                                                                 Principal Executive Officer (since May 2003) of the Van Kampen
                                                                 Funds; previously, Executive Vice President (July 2003-September
                                                                 2005) of funds in the Fund Complex and the Van Kampen Funds. He
                                                                 was also previously President and Director of the Institutional
                                                                 Funds (March 2001-July 2003), Chief Global Operations Officer of
                                                                 Morgan Stanley Investment Management Inc. and Chief Executive
                                                                 Officer and Chairman of Van Kampen Investor Services.

J. David Germany (51)           Vice President  Since            Managing Director and Chief Investment Officer - Global Fixed
25 Cabot Square,                                February 2006    Income of Morgan Stanley Investment Management Inc., Morgan
Canary Wharf,                                                    Stanley Investment Advisors Inc., and Van Kampen Asset
London, United Kingdom                                           Management. Managing Director and Director of Morgan Stanley
E144QA                                                           Investment Management Ltd. Vice President (since February 2006)
                                                                 of the Morgan Stanley Retail Funds and Morgan Stanley
                                                                 Institutional Funds.

Dennis F. Shea (52)             Vice President  Since            Managing Director and Chief Investment Officer - Global Equity of
1221 Avenue of the Americas                     February 2006    Morgan Stanley Investment Advisors Inc., Morgan Stanley
New York, NY 10020                                               Investment Management Inc. and Van Kampen Asset Management. Vice
                                                                 President (since February 2006) of the Morgan Stanley Retail
                                                                 Funds and Morgan Stanley Institutional Funds. Previously,
                                                                 Managing Director and Director of Global Equity Research at
                                                                 Morgan Stanley.

Barry Fink (50)                 Vice President  Since            General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas                     February 1997    December 2000) of Morgan Stanley Investment Management; Managing
New York, NY 10020                                               Director (since December 2000) of the Investment Adviser and the
                                                                 Administrator; Vice President of the Retail Funds; Assistant
                                                                 Secretary of Morgan Stanley DW; Vice President of the
                                                                 Institutional Funds (since July 2003); Managing Director,
                                                                 Secretary and Director of the Distributor; previously Secretary
                                                                 (February 1997-July 2003) and General Counsel (February
                                                                 1997-April 2004) of the Retail Funds; previously Secretary
                                                                 (1997-2006) and Director (1997-2005) of the Investment Adviser
                                                                 and Administrator; and Secretary and Director of the Distributor
                                                                 (1997-2005).

Amy R. Doberman (43)            Vice President  Since July 2004  Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas                                      Management; Managing Director (since July 2004) and Secretary
New York, NY 10020                                               (since February 2006) of Morgan Stanley Investment Management
                                                                 Inc. and the Investment Adviser, Managing Director and Secretary
                                                                 of the Distributor (since February 2006); Managing Director
                                                                 (since February 2005) and Secretary (since February 2006) of the
                                                                 Administrator; Vice President of the Institutional and Retail
                                                                 Funds (since July 2004); various positions with the Van Kampen
                                                                 Funds and certain of their service providers; previously,
                                                                 Managing Director and General Counsel - Americas, UBS Global
                                                                 Asset Management (July 2000-July 2004).


                                       30




                                                    TERM OF
                                  POSITION(S)      OFFICE AND
   NAME, AGE AND ADDRESS OF        HELD WITH       LENGTH OF
      EXECUTIVE OFFICER           REGISTRANT      TIME SERVED*             PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
-----------------------------   --------------  ---------------  -----------------------------------------------------------------

Carsten Otto (42)               Chief           Since October    Managing Director and U.S. Director of Compliance for Morgan
1221 Avenue of the Americas     Compliance      2004             Stanley Investment Management Inc. (since October 2004); Managing
New York, NY 10020              Officer                          Director of the Investment Adviser and Morgan Stanley Investment
                                                                 Management Inc.; formerly Assistant Secretary and Assistant
                                                                 General Counsel of the Morgan Stanley Retail Funds.

Stefanie V. Chang (39)          Vice President  Since July 2003  Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the Americas                                      Stanley Investment Management Inc. and the Investment Adviser;
New York, NY 10020                                               Vice President of the Institutional Funds (since December 1997)
                                                                 and the Retail Funds (since July 2003); various positions with
                                                                 the Van Kampen Funds; formerly practiced law with the New York
                                                                 law firm of Rogers & Wells (now Clifford Chance US LLP).

Francis J. Smith (40)           Treasurer and   Treasurer since  Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust        Chief           July 2003 and    Administration (since December 2001); previously, Vice President
Harborside Financial Center,    Financial       Chief Financial  of the Retail Funds (September 2002-July 2003); Vice President of
Plaza Two,                      Officer         Officer since    the Investment Adviser and the Administrator (August
Jersey City, NJ 07311                           September 2002   2000-November 2001).

Thomas F. Caloia (59)           Vice President  Since July 2003  Executive Director (since December 2002) and Assistant Treasurer
c/o Morgan Stanley Trust                                         of the Investment Adviser, the Distributor and the Administrator;
Harborside Financial Center,                                     previously Treasurer of the Retail Funds (April 1989-July 2003);
Plaza Two,                                                       formerly First Vice President of the Investment Adviser, the
Jersey City, NJ 07311                                            Distributor and the Administrator.

Mary E. Mullin (38)             Secretary       Since July 2003  Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the Americas                                      Stanley Investment Management Inc. and the Investment Adviser;
New York, NY 10020                                               Secretary of the Institutional Funds (since June 1999) and the
                                                                 Retail Funds (since July 2003); formerly practiced law with the
                                                                 New York law firms of McDermott, Will & Emery and Skadden, Arps,
                                                                 Slate, Meagher & Flom LLP.


----------
 *   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.

                       2005 FEDERAL TAX NOTICE (UNAUDITED)

          During the fiscal year ended December 31, 2005, 100% of the ordinary
          dividends paid by the Fund qualified for the dividends received
          deduction available to corporations. Additionally, please note that
          100% of the Fund's ordinary dividends paid during the fiscal year
          ended December 31, 2005 qualified for the lower income tax rate
          available to individuals under the Jobs and Growth Tax Relief
          Reconciliation Act of 2003.

          During the fiscal year ended December 31, 2005, the Fund paid to its
          shareholders $0.61 per share from long-term capital gains.

                                       31


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
Fergus Reid

OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD

Ronald E. Robison
PRESIDENT and PRINCIPAL EXECUTIVE OFFICER

J. David Germany
VICE PRESIDENT

Dennis F. Shea
VICE PRESIDENT

Barry Fink
VICE PRESIDENT

Amy R. Doberman
VICE PRESIDENT

Carsten Otto
CHIEF COMPLIANCE OFFICER

Stefanie V. Chang
VICE PRESIDENT

Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER

Thomas F. Caloia
VICE PRESIDENT

Mary E. Mullin
SECRETARY

TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

(C) 2005 Morgan Stanley

[MORGAN STANLEY LOGO]

38545RPT RA06-00105P-Y12/05

[GRAPHIC]

                                                            MORGAN STANLEY FUNDS


                                                   MORGAN STANLEY UTILITIES FUND


                                                                   ANNUAL REPORT
                                                               DECEMBER 31, 2005


[MORGAN STANLEY LOGO]

February 7, 2006

Supplement

SUPPLEMENT DATED FEBRUARY 7, 2006 TO THE PROSPECTUS OF
MORGAN STANLEY GLOBAL UTILITIES FUND
Dated June 30, 2005

On February 6, 2006, the Board of Trustees of the Morgan Stanley Global Utilities Fund (the "Fund") approved an Agreement and Plan of Reorganization by and between the Fund and Morgan Stanley Utilities Fund ("Utilities"), pursuant to which substantially all of the assets of the Fund would be combined with those of Utilities and shareholders of the Fund would become shareholders of Utilities, receiving shares of Utilities equal to the value of their holdings in the Fund (the "Reorganization"). Each shareholder of the Fund will receive the Class of shares of Utilities that corresponds to the Class of shares of the Fund currently held by that shareholder. The Reorganization is subject to the approval of shareholders of the Fund at a special meeting of shareholders to be held during the third quarter of 2006. A proxy statement formally detailing the proposal, the reasons for the Reorganization and information concerning Utilities will be distributed to shareholders of the Fund during the second quarter of 2006.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.

