UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: | 811-21248 | |||||||
| ||||||||
Morgan Stanley Allocator Fund | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
| ||||||||
522 Fifth Avenue, New York, New York |
| 10036 | ||||||
(Address of principal executive offices) |
| (Zip code) | ||||||
| ||||||||
Ronald E. Robison 522 Fifth Avenue, New York, New York 10036 | ||||||||
(Name and address of agent for service) | ||||||||
| ||||||||
Registrant’s telephone number, including area code: | 212-296-6990 |
| ||||||
| ||||||||
Date of fiscal year end: | January 31, 2008 |
| ||||||
| ||||||||
Date of reporting period: | July 31, 2007 |
| ||||||
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Allocator Fund performed during the semiannual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being offered.
Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that 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 six months ended July 31, 2007
Total Return for the 6 Months Ended July 31, 2007 | |||||||||||||||||||||||||||
Class A | Class B | Class C | Class D | S&P 500® Index1 | Lehman Brothers U.S. Aggregate Index2 | Lipper Flexible Portfolio Funds Index3 | |||||||||||||||||||||
1.30 | % | 0.97 | % | 0.98 | % | 1.50 | % | 2.10 | % | 1.86 | % | 4.46 | % |
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.
Market Conditions
Global economic conditions remained positive throughout the six-month reporting period ending July 31, 2007. Stable gross domestic product (GDP) growth in the U.S. and above-trend growth in most overseas economies provided a positive backdrop for equity, fixed income and short-term investments.
In the U.S., moderating inflation reassured investors that the Federal Open Market Committee (the "Fed") had most likely completed its recent policy tightening activity. In fact, the Fed held the federal funds target rate at 5.25 percent throughout the period. U.S. GDP growth averaged about 2.5 percent for the period under review, indicating that monetary policy had contributed to the economy's slowdown.
Overseas, both developed and developing economies posted solid growth, and did so with little inflationary pressures of their own. Europe benefited from accelerating export activity, while the United Kingdom posted strong real estate and investment gains. China, India, Brazil and Eastern Europe encouraged both domestic and external capital investment, fueling growth and increased demand for labor. Japan struggled to join the global recovery, as domestic spending and investment activity within that country remained sluggish. Echoing the actions taken by the U.S. Fed earlier, central banks around the world began to raise local interest rates in an attempt to avoid the potential inflation spirals that had choked off growth cycles in the past.
Performance Analysis
All share classes of Morgan Stanley Allocator Fund underperformed the S&P 500® Index, the Lehman Brothers U.S. Aggregate Index and the Lipper Flexible Portfolio Funds Index for the six months ended July 31, 2007, assuming no deduction of applicable sales charges.
Morgan Stanley Allocator Fund's flexible investment approach allows investment across stocks, bonds, cash and other investment classes. To determine the specific allocation among asset classes throughout the period, we rigorously evaluate a comprehensive array of quantitative and qualitative factors. The quantitative analysis comprises an extensive asset class review of many macroeconomic variables, with primary focus on three core factors: monetary policy and its impact on liquidity, inflation trends and corporate profitability. A second, more qualitative process then broadens the analysis to determine which individual sectors and industries would offer the best opportunities, in our view, given the macroeconomic climate.
2
We maintained a consistent asset allocation throughout the period under review, as a more defensive stance toward fixed income contrasted with a positive view toward equities. As of July 31, 2007, the Fund's asset allocation stood at 73 percent equity (versus a neutral benchmark weight of 55 percent*), 12 percent fixed income (versus a neutral benchmark weight of 35 percent), 13 percent cash and short-term investments (versus a neutral benchmark weight of 10 percent) and 2 percent other.
Within the stock portion, the Fund's sector exposures also remained generally consistent throughout the period, with only minor changes to our individual security holdings. Among the 10 S&P 500 Index broad equity sectors, the Fund held its largest exposures in the information technology, financials, and health care sectors, while its smallest sector exposures included utilities, materials, and telecommunications.
The fixed income component of the Fund remained generally defensive throughout the period under review. Long-term U.S. government bond exposure represented about 60 percent of all fixed income securities, with the balance held in corporates, mortgages and other credits.
There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the Fund in the future.
*Source: Morgan Stanley Investment Management. The "neutral weight" reflects the average allocation held by U.S. pension funds.
TOP 10 HOLDINGS | |||||||
U.S. Treasury Securities | 6.2 | % | |||||
Exxon Mobil Corp. | 3.4 | ||||||
General Electric Co. | 2.3 | ||||||
AT&T Inc. | 2.0 | ||||||
Microsoft Corp. | 2.0 | ||||||
Citigroup Inc. | 1.8 | ||||||
Bank of America Corp. | 1.7 | ||||||
UST Inc. | 1.7 | ||||||
Kraft Foods Inc. (Class A) | 1.6 | ||||||
Altria Group, Inc. | 1.4 | ||||||
PORTFOLIO COMPOSITION* | |||||||
Common Stocks | 74.6 | % | |||||
Short-Term Investments | 13.6 | ||||||
U.S. Government Agencies & Obligations | 6.8 | ||||||
Convertible Bonds | 1.7 | ||||||
Other Securities | 1.6 | ||||||
Corporate Bonds | 1.3 | ||||||
Convertible Preferred Stocks | 0.4 |
*Does not include open long futures with an underlying face amount of $7,118,016 with unrealized appreciation of $10,844 and open short futures with an underlying face amount of $4,448,251 with unrealized depreciation of $45,969.
Data as of July 31, 2007. Subject to change daily. All percentages for top 10 holdings are as a percentage of net assets and all percentages for portfolio composition are as a percentage of total investments. 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.
3
Investment Strategy
The Fund's "Investment Adviser," Morgan Stanley Investment Advisors Inc., actively allocates the Fund's assets among the three major asset categories of equity securities (including depositary receipts), fixed-income securities and money market instruments, the combination of which will be varied from time to time both with respect to industry sector weightings and types of securities in response to changing market and economic trends. There is no limit as to the percentage of assets that may be allocated to any one asset class. The Fund may invest 100 percent of its assets in any one of the three major asset categories mentioned above at any time. It is anticipated that there will be significant fluctuations in the allocations over time and, thus, the Fund may exhibit higher volatility than other funds. The Investment Adviser generally considers selling an investment when it determines the security no longer satisfies its in vestment criteria.
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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual 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 access ing 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.
4
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
Average Annual Total Returns—Period Ended July 31, 2007 | |||||||||||||||||||||||||||||||||||
Symbol | Class A Shares* (since 02/26/03) ALRAX | Class B Shares** (since 02/26/03) ALRBX | Class C Shares† (since 02/26/03) ALRCX | Class D Shares†† (since 02/26/03) ALRDX | |||||||||||||||||||||||||||||||
1 Year | 11.39% 5.55 | 4 5 | 10.56% 5.58 | 4 5 | 10.54% 9.54 | 4 5 | 11.63% — | 4 | |||||||||||||||||||||||||||
Since Inception | 9.05 7.73 | 4 5 | 8.23 7.88 | 4 5 | 8.24 8.24 | 4 5 | 9.31 — | 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 table does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, and Class D shares will vary due to differences in sales charges and expenses.
* 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 ®) 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 is unmanaged and its 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 Lehman Brothers U.S. Aggregate Index tracks the performance of U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-based securities. The Index is unmanaged and its 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 Flexible Portfolio Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Flexible Portfolio Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. The Fund is in the Lipper Flexible Portfolio Funds classification as of the date of this report.
(4) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.
(5) 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.
6
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 02/01/07 – 07/31/07.
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 Account Value | Ending Account Value | Expenses Paid During Period * | |||||||||||||
02/01/07 | 07/31/07 | 02/01/07 – 07/31/07 | |||||||||||||
Class A | |||||||||||||||
Actual (1.30% return) | $ | 1,000.00 | $ | 1,013.00 | $ | 7.29 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,017.55 | $ | 7.30 | |||||||||
Class B | |||||||||||||||
Actual (0.97% return) | $ | 1,000.00 | $ | 1,009.70 | $ | 11.01 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,013.84 | $ | 11.03 | |||||||||
Class C | |||||||||||||||
Actual (0.98% return) | $ | 1,000.00 | $ | 1,009.80 | $ | 11.01 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,013.84 | $ | 11.03 | |||||||||
Class D | |||||||||||||||
Actual (1.50% return) | $ | 1,000.00 | $ | 1,015.00 | $ | 6.05 | |||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,018.79 | $ | 6.06 |
* Expenses are equal to the Fund's annualized expense ratios of 1.46%, 2.21%, 2.21% and 1.21% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
7
Investment Advisory Agreement Approval
Nature, Extent and Quality of Services
The Board reviewed and considered the nature and extent of the investment advisory services provided by the Investment Adviser under the Advisory Agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund's Administrator under the Administration Agreement, including accounting, clerical, bookkeeping, compliance, business management and planning, and the provision of supplies, office space and utilities at the Investment Adviser's expense. (The Investment Adviser and the Administrator together are referred to as the "Adviser" and the Advisory and Administration Agreements together are referred to as the "Management Agreement.") The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advi sers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the advisory and administrative services to the Fund. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory.
Performance Relative to Comparable Funds Managed by Other Advisers
On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund's performance for the one- and three-year periods ended November 30, 2006 and for the period February 28, 2003 to November 30, 2006, as shown in a report provided by Lipper (the "Lipper Report"), compared to the performance of comparable funds selected by Lipper. The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. The Board noted that a new portfolio manager had recently been added to the Fund. The Board concluded that the Fund's performance was acceptable.
