<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: 811-07117
Morgan Stanley Limited Duration 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: April 30, 2005
Date of reporting period: October 31, 2004
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY LIMITED
DURATION 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 months ended October 31, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED OCTOBER 31, 2004
<Table>
<Caption>
MORGAN STANLEY LEHMAN BROTHERS LIPPER SHORT
LIMITED DURATION 1-5 YEAR INVESTMENT GRADE
FUND U.S. CREDIT INDEX(1) BOND FUNDS INDEX(2)
0.85% 2.38% 1.35%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE
INFORMATION.
MARKET CONDITIONS
The six-month period under review began on a positive note following stronger
than expected payroll gains reported in April. While that month was otherwise
uneventful in the bond market, the Federal Open Market Committee (the "Fed")
publicly laid the groundwork at its meeting for future interest-rate increases
on May 4, 2004.
The Fed went on to raise rates at its June as well as subsequent meetings,
bringing the overnight federal funds rate to 1.75 percent by the end of the
period. Despite these changes, however, continued softness in the economy pushed
yields on intermediate and longer-maturity securities lower in the third and
into the fourth quarter of 2004. The market's concerns were fueled by continued
weakness in employment growth, steady rises in oil prices and uncertainty over
the outcome of the U.S. presidential election.
Against this mixed backdrop, performance varied over the major segments of the
fixed income market. U.S. Treasury securities lagged other parts of the market
thanks to their high sensitivity to fluctuating interest rates and their
relatively low yields. Mortgage-backed securities (MBS) lagged as interest rates
declined during the period. Corporate bonds turned in the best performance of
any major market sector, led by lower-quality securities. Paper, energy and
industrials were the best-performing industries within the corporate bond
market, reflecting investors' general interest in economically sensitive
industries.
PERFORMANCE ANALYSIS
Morgan Stanley Limited Duration Fund underperformed both the Lehman Brothers 1-5
Year U.S. Credit Index and the Lipper Short Investment Grade Bond Funds Index
for the six months ended October 31, 2004. While rates were volatile during the
period, they largely ended the six-month period lower than where they began. As
a result, two of the Fund's key strategies that tend to outperform in
rising-rate environments exerted a drag on its performance.
The first of these strategies was to keep the Fund's duration*, or interest-rate
sensitivity, below that of its benchmark. This approach was based on the fact
that interest rates at the start of the period were at historic lows and thus
had more likelihood of rising than falling. While yields did move higher at
points during the period, the net decline over the course of the period caused
the strategy to detract from performance. Performance was also hampered by the
Fund's emphasis on higher-coupon MBS, which tend to underperform in periods when
overall yields decline.
Several of the Fund's other strategies were more beneficial to its returns. The
Fund's below-benchmark position in agency securities helped limit the adverse
effects of the ongoing fallout from the accounting scandal at the Federal
National Mortgage Association (FNMA). The Fund also gained from its emphasis on
outperforming industries within the corporate sector; its holdings of industrial
and energy bonds were particularly helpful.
2
<Page>
* A MEASURE OF THE SENSITIVITY OF A BOND'S PRICE TO CHANGES IN INTEREST RATES,
EXPRESSED IN YEARS. EACH YEAR OF DURATION REPRESENTS AN EXPECTED 1 PERCENT
CHANGE IN THE PRICE OF A BOND FOR EVERY 1 PERCENT CHANGE IN INTEREST RATES. THE
LONGER A BOND'S DURATION, THE GREATER THE EFFECT OF INTEREST-RATE MOVEMENTS ON
ITS PRICE. TYPICALLY, FUNDS WITH SHORTER DURATIONS PERFORM BETTER IN
RISING-INTEREST-RATE ENVIRONMENTS, WHILE FUNDS WITH LONGER DURATIONS PERFORM
BETTER WHEN RATES DECLINE.
THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM
WELL OR BE HELD BY THE FUND IN THE FUTURE.
PORTFOLIO COMPOSITION
<Table>
Corporate Bonds 41.9%
Mortgage-Backed Securities 19.5
Asset-Backed Securities 18.5
U.S. Government Agencies -- Bonds 11.8
Short-Term Investments 3.8
U.S. Treasury Notes 1.7
U.S. Govt. Agencies -- CMOs 1.4
Foreign Government Bonds 1.4
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
Aaa/AAA 56.6%
Aa/AA 10.0
A/A 18.4
Baa/BBB 14.9
Ba/BB 0.1
</Table>
DATA AS OF OCTOBER 31, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR
PORTFOLIO COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS. ALL PERCENTAGES
FOR LONG-TERM CREDIT ANALYSIS ARE AS A PERCENTAGE OF TOTAL LONG-TERM
INVESTMENTS. THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE DEEMED A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN
STANLEY IS A FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND
BROKERAGE ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND
FINANCIAL ADVISORY SERVICES.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 65 PERCENT OF ITS ASSETS IN SECURITIES
ISSUED OR GUARANTEED AS TO PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES (INCLUDING ZERO COUPON SECURITIES), INVESTMENT
GRADE MORTGAGE-BACKED SECURITIES, INCLUDING COLLATERALIZED MORTGAGE OBLIGATIONS,
AND INVESTMENT GRADE CORPORATE AND OTHER TYPES OF BONDS. IN SELECTING PORTFOLIO
INVESTMENTS TO PURCHASE OR SELL, THE "INVESTMENT MANAGER," MORGAN STANLEY
INVESTMENT ADVISORS INC., CONSIDERS DOMESTIC AND INTERNATIONAL ECONOMIC
DEVELOPMENTS, INTEREST RATE LEVELS, THE STEEPNESS OF THE YIELD CURVE AND OTHER
FACTORS, AND SEEKS TO MAINTAIN AN OVERALL AVERAGE DURATION FOR THE FUND'S
PORTFOLIO OF THREE YEARS OR LESS.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY
3
<Page>
ACCESSING THE SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO REVIEW AND COPY
THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE
OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC
AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT
OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(publicinfo@sec.gov) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER
FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
12-MONTH PERIOD ENDED OCTOBER 31, 2004, IS AVAILABLE WITHOUT CHARGE, UPON
REQUEST, BY CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR
WEB SITE AT www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE
SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov.
