N-30D 1 file001.txt N-30D Morgan Stanley Information Fund LETTER TO THE SHAREHOLDERS [] MARCH 31, 2002 Dear Shareholder: The 12-month period ended March 31, 2002, was marked by recession in the U.S. economy and terrorist attacks on U.S. soil. Expectations for corporate earnings generally declined in this period, as did stock market valuations. Trading was volatile and somewhat directionless in the sense that few industry sectors outperformed for sustained periods of time. Poor performance was heavily concentrated in information technology stocks, resulting from companies trimming their spending in this area. The sector saw a dramatic downturn, falling from peak levels into recession. In particular, the telecommunications and cable sectors contracted under the financial burdens of massive capital spending and severe competition. This tightening was accentuated by decreased demand resulting from the recession. Performance and Portfolio Strategy For the 12-month period ended March 31, 2002, Morgan Stanley Information Fund's Class B shares declined 23.70 percent, compared with a gain of 0.26 percent for the Standard & Poor's 500 Index (S&P 500) and a loss of 7.66 percent for the Nasdaq-100 Index.1 For the same period, the Fund's Class A, C and D shares posted losses of 23.15 percent, 23.50 percent and 22.95 percent, respectively. The performance of the Fund's four share classes varies because each class has different expenses. The Fund's total return figures assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. The Fund's performance reflected the generally difficult environment for technology stocks. The Fund continues to invest in companies we believe are best positioned to capitalize on the growth of various sectors within the communications and information industries. Attributes used to choose investments include the existence of proven management, an established market presence, leading edge technology, demonstrable customer demand and strategic relationships or alliances. The Fund's largest sector allocations as of March 31, 2002, were semiconductors, package software, computers and communications, electronic production equipment and telecommunications equipment. The Fund's five largest holdings as of March 31, 2002, were Intel Corp., Microsoft Corp., Cisco Systems, Sungard Data Systems and Taiwan Semiconductor. Looking Ahead As economic conditions improve, we believe the technology sector will begin to rebound. We anticipate that the bulk of the recovery will show in 2003 when capital spending returns. Following an extended -------------- 1 The Nasdaq-100 Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq stock market based on market capitalization. The Index reflects companies across major industry groups, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain financial companies, including investment companies. The Nasdaq-100 Index is calculated under a modified capitalization-weighted methodology. The Index does not include any expenses, fees or charges. The Index is unmanaged and should not be considered an investment. Morgan Stanley Information Fund LETTER TO THE SHAREHOLDERS [] MARCH 31, 2002 continued period of cost cutting by technology companies, a pickup in demand should result in accelerated earnings growth for companies that operate with lower cost structures. Although the magnitude of the recovery may be subdued, we believe the information technology sector will regain its position as a leading growth sector. We appreciate your ongoing support of Morgan Stanley Information Fund and look forward to continuing to serve your investment needs. Very truly yours, /s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin Charles A. Fiumefreddo Mitchell M. Merin Chairman of the Board President 2 Morgan Stanley Information Fund FUND PERFORMANCE [] MARCH 31, 2002 GROWTH OF $10,000 CLASS B ================================================================================ Date Total S&P 500 -------------------------------------------------------------------------------- November 28, 1995 10,000 10,000 December 31, 1995 10,227 10,187 March 31, 1996 10,677 10,734 June 30, 1996 11,448 11,215 September 30, 1996 10,948 11,562 December 31, 1996 10,207 12,525 March 31, 1997 8,936 12,861 June 30, 1997 10,768 15,105 September 30, 1997 12,068 16,237 December 31, 1997 11,818 16,703 March 31, 1998 13,950 19,034 June 30, 1998 14,660 19,662 September 30, 1998 13,194 17,706 December 31, 1998 18,293 21,476 March 31, 1999 21,404 22,546 June 30, 1999 26,072 24,135 September 30, 1999 27,943 22,628 December 31, 1999 44,995 25,995 March 31, 2000 54,499 26,591 June 30, 2000 50,908 25,884 September 30, 2000 50,076 25,631 December 31, 2000 33,667 23,625 March 31, 2001 22,308 20,825 June 30, 2001 22,528 22,044 September 30, 2001 14,245 18,808 December 31, 2001 18,606 20,820 March 31, 2002 17,022 (3) 20,879 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -- Fund --- S&P 500 (4) ================================================================================ Past performance is not predictive of future returns. Investment return and principal value will fluctuate. When you sell fund shares, they may be worth less than their original cost. The 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 C, and Class D shares will vary from the performance of Class B shares shown above due to differences in sales charges and expenses. AVERAGE ANNUAL TOTAL RETURNS --------------------------------------------------------------------------------
CLASS A SHARES* ------------------------------------------------------------------ Period Ended 3/31/02 --------------------------- 1 Year (23.15)%(1) (27.18)%(2) Since Inception (7/28/97) 9.64 %(1) 8.38 %(2)
CLASS B SHARES** ----------------------------------------------------------- Period Ended 3/31/02 ---------------------------- 1 Year (23.70)%(1) (27.51)%(2) 5 Years 13.75 %(1) 13.51 %(2) Since Inception (11/28/95) 8.75 %(1) 8.75 %(2)
CLASS C SHARES+ ----------------------------------------------------------------- Period Ended 3/31/02 --------------------------- 1 Year (23.50)%(1) (24.27)%(2) Since Inception (7/28/97) 8.87 %(1) 8.87 %(2)
CLASS D SHARES++ --------------------------------------------------- Period Ended 3/31/02 --------------------------- 1 Year (22.95)%(1) Since Inception (7/28/97) 9.90 %(1)
------------ (1) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. (2) 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. (3) Closing value assuming a complete redemption on March 31, 2002. (4) The Standard and Poor's 500 Index (S&P 500(Reg. TM)) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, fees, or charges. The Index is unmanaged and should not be considered an investment. * The maximum front-end sales charge for Class A shares is 5.25%. ** The maximum contingent deferred sales charge (CDSC) for Class B shares is 5.0%. The CDSC declines to 0% after six years. + The maximum contingent deferred sales charge for Class C shares is 1% for shares redeemed within one year of purchase. ++ Class D shares have no sales charge. 3 Morgan Stanley Information Fund PORTFOLIO OF INVESTMENTS [] MARCH 31, 2002