Fees Relative to Other Proprietary Funds Managed by the Adviser with Comparable Investment Strategies
The Board noted that the Adviser did not manage any other proprietary funds with investment strategies comparable to those of the Fund.
Fees and Expenses Relative to Comparable Funds Managed by Other Advisers
The Board reviewed the advisory and administrative fee (together, the "management fee") rate and total expense ratio of the Fund as compared to the average management fee rate and average total expense ratio for funds,
8
selected by Lipper (the "expense peer group"), managed by other advisers with investment strategies comparable to those of the Fund, as shown in the Lipper Report. The Board concluded that the Fund's management fee rate and total expense ratio were acceptable given the services provided.
Breakpoints and Economies of Scale
The Board reviewed the structure of the Fund's management fee schedule under the Management Agreement and noted that it does not include any breakpoints. The Board considered that the Fund's assets were relatively small. The Board concluded that it would be premature to consider economies of scale as a factor in approving the Management Agreement at the present time.
Profitability of the Adviser and Affiliates
The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund.
Fall-Out Benefits
The Board considered so-called "fall-out benefits" derived by the Adviser and affiliates from their relationship with the Fund and the Morgan Stanley Fund Complex, such as sales charges on sales of Class A shares and "float" benefits derived from handling of checks for purchases and sales of Fund shares, through a broker-dealer affiliate of the Adviser and "soft dollar" benefits (discussed in the next section). The Board also considered that a broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for distribution and shareholder services. The Board concluded that the float benefits were relatively small and the sales charges and 12b-1 fees were competitive with those of other broker-dealers.
Soft Dollar Benefits
The Board considered whether the Adviser realizes any benefits as a result of brokerage transactions executed through "soft dollar" arrangements. Under such arrangements, brokerage commissions paid by the Fund and/or other funds managed by the Adviser would be used to pay for research that a securities broker obtains from third parties, or to pay for both research and execution services from securities brokers who effect transactions for the Fund. The Board recognized that the receipt of such research from brokers may reduce the Adviser's costs but concluded that the receipt of such research strengthens the investment management resources of the Adviser, which may ultimately benefit the Fund and other funds in the Morgan Stanley Fund Complex.
9
Adviser Financially Sound and Financially Capable of Meeting the Fund's Needs
The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement.
Historical Relationship Between the Fund and the Adviser
The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Fund's operations and the Board's confidence in the competence and integrity of the senior managers and key personnel of the Adviser. The Board concluded that it is beneficial for the Fund to continue its relationship with the Adviser.
Other Factors and Current Trends
The Board considered the controls and procedures adopted and implemented by the Adviser and monitored by the Fund's Chief Compliance Officer and concluded that the conduct of business by the Adviser indicates a good faith effort on its part to adhere to high ethical standards in the conduct of the Fund's business.
General Conclusion
On April 25, 2007, after considering and weighing all of the above factors, the Board concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement for another year until April 30, 2008. On June 20, 2007, the Board again considered and weighed all of the above factors and concluded that it would be in the best interest of the Fund and its shareholders to approve renewal of the Management Agreement to continue until June 30, 2008.
10
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited)
NUMBER OF SHARES | VALUE | ||||||||||
Common Stocks (74.8%) | |||||||||||
Advertising/Marketing Services (1.0%) | |||||||||||
13,286 | Omnicom Group Inc. | $ | 689,145 | ||||||||
Aerospace & Defense (2.4%) | |||||||||||
5,865 | Boeing Co. (The) | 606,617 | |||||||||
2,377 | General Dynamics Corp. | 186,737 | |||||||||
692 | L-3 Communications Holdings, Inc. | 67,512 | |||||||||
2,156 | Lockheed Martin Corp. | 212,323 | |||||||||
2,093 | Northrop Grumman Corp. | 159,277 | |||||||||
4,772 | Raytheon Co. | 264,178 | |||||||||
2,646 | Rockwell Collins, Inc. | 181,780 | |||||||||
1,678,424 | |||||||||||
Agricultural Commodities/Milling (0.4%) | |||||||||||
8,922 | Archer-Daniels-Midland Co. | 299,779 | |||||||||
Biotechnology (2.9%) | |||||||||||
15,753 | Amgen Inc.* | 846,566 | |||||||||
4,283 | Biogen Idec Inc.* | 242,161 | |||||||||
4,532 | Celgene Corp.* | 274,458 | |||||||||
3,644 | Genzyme Corp.* | 229,827 | |||||||||
11,644 | Gilead Sciences, Inc.* | 433,506 | |||||||||
296 | Millipore Corp.* | 23,269 | |||||||||
2,049,787 | |||||||||||
Broadcasting (0.0%) | |||||||||||
968 | Citadel Broadcasting Corp. | 4,859 | |||||||||
Chemicals: Major Diversified (0.4%) | |||||||||||
6,561 | Dow Chemical Co. (The) | 285,272 | |||||||||
Coal (0.1%) | |||||||||||
977 | CONSOL Energy, Inc. | 40,692 | |||||||||
Commercial Printing/Forms (0.1%) | |||||||||||
1,332 | Donnelley (R.R.) & Sons Co. | 56,290 | |||||||||
Computer Communications (1.6%) | |||||||||||
2,348 | Avaya Inc.* | 38,836 | |||||||||
33,278 | Cisco Systems, Inc.* | 962,067 | |||||||||
3,079 | Juniper Networks, Inc.* | 92,247 | |||||||||
909 | QLogic Corp.* | 12,081 | |||||||||
1,105,231 |
See Notes to Financial Statements
11
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Computer Peripherals (0.4%) | |||||||||||
12,911 | EMC Corp.* | $ | 238,983 | ||||||||
553 | Lexmark International, Inc. (Class A)* | 21,866 | |||||||||
2,090 | Network Appliance, Inc.* | 59,231 | |||||||||
320,080 | |||||||||||
Computer Processing Hardware (2.5%) | |||||||||||
4,325 | Apple Inc.* | 569,862 | |||||||||
13,048 | Dell Inc.* | 364,953 | |||||||||
15,019 | Hewlett-Packard Co. | 691,325 | |||||||||
960 | NCR Corp.* | 50,131 | |||||||||
18,902 | Sun Microsystems, Inc.* | 96,400 | |||||||||
1,772,671 | |||||||||||
Contract Drilling (0.4%) | |||||||||||
1,615 | Nabors Industries Ltd. (Bermuda)* | 47,223 | |||||||||
631 | Noble Corp. (Cayman Islands) | 64,652 | |||||||||
575 | Rowan Companies, Inc. | 24,259 | |||||||||
1,501 | Transocean Inc. (Cayman Islands)* | 161,282 | |||||||||
297,416 | |||||||||||
Department Stores (0.6%) | |||||||||||
6,755 | Kohl's Corp.* | 410,704 | |||||||||
Discount Stores (0.7%) | |||||||||||
8,362 | Costco Wholesale Corp. | 500,048 | |||||||||
Drugstore Chains (0.1%) | |||||||||||
1,820 | CVS Caremark Corp. | 64,046 | |||||||||
Electrical Products (0.4%) | |||||||||||
1,038 | Cooper Industries, Ltd. (Class A) (Bermuda) | 54,931 | |||||||||
4,892 | Emerson Electric Co. | 230,266 | |||||||||
763 | Molex Inc. | 21,623 | |||||||||
306,820 | |||||||||||
Electronic Components (0.1%) | |||||||||||
970 | Jabil Circuit, Inc. | 21,854 | |||||||||
1,058 | SanDisk Corp.* | 56,741 | |||||||||
3,242 | Sanmina-SCI Corp.* | 8,915 | |||||||||
5,184 | Solectron Corp.* | 19,492 | |||||||||
107,002 |
See Notes to Financial Statements
12
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Electronic Equipment/Instruments (0.3%) | |||||||||||
2,387 | Agilent Technologies, Inc.* | $ | 91,064 | ||||||||
1,402 | JDS Uniphase Corp.* | 20,091 | |||||||||
1,039 | Rockwell Automation, Inc. | 72,720 | |||||||||
499 | Tektronix, Inc. | 16,392 | |||||||||
200,267 | |||||||||||