4
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED OCTOBER 31, 2004
<Table>
<Caption>
(SINCE 01/10/94)
SYMBOL MSLDX
1 YEAR 1.55%(3)
5 YEARS 4.48(3)
10 YEARS 5.23(3)
SINCE INCEPTION 4.81(3)
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. THE TABLE DOES NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES.
(1) THE LEHMAN BROTHERS U.S. CREDIT INDEX (1-5 YEAR) INCLUDES U.S. CORPORATE
AND SPECIFIED FOREIGN DEBENTURES AND SECURED NOTES WITH MATURITIES OF ONE
TO FIVE YEARS. 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 SHORT INVESTMENT GRADE BOND FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER SHORT INVESTMENT GRADE BOND 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.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS. THERE IS NO SALES
CHARGES.
5
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 05/01/04 - 10/31/04.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs, and will not help you determine the relative total cost
of owning different funds that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
05/01/04 -
05/01/04 10/31/04 10/31/04
------------- ------------- ---------------
Actual (0.85% return) $ 1,000.00 $ 1,008.50 $ 3.85
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.37 $ 3.87
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.76%
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
6
<Page>
MORGAN STANLEY LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (43.5%)
AEROSPACE & DEFENSE (0.7%)
$ 435 Lockheed Martin Corp. 8.20% 12/01/09 $ 519,022
615 Mcdonnell Douglas Corp. 6.875 11/01/06 659,981
465 Northrop Grumman Corp. 4.079 11/16/06 473,470
965 Raytheon Co. 4.85 01/15/11 1,000,962
180 Raytheon Co. 6.75 08/15/07 196,736
385 Raytheon Co. 8.30 03/01/10 462,288
--------------
3,312,459
--------------
AIR FREIGHT/COURIERS (0.2%)
770 FedEx Corp. 2.65 04/01/07 760,957
--------------
AIRLINES (0.1%)
615 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 641,053
--------------
AUTO PARTS: O.E.M. (0.2%)
745 Johnson Controls, Inc. 5.00 11/15/06 774,709
--------------
BEVERAGES: ALCOHOLIC (0.2%)
880 Miller Brewing Co. - 144A* 4.25 08/15/08 898,621
--------------
BROADCASTING (0.3%)
1,275 Clear Channel Communications, Inc. 7.65 09/15/10 1,460,180
--------------
BUILDING PRODUCTS (0.2%)
275 Masco Corp. 4.625 08/15/07 283,265
795 Masco Corp. 6.75 03/15/06 838,820
--------------
1,122,085
--------------
CABLE/SATELLITE TV (0.6%)
1,120 Comcast Cable Communications, Inc. 6.875 06/15/09 1,254,198
705 Comcast Corp. 5.85 01/15/10 759,090
350 Cox Communications Inc. 7.75 08/15/06 377,515
300 TCI Communications, Inc. 8.00 08/01/05 311,538
--------------
2,702,341
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.1%)
390 ICI Wilmington Inc. 4.375 12/01/08 394,490
--------------
CONTAINERS/PACKAGING (0.1%)
205 Sealed Air Corp. - 144A* 6.95 05/15/09 227,913
--------------
DEPARTMENT STORES (0.9%)
160 Federated Department Stores, Inc. 6.30 04/01/09 174,571
1,740 Federated Department Stores, Inc. 6.625 09/01/08 1,918,602
430 May Department Stores Co., Inc. 6.875 11/01/05 447,056
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 1,600 May Department Stores Co., Inc. - 144A* 3.95% 07/15/07 $ 1,617,542
--------------
4,157,771
--------------
DISCOUNT STORES (0.7%)
2,605 Target Corp. 5.95 05/15/06 2,738,509
310 Target Corp. 7.50 02/15/05 314,345
--------------
3,052,854
--------------
DRUGSTORE CHAINS (0.4%)
135 CVS Corp. 3.875 11/01/07 137,361
1,455 CVS Corp. 5.625 03/15/06 1,509,827
--------------
1,647,188
--------------
ELECTRIC UTILITIES (2.8%)
815 Appalachian Power Co. (Series G) 3.60 05/15/08 812,984
1,400 Columbus Southern Power Co. 4.40 12/01/10 1,404,031
2,985 Consolidated Natural Gas Co. (Series B) 5.375 11/01/06 3,120,131
475 Duke Energy Corp. 3.75 03/05/08 479,068
735 Duke Energy Corp. 4.50 04/01/10 753,022
485 Entergy Gulf States, Inc. 3.60 06/01/08 481,487
690 Exelon Corp. 6.75 05/01/11 778,494
1,530 Pacific Gas & Electric Co. 3.60 03/01/09 1,520,551
235 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 231,056
2,725 Public Service Electric & Gas Co. 1.695 06/23/06 2,724,229
360 Wisconsin Electric Power Co. 4.50 05/15/13 360,146
--------------
12,665,199
--------------
ELECTRICAL PRODUCTS (0.2%)
680 Cooper Industries Inc. 5.25 07/01/07 714,394
--------------
ENVIRONMENTAL SERVICES (0.1%)
510 WMX Technologies, Inc. 7.00 10/15/06 547,546
--------------
FINANCE/RENTAL/LEASING (2.6%)
1,350 American Honda Finance Corp. - 144A* 3.85 11/06/08 1,363,460
1,300 CIT Group Inc. 1.92 11/04/05 1,302,786
545 CIT Group Inc. 2.875 09/29/06 543,039
1,035 CIT Group Inc. 6.50 02/07/06 1,082,176
1,325 CIT Group Inc. 7.375 04/02/07 1,452,037
1,640 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 1,612,120