NUMBER OF SHARES VALUE ----------- ------------ Common Stocks (88.8%) Advertising/Marketing Services (0.1%) 50,000 DoubleClick Inc.* ............... $ 599,500 ------------ Cable/Satellite TV (1.6%) 450,000 Adelphia Communications Corp. (Class A)* ............ 6,705,000 600,000 Charter Communications, Inc. (Class A)* .................. 6,774,000 100,000 Comcast Corp. (Class A Special)* ................... 3,180,000 ------------ 16,659,000 ------------ Computer Communications (9.0%) 500,000 Adaptec, Inc.* .................. 6,685,000 350,000 Brocade Communications Systems, Inc.* .............. 9,450,000 2,650,000 Cisco Systems, Inc.* ............ 44,864,500 400,000 Emulex Corp.* ................... 13,172,000 750,000 Extreme Networks, Inc.* ......... 7,800,000 50,000 Finisar Corp.* .................. 385,000 600,000 Foundry Networks, Inc.* ......... 4,314,000 100,000 Juniper Networks, Inc.* ......... 1,262,000 350,000 McDATA Corp. (Class A)* ......... 4,154,500 ------------ 92,087,000 ------------ Computer Peripherals (1.7%) 500,000 EMC Corp.* ...................... 5,960,000 300,000 Network Appliance, Inc.* ........ 6,114,000 100,000 Qlogic Corp.* ................... 4,952,000 ------------ 17,026,000 ------------ Computer Processing Hardware (3.9%) 900,000 Compaq Computer Corp. ........... 9,405,000 700,000 Dell Computer Corp.* ............ 18,277,000 1,400,000 Sun Microsystems, Inc.* ......... 12,348,000 ------------ 40,030,000 ------------ Data Processing Services (1.6%) 300,000 Affiliated Computer Services, Inc. (Class A)* ............... 16,839,000 ------------
NUMBER OF SHARES VALUE ------------ ------------ Electronic Components (2.2%) 500,000 Flextronics International, Ltd. (Singapore)* ................ $ 9,125,000 550,000 Sanmina-SCI Corp.* .............. 6,462,500 350,000 Silicon-On-Insulator Technologies (France) ....... 7,311,045 ------------ 22,898,545 ------------ Electronic Distributors (0.7%) 150,000 CDW Computer Centers, Inc.* ..... 7,551,000 ------------ Electronic Equipment/ Instruments (0.1%) 150,000 JDS Uniphase Corp.* ............. 883,500 ------------ Electronic Production Equipment (6.9%) 100,000 Amkor Technology, Inc.* ......... 2,231,000 300,000 Applied Materials, Inc.* ........ 16,281,000 250,000 ASM International NV (Netherlands)* .............. 6,527,500 500,000 ASM Lithography Holding NV (Netherlands)* .............. 12,685,000 150,000 Helix Technology Corp. .......... 3,798,000 200,000 Novellus Systems, Inc.* ......... 10,826,000 100,000 Photon Dynamics, Inc.* .......... 5,089,000 350,000 Teradyne, Inc.* ................. 13,800,500 ------------ 71,238,000 ------------ Financial Publishing/ Services (3.2%) 1,000,000 SunGard Data Systems Inc.*....... 32,970,000 ------------ Information Technology Services (3.2%) 250,000 Accenture Ltd. (Bermuda)* ....... 6,675,000 275,000 American Management Systems, Inc.* .............. 5,137,275 300,000 Anteon International Corp. ...... 6,240,000 100,000 Citrix Systems, Inc.* ........... 1,728,000 350,000 PeopleSoft, Inc.* ............... 12,785,500 ------------ 32,565,775 ------------ Internet Retail (0.4%) 250,000 Amazon.com, Inc.* ............... 3,575,000 ------------
See Notes to Financial Statements 4 Morgan Stanley Information Fund PORTFOLIO OF INVESTMENTS [] MARCH 31, 2002 continued
NUMBER OF SHARES VALUE ---------- ------------ Internet Software/Services (5.5%) 500,000 BEA Systems, Inc.* ................ $ 6,855,000 50,000 Check Point Software Technologies Ltd. (Israel)*.... 1,520,000 350,000 Internet Security Systems, Inc.* .. 7,997,500 800,000 KPMG Consulting, Inc.* ............ 16,160,000 500,000 MatrixOne, Inc.* .................. 4,460,000 100,000 Netegrity, Inc. ................... 1,479,000 400,000 Siebel Systems, Inc.* ............. 13,044,000 200,000 VeriSign, Inc.* ................... 5,400,000 ----------- 56,915,500 ----------- Media Conglomerates (0.5%) 200,000 AOL Time Warner Inc.* ............. 4,730,000 ----------- Packaged Software (14.3%) 50,000 Cognos, Inc. (Canada)* ............ 1,372,500 500,000 i2 Technologies, Inc.* ............ 2,530,000 150,000 Manugistics Group, Inc.* .......... 3,222,000 150,000 Mercury Interactive Corp.* ........ 5,647,500 900,000 Microsoft Corp.* .................. 54,279,000 850,000 Network Associates, Inc.* ......... 20,570,000 1,050,000 Oracle Corp.* ..................... 13,440,000 500,000 Peregrine Systems, Inc.* .......... 4,760,000 150,000 Precise Software Solutions Ltd.* .. 3,493,500 500,000 Red Hat, Inc.* .................... 2,854,500 450,000 SAP AG (ADR) (Germany) ............ 16,740,000 400,000 VERITAS Software Corp.* ........... 17,532,000 ----------- 146,441,000 ----------- Recreational Products (0.8%) 60,300 Electronic Arts Inc.* ............. 3,666,240 100,000 THQ, Inc.* ........................ 4,910,000 ----------- 8,576,240 ----------- Semiconductors (25.6%) 300,000 Advanced Micro Devices, Inc.* ..... 4,413,000 1,500,000 Agere Systems, Inc. (Class A)* .... 5,835,000 350,000 Altera Corp.* ..................... 7,654,500 300,000 Analog Devices, Inc.* ............. 13,512,000 600,000 Applied Micro Circuits Corp.*...... 4,800,000
NUMBER OF SHARES VALUE ---------- ----------- 250,000 Broadcom Corp. (Class A)* ......... $ 8,975,000 750,000 Conexant Systems, Inc.* ........... 9,037,500 300,000 ESS Technology, Inc.* ............. 6,222,000 2,000,000 Intel Corp. ....................... 60,820,000 400,000 Intersil Corp. (Class A)* ......... 11,340,000 350,000 Linear Technology Corp. ........... 15,477,000 200,000 Marvell Technology Group Ltd. (Bermuda)* .................... 8,760,000 250,000 Maxim Integrated Products, Inc.* .. 13,927,500 250,000 Microchip Technology Inc.* ........ 10,457,500 200,000 Micron Technology, Inc.* .......... 6,580,000 300,000 NVIDIA Corp.* ..................... 13,308,000 1,150,000 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)* ......... 23,862,500 600,000 Texas Instruments, Inc. ........... 19,860,000 400,000 Vitesse Semiconductor Corp.* ...... 3,920,000 350,000 Xilinx, Inc.* ..................... 13,951,000 ----------- 262,712,500 ----------- Telecommunication Equipment (6.8%) 250,000 CIENA Corp.* ...................... 2,250,000 200,000 DDi Corp.* ........................ 1,706,000 400,000 Microtune, Inc.* .................. 5,748,000 1,250,000 Motorola, Inc. .................... 17,750,000 350,000 Nokia Corp. (ADR) (Finland) ....... 7,259,000 500,000 Nortel Networks Corp. (Canada)* ... 2,245,000 100,000 ONI Systems Corp.* ................ 617,000 600,000 QUALCOMM Inc.* .................... 22,584,000 100,000 Research In Motion Ltd. (Canada)* . 2,777,000 400,000 RF Micro Devices, Inc.* ........... 7,160,000 ----------- 70,096,000 ----------- Wireless Telecommunications (0.7%) 400,000 Vodafone Group PLC (ADR) (United Kingdom) .............. 7,372,000 ----------- Total Common Stocks (Cost $984,887,033)................ 911,765,560 -----------
See Notes to Financial Statements 5 Morgan Stanley Information Fund PORTFOLIO OF INVESTMENTS [] MARCH 31, 2002 continued