Electronic Production Equipment (0.6%) | |||||||||||
8,388 | Applied Materials, Inc. | 184,872 | |||||||||
3,959 | ASML Holding N.V. (Netherlands)* | 116,167 | |||||||||
1,046 | KLA-Tencor Corp. | 59,402 | |||||||||
680 | Novellus Systems, Inc.* | 19,394 | |||||||||
1,147 | Teradyne, Inc.* | 17,996 | |||||||||
318 | Verigy Ltd (Singapore)* | 7,778 | |||||||||
405,609 | |||||||||||
Electronics/Appliances (1.4%) | |||||||||||
18,567 | SONY CORP (ADR) (Japan) | 979,224 | |||||||||
Engineering & Construction (0.1%) | |||||||||||
461 | Fluor Corp. | 53,250 | |||||||||
Environmental Services (0.2%) | |||||||||||
1,464 | Allied Waste Industries, Inc.* | 18,842 | |||||||||
3,386 | Waste Management, Inc. | 128,770 | |||||||||
147,612 | |||||||||||
Finance/Rental/Leasing (0.1%) | |||||||||||
1,336 | CIT Group, Inc. | 55,016 | |||||||||
370 | Ryder System, Inc. | 20,117 | |||||||||
75,133 | |||||||||||
Financial Conglomerates (3.0%) | |||||||||||
27,876 | Citigroup Inc. | 1,298,185 | |||||||||
18,968 | JPMorgan Chase & Co. | 834,782 | |||||||||
2,132,967 | |||||||||||
Financial Publishing/Services (0.2%) | |||||||||||
772 | Equifax Inc. | 31,235 | |||||||||
1,683 | Moody's Corp. | 90,545 | |||||||||
121,780 |
See Notes to Financial Statements
13
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Food: Major Diversified (2.9%) | |||||||||||
17,652 | Kellogg Co. | $ | 914,550 | ||||||||
35,457 | Kraft Foods Inc. (Class A) | 1,161,217 | |||||||||
2,075,767 | |||||||||||
Forest Products (0.2%) | |||||||||||
1,676 | Weyerhaeuser Co. | 119,398 | |||||||||
Gas Distributors (0.1%) | |||||||||||
2,585 | Spectra Energy Corp. | 65,840 | |||||||||
Hospital/Nursing Management (0.1%) | |||||||||||
1,219 | Health Management Associates, Inc. (Class A) | 9,825 | |||||||||
400 | Manor Care, Inc. | 25,340 | |||||||||
2,425 | Tenet Healthcare Corp.* | 12,562 | |||||||||
47,727 | |||||||||||
Hotels/Resorts/Cruiselines (0.1%) | |||||||||||
1,695 | Starwood Hotels & Resorts Worldwide, Inc. | 106,717 | |||||||||
Household/Personal Care (1.1%) | |||||||||||
11,729 | Colgate-Palmolive Co. | 774,114 | |||||||||
Industrial Conglomerates (3.9%) | |||||||||||
42,116 | General Electric Co. | 1,632,416 | |||||||||
7,111 | Honeywell International, Inc. | 408,954 | |||||||||
1,603 | Textron Inc. | 180,963 | |||||||||
7,828 | United Technologies Corp. | 571,209 | |||||||||
2,793,542 | |||||||||||
Information Technology Services (1.4%) | |||||||||||
897 | Citrix Systems, Inc.* | 32,444 | |||||||||
8,450 | International Business Machines Corp. | 934,992 | |||||||||
967,436 | |||||||||||
Integrated Oil (5.7%) | |||||||||||
10,303 | Chevron Corp. | 878,434 | |||||||||
7,378 | ConocoPhillips | 596,438 | |||||||||
28,596 | Exxon Mobil Corp. | 2,434,377 | |||||||||
1,014 | Hess Corp. | 62,057 | |||||||||
868 | Murphy Oil Corp. | 53,851 | |||||||||
4,025,157 |
See Notes to Financial Statements
14
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Internet Software/Services (1.1%) | |||||||||||
1,091 | Google Inc. (Class A)* | $ | 556,410 | ||||||||
1,332 | VeriSign, Inc.* | 39,547 | |||||||||
6,905 | Yahoo! Inc.* | 160,541 | |||||||||
756,498 | |||||||||||
Investment Banks/Brokers (3.1%) | |||||||||||
1,355 | Ameriprise Financial, Inc. | 81,666 | |||||||||
1,251 | Bear Stearns Companies, Inc. (The) | 151,646 | |||||||||
135 | CME Group Inc. | 74,587 | |||||||||
3,679 | E*TRADE Financial Corp.* | 68,135 | |||||||||
3,881 | Goldman Sachs Group, Inc. (The) | 730,948 | |||||||||
4,627 | Lehman Brothers Holdings Inc. | 286,874 | |||||||||
7,638 | Merrill Lynch & Co., Inc. | 566,740 | |||||||||
10,996 | Schwab (Charles) Corp. (The) | 221,349 | |||||||||
2,181,945 | |||||||||||
Investment Managers (0.6%) | |||||||||||
497 | Federated Investors, Inc. (Class B) | 17,897 | |||||||||
833 | Franklin Resources, Inc. | 106,099 | |||||||||
1,192 | Janus Capital Group Inc. | 35,832 | |||||||||
710 | Legg Mason, Inc. | 63,900 | |||||||||
1,475 | Price (T.) Rowe Group Inc. | 76,892 | |||||||||
1,867 | State Street Corp. | 125,145 | |||||||||
425,765 | |||||||||||
Major Banks (4.1%) | |||||||||||
25,434 | Bank of America Corp. | 1,206,080 | |||||||||
6,409 | Bank of New York Mellon Corp. | 272,703 | |||||||||
1,004 | Comerica Inc. | 52,871 | |||||||||
10,379 | U.S. Bancorp | 310,851 | |||||||||
8,933 | Wachovia Corp. | 421,727 | |||||||||
19,107 | Wells Fargo & Co. | 645,243 | |||||||||
2,909,475 | |||||||||||
Major Telecommunications (3.2%) | |||||||||||
36,294 | AT&T Inc. | 1,421,273 | |||||||||
982 | Embarq Corp. | 60,678 | |||||||||
19,229 | Verizon Communications, Inc. | 819,540 | |||||||||
2,301,491 |
See Notes to Financial Statements
15
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Managed Health Care (1.3%) | |||||||||||
2,821 | Aetna Inc.* | $ | 135,605 | ||||||||
1,581 | CIGNA Corp. | 81,643 | |||||||||
806 | Coventry Health Care, Inc.* | 44,983 | |||||||||
783 | Humana Inc.* | 50,182 | |||||||||
6,875 | UnitedHealth Group Inc. | 332,956 | |||||||||
3,264 | WellPoint Inc.* | 245,192 | |||||||||
890,561 | |||||||||||
Media Conglomerates (1.3%) | |||||||||||
12,605 | Disney (Walt) Co. (The) | 415,965 | |||||||||
25,739 | Time Warner, Inc. | 495,733 | |||||||||
911,698 | |||||||||||
Medical Distributors (0.4%) | |||||||||||
1,039 | AmerisourceBergen Corp. | 48,947 | |||||||||
2,106 | Cardinal Health, Inc. | 138,427 | |||||||||
1,459 | McKesson Corp. | 84,272 | |||||||||
715 | Patterson Companies Inc.* | 25,647 | |||||||||
297,293 | |||||||||||
Medical Specialties (1.8%) | |||||||||||
857 | Applera Corp. - Applied Biosystems Group | 26,756 | |||||||||
498 | Bard (C.R.), Inc. | 39,078 | |||||||||
276 | Bausch & Lomb Inc. | 17,645 | |||||||||
3,365 | Baxter International Inc. | 176,999 | |||||||||
1,262 | Becton, Dickinson & Co. | 96,366 | |||||||||
1,226 | Biomet, Inc. | 55,820 | |||||||||
6,474 | Boston Scientific Corp.* | 85,133 | |||||||||
802 | Hospira, Inc.* | 31,013 | |||||||||
6,169 | Medtronic, Inc. | 312,583 | |||||||||
684 | PerkinElmer, Inc. | 19,036 | |||||||||
1,806 | St. Jude Medical, Inc.* | 77,911 | |||||||||
1,456 | Stryker Corp. | 90,898 | |||||||||
2,132 | Thermo Fisher Scientific, Inc.* | 111,312 | |||||||||
503 | Waters Corp.* | 29,305 | |||||||||
1,302 | Zimmer Holdings, Inc.* | 101,244 | |||||||||
1,271,099 | |||||||||||
Miscellaneous Commercial Services (0.0%) | |||||||||||
830 | Cintas Corp. | 30,345 |
See Notes to Financial Statements
16
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Motor Vehicles (0.9%) | |||||||||||
18,336 | HONDA MOTOR CO., LTD. (ADR) (Japan) | $ | 660,463 | ||||||||
Office Equipment/Supplies (0.1%) | |||||||||||
653 | Avery Dennison Corp. | 40,055 | |||||||||
Oil & Gas Pipelines (0.2%) | |||||||||||
3,325 | El Paso Corp. | 55,361 | |||||||||
2,893 | Williams Companies, Inc. (The) | 93,299 | |||||||||
148,660 | |||||||||||
Oil & Gas Production (1.3%) | |||||||||||
2,402 | Anadarko Petroleum Corp. | 120,893 | |||||||||
1,687 | Apache Corp. | 136,377 | |||||||||
2,039 | Chesapeake Energy Corp. | 69,408 | |||||||||
2,091 | Devon Energy Corp. | 156,009 | |||||||||
1,300 | EOG Resources, Inc. | 91,130 | |||||||||
4,636 | Occidental Petroleum Corp. | 262,954 | |||||||||
1,732 | XTO Energy, Inc. | 94,446 | |||||||||
931,217 | |||||||||||
Oil Refining/Marketing (0.6%) | |||||||||||
3,366 | Marathon Oil Corp. | 185,803 | |||||||||
715 | Sunoco, Inc. | 47,705 | |||||||||
3,268 | Valero Energy Corp. | 218,989 | |||||||||
452,497 | |||||||||||
Oilfield Services/Equipment (0.8%) | |||||||||||
1,712 | Baker Hughes Inc. | 135,334 | |||||||||
1,722 | BJ Services Co. | 45,030 | |||||||||
5,121 | Halliburton Co. | 184,458 | |||||||||
891 | National-Oilwell Varco Inc.* | 107,018 | |||||||||
1,878 | Weatherford International Ltd. (Bermuda)* | 103,910 | |||||||||
575,750 | |||||||||||
Other Consumer Services (0.3%) | |||||||||||
6,380 | eBay Inc.* | 206,712 | |||||||||