1,845 Ford Motor Credit Co. 6.875 02/01/06 1,918,774
500 International Lease Finance Corp. 3.75 08/01/07 503,802
305 MBNA America Bank NA 7.75 09/15/05 317,027
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 1,535 MBNA Corp. 6.125% 03/01/13 $ 1,663,831
--------------
11,759,052
--------------
FINANCIAL CONGLOMERATES (6.2%)
440 Bank One Corp. (Series MTNA) 6.00 02/17/09 476,546
1,300 Bank One NA Illinois 1.80 05/05/06 1,302,344
1,390 Bank One NA Illinois 5.50 03/26/07 1,467,380
145 Chase Manhattan Corp. 7.00 11/15/09 164,471
410 Chase Manhattan Corp. 6.00 02/15/09 443,771
750 Citicorp 6.375 11/15/08 825,950
585 Citicorp 6.75 08/15/05 604,270
2,505 Citigroup Global Markets 1.98 12/12/06 2,505,579
835 Citigroup Inc. 5.50 08/09/06 873,260
1,205 Citigroup Inc. 5.75 05/10/06 1,259,244
2,215 General Electric Capital Corp. 4.25 12/01/10 2,239,053
2,550 General Electric Capital Corp. 5.375 03/15/07 2,684,148
2,225 General Motors Acceptance Corp. 4.50 07/15/06 2,258,913
2,870 General Motors Acceptance Corp. 6.125 08/28/07 2,995,511
1,150 Ing Security Life Institutional - 144A* 2.70 02/15/07 1,135,554
420 Household Finance Corp. 4.125 12/15/08 426,764
435 Household Finance Corp. 5.875 02/01/09 470,871
1,360 Household Finance Corp. 6.40 06/17/08 1,490,578
820 JP Morgan Chase & Co. 5.25 05/30/07 860,515
1,475 Pricoa Global Funding I - 144A* 3.90 12/15/08 1,468,768
1,470 Prudential Funding LLC
(Series MTN) - 144A* 6.60 05/15/08 1,621,501
860 Prudential Insurance Co. - 144A* 6.375 07/23/06 914,536
--------------
28,489,527
--------------
FOOD RETAIL (1.3%)
900 Albertson's, Inc. 7.50 02/15/11 1,051,708
2,510 Kroger Co. 7.625 09/15/06 2,711,997
2,318 Safeway Inc. 6.15 03/01/06 2,415,085
--------------
6,178,790
--------------
FOOD: MAJOR DIVERSIFIED (0.9%)
325 General Mills Inc. 3.875 11/30/07 329,790
730 Kraft Foods Inc. 4.00 10/01/08 738,811
1,790 Kraft Foods Inc. 5.25 06/01/07 1,876,110
1,275 Conagra Foods, Inc. 6.00 09/15/06 1,343,197
--------------
4,287,908
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS (0.8%)
$ 460 Weyerhaeuser Co. 6.125% 03/15/07 $ 490,771
2,620 Weyerhaeuser Co. 6.75 03/15/12 2,969,594
--------------
3,460,365
--------------
GAS DISTRIBUTORS (0.0%)
176 Ras Laffan Liquid Natural Gas Co.
Ltd. - 144A* (Qatar) 7.628 09/15/06 185,900
--------------
HOME BUILDING (0.1%)
240 Centex Corp. 9.75 06/15/05 249,136
--------------
HOME FURNISHINGS (0.1%)
630 Mohawk Industries, Inc. (Class C) 6.50 04/15/07 674,042
--------------
HOME IMPROVEMENT CHAINS (0.1%)
565 Lowe's Companies, Inc. 7.50 12/15/05 595,716
--------------
HOTELS/RESORTS/CRUISELINES (0.6%)
795 Hyatt Equities LLC - 144A* 6.875 06/15/07 849,315
1,385 Marriott International, Inc. (Series D) 8.125 04/01/05 1,415,046
130 Marriott International, Inc. (Series E) 7.00 01/15/08 142,188
295 Starwood Hotels & Resorts Worldwide, Inc. 7.375 05/01/07 318,969
--------------
2,725,518
--------------
INDUSTRIAL CONGLOMERATES (0.6%)
1,990 Honeywell International, Inc. 5.125 11/01/06 2,072,985
715 Honeywell International, Inc. 6.875 10/03/05 741,491
--------------
2,814,476
--------------
INSURANCE BROKERS/SERVICES (0.5%)
2,235 Marsh & McLennan Companies Inc. 5.375 03/15/07 2,286,403
--------------
INTEGRATED OIL (0.7%)
1,210 Amerada Hess Corp. 6.65 08/15/11 1,353,951
1,728 Conoco Funding Co. (Canada) 5.45 10/15/06 1,810,595
--------------
3,164,546
--------------
INVESTMENT BANKS/BROKERS (1.3%)
2,370 Goldman Sachs Group Inc. 4.125 01/15/08 2,426,205
3,222 Lehman Brothers Holdings, Inc. 8.25 06/15/07 3,630,775
--------------
6,056,980
--------------
INVESTMENT MANAGERS (1.4%)
5,030 TIAA Global Markets - 144A* 3.875 01/22/08 5,105,450
1,045 TIAA Global Markets - 144A* 5.00 03/01/07 1,087,487
--------------
6,192,937
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
LIFE/HEALTH INSURANCE (2.2%)
$ 3,895 Genworth Financial, Inc. 2.03% 06/15/07 $ 3,881,652
2,025 John Hancock Financial Services, Inc. 5.625 12/01/08 2,167,890
635 John Hancock Global Funding II - 144A* 5.625 06/27/06 662,466
460 John Hancock Global Funding II - 144A* 7.90 07/02/10 546,451
495 Monumental Global Funding II - 144A* 3.85 03/03/08 505,733
2,125 Monumental Global Funding II - 144A* 6.05 01/19/06 2,213,831
--------------
9,978,023
--------------
MAJOR BANKS (4.3%)
1,815 ABN Amro Bank (Netherlands) 1.25 05/11/07 1,819,381
2,640 Bank of America Corp. 3.375 02/17/09 2,614,542
485 Bank of America Corp. 3.875 01/15/08 493,420
765 Bank of America Corp. 4.75 10/15/06 792,244
80 Bank of America Corp. 5.25 02/01/07 83,878
400 Bank of New York Co., Inc. (The) 5.20 07/01/07 420,899
3,405 Branch Banking & Trust Corp. 1.732 06/04/07 3,408,126
1,050 FleetBoston Financial Corp. 7.25 09/15/05 1,091,505