PRINCIPAL AMOUNT IN THOUSANDS VALUE -------------------- ------------ Convertible Bonds (7.3%) Computer Communications (1.1%) $ 10,000 Juniper Networks, Inc. 4.75% due 03/15/07 ...... $ 7,100,000 7,215 Redback Networks, Inc. 5.00% due 04/01/07 ...... 3,787,875 ------------ 10,887,875 ------------ Electronic Production Equipment (1.2%) 29,720 Celestica, Inc. (Canada) 0.00% due 08/01/20 ...... 12,891,050 ------------ Packaged Software (2.1%) 15,135 i2 Technologies, Inc. 5.25% due 12/15/06 ...... 11,124,225 13,125 Mercury Interactive Corp. 4.75% due 07/01/07 ...... 10,828,125 ------------ 21,952,350 ------------ Semiconductors (1.5%) 180 Analog Devices, Inc. 4.75% due 10/01/05 ...... 170,775 19,167 Vitesse Semiconductor Corp. 4.00% due 03/15/05 .................... 14,974,218 ------------ 15,144,993 ------------ Telecommunication Equipment (1.4%) 5,000 Comverse Technology, Inc. 1.50% due 12/01/05 ...... 3,812,500 13,185 ONI Systems Corp. 5.00% due 10/15/05 ...... 10,135,969 ------------ 13,948,469 ------------ Total Convertible Bonds (Cost $79,576,979)........... 74,824,737 ------------
PRINCIPAL AMOUNT IN THOUSANDS VALUE ----------- ----------- Short-Term Investment (3.0%) Repurchase Agreement $ 31,254 Joint repurchase agreement account 1.90% due 04/01/02 (dated 03/28/02; proceeds $31,260,598) (a) (Cost $31,254,000)............. $ 31,254,000 ------------
Total Investments (Cost $1,095,718,012) (b)..... 99.1% 1,017,844,297 Other Assets in Excess of Liabilities ............... 0.9 9,309,226 ----- ------------- Net Assets ................... 100.0% $1,027,153,523 ===== =============
--------------------------- ADR American Depository Receipt. * Non-income producing security. (a) Collateralized by federal agency and U.S. Treasury obligations. (b) The aggregate cost for federal income tax purposes is $1,171,696,993. The aggregate gross unrealized appreciation is $82,287,883 and the aggregate gross unrealized depreciation is $236,140,579, resulting in net unrealized depreciation of $153,852,696. See Notes to Financial Statements 6 Morgan Stanley Information Fund FINANCIAL STATEMENTS Statement of Assets and Liabilities March 31, 2002
Assets Investments in securities, at value (cost $1,095,718,012).......................... $ 1,017,844,297 Receivable for: Investments sold ........................... 38,723,617 Shares of beneficial interest sold ......... 1,885,443 Interest ................................... 966,377 Dividends .................................. 170,572 Prepaid expenses and other assets ............... 301,761 ---------------- Total Assets ................................. 1,059,892,067 ---------------- Liabilities: Payable for: Investments purchased ...................... 29,545,897 Shares of beneficial interest repurchased ............................. 1,435,606 Distribution fee ........................... 849,706 Investment management fee .................. 659,858 Accrued expenses and other payables ............. 247,477 ---------------- Total Liablilities ........................... 32,738,544 ---------------- Net Assets ................................... $ 1,027,153,523 ================ Composition of Net Assets: Paid-in-capital ................................. $ 2,917,472,633 Net unrealized depreciation ..................... (77,873,715) Accumulated undistributed net investment income ........................................ 2,655,245 Accumulated net realized loss ................... (1,815,100,640) ---------------- Net Assets ................................... $ 1,027,153,523 ================ Class A Shares: Net Assets ...................................... $ 36,128,870 Shares Outstanding (unlimited authorized, $.01 par value)................................ 3,199,749 Net Asset Value Per Share .................... $11.29 ====== Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) ............................ $11.92 ====== Class B Shares: Net Assets ...................................... $ 911,275,932 Shares Outstanding (unlimited authorized, $.01 par value)................................ 84,036,462 Net Asset Value Per Share .................... $10.84 ====== Class C Shares: Net Assets ...................................... $ 52,145,264 Shares Outstanding (unlimited authorized, $.01 par value)................................ 4,809,935 Net Asset Value Per Share .................... $10.84 ====== Class D Shares: Net Assets ...................................... $ 27,603,457 Shares Outstanding (unlimited authorized, $.01 par value)................................ 2,410,943 Net Asset Value Per Share .................... $11.45 ======
Statement of Operations For the year ended March 31, 2002
Net Investment Loss: Income Interest ...................................... $ 12,244,971 Dividends (net of $91,663 foreign withholding tax) ............................ 5,408,843 ------------- Total Income ............................... 17,653,814 ------------- Expenses Distribution fee (Class A shares) ............. 91,802 Distribution fee (Class B shares) ............. 12,060,721 Distribution fee (Class C shares) ............. 533,621 Investment management fee ..................... 9,826,526 Transfer agent fees and expenses .............. 4,275,982 Shareholder reports and notices ............... 265,520 Registration fees ............................. 136,466 Custodian fees ................................ 82,059 Professional fees ............................. 55,312 Trustees' fees and expenses ................... 12,420 Other ......................................... 31,111 ------------- Total Expenses ............................. 27,371,540 ------------- Net Investment Loss ........................ (9,717,726) ------------- Net Realized and Unrealized Gain (Loss): Net realized loss ............................. (655,440,250) Net change in unrealized depreciation ......... 290,691,465 ------------- Net Loss ................................... (364,748,785) ------------- Net Decrease .................................. $(374,466,511) ==============
See Notes to Financial Statements 7 Morgan Stanley Information Fund FINANCIAL STATEMENTS continued Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED MARCH 31, 2002 MARCH 31, 2001 ------------------ ------------------- Increase (Decrease) in Net Assets: Operations: Net investment loss ............................................................ $ (9,717,726) $ (34,556,669) Net realized loss .............................................................. (655,440,250) (1,010,841,893) Net change in unrealized depreciation .......................................... 290,691,465 (1,604,196,226) -------------- ---------------- Net Decrease ................................................................. (374,466,511) (2,649,594,788) -------------- ---------------- Distributions to Shareholders from: Net realized gain Class A shares ................................................................ - (17,435,849) Class B shares ................................................................ - (507,777,524) Class C shares ................................................................ - (29,491,412) Class D shares ................................................................ - (2,823,183) Paid-in-capital Class A shares ................................................................ - (30,981) Class B shares ................................................................ - (902,252) Class C shares ................................................................ - (52,402) Class D shares ................................................................ - (5,017) -------------- ---------------- Total Distributions .......................................................... - (558,518,620) -------------- ---------------- Net increase (decrease) from transactions in shares of beneficial interest ..... (297,667,074) 756,165,042 -------------- ---------------- Net Decrease ................................................................. (672,133,585) (2,451,948,366) Net Assets: Beginning of period ............................................................ 1,699,287,108 4,151,235,474 -------------- ---------------- End of Period (Including accumulated undistributed net investment income of $2,655,245 and $0, respectively) ................................................................. $1,027,153,523 $ 1,699,287,108 ============== ================