37873SPT-01

September 23, 2005

Supplement

SUPPLEMENT DATED SEPTEMBER 23, 2005 TO THE PROSPECTUSES OF

Morgan Stanley Aggressive Equity Fund, dated September 30, 2004
Morgan Stanley Allocator Fund, dated May 27, 2005
Morgan Stanley American Opportunities Fund, dated April 29, 2005
Morgan Stanley Balanced Growth Fund, dated May 27, 2005
Morgan Stanley Balanced Income Fund, dated May 27, 2005
Morgan Stanley Biotechnology Fund, dated July 30, 2004
Morgan Stanley California Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley Capital Opportunities Trust, dated March 30, 2005
Morgan Stanley Convertible Securities Trust, dated November 30, 2004
Morgan Stanley Developing Growth Securities Trust, dated November 30, 2004
Morgan Stanley Dividend Growth Securities Inc., dated June 30, 2005
Morgan Stanley Equally-Weighted S&P 500 Fund, dated August 30, 2004
Morgan Stanley European Equity Fund Inc., dated December 30, 2004
Morgan Stanley Financial Services Trust, dated July 30, 2004
Morgan Stanley Flexible Income Trust, dated December 30, 2004
Morgan Stanley Fundamental Value Fund, dated November 30, 2004
Morgan Stanley Global Advantage Fund, dated July 30, 2004
Morgan Stanley Global Dividend Growth Securities, dated July 29, 2005
Morgan Stanley Global Utilities Fund, dated June 30, 2005
Morgan Stanley Growth Fund, dated July 29, 2005
Morgan Stanley Health Sciences Trust, dated September 30, 2004
Morgan Stanley High Yield Securities Inc., dated October 29, 2004
Morgan Stanley Income Builder Fund, dated November 30, 2004
Morgan Stanley Income Trust, dated October 29, 2004
Morgan Stanley Information Fund, dated July 29, 2005
Morgan Stanley International Fund, dated December 30, 2004
Morgan Stanley International SmallCap Fund, dated July 30, 2004
Morgan Stanley International Value Equity Fund, dated October 29, 2004
Morgan Stanley Japan Fund, dated July 30, 2004
Morgan Stanley KLD Social Index Fund, dated March 30, 2005
Morgan Stanley Mid-Cap Value Fund, dated October 29, 2004
Morgan Stanley Mortgage Securities Trust, dated December 30, 2004
Morgan Stanley Multi-Asset Class Fund – Domestic Portfolio, dated November 30, 2004
Morgan Stanley Nasdaq-100 Index Fund, dated March 30, 2005
Morgan Stanley Natural Resource Development Securities Inc., dated June 30, 2005
Morgan Stanley New York Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley Pacific Growth Fund Inc., dated December 30, 2004
Morgan Stanley Real Estate Fund, dated March 30, 2005
Morgan Stanley S&P 500 Index Fund, dated October 29, 2004
Morgan Stanley Small-Mid Special Value Fund, dated August 29, 2005
Morgan Stanley Special Growth Fund, dated June 30, 2005
Morgan Stanley Special Value Fund, dated September 30, 2004
Morgan Stanley Strategist Fund, dated September 30, 2004
Morgan Stanley Tax-Exempt Securities Trust, dated April 29, 2005
Morgan Stanley Total Market Index Fund, dated October 29, 2004
Morgan Stanley Total Return Trust, dated September 30, 2004

Morgan Stanley U.S. Government Securities Trust, dated April 29, 2005
Morgan Stanley Utilities Fund, dated April 29, 2005
Morgan Stanley Value Fund, dated November 30, 2004

(Collectively, the "Funds")

Effective September 30, 2005, the Class A Shares sales charge waiver category for custodial accounts held by a bank or trust company created pursuant to Section 403(b) of the Internal Revenue Code will not be available. Accordingly, the Class A Shares sales charge waiver category related to such custodial accounts found in the section of the Fund's Prospectus titled "Share Class Arrangements – Class A Shares – Other Sales Charge Waivers" is hereby deleted.

Effective October 31, 2005, the second paragraph of the section of the Fund's Prospectus titled "Share Class Arrangements – Class B Shares" is hereby deleted and replaced with the following:

The contingent deferred sales charge is assessed on an amount equal to the lesser of the then market value of the shares or the historical cost of the shares (which is the amount actually paid for the shares at the time of original purchase) being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In determining whether a contingent deferred sales charge applies to a redemption, it is assumed that the shares being redeemed first are any shares in the shareholders Fund account that are not subject to a contingent deferred sales charge, followed by shares held the longest in the shareholder's account.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.

79585SPT-01

September 23, 2005

Supplement

SUPPLEMENT DATED SEPTEMBER 23, 2005 TO THE PROSPECTUSES OF

Morgan Stanley Biotechnology Fund, dated July 30, 2004
Morgan Stanley European Equity Fund Inc., dated December 30, 2004
Morgan Stanley Financial Services Trust, dated July 30, 2004
Morgan Stanley Global Advantage Fund, dated July 30, 2004
Morgan Stanley Global Dividend Growth Securities, dated July 29, 2005
Morgan Stanley Global Utilities Fund, dated June 30, 2005
Morgan Stanley Health Sciences Trust, dated September 30, 2004
Morgan Stanley High Yield Securities Inc., dated October 29, 2004
Morgan Stanley Information Fund, dated July 29, 2005
Morgan Stanley International Fund, dated December 30, 2004
Morgan Stanley International SmallCap Fund, dated July 30, 2004
Morgan Stanley International Value Equity Fund, dated October 29, 2004
Morgan Stanley Japan Fund, dated July 30, 2004
Morgan Stanley Natural Resource Development Securities Inc., dated June 30, 2005
Morgan Stanley Pacific Growth Fund Inc., dated December 30, 2004
Morgan Stanley Real Estate Fund, dated March 30, 2005
Morgan Stanley Special Growth Fund, dated June 30, 2005
Morgan Stanley Special Value Fund, dated September 30, 2004
Morgan Stanley Utilities Fund, dated April 29, 2005
("Group I Funds")

Morgan Stanley Aggressive Equity Fund, dated September 30, 2004
Morgan Stanley Allocator Fund, dated May 27, 2005
Morgan Stanley American Opportunities Fund, dated April 29, 2005
Morgan Stanley Balanced Growth Fund, dated May 27, 2005
Morgan Stanley Balanced Income Fund, dated May 27, 2005
Morgan Stanley California Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley Capital Opportunities Trust, dated March 30, 2005
Morgan Stanley Convertible Securities Trust, dated November 30, 2004
Morgan Stanley Developing Growth Securities Trust, dated November 30, 2004
Morgan Stanley Dividend Growth Securities Inc., dated June 30, 2005
Morgan Stanley Equally-Weighted S&P 500 Fund, dated August 30, 2004
Morgan Stanley Flexible Income Trust, dated December 30, 2004
Morgan Stanley Fundamental Value Fund, dated November 30, 2004
Morgan Stanley Growth Fund, dated July 29, 2005
Morgan Stanley Income Builder Fund, dated November 30, 2004
Morgan Stanley Income Trust, dated October 29, 2004
Morgan Stanley KLD Social Index Fund, dated March 30, 2005
Morgan Stanley Limited Duration Fund, dated August 29, 2005
Morgan Stanley Limited Duration U.S. Treasury Trust, dated July 30, 2004
Morgan Stanley Limited Term Municipal Trust, dated July 29, 2005
Morgan Stanley Mid-Cap Value Fund, dated October 29, 2004
Morgan Stanley Mortgage Securities Trust, dated December 30, 2004
Morgan Stanley Nasdaq-100 Index Fund, dated March 30, 2005
Morgan Stanley New York Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley S&P 500 Index Fund, dated October 29, 2004

Morgan Stanley Small-Mid Special Value Fund, dated August 29, 2005
Morgan Stanley Strategist Fund, dated September 30, 2004
Morgan Stanley Tax-Exempt Securities Trust, dated April 29, 2005
Morgan Stanley Total Market Index Fund, dated October 29, 2004
Morgan Stanley Total Return Trust, dated September 30, 2004
Morgan Stanley U.S. Government Securities Trust, dated April 29, 2005
Morgan Stanley Value Fund, dated November 30, 2004
("Group II Funds")

(Collectively, the "Funds")

The last paragraph of the section of the Fund's Prospectus titled "How to Sell Shares" is hereby deleted and replaced with the following:

Redemption Fee. Fund shares redeemed within 30 days (in the case of Group I Funds) or seven days (in the case of Group II Funds) of purchase will be subject to a 2% redemption fee, payable to the Fund. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The redemption fee is not imposed on redemptions made: (i) through systematic withdrawal/exchange plans, (ii) through pre-approved asset allocation programs, (iii) of shares received by reinvesting income dividends or capital gain distributions, (iv) through certain collective trust funds or other pooled vehicles, (v) on behalf of advisory accounts where client allocations are solely at the discretion of the Morgan Stanley Investment Management investment team and (vi) through check-writing (with respect to Morgan Stanley Limited Duration U.S. Treasury Trust only). The redemption fee is based on, and deducted from, the redemption proceeds. Each time you redeem or exchange shares, the shares held the longest will be redeemed or exchanged first.