820 Huntington National Bank 2.75 10/16/06 817,048
1,260 Key Bank NA 7.125 08/15/06 1,351,305
2,000 Suntrust Bank Atlanta 7.25 09/15/06 2,157,036
520 Wachovia Corp. 3.625 02/17/09 519,365
1,240 Wachovia Corp. 4.95 11/01/06 1,289,472
1,500 Wachovia Corp. 6.875 09/15/05 1,553,790
1,165 Wells Fargo Co. 1.427 03/03/06 1,166,890
--------------
19,578,901
--------------
MAJOR TELECOMMUNICATIONS (1.7%)
1,360 Deutsche Telekom International
Finance Corp. (Netherlands) 8.50 06/15/10 1,640,353
1,925 GTE Corp. 6.36 04/15/06 2,021,706
535 Telecom Italia Capital (Italy) 4.00 11/15/08 539,060
1,040 Verizon Global Funding Corp. 6.125 06/15/07 1,115,868
2,000 Verizon Global Funding Corp. 7.25 12/01/10 2,335,802
--------------
7,652,789
--------------
MANAGED HEALTH CARE (1.6%)
870 Aetna, Inc. 7.375 03/01/06 917,407
1,140 Aetna, Inc. 7.875 03/01/11 1,323,456
515 Anthem Insurance Companies, Inc. - 144A* 9.125 04/01/10 630,533
1,245 Anthem, Inc. 4.875 08/01/05 1,259,716
680 UnitedHealth Group Inc. 4.125 08/15/09 685,551
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 1,590 UnitedHealth Group Inc. 7.50% 11/15/05 $ 1,659,791
965 Wellpoint Health Network, Inc. 6.375 06/15/06 1,013,279
--------------
7,489,733
--------------
MEDIA CONGLOMERATES (0.9%)
945 News America Inc. 4.75 03/15/10 973,537
620 News America Inc. 6.625 01/09/08 679,010
1,990 Time Warner, Inc. 6.125 04/15/06 2,081,056
480 Time Warner, Inc. 6.15 05/01/07 513,748
--------------
4,247,351
--------------
MOTOR VEHICLES (0.4%)
750 DaimlerChrysler North American
Holdings Co. 4.05 06/04/08 755,683
1,215 DaimlerChrysler North American
Holdings Co. 6.40 05/15/06 1,277,922
--------------
2,033,605
--------------
MULTI-LINE INSURANCE (1.2%)
1,780 American General Finance Corp.
(Series MTNF) 5.875 07/14/06 1,866,820
825 American General Finance Corp.
(Series MTNH) 4.625 09/01/10 837,126
250 Equitable Life Assurance Society - 144A* 6.95 12/01/05 260,781
480 Hartford Financial Services Group, Inc. 2.375 06/01/06 472,833
1,420 Hartford Financial Services Group, Inc. 7.75 06/15/05 1,460,027
345 Hartford Financial Services Group, Inc. 7.90 06/15/10 404,970
--------------
5,302,557
--------------
OIL & GAS PRODUCTION (0.5%)
500 Kerr-McGee Corp. 5.875 09/15/06 523,946
985 Kerr-McGee Corp. 6.875 09/15/11 1,120,376
735 Nexen Inc. (Canada) 5.05 11/20/13 739,011
--------------
2,383,333
--------------
OIL REFINING/MARKETING (0.5%)
660 Ashland Inc. (Series MTNJ) 7.83 08/15/05 685,627
1,355 Marathon Oil Corp. 5.375 06/01/07 1,426,002
--------------
2,111,629
--------------
OTHER CONSUMER SERVICES (0.2%)
950 Cendant Corp. 6.25 01/15/08 1,025,953
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS (0.3%)
$ 995 Inco Ltd. (Canada) 7.75% 05/15/12 $ 1,185,233
--------------
PROPERTY - CASUALTY INSURERS (0.6%)
1,365 Allstate Finance Global Funding II - 144A* 2.625 10/22/06 1,352,790
1,545 Mantis Reef Ltd. - 144A* (Australia) 4.692 11/14/08 1,554,951
--------------
2,907,741
--------------
PULP & PAPER (0.5%)
820 International Paper Co. 3.80 04/01/08 822,139
805 MeadWestvaco Corp. 2.75 12/01/05 805,916
685 Sappi Papier Holdings AG - 144A*
(Austria) 6.75 06/15/12 759,928
--------------
2,387,983
--------------
RAILROADS (0.7%)
300 CSX Corp. 2.75 02/15/06 299,235
180 CSX Corp. 9.00 08/15/06 198,019
315 Norfolk Southern Corp. 7.35 05/15/07 344,503
400 Union Pacific Corp. 3.625 06/01/10 388,768
1,710 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 1,863,279
--------------
3,093,804
--------------
REAL ESTATE DEVELOPMENT (0.8%)
2,705 World Financial Properties - 144A* 6.91 09/01/13 3,028,833
435 World Financial Properties - 144A* 6.95 09/01/13 487,969
--------------
3,516,802
--------------
REAL ESTATE INVESTMENT TRUSTS (0.8%)
2,495 EOP Operating LP 6.763 06/15/07 2,693,996
415 EOP Operating LP 8.375 03/15/06 444,553
465 Rouse Co. (The) 3.625 03/15/09 434,194
--------------
3,572,743
--------------
REGIONAL BANKS (0.4%)
1,190 US Bancorp 5.10 07/15/07 1,247,018
740 US Bank NA 2.85 11/15/06 739,914
--------------
1,986,932
--------------
SAVINGS BANKS (0.5%)
215 Household Finance Corp. 6.375 10/15/11 240,138
395 Household Finance Corp. 6.75 05/15/11 447,400
355 Washington Mutual Inc. 7.50 08/15/06 382,738
1,215 Washington Mutual Inc. 8.25 04/01/10 1,444,314
--------------
2,514,590
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
TOBACCO (0.2%)
$ 600 Altria Group Inc. 5.625% 11/04/08 $ 614,122
450 Altria Group Inc. 7.65 07/01/08 490,139
--------------
1,104,261
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.2%)
1,100 John Deere Capital Corp. 3.375 10/01/07 1,102,025
--------------
TOTAL CORPORATE BONDS
(COST $197,803,977) 199,377,044
--------------
U.S. GOVERNMENT AGENCIES -- MORTGAGE-BACKED SECURITIES (20.2%)