See Notes to Financial Statements 8 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 1. Organization and Accounting Policies Morgan Stanley Information Fund (the "Fund"), formerly Morgan Stanley Dean Witter Information Fund, is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is long-term capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in common stocks and securities convertible into common stocks of domestic and foreign companies which are involved in the communications and information industry. The Fund was organized as a Massachusetts business trust on December 8, 1994 and commenced operations on November 28, 1995. On July 28, 1997, the Fund converted to a multiple class share structure. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The 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. The following is a summary of significant accounting policies: A. Valuation of Investments - (1) an equity security listed or traded on the New York or American Stock Exchange, Nasdaq, or other exchange is valued at its latest sale price on that exchange prior to the time when assets are valued; if there were no sales that day, the security is valued at the latest bid price (in cases where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market pursuant to procedures adopted by the Trustees); and (2) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest available bid price; (3) when market quotations are not readily available, including circumstances under which it is determined by Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), formerly Morgan Stanley Dean Witter Advisors Inc., that sale or bid prices are not reflective of 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 Trustees; and (4) 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. 9 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 continued B. Accounting for Investments - Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date except for certain dividends on foreign securities which are recorded as soon as the Fund is informed after the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Joint Repurchase Agreement Account - Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements for cash, or U.S. Treasury or federal agency obligations. D. Multiple Class Allocations - Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. Foreign Currency Translation - The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are included in the Statement of Operations as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. F. Forward Foreign Currency Contracts - The Fund may enter into forward contracts which are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are included in the Statement of Operations as unrealized foreign currency gain or loss and in the Statement of Assets and Liabilities as part of the related foreign currency denominated asset or liability. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery. G. Federal Income Tax Status - 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. 10 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 continued H. Dividends and Distributions to Shareholders - The Fund records dividends and distributions to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. 2. Investment Management Agreement Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.75% to the portion of daily net assets not exceeding $500 million; 0.725% to the portion of daily net assets exceeding $500 million but not exceeding $3 billion; and 0.70% to the portion of daily net assets in excess of $3 billion. 3. Plan of Distribution Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C - up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of 11 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 continued contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled approximately $54,481,396 at March 31, 2002. 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 March 31, 2002, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.22% and 0.78%, respectively. The Distributor has informed the Fund that for the year ended March 31, 2002, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of approximately $3,327, $3,103,673, and $19,441, respectively and received approximately $67,971 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 March 31, 2002 aggregated $1,805,592,778 and $1,922,708,803, respectively. For the year ended March 31, 2002, the Fund incurred brokerage commissions of $2,250 with Morgan Stanley DW Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. For the year ended March 31, 2002, the Fund incurred brokerage commissions of $202,091 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund. Included in the payable for investments purchased at March 31, 2002 are unsettled trades with other Morgan Stanley funds aggregating $1,095,000. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At March 31, 2002, the Fund had transfer agent fees and expenses payable of approximately $41,000. 5. Federal Income Tax Status At March 31, 2002, the Fund had a net capital loss carryover of approximately $1,529,118,000 of which $253,526,000 will be available through March 31, 2009 and $1,275,592,000 will be available through March 31, 2010 to offset future capital gains to the extent provided by regulations. 12 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 continued Capital losses incurred after October 31, ("post-October losses") within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. The Fund incurred and will elect to defer net capital losses of approximately $176,840,000 during fiscal 2002. As of March 31, 2002, the Fund had temporary book/tax differences attributable to post-October losses, capital loss deferrals on wash sales and book amortization of discounts on debt securities and permanent book/tax differences attributable to tax adjustment on debt securities sold by the Fund and a net operating loss. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged $13,354,459, accumulated net realized loss was credited $1,321,733 and accumulated undistributed net investment income was credited $12,032,726. 6. Shares of Beneficial Interest Transactions in shares of beneficial interest were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED MARCH 31, 2002 MARCH 31, 2001 ---------------------------------- -------------------------------- SHARES AMOUNT SHARES AMOUNT --------------- ------------------ --------------- ---------------- CLASS A SHARES Sold .................................. 