The redemption fee may not be imposed on transactions that occur through certain omnibus accounts at financial intermediaries. Certain financial intermediaries may apply different methodologies than those described above in assessing redemption fees, may impose their own redemption fee that may differ from the Fund's redemption fee or may impose certain trading restrictions to deter market timing and frequent trading. If you invest in the Fund through a financial intermediary, please read that firm's materials carefully to learn about any other restrictions or fees that may apply.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.

79587SPT-01

July 15, 2005

Supplement

SUPPLEMENT DATED JULY 15, 2005 TO THE PROSPECTUSES OF

Morgan Stanley Aggressive Equity Fund, dated September 30, 2004
Morgan Stanley Allocator Fund, dated May 27, 2005
Morgan Stanley American Opportunities Fund, dated April 29, 2005
Morgan Stanley Balanced Growth Fund, dated May 27, 2005
Morgan Stanley Balanced Income Fund, dated May 27, 2005
Morgan Stanley Biotechnology Fund, dated July 30, 2004
Morgan Stanley California Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley Capital Opportunities Trust, dated March 30, 2005
Morgan Stanley Convertible Securities Trust, dated November 30, 2004
Morgan Stanley Developing Growth Securities Trust, dated November 30, 2004
Morgan Stanley Dividend Growth Securities Inc., dated June 30, 2005
Morgan Stanley Equally-Weighted S&P 500 Fund, dated August 30, 2004
Morgan Stanley European Equity Fund Inc., dated December 30, 2004
Morgan Stanley Financial Services Trust, dated July 30, 2004
Morgan Stanley Flexible Income Trust, dated December 30, 2004
Morgan Stanley Fund of Funds -- Domestic Portfolio, dated November 30, 2004
Morgan Stanley Fundamental Value Fund, dated November 30, 2004
Morgan Stanley Global Advantage Fund, dated July 30, 2004
Morgan Stanley Global Dividend Growth Securities, dated May 28, 2004
Morgan Stanley Global Utilities Fund, dated June 30, 2005
Morgan Stanley Growth Fund, dated May 28, 2004
Morgan Stanley Health Sciences Trust, dated September 30, 2004
Morgan Stanley High Yield Securities Inc., dated October 29, 2004
Morgan Stanley Income Builder Fund, dated November 30, 2004
Morgan Stanley Income Trust, dated October 29, 2004
Morgan Stanley Information Fund, May 28, 2004
Morgan Stanley International Fund, dated December 30, 2004
Morgan Stanley International SmallCap Fund, dated July 30, 2004
Morgan Stanley International Value Equity Fund, dated October 29, 2004
Morgan Stanley Japan Fund, dated July 30, 2004
Morgan Stanley KLD Social Index Fund, dated March 30, 2005
Morgan Stanley Mid-Cap Value Fund, dated October 29, 2004
Morgan Stanley Mortgage Securities Trust, dated December 30, 2004
Morgan Stanley Nasdaq-100 Index Fund, dated March 30, 2005
Morgan Stanley Natural Resource Development Securities Inc., dated June 30, 2005
Morgan Stanley New York Tax-Free Income Fund, dated April 29, 2005
Morgan Stanley Pacific Growth Fund Inc., dated December 30, 2004
Morgan Stanley Real Estate Fund, dated March 30, 2005
Morgan Stanley S&P 500 Index Fund, dated October 29, 2004
Morgan Stanley Small-Mid Special Value Fund, dated June 30, 2004
Morgan Stanley Special Growth Fund, dated June 30, 2005
Morgan Stanley Special Value Fund, dated September 30, 2004
Morgan Stanley Strategist Fund, dated September 30, 2004
Morgan Stanley Tax-Exempt Securities Trust, dated April 29, 2005
Morgan Stanley Total Market Index Fund, dated October 29, 2004
Morgan Stanley Total Return Trust, dated September 30, 2004
Morgan Stanley U.S. Government Securities Trust, dated April 29, 2005
Morgan Stanley Utilities Fund, dated April 29, 2005
Morgan Stanley Value Fund, dated November 30, 2004
(the "Funds")

Effective September 30, 2005, the Directors/Trustees of each Fund have approved the addition of a new Class A shares sales charge waiver category. Accordingly, the following is added as the third bullet in the section titled "Share Class Arrangements — Class A Shares — Other Sales Charge Waivers":

•

Custodial accounts held by a bank or trust company, created pursuant to Section 403(b) of the Internal Revenue Code.

This change in Class A shares purchase options is prospective only. Investors, as of September 30, 2005, will become eligible to purchase Class A shares at net asset value pursuant to this revised option and may have previously purchased Class B shares or Class C shares of the Fund. The terms of any such Class B shares or Class C shares purchased before September 30, 2005 remain unchanged such Class B shares and Class C shares remain subject to the annual operating expenses and contingent deferred sales charges ("CDSC") applicable to such shares and remain exchangeable only into corresponding Class B shares or Class C shares of other Morgan Stanley Funds pursuant to the exchange privilege. An investor election to redeem such Class B shares or Class C shares and reinvest in Class A shares would be subject to any applicable CDSC and tax consequences. Class D shares are not available to custodial accounts created pursuant to Section 403(b).

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.

79562USPT-00

June 30, 2005

Supplement

SUPPLEMENT DATED JUNE 30, 2005 TO THE PROSPECTUSES OF

Morgan Stanley Dividend Growth Securities Inc., dated June 30, 2005
Morgan Stanley Global Utilities Fund, dated June 30, 2005
Morgan Stanley Natural Resource Development Securities Inc., dated June 30, 2005
Morgan Stanley Special Growth Fund, dated June 30, 2005
(Collectively, the "Funds")

Effective August 29, 2005, the Board of Directors/Trustees (the "Boards") of the Funds approved the implementation of a 2% redemption fee for Fund shares redeemed within 30 days (in the case of Morgan Stanley Global Utilities Fund ("Global Utilities Fund"), Morgan Stanley Natural Resource Development Securities Inc. ("Natural Resource Development Securities") and Morgan Stanley Special Growth Fund ("Special Growth Fund")) or seven days (in the case of Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth Securities")) of purchase, subject to certain exceptions discussed below. In addition, effective August 29, 2005, the Boards approved the elimination of certain trade/exchange limits currently in effect for the Funds.

Effective August 29, 2005, the "Shareholder Fees" table in the section of the Prospectus titled "Fees and Expenses" is amended with the following to reflect the redemption fee:

Shareholder Fees

Class A

Class B

Class C

Class D

Maximum sales charge (load) imposed on purchases (as a percentage of offering price)

5.25%¹

None

Maximum deferred sales charge (load) (as a percentage based on the lesser of the offering price or net asset value at redemption)

None²

5.00

%³

1.00

%⁴

None

Redemption fee^{^}

2.00%

2.00

(1)

Reduced for purchases of $25,000 and over.

(2)

Investments that are not subject to any sales charges at the time of purchase are subject to a contingent deferred sales charge ("CSDC") of 1.00% that will be imposed if you sell your shares within 18 months after purchase, except for certain specific circumstances. With respect to shares purchased prior to December 1, 2004, a CDSC of 1.00% will be imposed if you sell your shares within one year after purchase, except for certain specific circumstances.