Other Transportation (0.3%) | |||||||||||
350 | Aeroports de Paris (ADP) (France) | 39,358 | |||||||||
38,000 | Beijing Capital International Airport Co., Ltd. (China) | 63,200 | |||||||||
330 | Fraport AG (Germany) | 22,386 | |||||||||
8,000 | Grupo Aeroportuario del Pacifico SA de CV (B Shares) (Mexico) | 38,885 | |||||||||
2,400 | Japan Airport Terminal Co., Ltd. (Japan) | 41,914 | |||||||||
205,743 |
See Notes to Financial Statements
17
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Packaged Software (3.3%) | |||||||||||
3,233 | Adobe Systems Inc.* | $ | 130,258 | ||||||||
1,269 | Autodesk, Inc.* | 53,768 | |||||||||
1,163 | BMC Software, Inc.* | 33,401 | |||||||||
2,478 | CA Inc. | 62,148 | |||||||||
2,129 | Compuware Corp.* | 19,864 | |||||||||
1,807 | Intuit Inc.* | 51,752 | |||||||||
48,196 | Microsoft Corp. | 1,397,202 | |||||||||
2,015 | Novell, Inc.* | 13,521 | |||||||||
20,789 | Oracle Corp.* | 397,486 | |||||||||
658 | Parametric Technology Corp.* | 11,601 | |||||||||
10,522 | Sage Group PLC (The) (United Kingdom) | 48,798 | |||||||||
5,596 | Symantec Corp.* | 107,443 | |||||||||
2,327,242 | |||||||||||
Personnel Services (0.2%) | |||||||||||
1,312 | Monster Worldwide Inc.* | 51,024 | |||||||||
1,884 | Robert Half International, Inc. | 64,037 | |||||||||
115,061 | |||||||||||
Pharmaceuticals: Generic Drugs (0.0%) | |||||||||||
305 | Barr Pharmaceuticals Inc.* | 15,622 | |||||||||
615 | Mylan Laboratories Inc. | 9,858 | |||||||||
311 | Watson Pharmaceuticals, Inc.* | 9,461 | |||||||||
34,941 | |||||||||||
Pharmaceuticals: Major (2.9%) | |||||||||||
4,114 | Abbott Laboratories | 208,539 | |||||||||
5,338 | Bristol-Myers Squibb Co. | 151,653 | |||||||||
2,741 | Eli Lilly & Co. | 148,261 | |||||||||
7,674 | Johnson & Johnson | 464,277 | |||||||||
5,480 | Merck & Co. Inc. | 272,082 | |||||||||
20,761 | Pfizer Inc. | 488,091 | |||||||||
4,027 | Schering-Plough Corp. | 114,931 | |||||||||
3,754 | Wyeth | 182,144 | |||||||||
2,029,978 | |||||||||||
Pharmaceuticals: Other (0.1%) | |||||||||||
780 | Allergan, Inc. | 45,341 | |||||||||
921 | Forest Laboratories, Inc.* | 37,024 | |||||||||
760 | King Pharmaceuticals, Inc.* | 12,928 | |||||||||
95,293 |
See Notes to Financial Statements
18
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Property - Casualty Insurers (0.2%) | |||||||||||
3,281 | Allstate Corp. (The) | $ | 174,385 | ||||||||
Real Estate Investment Trusts (0.8%) | |||||||||||
529 | Apartment Investment & Management Co. (Class A) | 22,350 | |||||||||
1,233 | Archstone-Smith Trust | 70,787 | |||||||||
495 | Boston Properties, Inc. | 46,773 | |||||||||
1,703 | Equity Residential | 67,796 | |||||||||
1,165 | Kimco Realty Corp. | 43,489 | |||||||||
1,042 | Plum Creek Timber Co., Inc. | 40,492 | |||||||||
1,423 | ProLogis | 80,969 | |||||||||
445 | Public Storage, Inc. | 31,190 | |||||||||
1,049 | Simon Property Group, Inc. | 90,770 | |||||||||
659 | Vornado Realty Trust | 70,533 | |||||||||
565,149 | |||||||||||
Recreational Products (0.9%) | |||||||||||
1,691 | Electronic Arts Inc.* | 82,250 | |||||||||
24,180 | Mattel, Inc. | 553,964 | |||||||||
636,214 | |||||||||||
Regional Banks (0.1%) | |||||||||||
1,022 | Northern Trust Corp. | 63,834 | |||||||||
Restaurants (0.8%) | |||||||||||
12,015 | McDonald's Corp. | 575,158 | |||||||||
Semiconductors (1.2%) | |||||||||||
1,463 | Advanced Micro Devices, Inc.* | 19,809 | |||||||||
1,074 | Altera Corp. | 24,917 | |||||||||
904 | Analog Devices, Inc. | 32,047 | |||||||||
1,257 | Broadcom Corp. (Class A)* | 41,242 | |||||||||
15,697 | Intel Corp. | 370,763 | |||||||||
829 | Linear Technology Corp. | 29,554 | |||||||||
1,013 | LSI Corp.* | 7,294 | |||||||||
857 | Maxim Integrated Products, Inc. | 27,167 | |||||||||
2,168 | Micron Technology, Inc.* | 25,734 | |||||||||
845 | National Semiconductor Corp. | 21,962 | |||||||||
953 | NVIDIA Corp.* | 43,609 | |||||||||
555 | PMC - Sierra, Inc.* | 4,229 | |||||||||
4,418 | Texas Instruments Inc. | 155,469 | |||||||||
854 | Xilinx, Inc. | 21,350 | |||||||||
825,146 |
See Notes to Financial Statements
19
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Services to the Health Industry (0.5%) | |||||||||||
1,356 | Express Scripts, Inc.* | $ | 67,976 | ||||||||
1,049 | IMS Health Inc. | 29,508 | |||||||||
623 | Laboratory Corp. of America Holdings* | 46,009 | |||||||||
1,574 | Medco Health Solutions, Inc.* | 127,919 | |||||||||
834 | Quest Diagnostics Inc. | 46,262 | |||||||||
317,674 | |||||||||||
Specialty Telecommunications (0.2%) | |||||||||||
2,232 | Citizens Communications Co. | 32,208 | |||||||||
10,693 | Qwest Communications International Inc.* | 91,211 | |||||||||
3,279 | Windstream Corp. | 45,119 | |||||||||
168,538 | |||||||||||
Steel (0.3%) | |||||||||||
2,240 | Nucor Corp. | 112,448 | |||||||||
820 | United States Steel Corp. | 80,598 | |||||||||
193,046 | |||||||||||
Telecommunication Equipment (2.8%) | |||||||||||
697 | ADC Telecommunications, Inc.* | 13,027 | |||||||||
4,932 | Alcatel-Lucent (ADR) (France) | 57,211 | |||||||||
1,039 | Andrew Corp.* | 14,608 | |||||||||
557 | Ciena Corp.* | 20,347 | |||||||||
1,068 | Comverse Technology, Inc.* | 20,580 | |||||||||
9,662 | Corning Inc.* | 230,342 | |||||||||
13,360 | Motorola, Inc. | 226,986 | |||||||||
20,480 | Nokia Oyj (Finland) | 585,878 | |||||||||
9,313 | QUALCOMM Inc. | 387,886 | |||||||||
110,531 | Telefonaktiebolaget LM Ericsson (B Shares) (Sweden) | 413,904 | |||||||||
2,540 | Tellabs, Inc.* | 28,829 | |||||||||
1,999,598 | |||||||||||
Tobacco (3.1%) | |||||||||||
15,061 | Altria Group, Inc. | 1,001,105 | |||||||||
22,269 | UST Inc. | 1,192,505 | |||||||||
2,193,610 | |||||||||||
Trucks/Construction/Farm Machinery (0.5%) | |||||||||||
3,217 | Caterpillar Inc. | 253,500 | |||||||||
1,137 | Deere & Co. | 136,918 | |||||||||
390,418 |
See Notes to Financial Statements
20
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
NUMBER OF SHARES | VALUE | ||||||||||
Wholesale Distributors (0.0%) | |||||||||||
396 | Grainger (W.W.), Inc. | $ | 34,595 | ||||||||
Total Common Stocks (Cost $43,262,600) | 53,016,953 | ||||||||||
Investment Trusts/Mutual Funds (1.1%) | |||||||||||
13,000 | Market Vectors Gold Miners ETF | 519,220 | |||||||||
4,100 | streetTRACKS Gold Trust* | 269,739 | |||||||||
Total Investment Trusts/Mutual Funds (Cost $753,797) | 788,959 | ||||||||||
Convertible Preferred Stock (0.4%) | |||||||||||
Life/Health Insurance | |||||||||||
8,800 | MetLife, Inc. (Series B) $6.375 (Cost $227,920) | 262,944 |
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | |||||||||||||||||
U.S. Government & Agencies Obligations (6.8%) | |||||||||||||||||||
Federal National Mortgage Assoc. | |||||||||||||||||||
$ | 66 | 7.00 | % | 07/01/29 | 68,119 | ||||||||||||||
28 | 7.00 | 04/01/32 | 28,797 | ||||||||||||||||
257 | 7.00 | 11/01/34 | 265,652 | ||||||||||||||||
5 | 7.00 | 12/01/35 | 4,668 | ||||||||||||||||
64 | Federal National Mortgage Assoc. ARM | 7.498 | 07/01/36 | 65,810 | |||||||||||||||
U.S. Treasury Bonds | |||||||||||||||||||
1,125 | 6.125 | 08/15/29 | 1,295,245 | ||||||||||||||||
85 | 6.375 | 08/15/27 | 99,570 | ||||||||||||||||
50 | 8.125 | 08/15/21 | 65,680 | ||||||||||||||||
U.S. Treasury Notes | |||||||||||||||||||
250 | 3.875 | 02/15/13 | 241,172 | ||||||||||||||||
100 | 4.625 | 02/15/17 | 98,742 | ||||||||||||||||
450 | 4.875 | 02/15/12 | 455,801 | ||||||||||||||||
2,130 | 5.625 | 05/15/08 | 2,142,482 | ||||||||||||||||
Total U.S. Government & Agencies Obligations (Cost $4,859,522) | 4,831,738 | ||||||||||||||||||
Convertible Bonds (1.7%) | |||||||||||||||||||
Airlines (0.9%) | |||||||||||||||||||
350 | Continental Airlines Inc. | 5.00 | 06/15/23 | 619,937 |
See Notes to Financial Statements
21
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Electronic Equipment/Instruments (0.4%) | |||||||||||||||||||
$ | 300 | JDS Uniphase Corp. | 0.00 | % | 11/15/10 | $ | 279,750 | ||||||||||||
