<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: 811-05634
Morgan Stanley Strategist 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: July 31, 2004
Date of reporting period: January 31, 2004
Item 1 - Report to Shareholders
<Page>
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.
<Page>
Fund Report
For the six-month period ended January 31, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED JANUARY 31, 2004
<Table>
<Caption>
LEHMAN
BROTHERS U.S. LIPPER
GOVERNMENT/ FLEXIBLE
S&P 500 CREDIT PORTFOLIO
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) FUNDS INDEX(3)
- ---------------------------------------------------------------------------------------
13.31% 12.95% 12.89% 13.51% 15.22% 4.76% 13.19%
</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
The six-month period ended January 31, 2004, saw a continuation of several
themes that had emerged in the months prior to the period. The equity markets
gained strongly through the end of the period, with positive returns in every
month except September. Strong GDP growth, improving corporate profit results
and continued robust consumer spending, combined to push equity benchmarks
higher. This strength remained through the end of the period, though more mixed
signals in January moderated the market's gains. By the end of the period,
market leadership had shifted from deeply cyclical companies in such sectors as
technology, industrials and basic materials to companies with more-concrete
earnings visibility.
Performance in the bond market was more mixed. Bonds began the period in the red
as investors bid up interest rates in anticipation of economic recovery. After
peaking in September, interest rates fell steadily through the end of the period
as the bond market began signaling less confidence in the strength of the
impending economic recovery. The bond market rallied sharply in the last weeks
of the period to end with yields well below their September highs.
PERFORMANCE ANALYSIS
For the six months ended January 31, 2004, Morgan Stanley Strategist Fund
performed in line with its peer group as defined by the Lipper Flexible
Portfolio Funds Index. Given its portfolio mix of equities and bonds, it
underperformed the S&P 500 Index but outperformed the Lehman Brothers U.S.
Government/Credit Index.
The Fund entered the period with a defensive posture toward the bond market and
an increased exposure to equities. Our cautious bond allocation paid off
immediately, as interest rates rose sharply due to an increasingly optimistic
economic outlook. After the bond market pullback we allocated more assets to
bonds in the belief that they represented fair value. In addition, company
reports suggested that equities were poised for an earnings recovery, and
accordingly we shifted more Fund assets into that asset class as well. This
reallocation of assets turned out to be beneficial, as equities and bonds both
posted strong gains for the period.
The Fund's bond holdings provided solid results throughout the period,
particularly during December and January. We implemented the Fund's increased
allocation to the asset class with a barbell structure that balanced
short-maturity government bonds against 10-year Treasuries, with corporate and
mortgage-backed bonds between them. The 10-year portion of the Treasury yield
curve rallied sharply in the bond rally at the end of the period, and the Fund's
10-year holdings boosted its returns.
With regard to equity holdings, the Fund's positions experienced mixed
performance. Throughout the period, in financials the Fund had an underweighted
stance relative to the S&P 500 Index. Because these companies returned some of
the strongest results that were to be found in the latter half of 2003, the
Fund's reduced exposure to them hurt its relative performance. Additionally, we
established an overweighted position relative to the S&P 500 in energy companies
in anticipation of strong performance by them. This performance did not
materialize until the last month of the
2
<Page>
period, however, leading the Fund's relative performance to suffer as a result.
Our biggest contributors to equity performance were an overweighted position
relative to the S&P 500 Index in basic materials and industrials, as well as a
neutral weighting in information technology. These heavily cyclical sectors
gained on signs that the U.S. economy was poised for growth.
TOP 10 HOLDINGS
<Table>
U.S. Treasury Bonds and Notes 14.4%
Fed. Natl. Mtge. Assoc. 4.1
General Electric Co. 1.8
Bard (C.R.) Inc. 1.7
Pfizer, Inc. 1.6
Caterpillar Inc. 1.6
Fisher Scientific Intl 1.6
Waste Management Inc. 1.6
JP Morgan Chase & Co. 1.5
Halliburton Co. 1.5
</Table>
PORTFOLIO COMPOSITION
<Table>
Common Stocks 71.0%
U.S. Government Agencies and Obligations 19.6
Corporate Bonds 6.2
Short Term 2.3
Asset Backed 1.0
</Table>
SUBJECT TO CHANGE DAILY. TOP 10 HOLDINGS ARE AS A PERCENTAGE OF NET ASSETS AND
PORTFOLIO COMPOSITION IS AS A PERCENTAGE OF TOTAL INVESTMENTS. PROVIDED FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED AS A RECOMMENDATION TO BUY
OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE SECURITIES
FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES, INVESTMENT BANKING,
RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY SERVICES.
INVESTMENT STRATEGY
1. THE FUND'S ASSETS ARE ACTIVELY ALLOCATED AMONG THE MAJOR ASSET CATEGORIES OF
EQUITY SECURITIES (INCLUDING DEPOSITARY RECEIPTS), FIXED-INCOME SECURITIES
AND MONEY MARKET INSTRUMENTS.
2. IN DETERMINING WHICH SECURITIES TO BUY, HOLD OR SELL FOR THE FUND, THE
INVESTMENT MANAGER 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.
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
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JANUARY 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 10/31/88) (SINCE 07/28/97) (SINCE 07/28/97)
-------------------------------------------------------------------------------
SYMBOL SRTAX SRTBX SRTCX SRTDX
-------------------------------------------------------------------------------------------------
1 YEAR 29.84%(4) 28.77%(4) 28.80%(4) 30.06%(4)
23.02(5) 23.77(5) 27.80(5) --
5 YEARS 3.32(4) 2.55(4) 2.50(4) 3.54(4)
2.21(5) 2.23(5) 2.50(5) --
10 YEARS -- 7.73(4) -- --
-- 7.73(5) -- --
SINCE INCEPTION 5.49(4) 9.96(4) 4.67(4) 5.73(4)
4.62(5) 9.96(5) 4.67(5) --
</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.