2,330,642 $ 27,527,191 2,728,261 $ 81,997,394 Reinvestment of distributions ......... - - 511,931 16,678,724 Redeemed .............................. (2,457,614) (29,025,386) (3,027,888) (82,400,616) ---------- -------------- ---------- -------------- Net increase (decrease) - Class A ..... (126,972) (1,498,195) 212,304 16,275,502 ---------- -------------- ---------- -------------- CLASS B SHARES Sold .................................. 7,558,512 98,608,543 33,169,252 1,024,763,271 Reinvestment of distributions ......... - - 15,052,183 478,358,385 Redeemed .............................. (31,887,582) (390,319,119) (33,971,904) (842,958,660) ----------- -------------- ----------- -------------- Net increase (decrease) - Class B ..... (24,329,070) (291,710,576) 14,249,531 660,162,996 ----------- -------------- ----------- -------------- CLASS C SHARES Sold .................................. 693,354 8,781,334 3,068,897 94,158,209 Reinvestment of distributions ......... - - 901,194 28,531,812 Redeemed .............................. (2,087,728) (25,762,850) (2,859,443) (72,192,933) ----------- -------------- ----------- -------------- Net increase (decrease) - Class C ..... (1,394,374) (16,981,516) 1,110,648 50,497,088 ----------- -------------- ----------- -------------- CLASS D SHARES Sold .................................. 2,356,937 30,174,502 1,691,977 45,471,216 Reinvestment of distributions ......... - - 67,373 2,219,266 Redeemed .............................. (1,401,855) (17,651,289) (736,372) (18,461,026) ----------- -------------- ----------- -------------- Net increase - Class D ................ 955,082 12,523,213 1,022,978 29,229,456 ----------- -------------- ----------- -------------- Net increase (decrease) in Fund ....... (24,895,334) $ (297,667,074) 16,595,461 $ 756,165,042 =========== ============== =========== ==============
13 Morgan Stanley Information Fund NOTES TO FINANCIAL STATEMENTS [] MARCH 31, 2002 continued 7. Purposes of and Risks Relating to Certain Financial Instruments The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. At March 31, 2002, there were no outstanding forward contracts. 8. Change in Accounting Policy Effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on the net assets of the Fund, but resulted in a $340,245 increase in the cost of securities and a corresponding increase to undistributed net investment income based on securities held as of March 31, 2001. The effect of this change for the year ended March 31, 2002 was to decrease net investment loss by $3,636,733, increase unrealized depreciation by $2,315,000, and increase net realized losses by $1,321,733. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change. 14 Morgan Stanley Information Fund FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED MARCH 31, ---------------------------------------- 2002 2001 -------------------- ------------------- Class A Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 14.69 $ 41.20 -------- -------- Income (loss) from investment operations: Net investment loss++ ................................ 0.00(4) (0.08) Net realized and unrealized gain (loss) ............... (3.40)(4) (21.28) --------- -------- Total income (loss) from investment operations ......... (3.40) (21.36) --------- -------- Less distributions from: Net realized gain ..................................... - (5.14) Paid-in-capital ....................................... - (0.01) --------- -------- Total distributions .................................... - (5.15) --------- -------- Net asset value, end of period ......................... $ 11.29 $ 14.69 ========= ======== Total Return+ ......................................... (23.15)% (58.71)% Ratios to Average Net Assets: Expenses ............................................... 1.32 %(3) 1.07 %(3) Net investment loss .................................... 0.00 %(3)(4) (0.26)%(3) Supplemental Data: Net assets, end of period, in thousands ................ $36,129 $48,873 Portfolio turnover rate ................................ 144 % 213 % FOR THE PERIOD FOR THE YEAR ENDED MARCH 31, JULY 28, 1997 ------------------------------------- THROUGH 2000 1999 MARCH 31, 1998 ------------------ ------------------ ------------------ Class A Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 19.23 $ 14.02 $ 11.43 ---------- ------- ------- Income (loss) from investment operations: Net investment loss++ ................................ (0.27) (0.11) (0.08) Net realized and unrealized gain (loss) ............... 26.41 7.04 2.67 ---------- ------- ------- Total income (loss) from investment operations ......... 26.14 6.93 2.59 ---------- ------- ------- Less distributions from: Net realized gain ..................................... (4.17) (1.72) - Paid-in-capital ....................................... - - - ---------- ------- ------- Total distributions .................................... (4.17) (1.72) - ---------- ------- ------- Net asset value, end of period ......................... $ 41.20 $ 19.23 $ 14.02 ========== ======= ======= Total Return+ ......................................... 155.88 % 54.33 % 22.66 %(1) Ratios to Average Net Assets: Expenses ............................................... 1.13 %(3) 1.24 %(3) 1.27 %(2) Net investment loss .................................... (0.82)%(3) (0.74)%(3) (0.93)%(2) Supplemental Data: Net assets, end of period, in thousands ................ $ 128,325 $ 5,253 $ 206 Portfolio turnover rate ................................ 282 % 419 % 218 %
------------ * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The effect of this change for the year ended March 31, 2002 was to decrease net investment loss and decrease net realized and unrealized gain (loss) per share by $0.04 and to decrease the ratio of net investment loss to average net assets by 0.27%. The Financial Highlights data presented in this table for prior periods has not been restated to reflect this change. See Notes to Financial Statements 15 Morgan Stanley Information Fund FINANCIAL HIGHLIGHTS continued