Internet Retail (0.4%) | |||||||||||||||||||
300 | Amazon.com, Inc. | 4.75 | 02/01/09 | 323,250 | |||||||||||||||
Total Convertible Bonds (Cost $865,233) | 1,222,937 | ||||||||||||||||||
Corporate Bonds (1.3%) | |||||||||||||||||||
Aerospace & Defense (0.0%) | |||||||||||||||||||
14 | Systems 2001 Asset Trust - 144A** (Cayman Islands) | 6.664 | 09/15/13 | 14,955 | |||||||||||||||
Air Freight/Couriers (0.0%) | |||||||||||||||||||
10 | FedEx Corp. | 7.25 | 02/15/11 | 10,578 | |||||||||||||||
Beverages: Alcoholic (0.1%) | |||||||||||||||||||
15 | FBG Finance Ltd. - 144A** (Australia) | 5.125 | 06/15/15 | 14,097 | |||||||||||||||
15 | Miller Brewing Co. - 144A** | 4.25 | 08/15/08 | 14,792 | |||||||||||||||
28,889 | |||||||||||||||||||
Cable/Satellite TV (0.1%) | |||||||||||||||||||
20 | Comcast Cable Communications, Inc. | 6.75 | 01/30/11 | 20,722 | |||||||||||||||
20 | EchoStar DBS Corp. | 6.375 | 10/01/11 | 19,250 | |||||||||||||||
39,972 | |||||||||||||||||||
Chemicals: Major Diversified (0.0%) | |||||||||||||||||||
15 | ICI Wilmington Inc. | 4.375 | 12/01/08 | 14,751 | |||||||||||||||
Electric Utilities (0.1%) | |||||||||||||||||||
5 | Detroit Edison Co. (The) | 6.125 | 10/01/10 | 5,108 | |||||||||||||||
10 | Entergy Gulf States, Inc. | 3.60 | 06/01/08 | 9,846 | |||||||||||||||
10 | Entergy Gulf States, Inc. | 5.76 | †† | 12/01/09 | 10,003 | ||||||||||||||
10 | Entergy Gulf States, Inc. - 144A** | 6.11 | †† | 12/08/08 | 10,030 | ||||||||||||||
14 | PSEG Energy Holdings Inc. | 8.625 | 02/15/08 | 14,227 | |||||||||||||||
10 | Texas Eastern Transmission, LP | 7.00 | 07/15/32 | 11,043 | |||||||||||||||
15 | Wisconsin Electric Power Co. | 3.50 | 12/01/07 | 14,907 | |||||||||||||||
75,164 | |||||||||||||||||||
Electronics/Appliances (0.0%) | |||||||||||||||||||
10 | LG Electronics Inc. - 144A** (South Korea) | 5.00 | 06/17/10 | 9,760 | |||||||||||||||
Finance/Rental/Leasing (0.1%) | |||||||||||||||||||
20 | Countrywide Home Loans, Inc. (Series MTN) | 3.25 | 05/21/08 | 19,587 | |||||||||||||||
15 | Ford Motor Credit Co. LLC | 7.25 | 10/25/11 | 13,722 |
See Notes to Financial Statements
22
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 20 | Nationwide Building Society - 144A** (United Kingdom) | 4.25 | % | 02/01/10 | $ | 19,495 | ||||||||||||
20 | Residential Capital LLC | 6.375 | 06/30/10 | 18,839 | |||||||||||||||
15 | SLM Corp. | 4.00 | 01/15/10 | 14,056 | |||||||||||||||
85,699 | |||||||||||||||||||
Financial Conglomerates (0.1%) | |||||||||||||||||||
45 | General Electric Capital Corp. (Series MTN-A) | 5.45 | 01/15/13 | 44,943 | |||||||||||||||
25 | General Motors Acceptance Corp. LLC | 6.875 | 09/15/11 | 23,268 | |||||||||||||||
68,211 | |||||||||||||||||||
Food: Major Diversified (0.0%) | |||||||||||||||||||
10 | ConAgra Foods, Inc. | 7.00 | 10/01/28 | 10,250 | |||||||||||||||
Gas Distributors (0.0%) | |||||||||||||||||||
20 | NiSource Finance Corp. | 5.93 | †† | 11/23/09 | 20,016 | ||||||||||||||
Household/Personal Care (0.0%) | |||||||||||||||||||
20 | Clorox Co. (The) | 5.485 | †† | 12/14/07 | 20,011 | ||||||||||||||
Insurance Brokers/Services (0.2%) | |||||||||||||||||||
100 | Farmers Exchange Capital - 144A** | 7.05 | 07/15/28 | 93,725 | |||||||||||||||
Major Banks (0.2%) | |||||||||||||||||||
25 | MBNA Corp. (Series MTN-F) | 5.79 | †† | 05/05/08 | 25,092 | ||||||||||||||
90 | Wachovia Corp. | 5.30 | 10/15/11 | 89,070 | |||||||||||||||
114,162 | |||||||||||||||||||
Major Telecommunications (0.1%) | |||||||||||||||||||
15 | AT&T Corp. | 8.00 | 11/15/31 | 17,933 | |||||||||||||||
15 | France Telecom S.A. (France) | 8.50 | 03/01/31 | 18,847 | |||||||||||||||
10 | SBC Communications, Inc. | 6.15 | 09/15/34 | 9,616 | |||||||||||||||
10 | Sprint Capital Corp. | 8.75 | 03/15/32 | 11,018 | |||||||||||||||
15 | Telecom Italia Capital SA (Luxembourg) | 4.00 | 01/15/10 | 14,467 | |||||||||||||||
15 | Telefonica Europe BV (Netherlands) | 8.25 | 09/15/30 | 17,186 | |||||||||||||||
89,067 | |||||||||||||||||||
Managed Health Care (0.0%) | |||||||||||||||||||
10 | WellPoint, Inc. | 4.25 | 12/15/09 | 9,735 | |||||||||||||||
Motor Vehicles (0.0%) | |||||||||||||||||||
5 | DaimlerChrysler North American Holdings Co. | 8.50 | 01/18/31 | 6,206 |
See Notes to Financial Statements
23
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
Multi-Line Insurance (0.1%) | |||||||||||||||||||
$ | 35 | AIG SunAmerica Global Financing VI - 144A** | 6.30 | % | 05/10/11 | $ | 36,120 | ||||||||||||
10 | American General Finance Corp. (Series MTN-I) | 4.625 | 05/15/09 | 9,917 | |||||||||||||||
10 | Equitable Co. | 6.50 | 04/01/08 | 10,063 | |||||||||||||||
56,100 | |||||||||||||||||||
Other Metals/Minerals (0.0%) | |||||||||||||||||||
15 | Brascan Corp. (Canada) | 7.125 | 06/15/12 | 15,878 | |||||||||||||||
Property - Casualty Insurers (0.1%) | |||||||||||||||||||
10 | Platinum Underwriters Finance Inc. (Series B) | 7.50 | 06/01/17 | 10,498 | |||||||||||||||
10 | Platinum Underwriters Holdings, Ltd. (Series B) (Bermuda) | 6.371 | 11/16/07 | 9,977 | |||||||||||||||
20 | St. Paul Travelers Companies, Inc. (The) | 5.01 | 08/16/07 | 19,997 | |||||||||||||||
25 | XLLIAC Global Funding - 144A** | 4.80 | 08/10/10 | 24,544 | |||||||||||||||
65,016 | |||||||||||||||||||
Railroads (0.0%) | |||||||||||||||||||
5 | Union Pacific Corp. | 6.625 | 02/01/08 | 5,028 | |||||||||||||||
Regional Banks (0.0%) | |||||||||||||||||||
15 | Marshall & Ilsley Bank (Series BKN-T) | 3.80 | 02/08/08 | 14,871 | |||||||||||||||
Savings Banks (0.1%) | |||||||||||||||||||
35 | Household Finance Corp. | 8.00 | 07/15/10 | 37,340 | |||||||||||||||
20 | Sovereign BanCorp Inc. | 5.59 | †† | 03/23/10 | 20,003 | ||||||||||||||
13 | Washington Mutual Inc. | 8.25 | 04/01/10 | 13,875 | |||||||||||||||
71,218 | |||||||||||||||||||
Trucks/Construction/Farm Machinery (0.0%) | |||||||||||||||||||
20 | Caterpillar Financial Services Corp. (Series MTN-F) | 5.43 | †† | 08/20/07 | 20,001 | ||||||||||||||
Total Corportate Bonds (Cost $977,386) | 959,263 | ||||||||||||||||||
Collateralized Mortgage Obligations (0.3%) | |||||||||||||||||||
43 | Greenpoint Mortgage Funding Trust 2006-AR2 3A2 | 5.64 | †† | 03/25/36 | 43,252 | ||||||||||||||
35 | Harborview Mortgage Loan Trust 2006-1 2A1A | 5.56 | †† | 03/19/37 | 35,247 |
See Notes to Financial Statements
24
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
PRINCIPAL AMOUNT IN THOUSANDS | COUPON RATE | MATURITY DATE | VALUE | ||||||||||||||||
$ | 49 | Structured Asset Mortgage Investments Inc. 2006-AR2 A2 | 5.63 | ††% | 02/25/36 | $ | 49,332 | ||||||||||||
38 | Structured Asset Mortgage Investments Inc. 2006-AR1 2A2 | 5.63 | †† | 02/25/36 | 38,271 | ||||||||||||||
14 | Washington Mutual Bank 2005-AR15 A1B1 | 5.57 | †† | 11/25/45 | 14,479 | ||||||||||||||
25 | Washington Mutual Bank 2005-AR6, 2AB3 | 5.59 | †† | 04/25/45 | 24,723 | ||||||||||||||
Total Collateralized Mortgage Obligations (Cost $204,726) | 205,304 | ||||||||||||||||||
Asset-Backed Securities (0.2%) | |||||||||||||||||||
Finance/Rental/Leasing | |||||||||||||||||||
100 | GE Capital Credit Card Master Note Trust 2004-2 A | 5.36 | †† | 09/15/10 | 99,996 | ||||||||||||||
25 | TXU Electric Delivery Transition Bond Co. LLC 2004-1 A2 | 4.81 | 11/17/14 | 24,708 | |||||||||||||||
Total Asset-Backed Securities (Cost $124,968) | 124,704 | ||||||||||||||||||
Short-Term Investments (13.6%) | |||||||||||||||||||
U.S. Government Agencies & Obligations (a) (0.6%) | |||||||||||||||||||
300 | Federal National Mortgage Assoc. | 5.07 | 08/20/07 | 299,197 | |||||||||||||||
100 | Federal National Mortgage Assoc. | 5.09 | 10/30/07 | 98,713 | |||||||||||||||
50 | U.S. Treasury Bills† | 4.845 | 01/10/08 | 48,910 | |||||||||||||||
Total U.S. Government Agencies & Obligations (Cost $446,834) | 446,820 | ||||||||||||||||||
Investment Company (b) (13.0%) | |||||||||||||||||||