Notes on Performance
(1) THE STANDARD & POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
THE INDEX DOES NOT INCLUDE ANY EXPENSES, FEES OR CHARGES. SUCH COSTS WOULD
LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE 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 DOES NOT
INCLUDE ANY EXPENSES, FEES OR CHARGES. 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.
(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.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
4
<Page>
MORGAN STANLEY STRATEGIST FUND
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (71.0%)
AEROSPACE & DEFENSE (1.5%)
192,800 Northrop Grumman Corp. $ 18,645,688
---------------
AGRICULTURAL COMMODITIES/MILLING (1.5%)
1,178,500 Archer-Daniels-Midland Co. 18,455,310
---------------
APPAREL/FOOTWEAR RETAIL (2.0%)
808,050 Gap, Inc. (The) 15,013,569
372,600 Ross Stores, Inc. 10,414,170
---------------
25,427,739
---------------
BEVERAGES: NON-ALCOHOLIC (1.1%)
277,400 Coca-Cola Co. (The) 13,659,176
---------------
BIOTECHNOLOGY (2.9%)
470,800 Applera Corp. - Celera Genomics Group* 7,165,576
279,500 Celgene Corp.* 11,294,595
131,700 Cephalon, Inc.* 7,219,794
208,100 Gilead Sciences, Inc.* 11,418,447
---------------
37,098,412
---------------
CHEMICALS: MAJOR DIVERSIFIED (0.9%)
263,400 Dow Chemical Co. (The) 11,049,630
---------------
COMPUTER COMMUNICATIONS (1.2%)
602,100 Cisco Systems, Inc.* 15,437,844
---------------
COMPUTER PROCESSING HARDWARE (1.8%)
507,000 Apple Computer, Inc.* 11,437,920
335,200 Dell Inc.* 11,219,144
---------------
22,657,064
---------------
CONTAINERS/PACKAGING (0.2%)
115,000 Smurfit-Stone Container Corp.* 1,982,600
---------------
CONTRACT DRILLING (0.9%)
504,800 Diamond Offshore Drilling, Inc. 11,458,960
---------------
DISCOUNT STORES (1.3%)
445,800 Costco Wholesale Corp.* 16,530,264
---------------
ELECTRIC UTILITIES (1.6%)
188,100 Cinergy Corp. 7,273,827
425,400 Southern Co. (The) 12,676,920
---------------
19,950,747
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
ELECTRICAL PRODUCTS (1.4%)
276,200 Emerson Electric Co. $ 17,649,180
---------------
ELECTRONIC COMPONENTS (0.9%)
626,000 Flextronics International Ltd. (Singapore)* 11,894,000
---------------
ELECTRONIC PRODUCTION EQUIPMENT (0.8%)
438,500 Applied Materials, Inc.* 9,541,760
---------------
ENVIRONMENTAL SERVICES (1.5%)
698,300 Waste Management, Inc. 19,384,808
---------------
FINANCIAL CONGLOMERATES (4.5%)
357,300 American Express Co. 18,522,432
385,300 Citigroup Inc. 19,064,644
499,500 J.P. Morgan Chase & Co. 19,425,555
---------------
57,012,631
---------------
FOOD: MAJOR DIVERSIFIED (0.9%)
287,100 Kellogg Co. 10,855,251
---------------
FOOD: MEAT/FISH/DAIRY (1.4%)
545,800 Dean Foods Co.* 17,465,600
---------------
INDUSTRIAL CONGLOMERATES (1.7%)
630,000 General Electric Co. 21,186,900
---------------
INFORMATION TECHNOLOGY SERVICES (2.0%)
485,100 Accenture Ltd. (Class A) (Bermuda)* 11,482,317
137,450 International Business Machines Corp. 13,639,163
---------------
25,121,480
---------------
INTEGRATED OIL (1.5%)
206,000 BP PLC (ADR) (United Kingdom) 9,805,600
235,900 Exxon Mobil Corp. 9,622,361
---------------
19,427,961
---------------
INTERNET RETAIL (1.1%)
283,400 Amazon.com, Inc.* 14,306,032
---------------
INVESTMENT BANKS/BROKERS (0.9%)
504,600 eSPEED, Inc (Class A)* 11,353,500
---------------
MAJOR BANKS (2.0%)
160,100 Bank of America Corp. 13,041,746
221,900 Wells Fargo & Co. 12,739,279
---------------
25,781,025
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS (1.6%)
350,000 SBC Communications, Inc. $ 8,925,000
300,000 Verizon Communications Inc. 11,058,000
---------------
19,983,000
---------------
MANAGED HEALTH CARE (0.8%)
197,700 Oxford Health Plans, Inc. 9,529,140
---------------
MEDIA CONGLOMERATES (0.7%)
518,900 Time Warner Inc.* 9,117,073
---------------
MEDICAL SPECIALTIES (1.7%)
223,600 Bard (C.R.), Inc. 21,063,120
---------------
MOTOR VEHICLES (1.4%)
804,500 Honda Motor Co., Ltd. (ADR) (Japan) 17,168,030
---------------
MULTI-LINE INSURANCE (1.3%)
241,100 American International Group, Inc. 16,744,395
---------------
OIL & GAS PRODUCTION (1.3%)
306,200 Burlington Resources, Inc. 16,761,388
---------------
OILFIELD SERVICES/EQUIPMENT (2.7%)
634,900 Halliburton Co. 19,142,235
316,000 Smith International, Inc.* 15,313,360
---------------
34,455,595
---------------
PACKAGED SOFTWARE (1.8%)
403,100 Microsoft Corp. 11,145,715
867,200 Oracle Corp.* 11,976,032
---------------
23,121,747
---------------
PHARMACEUTICALS: MAJOR (3.6%)
195,800 Lilly (Eli) & Co. 13,322,232