(3)

The CDSC is scaled down to 1.00% during the sixth year, reaching zero thereafter. See "Share Class Arrangements" for a complete discussion of the CDSC.

(4)

Only applicable if you sell your shares within one year after purchase.

Payable to the Fund on shares redeemed within 30 days (in the case of Global Utilities Fund, Natural Resource Development Securities and Special Growth Fund) or seven days (in the case of Dividend Growth Securities) of purchase. See "Shareholder Information — How to Sell Shares" for more information on redemption fees.

Effective August 29, 2005, the second paragraph in the section of the Prospectus titled "How to Exchange Shares — Permissible Fund Exchanges" is deleted and replaced with the following:

The current prospectus for each Morgan Stanley Fund describes its investment objective(s), policies and investment minimums and should be read before investment. Since exchanges are available only into continuously offered Morgan Stanley Funds, exchanges are not available into any new Morgan Stanley Fund during its initial offering period, or when shares of a particular Morgan Stanley Fund are not being offered for purchase. An exchange of Fund shares held for less than 30 days (in the case of Global Utilities Fund, Natural Resource Development Securities and Special Growth Fund) or seven days (in the case of Dividend Growth Securities) from the date of purchase will be subject to the 2% redemption fee described under the section "How to Sell Shares."

Effective August 29, 2005, the following paragraph is added as the last paragraph of the section titled "How to Sell Shares":

Redemption Fee. Fund shares redeemed within 30 days (in the case of Global Utilities Fund, Natural Resource Development Securities and Special Growth Fund) or seven days (in the case of Dividend Growth Securities) of purchase will be subject to a 2% redemption fee, payable to the Fund. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The redemption fee does not apply to systematic withdrawal/exchange plans, pre-approved asset allocation programs, shares received by reinvesting income dividends or capital gain distributions and affiliated fund of funds. The redemption fee is based on, and deducted from, the redemption proceeds. Each time you redeem or exchange shares, the shares held the longest will be redeemed or exchanged first.

With respect to trades that occur through omnibus accounts at financial intermediaries, each Fund is currently limited in its ability to monitor trading activity or enforce the redemption fee with respect to customers of such intermediaries. Certain intermediaries may not have the ability to assess a redemption fee.

Effective August 29, 2005, the limitation of a maximum of eight exchanges per calendar year will no longer be in effect. However, certain patterns of exchanges and/or purchase or sale transactions involving the Funds or other Morgan Stanley Funds may result in a Fund rejecting, limiting or prohibiting, at its sole discretion, and without prior notice, additional purchases and/or exchanges and may result in a shareholder's account being closed. Determinations in this regard may be made based on the frequency or dollar amount of previous exchanges or purchase or sale transactions. Each Fund reserves the right to reject an exchange request for any reason.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.

79563SPT-00

[GRAPHIC]

MORGAN STANLEY FUNDS

MORGAN STANLEY
GLOBAL UTILITIES FUND

A MUTUAL FUND THAT SEEKS BOTH CAPITAL APPRECIATION AND CURRENT INCOME

[MORGAN STANLEY LOGO]

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

PROSPECTUS
JUNE 30, 2005

CONTENTS

THE FUND
Investment Objectives 1
Principal Investment Strategies 1
Principal Risks 2
Past Performance 4
Fees and Expenses 6
Additional Investment Strategy Information 7
Additional Risk Information 8
Portfolio Holdings 8
Fund Management 9

SHAREHOLDER INFORMATION
Pricing Fund Shares 10
How To Buy Shares 11
Limited Portability 12
How To Exchange Shares 13
How To Sell Shares 15
Distributions 17
Frequent Purchases and Redemptions of Fund Shares 17
Tax Consequences 18
Share Class Arrangements 19
Additional Information 27

FINANCIAL HIGHLIGHTS 28

MORGAN STANLEY FUNDS Inside Back Cover

This PROSPECTUS contains important information about the Fund. Please read it
carefully and keep it for future reference.

THE FUND

INVESTMENT OBJECTIVES

[GRAPHIC]

Morgan Stanley Global Utilities Fund seeks both capital appreciation and current
income.

PRINCIPAL INVESTMENT STRATEGIES

[GRAPHIC]

The Fund will normally invest at least 80% of its assets in securities of
companies from around the world that are primarily engaged in the utilities
industry. These securities can include common stock and other equity securities
(including preferred stock, convertible securities and depositary receipts) as
well as investment grade fixed-income securities (including zero coupon
securities). A company will be considered to be primarily engaged in the
utilities industry if it derives at least 50% of its revenues or earnings from
the utilities industry or devotes at least 50% of its assets to activities in
the industry. These may include companies involved in, among other areas: gas
and electric energy, water distribution, telecommunications, computers and other
new or emerging technology, the Internet and Internet related services. The
companies may be traditionally regulated public utilities as well as fully or
partially deregulated and unregulated utility companies. The Fund's "Investment
Adviser," Morgan Stanley Investment Advisors Inc., will shift the Fund's assets
between different types of utilities, among companies of different countries,
and between equity and fixed-income securities, based on prevailing market,
economic and financial conditions. The Fund will be invested in at least three
countries (including the United States). If the Fund holds any fixed-income
securities, the average weighted maturity of these investments is normally
expected to be greater than seven years.

In selecting common stock and other equity securities to buy, hold or sell for
the Fund, the Investment Adviser considers earnings, cash flow and revenue
growth and a variety of valuation measures such as price/earnings, price/cash
flow and dividend yield. In addition, the Investment Adviser monitors the
quality of management, the prevailing regulatory, political and economic
framework and industry trends. For non-U.S. securities, the Investment Adviser
considers both country and specific security factors.

[SIDENOTE]

CAPITAL APPRECIATION AND CURRENT INCOME

INVESTMENT OBJECTIVES HAVING THE GOAL OF SELECTING SECURITIES WITH THE POTENTIAL
TO RISE IN PRICE AND PAY OUT INCOME.

notes and commercial paper. The issuer of a debt security borrows money from the
investor who buys the security. Most debt securities either pay fixed or
adjustable rates of interest at regular intervals until they mature, at which
point investors get their principal back. The Fund's fixed-income investments
may include zero coupon securities, which are purchased at a discount and
generally accrue interest, but make no payment until maturity.

The Fund may also utilize options and futures, forward foreign currency exchange
contracts and convertible securities.

PRINCIPAL RISKS

[GRAPHIC]

There is no assurance that the Fund will achieve its investment objectives. The
Fund's share price and return will fluctuate with changes in the market value of
the Fund's portfolio securities. When you sell Fund shares, they may be worth
less than what you paid for them and, accordingly, you can lose money investing
in this Fund.

UTILITIES INDUSTRY. The Fund's investments in the utilities industry are
impacted by risks particular to that industry. Changing regulation constitutes
one of the key industry-specific risks for the Fund, especially with respect to
its investments in traditionally regulated public utilities and partially
regulated utility companies. Domestic and foreign regulators monitor and control
utility revenues and costs, and therefore may limit utility profits and
dividends paid to investors. Regulatory authorities also may restrict a
company's access to new markets, thereby diminishing the company's long-term
prospects. The deregulation of certain utilities companies may eliminate
restrictions on profits and dividends, but may also subject these companies to
greater risks of loss. Individual sectors of the utility market are subject to
additional risks. These risks can apply to all utility companies--regulated or
fully or partially deregulated and unregulated. For example, telecommunications
companies have been affected by technological developments leading to increased
competition, as well as changing regulation of local and long-distance telephone
service and other telecommunications businesses. Certain telecommunications
companies have been adversely affected by the new competitive climate.

Electric utilities may be burdened by unexpected increases in fuel and other
operating costs. They may also be negatively affected when long-term interest
rates rise. Long-term borrowings are used to finance most utility investments,
and rising interest rates lead to higher financing costs and reduced earnings.
There are also the considerable costs associated with environmental compliance,
nuclear waste clean-up and safety regulation. Increasingly, regulators are
calling upon electric utilities to bear these added costs, and there is a risk
that these costs will not be fully recovered through an increase in revenues.