255 Federal Home Loan Mortgage Corp.
PC Gold 6.50 03/01/29 - 09/01/29 268,243
2,600 Federal Home Loan Mortgage Corp.
PC Gold 6.50 *** 2,732,438
2,686 Federal Home Loan Mortgage Corp. 7.50 01/01/23 - 07/01/32 2,884,710
5,167 Federal Home Loan Mortgage Corp.
PC Gold 7.50 01/01/30 - 12/31/32 5,547,852
1,536 Federal Home Loan Mortgage Corp. ARM 3.63 07/01/34 1,539,546
2,495 Federal Home Loan Mortgage Corp. ARM 4.182 08/01/34 2,510,858
17,883 Federal National Mortgage Assoc. 6.50 02/01/28 - 01/01/33 18,843,664
9,280 Federal National Mortgage Assoc. 6.50 *** 9,758,500
19,044 Federal National Mortgage Assoc. 7.00 07/01/25 - 12/01/33 20,240,020
1,350 Federal National Mortgage Assoc. 7.00 *** 1,433,531
3,612 Federal National Mortgage Assoc. 7.50 09/01/29 - 09/01/32 3,873,704
11,550 Federal National Mortgage Assoc. 7.50 *** 12,369,328
923 Federal National Mortgage Assoc. ARM 3.797 06/01/34 924,282
1,710 Federal National Mortgage Assoc. ARM 3.725 07/01/34 1,712,029
2,397 Federal National Mortgage Assoc. ARM 4.111 09/01/34 2,424,353
2,188 Government National Mortgage Assoc. 3.375 06/20/22 - 05/20/23 2,209,444
2,000 Government National Mortgage Assoc. 3.50 08/20/29 2,012,751
869 Government National Mortgage Assoc. 4.00 09/20/29 878,642
521 Government National Mortgage Assoc. 4.625 10/20/24 - 12/20/24 530,356
--------------
TOTAL U.S. GOVERNMENT AGENCIES -- MORTGAGED-BACKED SECURITIES
(COST $92,126,200) 92,694,251
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (19.3%)
FINANCE/RENTAL/LEASING
$ 2,100 American Express Credit Account Master
Trust 2001-2A 5.53% 10/15/08 $ 2,181,766
2,600 American Express Credit Account Master
Trust 2003-4 A 1.69 01/15/09 2,557,355
2,000 Americredit Automoblie Receivables
Trust 2004-BM A3 2.07 08/06/08 1,976,587
1,150 BMW Vehicle Owner Trust 2002-2A4 4.46 05/25/07 1,161,519
1,500 Capital Auto Receivables Asset
Trust 2002-3A 3.58 10/16/06 1,512,594
1,200 Capital Auto Receivables Asset
Trust 2002-2A 4.50 10/15/07 1,212,540
2,700 Chase Credit Card Master
Trust 2001-4 A 5.50 11/17/08 2,820,051
1,400 Chase Manhattan Auto Owner
Trust 2002B 4.21 01/15/09 1,418,923
1,055 Chase Manhattan Auto Owner
Trust 2002A 4.24 09/15/08 1,066,118
4,000 Chase Manhattan Auto Owner
Trust 2003-C A4 2.94 06/15/10 3,989,888
3,600 Chase Manhattan Auto Owners
Trust 2004-A A4 2.83 09/15/10 3,565,732
2,200 Citibank Credit Card Issuance
Trust 2000-A1 A1 6.90 10/15/07 2,291,337
2,275 Citibank Credit Card Issuance Trust 2002A 4.40 05/15/07 2,300,959
1,700 Citibank Credit Card Issuance
Trust 2003-A2 2.70 01/15/08 1,701,971
260 Connecticut RRB Special Purpose
Trust CL&P-1 5.36 03/30/07 262,228
1,200 Daimler Chrysler Auto Trust 2002-A A4 4.49 10/06/08 1,215,793
2,650 Daimler Chrysler Auto Trust 2002-C A4 3.09 01/08/08 2,664,843
2,600 Daimler Chrysler Auto Trust 2003-B A4 2.86 03/09/09 2,593,331
3,700 Daimler Chrysler Auto Trust 2004-A A4 2.58 04/08/09 3,659,254
2,500 Fleet Credit Card Master Trust II 2002-C 2.75 04/15/08 2,506,297
158 Ford Credit Auto Owner Trust 2002-B A3A 4.14 12/15/05 158,071
375 Ford Credit Auto Owner Trust 2002-B A4 4.75 08/15/06 380,386
2,250 Ford Credit Auto Owner Trust 2002-C A4 3.79 09/15/06 2,268,548
2,000 Ford Credit Auto Owner Trust 2002-D 3.13 11/15/06 2,010,252
1,400 Harley-Davidson Motorcycle Trust 2002-2 3.09 06/15/10 1,407,220
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
$ 1,639 Harley-Davidson Motorcycle
Trust 2002-1 A2 4.50% 01/15/10 $ 1,671,107
1,500 Harley-Davidson Motorcycle Trust 2003-1 2.63 11/15/10 1,500,586
3,300 Harley-Davidson Motorcycle
Trust 2003-3 A2 2.76 05/15/11 3,294,840
8 Honda Auto Receivables Owner