560,600 Pfizer Inc. 20,534,778
266,600 Wyeth 10,917,270
---------------
44,774,280
---------------
PRECIOUS METALS (1.4%)
204,000 Newmont Mining Corp. 8,498,640
567,900 Placer Dome Inc. (Canada) 8,978,499
---------------
17,477,139
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
PROPERTY - CASUALTY INSURERS (3.1%)
341,000 ACE Ltd. (Bermuda) $ 14,806,220
261,800 Allstate Corp. (The) 11,901,428
690,180 Travelers Property Casualty Corp. (Class B) 12,492,258
---------------
39,199,906
---------------
PULP & PAPER (0.1%)
160,000 Abitibi-Consolidated Inc. (Canada) 1,235,200
---------------
RAILROADS (1.3%)
143,200 Burlington Northern Santa Fe Corp. 4,601,016
371,800 CSX Corp. 11,734,008
---------------
16,335,024
---------------
SEMICONDUCTORS (2.3%)
322,800 Intel Corp. 9,877,680
678,300 Micron Technology, Inc.* 10,927,413
685,132 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan)* 7,659,776
---------------
28,464,869
---------------
SPECIALTY STORES (1.1%)
328,500 Bed Bath & Beyond, Inc.* 13,340,385
---------------
STEEL (1.1%)
127,800 Nucor Corp. 7,196,418
180,800 United States Steel Corp. 6,156,240
---------------
13,352,658
---------------
TELECOMMUNICATION EQUIPMENT (2.6%)
967,700 Motorola, Inc. 16,044,466
791,600 Nokia Corp. (ADR) (Finland) 16,354,456
---------------
32,398,922
---------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.6%)
258,400 Caterpillar Inc. 20,188,792
---------------
WHOLESALE DISTRIBUTORS (1.6%)
449,100 Fisher Scientific International, Inc.* 20,052,315
---------------
WIRELESS TELECOMMUNICATIONS (0.4%)
195,800 Nextel Communications, Inc. (Class A)* 5,167,162
---------------
TOTAL COMMON STOCKS
(COST $648,506,246) 893,263,702
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (6.2%)
AEROSPACE & DEFENSE (0.2%)
$ 125 Boeing Co. 6.625% 02/15/38 $ 134,837
190 Goodrich Corp. 7.625 12/15/12 224,374
200 Lockheed Martin Corp. 7.75 05/01/26 245,692
85 Lockheed Martin Corp. 8.50 12/01/29 113,194
335 Raytheon Co. 6.15 11/01/08 367,696
1,015 Systems 2001 Asset Trust - 144A** 6.664 09/15/13 1,125,392
---------------
2,211,185
---------------
AIRLINES (0.3%)
1,347 American West Airlines 7.10 04/02/21 1,460,620
1,112 Continental Airlines, Inc. 6.90 01/02/18 1,126,617
575 Southwest Airlines Co. 5.496 11/01/06 617,411
---------------
3,204,648
---------------
BEVERAGES: ALCOHOLIC (0.0%)
395 Miller Brewing Co. - 144A** 4.25 08/15/08 404,395
---------------
BROADCASTING (0.0%)
280 Clear Channel Communications, Inc. 7.65 09/15/10 330,058
---------------
CABLE/SATELLITE TV (0.1%)
165 Comcast Cable Communications Inc. 6.75 01/30/11 185,097
565 Comcast Corp. 6.50 01/15/15 619,960
60 Comcast Corp. 7.625 02/15/08 67,657
550 TCI Communications, Inc. 7.875 02/15/26 649,843
---------------
1,522,557
---------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
270 ICI Wilmington Inc. 4.375 12/01/08 272,556
---------------
CONTAINERS/PACKAGING (0.0%)
355 Sealed Air Corp - 144A** 5.625 07/15/13 368,150
---------------
DEPARTMENT STORES (0.1%)
300 Federated Department Stores, Inc. 6.625 09/01/08 335,606
215 Federated Department Stores, Inc. 6.90 04/01/29 236,807
980 May Department Stores Co., Inc. 5.95 11/01/08 1,066,241
---------------
1,638,654
---------------
DRUGSTORE CHAINS (0.1%)
1,505 CVS Corp. 5.625 03/15/06 1,607,852
99 CVS Corp. - 144A** 6.204 10/10/25 106,383
---------------
1,714,235
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (0.4%)
$ 220 Appalachian Power Co. (Series H) 5.95% 05/15/33 $ 217,484
530 Carolina Power & Light Co. 5.125 09/15/13 540,451
250 Cincinnati Gas & Electric Co. 5.70 09/15/12 266,296
180 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 167,528
215 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 199,357
45 Columbus Southern Power Co. 4.40 12/01/10 45,413
175 Columbus Southern Power Co. 6.60 03/01/33 190,738
60 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 60,075
330 Constellation Energy Group, Inc. 7.60 04/01/32 391,872
140 Detroit Edison Co. 6.125 10/01/10 154,784
85 Detroit Edison Co. 6.35 10/15/32 91,426
345 Duke Energy Corp. 4.50 04/01/10 351,542
205 Entergy Gulf States, Inc. - 144A** 3.60 06/01/08 198,494
365 Exelon Corp. 6.75 05/01/11 411,973
200 Ohio Power Co. 6.60 02/15/33 217,993
380 Public Service Electric & Gas Co. 5.00 01/01/13 386,927
155 South Carolina Electric & Gas Co. 5.30 05/15/33 146,533
75 Southern California Edison Co. 5.00 01/15/14 75,548
305 TXU Energy Co. 7.00 03/15/13 340,763
70 Wisconsin Electric Power Co. 5.625 05/15/33 69,312
125 Wisconsin Energy Corp. 6.20 04/01/33 126,938
---------------
4,651,447