Among gas companies, there has been a move to diversify into oil and gas
exploration and development, making investment returns more sensitive to energy
prices. In the case of the water utility sector, the industry is highly
fragmented, and most water supply companies find themselves in mature markets,
although upgrading of fresh water and waste water systems is an expanding
business.

COMMON STOCKS AND OTHER EQUITY SECURITIES. In general, stock and other equity
security values fluctuate in response to activities specific to the company as
well as general market, economic and political conditions. The prices can
fluctuate widely in response to these factors. This can especially be the case
for fully or partially deregulated utility companies.

Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When the
general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. (Zero coupon securities are
typically subject to greater price fluctuations than comparable securities that
pay interest.) Some of the Fund's investment grade securities may have
speculative credit risk characteristics.

Securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. In
addition, differences in clearance and settlement procedures in foreign markets
may occasion delays in settlement of the Fund's trades effected in those markets
and could result in losses to the Fund due to subsequent declines in the value
of the securities subject to the trades.

Depositary receipts involve many of the same risks as those associated with
direct investment in foreign securities. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities.

OTHER RISKS. The performance of the Fund also will depend on whether or not the
Investment Adviser is successful in applying the Fund's investment strategies.
The Fund is also subject to other risks from its permissible investments,
including the risks associated with options and futures, forward foreign
currency exchange contracts and convertible securities. For more information
about these risks, see the "Additional Risk Information" section.

Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.

PAST PERFORMANCE

[GRAPHIC]

[CHART]

ANNUAL TOTAL RETURNS--CALENDAR YEARS

1995 14.32%
1996 13.22%
1997 18.76%
1998 37.57%
1999 24.92%
2000 6.58%
2001 -24.26%
2002 -21.28%
2003 19.06%
2004 20.27%

The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown. The
year-to-date total return as of March 31, 2005 was 3.77%.

During the periods shown in the bar chart, the highest return for a calendar
quarter was 19.69 (quarter ended March 31, 1998) and the lowest return for a
calendar quarter was -18.32 (quarter ended September 30, 2002).

[SIDENOTE]

ANNUAL TOTAL RETURNS

THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S CLASS B SHARES HAS VARIED
FROM YEAR TO YEAR OVER THE PAST 10 CALENDAR YEARS.

AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2004)

PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS LIFE OF FUND*

Class A(1)--Return Before Taxes 14.95% -2.18% -- 6.80%
MSCI World Index(2) 14.72% -2.45% -- 3.78%(5)
Lipper Utility Funds Index(3) 23.90% -0.12% -- 6.11%
Class B(1)--Return Before Taxes 15.27% -2.18% 9.17% --
Return After Taxes on Distributions(4) 14.89% -3.30% 7.75% --
Return After Taxes on Distributions
and Sale of Fund Shares 10.31% -2.27% 7.52% --
MSCI World Index(2) 14.72% -2.45% 8.09% --
Lipper Utility Funds Index(3) 23.90% -0.12% 8.94% --
Class C(1)--Return Before Taxes 19.31% -1.82% -- 6.79%
MSCI World Index(2) 14.72% -2.45% -- 3.78%(5)
Lipper Utility Funds Index(3) 23.90% -0.12% -- 6.11%
Class D(1)--Return Before Taxes 21.59% -0.88% -- 7.85%
MSCI World Index(2) 14.72% -2.45% -- 3.78%(5)
Lipper Utility Funds Index(3) 23.90% -0.12% -- 6.11%

* Only shown for share classes with less than a ten year history.

(1) Classes A, C and D commenced operations on July 28, 1997. Class B commenced
operations on May 31, 1994.

(2) The Morgan Stanley Capital International (MSCI) World Index measures
performance from a diverse range of global stock markets including the
U.S., Canada, Europe, Australia, New Zealand, and the Far East. 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.

(3) The Lipper Utility Funds Index is an equally weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Utilities
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.

(4) These returns do not reflect any tax consequences from a sale of your
shares at the end of each period, but they do reflect any applicable sales
charges on such a sale.

(5) For the period July 31, 1997 through December 31, 2004.

[SIDENOTE]

AVERAGE ANNUAL TOTAL RETURNS

FEES AND EXPENSES

[GRAPHIC]

SHAREHOLDER FEES

CLASS A CLASS B CLASS C CLASS D

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.25%(1) None None None
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None

ANNUAL FUND OPERATING EXPENSES

CLASS A CLASS B CLASS C CLASS D

Advisory fee* 0.57% 0.57% 0.57% 0.57%
Distribution and service (12b-1) fees(5) 0.24% 1.00% 0.97% None
Other expenses* 0.35% 0.35% 0.35% 0.35%
Total annual Fund operating expenses 1.16% 1.92% 1.89% 0.92%

* Expense information in the table has been restated to reflect current fees
(see "Fund Management").

(1) Reduced for purchases of $25,000 and over.

(2) Investments that are not subject to any sales charges at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within 18 months after
purchase, except for certain specific circumstances. With respect to shares
purchased prior to December 1, 2004, a CDSC of 1.00% will be imposed if you
sell your shares within one year after purchase, except for certain
specific circumstances.

(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.

(4) Only applicable if you sell your shares within one year after purchase.

(5) The Fund has adopted a Rule 12b-1 Distribution Plan pursuant to which it
reimburses the distributor for distribution-related expenses (including
personal services to shareholders) incurred on behalf of Class A, Class B
and Class C shares in an amount each month up to an annual rate of 0.25%,
1.00% and 1.00% of the average daily net assets of Class A, Class B and
Class C, respectively.

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

[SIDENOTE]

SHAREHOLDER FEES

THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.

ANNUAL FUND OPERATING EXPENSES

THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS.

The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the tables below show your costs at
the end of each period based on these assumptions, depending upon whether or not
you sell your shares at the end of each period.

IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS

Class A $ 637 $ 874 $ 1,130 $ 1,860 $ 637 $ 874 $ 1,130 $ 1,860
Class B $ 695 $ 903 $ 1,237 $ 2,243 $ 195 $ 603 $ 1,037 $ 2,243
Class C $ 292 $ 594 $ 1,021 $ 2,212 $ 192 $ 594 $ 1,021 $ 2,212
Class D $ 94 $ 293 $ 509 $ 1,131 $ 94 $ 293 $ 509 $ 1,131

While Class B and Class C shares do not have any front-end sales charges, their
higher ongoing annual expenses (due to higher 12b-1 fees) mean that over time
you could end up paying more for these shares than if you were to pay front-end
sales charges for Class A Shares.

ADDITIONAL INVESTMENT STRATEGY INFORMATION

[GRAPHIC]

This section provides additional information relating to the Fund's investment
strategies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund's investments also may
include forward foreign currency exchange contracts, which involve the purchase
or sale of a specific amount of foreign currency at the current price with
delivery at a specified future date. The Fund may use these contracts to hedge
against adverse price movements in its portfolio securities and the currencies
in which they are denominated or to modify the portfolio's exposure to
currencies underlying various securities or financial instruments held in its
portfolio.

OPTIONS AND FUTURES. The Fund may invest in put and call options and futures
with respect to the U.S. dollar and foreign currencies. Options and futures may
be used to seek to protect against a decline in securities or currency prices or
an increase in prices of securities or currencies that may be purchased.

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.

downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment objectives.

The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment. Subsequent percentage changes
that result from market fluctuations generally will not require the Fund to sell
any portfolio security. However, the Fund may be required to sell its illiquid
securities holdings or reduce its borrowings, if any, in response to
fluctuations in the value of such holdings. The Fund may change its principal
investment strategies without shareholder approval; however, you would be
notified of any changes.

ADDITIONAL RISK INFORMATION

[GRAPHIC]

This section provides additional information relating to the risks of investing
in the Fund.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Use of forward foreign currency
exchange contracts involves risks. If the Investment Adviser employs a strategy
that does not correlate well with the Fund's investments or the currencies in
which the investments are denominated, currency contracts could result in a
loss. The contracts also may increase the Fund's volatility and, thus, may
involve a significant risk.

