UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05634
Morgan Stanley Strategist Fund
(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York | 10036 | |
(Address of principal executive offices) | (Zip code) |
Randy Takian
522 Fifth Avenue, New York, New York 10036
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: July 31, 2009
Date of reporting period: January 31, 2009
Item 1 — Report to Shareholders
INVESTMENT MANAGEMENT | ![]() |
Welcome, Shareholder:
In this report, you’ll learn about how your investment in Morgan Stanley Strategist 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 January 31, 2009
Total Return for the 6 Months Ended January 31, 2009
Lipper | ||||||||||||||||||
Barclays | Flexible | |||||||||||||||||
S&P | Capital U.S. | Portfolio | ||||||||||||||||
500® | Government/ | Funds | ||||||||||||||||
Class A | Class B | Class C | Class I | Index1 | Credit Index2 | Index3 | ||||||||||||
–20.61% | –20.92% | –20.90% | –20.53% | –33.95% | 3.07% | –28.37% | ||||||||||||
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
The U.S. and other developed nations’ economic malaise migrated throughout most developed economies and emerging markets as 2008 progressed. The credit deleveraging cycle, which began with the lowest-quality consumer mortgages in the U.S., U.K. and Australia, soon spread to higher quality credits, as well as to the auto and student loan markets. The financial services industry, which had bundled and sold many of these instruments, found that residential and commercial property portfolios warehoused on their balance sheets were rapidly declining in value. By the fourth quarter, global banks, insurance companies and brokerages were fighting for their survival, while credit markets froze in the wake of the Lehman Brothers’ bankruptcy. Monetary and fiscal levers were utilized in an attempt to forestall the collapse of the global financial system, which, as January 2009 wound to a close, appeared to be headed for more direct government intervention than at any time since the Japanese experience in the 1990s or the U.S. bank crisis of the 1930s.
Performance Analysis
All share classes of Morgan Stanley Strategist Fund outperformed the S&P 500® Index (“the Index”) and the Lipper Flexible Portfolio Funds Index, and underperformed the Barclays Capital (formerly Lehman Brothers) U.S. Government/Credit Index for the six months ended January 31, 2009, assuming no deduction of applicable sales charges.
Within our investment framework, three factors influence our core portfolio positions: the rate of inflation, the direction and magnitude of corporate profits and shifts in interest rates. On the inflation front, commodity prices and labor costs fell sharply throughout the period, as the global recession accelerated into 2009. Corporate profits, with the exception of financial services and consumer cyclicals, hit record levels in the third quarter of 2008, only to face the reality of the global capital spending slowdown during the fourth quarter. And finally, global central banks, in an attempt to head off a prolonged recession, entered uncharted territories by taking interest rates to historic low levels in rapid fashion. While often an early sign of economic renewal, the debt deleveraging that has only just begun around the world will likely keep a lid on growth for the forecastable future.
We retained our Fund’s defensive asset allocation stance throughout the period under review. Our equity portfolio, roughly 60 percent of the Fund’s total assets, was diversified throughout the ten broad
2
sectors which make up the S&P 500® Index. Our largest sector exposures included information technology, health care and consumer staples.
The fixed income portion of the Fund, roughly 20 percent of the total Fund’s assets, maintained diversified holdings throughout the period under review. At the period’s end, the fixed income portfolio held approximately 18 percent of its assets in long-maturity U.S. government securities, 12 percent in mortgage-backed securities and 41 percent in corporate instruments. The balance of the portfolio was held in short-term cash equivalents, most of which were short duration* non-money market securities.
In summary, as of January 31, 2009, the Fund’s strategic asset allocation target stood at 60 percent equity (versus a neutral benchmark weight of 55 percent**), 20 percent fixed income (versus a neutral benchmark weight of 35 percent), and 20 percent cash and short-term investments (versus a neutral benchmark weight of 10 percent), unchanged from July 31, 2008.
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.
* A measure of the sensitivity of a bond’s price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond’s duration, the greater the effect of interest-rate movements on its price. Typically, funds with shorter durations perform better in rising-interest-rate environments, while funds with longer durations perform better when rates decline.
** Source: Morgan Stanley Investment Management. The “neutral weight” reflects the average allocation held by U.S. pension funds.
3
TOP 10 HOLDINGS as of 01/31/09 | ||||
U.S. Treasury Securities | 3 | .6% | ||
Federal National Mortgage Association | 2 | .4 | ||
Kraft Foods Inc. (Class A) | 2 | .1 | ||
Oracle Corp. | 2 | .0 | ||
Sybase, Inc. | 1 | .8 | ||
International Business Machines Corp. | 1 | .7 | ||
McDonald’s Corp. | 1 | .6 | ||
St. Jude Medical, Inc. | 1 | .5 | ||
Raytheon Co. | 1 | .5 | ||
Colgate-Palmolive Corp. | 1 | .4 |
PORTFOLIO COMPOSITION as of 01/31/09 | ||||
Common Stocks | 56 | .0% | ||
Short-Term Investments | 27 | .8 | ||
U.S. Government Agencies & Obligations | 7 | .9 | ||
Corporate Notes/Bonds | 7 | .6 | ||
Asset-Backed Securities | 0 | .6 | ||
Other Securities | 0 | .1 |
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Top 10 holdings are as a percentage of net assets and portfolio composition are as a percentage of total investments. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.
Investment Strategy
The Fund’s “Investment Adviser,” Morgan Stanley Investment Advisors Inc., actively allocates the Fund’s assets among the major asset categories of equity securities (including depositary receipts), fixed-income securities and money market instruments. In determining which securities to buy, hold or sell for the Fund, the Investment Adviser allocates the Fund’s assets based on, among other things, its assessment of the effects of economic and market trends on different sectors of the market. There is no limit as to the percentage of assets that may be allocated to any one asset class.
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 accessing the SEC’s web site, http://www.sec.gov. You may also review and copy them at the SEC’s public reference
4
room in Washington, DC. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.
Proxy Voting Policy and Procedures and Proxy Voting Record
You may obtain a copy of the Fund’s Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
Householding Notice
To reduce printing and mailing costs, the Fund attempts to eliminate duplicate mailings to the same address. The Fund delivers a single copy of certain shareholder documents, including shareholder reports, prospectuses and proxy materials, to investors with the same last name who reside at the same address. Your participation in this program will continue for an unlimited period of time unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 869-NEWS, 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 January 31, 2009
Class A Shares | * | Class B Shares | ** | Class C Shares | † | Class I Shares | †† | |||||||||
(since 07/28/97 | ) | (since 10/31/88 | ) | (since 07/28/97 | ) | (since 07/28/97 | ) | |||||||||
Symbol | SRTAX | SRTBX | SRTCX | SRTDX | ||||||||||||
1 Year | (23.60 | )%4 | (24.18 | )%4 | (24.13 | )%4 | (23.42 | )%4 | ||||||||
(27.61 | ) 5 | (27.90 | ) 5 | (24.87 | ) 5 | — | ||||||||||
5 Years | 1.29 | 4 | 0.53 | 4 | 0.57 | 4 | 1.54 | 4 | ||||||||
0.21 | 5 | 0.20 | 5 | 0.57 | 5 | — | ||||||||||
10 Years | 2.30 | 4 | 1.69 | 4 | 1.53 | 4 | 2.54 | 4 | ||||||||
1.75 | 5 | 1.69 | 5 | 1.53 | 5 | — | ||||||||||
Since Inception | 3.65 | 4 | 7.70 | 4 | 2.87 | 4 | 3.89 | 4 | ||||||||
3.16 | 5 | 7.70 | 5 | 2.87 | 5 | — |
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/msim 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 I 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. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion (beginning April 2005). | |
† | The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase. | |
†† | Class I has no sales charge. | |
1) | The Standard & Poor’s 500® Index (S&P 500®) measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy. 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 Barclays Capital (formerly Lehman Brothers) U.S. Government/Credit Index tracks the performance of government and corporate obligations, including U.S. government agency and Treasury securities and corporate and Yankee bonds. 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 was 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 08/01/08 – 01/31/09.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning | Ending | Expenses Paid | ||||||||||
Account Value | Account Value | During Period@ | ||||||||||
08/01/08– | ||||||||||||
08/01/08 | 01/31/09 | 01/31/09 | ||||||||||
Class A | ||||||||||||
Actual (−20.61% return) | $ | 1,000.00 | $ | 793.90 | $ | 4.16 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,020.57 | $ | 4.69 | ||||||
Class B | ||||||||||||
Actual (−20.92% return) | $ | 1,000.00 | $ | 790.80 | $ | 7.54 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,016.79 | $ | 8.49 | ||||||
Class C | ||||||||||||
Actual (−20.90% return) | $ | 1,000.00 | $ | 791.00 | $ | 7.54 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,016.79 | $ | 8.49 | ||||||
Class I | ||||||||||||
Actual (−20.53% return) | $ | 1,000.00 | $ | 794.70 | $ | 3.03 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.83 | $ | 3.41 |
@ | Expenses are equal to the Fund’s annualized expense ratios of 0.92%, 1.67%, 1.67% and 0.67% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). If the Fund had borne all of its expenses, the annualized expense ratios would have been 0.95%, 1.70%, 1.70% and 0.70% for Class A, Class B, Class C and Class I shares, respectively. |
7
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited)
NUMBER OF | |||||||||||||||||
SHARES | VALUE | ||||||||||||||||
Common Stocks (57.6%) | |||||||||||||||||
Advertising/Marketing Services (0.5%) | |||||||||||||||||