9,224 | Morgan Stanley Institutional Liquidity Money Market Portfolio - Institutional Class (Cost $9,224,308) | 9,224,308 | |||||||||||||||||
Total Short-Term Investments (Cost $9,671,142) | 9,671,128 | ||||||||||||||||||
Total Investments (Cost $60,947,294) (c) (d) | 100.2 | % | 71,083,930 | ||||||||||||||||
Liabilities in Excess of Other Assets | (0.2 | ) | (176,260 | ) | |||||||||||||||
Net Assets | 100.0 | % | $ | 70,907,670 |
See Notes to Financial Statements
25
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
ADR American Depositary Receipt.
ARM Adjustable Rate Mortgage.
BKN Bank Note.
MTN Medium - Term Note.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
† All or a portion of this securities has been physically segregated in connection with open futures contracts in the amount of $14,870.
†† Variable rate security. Rate shown is the rate in effect at July 31, 2007.
(a) Purchased on a discount basis. The interest rates shown have been adjusted to reflect a money market equivalent yield.
(b) See Note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Money Market Portfolio - Institutional Class.
(c) Securities have been designated as collateral in an amount equal to $11,494,533 in connection with open futures contracts.
(d) The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $11,021,067 and the aggregate gross unrealized depreciation is $884,431, resulting in net unrealized appreciation of $10,136,636.
See Notes to Financial Statements
26
Morgan Stanley Allocator Fund
Portfolio of Investments n July 31, 2007 (unaudited) continued
Futures Contracts Open at July 31, 2007:
NUMBER OF CONTRACTS | LONG/SHORT | DESCRIPTION, DELIVERY MONTH AND YEAR | UNDERLYING FACE AMOUNT AT VALUE | UNREALIZED APPRECIATION (DEPRECIATION) | |||||||||||||||
51 | Long | U.S. Treasury Notes 10 Year, September 2007 | $ | 5,478,516 | $ | 4,413 | |||||||||||||
8 | Long | U.S. Treasury Notes 2 Year, September 2007 | 1,639,500 | 6,431 | |||||||||||||||
14 | Short | U.S. Treasury Notes 5 Year, September 2007 | (1,476,563 | ) | (15,523 | ) | |||||||||||||
27 | Short | U.S. Treasury Bonds 30 Year, September 2007 | (2,971,688 | ) | (30,446 | ) | |||||||||||||
Net Unrealized Depreciation | $ | (35,125 | ) |
See Notes to Financial Statements
27
Morgan Stanley Allocator Fund
Financial Statements
Statement of Assets and Liabilities
July 31, 2007 (unaudited)
Assets: | |||||||
Investments in securities, at value (cost $51,722,986) | $ | 61,859,622 | |||||
Investments in affiliates (cost $9,224,308) | 9,224,308 | ||||||
Receivable for: | |||||||
Interest | 104,089 | ||||||
Dividends | 65,526 | ||||||
Dividends from affiliates | 43,454 | ||||||
Shares of beneficial interest sold | 10,670 | ||||||
Prepaid expenses and other assets | 30,432 | ||||||
Total Assets | 71,338,101 | ||||||
Liabilities: | |||||||
Payable for: | |||||||
Shares of beneficial interest redeemed | 214,372 | ||||||
Distribution fee | 57,180 | ||||||
Investment advisory fee | 43,281 | ||||||
Administration fee | 5,184 | ||||||
Accrued expenses and other payables | 110,414 | ||||||
Total Liabilities | 430,431 | ||||||
Net Assets | $ | 70,907,670 | |||||
Composition of Net Assets: | |||||||
Paid-in-capital | $ | 57,621,184 | |||||
Net unrealized appreciation | 10,100,863 | ||||||
Accumulated undistributed net investment income | 265,663 | ||||||
Accumulated undistributed net realized gain | 2,919,960 | ||||||
Net Assets | $ | 70,907,670 | |||||
Class A Shares: | |||||||
Net Assets | $ | 10,385,675 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 925,822 | ||||||
Net Asset Value Per Share | $ | 11.22 | |||||
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) | $ | 11.84 | |||||
Class B Shares: | |||||||
Net Assets | $ | 51,370,787 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 4,671,383 | ||||||
Net Asset Value Per Share | $ | 11.00 | |||||
Class C Shares: | |||||||
Net Assets | $ | 8,478,000 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 771,448 | ||||||
Net Asset Value Per Share | $ | 10.99 | |||||
Class D Shares: | |||||||
Net Assets | $ | 673,208 | |||||
Shares Outstanding (unlimited authorized, $.01 par value) | 59,648 | ||||||
Net Asset Value Per Share | $ | 11.29 |
See Notes to Financial Statements
28
Morgan Stanley Allocator Fund
Financial Statements continued
Statement of Operations
For the six months ended July 31, 2007 (unaudited)
Net Investment Income: Income | |||||||
Dividends (net of $3,951 foreign withholding tax) | $ | 532,393 | |||||
Interest | 478,502 | ||||||
Dividends from affiliates | 50,988 | ||||||
Total Income | 1,061,883 | ||||||
Expenses | |||||||
Distribution fee (Class A shares) | 13,103 | ||||||
Distribution fee (Class B shares) | 279,797 | ||||||
Distribution fee (Class C shares) | 45,840 | ||||||
Investment advisory fee | 256,043 | ||||||
Registration fees | 51,477 | ||||||
Professional fees | 39,770 | ||||||
Administration fee | 30,572 | ||||||
Shareholder reports and notices | 29,702 | ||||||
Transfer agent fees and expenses | 23,783 | ||||||
Custodian fees | 17,062 | ||||||
Trustees' fees and expenses | 944 | ||||||
Other | 12,301 | ||||||
Total Expenses | 800,394 | ||||||
Less: amounts waived/reimbursed | (138 | ) | |||||
Less: expense offset | (189 | ) | |||||
Net Expenses | 800,067 | ||||||
Net Investment Income | 261,816 | ||||||
Net Realized and Unrealized Gain (Loss): Net Realized Gain on: | |||||||
Investments | 3,432,181 | ||||||
Futures contracts | 65,514 | ||||||
Foreign exchange transactions | 2,504 | ||||||
Net Realized Gain | 3,500,199 | ||||||
Net Change in Unrealized Appreciation/Depreciation on: | |||||||
Investments | (2,804,824 | ) | |||||
Futures contracts | (52,144 | ) | |||||
Translation of other assets and liabilities denominated in foreign currencies | 7 | ||||||
Net Change in Unrealized Appreciation/Depreciation | (2,856,961 | ) | |||||
Net Gain | 643,238 | ||||||
Net Increase | $ | 905,054 |
See Notes to Financial Statements
29
Morgan Stanley Allocator Fund
Financial Statements continued
Statements of Changes in Net Assets
FOR THE SIX MONTHS ENDED JULY 31, 2007 | FOR THE YEAR ENDED JANUARY 31, 2007 | ||||||||||
(unaudited) | |||||||||||
Increase (Decrease) in Net Assets: Operations: | |||||||||||
Net investment income | $ | 261,816 | $ | 243,430 | |||||||
Net realized gain | 3,500,199 | 8,087,301 | |||||||||
Net change in unrealized appreciation/depreciation | (2,856,961 | ) | (1,290,267 | ) | |||||||
Net Increase | 905,054 | 7,040,464 | |||||||||
Dividends and Distributions to Shareholders from: | |||||||||||
Net investment income | |||||||||||
Class A shares | (17,644 | ) | (95,202 | ) | |||||||
Class B shares | (52,406 | ) | (75,215 | ) | |||||||
Class C shares | (8,709 | ) | (18,275 | ) | |||||||
Class D shares | (1,473 | ) | (11,311 | ) | |||||||
Net realized gain | |||||||||||
Class A shares | (60,579 | ) | (1,016,970 | ) | |||||||
Class B shares | (322,297 | ) | (5,815,479 | ) | |||||||
Class C shares | (52,686 | ) | (919,235 | ) | |||||||
Class D shares | (4,443 | ) | (96,031 | ) | |||||||
Total Dividends and Distributions | (520,237 | ) | (8,047,718 | ) | |||||||
Net decrease from transactions in shares of beneficial interest | (11,000,902 | ) | (23,273,515 | ) | |||||||
Net Decrease | (10,616,085 | ) | (24,280,769 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 81,523,755 | 105,804,524 | |||||||||
End of Period (Including accumulated undistributed net investment income of $265,663 and $84,079, respectively) | $ | 70,907,670 | $ | 81,523,755 |
See Notes to Financial Statements
30
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Allocator 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 selecting securities to maximize total investment return through different stages of an economic cycle. The Fund was organized as a Massachusetts business trust on October 25, 2002 and commenced operations on February 26, 2003.