---------------
ELECTRICAL PRODUCTS (0.1%)
620 Cooper Industries Inc. 5.25 07/01/07 664,337
---------------
ENVIRONMENTAL SERVICES (0.0%)
305 Waste Management, Inc. 6.875 05/15/09 343,740
---------------
FINANCE/RENTAL/LEASING (0.5%)
1,135 American General Finance Corp. 5.875 07/14/06 1,225,200
395 CIT Group Inc. 2.875 09/29/06 397,289
755 Countrywide Home Loans, Inc. 3.25 05/21/08 747,938
50 Ford Motor Credit Co. 7.25 10/25/11 54,404
575 Ford Motor Credit Co. 7.375 10/28/09 632,915
305 Household Finance Corp. 4.125 12/15/08 309,770
320 Household Finance Corp. 5.875 02/01/09 349,936
305 Household Finance Corp. 6.375 10/15/11 340,120
350 Household Finance Corp. 6.40 06/17/08 389,647
280 Household Finance Corp. 6.75 05/15/11 318,569
235 International Lease Finance Corp. 3.75 08/01/07 238,645
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$ 100 MBNA Capital I (Series A) 8.278% 12/01/26 $ 111,553
740 MBNA Corp. 6.125 03/01/13 805,025
580 SLM Corp. 5.00 10/01/13 583,265
---------------
6,504,276
---------------
FINANCIAL CONGLOMERATES (0.8%)
910 AXA Financial Inc. 6.50 04/01/08 1,014,409
275 Citicorp. 6.75 08/15/05 296,081
490 Citigroup Inc. 5.625 08/27/12 523,631
530 Citigroup Inc. 5.75 05/10/06 569,954
530 Citigroup Inc. 6.00 02/21/12 585,337
920 Chase Manhattan Corp. 6.00 02/15/09 1,013,695
180 General Electric Capital Corp. 4.25 12/01/10 180,811
1,005 General Electric Capital Corp. 6.75 03/15/32 1,137,299
240 General Motors Acceptance Corp. 4.50 07/15/06 247,037
620 General Motors Acceptance Corp. 6.875 09/15/11 668,507
1,480 General Motors Acceptance Corp. 8.00 11/01/31 1,627,750
720 Prudential Holdings, LLC (Series C) - 144A** 8.695 12/18/23 900,462
1,350 Prudential Holdings, LLC (Series B)
(FSA) - 144A** 7.245 12/18/23 1,510,635
---------------
10,275,608
---------------
FOOD RETAIL (0.1%)
290 Albertson's, Inc. 7.50 02/15/11 334,375
985 Kroger Co. 6.80 04/01/11 1,109,388
---------------
1,443,763
---------------
FOOD: MAJOR DIVERSIFIED (0.0%)
65 Kraft Foods Inc. 5.625 11/01/11 69,317
175 Kraft Foods Inc. 6.25 06/01/12 193,052
---------------
262,369
---------------
FOREIGN GOVERNMENT OBLIGATIONS (0.2%)
925 United Mexican States (Mexico) 8.00 09/24/22 1,022,125
800 United Mexican States (Mexico) 8.30 08/15/31 905,200
---------------
1,927,325
---------------
FOREST PRODUCTS (0.1%)
165 Weyerhaeuser Co. 6.00 08/01/06 176,981
875 Weyerhaeuser Co. 6.75 03/15/12 971,964
---------------
1,148,945
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
GAS DISTRIBUTORS (0.1%)
$ 460 Consolidated Natural Gas Co. 6.25% 11/01/11 $ 512,517
415 Ras Laffan Liquid Natural Gas Co.
Ltd. - 144A** (Qatar) 8.294 03/15/14 483,475
---------------
995,992
---------------
HOME BUILDING (0.1%)
280 Centex Corp. 7.875 02/01/11 332,116
220 Pulte Homes, Inc. 6.375 05/15/33 216,817
---------------
548,933
---------------
HOME FURNISHINGS (0.0%)
290 Mohawk Industries Inc. 7.20 04/15/12 332,133
---------------
HOSPITAL/NURSING MANAGEMENT (0.2%)
1,950 Manor Care, Inc. 8.00 03/01/08 2,232,750
---------------
HOTELS/RESORTS/CRUISELINES (0.1%)
510 Hyatt Equities LLC - 144A** 6.875 06/15/07 548,966
835 Marriott International, Inc. (Series E) 7.00 01/15/08 940,673
---------------
1,489,639
---------------
INDUSTRIAL CONGLOMERATES (0.1%)
610 Honeywell International, Inc. 6.125 11/01/11 677,320
335 Hutchison Whampoa International
Ltd. - 144A** (Virgin Islands) 6.50 02/13/13 351,866
245 Hutchison Whampoa International
Ltd. - 144A** (Virgin Islands) 5.45 11/24/10 249,535
---------------
1,278,721
---------------
INFORMATION TECHNOLOGY SERVICES (0.0%)
180 Electronic Data Systems Corp. 7.125 10/15/09 198,059
260 Electronic Data Systems Corp. 6.00 08/01/13 261,755
---------------
459,814
---------------
INTEGRATED OIL (0.1%)
395 Amerada Hess Corp. 7.875 10/01/29 442,774
830 Conoco Inc. 6.95 04/15/29 962,214
---------------
1,404,988
---------------
INVESTMENT BANKS/BROKERS (0.1%)
320 Goldman Sachs Group Inc. 5.25 10/15/13 325,396
640 Goldman Sachs Group Inc. 6.60 01/15/12 722,025
395 Goldman Sachs Group Inc. 6.875 01/15/11 451,639
---------------
1,499,060
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
LIFE/HEALTH INSURANCE (0.2%)
$ 1,005 American General Corp. 7.50% 07/15/25 $ 1,225,230
760 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 767,041
---------------
1,992,271
---------------
MAJOR BANKS (0.1%)
195 Bank of New York (The) 5.20 07/01/07 209,460
275 Bank One Corp. 6.00 02/17/09 303,210
485 Fleetboston Financial Corp. 7.25 09/15/05 526,514
---------------
1,039,184
---------------
MAJOR TELECOMMUNICATIONS (0.3%)