106,720 | Omnicom Group, Inc. | $ | 2,762,981 | ||||||||||||||
Aerospace & Defense (2.7%) | |||||||||||||||||
141,310 | Northrop Grumman Corp. | 6,799,837 | |||||||||||||||
162,400 | Raytheon Co. | 8,220,688 | |||||||||||||||
15,020,525 | |||||||||||||||||
Airlines (1.3%) | |||||||||||||||||
381,540 | Continental Airlines, Inc. (Class B) (a) | 5,139,344 | |||||||||||||||
304,800 | Southwest Airlines Co. | 2,142,744 | |||||||||||||||
7,282,088 | |||||||||||||||||
Aluminum (0.1%) | |||||||||||||||||
64,560 | Alcoa, Inc. | 502,922 | |||||||||||||||
Biotechnology (2.8%) | |||||||||||||||||
89,140 | Celgene Corp. (a) | 4,719,963 | |||||||||||||||
128,290 | Gilead Sciences, Inc. (a) | 6,513,283 | |||||||||||||||
131,510 | Vertex Pharmaceuticals Inc. (a) | 4,346,405 | |||||||||||||||
15,579,651 | |||||||||||||||||
Chemicals: Major Diversified (0.4%) | |||||||||||||||||
184,670 | Dow Chemical Co. (The) | 2,140,325 | |||||||||||||||
Computer Communications (0.7%) | |||||||||||||||||
266,500 | Cisco Systems, Inc. (a) | 3,989,505 | |||||||||||||||
Computer Peripherals (0.9%) | |||||||||||||||||
434,050 | EMC Corp. (a) | 4,791,912 | |||||||||||||||
Computer Processing Hardware (1.5%) | |||||||||||||||||
76,555 | Apple Inc. (a) | 6,899,902 | |||||||||||||||
173,520 | Dell Inc. (a) | 1,648,440 | |||||||||||||||
8,548,342 | |||||||||||||||||
Contract Drilling (0.7%) | |||||||||||||||||
60,550 | Diamond Offshore Drilling, Inc. | 3,800,118 | |||||||||||||||
See Notes to Financial Statements
8
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
NUMBER OF | |||||||||||||||||
SHARES | VALUE | ||||||||||||||||
Department Stores (0.4%) | |||||||||||||||||
61,715 | Kohl’s Corp. (a) | $ | 2,265,558 | ||||||||||||||
Discount Stores (0.6%) | |||||||||||||||||
68,835 | Costco Wholesale Corp. | 3,099,640 | |||||||||||||||
Electric Utilities (0.3%) | |||||||||||||||||
51,960 | American Electric Power Co., Inc. | 1,628,946 | |||||||||||||||
Electrical Products (0.5%) | |||||||||||||||||
91,640 | Emerson Electric Co. | 2,996,628 | |||||||||||||||
Electronic Production Equipment (0.5%) | |||||||||||||||||
200,000 | Applied Materials, Inc. | 1,874,000 | |||||||||||||||
50,000 | KLA-Tencor Corp. | 1,002,000 | |||||||||||||||
2,876,000 | |||||||||||||||||
Electronics/Appliances (0.9%) | |||||||||||||||||
260,000 | Eastman Kodak Co. | 1,177,800 | |||||||||||||||
187,240 | Sony Corp. (ADR) (Japan) | 3,598,753 | |||||||||||||||
4,776,553 | |||||||||||||||||
Finance/Rental/Leasing (0.5%) | |||||||||||||||||
55,750 | VISA Inc. (Class A) | 2,751,263 | |||||||||||||||
Financial Conglomerates (1.0%) | |||||||||||||||||
101,070 | American Express Co. | 1,690,901 | |||||||||||||||
460,000 | Citigroup, Inc. | 1,633,000 | |||||||||||||||
86,420 | JPMorgan Chase & Co. | 2,204,574 | |||||||||||||||
5,528,475 | |||||||||||||||||
Food: Major Diversified (3.4%) | |||||||||||||||||
175,130 | Kellogg Co. | 7,651,430 | |||||||||||||||
411,374 | Kraft Foods Inc. (Class A) | 11,539,041 | |||||||||||||||
19,190,471 | |||||||||||||||||
Forest Products (0.2%) | |||||||||||||||||
43,930 | Weyerhaeuser Co. | 1,201,046 | |||||||||||||||
Home Building (0.6%) | |||||||||||||||||
319,000 | Gafisa S.A. (ADR) (Brazil) | 3,161,290 | |||||||||||||||
See Notes to Financial Statements
9
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
NUMBER OF | |||||||||||||||||
SHARES | VALUE | ||||||||||||||||
Home Improvement Chains (0.6%) | |||||||||||||||||
186,950 | Lowe’s Companies, Inc. | $ | 3,415,577 | ||||||||||||||
Household/Personal Care (1.4%) | |||||||||||||||||
121,210 | Colgate-Palmolive Co. | 7,883,498 | |||||||||||||||
Information Technology Services (1.7%) | |||||||||||||||||
102,030 | International Business Machines Corp. | 9,351,050 | |||||||||||||||
Integrated Oil (1.9%) | |||||||||||||||||
73,410 | Exxon Mobil Corp. | 5,614,397 | |||||||||||||||
87,980 | Hess Corp. | 4,892,568 | |||||||||||||||
10,506,965 | |||||||||||||||||
Internet Retail (0.3%) | |||||||||||||||||
70,000 | Gamestop Corp (Class A) (a) | 1,734,600 | |||||||||||||||
Internet Software/Services (0.6%) | |||||||||||||||||
10,330 | Google Inc. (Class A) (a) | 3,497,015 | |||||||||||||||
Investment Banks/Brokers (1.4%) | |||||||||||||||||
100,100 | Lazard Ltd. (Class A) (Bermuda) | 2,652,650 | |||||||||||||||
377,970 | Schwab (Charles) Corp. (The) | 5,136,612 | |||||||||||||||
7,789,262 | |||||||||||||||||
Investment Managers (0.7%) | |||||||||||||||||
177,810 | Janus Capital Group, Inc. | 933,503 | |||||||||||||||
177,200 | AllianceBernstein Holding LP | 3,026,576 | |||||||||||||||
3,960,079 | |||||||||||||||||
Major Banks (0.7%) | |||||||||||||||||
400,985 | Bank of America Corp. | 2,638,481 | |||||||||||||||
61,480 | Wells Fargo & Co. | 1,161,972 | |||||||||||||||
3,800,453 | |||||||||||||||||
Major Telecommunications (0.4%) | |||||||||||||||||
98,350 | AT&T Inc. | 2,421,377 | |||||||||||||||
Media Conglomerates (0.1%) | |||||||||||||||||
68,130 | Time Warner, Inc. | 635,653 | |||||||||||||||
See Notes to Financial Statements
10
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
NUMBER OF | |||||||||||||||||
SHARES | VALUE | ||||||||||||||||
Medical Specialties (5.3%) | |||||||||||||||||
81,275 | Bard (C.R.), Inc. | $ | 6,954,702 | ||||||||||||||
119,000 | Covidien Ltd. | 4,562,460 | |||||||||||||||
237,605 | St. Jude Medical, Inc. (a) | 8,641,694 | |||||||||||||||
189,480 | Thermo Fisher Scientific, Inc. (a) | 6,808,016 | |||||||||||||||
78,885 | Zimmer Holdings, Inc. (a) | 2,871,414 | |||||||||||||||
29,838,286 | |||||||||||||||||
Miscellaneous Commercial Services (0.6%) | |||||||||||||||||
534,130 | E-House China Holdings Ltd. | 3,541,282 | |||||||||||||||
Motor Vehicles (0.7%) | |||||||||||||||||
163,100 | Honda Motor Co., Ltd. (ADR) (Japan) | 3,695,846 | |||||||||||||||
Oilfield Services/Equipment (1.4%) | |||||||||||||||||
135,700 | Halliburton Co. | 2,340,825 | |||||||||||||||
96,610 | Smith International, Inc. | 2,193,047 | |||||||||||||||
314,300 | Weatherford International Ltd. (Bermuda) (a) | 3,466,729 | |||||||||||||||
8,000,601 | |||||||||||||||||
Other Consumer Services (0.2%) | |||||||||||||||||
106,000 | eBay Inc. (a) | 1,274,120 | |||||||||||||||
Packaged Software (4.9%) | |||||||||||||||||
384,100 | Microsoft Corp. | 6,568,110 | |||||||||||||||
662,630 | Oracle Corp. (a) | 11,152,063 | |||||||||||||||
360,640 | Sybase, Inc. (a) | 9,849,078 | |||||||||||||||
27,569,251 | |||||||||||||||||
Pharmaceuticals: Major (1.4%) | |||||||||||||||||
136,310 | Johnson & Johnson | 7,863,724 | |||||||||||||||
Precious Metals (1.3%) | |||||||||||||||||
193,060 | Barrick Gold Corp. (Canada) | 7,237,819 | |||||||||||||||
Property – Casualty Insurers (0.3%) | |||||||||||||||||
40,000 | Chubb Corp. (The) | 1,703,200 | |||||||||||||||
See Notes to Financial Statements
11
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
NUMBER OF | |||||||||||||||||
SHARES | VALUE | ||||||||||||||||
Recreational Products (1.3%) | |||||||||||||||||
400,000 | Activision Blizzard Inc. | $ | 3,504,000 | ||||||||||||||
263,540 | Mattel, Inc. | 3,739,633 | |||||||||||||||
7,243,633 | |||||||||||||||||
Restaurants (1.6%) | |||||||||||||||||
150,000 | McDonald’s Corp. | 8,703,000 | |||||||||||||||
Semiconductors (1.7%) | |||||||||||||||||
401,230 | Intel Corp. | 5,175,867 | |||||||||||||||
586,482 | Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (Taiwan) | 4,422,071 | |||||||||||||||
9,597,938 | |||||||||||||||||
Specialty Stores (0.1%) | |||||||||||||||||
44,490 | Staples, Inc. | 709,171 | |||||||||||||||
Specialty Telecommunications (1.1%) | |||||||||||||||||
460,000 | Qwest Communications International, Inc. (a) | 1,481,200 | |||||||||||||||
551,590 | Windstream Corp. | 4,787,801 | |||||||||||||||
6,269,001 | |||||||||||||||||
Steel (0.9%) | |||||||||||||||||
275,000 | AK Steel Holding Corp. (a) | 2,219,250 | |||||||||||||||
102,010 | United States Steel Corp. | 3,063,360 | |||||||||||||||
5,282,610 | |||||||||||||||||
Telecommunication Equipment (1.2%) | |||||||||||||||||
400,000 | Corning Inc. | 4,044,000 | |||||||||||||||
224,120 | Nokia Corp. (ADR) (Finland) | 2,749,952 | |||||||||||||||
6,793,952 | |||||||||||||||||
Tobacco (1.9%) | |||||||||||||||||
239,120 | Altria Group, Inc. | 3,955,045 | |||||||||||||||
181,250 | Philip Morris International | 6,733,437 | |||||||||||||||
10,688,482 | |||||||||||||||||
Trucks/Construction/Farm Machinery (0.5%) | |||||||||||||||||
115,100 | PACCAR, Inc. | 3,037,489 | |||||||||||||||
Wireless Telecommunications (0.9%) | |||||||||||||||||
373,593 | Metropcs Communications Inc. (a) | 5,077,129 | |||||||||||||||
Total Common Stocks (Cost $323,042,523) | $ | 323,016,302 | |||||||||||||||
See Notes to Financial Statements
12
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Corporate Bonds (8.0%) | ||||||||||||||||
Accident & Health Insurance (0.0%) | ||||||||||||||||
$ | 190 | Travelers Co., Inc. | 5 | .80 % | 05/15/18 | $ | 187,201 | |||||||||
Aerospace & Defense (0.1%) | ||||||||||||||||
353 | Systems 2001 Asset Trust – 144A** (Cayman Islands) | 6 | .664 | 09/15/13 | 313,792 | |||||||||||
Agricultural Commodities/Milling (0.0%) | ||||||||||||||||
190 | Archer Daniels | 5 | .45 | 03/15/18 | 189,112 | |||||||||||
Airlines (0.1%) | ||||||||||||||||
554 | America West Airlines, Inc. (Series 01-1) | 7 | .10 | 04/02/21 | 382,370 | |||||||||||
Beverages: Alcoholic (0.1%) | ||||||||||||||||
280 | Diageo Capital PLC | 7 | .375 | 01/15/14 | 307,388 | |||||||||||
300 | FBG Finance Ltd. – 144A (b) (Australia) | 5 | .125 | 06/15/15 | 256,676 | |||||||||||
564,064 | ||||||||||||||||
Biotechnology (0.1%) | ||||||||||||||||
35 | Amgen, Inc. | 5 | .70 | 02/01/19 | 36,445 | |||||||||||
310 | Amgen, Inc. | 5 | .85 | 06/01/17 | 324,196 | |||||||||||
240 | Biogen Idec Inc. | 6 | .875 | 03/01/18 | 247,490 | |||||||||||
�� | ||||||||||||||||
608,131 | ||||||||||||||||
Brewery (0.0%) | ||||||||||||||||
185 | Anheuser-Busch Inbev Wor | 7 | .20 | 01/15/14 | 188,168 | |||||||||||
Broadcasting (0.0%) | ||||||||||||||||
155 | Grupo Televisa SA – 144A (b) | 6 | .00 | 05/15/18 | 133,496 | |||||||||||
Cable/Satellite TV (0.1%) | ||||||||||||||||
355 | Comcast Corp. | 5 | .70 | 05/15/18 | 345,771 | |||||||||||
125 | Comcast Corp. | 6 | .50 | 01/15/15 | 126,348 | |||||||||||
472,119 | ||||||||||||||||
Casino/Gaming (0.1%) | ||||||||||||||||
180 | MGM Mirage Inc. – 144A (b) | 13 | .00 | 11/15/13 | 164,700 | |||||||||||
135 | MGM Mirage Inc. | 6 | .00 | 10/01/09 | 129,938 | |||||||||||
294,638 | ||||||||||||||||
See Notes to Financial Statements
13
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Chemicals: Agricultural (0.0%) | ||||||||||||||||
$ | 70 | Monsanto Co. | 5 | .125% | 04/15/18 | $ | 70,300 | |||||||||
Chemicals: Major Diversified (0.0%) | ||||||||||||||||
165 | E.I. Du Pont de Nemours & Co. | 6 | .00 | 07/15/18 | 169,602 | |||||||||||
Computer Processing Hardware (0.1%) | ||||||||||||||||
210 | Dell Inc. – 144A (b) | 5 | .65 | 04/15/18 | 203,186 | |||||||||||
95 | Hewlett-Packard Co. | 5 | .50 | 03/01/18 | 98,673 | |||||||||||
301,859 | ||||||||||||||||
Department Stores (0.1%) | ||||||||||||||||
710 | General Electrics Cap Corp. | 5 | .625 | 05/01/18 | 655,887 | |||||||||||
Discount Stores (0.1%) | ||||||||||||||||
380 | Wal Mart Stores Inc. | 4 | .25 | 04/15/13 | 403,584 | |||||||||||
245 | Wal Mart Stores Inc. | 4 | .125 | 02/01/19 | 239,304 | |||||||||||
10 | Wal Mart Stores Inc. | 6 | .20 | 04/15/38 | 10,849 | |||||||||||
15 | Wal Mart Stores Inc. | 6 | .50 | 08/15/37 | 17,017 | |||||||||||
670,754 | ||||||||||||||||
Diversified Manufacturing (0.1%) | ||||||||||||||||
575 | Tyco Electronics Group SA | 5 | .95 | 01/15/14 | 514,879 | |||||||||||
Drugstore Chains (0.1%) | ||||||||||||||||
50 | CVS Caremark Corp. | 5 | .75 | 06/01/17 | 50,110 | |||||||||||
447 | CVS Lease Pass Through – 144A (b) | 6 | .036 | 12/10/28 | 342,193 | |||||||||||
55 | Walgreen Co. | 4 | .875 | 08/01/13 | 57,919 | |||||||||||
175 | Walgreen Co. | 5 | .25 | 01/15/19 | 175,464 | |||||||||||
625,686 | ||||||||||||||||
Education (0.0%) | ||||||||||||||||
205 | Duke University | 5 | .15 | 04/01/19 | 211,283 | |||||||||||
Electric Utilities (0.8%) | ||||||||||||||||
145 | Alabama Power | 5 | .80 | 11/15/13 | 156,330 | |||||||||||
55 | Appalachian Power Co. (Series O) | 5 | .65 | 08/15/12 | 54,761 | |||||||||||
320 | Carolina Power & Light Co. | 5 | .125 | 09/15/13 | 335,195 | |||||||||||
145 | CenterPoint Energy Resources, Corp. | 6 | .25 | 02/01/37 | 93,203 | |||||||||||
85 | CenterPoint Energy Resources, Corp. (Series B) | 7 | .875 | 04/01/13 | 84,507 | |||||||||||
190 | Consolidated Natural Gas Co. (Series C) | 6 | .25 | 11/01/11 | 196,346 | |||||||||||
385 | Consumers Energy Co. (Series H) | 4 | .80 | 02/17/09 | 384,838 |
See Notes to Financial Statements
14
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
$ | 175 | Detroit Edison Co. (The) | 6 | .125% | 10/01/10 | $ | 178,001 | |||||||||
485 | E.ON International Finance BV (Netherlands) | 5 | .80 | 04/30/18 | 469,175 | |||||||||||
355 | Electricite de France 144A (b) | 6 | .50 | 01/26/19 | 369,013 | |||||||||||
375 | Entergy Gulf States, Inc. | 2 | .603 | 12/01/09 | 362,332 | |||||||||||
220 | Ohio Edison Co. | 6 | .40 | 07/15/16 | 206,738 | |||||||||||
415 | Ohio Power Company (Series K) | 6 | .00 | 06/01/16 | 401,397 | |||||||||||
100 | PACIFICORP | 5 | .50 | 01/15/19 | 102,938 | |||||||||||
165 | Peco Energy Co. | 5 | .35 | 03/01/18 | 162,446 | |||||||||||
160 | PPL Energy Supply LLC | 6 | .30 | 07/15/13 | 152,051 | |||||||||||
130 | Public Service Co. of Colorado | 6 | .50 | 08/01/38 | 139,827 | |||||||||||
270 | Public Service Electric & Gas Co. (Series MTN B) | 5 | .00 | 01/01/13 | 269,637 | |||||||||||
240 | Texas Eastern Transmission | 7 | .00 | 07/15/32 | 201,428 | |||||||||||
165 | Union Electric Co. | 6 | .70 | 02/01/19 | 159,544 | |||||||||||
70 | Virginia Electric & Power Co. | 8 | .875 | 11/15/38 | 90,594 | |||||||||||
4,570,301 | ||||||||||||||||
Electrical Products (0.1%) | ||||||||||||||||
285 | Cooper Industries, Inc. | 5 | .25 | 11/15/12 | 286,048 | |||||||||||
125 | Emerson Electric Co. | 4 | .875 | 10/15/19 | 122,056 | |||||||||||
408,104 | ||||||||||||||||
Electronic Components (0.1%) | ||||||||||||||||
350 | Philips Electronics NV | 5 | .75 | 03/11/18 | 336,348 | |||||||||||
Electronic Equipment/Instruments (0.0%) | ||||||||||||||||
225 | Xerox Corp. | 6 | .35 | 05/15/18 | 186,496 | |||||||||||
Electronic Production Equipment (0.0%) | ||||||||||||||||
165 | KLA-Tencor Corp. | 6 | .90 | 05/01/18 | 125,652 | |||||||||||
Electronics/Appliances (0.0%) | ||||||||||||||||
220 | LG Electronics Inc. – 144A (South Korea) (b) | 5 | .00 | 06/17/10 | 205,285 | |||||||||||
Finance (0.0%) | ||||||||||||||||
165 | Pearson Dollar Finance Two PLC – 144A (b) | 6 | .25 | 05/06/18 | 141,804 | |||||||||||
Finance/Rental/Leasing (0.1%) | ||||||||||||||||
375 | Nationwide Building Society – 144A (United Kingdom) (b) | 4 | .25 | 02/01/10 | 370,668 | |||||||||||
215 | SLM Corp. | 8 | .45 | 06/15/18 | 183,186 | |||||||||||
553,854 | ||||||||||||||||
See Notes to Financial Statements
15
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Financial Conglomerates (0.4%) | ||||||||||||||||
$ | 370 | American Express Credit Corp. | 7 | .30 % | 08/20/13 | $ | 378,877 | |||||||||
155 | Brookfield Asset Management Inc. (Canada) | 5 | .80 | 04/25/17 | 80,600 | |||||||||||
315 | Citigroup Inc. | 5 | .875 | 05/29/37 | 243,936 | |||||||||||
30 | Citigroup Inc. | 6 | .125 | 11/21/17 | 27,179 | |||||||||||
245 | Citigroup Inc. | 6 | .125 | 05/15/18 | 222,674 | |||||||||||
55 | General Electric Capital Corp. (Series MTNA) | 4 | .75 | 09/15/14 | 52,216 | |||||||||||
330 | JPMorgan Chase & Co. | 4 | .75 | 05/01/13 | 327,759 | |||||||||||
675 | JPMorgan Chase & Co. | 6 | .00 | 01/15/18 | 678,914 | |||||||||||
150 | Prudential Financial, Inc. | 6 | .625 | 12/01/37 | 112,256 | |||||||||||
2,124,411 | ||||||||||||||||
Food Retail (0.1%) | ||||||||||||||||
75 | Delhaize America, Inc. | 9 | .00 | 04/15/31 | 86,118 | |||||||||||
160 | Delhaize America, Inc. | 5 | .875 | 02/01/14 | 161,647 | |||||||||||
100 | Kroger Co. (The) | 5 | .00 | 04/15/13 | 100,049 | |||||||||||
80 | Kroger Co. (The) | 6 | .40 | 08/15/17 | 81,231 | |||||||||||
80 | McDonalds Corp. | 5 | .70 | 02/01/39 | 82,872 | |||||||||||
40 | McDonalds Corp. | 6 | .30 | 10/15/37 | 43,941 | |||||||||||
555,858 | ||||||||||||||||
Food: Major Diversified (0.2%) | ||||||||||||||||
160 | ConAgra Foods, Inc. | 7 | .00 | 10/01/28 | 156,558 | |||||||||||
135 | ConAgra Foods, Inc. | 8 | .25 | 09/15/30 | 148,430 | |||||||||||
180 | General Mills Inc. | 5 | .25 | 08/15/13 | 184,474 | |||||||||||
120 | General Mills Inc. | 5 | .65 | 02/15/19 | 122,629 | |||||||||||
35 | Kraft Foods Inc. | 6 | .125 | 02/01/18 | 35,751 | |||||||||||
345 | Kraft Foods Inc. | 6 | .125 | 08/23/18 | 352,725 | |||||||||||
15 | Kraft Foods Inc. | 6 | .75 | 02/19/14 | 16,269 | |||||||||||
1,016,836 | ||||||||||||||||
Foods & Beverages (0.0%) | ||||||||||||||||
190 | Dr Pepper Snapple Group – 144A (b) | 6 | .82 | 05/01/18 | 180,076 | |||||||||||
Gas Distributors (0.2%) | ||||||||||||||||
90 | Equitable Resources Inc. | 6 | .50 | 04/01/18 | 80,432 | |||||||||||
205 | NiSource Finance Corp. | 6 | .80 | 01/15/19 | 146,883 | |||||||||||
325 | NiSource Finance Corp. | 2 | .723 | 11/23/09 | 307,096 | |||||||||||
305 | Questar Market Resources Inc. | 6 | .80 | 04/01/18 | 282,193 | |||||||||||
816,604 | ||||||||||||||||
Home Improvement Chains (0.1%) | ||||||||||||||||
295 | Home Depot Inc. | 5 | .40 | 03/01/16 | 268,629 | |||||||||||
See Notes to Financial Statements
16
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Hotels/Resorts/Cruiselines (0.0%) | ||||||||||||||||
$ | 240 | Starwood Hotels & Resorts | 6 | .75 % | 05/15/18 | $ | 161,045 | |||||||||
Household/Personal Care (0.0%) | ||||||||||||||||
85 | Procter & Gamble Co. | 4 | .60 | 01/15/14 | 90,075 | |||||||||||
Industrial Conglomerates (0.2%) | ||||||||||||||||
1,205 | General Electric Co. | 5 | .25 | 12/06/17 | 1,142,236 | |||||||||||
210 | Honeywell International Inc. | 5 | .30 | 03/01/18 | 210,516 | |||||||||||
1,352,752 | ||||||||||||||||
Industrial Machinery (0.0%) | ||||||||||||||||
195 | Parker-Hannifin Corp. | 5 | .50 | 05/15/18 | 180,769 | |||||||||||
Information Technology Services (0.1%) | ||||||||||||||||
300 | IBM Corp. | 7 | .625 | 10/15/18 | 355,708 | |||||||||||
Insurance Brokers/Services (0.1%) | ||||||||||||||||
585 | Catlin Insurance Co., Ltd. – 144A (Bahamas) (b) | 7 | .249 | 12/31/49 | 139,431 | |||||||||||
440 | Farmers Exchange Capital – 144A (b) | 7 | .05 | 07/15/28 | 256,902 | |||||||||||
396,333 | ||||||||||||||||
Integrated Oil (0.2%) | ||||||||||||||||
425 | ConocoPhillips | 5 | .20 | 05/15/18 | 419,890 | |||||||||||
80 | ConocoPhillips | 5 | .75 | 02/01/19 | 79,461 | |||||||||||
115 | Marathon Oil Corp. | 5 | .90 | 03/15/18 | 99,805 | |||||||||||
260 | Marathon Oil Corp. | 6 | .00 | 10/01/17 | 232,229 | |||||||||||
185 | Petro-Canada | 6 | .05 | 05/15/18 | 152,755 | |||||||||||
984,140 | ||||||||||||||||
International Banks (0.0%) | ||||||||||||||||
195 | UBS AG | 5 | .875 | 12/20/17 | 174,598 | |||||||||||
Investment Banks/Brokers (0.5%) | ||||||||||||||||
305 | Bear Stearns Companies Inc. (The) | 7 | .25 | 02/01/18 | 325,196 | |||||||||||
280 | Bear Stearns Companies Inc. (The) | 6 | .40 | 10/02/17 | 282,095 | |||||||||||
605 | Goldman Sachs Group Inc. (The) | 6 | .75 | (e) | 461,104 | |||||||||||
735 | Goldman Sachs Group Inc. (The) | 6 | .15 | 04/01/18 | 672,293 | |||||||||||
680 | Merrill Lynch & Co., Inc. (Series MTN) | 6 | .875 | 04/25/18 | 655,742 | |||||||||||
275 | NYSE Euronext | 4 | .80 | 06/28/13 | 267,689 | |||||||||||
2,664,119 | ||||||||||||||||
See Notes to Financial Statements
17
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Life/Health Insurance (0.0%) | ||||||||||||||||
$ | 225 | MetLife Inc. | 6 | .817(c)% | 08/15/18 | $ | 228,963 | |||||||||
Major Banks (0.8%) | ||||||||||||||||
545 | Bank of America Corp. | 5 | .65 | 05/01/18 | 494,452 | |||||||||||
640 | Bank of America Corp. | 5 | .75 | 12/01/17 | 584,824 | |||||||||||
255 | Bank of New York Mellon Corp. (Series MTN) | 4 | .50 | 04/01/13 | 254,635 | |||||||||||
160 | Bank of New York Mellon Corp. | 5 | .125 | 08/27/13 | 163,186 | |||||||||||
100 | Credit Suisse New York (Switzerland) | 5 | .00 | 05/15/13 | 96,962 | |||||||||||
290 | Credit Suisse New York (Switzerland) | 6 | .00 | 02/15/18 | 266,129 | |||||||||||
110 | Credit Suisse USA Inc. (Switzerland) | 5 | .125 | 08/15/15 | 101,284 | |||||||||||
385 | HBOS Treasury Services PLC – 144A (United Kingdom) (b) | 6 | .75 | 05/21/18 | 340,667 | |||||||||||
280 | HSBC Finance Corp. | 6 | .75 | 05/15/11 | 285,577 | |||||||||||
100 | MBNA Capital I (Series A) | 8 | .278 | 12/01/26 | 76,858 | |||||||||||
295 | Popular North America, Inc. (Series F) | 5 | .65 | 04/15/09 | 293,295 | |||||||||||
805 | Wachovia Capital Trust III | 5 | .80(e) | 410,717 | ||||||||||||
170 | Wachovia Corp. | 5 | .50 | 05/01/13 | 175,378 | |||||||||||
685 | Wells Fargo Co. | 5 | .625 | 12/11/17 | 672,182 | |||||||||||
4,216,146 | ||||||||||||||||
Major Telecommunications (0.7%) | ||||||||||||||||
235 | AT&T Corp. | 8 | .00 | 11/15/31 | 279,630 | |||||||||||
140 | AT&T Inc. | 6 | .55 | 02/15/39 | 139,941 | |||||||||||
60 | AT&T Inc. | 5 | .60 | 05/15/18 | 59,999 | |||||||||||
570 | AT&T Inc. | 6 | .30 | 01/15/38 | 558,608 | |||||||||||
150 | Deutsche Telekom International Finance Corp. NV (Netherlands) | 8 | .75 | 06/15/30 | 185,578 | |||||||||||
270 | France Telecom S.A. (France) | 8 | .50 | 03/01/31 | 345,940 | |||||||||||
195 | Rogers Communications | 6 | .80 | 08/15/18 | 203,192 | |||||||||||
150 | SBC Communications, Inc. | 6 | .15 | 09/15/34 | 143,425 | |||||||||||
175 | Sprint Capital Corp. | 8 | .75 | 03/15/32 | 108,252 | |||||||||||
65 | Telecom Italia Capital SA (Luxembourg) | 4 | .95 | 09/30/14 | 56,416 | |||||||||||
145 | Telecom Italia Capital SA (Luxembourg) | 6 | .999 | 06/04/18 | 134,492 | |||||||||||
210 | Telecom Italia Capital SA (Luxembourg) | 4 | .00 | 01/15/10 | 204,076 | |||||||||||
80 | Telecom Italia Capital SA (Luxembourg) | 4 | .875 | 10/01/10 | 76,620 | |||||||||||
345 | Telefonica Europe BV (Netherlands) | 8 | .25 | 09/15/30 | 403,236 | |||||||||||
485 | Verizon Communications | 5 | .50 | 02/15/18 | 474,238 | |||||||||||
150 | Verizon Communications | 8 | .95 | 03/01/39 | 185,313 | |||||||||||
315 | Verizon Wireless Capital | 5 | .55 | 02/01/14 | 312,975 | |||||||||||
3,871,931 | ||||||||||||||||
Managed Health Care (0.0%) | ||||||||||||||||
230 | UnitedHealth Group Inc. | 6 | .00 | 02/15/18 | 223,527 | |||||||||||
See Notes to Financial Statements
18
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Marine Shipping (0.0%) | ||||||||||||||||
$ | 225 | Union Pacific Corp. | 7 | .875 % | 01/15/19 | $ | 249,744 | |||||||||
Media Conglomerates (0.3%) | ||||||||||||||||
290 | Time Warner Cable Inc. | 6 | .75 | 07/01/18 | 283,695 | |||||||||||
195 | Time Warner Cable Inc. | 8 | .75 | 02/14/19 | 217,515 | |||||||||||
555 | Time Warner, Inc. | 5 | .875 | 11/15/16 | 525,301 | |||||||||||
345 | Viacom, Inc. | 6 | .875 | 04/30/36 | 254,539 | |||||||||||
255 | Vivendi – 144A (France) (b) | 6 | .625 | 04/04/18 | 220,280 | |||||||||||
1,501,330 | ||||||||||||||||
Medical Specialties (0.1%) | ||||||||||||||||
65 | Baxter International | 5 | .375 | 06/01/18 | 67,210 | |||||||||||
280 | Covidien International Finance | 6 | .00 | 10/15/17 | 285,305 | |||||||||||
352,515 | ||||||||||||||||
Miscellaneous (0.1%) | ||||||||||||||||
190 | AES Corporation – 144A (b) | 8 | .75 | 05/15/13 | 191,425 | |||||||||||
Motor Vehicles (0.1%) | ||||||||||||||||
250 | DaimlerChrysler North American Holdings Co. | 8 | .50 | 01/18/31 | 225,304 | |||||||||||
185 | Harley-Dacidson Funding – 144A (b) | 6 | .80 | 06/15/18 | 111,475 | |||||||||||
336,779 | ||||||||||||||||
Multi-Line Insurance (0.1%) | ||||||||||||||||
790 | AIG SunAmerica Global Financing VI – 144A (b) | 6 | .30 | 05/10/11 | 711,158 | |||||||||||
405 | Two-Rock Pass Through – 144A (Bahamas) (b) | 3 | .743(c) | (d) | 8,606 | |||||||||||
719,764 | ||||||||||||||||
Oil & Gas Pipelines (0.1%) | ||||||||||||||||
89 | Colorado Interstate Gas Co. | 6 | .80 | 11/15/15 | 83,438 | |||||||||||
100 | GAZ Capital SA – 144A (luxembourg) (b) | 6 | .51 | 03/07/22 | 61,500 | |||||||||||
165 | Kinder Morgan Finance Co. (Canada) | 5 | .70 | 01/05/16 | 143,138 | |||||||||||
395 | Plains All American Pipeline LP/PAA Finance Corp. | 6 | .70 | 05/15/36 | 276,255 | |||||||||||
190 | TransCanada Pipelines | 6 | .50 | 08/15/18 | 193,108 | |||||||||||
757,439 | ||||||||||||||||
Oil & Gas Production (0.1%) | ||||||||||||||||
155 | Devon Financing Corp. | 7 | .875 | 09/30/31 | 164,691 | |||||||||||
305 | XTO Energy Inc. | 5 | .50 | 06/15/18 | 280,514 | |||||||||||
445,205 | ||||||||||||||||
Oil Refining/Marketing (0.0%) | ||||||||||||||||
255 | Valero Energy Corp. | 3 | .50 | 04/01/09 | 253,949 | |||||||||||
See Notes to Financial Statements
19
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Oilfield Services/Equipment (0.0%) | ||||||||||||||||
$ | 190 | Weatherford International Inc. | 6 | .00 % | 03/15/18 | $ | 151,951 | |||||||||
Other Metals/Minerals (0.1%) | ||||||||||||||||
565 | Brascan Corp. (Canada) | 7 | .125 | 06/15/12 | 384,200 | |||||||||||
165 | Rio Tinto Finance (USA) Ltd. (Australia) | 6 | .50 | 07/15/18 | 138,747 | |||||||||||
522,947 | ||||||||||||||||
Packaged Software (0.1%) | ||||||||||||||||
330 | Oracle Corp. | 5 | .75 | 04/15/18 | 343,964 | |||||||||||
Pharmaceuticals: Major (0.2%) | ||||||||||||||||
260 | Astrazeneca PLC | 5 | .90 | 09/15/17 | 280,178 | |||||||||||
15 | Astrazeneca PLC | 6 | .45 | 09/15/37 | 16,593 | |||||||||||
370 | Bristol-Myers Squibb | 5 | .45 | 05/01/18 | 384,531 | |||||||||||
335 | GlaxoSmithKline Capital Inc. | 5 | .65 | 05/15/18 | 359,600 | |||||||||||
130 | Wyeth | 5 | .45 | 04/01/17 | 132,086 | |||||||||||
25 | Wyeth | 5 | .50 | 02/15/16 | 26,155 | |||||||||||
1,199,143 | ||||||||||||||||
Property – Casualty Insurers (0.2%) | ||||||||||||||||
225 | ACE INA Holdings Inc. | 5 | .60 | 05/15/15 | 213,138 | |||||||||||
420 | Berkshire Hathaway Finance – 144A (b) | 5 | .40 | 05/15/18 | 428,765 | |||||||||||
60 | Chubb Corp. | 5 | .75 | 05/15/18 | 59,102 | |||||||||||
215 | Platinum Underwriters Finance Inc. (Series B) | 7 | .50 | 06/01/17 | 149,390 | |||||||||||
465 | Xlliac Global Funding – 144A (b) | 4 | .80 | 08/10/10 | 414,905 | |||||||||||
1,265,300 | ||||||||||||||||
Railroads (0.1%) | ||||||||||||||||
255 | Burlington Santa Fe Corp. | 6 | .125 | 03/15/09 | 255,562 | |||||||||||
70 | Canadian National Railway Co. | 5 | .55 | 05/15/18 | 66,492 | |||||||||||
160 | Korea Railroad Corp. – 144A (b) | 5 | .375 | 05/15/13 | 142,545 | |||||||||||
135 | Norfolk Southern Corp. | 5 | .75 | 01/15/16 | 133,088 | |||||||||||
597,687 | ||||||||||||||||
Restaurants (0.1%) | ||||||||||||||||
55 | McDonalds Corp. | 5 | .00 | 02/01/19 | 56,677 | |||||||||||
280 | Tricon Global Restaurants, Inc. | 8 | .875 | 04/15/11 | 295,329 | |||||||||||
352,006 | ||||||||||||||||
See Notes to Financial Statements
20
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
Savings Banks (0.1%) | ||||||||||||||||
$ | 355 | Household Finance Corp. | 6 | .375 % | 10/15/11 | $ | 365,518 | |||||||||
475 | Sovereign Bancorp, Inc. | 1 | .728(c) | 03/23/10 | 430,441 | |||||||||||
795,959 | ||||||||||||||||
Services to the Health Industry (0.0%) | ||||||||||||||||
230 | Medco Health Solutions | 7 | .125 | 03/15/18 | 222,663 | �� | ||||||||||
Steel (0.0%) | ||||||||||||||||
290 | Arcelormittal – 144A (Luxembourg) (b) | 6 | .125 | 06/01/18 | 227,273 | |||||||||||
Tobacco (0.1%) | ||||||||||||||||
175 | Bat International Finance PLC | 9 | .50 | 11/15/18 | 192,300 | |||||||||||
330 | Phillip Morris International | 5 | .65 | 05/16/18 | 330,795 | |||||||||||
160 | Reynolds American Inc. | 6 | .50 | 07/15/10 | 158,756 | |||||||||||
681,851 | ||||||||||||||||
Trucks/Construction/Farm Machinery (0.1%) | ||||||||||||||||
95 | Caterpillar Financial Services | 4 | .90 | 08/15/13 | 95,073 | |||||||||||
185 | John Deere Capital Corp. | 5 | .75 | 09/10/18 | 182,475 | |||||||||||
277,548 | ||||||||||||||||
Wireless Telecommunications (0.1%) | ||||||||||||||||
255 | Vodafone Group PLC | 5 | .625 | 02/27/17 | 248,643 | |||||||||||
Total Corporate Bonds (Cost $48,479,433) | 44,638,790 | |||||||||||||||
U.S. Government Agencies – Mortgage-Backed Securities (2.2%) | ||||||||||||||||
Federal Home Loan Mortgage Corp. | ||||||||||||||||
350 | 5 | .00 | 02/15/39 | 355,414 | ||||||||||||
46 | 7 | .50 | 10/01/32 | 49,331 | ||||||||||||
Federal Home Loan Mortgage Corp. (PC) Gold | ||||||||||||||||
458 | 6 | .50 | 07/01/29 – 05/01/32 | 481,278 | ||||||||||||
23 | 7 | .50 | 01/01/30 | 24,305 | ||||||||||||
Federal National Mortgage Association | ||||||||||||||||
2,700 | 5 | .00 | (f) | 2,745,141 | ||||||||||||
5,150 | 5 | .50 | (f) | 5,271,509 | ||||||||||||
1,000 | 6 | .00 | 02/15/39 | 1,030,781 | ||||||||||||
157 | 6 | .50 | 12/01/29 | 165,287 |
See Notes to Financial Statements
21
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
$ | 1,168 | 7 | .00 % | 12/01/17 – 02/01/31 | $ | 1,241,728 | ||||||||||
230 | 7 | .50 | 11/01/29 – 05/01/32 | 245,060 | ||||||||||||
886 | 8 | .00 | 05/01/26 – 02/01/32 | 941,651 | ||||||||||||
Total U.S. Government Agencies – Mortgage-Backed Securities (Cost $12,609,171) | 12,551,485 | |||||||||||||||
U.S. Government Agencies & Obligations (5.9%) | ||||||||||||||||
Federal Home Loan Mortgage Corp. | ||||||||||||||||
1,800 | 2 | .50 | 01/07/14 | 1,798,967 | ||||||||||||
3,672 | 4 | .875 | 06/13/18 | 3,998,948 | ||||||||||||
150 | 5 | .00 | 05/11/17 | 162,916 | ||||||||||||
160 | 5 | .125 | 11/17/17 | 176,175 | ||||||||||||
4,945 | 5 | .50 | 08/23/17 | 5,550,090 | ||||||||||||
Federal National Mortgage Association | ||||||||||||||||
500 | 6 | .75 | 03/15/31 | 655,184 | ||||||||||||
U.S. Treasury Bond | ||||||||||||||||
300 | 4 | .50 | 02/15/36 | 340,219 | ||||||||||||
2,870 | 4 | .50 | 05/15/38 | 3,333,686 | ||||||||||||
408 | 8 | .75 | 05/15/17 | 572,284 | ||||||||||||
999 | 8 | .875 | 08/15/17 | 1,417,020 | ||||||||||||
163 | 9 | .125 | 05/15/18 | 239,470 | ||||||||||||
U.S. Treasury Note | ||||||||||||||||
500 | 5 | .375 | 02/15/31 | 606,875 | ||||||||||||
729 | 3 | .75 | 11/15/18 | 785,274 | ||||||||||||
1,509 | 1 | .50 | 12/31/13 | 1,487,427 | ||||||||||||
1,400 | 1 | .75 | 01/31/14 | 1,392,346 | ||||||||||||
U.S. Treasury Strip | ||||||||||||||||
5,790 | 0 | .00 | 11/15/19 | 3,830,166 | ||||||||||||
2,790 | 0 | .00 | 05/15/21 | 1,695,346 | ||||||||||||
3,685 | 0 | .00 | 11/15/21 | 2,186,023 | ||||||||||||
4,320 | 0 | .00 | 11/15/21 | 2,557,587 | ||||||||||||
Total U.S. Government Agencies & Obligations (Cost $31,928,984) | 32,786,003 | |||||||||||||||
Asset-Backed Securities (0.6%) | ||||||||||||||||
Capital Auto Receivables Asset Trust | ||||||||||||||||
784 | 2006-2 A3A | 4 | .98 | 05/15/11 | 766,359 | |||||||||||
572 | 2007-SN1 A3B | 0 | .393(c) | 07/15/10 | 541,064 | |||||||||||
245 | Capital One Auto Finance Trust 2006-C A3A | 5 | .07 | 07/15/11 | 238,952 | |||||||||||
24 | Caterpillar Financial Asset Trust 2006-A A3 | 5 | .57 | 05/25/10 | 23,689 |
See Notes to Financial Statements
22
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | ||||||||||||||||
AMOUNT IN | COUPON | MATURITY | ||||||||||||||
THOUSANDS | RATE | DATE | VALUE | |||||||||||||
$ | 300 | CIT Equipment Collateral 2006-VT2 A3 | 5 | .07 % | 02/20/10 | $ | 299,424 | |||||||||
35 | Ford Credit Auto Owner Trust 2006-A A3 | 5 | .05 | 03/15/10 | 34,482 | |||||||||||
388 | GS Auto Loan Trust 2006-1 A3 | 5 | .37 | 12/15/10 | 386,925 | |||||||||||
Harley Davidson Motorcycle Trust | ||||||||||||||||
558 | 2005-3 A2 | 4 | .41 | 06/15/12 | 539,745 | |||||||||||
381 | 2005-2 A2 | 4 | .07 | 02/15/12 | 369,758 | |||||||||||
117 | Hertz Vehicle Financing LLC 2005-2A A2 – 144A* | 4 | .93 | 02/25/10 | 116,255 | |||||||||||
Total Asset-Backed Securities (Cost $3,403,427) | 3,316,653 | |||||||||||||||
Collateralized Mortgage Obligations (0.2%) | ||||||||||||||||
U.S. Government Agencies (0.2%) | ||||||||||||||||
557 | Federal Home Loan Mortgage Corp. Whole Loan 2005-S001 2A2 | 0 | .539(c) | 09/25/45 | 288,393 | |||||||||||
Federal National Mortgage Association | ||||||||||||||||
842 | 2006-28 1A1 | 0 | .499(c) | 03/25/36 | 745,934 | |||||||||||
2,427 | 2005-68 XI (IO) (g) | 6 | .00 | 08/25/35 | 198,607 | |||||||||||
Total U.S. Government Agencies | 1,232,934 | |||||||||||||||
Private Issues (0.0%) | ||||||||||||||||
450 | American Home Mortgage Investment Trust 2006-1 1M1 (g) | 0 | .769(c) | 03/25/46 | 2,430 | |||||||||||
350 | Harborview Mortgage Loan Trust 2006-SB1 M1 (g) | 0 | .714(c) | 12/19/36 | 1,400 | |||||||||||
500 | Master Adjustable Rate Mortgages Trust 2007-3 1M1 (g) | 1 | .239(c) | 05/25/47 | 2,200 | |||||||||||
Total Private Issues | 6,030 | |||||||||||||||
Total Collateralized Mortgage Obligations (Cost $2,826,237) | 1,238,964 | |||||||||||||||
Foreign Government Obligation (0.1%) | ||||||||||||||||
655 | Brazilian Government Interational Bond (Cost $668,104) | 6 | .00 | 01/17/17 | 651,725 | |||||||||||
Investment Trust/Mutual Funds(1.1%) | ||||||||||||||||
252,700 | Ishares FTSE/Xinhua China 25 Index Fund (Cost $7,329,083) | 6,345,297 | ||||||||||||||
NUMBER OF | ||||||||||||||||
CONTRACTS | ||||||||||||||||
Call Options Purchased (0.0%) | ||||||||||||||||
205 | 90 day Euro $ Futures September/2009 @ 97.75 (Cost $158,656) | 98,656 | ||||||||||||||
See Notes to Financial Statements
23
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
PRINCIPAL | |||||||||||||||||
AMOUNT IN | COUPON | MATURITY | |||||||||||||||
THOUSANDS | RATE | DATE | VALUE | ||||||||||||||
Short-Term Investments (29.2%) | |||||||||||||||||
U.S. Government Obligations (h) (i) (0.9%) | |||||||||||||||||
$ | 5,249 | U.S. Treasury Bills (Cost $5,246,912) | 0 | .04–0.33 | % | 05/15/09 | $ | 5,246,777 | |||||||||
NUMBER OF | |||||||||||||||||
SHARES (000) | |||||||||||||||||
Investment Company (j) (28.3%) | |||||||||||||||||
158,738 | Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class (Cost $158,737,704) | 158,737,704 | |||||||||||||||
Total Short-Term Investments (Cost $163,984,616) | 163,984,481 | ||||||||||||||||
Total Investments (Cost $594,430,234) (k) (l) | 104.9% | 588,628,356 | |||||||||||||||
Total Written Options Outstanding (Premiums received $48,106) | (0.0) | (28,669 | ) | ||||||||||||||
Liabilities in Excess of Other Assets | (4.9) | (27,464,315 | ) | ||||||||||||||
Net Assets | 100.0% | $ | 561,135,372 | ||||||||||||||
ADR | American Depositary Receipt. | |
ARM | Adjustable Rate Mortgage. Interest rate in effect as of January 31, 2009. | |
IO | Interest Only Security. | |
MTN | Medium Term Note. | |
PC | Participation Certificate. | |
(a) | Non-income producing security. | |
(b) | Resale is restricted to qualified institutional investors. | |
(c) | Floating rate security. Rate shown is the rate in effect at January 31, 2009. | |
(d) | Foreign security issued with perpetual maturity. | |
(e) | Security issued with perpetual maturity. | |
(f) | Security was purchased on a forward commitment basis with an approximate principal amount and no definite maturity date; the actual principal amount and maturity date will be determined upon settlement. | |
(g) | Securities with a total market value of $204,637 have been valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Such fair value measurements may be level 2 measurements if observable inputs are available. See note 9. | |
(h) | A portion of this security has been physically segregated in connection with open future contracts in the amount of $408,185. | |
(i) | Purchased on a discount basis. The interest rate shown has been adjusted to reflect a money market equivalent yield. | |
(j) | See Note 4 to the financial statements regarding investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. | |
(k) | Securities have been designated as collateral in amount equal to $76,423,578 in connection with open futures and swap contracts. | |
(l) | The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $59,833,937 and the aggregate gross unrealized depreciation is $65,616,378, resulting in net unrealized depreciation of $5,782,441. |
See Notes to Financial Statements
24
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
Options Written as of January 31, 2009:
NUMBER OF | STRIKE | EXPIRATION | ||||||||||||||||
CONTRACTS | DESCRIPTION | PRICE | DATE | PREMIUM | VALUE | |||||||||||||
108 | 90 day Euro$ Futures | 98.25 | September 2009 | $ | 33,263 | $ | 19,575 | |||||||||||
97 | 90 day Euro$ Futures | 98.50 | September 2009 | 14,843 | 9,094 | |||||||||||||
$ | 28,669 | |||||||||||||||||
Futures Contracts Open at January 31, 2009:
UNREALIZED | ||||||||||||||
NUMBER OF | DESCRIPTION, DELIVERY | UNDERLYING FACE | APPRECIATION | |||||||||||
CONTRACTS | LONG/SHORT | MONTH AND YEAR | AMOUNT AT VALUE | (DEPRECIATION) | ||||||||||
126 | Long | U.S.Treasury Notes 2 Year, March 2009 | $ | 27,420,750 | $ | 111,031 | ||||||||
133 | Long | U.S.Treasury Notes 5 Year, March 2009 | 15,716,860 | (92,079 | ) | |||||||||
29 | Long | U.S.Treasury Bonds 20 Year, March 2009 | 3,674,391 | (317,018 | ) | |||||||||
63 | Short | U.S.Treasury Notes 10 Year, March 2009 | (7,727,344 | ) | 139,140 | |||||||||
Net Unrealized Depreciation | $ | (158,926 | ) | |||||||||||
See Notes to Financial Statements
25
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
Interest Rate Swap Contracts Open at January 31, 2009:
NOTIONAL | PAYMENTS | PAYMENTS | UNREALIZED | |||||||||||
AMOUNT | RECEIVED | MADE | TERMINATION | APPRECIATION | ||||||||||
COUNTERPARTY | (000’S) | BY FUND | BY FUND | DATE | (DEPRECIATION) | |||||||||
Bank of America N.A.*** | $ | 3,030 | Fixed Rate 5.07% | Floating Rate 0.00#% | April 14, 2018 | $ | 185,406 | |||||||
Bank of America N.A.*** | 2,420 | Fixed Rate 4.983 | Floating Rate 0.00# | April 15, 2018 | 139,344 | |||||||||
Bank of America N.A. | 3,223 | Fixed Rate 5.37 | Floating Rate 3.08# | February 12, 2018 | 242,531 | |||||||||
Bank of America N.A.*** | 11,978 | Fixed Rate 4.779 | Floating Rate 0.00# | October 10, 2018 | 533,979 | |||||||||
Bank of America N.A.*** | 14,692 | Fixed Rate 5.558 | Floating Rate 0.00# | July 24, 2023 | 731,221 | |||||||||
Bank of America N.A.*** | 9,481 | Fixed Rate 4.798 | Floating Rate 0.00# | October 7, 2023 | 232,858 | |||||||||
Bank of America N.A.*** | 5,420 | Fixed Rate 3.44 | Floating Rate 0.00# | October 7, 2023 | (107,533 | ) | ||||||||
Goldman Sachs International*** | 10,920 | Fixed Rate 5.63 | Floating Rate 0.00# | February 28, 2018 | 934,643 | |||||||||
Goldman Sachs International*** | 4,741 | Fixed Rate 4.79 | Floating Rate 0.00# | October 7, 2023 | 115,244 | |||||||||
JPMorgan Chase Bank N.A. New York | 5,290 | Fixed Rate 3.507 | Floating Rate 0.00# | January 13, 2024 | (93,210 | ) | ||||||||
Merrill Lynch & Co | 3,230 | Fixed Rate 5.00 | Floating Rate 0.00# | April 15, 2018 | 188,309 | |||||||||
Bank of America N.A.*** | EUR | 5,498 | Fixed Rate 4.415 | Floating Rate 0.00ˆ | October 7, 2018 | (16,613 | ) | |||||||
Deutsche Bank AG Frankfurt*** | 8,255 | Fixed Rate 4.958 | Floating Rate 0.00ˆ | July 24, 2018 | 212,872 | |||||||||
Deutsche Bank AG Frankfurt*** | 2,080 | Fixed Rate 5.268 | Floating Rate 0.00ˆ | July 3, 2023 | 36,619 | |||||||||
Deutsche Bank AG Frankfurt*** | 9,765 | Fixed Rate 5.239 | Floating Rate 0.00ˆ | July 9, 2023 | 160,664 | |||||||||
Deutsche Bank AG Frankfurt*** | 8,875 | Fixed Rate 5.24 | Floating Rate 0.00ˆ | July 10, 2023 | 146,475 | |||||||||
Bank of America N.A.*** | $ | 3,880 | Floating Rate 0.00# | Fixed Rate 5.47 | April 14, 2023 | (181,894 | ) | |||||||
Bank of America N.A.*** | 2,870 | Floating Rate 0.00# | Fixed Rate 5.38 | April 15, 2023 | (125,763 | ) | ||||||||
Bank of America N.A.*** | 11,442 | Floating Rate 0.00# | Fixed Rate 5.38 | July 24, 2018 | (813,869 | ) | ||||||||
Bank of America N.A. | 2,340 | Floating Rate 0.00# | Fixed Rate 3.115 | January 13, 2019 | 57,353 | |||||||||
Bank of America N.A.*** | 7,580 | Floating Rate 0.00# | Fixed Rate 4.80 | October 7, 2018 | (345,180 | ) | ||||||||
Bank of America N.A.*** | 1,280 | Floating Rate 0.00# | Fixed Rate 2.905 | January 13, 1939 | 49,203 | |||||||||
Bank of America N.A. | 4,138 | Floating Rate 0.000# | Fixed Rate 5.815 | February 12, 2023 | (243,604 | ) | ||||||||
Bank of America N.A. | 2,722 | Floating Rate 0.000# | Fixed Rate 4.243 | October 10, 2038 | (444,639 | ) | ||||||||
Bank of America N.A.*** | EUR | 6,900 | Floating Rate 0.00ˆ | Fixed Rate 4.39 | October 7, 2023 | 112,377 | ||||||||
Barclays Bank*** | $ | 4,320 | Floating Rate 0.000# | Fixed Rate 0.000** | November 15, 2019 | (389,517 | ) | |||||||
Barclays Bank*** | 3,685 | Floating Rate 0.000# | Fixed Rate 0.000** | November 15, 2021 | (358,279 | ) | ||||||||
Deutsche Bank AG Frankfurt*** | EUR | 1,660 | Floating Rate 0.00ˆ | Fixed Rate 4.934 | July 1, 2018 | (41,998 | ) | |||||||
Deutsche Bank AG Frankfurt*** | 7,785 | Floating Rate 0.00ˆ | Fixed Rate 4.861 | July 9, 2018 | (166,862 | ) |
See Notes to Financial Statements
26
Morgan Stanley Strategist Fund
Portfolio of Investments - January 31, 2009 (unaudited) continued
NOTIONAL | PAYMENTS | PAYMENTS | UNREALIZED | |||||||||||
AMOUNT | RECEIVED | MADE | TERMINATION | APPRECIATION | ||||||||||
COUNTERPARTY | (000’S) | BY FUND | BY FUND | DATE | (DEPRECIATION) | |||||||||
Deutsche Bank AG Frankfurt*** | 7,065 | Floating Rate 0.00ˆ | Fixed Rate 4.86 | July 10, 2018 | (150,886 | ) | ||||||||
Deutsche Bank AG Frankfurt*** | 10,360 | Floating Rate 0.00ˆ | Fixed Rate 5.188 | July 24, 2023 | (150,025 | ) | ||||||||
Goldman Sachs International*** | $ | 3,789 | Floating Rate 0.00# | Fixed Rate 4.80 | October 7, 2018 | (172,551 | ) | |||||||
Goldman Sachs International*** | 14,010 | Floating Rate 0.00# | Fixed Rate 6.035 | February 28, 2023 | (928,863 | ) | ||||||||
JPMorgan Chase Bank N.A. New York*** | 1,250 | Floating Rate 0.00# | Fixed Rate 2.977 | January 13, 2039 | 41,737 | |||||||||
JPMorgan Chase Bank N.A. New York*** | 2,280 | Floating Rate 0.00# | Fixed Rate 3.147 | January 13, 2019 | 52,918 | |||||||||
JPMorgan Chase Bank N.A. New York*** | 2,790 | Floating Rate 0.000# | Fixed Rate 0.000** | May 15, 2021 | (281,018 | ) | ||||||||
JPMorgan Chase Bank N.A. New York*** | 4,320 | Floating Rate 0.000# | Fixed Rate 0.000** | November 15, 2021 | (399,044 | ) | ||||||||
Merrill Lynch & Co | 4,030 | Floating Rate 0.00# | Fixed Rate 5.395 | April 15, 2023 | (178,650 | ) | ||||||||
UBS AG*** | 1,470 | Floating Rate 0.000# | Fixed Rate 0.000** | November 15, 2019 | (111,805 | ) | ||||||||
Net Unrealized Depreciation | $ | (1,528,050 | ) | |||||||||||
EUR | Euro. | |
# | Floating rate based on USD-3 Month LIBOR. | |
ˆ | Floating rate based on EUR-6 Month EURIBOR. | |
** | Portfolio will make payments of $1,650,364, $1,675,253, $1,221,824, $1,675,253 and $550,203, respectively on termination date. | |
*** | Forward interest rate swap. Periodic payments on specified notional contract amount with future effective date, unless terminated earlier. |
Credit Default Swap Contracts Open at January 31, 2009:
CREDIT | |||||||||||||||||||||||||||
NOTIONAL | RATING OF | ||||||||||||||||||||||||||
SWAP COUNTERPARTY & | BUY/SELL | AMOUNT | INTEREST | TERMINATION | UNREALIZED | UPFRONT | REFERENCE | ||||||||||||||||||||
REFERENCE OBLIGATION | PROTECTION | (000’S) | RATE | DATE | APPRECIATION | PAYMENTS | VALUE | OBLIGATION† | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
JPMorgan Chase & Co. Nordstrom Inc. | Buy | $ | 210 | 1.07 | % | March 20, 2018 | $ | 55,006 | — | 55,006 | A− | ||||||||||||||||
Bank of America CDX-NAIGS11V1-5Y | Buy | 4,250 | 1.50 | December 20, 2013 | 15,067 | — | 15,067 | NR | |||||||||||||||||||
Bank of America Sealed Air Corp. | Buy | 90 | 1.12 | March 20, 2018 | 17,264 | — | 17,264 | BB+ | |||||||||||||||||||
Total Credit Default Swaps | $ | 87,337 | |||||||||||||||||||||||||
† | Credit ratings as issued by Standard and Poor’s. | |
NR | Not rated |
See Notes to Financial Statements
27
Morgan Stanley Strategist Fund
Financial Statements
Statement of Assets and Liabilities
January 31, 2009 (unaudited)
Assets: | ||||
Investments in securities, at value (cost $435,692,530) | $429,890,652 | |||
Investment in affiliate, at value (cost $158,737,704) | 158,737,704 | |||
Unrealized depreciation on open swap contracts | 4,261,091 | |||
Cash | 145,471 | |||
Receivable for: | ||||
Investments sold | 12,532,404 | |||
Interest | 1,016,806 | |||
Dividends | 235,650 | |||
Shares of beneficial interest sold | 170,273 | |||
Dividends from affiliate | 101,539 | |||
Periodic interest payment on open swap contracts | 26,200 | |||
Foreign withholding taxes reclaimed | 22,837 | |||
Prepaid expenses and other assets | 27,267 | |||
Total Assets | 607,167,894 | |||
Liabilities: | ||||
Written call options outstanding, at value (premiums received $48,106) | 28,669 | |||
Unrealized depreciation on open swap contracts | 5,701,804 | |||
Payable for: | ||||
Investments purchased | 33,439,304 | |||
Shares of beneficial interest redeemed | 776,629 | |||
Distribution fee | 208,413 | |||
Investment advisory fee | 173,171 | |||
Transfer agent fee | 48,774 | |||
Administration fee | 39,249 | |||
Periodic interest payment on open swap contracts | 37,722 | |||
Premium received on swap contracts | 102,197 | |||
Swap contracts collateral due to brokers | 5,232,000 | |||
Accrued expenses and other payables | 244,590 | |||
Total Liabilities | 46,032,522 | |||
Net Assets | $561,135,372 | |||
Composition of Net Assets: | ||||
Paid-in-capital | $611,360,925 | |||
Net unrealized depreciation | (7,381,615 | ) | ||
Accumulated undistributed net investment income | 2,194,042 | |||
Accumulated net realized loss | (45,037,980 | ) | ||
Net Assets | $561,135,372 | |||
Class A Shares: | ||||
Net Assets | $400,756,421 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 28,360,057 | |||
Net Asset Value Per Share | $14.13 | |||
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value) | $14.91 | |||
Class B Shares: | ||||
Net Assets | $101,004,604 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 7,117,575 | |||
Net Asset Value Per Share | $14.19 | |||
Class C Shares: | ||||
Net Assets | $34,534,014 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 2,454,935 | |||
Net Asset Value Per Share | $14.07 | |||
Class I Shares: | ||||
Net Assets | $24,840,333 | |||
Shares Outstanding (unlimited authorized, $.01 par value) | 1,755,106 | |||
Net Asset Value Per Share | $14.15 | |||
See Notes to Financial Statements
28
Morgan Stanley Strategist Fund
Financial Statements continued
Statement of Operations
For the six months ended January 31, 2009 (unaudited)
Net Investment Income: | ||||
Income | ||||
Dividends (net of $71,266 foreign withholding tax) | $ | 3,858,462 | ||
Interest | 3,748,022 | |||
Dividends from affiliate | 1,420,631 | |||
Total Income | 9,027,115 | |||
Expenses | ||||
Investment advisory fee | 1,343,630 | |||
Distribution fee (Class A shares) | 548,935 | |||
Distribution fee (Class B shares) | 676,303 | |||
Distribution fee (Class C shares) | 190,627 | |||
Transfer agent fees and expenses | 456,682 | |||
Administration fee | 255,929 | |||
Shareholder reports and notices | 69,685 | |||
Professional fees | 41,946 | |||
Custodian fees | 20,663 | |||
Registration fees | 15,090 | |||
Trustees’ fees and expenses | 10,453 | |||
Other | 20,084 | |||
Total Expenses | 3,650,027 | |||
Less: rebate from Morgan Stanley affiliated cash sweep (Note 4) | (90,338 | ) | ||
Net Expenses | 3,559,689 | |||
Net Investment Income | 5,467,426 | |||
Realized and Unrealized Gain (Loss): | ||||
Realized Loss on: | ||||
Investments | (26,492,554 | ) | ||
Futures contracts | (427,294 | ) | ||
Option contracts | 107,111 | |||
Swap contracts | 6,761,053 | |||
Foreign exchange transactions | (10,692 | ) | ||
Net Realized Loss | (20,062,376 | ) | ||
Change in Unrealized Appreciation/Depreciation on: | ||||
Investments | (132,121,057 | ) | ||
Futures contracts | (285,189 | ) | ||
Swap contracts | (4,247,215 | ) | ||
Option contracts | (60,423 | ) | ||
Net translation of other assets and liabilities denominated in foreign currencies | (2,395 | ) | ||
Net Change in Unrealized Appreciation/Depreciation | (136,716,279 | ) | ||
Net Loss | (156,778,655 | ) | ||
Net Decrease | $ | (151,311,229 | ) | |
See Notes to Financial Statements
29
Morgan Stanley Strategist Fund
Financial Statements continued
Statements of Changes in Net Assets
FOR THE SIX | FOR THE YEAR | |||||||
MONTHS ENDED | ENDED | |||||||
JANUARY 31, 2009 | JULY 31, 2008 | |||||||
(unaudited) | ||||||||
Increase (Decrease) in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income | $ | 5,467,426 | $ | 17,749,069 | ||||
Net realized gain (loss) | (20,062,376 | ) | 20,912,376 | |||||
Net change in unrealized appreciation/depreciation | (136,716,279 | ) | (73,452,164 | ) | ||||
Net Decrease | (151,311,229 | ) | (34,790,719 | ) | ||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income | ||||||||
Class A shares | (4,979,479 | ) | (13,108,531 | ) | ||||
Class B shares | (976,744 | ) | (3,878,324 | ) | ||||
Class C shares | (289,493 | ) | (822,389 | ) | ||||
Class I shares | (327,684 | ) | (1,369,847 | ) | ||||
Net realized gain | ||||||||
Class A shares | (1,409,211 | ) | (32,415,834 | ) | ||||
Class B shares | (400,944 | ) | (14,658,763 | ) | ||||
Class C shares | (120,457 | ) | (2,856,966 | ) | ||||
Class I shares | (90,001 | ) | (3,877,507 | ) | ||||
Total Dividends and Distributions | (8,594,013 | ) | (72,988,161 | ) | ||||
Net decrease from transactions in shares of beneficial interest | (31,206,859 | ) | (84,641,818 | ) | ||||
Net Decrease | (191,112,101 | ) | (192,420,698 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 752,247,473 | 944,668,171 | ||||||
End of Period (Including accumulated undistributed net investment income of $2,194,042 and $3,300,016, respectively) | $ | 561,135,372 | $ | 752,247,473 | ||||
See Notes to Financial Statements
30
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Strategist Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company. The Fund’s investment objective is to maximize the total return of its investments. The Fund was organized as a Massachusetts business trust on August 5, 1988 and commenced operations on October 31, 1988. On July 28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class I 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 I shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses.
During the six months ended January 31, 2009, the Fund assessed a 2% redemption fee on Class A shares, Class B shares, Class C shares, and Class I shares, which was paid directly to the Fund, for shares redeemed or exchanged within seven days of purchase, subject to certain exceptions. The redemption fee was designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The Board of Trustees has approved the elimination of redemption fees, effective January 21, 2009.
The following is a summary of significant accounting policies:
A. Valuation of Investments — (1) an equity portfolio security listed or traded on the New York Stock Exchange (“NYSE”) or American Stock Exchange or other exchange is valued at its latest sale price prior to the time when assets are valued; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (2) an equity portfolio security listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price; if there were no sales that day, the security is valued at the mean between the last reported bid and asked price; (3) all other portfolio securities for which over-the-counter market quotations are readily available are valued at the mean between the last reported bid and asked price. In cases where a security is traded on more than one exchange, the security is valued on the exchange designated as the primary market; (4) for equity securities traded on foreign exchanges, the last reported sale price or the latest bid price may be used if there were no sales on a particular day; (5) futures are valued at the latest price published by the commodities exchange on which they trade; (6) 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 asked price; (7) credit default/interest rate swaps are marked-to-market daily based upon quotations from market makers; (8) when market quotations are not readily available including circumstances under which Morgan Stanley
31
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
Investment Advisors Inc. (the “Investment Adviser”) determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are 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; (9) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees; (10) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; and (11) 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, which approximates market value.
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. 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.
32
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
E. 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 or currency 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. By writing a covered call option, the Fund, in exchange for the premium, foregoes the opportunity for capital appreciation above the exercise price, should the market price of the underlying security increase. By writing a put option, the Fund, in exchange for the premium, accepts the risk of having to purchase a security at an exercise price that is above the current market price.
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 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. The maximum exposure to loss for any purchased option is limited to the premium initially paid for the option.
Transactions in written options for the six months ended January 31, 2009 were as follows:
CONTRACT | ||||||||
AMOUNT | PREMIUM | |||||||
Options written, outstanding at beginning of the period | 313 | $ | 155,671 | |||||
Options written | 306 | 98,338 | ||||||
Options closed | 101 | 50,232 | ||||||
Options written, outstanding at end of period | 205 | 48,106 |
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
33
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.
G. Swaps — The Fund adopted the provisions of the FASB Staff Position Paper No. FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45 (“FSP FAS 133-1” and “FIN 45-4”), effective December 31, 2008. FSP FAS 133-1 and FIN 45-4 requires the seller of credit derivatives to provide additional disclosure about its credit derivatives.
The Fund may enter into credit default swap contracts, a type of credit derivative, for hedging purposes or to gain exposure to a credit or index of credits in which the Fund may otherwise invest. A credit default swap is an agreement between two parties to exchange the credit risk of an issuer or index of issuers. A buyer of a credit default swap is said to buy protection by paying periodic fees in return for a contingent payment from the seller if the issuer has a credit event such as bankruptcy, a failure to pay outstanding obligations or deteriorating credit while the swap is outstanding. A seller of a credit default swap is said to sell protection and thus collects the periodic fees and profits if the credit of the issuer remains stable or improves while the swap is outstanding. The seller in a credit default swap contract would be required to pay an agreed-upon amount, to the buyer in the event of an adverse credit event of the issuer. This agreed-upon amount approximates the notional amount of the swap as disclosed in the table following the Portfolio of Investments and is estimated to be the maximum potential future payment that the seller could be required to make under the credit default swap contract. In the event of an adverse credit event, the seller generally does not have any contractual remedies against the issuer or any other third party. However, if a physical settlement is elected, the seller would receive the defaulted credit and, as a result, become a creditor of the issuer.
The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.
The Fund accrues for the periodic fees on credit default swaps on a daily basis with the net amount accrued recorded within realized gain/loss on swap contracts on the Statement of Operations. Net unrealized gains are recorded as an asset or net unrealized losses are reported as a liability on the Statement of Assets and
34
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
Liabilities. The change in value of the swap contracts is reported as unrealized gains or losses on the Statement of Operations. Payments received or made upon entering into a credit default swap contract, if any, are recorded as realized gain or loss on the Statement of Operations upon termination or maturity of the swap.
The Fund may also enter into interest rate swaps primarily to preserve a return or spread on a particular investment or portion of its portfolio, as a duration management technique or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps are contractual agreements to exchange periodic interest payment streams calculated on a predetermined notional principal amount. Interest rate swaps generally involve one party paying a fixed interest rate and the other party paying a variable rate. The Fund will usually enter into interest rate swaps on a net basis, i.e, the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund accrues the net amount with respect to each interest rate swap on a daily basis. This net amount is recorded within realized gain/loss on swap contracts on the Statement of Operations. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts.
Swap agreements are not entered into or traded on exchanges and there is no central clearing or guaranty function for swaps. Therefore, swaps are subject to the risk of default or non-performance by the counterparty. If there is a default by the counterparty to a swap agreement, the Fund will have contractual remedies pursuant to the agreements related to the transaction. Counterparties are required to pledge collateral daily (based on the valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. For cash collateral received, the Fund pays a monthly fee to the counterparty based on the effective rate for Federal Funds.
H. Securities Lending — Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.
Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in high-quality short-term investments. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the
35
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
lending agent. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
As of January 31, 2009, there were no securities out on loan.
I. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of 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 federal income tax is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund follows the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes. FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There are no unrecognized tax benefits in the accompanying financial statements. 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. Each of the tax years in the four year period ended July 31, 2008, remains subject to examination by taxing authorities.
J. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.
K. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States 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 Agreement
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 rates to the net assets of the Fund determined as of the close of each business day: 0.42% to the portion of the daily net assets not exceeding $1.5 billion; and 0.395% to the portion of the daily net assets exceeding $1.5 billion.
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.
Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.
36
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
Effective October 23, 2006, the Investment Adviser has agreed to cap the Fund’s total operating expenses, to the extent that such total operating expenses exceed 0.92%, 1.67%, 1.64% and 0.67% for Class A, Class B, Class C and Class I, respectively, for a period of two years.
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 $12,817,853 at January 31, 2009.
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 six months ended January 31, 2009, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended January 31, 2009, it received contingent deferred sales charges from certain redemptions of the Fund’s Class A shares, Class B shares and Class C shares of $411, $101,395 and $3,071, respectively and received $44,842 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 Funds – Money Market Portfolio – Institutional Class, an open-end management investment company managed by an affiliate of the Investment Adviser. Investment
37
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. For the six months ended January 31, 2009, advisory fees paid were reduced by $90,338 relating to the Fund’s investment in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as “dividends from affiliate” in the Statement of Operations and totaled $1,420,631 for the six months ended January 31, 2009. During the year ended January 31, 2009, cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class aggregated $135,328,706 and $119,007,480, respectively.
The cost of purchases and proceeds from sales/maturities/prepayments of portfolio securities, excluding short-term investments, for six months ended January 31, 2009 aggregated $208,236,777, and $231,596,352, respectively. Included in the aforementioned are purchases and sales/maturities/prepayments of U.S. Government securities of $120,982,842 and $140,831,116, respectively.
For six months ended January 31, 2009, the Fund incurred brokerage commissions of $83,234 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 noncontributory defined benefit pension plan covering certain independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on factors which include years of service and compensation. The Trustees voted to close the plan to new participants and eliminate the future benefits growth due to increases to compensation after July 31, 2003. Aggregate pension costs for the six months ended January 31, 2009, included in Trustees’ fees and expenses in the Statement of Operations amounted to $72,506. At January 31, 2009, the Fund had an accrued pension liability of $4,199, which is included in accrued expenses in the Statement of Assets and Liabilities.
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 from these
38
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
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. 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 portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities (“derivative instruments”). These derivative instruments involve elements of market risk in excess of the amounts reflected in the Statement of Asset and Liabilities. The Fund bears the risk of an unfavorable change in the value of 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.
The Fund may enter into credit default swaps for hedging purposes to add leverage to its portfolio or to gain exposure to a credit in which the Fund may otherwise invest. Credit default swaps may involve greater risks than if a Fund had invested in the issuer directly. Credit default swaps are subject to general market risk, counterparty risk and credit risk. If the Fund is a buyer and no credit event occurs, it will lose its investment. In addition, if the Fund is a seller and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the maximum payout amount it pays to the buyer, resulting in a loss to the Fund.
The Fund may enter into interest rate swaps and may purchase or sell interest rate caps, floors and collars. The Fund expects to enter into these transactions primarily to manage interest rate risk, hedge portfolio positions and preserve a return or spread on a particular investment or portion of its portfolio. The Fund may also enter into these transactions to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swap transactions are subject to market risk, risk of default by the other party to the transaction, risk of imperfect correlation and manager risk. Such risks may exceed the related amounts shown in the Statement of Assets and Liabilities.
The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.
The Fund may invest in mortgage securities, including securities issued by Federal National Mortgage Assoc. (“FNMA”) and Federal Home Loan Mortgage Corp. (FHLMC”). These are fixed income securities that derive their value from or represent interests in a pool of mortgages or mortgage securities. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a
39
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
mortgage-backed security and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Sub-prime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their mortgages. The securities are not backed by subprime borrowers.
Additionally, securities issued by FNMA and FHLMC are not backed by or entitled to the full faith and credit of the United States; rather they are supported by the right of the issuer to borrow from the Treasury.
On September 7, 2008, the Federal Housing Finance Agency (“FHFA”) was appointed as conservator of FNMA and FHLMC. In addition, the U.S. Department of the Treasury has agreed to provide capital as needed to ensure FNMA and FHLMC continue to provide liquidity to the housing and mortgage markets.
The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. Forward contracts and future contracts involve elements of market risk in excess of the amounts reflected in the Statement of Asset and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts or in the value of underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
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.
7. 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 July 31, 2008, the Fund had temporary book/tax differences primarily attributable to mark-to-market of open futures contracts, capital loss deferrals on straddles and wash sales and book amortization of discounts on debt securities.
40
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
8. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
FOR THE SIX | FOR THE YEAR | |||||||||||||||
MONTHS ENDED | ENDED | |||||||||||||||
JANUARY 31, 2009 | JULY 31, 2008 | |||||||||||||||
(unaudited) | ||||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
CLASS A SHARES | ||||||||||||||||
Sold | 3,095,016 | $ | 47,059,137 | 2,676,572 | $ | 51,792,190 | ||||||||||
Conversion from Class B | 256,652 | 4,046,110 | 973,963 | 18,843,355 | ||||||||||||
Reinvestment of dividends and distributions | 410,846 | 6,262,677 | 2,119,001 | 41,407,153 | ||||||||||||
Redeemed | (3,312,282 | ) | (51,255,385 | ) | (4,768,148 | ) | (93,089,784 | ) | ||||||||
Net increase – Class A | 450,232 | 6,112,539 | 1,001,388 | 18,952,914 | ||||||||||||
CLASS B SHARES | ||||||||||||||||
Sold | 526,885 | 8,121,982 | 839,251 | 16,410,483 | ||||||||||||
Conversion to Class A | (255,561 | ) | (4,046,110 | ) | (970,523 | ) | (18,843,355 | ) | ||||||||
Reinvestment of dividends and distributions | 87,959 | 1,341,664 | 830,935 | 16,346,082 | ||||||||||||
Redeemed | (2,911,233 | ) | (45,270,157 | ) | (4,425,092 | ) | (86,661,307 | ) | ||||||||
Net decrease – Class B | (2,551,950 | ) | (39,852,621 | ) | (3,725,429 | ) | (72,748,097 | ) | ||||||||
CLASS C SHARES | ||||||||||||||||
Sold | 295,410 | 4,397,808 | 399,259 | 7,644,804 | ||||||||||||
Reinvestment of dividends and distributions | 26,764 | 403,740 | 173,411 | 3,381,018 | ||||||||||||
Redeemed | (349,998 | ) | (5,384,041 | ) | (442,862 | ) | (8,602,446 | ) | ||||||||
Net increase (decrease) – Class C | (27,824 | ) | (582,493 | ) | 129,808 | 2,423,376 | ||||||||||
CLASS I SHARES | ||||||||||||||||
Sold | 504,429 | 7,548,834 | 421,814 | 8,246,091 | ||||||||||||
Reinvestment of dividends and distributions | 27,359 | 415,524 | 251,969 | 4,950,989 | ||||||||||||
Redeemed | (314,030 | ) | (4,848,642 | ) | (2,377,827 | ) | (46,467,091 | ) | ||||||||
Net increase (decrease) – Class I | 217,758 | 3,115,716 | (1,704,044 | ) | (33,270,011 | ) | ||||||||||
Net decrease in Fund | (1,911,784 | ) | $ | (31,206,859 | ) | (4,298,277 | ) | $ | (84,641,818 | ) | ||||||
9. Fair Valuation Measurements
The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective August 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about
41
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.
• | Level 1 — quoted prices in active markets for identical investments | |
• | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.
The following is a summary of the inputs used as of January 31, 2009 in valuing the Fund’s investments carried at value:
FAIR VALUE MEASUREMENTS AT JANUARY 31, 2009 USING | ||||||||||||||||
QUOTED PRICES IN | SIGNIFICANT | SIGNIFICANT | ||||||||||||||
ACTIVE MARKET FOR | OTHER OBSERVABLE | UNOBSERVABLE | ||||||||||||||
IDENTICAL ASSETS | INPUTS | INPUTS | ||||||||||||||
TOTAL | (LEVEL 1) | (LEVEL 2) | (LEVEL 3) | |||||||||||||
Investments in Securities | $ | 588,529,700 | $ | 497,502,149 | $90,822,914 | $204,637 | ||||||||||
Other Financial Instruments* | (1,529,652 | ) | (88,939 | ) | (1,440,713) | — | ||||||||||
Total | $ | 587,000,048 | $ | 497,413,210 | $89,382,201 | $204,637 | ||||||||||
* | Other financial instruments include futures, options and swap contracts. |
42
Morgan Stanley Strategist Fund
Notes to Financial Statements - January 31, 2009 (unaudited) continued
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
INVESTMENTS IN | ||||
SECURITIES | ||||
Beginning Balance | ||||
Net purchases (sales) | $ | 6,736,580 | ||
Transfers in and/or out | (5,353,273 | ) | ||
Change in unrealized appreciation/depreciation | (672,988 | ) | ||
Realized gains (losses) | 7,943,061 | |||
Ending Balance | (8,448,743 | ) | ||
$ | 204,637 | |||
Net change in unrealized appreciation/depreciation from investments still held as of January 31, 2009 | $ | (18,259 | ) | |
10. Accounting Pronouncement
On March 19, 2008, FASB released Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The application of SFAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS 161 and its impact on the Fund’s financial statements has not been determined.
43
Morgan Stanley Strategist 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 JULY 31, | |||||||||||||||||||||||||||
JANUARY 31, 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Class A Shares | ||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||
Net asset value, beginning of period | $18.07 | $20.57 | $19.74 | $18.31 | $16.28 | $14.72 | ||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.15 | 0.45 | 0.50 | 0.34 | 0.27 | 0.20 | ||||||||||||||||||||||
Net realized and unrealized gains (loss) | (3.86 | ) | (1.23 | ) | 2.07 | 1.40 | 2.03 | 1.58 | ||||||||||||||||||||
Total income (loss) from investment operations | (3.71 | ) | (0.78 | ) | 2.57 | 1.74 | 2.30 | 1.78 | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||
Net investment income | (0.18 | ) | (0.49 | ) | (0.51 | ) | (0.31 | ) | (0.27 | ) | (0.22 | ) | ||||||||||||||||
Net realized gain | (0.05 | ) | (1.23 | ) | (1.23 | ) | — | — | — | |||||||||||||||||||
Total dividends and distributions | (0.23 | ) | (1.72 | ) | (1.74 | ) | (0.31 | ) | (0.27 | ) | (0.22 | ) | ||||||||||||||||
Net asset value, end of period | $14.13 | $18.07 | $20.57 | $19.74 | $18.31 | $16.28 | ||||||||||||||||||||||
Total Return(2) | (20.61 | )%(5) | (4.27 | )% | 13.30 | % | 9.60 | % | 14.23 | % | 12.10 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||
Total expenses (before expense offset) | 0.92 | %(4)(6) | 0.90 | %(4) | 0.92 | %(4) | 0.93 | % | 0.93 | % | 0.95 | % | ||||||||||||||||
Net investment income | 1.90 | %(4)(6) | 2.3 | %(4) | 2.44 | %(4) | 1.78 | % | 1.48 | % | 1.24 | % | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $400,756 | $504,350 | $553,395 | $483,553 | $510,016 | $58,968 | ||||||||||||||||||||||
Portfolio turnover rate | 42 | %(5) | 42 | % | 42 | % | 43 | % | 48 | % | 42 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007. | |
(5) | Not Annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
44
Morgan Stanley Strategist Fund
Financial Highlights continued
FOR THE SIX | ||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JULY 31, | |||||||||||||||||||||||||||
JANUARY 31, 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Class B Shares | ||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||
Net asset value, beginning of period | $18.14 | $20.63 | $19.79 | $18.36 | $16.29 | $14.73 | ||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.09 | 0.30 | 0.35 | 0.19 | 0.11 | 0.08 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) | (3.87 | ) | (1.23 | ) | 2.07 | 1.41 | 2.08 | 1.58 | ||||||||||||||||||||
Total income (loss) from investment operations | (3.78 | ) | (0.93 | ) | 2.42 | 1.60 | 2.19 | 1.66 | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||
Net investment income | (0.12 | ) | (0.33 | ) | (0.35 | ) | (0.17 | ) | (0.12 | ) | (0.10 | ) | ||||||||||||||||
Net realized gain | (0.05 | ) | (1.23 | ) | (1.23 | ) | — | — | — | |||||||||||||||||||
Total dividends and distributions | (0.17 | ) | (1.56 | ) | (1.58 | ) | (0.17 | ) | (0.12 | ) | (0.10 | ) | ||||||||||||||||
Net asset value, end of period | $14.19 | $18.14 | $20.63 | $19.79 | $18.36 | $16.29 | ||||||||||||||||||||||
Total Return(2) | (20.92 | )%(5) | (5.02 | )% | 12.50 | % | 8.72 | % | 13.49 | % | 11.24 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||
Total expenses (before expense offset) | 1.67 | %(4)(6) | 1.66 | %(4) | 1.67 | %(4) | 1.68 | % | 1.68 | % | 1.71 | % | ||||||||||||||||
Net investment income | 1.15 | %(4)(6) | 1.54 | %(4) | 1.69 | %(4) | 1.03 | % | 0.73 | % | 0.48 | % | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||
Net assets, end of period, in millions | $101 | $175 | $276 | $303 | $398 | $971 | ||||||||||||||||||||||
Portfolio turnover rate | 42 | %(5) | 42 | % | 42 | % | 43 | % | 48 | % | 42 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007. | |
(5) | Not Annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
45
Morgan Stanley Strategist Fund
Financial Highlights continued
FOR THE SIX | ||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JULY 31, | |||||||||||||||||||||||||||
JANUARY 31, 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Class C Shares | ||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||
Net asset value, beginning of period | $17.99 | $20.48 | $19.66 | $18.24 | $16.21 | $14.66 | ||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.09 | 0.30 | 0.35 | 0.20 | 0.13 | 0.08 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) | (3.84 | ) | (1.22 | ) | 2.06 | 1.40 | 2.04 | 1.57 | ||||||||||||||||||||
Total income (loss) from investment operations | (3.75 | ) | (0.92 | ) | 2.41 | 1.60 | 2.17 | 1.65 | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||
Net investment income | (0.12 | ) | (0.34 | ) | (0.36 | ) | (0.18 | ) | (0.14 | ) | (0.10 | ) | ||||||||||||||||
Net realized gain | (0.05 | ) | (1.23 | ) | (1.23 | ) | — | — | — | |||||||||||||||||||
Total dividends and distributions | (0.17 | ) | (1.57 | ) | (1.59 | ) | (0.18 | ) | (0.14 | ) | (0.10 | ) | ||||||||||||||||
Net asset value, end of period | $14.07 | $17.99 | $20.48 | $19.66 | $18.24 | $16.21 | ||||||||||||||||||||||
Total Return(2) | (20.90 | )%(5) | (4.94 | )% | 12.47 | % | 8.79 | % | 13.44 | % | 11.25 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||
Total expenses (before expense offset) | 1.67 | %(4)(6) | 1.64 | %(4)(7) | 1.64 | %(4)(7) | 1.64 | % | 1.65 | % | 1.71 | % | ||||||||||||||||
Net investment income | 1.15 | %(4)(6) | 1.56 | %(4)(7) | 1.72 | %(4)(7) | 1.07 | % | 0.76 | % | 0.48 | % | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $34,534 | $44,664 | $48,192 | $39,887 | $41,621 | $41,697 | ||||||||||||||||||||||
Portfolio turnover rate | 42 | %(5) | 42 | % | 42 | % | 43 | % | 48 | % | 42 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007. | |
(5) | Not Annualized. | |
(6) | Annualized. | |
(7) | If the Fund had borne all of its expenses that were reimbursed or waived by the Investment Adviser and Administrator, the annualized expense and net investment income ratios would have been 1.65% and 1.55% for the year ended July 31, 2008 and 1.67% and 1.69% for the year ended July 31, 2007. |
See Notes to Financial Statements
46
Morgan Stanley Strategist Fund
Financial Highlights continued
FOR THE SIX | ||||||||||||||||||||||||||||
MONTHS ENDED | FOR THE YEAR ENDED JULY 31, | |||||||||||||||||||||||||||
JANUARY 31, 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Class I Shares | ||||||||||||||||||||||||||||
Selected Per Share Data: | ||||||||||||||||||||||||||||
Net asset value, beginning of period | $18.10 | $20.59 | $19.76 | $18.34 | $16.29 | $14.73 | ||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.17 | 0.51 | 0.55 | 0.39 | 0.30 | 0.24 | ||||||||||||||||||||||
Net realized and unrealized gain (loss) | (3.87 | ) | (1.23 | ) | 2.07 | 1.39 | 2.06 | 1.58 | ||||||||||||||||||||
Total income (loss) from investment operations | (3.70 | ) | (0.72 | ) | 2.62 | 1.78 | 2.36 | 1.82 | ||||||||||||||||||||
Less dividends and distributions from: | ||||||||||||||||||||||||||||
Net investment income | (0.20 | ) | (0.54 | ) | (0.56 | ) | (0.36 | ) | (0.31 | ) | (0.26 | ) | ||||||||||||||||
Net realized gain | (0.05 | ) | (1.23 | ) | (1.23 | ) | — | — | — | |||||||||||||||||||
Total dividends and distributions | (0.25 | ) | (1.77 | ) | (1.79 | ) | (0.36 | ) | (0.31 | ) | (0.26 | ) | ||||||||||||||||
Net asset value, end of period | $14.15 | $18.10 | $20.59 | $19.76 | $18.34 | $16.29 | ||||||||||||||||||||||
Total Return(2) | (20.53 | )%(5) | (4.02 | )% | 13.62 | % | 9.80 | % | 14.60 | % | 12.37 | % | ||||||||||||||||
Ratios to Average Net Assets(3): | ||||||||||||||||||||||||||||
Total expenses (before expense offset) | 0.67 | %(4)(6) | 0.66 | %(4) | 0.67 | %(4) | 0.68 | % | 0.68 | % | 0.71 | % | ||||||||||||||||
Net investment income | 2.15 | %(4)(6) | 2.54 | %(4) | 2.69 | %(4) | 2.03 | % | 1.73 | % | 1.48 | % | ||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||
Net assets, end of period, in thousands | $24,840 | $27,823 | $66,753 | $58,521 | $58,707 | $60,177 | ||||||||||||||||||||||
Portfolio turnover rate | 42 | %(5) | 42 | % | 42 | % | 43 | % | 48 | % | 42 | % |
(1) | The per share amounts were computed using an average number of shares outstanding during the period. | |
(2) | Calculated based on the net asset value as of the last business day of the period. | |
(3) | Reflects overall Fund ratios for investment income and non-class specific expenses. | |
(4) | Reflects rebate of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class during the period. The rebate had an effect of 0.03% for the six months ended January 31, 2009, 0.02% for the year ended July 31, 2008 and less than 0.005% for year ended July 31, 2007. | |
(5) | Not Annualized. | |
(6) | Annualized. |
See Notes to Financial Statements
47
Morgan Stanley Strategist Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited)
We are required by federal law to provide you with a copy of our Privacy Policy annually.
The following Policy applies to current and former individual investors in Morgan Stanley Advisor funds. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.
We Respect Your Privacy
We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as “personal information.”
1. | What Personal Information Do We Collect About You? |
To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources.
For example:
• | We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. |
• | We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. |
• | We may obtain information about your creditworthiness and credit history from consumer reporting agencies. |
• | We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. |
• | If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer’s operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of “cookies.” “Cookies” recognize your computer each time your return to one of our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. |
48
Morgan Stanley Strategist Fund
An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued
2. | When Do We Disclose Personal Information We Collect About You? |
To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law.
A. Information We Disclose to Our Affiliated Companies. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law.
B. Information We Disclose to Third Parties. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to nonaffiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose.
3. | How Do We Protect the Security and Confidentiality of Personal Information We Collect About You? |
We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information.
49
(This Page Intentionally Left Blank)
(This Page Intentionally Left Blank)
Trustees
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
Chairperson of the Board
Randy Takian
President and Principal Executive Officer
Kevin Klingert
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
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
Independent Registered Public Accounting Firm
Two World Financial Center
New York, New York 10281
Legal Counsel
31 West 52nd Street
New York, New York 10019
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, New York 10036
Investment Adviser
522 Fifth Avenue
New York, New York 10036
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 FINRA.
![[MORGAN STANLEY LOGO]](https://capedge.com/proxy/N-CSRS/0000950123-09-006359/y74551msk50l1.gif)
![[MORGAN STANLEY LOGO]](https://capedge.com/proxy/N-CSRS/0000950123-09-006359/y74551mostkol1.gif)
INVESTMENT MANAGEMENT
Morgan Stanley
Strategist Fund
![(Morgan Stanley Graphic)](https://capedge.com/proxy/N-CSRS/0000950123-09-006359/y74551cvr.gif)
Semiannual
Report
January 31, 2009
Report
January 31, 2009
SRTSAN
IU09-01173P-Y01/09
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.
(a) Refer to Item 1.
(b) Not applicable.
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.
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.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Strategist Fund
/s/ Randy Takian
Randy Takian
Principal Executive Officer
March 19, 2009
Randy Takian
Principal Executive Officer
March 19, 2009
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/ Randy Takian
Randy Takian
Principal Executive Officer
March 19, 2009
Randy Takian
Principal Executive Officer
March 19, 2009
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 19, 2009
Francis Smith
Principal Financial Officer
March 19, 2009
3