Trust 2002-1 3.50 10/17/05 7,880
1,500 Honda Auto Receivables Owner
Trust 2002-4A 2.70 03/17/08 1,500,527
2,000 Honda Auto Receivables Owner
Trust 2003-1 2.48 07/18/08 1,994,761
3,800 Honda Auto Receivables Owner
Trust 2003-3 A4 2.77 11/21/08 3,793,496
88 Household Automotive Trust 2001-3 A3 3.68 04/17/06 88,435
1,100 Hyundai Auto Receivables Trust 2003-A A3 2.33 11/15/07 1,095,539
1,000 MBNA Credit Card Master Trust 1997-JA 3.90 11/15/07 1,009,735
3,500 MBNA Credit Card Master
Trust 2004-A4 A4 2.70 09/15/09 3,471,977
54 National City Auto Trust 2002-A 4.04 07/15/06 54,365
233 Nissan Auto Receivables Owner
Trust 2001-C A4 4.80 02/15/07 233,956
900 Nissan Auto Receivables Owner
Trust 2002B 4.60 09/17/07 910,410
3,500 Nissan Auto Receivables Owner
Trust 2003-A A4 2.61 07/15/08 3,489,392
2,900 Nissan Auto Receivables Owner
Trust 2004-A A4 2.76 07/15/09 2,868,637
650 Nordstrom Private Label Credit Card Master
Trust 2001-1A A - 144A* 4.82 04/15/10 672,998
3,700 USAA Auto Owner Trust 2004-1 A4 2.67 10/15/10 3,663,123
1,152 Volkswagen Auto Lease Trust 2002-A 2.36 12/20/05 1,153,442
4,000 Whole Auto Loan Trust 2003-1 A4 2.58 03/15/10 3,969,668
3,000 William Street Funding Corp.
2003-1 A - 144A* 1.95 04/23/06 3,005,850
--------------
ASSET-BACKED SECURITIES
(COST $88,969,999) 88,334,287
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- BONDS (12.3%)
$ 26,160 Federal Home Loan Mortgage Corp. 2.75% 08/15/06 $ 26,181,845
30,000 Federal Home Loan Mortgage Corp. 2.875 05/15/07 29,977,980
--------------
TOTAL U.S. GOVERNMENT AGENCIES -- BONDS
(COST $55,864,406) 56,159,825
--------------
8,000 U.S. TREASURY NOTE (1.7%)
(COST $8,023,711) 7.875 11/15/07 8,020,320
--------------
U.S. GOVERNMENT AGENCIES -- COLLATERALIZED MORTGAGE OBLIGATIONS (1.5%)
2,476 Federal Home Loan Mortgage Corp. 5.50 02/15/12 2,506,688
4,140 Federal National Mortgage Assoc. 5.50 07/25/16 4,154,126
--------------
TOTAL U.S. GOVERNMENT AGENCIES -- COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $7,026,996) 6,660,814
--------------
FOREIGN GOVERNMENT OBLIGATIONS (1.4%)
935 Quebec Province (Canada) 5.50 04/11/06 972,684
1,285 Quebec Province (Canada) 6.125 01/22/11 1,434,323
2,640 United Mexican States (Mexico) 8.375 01/14/11 3,121,800
945 United Mexican States (Mexico) 8.625 03/12/08 1,085,333
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $6,501,173) 6,614,140
--------------
SHORT-TERM INVESTMENTS (4.0%)
U.S. GOVERNMENT OBLIGATIONS (a) (0.2%)
200 U.S. Treasury Bill** 1.645 01/13/05 199,359
700 U.S. Treasury Bill** 1.895 03/24/05 694,797
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $893,972) 894,156
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.8%)
$ 17,188 Joint repurchase agreement account
(dated 10/29/04; proceeds $17,190,635) (b)
(COST $17,188,000) 1.84% 11/01/04 $ 17,188,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $18,081,972) 18,082,156
--------------
TOTAL INVESTMENTS
(COST $474,398,434) (c)(d) 103.9% 475,942,837
LIABILITIES IN EXCESS OF OTHER ASSETS (3.9) (17,841,255)
----- --------------
NET ASSETS 100.0% $ 458,101,582
===== ==============
</Table>
- ----------
PC PARTICIPATION CERTIFICATE.
ARM ADJUSTABLE RATE MORTGAGE.
* RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
** A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $631,250.
*** SECURITY 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 AN AMOUNT EQUAL TO
$130,276,162, 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 $2,462,019 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $917,616, RESULTING IN NET UNREALIZED APPRECIATION OF
$1,544,403.