420 AT&T Corp. 8.75 11/15/31 492,810
600 Deutsche Telekom International Finance Corp.
(Netherlands) 8.75 06/15/30 763,240
1,345 GTE Corp. 6.94 04/15/28 1,432,734
150 Sprint Capital Corp. 8.75 03/15/32 182,814
345 Telecom Italia Capital SpA - 144A** (Italy) 4.00 11/15/08 344,492
---------------
3,216,090
---------------
MANAGED HEALTH CARE (0.2%)
920 Aetna, Inc. 7.875 03/01/11 1,096,858
225 Cigna Corp. 6.375 10/15/11 247,414
530 Wellpoint Health Network, Inc. 6.375 06/15/06 576,400
---------------
1,920,672
---------------
MEDIA CONGLOMERATES (0.1%)
190 AOL Time Warner Inc. 7.70 05/01/32 221,633
310 Time Warner, Inc. 6.625 05/15/29 320,026
---------------
541,659
---------------
MOTOR VEHICLES (0.3%)
645 DaimlerChrysler North American Holdings Co. 7.30 01/15/12 725,906
630 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 756,573
325 Ford Motor Co. 6.625 10/01/28 303,717
1,315 Ford Motor Co. 7.45 07/16/31 1,338,953
---------------
3,125,149
---------------
MULTI-LINE INSURANCE (0.3%)
1,355 Farmers Exchange Capital - 144A** 7.05 07/15/28 1,317,208
95 Hartford Financial Services Group, Inc. 2.375 06/01/06 94,845
900 Hartford Financial Services Group, Inc. 7.90 06/15/10 1,076,111
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
$ 295 Nationwide Mutual Insurance Co. - 144A** 7.50% 02/15/24 $ 304,649
1,090 Nationwide Mutual Insurance Co. - 144A** 8.25 12/01/31 1,331,351
---------------
4,124,164
---------------
OIL & GAS PIPELINES (0.0%)
240 Texas Eastern Transmission, L.P. 7.00 07/15/32 266,716
---------------
OIL & GAS PRODUCTION (0.2%)
125 Kerr-McGee Corp. 5.875 09/15/06 134,463
165 Kerr-McGee Corp. 6.875 09/15/11 184,921
385 Kerr-McGee Corp. 7.875 09/15/31 452,755
345 Nexen Inc. (Canada) 5.05 11/20/13 346,138
145 Pemex Project Funding Master Trust 7.375 12/15/14 155,875
430 Pemex Project Funding Master Trust 8.00 11/15/11 488,050
560 Pemex Project Funding Master Trust 8.625 02/01/22 621,600
145 Pemex Project Funding Master Trust 9.125 10/13/10 174,362
70 Petro-Canada (Canada) 4.00 07/15/13 65,501
280 Petro-Canada (Canada) 5.35 07/15/33 256,958
---------------
2,880,623
---------------
OIL REFINING/MARKETING (0.0%)
315 Marathon Oil Corp. 6.80 03/15/32 344,670
---------------
OTHER CONSUMER SERVICES (0.0%)
100 Cendant Corp. 7.125 03/15/15 114,213
270 Cendant Corp. 7.375 01/15/13 312,920
---------------
427,133
---------------
OTHER METALS/MINERALS (0.1%)
355 BHP Billiton Finance (Australia) 4.80 04/15/13 360,788
580 Inco Ltd. (Canada) 7.20 09/15/32 666,229
190 Inco Ltd. (Canada) 7.75 05/15/12 227,692
---------------
1,254,709
---------------
PHARMACEUTICALS: MAJOR (0.0%)
235 Schering-Plough Corp. 5.30 12/01/13 241,579
---------------
PUBLISHING: NEWSPAPERS (0.1%)
1,250 News America Holdings, Inc. 7.75 12/01/45 1,495,646
---------------
PULP & PAPER (0.1%)
385 International Paper Co. 4.25 01/15/09 389,336
305 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 338,325
---------------
727,661
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT (0.1%)
$ 1,520 World Financial Properties - 144A** 6.91% 09/01/13 $ 1,697,812
---------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
770 EOP Operating LP 6.763 06/15/07 854,763
95 Rouse Co. (The) 5.375 11/26/13 95,947
305 Simon Property Group LP 6.375 11/15/07 337,895
375 Vornado Realty Trust 5.625 06/15/07 402,319
---------------
1,690,924
---------------
SAVINGS BANKS (0.0%)
470 Washington Mutual, Inc. 5.50 01/15/13 490,389
---------------
SERVICES TO THE HEALTH INDUSTRY (0.1%)
650 Anthem Insurance Companies, Inc. - 144A** 9.125 04/01/10 823,038
---------------
TOBACCO (0.1%)
260 Altria Group, Inc. 7.00 11/04/13 283,402
360 Altria Group, Inc. 7.75 01/15/27 397,899
---------------
681,301
---------------
WIRELESS TELECOMMUNICATIONS (0.0%)
250 AT&T Wireless - Services Inc. 8.75 03/01/31 317,948
---------------
TOTAL CORPORATE BONDS
(COST $72,019,865) 78,429,616
---------------
ASSET-BACKED SECURITIES (1.0%)
FINANCE/RENTAL/LEASING
2,300 American Express Credit Account 5.53 10/15/08 2,461,458
2,960 Chase Credit Card Master Trust 5.50 11/17/08 3,183,296
2,230 Citibank Credit Issuance Trust 6.90 10/15/07 2,413,944
488 Harley-Davidson Motorcycle Trust 2002-1 3.02 09/15/06 490,066
1,550 MBNA Master Credit Card Trust 5.90 08/15/11 1,716,921
1,800 Nissan Auto Receivables Owner Trust 4.80 02/15/07 1,837,149
---------------
ASSET-BACKED SECURITIES
(COST $11,403,108) 12,102,834
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE BACKED SECURITIES (5.2%)
Federal Home Loan Mortgage Corp. Gold
$ 7,727 6.50% 07/01/29 - 12/01/32 $ 8,118,815
485 7.50 01/01/30 - 08/01/32 521,265
21 8.00 07/01/30 22,822
Federal Home Loan Mortgage Corp.