FOR THE YEAR ENDED MARCH 31, ------------------------------------------------ 2002 2001 ------------------------- ---------------------- Class B Shares Selected Per Share Data: Net asset value, beginning of period ................. $ 14.22 $ 40.37 --------- -------------- Income (loss) from investment operations: Net investment loss++ .............................. (0.10) (2) (0.29) Net realized and unrealized gain (loss) ............. (3.28) (2) (20.71) ---------- -------------- Total income (loss) from investment operations ....... (3.38) (21.00) ---------- -------------- Less distributions from: Net realized gain ................................... - (5.14) Paid-in-capital ..................................... - (0.01) ---------- -------------- Total distributions .................................. - (5.15) ---------- -------------- Net asset value, end of period ....................... $ 10.84 $ 14.22 ========== ============== Total Return+ ....................................... (23.70)% (59.07)% Ratios to Average Net Assets: Expenses ............................................. 2.10 %(1) 1.84 %(1) Net investment loss .................................. (0.78)%(1)(2) (1.02)%(1) Supplemental Data: Net assets, end of period, in thousands .............. $911,276 $1,540,834 Portfolio turnover rate .............................. 144 % 213 % FOR THE YEAR ENDED MARCH 31, ---------------------------------------------------- 2000 1999 1998* ----------------- ------------------ --------------- Class B Shares Selected Per Share Data: Net asset value, beginning of period ................. $ 18.99 $ 13.94 $ 8.94 -------- --------- --------- Income (loss) from investment operations: Net investment loss++ .............................. (0.37) (0.22) (0.18) Net realized and unrealized gain (loss) ............. 25.92 6.99 5.18 --------- --------- --------- Total income (loss) from investment operations ....... 25.55 6.77 5.00 --------- --------- --------- Less distributions from: Net realized gain ................................... (4.17) (1.72) - Paid-in-capital ..................................... - - - --------- --------- --------- Total distributions .................................. (4.17) (1.72) - --------- --------- --------- Net asset value, end of period ....................... $ 40.37 $ 18.99 $ 13.94 ========= ========= ========= Total Return+ ....................................... 154.62 % 53.44 % 56.10 % Ratios to Average Net Assets: Expenses ............................................. 1.58 %(1) 1.95 %(1) 2.05 % Net investment loss .................................. (1.27)%(1) (1.45)%(1) (1.54)% Supplemental Data: Net assets, end of period, in thousands .............. $3,799,844 $580,994 $267,384 Portfolio turnover rate .............................. 282 % 419 % 218 %
------------ * Prior to July 28, 1997, the Fund issued one class of shares. All shares of the Fund held prior to that date have been designated Class B shares. ++ 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) Effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The effect of this change for the year ended March 31, 2002 was to decrease net investment loss and decrease net realized and unrealized gain (loss) per share by $0.03 and to decrease the ratio of net investment loss to average net assets by 0.27%. The Financial Highlights data presented in this table for prior periods has not been restated to reflect this change. See Notes to Financial Statements 16 Morgan Stanley Information Fund FINANCIAL HIGHLIGHTS continued
FOR THE YEAR ENDED MARCH 31, ----------------------------------------- 2002 2001 --------------------- ------------------- Class C Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 14.17 $ 40.26 -------- -------- Income (loss) from investment operations: Net investment loss++ ................................ (0.07)(4) (0.30) Net realized and unrealized gain (loss) ............... (3.26)(4) (20.64) --------- -------- Total income (loss) from investment operations ......... (3.33) (20.94) --------- -------- Less distributions from: Net realized gain ..................................... - (5.14) Paid-in-capital ....................................... - (0.01) --------- -------- Total distributions .................................... - (5.15) --------- -------- Net asset value, end of period ......................... $ 10.84 $ 14.17 ========= ======== Total Return+ ......................................... (23.50)% (59.08)% Ratios to Average Net Assets: Expenses ............................................... 1.88 %(3) 1.89 %(3) Net investment loss .................................... (0.56)%(3)(4) (1.07)%(3) Supplemental Data: Net assets, end of period, in thousands ................ $52,145 $87,942 Portfolio turnover rate. ............................... 144 % 213 % FOR THE PERIOD FOR THE YEAR ENDED MARCH 31, JULY 28, 1997 ----------------------------------- THROUGH 2000 1999 MARCH 31, 1998 ---------------- ------------------ ------------------ Class C Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 18.98 $ 13.94 $ 11.43 ---------- -------- ------- Income (loss) from investment operations: Net investment loss++ ................................ (0.49) (0.24) (0.14) Net realized and unrealized gain (loss) ............... 25.94 7.00 2.65 ---------- -------- ------- Total income (loss) from investment operations ......... 25.45 6.76 2.51 ---------- -------- ------- Less distributions from: Net realized gain ..................................... (4.17) (1.72) - Paid-in-capital ....................................... - - - ---------- -------- Total distributions .................................... (4.17) (1.72) - ---------- -------- ------- Net asset value, end of period ......................... $ 40.26 $ 18.98 $ 13.94 ========== ======== ======= Total Return+ ......................................... 154.10 % 53.36 % 21.96 %(1) Ratios to Average Net Assets: Expenses ............................................... 1.89 %(3) 2.01 %(3) 2.05 %(2) Net investment loss .................................... (1.58)% (3) (1.51)%(3) (1.72)%(2) Supplemental Data: Net assets, end of period, in thousands ................ $205,073 $11,890 $ 249 Portfolio turnover rate. ............................... 282 % 419 % 218 %
------------ * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The effect of this change for the year ended March 31, 2002 was to decrease net investment loss and decrease net realized and unrealized gain (loss) per share by $0.03 and to decrease the ratio of net investment loss to average net assets by 0.27%. The Financial Highlights data presented in this table for prior periods has not been restated to reflect this change. See Notes to Financial Statements 17 Morgan Stanley Information Fund FINANCIAL HIGHLIGHTS continued
FOR THE YEAR ENDED MARCH 31, --------------------------------------- 2002 2001 ------------------- ------------------- Class D Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 14.86 $ 41.57 -------- -------- Income (loss) from investment operations: Net investment income (loss)++ ....................... 0.02 (4) (0.01) Net realized and unrealized gain (loss) ............... (3.43)(4) (21.55) -------- -------- Total income (loss) from investment operations ......... (3.41) (21.56) -------- -------- Less distributions from: Net realized gain ..................................... - (5.14) Paid-in-capital ....................................... - (0.01) -------- -------- Total distributions .................................... - (5.15) -------- -------- Net asset value, end of period ......................... $ 11.45 $ 14.86 ======== ======== Total Return+ ......................................... (22.95)% (58.66)% Ratios to Average Net Assets: Expenses ............................................... 1.10 %(3) 0.89 %(3) Net investment income (loss) ........................... 0.22 %(3)(4) (0.07)%(3) Supplemental Data: Net assets, end of period, in thousands ................ $27,603 $21,638 Portfolio turnover rate ................................ 