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2004:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
11 Long U.S. Treasury Notes 2 Year, $ 2,329,422 $ 5,600
December 2004
73 Short U.S. Treasury Notes 5 Year, (8,068,781) (2,038)
March 2005
627 Short U.S. Treasury Notes 5 Year, (69,832,125) (958,890)
December 2004
28 Short U.S. Treasury Notes 10 Year, (3,162,688) (1,983)
March 2005
200 Short U.S. Treasury Notes 10 Year, (22,712,500) (424,587)
December 2004
------------
Net unrealized depreciation $ (1,381,898)
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
MORGAN STANLEY LIMITED DURATION FUND
SUMMARY OF INVESTMENTS - OCTOBER 31, 2004 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -------------------------------------------------------------------------------
U.S. Government & Agencies $ 164,429,366 35.9%
Finance/Rental/Leasing 100,093,339 21.9
Financial Conglomerates 28,489,527 6.2
Major Banks 19,578,901 4.3
Repurchase Agreement 17,188,000 3.8
Electric Utilities 12,665,199 2.8
Life/Health Insurance 9,978,023 2.2
Major Telecommunications 7,652,789 1.7
Managed Health Care 7,489,733 1.6
Foreign Government Obligations 6,614,140 1.4
Investment Managers 6,192,937 1.4
Food Retail 6,178,790 1.3
Investment Banks/Brokers 6,056,980 1.3
Multi-Line Insurance 5,302,557 1.2
Food: Major Diversified 4,287,908 0.9
Media Conglomerates 4,247,351 0.9
Department Stores 4,157,771 0.9
Real Estate Investment Trusts 3,572,743 0.8
Real Estate Development 3,516,802 0.8
Forest Products 3,460,365 0.8
Aerospace & Defense 3,312,459 0.7
Integrated Oil 3,164,546 0.7
Railroads 3,093,804 0.7
Discount Stores 3,052,854 0.7
Property - Casualty Insurers 2,907,741 0.6
Industrial Conglomerates 2,814,476 0.6
Hotels/Resorts/Cruiselines 2,725,518 0.6
Cable/Satellite TV 2,702,341 0.6
Savings Banks 2,514,590 0.5
Pulp & Paper 2,387,983 0.5
Oil & Gas Production 2,383,333 0.5
Insurance Brokers/Services 2,286,403 0.5
Oil Refining/Marketing 2,111,629 0.5
Motor Vehicles 2,033,605 0.4
Regional Banks 1,986,932 0.4
Drugstore Chains 1,647,188 0.4
Broadcasting 1,460,180 0.3
Other Metals/Minerals 1,185,233 0.3
Building Products $ 1,122,085 0.2%
Tobacco 1,104,261 0.2
Trucks/Construction/Farm Machinery 1,102,025 0.2
Other Consumer Services 1,025,953 0.2
Beverages: Alcoholic 898,621 0.2
Auto Parts: O.E.M 774,709 0.2
Air Freight/Couriers 760,957 0.2
Electrical Products 714,394 0.2
Home Furnishings 674,042 0.1
Airlines 641,053 0.1
Home Improvement Chains 595,716 0.1
Environmental Services 547,546 0.1
Chemicals: Major Diversified 394,490 0.1
Home Building 249,136 0.1
Containers/Packaging 227,913 0.1
Gas Distributors 185,900 0.0
-------------- --------------
$ 475,942,837* 103.9%
============== ==============
</Table>
- ----------
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT
OF $2,329,422 AND UNREALIZED APPRECIATION OF $5,600 AND OPEN SHORT FUTURES
CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $103,776,094 AND UNREALIZED
DEPRECIATION OF $1,387,498.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
MORGAN STANLEY LIMITED DURATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $474,398,434) $ 475,942,837
Receivable for:
Interest 4,334,178
Shares of beneficial interest sold 4,252,199
Investments sold 1,454,623
Principal paydowns 31,625
Prepaid expenses and other assets 32,941
--------------
TOTAL ASSETS 486,048,403
--------------
LIABILITIES:
Payable for:
Investments purchased 26,288,255
Shares of beneficial interest redeemed 1,029,077
Variation margin 238,948
Investment management fee 232,792
Dividends to shareholders 93,996
Accrued expenses and other payables 63,753
--------------
TOTAL LIABILITIES 27,946,821
--------------
NET ASSETS $ 458,101,582
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 479,496,415
Net unrealized appreciation 162,504
Dividends in excess of net investment income (7,435,169)
Accumulated net realized loss (14,122,168)
--------------
NET ASSETS $ 458,101,582
==============
NET ASSET VALUE PER SHARE,
49,215,826 shares outstanding (unlimited shares authorized of $.01 par value) $ 9.31
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2004 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INTEREST INCOME $ 7,561,124
--------------
EXPENSES
Investment management fee 1,386,509
Transfer agent fees and expenses 205,004
Registration fees 43,601
Shareholder reports and notices 33,464
Custodian fees 32,914
Professional fees 31,265
Trustees' fees and expenses 2,960
Other 18,490
--------------
TOTAL EXPENSES 1,754,207
Less: expense offset (28,977)
--------------
NET EXPENSES 1,725,230
--------------
NET INVESTMENT INCOME 5,835,894
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED LOSS ON:
Investments (53,409)
Futures contracts (318,523)
--------------
NET REALIZED LOSS (371,932)
--------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 1,611,145
Futures contracts (3,336,608)
--------------
NET DEPRECIATION (1,725,463)
--------------
NET LOSS (2,097,395)
--------------
NET INCREASE $ 3,738,499
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 2004 APRIL 30, 2004
---------------- ----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,835,894 $ 9,161,533
Net realized loss (371,932) (590,555)
Net change in unrealized depreciation (1,725,463) (3,241,210)
---------------- ----------------
NET INCREASE 3,738,499 5,329,768
Dividends to shareholders from net investment income (8,734,233) (19,730,822)
Net increase (decrease) from transactions in shares of beneficial interest (25,311,330) 73,400,520
---------------- ----------------
NET INCREASE (DECREASE) (30,307,064) 58,999,466
NET ASSETS:
Beginning of period 488,408,646 429,409,180
---------------- ----------------
END OF PERIOD
(Including dividends in excess of net investment income of
$7,435,169 and $4,536,830, respectively) $ 458,101,582 $ 488,408,646
================ ================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
MORGAN STANLEY LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Limited Duration Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income consistent with the preservation of capital. The
Fund was organized as a Massachusetts business trust on October 22, 1993 and
commenced operations on January 10, 1994.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) certain portfolio securities may be valued by
an outside pricing service approved by the Fund's Trustees (2) 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; (3)
futures are valued at the latest price published by the commodities exchange on
which they trade; (4) when market quotations are not readily available or Morgan
Stanley Investment Advisors Inc. (the "Investment Manager") determines that the
market quotations are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's
Trustees; and (5) 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.