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.
The Fund will assess 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 or exchanged within seven days of purchase, subject to certain exceptions. 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) 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; (4) 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; (5) listed options are valued at the latest sale price on the exchange on which they are listed unless no sales of such options have taken place that day, in which case they are valued at the mean between their latest bid and asked price; (6) futures are valued at the latest price published by the commodities exchange on which they trade; (7) when market quotations are not readily available including circumstances under which 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
31
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
supervision of the Fund's Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (8) certain portfolio securities may be valued by an outside pricing service approved by the Fund's Trustees; and (9) 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 and are included in interest income. Interest income is accrued daily.
C. 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.
D. Options — When the Fund writes a call or put option, an amount equal to the premium received is included in the Fund's Statement of Assets and Liabilities as a liability which is subsequently marked-to-market to reflect the current market value of the option written. If a written option either expires or the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss without regard to any unrealized gain or loss on the underlying security or currency and the liability related to such option is extinguished. If a written call option is exercised, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security which the Fund purchases upon exercise of the option.
When the Fund purchases a call or put option, the premium paid is recorded as an investment which is subsequently marked-to-market to reflect the current market value. If a purchased option expires, the Fund will realize a loss to the extent of the premium paid. If the Fund enters into a closing sale transaction, a gain or loss is realized for the difference between the proceeds from the sale and the cost of the option. If a put option is exercised, the cost of the security or currency sold upon exercise
32
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
will be increased by the premium originally paid. If a call option is exercised, the cost of the security purchased upon exercise will be increased by the premium originally paid.
E. Futures Contracts — A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
F. Foreign Currency Translation and Forward Foreign Currency Contracts — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts ("forward contracts") are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities held. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.
G. Federal Income Tax Policy — It is the Fund's policy to comply with the requirements Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund files tax returns with the U.S. Internal Revenue Service and various states. Generally, the tax authorities can examine all tax returns filed for the last three years. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. The Fund adopted the provisions of the Financial Accounting Standards Board's (FASB) Interpretation number 48 Accounting for Uncertainty in Income Taxes, on June 30, 2007. As of July 31, 2007, this did not result in an impact to the Fund's financial statements.
33
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
H. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
I. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the Fund pays an advisory fee, accrued daily and payable monthly, by applying the following annual rate of 0.67% to the net assets of the Fund determined as of the close of each business day.
Pursuant to an 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 shares; (ii) Class B — up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C — up to 1.0% of the average daily net assets of Class C shares.
In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $1,799,471 at July 31, 2007.
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 and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the
34
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
six months ended July 31, 2007, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.00%, respectively.
The Distributor has informed the Fund that for the six months ended July 31, 2007, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares of $81,369 and received $8,390 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 Fund invests in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class, an open-end management investment company managed by the Investment Adviser. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative services fees paid by Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class. For the six months ended July 31, 2007, advisory fees paid were reduced by $138 relating to the Fund's investment in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as dividends from affiliates in the Statement of Operations and totaled $50,988. During the six months ended July 31, 2007, cost of purchas es and sales in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class aggregated $10,612,553 and $1,388,245, respectively.
The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended July 31, 2007 aggregated $10,710,212 and $23,594,008, respectively. Included in the aforementioned transactions are purchases and sales of U.S. Government Securities of $786,859 and $58,871, respectively.
For the six months ended July 31, 2007, the Fund incurred brokerage commissions of $6,052 with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent.
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 or she 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
35
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
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 SIX MONTHS ENDED JULY 31, 2007 | FOR THE YEAR ENDED JANUARY 31, 2007 | ||||||||||||||||||
(unaudited) | |||||||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | ||||||||||||||||
CLASS A SHARES | |||||||||||||||||||
Sold | 28,421 | $ | 321,658 | 108,486 | $ | 1,245,483 | |||||||||||||
Conversion from Class B | 39,665 | 451,145 | 73,628 | 836,512 | |||||||||||||||
Reinvestment of dividends and distributions | 5,727 | 65,289 | 85,427 | 941,502 | |||||||||||||||
Redeemed | (116,603 | ) | (1,321,302 | ) | (418,021 | ) | (4,798,729 | ) | |||||||||||
Net decrease — Class A | (42,790 | ) | (483,210 | ) | (150,480 | ) | (1,775,232 | ) | |||||||||||
CLASS B SHARES | |||||||||||||||||||
Sold | 18,721 | 206,168 | 86,651 | 985,743 | |||||||||||||||
Conversion to Class A | (40,413 | ) | (451,146 | ) | (74,934 | ) | (836,512 | ) | |||||||||||
Reinvestment of dividends and distributions | 30,481 | 341,085 | 476,910 | 5,170,085 | |||||||||||||||
Redeemed | (814,468 | ) | (9,086,892 | ) | (2,050,670 | ) | (23,086,047 | ) | |||||||||||
Net decrease — Class B | (805,679 | ) | (8,990,785 | ) | (1,562,043 | ) | (17,766,731 | ) | |||||||||||
CLASS C SHARES | |||||||||||||||||||
Sold | 691 | 7,684 | 11,132 | 124,292 | |||||||||||||||
Reinvestment of dividends and distributions | 5,051 | 56,476 | 79,349 | 860,206 | |||||||||||||||
Redeemed | (119,215 | ) | (1,332,967 | ) | (282,826 | ) | (3,173,778 | ) | |||||||||||
Net decrease — Class C | (113,473 | ) | (1,268,807 | ) | (192,345 | ) | (2,189,280 | ) | |||||||||||
CLASS D SHARES | |||||||||||||||||||
Sold | 5,923 | 65,075 | 9,600 | 110,878 | |||||||||||||||
Reinvestment of dividends and distributions | 379 | 4,342 | 8,306 | 91,972 | |||||||||||||||
Redeemed | (28,930 | ) | (327,517 | ) | (151,770 | ) | (1,745,122 | ) | |||||||||||
Net decrease — Class D | (22,628 | ) | (258,100 | ) | (133,864 | ) | (1,542,272 | ) | |||||||||||
Net decrease in Fund | (984,570 | ) | $ | (11,000,902 | ) | (2,038,732 | ) | $ | (23,273,515 | ) |
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent.
36
Morgan Stanley Allocator Fund
Notes to Financial Statements n July 31, 2007 (unaudited) continued
7. Purposes of and Risks Relating to Certain Financial Instruments
For hedging and investment purposes, the Fund may engage in transactions in listed and over-the-counter options and interest rate futures or in the case of forward contracts, to facilitate settlement of foreign currency denominated securities ("derivative instruments")
These derivative instruments 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 underlying securities or currencies. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
8. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.
As of January 31, 2007, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital and foreign currency losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year), mark-to-market of open futures contracts, capital loss deferrals on wash sales and straddles and tax adjustments on real estate investment trusts ("REITs") held by the Fund.
9. Accounting Pronouncement
In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures.