2,080 5.125 11/07/13 2,090,098
2,834 7.50 11/01/29 - 05/01/32 3,043,405
Federal National Mortgage Assoc.
3,425 7.00 + 3,633,711
600 7.50 + 641,813
22,402 6.50 08/01/32 - 02/01/33 23,516,226
5,944 7.00 12/01/17 - 02/01/33 6,308,222
7,243 7.50 07/01/29 - 02/01/32 7,747,787
9,525 8.00 05/01/09 - 02/01/32 10,286,090
---------------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE BACKED SECURITIES
(COST $62,989,433) 65,930,254
---------------
U.S. GOVERNMENT OBLIGATIONS (14.4%)
250 U.S. Treasury Bond 5.50 08/15/28 264,815
750 U.S. Treasury Bond 6.125 08/15/29 863,995
5,550 U.S. Treasury Bond 8.125 08/15/19 7,588,760
9,900 U.S. Treasury Bond 8.125 08/15/21 13,676,315
150,000 U.S. Treasury Note 3.625 05/15/13 145,517,700
3,500 U.S. Treasury Note 3.875 02/15/13 3,457,755
4,500 U.S. Treasury Note 3.50 11/15/06 4,652,757
4,850 U.S. Treasury Note 6.50 02/15/10 5,654,989
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $179,304,378) 181,677,086
---------------
SHORT-TERM INVESTMENTS (2.3%)
U.S. GOVERNMENT OBLIGATIONS (a) (0.1%)
500 U.S. Treasury Bill *** 1.00 03/25/04 499,250
400 U.S. Treasury Bill *** 0.945 07/15/04 398,278
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $897,531) 897,528
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (2.2%)
$ 27,869 Joint repurchase agreement account
(dated 01/30/04; proceeds $27,869,790) (b)
(COST $27,869,000) 1.02% 02/02/04 $ 27,869,000
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $28,766,531) 28,766,528
---------------
TOTAL INVESTMENTS
(COST $1,002,989,561) (c) (d) 100.1% 1,260,170,020
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (1,354,652)
----- ---------------
NET ASSETS 100.0% $ 1,258,815,368
===== ===============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
FSA FINANCIAL SECURITY ASSURANCE INC.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH
OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $897,528.
+ SECURITIES 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.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS 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 A AMOUNT EQUAL TO
$16,632,245 IN CONNECTION WITH SECURITIES PURCHASED ON A FORWARD
COMMITMENT BASIS AND 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 $292,829,228 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $35,648,769, RESULTING IN NET UNREALIZED APPRECIATION
OF $257,180,459.
FUTURES CONTRACTS OPEN AT JANUARY 31, 2004:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------
10 Long U.S. Treasury Note, 5 Year $ 1,123,281 $ 8,723
March 2004
109 Short U.S. Treasury Note, 10 Year (12,364,688) (226,292)
March 2004
--------------
Net unrealized depreciation $ (217,569)
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
MORGAN STANLEY STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2004 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $1,002,989,561) $ 1,260,170,020
Receivable for:
Interest 3,674,504
Shares of beneficial interest sold 1,131,680
Dividends 981,310
Investments sold 483,499
Foreign withholding taxes reclaimed 10,042
Prepaid expenses and other assets 53,088
---------------
TOTAL ASSETS 1,266,504,143
---------------
LIABILITIES:
Payable for:
Investments purchased 4,276,544
Shares of beneficial interest redeemed 1,564,953
Distribution fee 980,362
Investment management fee 600,995
Accrued expenses and other payables 265,921
---------------
TOTAL LIABILITIES 7,688,775
---------------
NET ASSETS $ 1,258,815,368
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,239,337,094
Net unrealized appreciation 256,964,531
Dividends in excess of net investment income (726,954)
Accumulated net realized loss (236,759,303)
---------------
NET ASSETS $ 1,258,815,368
===============
CLASS A SHARES:
Net Assets $ 60,816,385
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,668,256
NET ASSET VALUE PER SHARE $ 16.58
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 17.50
===============
CLASS B SHARES:
Net Assets $ 1,089,068,425
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 65,623,802
NET ASSET VALUE PER SHARE $ 16.60
===============
CLASS C SHARES:
Net Assets $ 43,264,707
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,620,186
NET ASSET VALUE PER SHARE $ 16.51
===============
CLASS D SHARES:
Net Assets $ 65,665,851
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,956,159
NET ASSET VALUE PER SHARE $ 16.60
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2004 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 7,523,070
Dividends (net of $40,273 foreign withholding tax) 5,299,526
---------------
TOTAL INCOME 12,822,596
---------------
EXPENSES
Distribution fee (Class A shares) 72,244
Distribution fee (Class B shares) 5,358,444
Distribution fee (Class C shares) 203,250
Investment management fee 3,461,998
Transfer agent fees and expenses 781,826
Shareholder reports and notices 57,003
Registration fees 36,660
Custodian fees 32,079
Professional fees 24,440
Trustees' fees and expenses 8,779
Other 22,330
---------------
TOTAL EXPENSES 10,059,053
---------------
NET INVESTMENT INCOME 2,763,543
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN ON:
Investments 43,734,064
Futures contracts 400,674
---------------
NET REALIZED LOSS 44,134,738
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 103,944,234
Futures contracts (1,164,313)
---------------
NET APPRECIATION 102,779,921
---------------
NET GAIN 146,914,659
---------------
NET INCREASE $ 149,678,202
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------- ---------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 2,763,543 $ 2,985,852
Net realized gain (loss) 44,134,738 (66,373,339)
Net change in unrealized appreciation 102,779,921 158,848,307
---------------- ---------------
NET INCREASE 149,678,202 95,460,820
---------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (346,012) (867,122)
Class B shares (2,380,270) (4,004,321)
Class C shares (96,660) (103,363)
Class D shares (457,155) (806,241)
---------------- ---------------
TOTAL DIVIDENDS (3,280,097) (5,781,047)
---------------- ---------------
Net decrease from transactions in shares of beneficial interest (81,126,328) (284,302,141)
---------------- ---------------
NET INCREASE (DECREASE) 65,271,777 (194,622,368)
NET ASSETS:
Beginning of period 1,193,543,591 1,388,165,959
---------------- ---------------
END OF PERIOD
(Including dividends in excess of net investment income of
$726,954 and $210,400, respectively) $ 1,258,815,368 $ 1,193,543,591
================ ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
MORGAN STANLEY STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (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 non-diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund seeks to achieve its objective by
actively allocating its assets among major asset categories of equity and
fixed-income securities and money market instruments. 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 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 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) 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. 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 Manager
21
<Page>
using a pricing service and/or procedures approved by the Trustees of the Fund;
(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.