OPTIONS AND FUTURES. If the Fund invests in options and/or futures, its
participation in these markets would subject the Fund's portfolio to certain
risks. The Investment Adviser's predictions of movements in the direction of the
securities, currency or interest rate markets may be inaccurate, and the adverse
consequences to the Fund (e.g., a reduction in the Fund's net asset value or a
reduction in the amount of income available for distribution) may leave the Fund
in a worse position than if these strategies were not used. Other risks inherent
in the use of options and futures include, for example, the possible imperfect
correlation between the price of options and futures contracts and movements in
the prices of the securities or currencies being hedged, and the possible
absence of a liquid secondary market for any particular instrument. Certain
options may be over-the-counter options, which are options negotiated with
dealers; there is no secondary market for these investments.

CONVERTIBLE SECURITIES. The Fund may invest a portion of its assets in
convertible securities, which are securities that generally pay interest and may
be converted into common stock. These securities may carry risks associated with
both common stock and fixed-income securities.

PORTFOLIO HOLDINGS

[GRAPHIC]

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
STATEMENT OF ADDITIONAL INFORMATION.

FUND MANAGEMENT

[GRAPHIC]

The Fund is managed within the Investment Adviser's Global Research Team. The
current member of the team responsible for the day-to-day management of the Fund
and for the execution of the overall strategy of the Fund is Edward Gaylor, a
Vice President of the Investment Adviser. Mr. Gaylor has worked for the
Investment Adviser since 1988 and began managing the Fund in May 1994.

The Fund's STATEMENT OF ADDITIONAL INFORMATION provides additional information
about the portfolio manager's compensation structure, other accounts managed by
the portfolio manager and the portfolio manager's ownership of securities in the
Fund.

The composition of the team may change without notice from time to time.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement ("Management Agreement")
pursuant to which the Fund paid the Investment Adviser a monthly management fee
as full compensation for the services and facilities furnished to the Fund, and
for Fund expenses assumed by the Investment Adviser at the annual rate of 0.65%
of the portion of the daily net assets up to $500 million; 0.625% of the portion
of the daily net assets exceeding $500 million but not exceeding $1 billion;
0.60% of the portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; and 0.575% of the portion of the daily net assets
exceeding $1.5 billion. For the fiscal year ended February 28, 2005, the Fund
paid total compensation to the Investment Adviser amounting to 0.62% of the
Fund's average daily net assets.

Effective November 1, 2004, the Board of Trustees approved an amended and
restated investment advisory agreement to remove the administrative services
component from the Management Agreement and to reduce the investment advisory
fee to the annual rate of 0.57% of the portion of the daily net assets not
exceeding $500 million; 0.545% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.52% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and 0.495% of the
portion of the daily net assets exceeding $1.5 billion. The administrative
services previously provided to the Fund by the Investment Adviser are being
provided by Morgan Stanley Services Company Inc. ("Administrator") pursuant to a
separate administration agreement entered into by the Fund with the
Administrator. Such change resulted in a 0.08% reduction in the investment
advisory fee concurrent with the implementation of a 0.08% administration fee
pursuant to the new administration agreement.

[SIDENOTE]

MORGAN STANLEY INVESTMENT ADVISORS INC.

THE INVESTMENT ADVISER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND HAD APPROXIMATELY $105 BILLION IN ASSETS UNDER MANAGEMENT OR
ADMINISTRATION AS OF MAY 31, 2005.

SHAREHOLDER INFORMATION

PRICING FUND SHARES

[GRAPHIC]

In addition, with respect to securities that primarily are listed on foreign
exchanges, when an event occurs after the close of such exchanges that is likely
to have changed the value of the securities (for example, a percentage change in
value of one or more U.S. securities indices in excess of specified thresholds),
such securities will be valued at their fair value, as determined under
procedures established by the Fund's Board of Trustees. Securities also may be
fair valued in the event of a significant development affecting a country or
region or an issuer-specific development which is likely to have changed the
value of the security. In these cases, the Fund's net asset value will reflect
certain portfolio securities' fair value rather than their market price. Fair
value pricing involves subjective judgment and it is possible that the fair
value determined for a security is materially different than the value that
could be realized upon the sale of that security. With respect to securities
that are primarily listed on foreign exchanges, the value of the Fund's
portfolio securities may change on days when you will not be able to purchase or
sell your shares.

HOW TO BUY SHARES

[GRAPHIC]

[SIDENOTE]

CONTACTING A FINANCIAL ADVISOR

MINIMUM INVESTMENT AMOUNTS

MINIMUM INVESTMENT
-------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL

Regular Accounts $ 1,000 $ 100
Individual Retirement Account $ 1,000 $ 100
Coverdell Education Savings Account $ 500 $ 100
EASYINVEST(R)
(Automatically from your checking or savings account or Money Market Fund) $ 100* $ 100*

* Provided your schedule of investments totals $1,000 in 12 months.

There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Adviser's mutual fund asset allocation program; (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services; (3) the following programs
approved by the Fund's distributor: (i) qualified state tuition plans described
in Section 529 of the Internal Revenue Code or (ii) certain other investment
programs that do not charge an asset-based fee; (4) employer-sponsored employee
benefit plan accounts or (5) the reinvestment of dividends in additional Fund
shares.

SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to buying
additional Fund shares for an existing account by contacting your Morgan Stanley
Financial Advisor, you may send a check directly to the Fund. To buy additional
shares in this manner:
- Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase and the investment amount
(which would include any applicable front-end sales charge). The letter must
be signed by the account owner(s).
- Make out a check for the total amount payable to: Morgan Stanley Global
Utilities Fund.
- Mail the letter and check to Morgan Stanley Trust at P.O. Box 1040, Jersey
City, NJ 07303.

LIMITED PORTABILITY

[GRAPHIC]

Most Fund shareholders hold their shares with Morgan Stanley DW. Please note
that your ability to transfer your Fund shares to a brokerage account at another
securities dealer may be limited. Fund shares may only be transferred to
accounts held at a limited number of securities dealers or financial
intermediaries that have entered into agreements with the Fund's distributor.
After a transfer, you may purchase additional shares of the Morgan Stanley Funds
you owned before the transfer, but you may not be able to purchase shares of any
other Morgan Stanley Funds or exchange

[SIDENOTE]

EASYINVEST(R)

shares of the Fund(s) you own for shares of other Morgan Stanley Funds (as
described below under "How to Exchange Shares"). If you wish to transfer Fund
shares to a securities dealer or other financial intermediary that has not
entered into an agreement with the Fund's distributor, you may request that the
securities dealer or financial intermediary maintain the shares in an account at
the Transfer Agent registered in the name of such securities dealer or financial
intermediary for your benefit. You may also hold your Fund shares in your own
name directly with the Transfer Agent. Other options may also be available;
please check with the respective securities dealer or financial intermediary. If
you choose not to hold your shares with the Transfer Agent, either directly or
through a securities dealer or other financial intermediary, you must redeem
your shares and pay any applicable CDSC.

HOW TO EXCHANGE SHARES

[GRAPHIC]

Exchanges may be made after shares of the fund acquired by purchase have been
held for 30 days. There is no waiting period for exchanges of shares (i)
acquired by exchange or dividend reinvestment; (ii) purchased through the
automatic investment plan; and (iii) purchased by wrap-fee accounts that have an
automatic rebalancing feature. The current prospectus for each fund describes
its investment objective(s), policies and investment minimums, and should be
read before investment. Since exchanges are available only into continuously
offered Morgan Stanley Funds, exchanges are not available into any new Morgan
Stanley Fund during its initial offering period, or when shares of a particular
Morgan Stanley Fund are not being offered for purchase.

EXCHANGE PROCEDURES. You can process an exchange by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative.
Otherwise, you must forward an exchange privilege authorization form to the
Transfer Agent and then write the Transfer Agent or call toll-free
(800) 869-NEWS to place an exchange order. You can obtain an exchange privilege
authorization form by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative or by calling toll-free (800) 869-NEWS. If
you hold share certificates, no exchanges may be processed until we have
received all applicable share certificates.

The Fund may terminate or revise the exchange privilege upon required notice or
in certain cases without notice. See "Limitations on Exchanges." The check
writing privilege is not available for Money Market Fund shares you acquire in
an exchange.