37
Morgan Stanley Allocator Fund
Financial Highlights
Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE SIX MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | FOR THE PERIOD FEBRUARY 26, 2003* THROUGH | |||||||||||||||||||||
JULY 31, 2007 | 2007 | 2006 | 2005 | JANUARY 31, 2004 | |||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Class A Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.16 | $ | 11.34 | $ | 10.62 | $ | 11.39 | $ | 10.00 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||||
Net investment income‡ | 0.07 | 0.10 | 0.05 | 0.09 | 0.05 | ||||||||||||||||||
Net realized and unrealized gain | 0.08 | 0.94 | 0.91 | 0.32 | 1.67 | ||||||||||||||||||
Total income from investment operations | 0.15 | 1.04 | 0.96 | 0.41 | 1.72 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.02 | ) | (0.10 | ) | (0.02 | ) | (0.10 | ) | – | ||||||||||||||
Net realized gain | (0.07 | ) | (1.12 | ) | (0.22 | ) | (1.08 | ) | (0.33 | ) | |||||||||||||
Total dividends and distributions | (0.09 | ) | (1.22 | ) | (0.24 | ) | (1.18 | ) | (0.33 | ) | |||||||||||||
Net asset value, end of period | $ | 11.22 | $ | 11.16 | $ | 11.34 | $ | 10.62 | $ | 11.39 | |||||||||||||
Total Return† | 1.30 | %(1) | 9.24 | % | 9.25 | % | 3.57 | % | 17.16 | %(1) | |||||||||||||
Ratios to Average Net Assets(3): | |||||||||||||||||||||||
Total expenses (before expense offset) | 1.46 | %(2)(4) | 1.38 | % | 1.38 | % | 1.23 | % | 1.23 | %(2) | |||||||||||||
Net investment income | 1.32 | %(2)(4) | 0.90 | % | 0.49 | % | 0.84 | % | 0.47 | %(2) | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 10,386 | $ | 10,807 | $ | 12,691 | $ | 15,527 | $ | 22,141 | |||||||||||||
Portfolio turnover rate | 17 | %(1) | 118 | % | 64 | % | 126 | % | 239 | %(1) |
* Commencement of operations.
‡ The per share amounts were computed using an average number of shares outstanding during the period.
† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements
38
Morgan Stanley Allocator Fund
Financial Highlights continued
FOR THE SIX MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | FOR THE PERIOD FEBRUARY 26, 2003* THROUGH | |||||||||||||||||||||
JULY 31, 2007 | 2007 | 2006 | 2005 | JANUARY 31, 2004 | |||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Class B Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.97 | $ | 11.17 | $ | 10.54 | $ | 11.31 | $ | 10.00 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||||
Net investment income (loss)‡ | 0.03 | 0.02 | (0.03 | ) | 0.01 | (0.03 | ) | ||||||||||||||||
Net realized and unrealized gain | 0.08 | 0.91 | 0.89 | 0.31 | 1.67 | ||||||||||||||||||
Total income from investment operations | 0.11 | 0.93 | 0.86 | 0.32 | 1.64 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | – | ||||||||||||||
Net realized gain | (0.07 | ) | (1.12 | ) | (0.22 | ) | (1.08 | ) | (0.33 | ) | |||||||||||||
Total dividends and distributions | (0.08 | ) | (1.13 | ) | (0.23 | ) | (1.09 | ) | (0.33 | ) | |||||||||||||
Net asset value, end of period | $ | 11.00 | $ | 10.97 | $ | 11.17 | $ | 10.54 | $ | 11.31 | |||||||||||||
Total Return† | 0.97 | %(1) | 8.37 | % | 8.37 | % | 2.84 | % | 16.36 | %(1) | |||||||||||||
Ratios to Average Net Assets(3): | |||||||||||||||||||||||
Total expenses (before expense offset) | 2.21 | %(2)(4) | 2.13 | % | 2.13 | % | 1.98 | % | 2.02 | %(2) | |||||||||||||
Net investment income (loss) | 0.57 | %(2)(4) | 0.15 | % | (0.26 | )% | 0.09 | % | (0.32 | )%(2) | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 51,371 | $ | 60,091 | $ | 78,623 | $ | 116,344 | $ | 157,175 | |||||||||||||
Portfolio turnover rate | 17 | %(1) | 118 | % | 64 | % | 126 | % | 239 | %(1) |
* Commencement of operations.
‡ The per share amounts were computed using an average number of shares outstanding during the period.
† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements
39
Morgan Stanley Allocator Fund
Financial Highlights continued
FOR THE SIX MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | FOR THE PERIOD FEBRUARY 26, 2003* THROUGH | |||||||||||||||||||||
JULY 31, 2007 | 2007 | 2006 | 2005 | JANUARY 31, 2004 | |||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Class C Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.96 | $ | 11.17 | $ | 10.54 | $ | 11.31 | $ | 10.00 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||||
Net investment income (loss)‡ | 0.03 | 0.02 | (0.03 | ) | 0.01 | (0.03 | ) | ||||||||||||||||
Net realized and unrealized gain | 0.08 | 0.91 | 0.90 | 0.32 | 1.67 | ||||||||||||||||||
Total income from investment operations | 0.11 | 0.93 | 0.87 | 0.33 | 1.64 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | – | ||||||||||||||
Net realized gain | (0.07 | ) | (1.12 | ) | (0.22 | ) | (1.08 | ) | (0.33 | ) | |||||||||||||
Total dividends and distributions | (0.08 | ) | (1.14 | ) | (0.24 | ) | (1.10 | ) | (0.33 | ) | |||||||||||||
Net asset value, end of period | $ | 10.99 | $ | 10.96 | $ | 11.17 | $ | 10.54 | $ | 11.31 | |||||||||||||
Total Return† | 0.98 | %(1) | 8.44 | % | 8.41 | % | 2.76 | % | 16.36 | %(1) | |||||||||||||
Ratios to Average Net Assets(3): | |||||||||||||||||||||||
Total expenses (before expense offset) | 2.21 | %(2)(4) | 2.10 | % | 2.13 | % | 1.96 | % | 2.02 | %(2) | |||||||||||||
Net investment income (loss) | 0.57 | %(2)(4) | 0.18 | % | (0.26 | )% | 0.11 | % | (0.32 | )%(2) | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 8,478 | $ | 9,703 | $ | 12,029 | $ | 16,920 | $ | 21,927 | |||||||||||||
Portfolio turnover rate | 17 | %(1) | 118 | % | 64 | % | 126 | % | 239 | %(1) |
* Commencement of operations.
‡ The per share amounts were computed using an average number of shares outstanding during the period.
† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific expenses.
(4) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements
40
Morgan Stanley Allocator Fund
Financial Highlights continued
FOR THE SIX MONTHS ENDED | FOR THE YEAR ENDED JANUARY 31, | FOR THE PERIOD FEBRUARY 26, 2003* THROUGH | |||||||||||||||||||||
JULY 31, 2007 | 2007 | 2006 | 2005 | JANUARY 31, 2004 | |||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Class D Shares | |||||||||||||||||||||||
Selected Per Share Data: | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.21 | $ | 11.39 | $ | 10.65 | $ | 11.42 | $ | 10.00 | |||||||||||||
Income from investment operations: | |||||||||||||||||||||||
Net investment income‡ | 0.09 | 0.13 | 0.08 | 0.12 | 0.07 | ||||||||||||||||||
Net realized and unrealized gain | 0.08 | 0.94 | 0.90 | 0.32 | 1.68 | ||||||||||||||||||
Total income from investment operations | 0.17 | 1.07 | 0.98 | 0.44 | 1.75 | ||||||||||||||||||
Less dividends and distributions from: | |||||||||||||||||||||||
Net investment income | (0.02 | ) | (0.13 | ) | (0.02 | ) | (0.13 | ) | – | ||||||||||||||
Net realized gain | (0.07 | ) | (1.12 | ) | (0.22 | ) | (1.08 | ) | (0.33 | ) | |||||||||||||
Total dividends and distributions | (0.09 | ) | (1.25 | ) | (0.24 | ) | (1.21 | ) | (0.33 | ) | |||||||||||||
Net asset value, end of period | $ | 11.29 | $ | 11.21 | $ | 11.39 | $ | 10.65 | $ | 11.42 | |||||||||||||
Total Return† | 1.50 | %(1) | 9.45 | % | 9.44 | % | 3.84 | % | 17.46 | %(1) | |||||||||||||
Ratios to Average Net Assets(3): | |||||||||||||||||||||||
Total expenses (before expense offset) | 1.21 | %(2)(4) | 1.13 | % | 1.13 | % | 0.98 | % | 1.02 | %(2) | |||||||||||||
Net investment income | 1.57 | %(2)(4) | 1.15 | % | 0.74 | % | 1.09 | % | 0.68 | %(2) | |||||||||||||
Supplemental Data: | |||||||||||||||||||||||
Net assets, end of period, in thousands | $ | 673 | $ | 923 | $ | 2,462 | $ | 6,009 | $ | 13,006 | |||||||||||||
Portfolio turnover rate | 17 | %(1) | 118 | % | 64 | % | 126 | % | 239 | %(1) |
* Commencement of operations.
‡ 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) Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.
See Notes to Financial Statements
41
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
Trustees
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
Officers
Michael E. Nugent
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
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
Legal Counsel
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Counsel to the Independent Trustees
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Investment Adviser
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
MORGAN STANLEY FUNDS
Morgan Stanley
Allocator Fund
The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon.
This report is submitted for the general information of 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.
Morgan Stanley Distributors Inc., member NASD.
© 2007 Morgan Stanley
Semiannual Report
July 31, 2007
ALRSAN-IU07-03466P-Y07/07
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.
(b) There were no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics – Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Allocator Fund | |
| |
/s/ Ronald E. Robison |
|
Ronald E. Robison | |
Principal Executive Officer | |
September 20, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Ronald E. Robison |
|
Ronald E. Robison | |
Principal Executive Officer | |
September 20, 2007 | |
| |
/s/ Francis Smith |
|
Francis Smith | |
Principal Financial Officer | |
September 20, 2007 |