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. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency
22
<Page>
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.
F. 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.
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.
I. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $1
billion but not exceeding $1.5 billion; 0.475% to the portion of daily net
assets exceeding $1.5 billion but not exceeding $2 billion; 0.45% to the portion
of daily net assets exceeding $2 billion but not exceeding $3 billion; and
0.425% to the portion of daily net assets in excess of $3 billion.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued
23
<Page>
daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25%
of the average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B shares since the
inception of the Plan on November 8, 1989 (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Plan's inception upon which
a contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the Plan's inception; 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
$20,170,047 at January 31, 2004.
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 six months ended January 31, 2004, 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,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $2,224, $536,330
and $2,742, respectively and received $73,521 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/maturities/prepayments of
portfolio securities, excluding short-term investments, for the six months ended
January 31, 2004 aggregated $278,215,261, and $389,918,518, respectively.
Included in the aforementioned are purchases and sales/maturities/prepayments of
U.S. Government securities of $148,516,015 and $173,425,016, respectively.
24
<Page>
For the six months ended January 31, 2004, the Fund incurred brokerage
commissions of $59,875 with Morgan Stanley & Co., Inc. an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At January 31, 2004, the Fund had transfer agent fees
and expenses payable of approximately $43,000.
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.
Aggregate pension costs for the year ended January 31, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $4,812.
At January 31, 2004, the Fund had an accrued pension liability of $77,021 which
is included in accrued expenses in the Statement of Assets and Liabilities.
On December 2, 2003, the Trustees voted to close the plan to new participants,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Trustees
throughout the year.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities. The Fund may
invest in futures with respect to financial instruments and interest rate
indexes ("futures contracts").
Forward contracts and futures 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 the 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.
25
<Page>
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2004 JULY 31, 2003
------------------------------- -------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 510,281 $ 8,018,557 1,845,888 $ 24,260,526
Reinvestment of dividends 20,947 326,598 44,688 590,931
Redeemed (529,075) (8,318,460) (4,032,753) (52,770,954)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A 2,153 26,695 (2,142,177) (27,919,497)
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 3,052,920 47,542,267 5,788,543 78,164,128
Reinvestment of dividends 132,824 2,078,118 267,210 3,508,089
Redeemed (8,284,588) (129,516,874) (25,138,244) (334,420,291)
-------------- -------------- -------------- --------------
Net decrease -- Class B (5,098,844) (79,896,489) (19,082,491) (252,748,074)
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 383,731 5,913,136 594,700 7,963,172
Reinvestment of dividends 5,634 87,677 7,120 93,720
Redeemed (248,961) (3,913,575) (701,340) (9,319,392)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class C 140,404 2,087,238 (99,520) (1,262,500)
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 301,181 4,723,714 609,164 8,132,406
Reinvestment of dividends 27,209 424,685 56,139 745,232
Redeemed (541,342) (8,492,171) (839,347) (11,249,708)
-------------- -------------- -------------- --------------
Net decrease -- Class D (212,952) (3,343,772) (174,044) (2,372,070)
-------------- -------------- -------------- --------------
Net decrease in Fund (5,169,239) $ (81,126,328) (21,498,232) $ (284,302,141)
============== ============== ============== ==============
</Table>
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, 2003, the Fund had a net capital loss carryforward of
$271,186,519 of which $16,425,882 will expire on July 31, 2009, $158,335,545
will expire on July 31, 2010 and $96,425,092 will expire on July 31, 2011 to
offset future capital gains to the extent provided by regulations.
26
<Page>
As of July 31, 2003, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and straddles,
mark-to-market of open futures contracts and book amortization of premiums on
debt securities.
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Manager and certain affiliates of the Investment Manager allegedly offered
economic incentives to brokers and others to steer investors to the funds
advised by the Investment Manager or its affiliates rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Manager or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters is not
presently determinable at this early stage of the litigation, and no provision
has been made in the Fund's financial statements for the effect, if any, of
these matters.