144 % 213 % FOR THE PERIOD FOR THE YEAR ENDED MARCH 31, JULY 28, 1997* ------------------------------------- THROUGH 2000 1999 MARCH 31, 1998 ------------------ ------------------ ------------------ Class D Shares Selected Per Share Data: Net asset value, beginning of period ................... $ 19.33 $ 14.03 $ 11.43 -------- ------- ------- Income (loss) from investment operations: Net investment income (loss)++ ....................... (0.18) (0.08) (0.07) Net realized and unrealized gain (loss) ............... 26.59 7.10 2.67 -------- ------- ------- Total income (loss) from investment operations ......... 26.41 7.02 2.60 -------- ------- ------- Less distributions from: Net realized gain ..................................... (4.17) (1.72) - Paid-in-capital ....................................... - - - -------- ------- ------- Total distributions .................................... (4.17) (1.72) - -------- ------- ------- Net asset value, end of period ......................... $ 41.57 $ 19.33 $ 14.03 ======== ======= ======= Total Return+ ......................................... 156.56 % 54.96 % 22.75 %(1) Ratios to Average Net Assets: Expenses ............................................... 0.89 %(3) 1.01 %(3) 1.04 %(2) Net investment income (loss) ........................... (0.58)%(3) (0.51)%(3) (0.82)%(2) Supplemental Data: Net assets, end of period, in thousands ................ $17,994 $2,440 $1,464 Portfolio turnover rate ................................ 282 % 419 % 218 %
------------ * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses. (4) Effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, related to premiums and discounts on debt securities. The effect of this change for the year ended March 31, 2002 was to increase net investment income and decrease net realized and unrealized gain (loss) per share by $0.04 and to increase the ratio of net investment income to average net assets by 0.27%. The Financial Highlights data presented in this table for prior periods has not been restated to reflect this change. See Notes to Financial Statements 18 Morgan Stanley Information Fund INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Morgan Stanley Information Fund: We have audited the accompanying statement of assets and liabilities of Morgan Stanley Information Fund (the "Fund"), formerly Morgan Stanley Dean Witter Information Fund, including the portfolio of investments, as of March 31, 2002, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley Information Fund as of March 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York May 9, 2002 19 Morgan Stanley Information Fund TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Independent Trustee Registrant Served* ------------------------------------- ------------- ---------------- Michael Bozic (61) Trustee Trustee since c/o Mayer, Brown, Rowe & Maw April 1994 Counsel to the Independent Trustees 1675 Broadway New York, NY Edwin J. Garn (69) Trustee Trustee since c/o Summit Ventures LLC January 1993 1 Utah Center 201 S. Main Street Salt Lake City, UT Wayne E. Hedien (68) Trustee Trustee since c/o Mayer, Brown, Rowe & Maw September 1997 Counsel to the Independent Trustees 1675 Broadway New York, NY Number of Portfolios in Fund Complex Name, Age and Address of Overseen Independent Trustee Principal Occupation(s) During Past 5 Years by Trustee** ------------------------------------- ------------------------------------------------ -------------- Michael Bozic (61) Retired; Director or Trustee of the Morgan 129 c/o Mayer, Brown, Rowe & Maw Stanley Funds and the TCW/DW Term Trusts; Counsel to the Independent Trustees formerly Vice Chairman of Kmart Corporation 1675 Broadway (December 1998-October 2000), Chairman and New York, NY 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 (69) Director or Trustee of the Morgan Stanley 129 c/o Summit Ventures LLC Funds and the TCW/DW Term Trusts; formerly 1 Utah Center United States Senator (R-Utah) (1974-1992) 201 S. Main Street and Chairman, Senate Banking Committee Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice Chairman, Huntsman Corporation (chemical company); member of the Utah Regional Advisory Board of Pacific Corp. Wayne E. Hedien (68) Retired; Director or Trustee of the Morgan 129 c/o Mayer, Brown, Rowe & Maw Stanley Funds and the TCW/DW Term Trusts; Counsel to the Independent Trustees formerly associated with the Allstate 1675 Broadway Companies (1966-1994), most recently as New York, NY Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee ------------------------------------- ------------------------------------------------ Michael Bozic (61) Director of Weirton Steel Corporation. c/o Mayer, Brown, Rowe & Maw Counsel to the Independent Trustees 1675 Broadway New York, NY Edwin J. Garn (69) Director of Franklin Covey (time management c/o Summit Ventures LLC systems), BMW Bank of North America, Inc. 1 Utah Center (industrial loan corporation), United Space 201 S. Main Street Alliance (joint venture between Lockheed Martin Salt Lake City, UT and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (68) Director of The PMI Group Inc. (private c/o Mayer, Brown, Rowe & Maw mortgage insurance); Trustee Counsel to the Independent Trustees and Vice Chairman of The Field Museum of 1675 Broadway Natural History; director of various other New York, NY business and charitable organizations.
20 Morgan Stanley Information Fund TRUSTEE AND OFFICER INFORMATION continued
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Independent Trustee Registrant Served* --------------------------------------- ------------- --------------- Dr. Manuel H. Johnson (53) Trustee Trustee since c/o Johnson Smick International, Inc. July 1991 1133 Connecticut Avenue, N.W. Washington, D.C. Michael E. Nugent (65) Trustee Trustee since c/o Triumph Capital, L.P. July 1991 237 Park Avenue New York, NY John L. Schroeder (71) Trustee Trustee since c/o Mayer, Brown, Rowe & Maw April 1994 Counsel to the Independent Trustees 1675 Broadway New York, NY Number of Portfolios in Fund Complex Name, Age and Address of Overseen Independent Trustee Principal Occupation(s) During Past 5 Years by Trustee** --------------------------------------- ------------------------------------------------ -------------- Dr. Manuel H. Johnson (53) Chairman of the Audit Committee and Director 129 c/o Johnson Smick International, Inc. or Trustee of the Morgan Stanley Funds and the 1133 Connecticut Avenue, N.W. TCW/DW Term Trusts; Senior Partner, Johnson Washington, D.C. Smick International, Inc., a consulting firm; 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. Michael E. Nugent (65) Chairman of the Insurance Committee and 207 c/o Triumph Capital, L.P. Director or Trustee of the Morgan Stanley 237 Park Avenue Funds and the TCW/DW Term Trusts; director/ New York, NY trustee of various investment companies managed by Morgan Stanley Investment Management Inc. and Morgan Stanley Investments LP (since July 2001); General Partner, Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). John L. Schroeder (71) Retired; Chairman of the Derivatives Committee 129 c/o Mayer, Brown, Rowe & Maw and Director or Trustee of the Morgan Stanley Counsel to the Independent Trustees Funds and the TCW/DW Term Trusts; formerly 1675 Broadway Executive Vice President and Chief Investment New York, NY Officer of the Home Insurance Company (August 1991-September 1995). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee --------------------------------------- ---------------------------------------------- Dr. Manuel H. Johnson (53) Director of NVR, Inc. (home construction); c/o Johnson Smick International, Inc. Chairman and Trustee of the Financial 1133 Connecticut Avenue, N.W. Accounting Foundation (oversight organization Washington, D.C. of the Financial Accounting Standards Board). Michael E. Nugent (65) Director of various business organizations. c/o Triumph Capital, L.P. 237 Park Avenue New York, NY John L. Schroeder (71) Director of Citizens Communications Company c/o Mayer, Brown, Rowe & Maw (telecommunications company). Counsel to the Independent Trustees 1675 Broadway New York, NY