Telephone instructions will be accepted if received by the Fund's Transfer Agent
between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York Stock
Exchange is open for business. During periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the case with the Fund in the past.

You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.

LIMITATIONS ON EXCHANGES. Certain patterns of past exchanges and/or purchase or
sale transactions involving the Fund or other Morgan Stanley Funds may result in
the Fund rejecting, limiting or prohibiting, at its sole discretion, and without
prior notice, additional purchases and/or exchanges and may result in a
shareholder's account being closed. Determinations in this regard may be made
based on the frequency or dollar amount of the previous exchanges or purchase or
sale transactions. Generally, all shareholders are limited to a maximum of eight
exchanges per calendar year. Exchange privileges will be suspended if more than
eight exchanges out of the Fund are made by a shareholder in a calendar year and
further exchange requests will not be processed during that year. This
limitation does not apply to the Investment Adviser's asset allocation program
or employer-sponsored retirement plans. The Fund reserves the right to reject an
exchange request for any reason.

For further information regarding exchange privileges, you should contact your
Morgan Stanley Financial Advisor or call toll-free (800) 869-NEWS.

HOW TO SELL SHARES

[GRAPHIC]

You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next share price calculated
after we receive your order to sell as described below.

OPTIONS PROCEDURES

CONTACT YOUR To sell your shares, simply call your Morgan Stanley
FINANCIAL ADVISOR Financial Advisor or other authorized financial
representative. Payment will be sent to the address to
which the account is registered, or deposited in your
brokerage account.

OPTIONS PROCEDURES

BY LETTER You can also sell your shares by writing a "letter of
instruction" that includes:
- your account number;
- the name of the Fund;
- the dollar amount or the number of shares you wish to
sell;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the
account.

If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Trust. (You
should contact Morgan Stanley Trust toll-free at
(800) 869-NEWS for a determination as to whether a
particular institution is an eligible guarantor.) A notary
public cannot provide a signature guarantee. Additional
documentation may be required for shares held by a
corporation, partnership, trustee or executor.

A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.

OPTIONS PROCEDURES

Amounts withdrawn are subject to any applicable CDSC. A
CDSC may be waived under certain circumstances. See the
Class B waiver categories listed in the "Share Class
Arrangements" section of this PROSPECTUS.

To sign up for the systematic withdrawal plan, contact your
Morgan Stanley Financial Advisor or call toll-free
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan
are sales of shares, not Fund "distributions," and
ultimately may exhaust your account balance. The Fund may
terminate or revise the plan at any time.

INVOLUNTARY SALES. The Fund reserves the right, on 60 days' notice, to sell the
shares of any shareholder (other than shares held in an IRA or 403(b) Custodial
Account) whose shares, due to sales by the shareholder, have a value below $100,
or in the case of an account opened through EASYINVEST(R), if after 12 months
the shareholder has invested less than $1,000 in the account.

DISTRIBUTIONS

[GRAPHIC]

The The Fund passes substantially all of its earnings from income and capital
gains along to its investors as "distributions." The Fund earns income from
stocks and interest from fixed-income investments. These amounts are passed
along to Fund shareholders as "income dividend distributions." The Fund realizes
capital gains whenever it sells securities for a higher price than it paid for
them. These amounts may be passed along as "capital gain distributions."

The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares will usually be higher than for Class B and Class
C shares because distribution fees that Class B and Class C shares pay are
higher. Normally, income dividends are distributed to shareholders
semi-annually. Capital gains, if any, are usually distributed in June and
December. The Fund, however, may retain and reinvest any long-term capital
gains. The Fund may at times make payments from sources other than income or
capital gains that represent a return of a portion of your investment.

FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES

[GRAPHIC]

[SIDENOTE]

TARGETED DIVIDENDS(SM)

In addition, the Fund is subject to the risk that market timers and/or
short-term traders may take advantage of time zone differences between the
foreign markets on which the Fund's portfolio securities trade and the time as
of which the Fund's net asset value is calculated ("time-zone arbitrage"). For
example, a market timer may purchase shares of the Fund based on events
occurring after foreign market closing prices are established, but before the
Fund's net asset value calculation, that are likely to result in higher prices
in foreign markets the following day. The market timer would redeem the Fund's
shares the next day when the Fund's share price would reflect the increased
prices in foreign markets, for a quick profit at the expense of long-term Fund
shareholders.

The Fund's policies with respect to valuing Portfolio securities are described
in "Shareholder Information--Pricing Fund Shares."

The Fund discourages and does not accommodate frequent purchases and redemptions
of Fund shares by Fund shareholders and the Fund's Board of Trustees has adopted
policies and procedures with respect to such frequent purchases and redemptions.
The Fund's policies with respect to purchases, redemptions and exchanges of Fund
shares are described in the "How to Buy Shares," "How to Exchange Shares," and
"How to Sell Shares" sections of this PROSPECTUS. Except as described in each of
these sections, and with respect to omnibus accounts, the Fund's policies
regarding frequent trading of Fund shares are applied uniformly to all
shareholders. With respect to trades that occur through omnibus accounts at
intermediaries, such as investment managers, broker-dealers, transfer agents and
third party administrators, the Fund (i) has requested assurance that such
intermediaries currently selling Fund shares have in place internal policies and
procedures reasonably designed to address market-timing concerns and has
instructed such intermediaries to notify the Fund immediately if they are unable
to comply with such policies and procedures and (ii) requires all prospective
intermediaries to agree to cooperate in enforcing the Fund's policies with
respect to frequent purchases, redemptions and exchanges of Fund shares. Omnibus
accounts generally do not identify customers' trading activity to the Fund on an
individual basis. The ability of the Fund to monitor exchanges made by the
underlying shareholders in omnibus accounts, therefore, is severely limited.
Consequently, the Fund must rely on the financial intermediary to monitor
frequent short-term trading within the Fund by the financial intermediary's
customers. There can be no assurance that the Fund will be able to eliminate all
market-timing activities.

TAX CONSEQUENCES

[GRAPHIC]

Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:
- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another Morgan Stanley Fund.

Any long-term capital gain distributions are taxable as long-term capital gains,
no matter how long you have owned shares in the Fund. Under current law, a
portion of the ordinary income dividends you receive may be taxed at the same
rate as long-term capital gains. However, even if income received in the form of
ordinary income dividends is taxed at the same rates as long-term capital gains,
such income will not be considered long-term capital gains for other federal
income tax purposes. For example, you generally will not be permitted to offset
ordinary income dividends with capital losses. Short-term capital gain
distributions will continue to be taxed at ordinary income rates.

If more than 50% of the Fund's assets are invested in foreign securities at the
end of any fiscal year, the Fund may elect to permit shareholders to take a
credit or a deduction on their federal income tax return for foreign taxes paid
by the Fund.

SHARE CLASS ARRANGEMENTS

[GRAPHIC]

Sales personnel may receive different compensation for selling each Class of
shares. The sales charges applicable to each Class provide for the distribution
financing of shares of that Class.

The chart below compares the sales charge and annual 12b-1 fee applicable to
each Class:

CLASS SALES CHARGE MAXIMUM ANNUAL 12b-1 FEE

A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or
more; shares purchased without an initial sales charge are generally
subject to a 1.00% CDSC if sold during the first 18 months* 0.25%
B Maximum 5.00% CDSC during the first year decreasing to 0% after six years 1.00%
C 1.00% CDSC during the first year 1.00%
D None None

* Shares purchased without an initial sales charge prior to December 1, 2004
will be subject to a 1.00% CDSC if sold during the first year.

CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25% of the public offering price. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule below.
Investments of $1 million or more are not subject to an initial sales charge,
but are generally subject to a CDSC of 1.00% on sales made within 18 months
after the last day of the month of purchase. With respect to shares purchased
prior to December 1, 2004, investments of $1 million or more are not subject to
an initial sales charge, but are generally subject to a CDSC of 1.00% on sales
made within one year after the last day of the month of purchase. The CDSC will
be assessed in the same manner and with the same CDSC waivers as with Class B
shares. Class A shares are also subject to a 12b-1 fee of up to 0.25% of the
average daily net assets of the Class. The maximum annual 12b-1 fee payable by
Class A shares is lower than the maximum annual 12b-1 fee payable by Class B or
Class C shares.