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. 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
23
<Page>
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.
E. 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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. 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 as of the close
of each business day: 0.60% to the portion of the daily net assets not exceeding
$1 billion; 0.55% to the portion of daily net assets exceeding $1 billion but
not exceeding $2 billion and 0.50% to the portion of daily net assets exceeding
$2 billion.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended October
31, 2004 were $238,234,393, and $290,629,735, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $193,749,857 and $225,732,453, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Fund's
transfer agent. At October 31, 2004, the Fund had transfer agent fees and
expenses payable of approximately $7,800.
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Trustee to defer payment
of all, or a portion, of the fees he receives for serving on the Board of
Trustees. Each eligible Trustee generally may elect to have the deferred amounts
credited with a return equal to the total return on one or more of the Morgan
Stanley funds that are offered as investment options under the Compensation
Plan. Appreciation/depreciation
24
<Page>
and distributions received from these investments are recorded with an
offsetting increase/decrease in the deferred compensation obligation and do not
affect the net asset value of the Fund.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 2004 APRIL 30, 2004
-------------------------------- --------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
Sold 9,603,130 $ 89,626,508 48,705,797 $ 466,638,947
Reinvestment of dividends 707,643 6,598,612 1,560,045 14,878,957
-------------- -------------- -------------- --------------
10,310,773 96,225,120 50,265,842 481,517,904
Redeemed (13,014,813) (121,536,450) (42,728,082) (408,117,384)
-------------- -------------- -------------- --------------
Net increase (decrease) (2,704,040) $ (25,311,330) 7,537,760 $ 73,400,520
============== ============== ============== ==============
</Table>
5. 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 April 30, 2004, the Fund had a net capital loss carryforward of
$7,680,764 of which $151,743 will expire on April 30, 2005, $1,656,930 will
expire on April 30, 2006, $20,504 will expire on April 30, 2007, $51,242 will
expire on April 30, 2008, $2,035,052 will expire on April 30, 2009, $1,582,163
will expire on April 30, 2011 and $2,183,130 will expire on April 30, 2012 to
offset future capital gains to the extent provided by regulations.
The Fund obtained a net capital loss carryforward which currently amounts to
$2,030,677 from prior year fund acquisitions. Utilization of this carryforward
is subject to limitations imposed by the Internal Revenue Code and Treasury
Regulations, reducing the total carryforward available.
As of April 30, 2004, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to
25
<Page>
arise on the first business day of the Fund's next taxable year, )and book
amortization of premiums on debt securities.
6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate and market risks on portfolio positions
or anticipated positions in U.S. Government securities, the Fund may enter into
interest rate futures contracts ("futures contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement and Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the value of the underlying securities. Risk may
also arise upon entering into contracts from the potential inability of the
counterparties to meet the terms of their contracts.
7. EXPENSE OFFSET
The expense offset represents a reduction of the custodians fees for earnings on
cash balances maintained by the Fund.
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges 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 recommend the funds advised by the Investment Manager or its
affiliates to investors 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
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants have moved to dismiss the action and intend to otherwise
vigorously defend it. While the Fund believes that it has meritorious defenses,
the ultimate outcome of this matter 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 this matter.
26
<Page>
MORGAN STANLEY LIMITED DURATION 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 APRIL 30,
MONTHS ENDED -------------------------------------------------------------------------
OCTOBER 31, 2004 2004 2003 2002 2001 2000
---------------- --------- --------- --------- --------- ---------
(UNAUDITED)
SELECTED PER SHARE DATA:
Net asset value,
beginning of period $ 9.41 $ 9.68 $ 9.59 $ 9.44 $ 9.20 $ 9.49
---------------- --------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment income 0.12 0.17 0.24 0.41 0.55 0.51
Net realized and
unrealized gain (loss) (0.04) (0.07) 0.13 0.19 0.24 (0.29)
---------------- --------- --------- --------- --------- ---------
Total income from
investment operations 0.08 0.10 0.37 0.60 0.79 0.22
---------------- --------- --------- --------- --------- ---------
Less dividends from
net investment income (0.18) (0.37) (0.28) (0.45) (0.55) (0.51)
---------------- --------- --------- --------- --------- ---------
Net asset value,
end of period $ 9.31 $ 9.41 $ 9.68 $ 9.59 $ 9.44 $ 9.20
================ ========= ========= ========= ========= =========
TOTAL RETURN+ 0.85%(1) 0.99% 3.93% 6.50% 8.82% 2.36%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.76%(2)(4) 0.85%(4) 0.84%(3) 0.80%(3) 0.80%(3) 0.80%(3)
Net investment income 2.53%(2) 1.75% 1.90% 3.94% 5.87% 5.43%
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands $ 458,102 $ 488,409 $ 429,409 $ 166,631 $ 109,917 $ 118,694
Portfolio turnover rate 52%(1) 240% 217% 327% 133% 71%
</Table>
- ----------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS
WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
------------ ----- ------------
APRIL 30, 2003 0.87% 1.86%
APRIL 30, 2002 0.92 3.82
APRIL 30, 2001 0.92 5.75
APRIL 30, 2000 0.90 5.33
</Table>
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
27
<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
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Joseph J. McAlinden
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
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 REGISTERED PUBLIC ACCOUNTING FIRM
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]
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
LIMITED DURATION FUND
SEMIANNUAL REPORT
OCTOBER 31, 2004
[MORGAN STANLEY LOGO]
3788ORPT-RA-04-00893P-Y10/04
<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.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10 - 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,
<Page>
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, based upon such officers'
evaluation of these controls and procedures as of a date within 90 days of the
filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the 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 11 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 Limited Duration Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 14, 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
December 14, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 14, 2004