21 Morgan Stanley Information Fund TRUSTEE AND OFFICER INFORMATION continued Interested Trustees:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Interested Trustee Registrant Served* ------------------------------ ----------------------- --------------- Charles A. Fiumefreddo (68) Chairman, Director or Trustee since c/o Morgan Stanley Trust Trustee and Chief July 1991 Harborside Financial Center, Executive Officer Plaza Two, Jersey City, NJ James F. Higgins (54) Trustee Trustee since c/o Morgan Stanley Trust June 2000 Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (58) Trustee Trustee since 1585 Broadway April 1994 New York, NY Number of Portfolios in Fund Complex Name, Age and Address of Overseen Interested Trustee Principal Occupation(s) During Past 5 Years by Trustee** ------------------------------ ------------------------------------------------- -------------- Charles A. Fiumefreddo (68) Chairman, Director or Trustee and Chief 129 c/o Morgan Stanley Trust Executive Officer of the Morgan Stanley Funds Harborside Financial Center, and the TCW/DW Term Trusts; formerly Plaza Two, Chairman, Chief Executive Officer and Director Jersey City, NJ of the Investment Manager, the Distributor and Morgan Stanley Services, Executive Vice President and Director of Morgan Stanley DW, Chairman and Director of the Transfer Agent, and Director and/or officer of various Morgan Stanley subsidiaries (until June 1998). James F. Higgins (54) Senior Advisor of Morgan Stanley (since 129 c/o Morgan Stanley Trust August 2000); Director of the Distributor and Harborside Financial Center, Dean Witter Realty Inc.; Director or Trustee of Plaza Two, the Morgan Stanley Funds and the TCW/DW Jersey City, NJ Term Trusts (since June 2000); previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (58) Director or Trustee of the Morgan Stanley 129 1585 Broadway Funds and the TCW/DW Term Trusts; Chairman New York, NY of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries. Name, Age and Address of Interested Trustee Other Directorships Held by Trustee ------------------------------ -------------------------------------------- Charles A. Fiumefreddo (68) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (54) None c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Philip J. Purcell (58) Director of American Airlines, Inc. and its 1585 Broadway parent company, AMR Corporation. New York, NY
------------ * Each Trustee serves an indefinite term, until his or her successor is elected. ** The Fund Complex includes all open and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Advisors Inc. and any funds that have an investment advisor that is an affiliated person of Morgan Stanley Investment Advisors Inc. (including but not limited to, Morgan Stanley Investment Management Inc., Morgan Stanley Investments LP and Van Kampen Asset Management Inc.). 22 Morgan Stanley Information Fund TRUSTEE AND OFFICER INFORMATION continued Officers:
Term of Office and Position(s) Length of Name, Age and Address of Held with Time Executive Officer Registrant Served* ----------------------------- ----------------- ----------------- Mitchell M. Merin (48) President President since 1221 Avenue of the Americas May 1999 New York, NY Barry Fink (47) Vice President, Vice President, 1221 Avenue of the Americas Secretary and Secretary New York, NY General Counsel and General Counsel since February 1997 Thomas F. Caloia (56) Treasurer Treasurer since c/o Morgan Stanley Trust April 1989 Harborside Financial Center, Plaza Two Jersey City, NJ Armon Bar-Tur (32) Vice President Since May 2000 1221 Avenue of the Americas New York, NY Thomas Bergeron (37) Vice President Since May 2001 1221 Avenue of the Americas New York, NY PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS ------------------------------------------------------------------ President and Chief Operating Officer of Morgan Stanley Investment Management (since December 1998); President, Director (since April 1997) and Chief Executive Officer (since June 1998) of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor (since June 1998); Chairman and Chief Executive Officer (since June 1998) and Director (since January 1998) of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Morgan Stanley Funds and TCW/DW Term Trusts (since May 1999); Trustee of various Van Kampen investment companies (since December 1999); previously Chief Strategic Officer of the Investment Manager and Morgan Stanley Services and Executive Vice President of the Distributor (April 1997-June 1998), Vice President of the Morgan Stanley Funds (May 1997-April 1999), and Executive Vice President of Morgan Stanley. General Counsel (since May 2000) and Managing Director (since December 2000) of Morgan Stanley Investment Management; Managing Director (since December 2000), and Secretary and General Counsel (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Vice President, Secretary and General Counsel of the Morgan Stanley Funds and TCW/DW Term Trusts (since February 1997); Vice President and Secretary of the Distributor; previously, Senior Vice President, Assistant Secretary and Assistant General Counsel of the Investment Manager and Morgan Stanley Services. First Vice President and Assistant Treasurer of the Investment Manager, the Distributor and Morgan Stanley Services; Treasurer of the Morgan Stanley Funds. Executive Director and Portfolio Manager of the Investment Manager for over 5 years. Vice President and Portfolio Manager of the Investment Manager; previously a Financial Analyst with Bank Boston (1993-1997).
------------ * Each Officer serves an indefinite term, until his or her successor is elected. 23 [MORGAN STANLEY LOGO] TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Michael E. Nugent Phillip J. Purcell John L. Schroeder [GRAPHIC OMITTED] OFFICERS Charles A. Fiumefreddo Chairman and Chief Executive Officer Mitchell M. Merin President Barry Fink Vice President, Secretary and General Counsel Armon Bar-Tur Vice President Thomas Bergeron Vice President Thomas F. Caloia Treasurer MORGAN STANLEY TRANSFER AGENT INFORMATION FUND Morgan Stanley Trust Harborside Financial Center -- Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800)869-NEWS. This report is not authorized for distribution to prospective investors in Annual Report the Fund unless preceded or accompanied March 31, 2002 by an effective Prospectus. Read the ----------------- Prospectus carefully before investing. Morgan Stanley Distributors Inc., member NASD. 37929RPT