The offering price of Class A shares includes a sales charge (expressed as a
percentage of the public offering price) on a single transaction as shown in the
following table:

FRONT-END SALES CHARGE
----------------------------------------------
AMOUNT OF PERCENTAGE OF APPROXIMATE PERCENTAGE
SINGLE TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUT INVESTED

You may benefit from a reduced sales charge schedule (i.e., breakpoint discount)
for purchases of Class A shares of the Fund, by combining, in a single
transaction, your purchase with purchases of Class A shares of the Fund by the
following related accounts:
- A single account (including an individual, trust or fiduciary account).
- Family member accounts (limited to spouse, and children under the age of 21).
- Pension, profit sharing or other employee benefit plans of companies and
their affiliates.
- Employer sponsored and individual retirement accounts (including individual
retirement accounts ("IRAs"), Keogh, 401(k), 403(b), 408(k) and 457(b)
Plans).
- Tax-exempt organizations.
- Groups organized for a purpose other than to buy mutual fund shares.

- Family member accounts (limited to spouse, and children under 21, but
including trust accounts established solely for the benefit of a spouse, or
child under 21).

- An IRAs and single participant retirement account (such as a Keogh).

- An UGMA/UTMA account.

[SIDENOTE]

FRONT-END SALES CHARGE OR FSC

NOTIFICATION. You must notify your Morgan Stanley Financial Advisor or other
authorized financial representative (or Morgan Stanley Trust if you purchase
shares directly through the Fund) at the time a purchase order is placed, that
the purchase qualifies for a reduced sales charge under any of the privileges
discussed above. Similar notification must be made in writing when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Morgan Stanley DW or other authorized dealer of Fund shares or the
Transfer Agent does not confirm your represented holdings.

In order to obtain a reduced sales charge under any of the privileges discussed
above, it may be necessary at the time of purchase for you to inform your Morgan
Stanley Financial Advisor or other authorized financial representative (or
Morgan Stanley Trust if you purchase shares directly through the Fund) of the
existence of other accounts in which there are holdings eligible to be
aggregated to meet the sales load breakpoint and/or right of accumulation
threshold. In order to verify your eligibility, you may be required to provide
account statements and/or confirmations regarding shares of the Fund or other
Morgan Stanley Funds held in all related accounts described above at Morgan
Stanley or by other authorized dealers, as well as shares held by related
parties, such as members of the same family or household, in order to determine
whether you have met the sales load breakpoint and/or right of accumulation
threshold. The Fund makes available, in a clear and prominent format, free of
charge, on its web site, www.morganstanely.com, information regarding applicable
sales loads and reduced sales charges (i.e., breakpoint discounts). The web site
includes hyperlinks that facilitate access to the information.

LETTER OF INTENT. The above schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written "Letter of
Intent." A Letter of Intent provides for the purchase of Class A shares of the
Fund or other Multi-Class Funds within a 13-month period. The initial purchase
under a Letter of Intent must be at least 5% of the stated investment goal. The
Letter of Intent does not preclude the Fund (or any other Multi-Class Fund) from
discontinuing sales of its shares. To determine the applicable sales charge
reduction, you may also include: (1) the cost of shares of other Morgan Stanley
Funds which were previously purchased at a price including a front-end sales
charge during the 90-day period prior to the distributor receiving the Letter of
Intent, and (2) the historical cost of shares of other funds you currently own
acquired in exchange for shares of funds purchased during that period at a price
including a front-end sales charge. You may combine purchases and exchanges by
family members (limited to spouse, and children under the age of 21) during the
periods referenced in (1) and (2) above. You should retain any records necessary
to substantiate historical costs because the Fund, its Transfer Agent and any
financial intermediaries may not maintain this information. You can obtain a
Letter of Intent by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative, or by calling toll-free (800) 869-NEWS. If
you do not achieve the stated investment goal within the 13-month period, you
are required to pay the difference between the sales charges otherwise
applicable and sales charges actually paid, which may be deducted from your
investment. Shares acquired through reinvestment of distributions are not
aggregated to achieve the stated investment goal.

OTHER SALES CHARGE WAIVERS. In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or a
CDSC upon sale) if your account qualifies under one of the following categories:

- A trust for which a banking affiliate of the Investment Adviser provides
discretionary trustee services.

- A Morgan Stanley Eligible Plan whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees.

- Insurance company separate accounts that have been approved by the Fund's
distributor.
- Current or retired Directors or Trustees of the Morgan Stanley Funds, such
persons' spouses, and children under the age of 21, and trust accounts for
which any of such persons is a beneficiary.

YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A PERCENTAGE OF AMOUNT REDEEMED

First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None

[SIDENOTE]

CONTINGENT DEFERRED SALES CHARGE OR CDSC

A FEE YOU PAY WHEN YOU SELL SHARES OF CERTAIN MORGAN STANLEY FUNDS PURCHASED
WITHOUT AN INITIAL SALES CHARGE. THIS FEE DECLINES THE LONGER YOU HOLD YOUR
SHARES AS SET FORTH IN THE TABLE.

Each time you place an order to sell or exchange shares, shares with no CDSC
will be sold or exchanged first, then shares with the lowest CDSC will be sold
or exchanged next. For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value or the cost of the
shares being sold.

Broker-dealers or other financial intermediaries may impose a limit on the
dollar value of a Class B share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class B shares that in the aggregate amount to $25,000 or more over a
90-day period. You should discuss with your financial advisor which share class
is most appropriate for you, based on the size of your investment, your expected
time horizon for holding the shares and other factors, bearing in mind the
availability of reduced sales loads on Class A share purchases of $25,000 or
more and for existing shareholders who hold over $25,000 in Morgan Stanley
Funds.

CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the case of:
- Sales of shares held at the time you die or become disabled (within the
definition in Section 72(m)(7) of the Internal Revenue Code, which relates to
the ability to engage in gainful employment), if the shares are: (i)
registered either in your individual name or in the names of you and your
spouse as joint tenants with right of survivorship; (ii) registered in the
name of a trust of which (a) you are the settlor and that is revocable by you
(i.e., a "living trust") or (b) you and your spouse are the settlors and that
is revocable by you or your spouse (i.e., a "joint living trust"); or (iii)
held in a qualified corporate or self-employed retirement plan, IRA or 403(b)
Custodial Account; provided, in each case, that the sale is requested within
one year after your death or initial determination of disability.

- Sales of shares in connection with the Systematic Withdrawal Plan of up to
12% annually of the value of each fund from which plan sales are made. The
percentage is determined on the date you establish the Systematic Withdrawal
Plan and based on the next calculated share price. You may have this CDSC
waiver applied in amounts up to 1% per month, 3% per quarter, 6%
semi-annually or 12% annually. Shares with no CDSC will be sold first,
followed by those with the lowest CDSC. As such, the waiver benefit will be
reduced by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan payments
without requiring a new determination of the account value for the 12% CDSC
waiver.

DISTRIBUTION FEE. Class B shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the lesser of: (a) the
average daily aggregate gross purchases by all shareholders of the Fund's Class
B shares since the inception of the Fund (not including reinvestments of
dividends or capital gain distributions), less the average daily aggregate net
asset value of the Fund's Class B shares sold by all shareholders since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B shares. The maximum annual 12b-1 fee payable
by Class B shares is higher than the maximum annual 12b-1 fee payable by Class A
shares.

EXCHANGING SHARES SUBJECT TO A CDSC. There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does NOT
charge a CDSC WILL NOT BE COUNTED. Thus, in effect, the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that does
not charge a CDSC.

Brokers, dealers or other financial intermediaries may impose a limit on the
dollar value of a Class C share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class C shares that in the aggregate amount to $250,000 or more over
a 90 day period. You should discuss with your financial advisor which share
class is most appropriate for you based on the size of your investment, your
expected time horizon for holding the shares and other factors, bearing in mind
the availability of reduced sales loads on Class A share purchases of $25,000 or
more and for existing shareholders who hold over $25,000 in Morgan Stanley
Funds.

CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares are offered
only to investors meeting an initial investment minimum of $5 million ($25
million for Morgan Stanley Eligible Plans) and the following investor
categories: