<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21248
Morgan Stanley Allocator Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: January 31, 2004
Date of reporting period: July 31, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
ALLOCATOR FUND PERFORMED DURING THE PERIOD ENDED JULY 31, 2003. THE PORTFOLIO
MANAGEMENT TEAM WILL PROVIDE AN OVERVIEW OF THE MARKET CLIMATE AND DISCUSS SOME
OF THE FACTORS THAT HELPED OR HINDERED PERFORMANCE DURING THE REPORTING PERIOD.
IN ADDITION, THIS REPORT INCLUDES THE FUND'S FINANCIAL STATEMENTS AND A LIST OF
FUND INVESTMENTS, AS WELL AS OTHER INFORMATION.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET
VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF
THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN
LOSE MONEY INVESTING IN THIS FUND.
<Page>
Fund Report
TOTAL RETURN FROM THE FUND'S INCEPTION THROUGH
THE PERIOD ENDED JULY 31, 2003
<Table>
<Caption>
LIPPER
S&P FLEXIBLE
500 PORTFOLIO
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
7.30% 6.90% 6.90% 7.40% 20.53% 14.63%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURN FIGURES ASSUME THE REINVESTMENT OF
ALL DISTRIBUTIONS, BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES
CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE
INFORMATION.
MARKET CONDITIONS
From the Fund's inception on February 26, 2003, through July 31, 2003, the
market posted a very strong rally, with the S&P 500 rising 21 percent. The
market rose sharply as geopolitical concerns waned and investors grew optimistic
about the positive impact of increased fiscal and monetary stimulus. The
defensive sectors and securities that had led the market during the bear market
period fell behind more cyclical sectors as investors' expectations for the
economy improved. The best performing groups were technology, financials,
consumer cyclicals and basic materials.
Bonds performed strongly through much of the equity rally. In June, however,
signs of economic growth led investors to fear that interest rates were
unsustainably low. Bond prices (which move in opposition to yields) fell sharply
through the end of the period as investors allocated assets out of the debt
markets. These shifts were reflected in the yield on the 10-year Treasury bond.
After declining sharply from May through mid-June, to 3.11 percent, it backed up
to 4.41 percent at the end of July.
PERFORMANCE ANALYSIS
The Fund's underperformance relative to the S&P 500 during the period was
attributable to its generally conservative portfolio construction. The Fund was
held back by a low allocation to equities early in the period and by its focus
on high-quality companies that were outpaced by more speculative ones. We
maintained this defensive posture based on our concerns about structural
headwinds facing the global economy, high debt levels, increasing pension and
health-care costs and the limited use of fiscal and monetary stimulus by the
European authorities.
The Fund benefited from strong performance of its health-care and basic
materials holdings. Stock selection in health care was advantageous,
particularly in biotechnology, HMOs and medical devices. Biotech and medical
devices have enjoyed very strong new-product cycles, and HMOs have benefited
from pricing that has outpaced their costs. In basic materials, stock selection
and overweightings in precious metals and specialty chemicals contributed
positively to performance. We believe concerns about dollar weakness led
investors to turn to real assets, driving precious metals upward. Specialty
chemicals, like all other cyclical sectors, benefited from optimism about an
improving economy.
We initially took a long duration position, expecting that interest rates would
decline given a continued sluggish economy. As rates approached our targets, we
shifted to a neutral and then a short duration position. We also reduced the
Fund's overall allocation to fixed income, moving toward a minimum weighting in
this area.
2
<Page>
TOP 10 HOLDINGS
<Table>
U.S. Treasury Bond 5.3%
Citigroup Inc. 2.9
Cisco Systems Inc. 2.0
Newmont Mining Corp. 1.9
Intel Corp. 1.9
Pfizer, Inc. 1.7
Bank of America Corp. 1.7
Wal-Mart Stores Inc. 1.6
Microsoft Corp. 1.4
American Intl Group Inc. 1.4
</Table>
PORTFOLIO COMPOSITION
<Table>
Common Stock 71.9%
Short Term 11.6
U.S. Treasuries 5.3
Corp. Debt - Non-convertible. 4.7
Foreign Government Bonds 3.4
</Table>
SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A PERCENTAGE OF NET ASSETS.
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED AS A
RECOMMENDATION TO BUY THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE
SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES,
INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY
SERVICES.
INVESTMENT STRATEGY
- - THE FUND'S INVESTMENT MANAGER ACTIVELY ALLOCATES THE FUND'S ASSETS AMONG THE
THREE MAJOR ASSET CATEGORIES OF EQUITY SECURITIES (INCLUDING DEPOSITARY
RECEIPTS), FIXED-INCOME SECURITIES AND MONEY MARKET INSTRUMENTS, THE
COMBINATION OF WHICH WILL BE VARIED FROM TIME TO TIME BOTH WITH RESPECT TO
INDUSTRY SECTOR WEIGHTINGS AND TYPES OF SECURITIES IN RESPONSE TO CHANGING
MARKET AND ECONOMIC TRENDS.
- - THE FUND'S INVESTMENT MANAGER INTENDS TO UTILIZE A SECTOR ROTATION PROCESS TO
SELECT EQUITIES AND FIXED-INCOME SECURITIES. THE PROCESS IS DESIGNED TO
RESPOND TO CHANGING ECONOMIC CYCLES BY UTILIZING A THREE-STEP INVESTMENT
PROCESS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
http://www.sec.gov.
3
<Page>
Performance Summary
TOTAL RETURNS--PERIOD ENDED JULY 31, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
02/26/03 02/26/03 02/26/03 02/26/03
SYMBOL ALRAX ALRBX ALRCX ALRDX
Since Inception 7.30%(3) 6.90%(3) 6.90%(3) 7.40%(3)
1.67(4) 1.90(4) 5.90(4)
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL VARY
DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES. TOTAL RETURNS FOR PERIODS LESS
THAN ONE YEAR ARE CUMULATIVE, NOT ANNUALIZED.
- ----------
Notes on Performance
(1) THE STANDARD AND POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY SALES CHARGES OR
FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN AN INDEX.
(2) THE LIPPER FLEXIBLE PORTFOLIO FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE
INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER
FLEXIBLE FUNDS CLASSIFICATION. THE INDEX IS ADJUSTED FOR CAPITAL GAINS
DISTRIBUTIONS AND INCOME DIVIDENDS. THERE ARE CURRENTLY 30 FUNDS REPRESENTED
IN THIS INDEX. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY
SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE
CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CDSC FOR CLASS C IS 1.0% FOR SHARES REDEEMED WITHIN ONE YEAR OF
PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
4
<Page>
MORGAN STANLEY ALLOCATOR FUND
PORTFOLIO OF INVESTMENTS - JULY 31, 2003 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (72.4%)
AIR FREIGHT/COURIERS (0.5%)
13,700 FedEx Corp. $ 882,143
--------------
AIRLINES (0.2%)
8,600 JetBlue Airways Corp.* 391,816
--------------
APPAREL/FOOTWEAR RETAIL (0.9%)
30,600 Chico's FAS, Inc.* 830,790
25,200 Hot Topic, Inc.* 728,280
--------------
1,559,070
--------------
AUTO PARTS: O.E.M. (0.3%)
6,000 Eaton Corp. 505,020
--------------
BEVERAGES: ALCOHOLIC (0.4%)
12,900 Anheuser-Busch Companies, Inc. 668,478
--------------
BEVERAGES: NON-ALCOHOLIC (0.4%)
14,700 Coca-Cola Co. (The) 661,059
--------------
BIOTECHNOLOGY (3.5%)
15,900 Amgen Inc. * ** 1,106,322
13,200 Amylin Pharmaceuticals, Inc.* 316,404
6,300 CV Therapeutics, Inc.* 224,847
25,300 Genentech, Inc.* 2,042,975
7,900 Genzyme Corp.* 398,476
15,800 Gilead Sciences, Inc.* 1,083,090
8,400 ICOS Corp.* 366,408
10,500 Neurocrine Biosciences, Inc.* 563,640
--------------
6,102,162
--------------
BROADCASTING (0.5%)
26,600 Univision Communications Inc. (Class A)* 829,920
--------------
CABLE/SATELLITE TV (0.6%)
33,700 Comcast Corp. (Class A)* 1,021,784
--------------
CASINO/GAMING (0.9%)
14,600 GTECH Holdings Corp. 563,122
20,900 International Game Technology 531,905
15,600 MGM Mirage* 535,080
--------------
1,630,107
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
CHEMICALS: MAJOR DIVERSIFIED (0.2%)
7,500 Dow Chemical Co. (The) $ 264,750
--------------
CHEMICALS: SPECIALTY (0.9%)
9,700 Air Products & Chemicals, Inc. 450,856
16,400 Praxair, Inc. 1,060,424
--------------
1,511,280
--------------
COMPUTER COMMUNICATIONS (2.0%)
174,900 Cisco Systems, Inc.* 3,414,048
7,600 NetScreen Technologies, Inc.* 164,388
--------------
3,578,436
--------------
COMPUTER PERIPHERALS (1.3%)
26,200 EMC Corp.* 278,768
73,000 Maxtor Corp.* 730,000
60,800 Seagate Technology (Cayman Islands) 1,325,440
--------------
2,334,208
--------------
COMPUTER PROCESSING HARDWARE (2.0%)
56,600 Dell Inc.* 1,906,288
74,600 Hewlett-Packard Co. 1,579,282
--------------
3,485,570
--------------
CONTRACT DRILLING (0.6%)
10,300 ENSCO International Inc. 258,221
32,100 Pride International, Inc.* 529,008
10,800 Rowan Companies, Inc.* 237,060
--------------
1,024,289
--------------
DEPARTMENT STORES (0.7%)
6,400 Federated Department Stores, Inc. 256,064
4,400 Kohl's Corp.* 261,140
9,000 Neiman Marcus Group, Inc. (The) (Class A)* 353,700
7,900 Sears, Roebuck & Co. 321,530
--------------
1,192,434
--------------
DISCOUNT STORES (1.6%)
49,500 Wal-Mart Stores, Inc. ** 2,767,545
--------------
ELECTRIC UTILITIES (1.5%)
14,200 Entergy Corp. 731,442
12,300 Exelon Corp. 706,881
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
10,800 PPL Corp. $ 427,572
16,900 Public Service Enterprise Group, Inc. 688,675
--------------
2,554,570
--------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.4%)
26,500 Rockwell Automation, Inc. 684,760
--------------
ELECTRONIC PRODUCTION EQUIPMENT (0.3%)
25,800 Applied Materials, Inc.* 503,100
--------------
ELECTRONICS/APPLIANCE STORES (0.2%)
9,200 Best Buy Co., Inc.* 401,580
--------------
ELECTRONICS/APPLIANCES (0.1%)
7,300 Sony Corp. (Japan) 225,667
--------------
FINANCE/RENTAL/LEASING (0.5%)
300 Countrywide Financial Corp. 20,043
28,600 MBNA Corp. 637,494
6,000 SLM Corp. 248,760
--------------
906,297
--------------
FINANCIAL CONGLOMERATES (5.3%)
33,700 American Express Co. 1,488,529
95,700 Citigroup Inc. 4,287,360
53,600 J.P. Morgan Chase & Co. 1,878,680
14,500 State Street Corp. 665,550
18,200 UBS AG (ADR) (Registered Shares) (Switzerland) 1,061,060
--------------
9,381,179
--------------
FOOD: MEAT/FISH/DAIRY (0.3%)
16,250 Dean Foods Co.* 486,362
--------------
HOME IMPROVEMENT CHAINS (0.7%)
19,900 Home Depot, Inc. (The) 620,880
12,700 Lowe's Companies, Inc. 604,012
--------------
1,224,892
--------------
HOTELS/RESORTS/CRUISELINES (0.8%)
17,400 Carnival Corp. (Panama) 596,994
29,600 Hilton Hotels Corp. 432,160
12,700 Starwood Hotels & Resorts Worldwide, Inc. 414,020
--------------
1,443,174
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
HOUSEHOLD/PERSONAL CARE (1.6%)
25,600 Avon Products, Inc. $ 1,597,184
15,400 Procter & Gamble Co. (The) 1,353,198
--------------
2,950,382
--------------
INDUSTRIAL CONGLOMERATES (1.3%)
7,800 3M Co. 1,093,560
12,000 Ingersoll Rand Co. (Class A) (Bermuda) 650,880
7,800 United Technologies Corp. 586,794
--------------
2,331,234
--------------
INDUSTRIAL SPECIALTIES (0.3%)
20,900 Ecolab Inc. 516,439
--------------
INFORMATION TECHNOLOGY SERVICES (1.1%)
42,500 Accenture Ltd. (Class A) (Bermuda)* 825,350
34,000 Citrix Systems, Inc.* 617,100
5,900 International Business Machines Corp. ** 479,375
--------------
1,921,825
--------------
INSURANCE BROKERS/SERVICES (0.1%)
4,800 Marsh & McLennan Companies, Inc. 238,176
--------------
INTERNET RETAIL (1.1%)
12,700 Amazon.com, Inc.* 529,844
33,400 InterActive Corp.* 1,351,698
--------------
1,881,542
--------------
INTERNET SOFTWARE/SERVICES (0.7%)
40,300 Yahoo! Inc.* 1,254,539
--------------
INVESTMENT BANKS/BROKERS (2.5%)
15,300 Goldman Sachs Group, Inc. (The) 1,333,242
4,600 Legg Mason, Inc. 322,000
9,700 Lehman Brothers Holdings, Inc. 613,719
37,300 Merrill Lynch & Co., Inc. 2,028,001
--------------
4,296,962
--------------
INVESTMENT TRUSTS/MUTUAL FUNDS (0.5%)
7,730 iShares GS InvesTop Corp. 829,815
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
MAJOR BANKS (2.6%)
35,700 Bank of America Corp. $ 2,947,749
31,000 Wachovia Corp. 1,354,390
5,500 Wells Fargo & Co. 277,915
--------------
4,580,054
--------------
MANAGED HEALTH CARE (2.5%)
28,100 Aetna Inc. 1,731,522
4,000 Anthem, Inc.* 302,040
43,600 UnitedHealth Group Inc. 2,271,124
--------------
4,304,686
--------------
MEDIA CONGLOMERATES (1.4%)
31,100 AOL Time Warner Inc.* 479,873
30,100 Disney (Walt) Co. (The) 659,792
22,300 News Corporation Ltd. (The) (ADR) (Australia) 678,143
14,500 Viacom, Inc. (Class B) (Non-Voting)* 631,040
--------------
2,448,848
--------------
MEDICAL SPECIALTIES (3.0%)
9,300 Boston Scientific Corp.* 588,039
32,100 Guidant Corp. 1,515,762
30,500 Medtronic, Inc. 1,570,750
8,400 Millipore Corp.* 373,716
14,350 St. Jude Medical, Inc.* 769,878
7,100 Varian Medical Systems, Inc.* 435,656
--------------
5,253,801
--------------
METAL FABRICATIONS (0.4%)
29,500 Chicago Bridge & Iron Company N.V. (ADR) (Netherlands) 727,470
--------------
MISCELLANEOUS COMMERCIAL SERVICES (0.2%)
7,000 Fair Isaac Corp. 378,280
--------------
MULTI-LINE INSURANCE (1.4%)
37,600 American International Group, Inc. 2,413,920
--------------
OIL & GAS PRODUCTION (0.8%)
12,635 Apache Corp. 782,864
8,900 Burlington Resources Inc. 410,913
5,500 Devon Energy Corp. 260,535
--------------
1,454,312
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
OILFIELD SERVICES/EQUIPMENT (0.5%)
12,500 BJ Services Co.* $ 428,125
5,600 Schlumberger Ltd. 252,392
7,800 Smith International, Inc.* 279,552
--------------
960,069
--------------
OTHER CONSUMER SERVICES (1.1%)
10,800 Apollo Group, Inc. (Class A)* 699,408
7,300 Corinthian Colleges, Inc.* 398,653
8,000 eBay Inc.* 857,600
--------------
1,955,661
--------------
OTHER METALS/MINERALS (0.6%)
38,150 BHP Billiton Ltd. 242,156
5,600 Inco Ltd. (Canada)* 130,536
8,200 Phelps Dodge Corp.* 345,958
11,791 Rio Tinto PLC (ADR) (United Kingdom) 244,811
--------------
963,461
--------------
PACKAGED SOFTWARE (4.2%)
22,600 Cognos, Inc. (ADR) (Canada)* 611,556
38,600 Computer Associates International, Inc. 982,370
22,700 Mercury Interactive Corp.* 893,472
91,700 Microsoft Corp. ** 2,420,880
56,200 Oracle Corp.* 674,400
1,100 SAP AG (Germany) 129,694
13,100 Symantec Corp.* 612,687
33,400 VERITAS Software Corp.* 1,028,720
--------------
7,353,779
--------------
PERSONNEL SERVICES (0.3%)
16,800 Monster Worldwide Inc.* 446,040
--------------
PHARMACEUTICALS: MAJOR (2.7%)
23,500 Bristol-Myers Squibb Co. 615,700
17,200 Lilly (Eli) & Co. 1,132,448
88,900 Pfizer Inc. ** 2,965,704
--------------
4,713,852
--------------
PHARMACEUTICALS: OTHER (0.2%)
5,400 Forest Laboratories, Inc.* 258,552
2,800 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 160,552
--------------
419,104
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
PRECIOUS METALS (2.5%)
16,700 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 447,393
26,800 Glamis Gold Ltd. (ADR) (Canada)* 337,680
23,200 Goldcorp Inc. (ADR) (Canada) 281,184
90,300 Newmont Mining Corp. 3,259,830
--------------
4,326,087
--------------
PROPERTY - CASUALTY INSURERS (0.5%)
6,400 Everest Re Group, Ltd. (ADR) (Bermuda) 483,648
4,000 XL Capital Ltd. (Class A) (ADR) (Bermuda) 318,000
--------------
801,648
--------------
RESTAURANTS (0.8%)
2,400 Applebee's International, Inc. 76,560
17,500 McDonald's Corp. 402,675
9,000 Sonic Corp.* 219,960
27,200 Starbucks Corp.* 743,376
--------------
1,442,571
--------------
SEMICONDUCTORS (5.0%)
8,500 Analog Devices, Inc.* 322,575
31,700 Integrated Circuit Systems, Inc.* 952,585
130,100 Intel Corp. 3,245,995
20,800 Intersil Corp. (Class A)* 512,928
27,100 Linear Technology Corp. 999,448
25,600 Marvell Technology Group Ltd. (Bermuda)* 900,096
18,700 Maxim Integrated Products, Inc. 730,796
11,900 Micron Technology, Inc.* 174,216
3,100 NEC Electronics Corp. (Japan) 147,472
11,652 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)* 116,520
34,500 Texas Instruments Inc. 651,015
--------------
8,753,646
--------------
SPECIALTY STORES (0.7%)
35,000 Staples, Inc.* 704,900
12,700 Tiffany & Co. 436,372
--------------
1,141,272
--------------
TELECOMMUNICATION EQUIPMENT (0.2%)
5,600 ADTRAN, Inc. 273,504
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
TOBACCO (1.1%)
38,800 Altria Group, Inc. $ 1,552,388
13,700 Loews Corp.- Carolina Group 343,596
--------------
1,895,984
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.3%)
13,600 Caterpillar Inc. 917,592
5,400 Deere & Co. 274,212
14,900 PACCAR, Inc. 1,150,280
--------------
2,342,084
--------------
WIRELESS TELECOMMUNICATIONS (1.6%)
78,500 AT&T Wireless Services Inc.* 669,605
22,300 Nextel Communications, Inc. (Class A)* 407,198
91,500 Vodafone Group PLC (ADR) (United Kingdom) 1,736,670
--------------
2,813,473
--------------
TOTAL COMMON STOCKS
(COST $120,465,830) 126,606,172
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------ --------
GOVERNMENT OBLIGATIONS (8.7%)
FOREIGN GOVERNMENT OBLIGATIONS (3.4%)
$ 500 Canadian Government (Canada) 5.25% 06/01/12 364,746
1,835 Deutsche Bundesrepublik (Germany) 4.50 01/04/13 2,114,515
1,025 France (Republic of) (France) 5.25 04/25/08 1,241,765
375 Government of Quebec (Canada) 6.125 01/22/11 411,073
405 Ontario (Province of) (Canada) 5.125 07/17/12 417,507
820 United Mexican States Corp. (Mexico) 8.375 01/14/11 930,700
400 United Mexican States Corp. (Mexico) 8.30 08/15/31 417,000
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $6,284,521) 5,897,306
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (5.3%)
$ 3,700 U.S. Treasury Note 5.625% 05/15/08 $ 4,081,851
4,643 U.S. Treasury Note 4.25 01/15/10 5,267,129
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $9,664,491) 9,348,980
--------------
TOTAL GOVERNMENT OBLIGATIONS
(COST $15,949,012) 15,246,286
--------------
CORPORATE BONDS (4.2%)
AEROSPACE & DEFENSE (0.2%)
315 Lockheed Martin Corp. 8.50 12/01/29 386,463
--------------
CABLE/SATELLITE TV (0.2%)
300 Comcast Corp. 6.50 01/15/15 312,831
80 Cox Communications, Inc. 7.125 10/01/12 89,367
--------------
402,198
--------------
CASINO/GAMING (0.2%)
250 International Game Technology 8.375 05/15/09 295,405
--------------
ELECTRIC UTILITIES (0.1%)
170 Constellation Energy Group, Inc. 7.60 04/01/32 182,740
--------------
FINANCE/RENTAL/LEASING (0.2%)
220 Ford Motor Credit Co. 7.25 10/25/11 217,771
75 MBNA Corp. 6.125 03/01/13 77,587
--------------
295,358
--------------
FINANCIAL CONGLOMERATES (1.3%)
750 Citigroup Inc. 5.625 08/27/12 765,298
855 General Electric Capital Corp. 5.45 01/15/13 858,386
220 General Motors Acceptance Corp. 6.875 09/15/11 214,933
350 J.P. Morgan Chase & Co. 6.625 03/15/12 378,411
--------------
2,217,028
--------------
HOME BUILDING (0.0%)
45 Pulte Homes, Inc. 7.875 08/01/11 51,428
--------------
INTEGRATED OIL (0.2%)
320 Conoco Inc. 6.95 04/15/29 345,838
--------------
INVESTMENT BANKS/BROKERS (0.2%)
275 Goldman Sachs Group Inc. 6.875 01/15/11 306,525
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS (0.4%)
$ 180 Deutsche Telekom International
Finance Corp. (Netherlands) 8.75% 06/15/30 $ 210,753
430 Verizon Global Funding Corp. 7.75 12/01/30 479,764
--------------
690,517
--------------
MANAGED HEALTH CARE (0.2%)
325 Aetna, Inc. 7.875 03/01/11 375,082
--------------
MEDIA CONGLOMERATES (0.3%)
170 AOL Time Warner Inc. 7.70 05/01/32 178,311
350 News America Holdings, Inc. 7.28 06/30/28 361,863
--------------
540,174
--------------
MOTOR VEHICLES (0.0%)
80 General Motor Corp. 7.125 07/15/13 78,021
--------------
OIL & GAS PRODUCTION (0.2%)
290 Devon Financing Corp. 6.875 09/30/11 319,926
--------------
PULP & PAPER (0.1%)
100 International Paper Co. 5.85 10/30/12 102,426
--------------
REAL ESTATE INVESTMENT TRUSTS (0.0%)
65 Simon Property Group L.P. 6.35 08/28/12 67,951
--------------
SERVICES TO THE HEALTH INDUSTRY (0.2%)
330 Anthem Insurance - 144A + 9.125 04/01/10 397,744
--------------
WIRELESS TELECOMMUNICATIONS (0.2%)
275 AT&T Wireless -Services Inc. 8.75 03/01/31 316,932
--------------
TOTAL CORPORATE BONDS
(COST $8,561,788) 7,371,756
--------------
<Caption>
NUMBER OF
SHARES
---------
CONVERTIBLE PREFERRED STOCKS (2.6%)
AEROSPACE & DEFENSE (0.2%)
3,600 Northrop Grumman Corp. 373,500
--------------
ELECTRIC UTILITIES (0.9%)
14,800 Dominion Resources Inc. 771,080
13,600 FPL Group, Inc. 766,768
--------------
1,537,848
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (0.2%)
4,100 Anthem Inc. $3.433 $ 374,248
--------------
OIL & GAS PIPELINES (0.2%)
32,200 Williams Cos Inc. $2.25 330,694
--------------
OILFIELD SERVICES/EQUIPMENT (0.4%)
13,500 Weatherford International, Inc. $2.50 691,200
--------------
PROPERTY - CASUALTY INSURERS (0.4%)
30,000 Travelers Property Casualty $1.125 716,700
--------------
RAILROADS (0.1%)
2,337 Union Pacific Capital Trust $3.13 118,311
--------------
SPECIALTY TELECOMMUNICATIONS (0.2%)
14,800 CenturyTel, Inc. 409,664
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $4,412,442) 4,552,165
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
--------- ------ --------
CONVERTIBLE BONDS (2.5%)
BIOTECHNOLOGY (0.4%)
$ 710 Aviron 5.25% 02/01/08 733,075
--------------
CABLE/SATELLITE TV (0.1%)
150 EchoStar Communications Corp. 4.875 01/01/07 150,937
--------------
COMPUTER COMMUNICATIONS (0.2%)
315 Juniper Networks, Inc. 4.75 03/15/07 299,250
--------------
ELECTRONIC PRODUCTION EQUIPMENT (0.4%)
380 Asm Lithography Holding N.V. - 144A+
(Netherlands) 4.25 11/30/04 378,100
250 Teradyne Inc. 3.75 10/15/06 245,938
--------------
624,038
--------------
INTERNET RETAIL (0.2%)
440 Amazon.com, Inc. 4.75 02/01/09 409,200
--------------
PACKAGED SOFTWARE (0.2%)
375 Mercury Interactive Corp. 4.75 07/01/07 371,250
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
PHARMACEUTICALS: OTHER (0.4%)
$ 474 Teva Pharmaceutical Finance LLC 0.75% 08/15/21 $ 650,565
--------------
WIRELESS TELECOMMUNICATIONS (0.6%)
1,000 Nextel Communications, Inc. 6.00 06/01/11 1,066,250
--------------
TOTAL CONVERTIBLE BONDS
(COST $4,115,052) 4,304,565
--------------
SHORT-TERM INVESTMENTS (a) (11.7%)
U.S. GOVERNMENT OBLIGATIONS (0.2%)
50 U.S. Treasury Bill 0.429 11/15/04 49,924
200 U.S. Treasury Bill 0.493 09/25/03 199,138
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $249,057) 249,062
--------------
REPURCHASE AGREEMENT (11.5%)
20,111 Joint repurchase agreement account
(dated 07/31/03; proceeds $20,111,620) (b)
(Cost $20,111,000) 1.11 08/01/03 20,111,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $20,360,057) 20,360,062
--------------
TOTAL INVESTMENTS
(COST $173,864,181) (c) (d) 102.1% 178,441,006
LIABILITIES IN EXCESS OF OTHER ASSETS (2.1) (3,614,937)
----- --------------
NET ASSETS 100.0% $ 174,826,069
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS.
+ RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN HAVE BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$12,941,214 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $7,560,663 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION
IS $2,983,838, RESULTING IN NET UNREALIZED APPRECIATION OF $4,576,825
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
FUTURES CONTRACTS OPEN AT JULY 31, 2003:
<Table>
<Caption>
UNDERLYING UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY FACE AMOUNT APPRECIATION
CONTRACTS LONG/SHORT MONTH, AND YEAR AT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------
35 Short S&P 500 Index E-Mini, September 2003 $ (1,731,276) $ 477
12 Short Nasdaq 100 Index, September 2003 (1,534,600) (29,796)
143 Short Nasdaq 100 Index E-Mini, September 2003 (3,657,940) (36,692)
1 Short U.S. Treasury Note 2 Year, September 2003 (214,641) 1,950
12 Long U.S. Treasury Note 5 Year, September 2003 1,335,938 (46,533)
66 Short U.S. Treasury Note 10 Year, September 2003 (7,301,250) 349,436
3 Short U.S. Treasury Bond 30 Year, September 2003 (315,875) 19,023
---------
Total unrealized appreciation $ 257,865
=========
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JULY 31, 2003:
<Table>
<Caption>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
$ 9,239 AUD 13,943 08/01/03 $ (208)
$ 8,807 GBP 5,411 08/01/03 (98)
$ 9,698 JPY 1,158,310 08/01/03 (98)
$ 4,983 JPY 595,188 08/01/03 (50)
------
Total unrealized depreciation $ (454)
======
</Table>
CURRENCY ABBREVIATIONS:
AUD Australian Dollar.
GBP British Pound.
JPY Japanese Yen.
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
MORGAN STANLEY ALLOCATOR FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2003 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (including a repurchase agreement of
$20,111,000) (cost $173,864,181) $ 178,441,006
Cash 55,295
Receivable for:
Investments sold 4,552,531
Shares of beneficial interest sold 1,399,887
Interest 320,921
Dividends 111,858
Variation margin receivable 29,045
Deferred offering costs 74,204
Prepaid expenses and other assets 22,611
-------------
TOTAL ASSETS 185,007,358
-------------
LIABILITIES:
Payable for:
Investments purchased 9,830,605
Distribution fee 119,507
Investment management fee 107,518
Shares of beneficial interest redeemed 45,211
Accrued expenses and other payables 75,685
Offering costs 2,763
-------------
TOTAL LIABILITIES 10,181,289
-------------
NET ASSETS $ 174,826,069
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital 166,856,780
Net unrealized appreciation 4,832,202
Undistributed net investment income 27,868
Undistributed net realized gain 3,109,219
-------------
NET ASSETS $ 174,826,069
=============
CLASS A SHARES:
Net Assets $ 17,704,981
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,651,575
NET ASSET VALUE PER SHARE $ 10.72
=============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 11.31
=============
CLASS B SHARES:
Net Assets $ 122,862,561
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 11,497,427
NET ASSET VALUE PER SHARE $ 10.69
=============
CLASS C SHARES:
Net Assets $ 19,049,501
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,782,651
NET ASSET VALUE PER SHARE $ 10.69
=============
CLASS D SHARES:
Net Assets $ 15,209,026
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,417,316
NET ASSET VALUE PER SHARE $ 10.73
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED FEBRUARY 26, 2003* THROUGH JULY 31, 2003 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 606,259
Dividends (net of $1,737 foreign withholding tax) 453,493
-------------
TOTAL INCOME 1,059,752
-------------
EXPENSES
Investment management fee 405,344
Distribution fee (Class A shares) 14,363
Distribution fee (Class B shares) 367,334
Distribution fee (Class C shares) 61,731
Offering costs 55,326
Transfer agent fees and expenses 54,069
Professional fees 25,765
Shareholder reports and notices 14,127
Custodian fees 13,561
Registration fees 13,383
Trustees' fees and expenses 5,738
Other 1,143
-------------
TOTAL EXPENSES 1,031,884
-------------
NET INVESTMENT INCOME 27,868
-------------
NET REALIZED AND UNREALIZED GAIN:
NET REALIZED GAIN/LOSS ON:
Investments 2,629,829
Futures contracts 479,466
Foreign exchange transactions (76)
-------------
NET REALIZED GAIN 3,109,219
-------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 4,576,825
Futures contracts 257,865
Translation of forward foreign currency contracts, other assets and
liabilities denominated in foreign currencies (2,488)
-------------
NET APPRECIATION 4,832,202
-------------
NET GAIN 7,941,421
-------------
NET INCREASE $ 7,969,289
=============
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE PERIOD
FEBRUARY 26, 2003*
THROUGH
JULY 31, 2003
------------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 27,868
Net realized gain 3,109,219
Net change in unrealized appreciation 4,832,202
------------------
Net Increase 7,969,289
Net increase from transactions in shares of beneficial interest 166,756,780
------------------
NET INCREASE 174,726,069
NET ASSETS:
Beginning of period 100,000
------------------
END OF PERIOD
(Including undistributed net investment income of $27,868, respectively) $ 174,826,069
==================
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
MORGAN STANLEY ALLOCATOR FUND
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Allocator Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is selecting
securities with the potential to rise in price and/or pay out income. The Fund
seeks to achieve its objective by maximizing total investment return through
different stages of an economic cycle. The Fund was organized as a Massachusetts
business trust on October 25, 2002 and commenced operations on February 26,
2003.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange or other exchange is valued at its
latest sale price prior to the time when assets are valued; if there were no
sales that day, the security is valued at the mean between the last reported bid
and asked price; (2) an equity portfolio security listed or traded on the Nasdaq
is valued at the Nasdaq Official Closing Price; if there were no sales that day,
the security is valued at the mean between the last reported bid and asked
price; (3) all other equity portfolio securities for which over-the-counter
market quotations are readily available are valued at the mean between the last
reported bid and asked price. In cases where a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market; (4) for equity securities traded on foreign exchanges, the last reported
sale price or the latest bid price may be used if there were no sales on a
particular day; (5) futures are valued at the latest price published by the
commodities exchange on which they trade; (6) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees; (7) certain portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees; and (8) 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.
21
<Page>
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
22
<Page>
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. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
I. OFFERING COSTS -- The Investment Manager incurred offering costs on behalf of
the Fund in the amount of $129,530 which will be reimbursed by the Fund for the
full amount thereof. Such expenses were deferred and are being amortized on the
straight-line method over a period of approximately one year or less from the
commencement of operations.
J. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close of
each business day.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to
23
<Page>
Rule 12b-1 under the Act. The Plan provides that the Fund will pay the
Distributor a fee which is accrued daily and paid monthly at the following
annual rates: (i) Class A -- up to 0.25% of the average daily net assets of
Class A; (ii) Class B -- 1.0% of the average daily net assets of Class B; and
(iii) Class C -- up to 1.0% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $4,418,842
at July 31, 2003.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the period ended July 31, 2003, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended July 31, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $64,894 and $6,228, respectively and
received $558,292 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ended July 31, 2003 aggregated
$289,623,750 and $138,621,547, respectively. Included in the aforementioned
transactions are purchases and sales of U.S. Government Securities of
$32,262,137 and $32,331,652, respectively, and purchases and sales with other
Morgan Stanley funds of $452,958 and $27,000, respectively including a net
realized loss of $3,450.
For the period ended July 31, 2003, the Fund incurred brokerage commissions of
$48,854 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund. At
July 31, 2003, the Fund's payable for investments
24
<Page>
purchased and receivable for investments sold included unsettled trades with
Morgan Stanley & Co., Inc. of $145,972 and $882,640, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At July 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $21,200.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE PERIOD
FEBRUARY 26, 2003*
THROUGH
JULY 31, 2003
---------------------------
SHARES AMOUNT
---------- -------------
CLASS A SHARES
Sold 1,869,738 $ 19,079,058
Redeemed (220,663) (2,265,526)
---------- -------------
Net increase -- Class A 1,649,075 16,813,532
---------- -------------
CLASS B SHARES
Sold 11,909,582 121,878,289
Redeemed (414,655) (4,372,642)
---------- -------------
Net increase -- Class B 11,494,927 117,505,647
---------- -------------
CLASS C SHARES
Sold 1,900,024 19,352,827
Redeemed (119,873) (1,240,207)
---------- -------------
Net increase -- Class C 1,780,151 18,112,620
---------- -------------
CLASS D SHARES
Sold 1,635,270 16,610,525
Redeemed (220,454) (2,285,544)
---------- -------------
Net increase -- Class D 1,414,816 14,324,981
---------- -------------
Net increase in Fund 16,338,969 $ 166,756,780
========== =============
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
25
<Page>
6. PURPOSE OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures ("futures
contracts").
Forward contracts and futures involve elements of market risk in excess of the
amounts reflected in the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
At July 31, 2003, the Fund had outstanding futures contracts and outstanding
forward contracts.
26
<Page>
MORGAN STANLEY ALLOCATOR FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<Table>
<Caption>
FOR THE PERIOD FEBRUARY 26, 2003*
THROUGH JULY 31, 2003
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
-------- --------- -------- --------
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- --------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)++ 0.03 (0.01) (0.01) 0.04
Net realized and unrealized gain 0.69 0.70 0.70 0.69
-------- --------- -------- --------
Total income from investment operations 0.72 0.69 0.69 0.73
-------- --------- -------- --------
Net asset value, end of period $ 10.72 $ 10.69 $ 10.69 $ 10.73
======== ========= ======== ========
TOTAL RETURN+(1) 7.30% 6.90% 6.90% 7.40%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses 1.34% 2.09% 2.09% 1.09%
Net investment income (loss) 0.62% (0.13)% (0.13)% 0.87%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 17,705 $ 122,862 $ 19,050 $ 15,209
Portfolio turnover rate(1) 151% 151% 151% 151%
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
ALLOCATOR FUND
SEMIANNUAL REPORT
JULY 31, 2003
[MORGAN STANLEY LOGO]
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT and GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
39947RPT-12119I03-AP-9/03
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
<Page>
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Allocator Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 22, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 22, 2003
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Allocator Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 8, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 8, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 8, 2003