27
<Page>
Morgan Stanley Strategist Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ---------------------------------------------------------
JANUARY 31, 2004 2003 2002 2001 2000 1999
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.72 $ 13.53 $ 16.43 $ 20.64 $ 20.16 $ 20.23
--------------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.09 0.14 0.22 0.44 0.44 0.32
Net realized and unrealized gain (loss) 1.86 1.21 (2.84) (1.55) 2.16 1.46
--------------- --------- --------- --------- --------- ---------
Total income (loss) from investment operations 1.95 1.35 (2.62) (1.11) 2.60 1.78
--------------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.09) (0.16) (0.28) (0.50) (0.37) (0.32)
Net realized gain - - - (2.60) (1.75) (1.53)
--------------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.09) (0.16) (0.28) (3.10) (2.12) (1.85)
--------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 16.58 $ 14.72 $ 13.53 $ 16.43 $ 20.64 $ 20.16
=============== ========= ========= ========= ========= =========
TOTAL RETURN+ 13.31%(1) 10.11% (16.14)% (6.24)% 13.48% 10.01%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.97%(2) 0.93% 0.88% 0.85% 0.88% 0.87%
Net investment income 1.11%(2) 0.95% 1.44% 2.41% 2.06% 1.66%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 60,816 $ 53,951 $ 78,583 $ 116,383 $ 110,600 $ 64,418
Portfolio turnover rate 23%(1) 124% 164% 136% 187% 121%
</Table>
- ----------
++ 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
28
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ---------------------------------------------------------
JANUARY 31, 2004 2003 2002 2001 2000 1999
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.73 $ 13.54 $ 16.43 $ 20.65 $ 20.16 $ 20.23
--------------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.03 0.02 0.10 0.30 0.29 0.19
Net realized and unrealized gain (loss) 1.88 1.22 (2.84) (1.57) 2.18 1.46
--------------- --------- --------- --------- --------- ---------
Total income (loss) from investment operations 1.91 1.24 (2.74) (1.27) 2.47 1.65
--------------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.04) (0.05) (0.15) (0.35) (0.23) (0.19)
Net realized gain - - - (2.60) (1.75) (1.53)
--------------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.04) (0.05) (0.15) (2.95) (1.98) (1.72)
--------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 16.60 $ 14.73 $ 13.54 $ 16.43 $ 20.65 $ 20.16
=============== ========= ========= ========= ========= =========
TOTAL RETURN+ 12.95%(1) 9.20% (16.77)% (7.05)% 12.79% 9.23%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.72%(2) 1.73% 1.67% 1.63% 1.53% 1.57%
Net investment income 0.36%(2) 0.15% 0.64% 1.63% 1.41% 0.96%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 1,089 $ 1,042 $ 1,216 $ 1,827 $ 2,044 $ 1,834
Portfolio turnover rate 23%(1) 124% 164% 136% 187% 121%
</Table>
- ----------
++ 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
29
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ---------------------------------------------------------
JANUARY 31, 2004 2003 2002 2001 2000 1999
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.66 $ 13.46 $ 16.36 $ 20.57 $ 20.11 $ 20.19
--------------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss)++ 0.03 0.03 0.10 0.29 0.29 0.16
Net realized and unrealized gain (loss) 1.86 1.21 (2.83) (1.55) 2.15 1.47
--------------- --------- --------- --------- --------- ---------
Total income (loss) from investment operations 1.89 1.24 (2.73) (1.26) 2.44 1.63
--------------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.04) (0.04) (0.17) (0.35) (0.23) (0.18)
Net realized gain - - - (2.60) (1.75) (1.53)
--------------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.04) (0.04) (0.17) (2.95) (1.98) (1.71)
--------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 16.51 $ 14.66 $ 13.46 $ 16.36 $ 20.57 $ 20.11
=============== ========= ========= ========= ========= =========
TOTAL RETURN+ 12.89%(1) 9.09% (16.70)% (7.00)% 12.62% 9.15%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.72%(2) 1.73% 1.67% 1.63% 1.63% 1.65%
Net investment income 0.36%(2) 0.15% 0.64% 1.63% 1.31% 0.88%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 43,265 $ 36,351 $ 34,727 $ 45,612 $ 39,006 $ 16,147
Portfolio turnover rate 23%(1) 124% 164% 136% 187% 121%
</Table>
- ----------
++ 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
30
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ---------------------------------------------------------
JANUARY 31, 2004 2003 2002 2001 2000 1999
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.73 $ 13.55 $ 16.45 $ 20.67 $ 20.18 $ 20.25
--------------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.11 0.16 0.26 0.48 0.48 0.37
Net realized and unrealized gain (loss) 1.87 1.21 (2.85) (1.56) 2.18 1.45
--------------- --------- --------- --------- --------- ---------
Total income (loss) from investment operations 1.98 1.37 (2.59) (1.08) 2.66 1.82
--------------- --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.11) (0.19) (0.31) (0.54) (0.42) (0.36)
Net realized gain - - - (2.60) (1.75) (1.53)
--------------- --------- --------- --------- --------- ---------
Total dividends and distributions (0.11) (0.19) (0.31) (3.14) (2.17) (1.89)
--------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 16.60 $ 14.73 $ 13.55 $ 16.45 $ 20.67 $ 20.18
=============== ========= ========= ========= ========= =========
TOTAL RETURN+ 13.51%(1) 10.25% (15.94)% (6.07)% 13.79% 10.23%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.72%(2) 0.73% 0.67% 0.63% 0.63% 0.65%
Net investment income 1.36%(2) 1.15% 1.64% 2.63% 2.31% 1.88%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 65,666 $ 61,423 $ 58,834 $ 81,594 $ 80,925 $ 72,554
Portfolio turnover rate 23%(1) 124% 164% 136% 187% 121%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
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 J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT 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) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
38585RPT-00-13917C04-AP-3/04
MORGAN STANLEY FUNDS
[GRAPHIC]
MORGAN STANLEY STRATEGIST FUND
SEMIANNUAL REPORT
JANUARY 31, 2004
[MORGAN STANLEY LOGO]
<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.
<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 Strategist Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 19, 2004
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
March 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 19, 2004